global mro forecast 2011-2021
TRANSCRIPT
TEAMSAI©2011MRO Americas 2011 Conference
The Global MRO Forecast 2011 - 2021
Presented by:
Dave MarcontellPresident, TeamSAI M&E Solutions
A Delicate Recovery
Let’s start with the summary
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The
Good News 2010 represented the bottom of the MRO business cycle
The
ChallengeAligning MRO business strategies for success with the new reality of a delicate recovery
The
Reality The business has changed forever
The airline & MRO business has become extremely sensitive to shocks
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The global business cycle has a strong influence on MRO activity
Long term traffic growth remains strong
– However, disruptions are becoming more frequent and pronounced
In a global economy connected largely through air transport, isolated impacts have far-ranging effects
– Air transport remains the single largest driver of MRO demand
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Source: Air Transport Association (ATA), USDA Economic Research Service
But the business is forever changed
Airlines have refined the art of capacity management
2010 marked a notable leveling of capacity
– ASMs declined 1% in 2010
– Mostly long-haul WB traffic
But the 1% decline in capacity has taken a dramatic toll on the associated MRO
– 2010’s MRO market was down 7.5%
Airlines are now poised to adjust more rapidly to future changes in demand than they may have in the past
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Source: Ascend, BACK, TeamSAI
MRO is susceptible to short-term fluctuation
-7.5%
-1.0%
Oil price is no longer the wild card … its volatility is the new reality
Oil prices returned to over $100/bbl in the last few months
– Fuel now represents about 30% of operating cost
– With few exceptions, airlines cannot control this cost
Cost will remain a singular focus by airlines
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Source: IATA
MROs can expect additional pressure from airlines as fuel prices rise
Global fleet growth projections show wide variations
While N America and W Europe have the largest fleets and MRO markets, the growth areas lie in emerging regions
– India, China, E. Europe
While these emerging regions are growing fast, their overall size represents just fraction of the total market
Nevertheless, the fleet forecast clearly indicates a shift to the east which is expected to drive a level of parity when combining
– The Americas
– Europe (Western & Eastern)
– Asia, including China & India
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Global recovery is forecast to be segmented with emerging markets leading the way
Note: bubble size indicates populationSource: Ascend, Economic Research Service/USDA
Average HMV and line maintenance costs have dropped significantly
$0.3
$0.4
$0.5
$0.6
2006 2007 2008 2009 2010 2011
Mill
ion
s
Average MRO Cost per Aircraft
HMV Line
777 upwards of 50% less than 767
HMV frequencies moving from 4-6 to 8-12 years
A350 and 787 promising further improvement
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Source: TeamSAI
Airframe OEMs have leveraged technology to reduce MRO costs
While engine maintenance costs have not followed that trend
$0.3
$0.4
$0.5
$0.6
2006 2007 2008 2009 2010 2011
Mill
ion
s
Average Cost per Engine
Engine cost per hour continues to climb with each passing year
Fleet rationalization (2008-2010) helped to curtail average total spend per engine
However, total operating costs are coming down when considering the improvement in fuel consumption on newer engine types
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Source: TeamSAI
Engine OEMs lead the way in successfully capturingthe value of the aftermarket stream
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Mid 1990s, engine OEMs embarked on strategy to capture the total maintenance value as part of their product life cycle
History
Control material prices which is significant portion of mx costs Control intellectual property
Approach
Provide predictable costs (PBTH) Remove asset ownership cost of spare parts Offer expertise that operators cannot easily maintain on their own Provide single source for all maintenance needs Spread the investment in exotic tooling over a larger base Manage the complexity
ValueProposition
Component and airframe OEMs have adopted similar models Component and airframe OEMs have developed less maintenance-intensive
equipment which they control closely Labor arbitrage applies pressure to 3rd party / airline MROs
Today’s Realityfor the3rd Party/Airline MRO
If you aren’t an OEM MRO, you need a strategy to align yourself to deliver maximum value and stable costs to the customer over the long term
© 2010 TeamSAI, Inc.
MRO Forecast by the Numbers
2011 - 2021
First a review of the MRO rebound for 2011
Global MRO spend will be up 10.8% in 2011, to $46.9B
The drivers of the change are important to understand– Fleet change alone drives a 3.2%
increase, due to fleet renewal
– Utilization increase drives market up a small amount (utilization up 1.5% for the year driving 0.4% for market)
– Component increases outpacedeclines to airframe and line for asmall net increase of 1.0%
– Engine MRO drives a significant6.4% increase
– And last, labor rates have easeddown ever so slightly
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Fleet 2010 + Deliveries - Retirements - Stored Fleet 2011
19,675 + 1,076 - 396 - 152 20,203
The recovery has started…delicate though it may be
Long term fleet growth still looks solid
Population growth and the growing middle class is what is driving our long term forecast
Fleet growth forecast at 3.5% CAGR to 28,591 in 10 years
ASM growth will increase at 5.3% CAGR over same period– Unit a/c utilization rates remain high
– Larger aircraft, more seats
– Longer routes
2.7%CAGR
3.5%CAGR
201019,675
201120,203
202128,591
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MRO