big data; the race is on, but what is the end goal? · agenda 2. icf proprietary and confidential....

icf.com/aviation

1 9 S e p t e m b e r 2 0 1 8

Big data; the race is on, but what is the end goal?

Joost GroenenboomPrincipal

ICF proprietary and confidential. Do not copy, distribute, or disclose.

MRO trends

Digital landscape

Latest developments

SummaryAgenda

2


MRO trends

3


Global airline industry achieved a record profitability of $38B USD in 2017, but this is forecast to decrease to $33.8B in 2018

4Source: ICF/IATA analysis

-$30

-$20

-$10

$0

$10

$20

$30

$40

Europe, $8.6B

Africa, -$0.1B

North America, $15.0B

Asia Pacific, $8.2B

Middle East, $1.3B

Latin America, $0.9B

Glo

bal

air

lin

e

pro

fita

bilit

y


…but many areas continue to struggle although North America has been a bright spot and was leading the way in 2017

5Source: ICF/IATA analysis

-1.8%

-4.7%

0.1%

2.3%

1.0%

-0.9%

3.4%4.7%

0.7%1.5%

3.0%

-0.4%

12.9%

5.2%

4.5%

2.9%

0.7%

-3.6%-5%

0%

5%

10%

15% 2008

2012

2017

Glo

bal

EB

IT m

arg

in

by r

eg

ion


Traffic growth, driven by low fuel prices, is slowly reversing as 2018 has shown YTD growth of ~6.0%

6Source: EIA; IATA

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Ja

n-1

0

Ja

n-1

1

Ja

n-1

2

Ja

n-1

3

Ja

n-1

4

Ja

n-1

5

Ja

n-1

6

Ja

n-1

7

Ja

n-1

8

Air traffic growth rates increased from 5% annually to >7.5% …

… but YTD growth limited at 6.0%

Fuel prices

declined

~50% Fuel edging back up

Jet fuel spot

price

($ per gallon)

Air traffic annual

growth rate


Commercial aircraft OEM production backlog remains at historical highs

Backlog more than doubled

between 2010 and 2014, driven by: Emerging market growth

Very low interest rates and plentiful capital

High oil and commodity prices

Introduction of new technology aircraft/engines

In 2017, total backlog decreased for

the first time since 2009 as

deliveries ramp-up and orders

slowdown

7Source: CAPA, ICF Analysis

0

5

10

15

20

25

30

35

40

45

50

55

6015.000

0

5.000

10.000

2014

2003

2016

2010

2013

2005

2002

2009

2004

2006

2007

2008

2011

2012

2015

2017

Backlog % of fleet

Order backlog


The current commercial air transport fleet consists of ~29,100 aircraft; ~8,500 are located in North America

8Source: ICF analysis

55%

19%

13%

13%

Widebody Jet

Regional Jet

Narrowbody Jet

Turboprop

~29,100

Aircraft

29%

29%

24%

7%

5%5%

Europe

Africa

North AmericaSouth America

Asia Pacific

Middle East

~29,100

Aircraft

By Aircraft Type By Region


The combination of strong air travel demand and the need to replace ageing aircraft will drive fleet growth at a healthy 3.1% p.a.


1,360 1,910 2,561

1,5862,745 3,3283,025

3,8227,087

9,10410,094

8,495

9,156

9,5928,449

13,704

17,481

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Fleet count

2017 2027 2037

29,093

39,644

46,878

2,116

APAC

North America

Europe

Middle East

Latin America

Africa


2017 commercial air transport MRO demand is $75.5B; Asia is now larger than North America and Europe in market size


42%

21%

17%

13%

8%

Engines

Components

Line

Airframe

Modifications

30%

27%

26%

8%

6%4%

Middle East

North America

Asia Pacific

Africa

Europe

South America

$75.5B$75.5B

By MRO Segment By Region


The global MRO market is expected to grow by 4.6% per annum to ~$118B by 2027


40

80

0

20

60

140

120

100

2017 2037

$USD

(Billion)

42%

8%

21%

17%

13%

45%

2027

20%

15%

12%

8%

46%

$75,5B

20%

$117,9B

14%

11%

8%

$140,0BEngine

Component

Line

AHM

Modfications


Asia continues to grow strongly and will generate 38% of MRO demand by 2037


80

0

140

20

40

100

60

120

18%

38%

7%

$140,0B

23%

$USD

(Billion)

31%

26%

25%

8%6%

2017

5%4%

36%

19%

11%

2027

21%

7%

10%

2037

$75,5B

$117,9B

4%

South America

Asia Pacific

North America

Europe

Middle East

Africa


North American MRO spend exhibits marginal growth, increasing by 1.7% per annum to $22.9B by 2027


0

5

10

15

20

25

$USD

(Billion)

2017 2027

0,8

2037

2,0

7,1

19,3

2,93,0

6,0

0,7

9,6

22,9

7,0

13,3

24,6

0,6

14,0 Turboprop

Narrowbody Jet

Widebody Jet

Regional Jet


Digital landscape

14


For the past three years, the digital race has accelerated in the MRO world across all type of players

2017

AnalytX

BOEING

Avasio

2015

2015

Digital

Collaboration

Centre in Dubai

2015

Analytics

Division

Prognos

2016

2017

United

Technologies

Digital Division

Digital Solutions

2017

Skywise

2017

Availability

Centre

2017

EngineWise

2017

2017

FlightPulse

2017

Aviatar

Predictive

Maintenance

Partnership

2018

2017

R2 Data Labs

2018

FlightSense

Source: ICF


Several airlines are seeing the first tangible benefits of their aircraft health monitoring trials

16Source: ICF research and company information

Delta achieved a 100% completion

factor for 241 days in 2017, with a 98%

reduction in maintenance-related

cancellations

Results of Delta’s Predictive Maintenance approach

Drop in maintenance-related cancellations of…

Southwest to install AHM on complete 737 NG

fleet to improve performance

Avoided Engine Events

1,000(over 1-year timespan)

Cancellation reduction

98%(over 2010 – 2016)

31 Events

31 instances of Skywise correctly predicting faults

before they occurred in service, allowing the

carrier to intervene and remove components

before they failed

easyJet 51% reduction

Cathay Pacific reduced APU-related delay minutes by 51%

using Honeywell’s predictive maintenance trial program

Cathay Pacific


There are nine primary phases within aircraft operations

17

Fuel 21% Employees 26%MRO10%

Airport & En-route14%

Aircraft lease3%

Depr. and amort.6%

Selling expenses4%

Others 16%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Airline Operating Costs

~$500B

Flight Planning ($0.6B)

Pre-Take Off ($46B)

Departure Taxi ($97B)

Arrival ($20B)

Maintenance ($68B)

Approach ($79B)

Post Flight ($0.2B)

En-route ($171B)

Landing ($20B)

Source: ICF analysis


…the level of digitization across the nine categories varies

18

Key More digitised Less digitised

~$500B

Maintenance

($68B) Departure ($46B)

Departure Taxi ($97B)

En-route ($171B)

Arrival ($20B)

Post Flight ($0.2B)

Flight Planning ($0.6B)

Landing ($20B)Approach ($79B)



\\

In 2027 the air transport fleet will have approximately 17,000 “new technology” aircraft

19

Source: ICF, excludes Turboprops

Note: Next-Gen Include: 737MAX, 747-8, 777X, 787(8,9,10), MoM,

A319neo, A320neo, A321 neo, A330neo, A350, C919, CSeries, Embraer

E2s, SSJ100, MRJ90

877

1,402

47

637

2017 Fleet 2027 Fleet 2017 Next-Gen

2027 Next-Gen

CAGR

29.8%

Africa

1,527

2,591

119

1,486


2027 Next-Gen

CAGR

28.7%

Middle East7,465

8,084

178

3,741


2027 Next-Gen

CAGR

35.6%

North America

1,651

2,527

126

1,366


2027 Next-Gen

CAGR

26.9%

South America

6,263

8,237

363

4,267


2027 Next-Gen

CAGR

27.9%

Europe

7,466

12,411

541

6,915


2027 Next-Gen

CAGR

29.0%

Asia Pacific


Approximately 24,000 aircraft will be equipped with AHM by 2027

20

AHM adoption,

2017 – 2027 CAGR

Transmittable data

(Mb/flight)

New generation aircraft generate much more

data compared to older types

As data becomes increasingly useful to

improve maintenance, the adoption of Aircraft

Health Monitoring is expected to grow

ICF expects ~24,000 aircraft will be equipped

with Aircraft Health Monitoring by 2027 of

which 17,000 are new technology aircraft

This is driving a digitisation of aircraft

operations, which will see high growth in the

adoption of e-enabled services and further

advances in health management

0

10.000

20.000

40.000

30.000~29k

~9k~17k

2017

# of Aircraft

2022

~24k

2027

~35k~39k

28Mb787

777 1Mb

Limited AHM

AHM



AHM can be viewed as a subset of data management value chain….

21

Acquisition & Synthesis

Trans-mission

Storage AnalysisMRO

PlanningMRO Action

Records Keeping

Troubleshoot while the

aircraft is in flight or after

it lands

Customise maintenance

program to prevent

unscheduled downtime

Diagnostic Prognostic

Aircraft Health Management goes beyond

predicting and replacing components, it

incorporates flight operations and helps

airlines in fleet and inventory management

Diagnostics Prognostics

Determining

whether the

component is

performing its

function

Predicting the

remaining life of

a component

Aircraft Health Monitoring is inferring the state

of the aircraft.

Aircraft Health Management is extracting value

from this information.


…..consisting of building blocks essential to its implementation

22

Web Portal or Other

Interface

Storage

Cleaning

Ground-based

Transmission

In-Flight

Transmission

Hardware on

Aircraft

Access to Hardware

and Infrastructure

Historic MRO data

Maintenance

Manuals

OEM

Documentation of

Aircraft & Systems

Flight Operations

and Environmental

Data

Aircraft Health Data

Intellectual Property

Maintenance

Expertise

OE Design

Expertise

Integration with

MRO software

Aircraft Expertise Customer Support

Processes for

Validating and

Communicating

Outcomes to

Customers

Technical Support

Centre

Technical Expertise

Analytics

Diagnostics

Prognostics


For airlines, improved technical dispatch reliability and fewer NFFs are the key benefits of AHM

23

Estimated breakdown of

AHM benefits ICF has quantified the savings into 4 categories:

Technical Dispatch Reliability: Maintenance related

delays of over 15 minutes

No Fault Founds: Unnecessary removal of functional

components

Inventory: Spare parts held by airlines/MROs

Labor Productivity: Labor costs during maintenance

activities

Through research and analysis, ICF found that

improvements in NFFs and technical dispatch

reliability bring the most savings from AHM

37%

33%

20%

10%Technical Dispatch Reliability

Labour & productivity

No fault found

Inventory reduction



Latest developments

24


OEMs & MROs are embracing partnerships to cover the MRO data value chain

25Source: ICF research


Trans-mission

Storage AnalysisMRO

PlanningMRO Action

Records Keeping

Engine Health

Monitoring Partnership

Digital aviation

applications partnership


OEMs & MROs are embracing partnerships to cover the MRO data value chain



Trans-mission

Storage AnalysisMRO

PlanningMRO

ActionRecords Keeping

-

ACARS /

Gate Wi-Fi AnalytX

-ACARS /

Gate Wi-FiIBM

AFI-KLM -ACARS /

Gate Wi-Fi- -

-ACARS /

Gate Wi-Fi-

MRO Alliance


The MRO industry has entered the ‘expand’ phase of the digital maturity lifecycle; numerous suppliers are developing digital tools that provide a solution for a single issue


Innovators Early adopters Early majority Late Majority Laggards

Launch Develop Automation analytics

Innovate Expand Consolidate Challenge

Today


OEM’s are seeking new ways to expand their market share

28

Airbus

Skywise

FOMAX

Core Platform

GE Aviation

eFOQA

FlightPulse

AFI-KLM Component repair services

Supply chain

Air Asia signed up for Skywise while

under a component repair contract

with AFI-KLM

Airbus is likely to target other large

(single) fleet operators next Economies of scale

Maximum return for the airline

Airbus gets closer to reaching critical mass for their

platform


Summary

29


Digitisation could enable airlines to save in excess of $5B/year

Driven by improved dispatch

reliability, No Fault Found reduction,

Inventory reduction and Improved

labour productivity

Maintenance cost

~ $3BFrom AHM and

predictive maintenance

Continuous flight optimisation

through live weather updates,

speed and altitude optimisation…

Fuel saving

~ $1.7BFrom flight optimisation

Improved turnaround process, in-

flight routing optimisation

Delay reduction

~ $0.8BFrom improved

operational processes

30


Are the basics in place to exploit data?

Are your shop findings in a database

format?

But there are a number of key questions Airlines, OEMs and MROs need to evaluate

Will digitisation break the borders

between the different players in the

aviation market?

Digitisation offers airlines the

potential for efficiency that is

only just being understood.

Suppliers need to create the

right partnerships & value

propositions.

Where OEMs have previously

focused their Services M&A

efforts on R&O investments,

focus is now on acquiring IT

expertise.

Non aviation incumbents are

disrupting the markets (e.g.

Amazon in the cargo market)

31

Will digitisation allow the outsourcing

of currently “core” airline activities?


ICF is one of the world’s largest and most experienced

aviation and aerospace consulting firms

[email protected]

32

ICF proprietary and confidential. Do not copy, distribute, or disclose. 33

Let’s Make Big

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Airlines | Airports | Aircraft | Aerospace and Maintenance

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34

BROAD PERSPECTIVE.

COMPELLING RESULTS. Serving the Aviation CommunitySince 1963ICF Aviation Comprehensive Services: Airlines - Fleet and network planning, pricing and

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35

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36

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37

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38

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big data; the race is on, but what is the end goal? · agenda 2. icf proprietary and confidential....

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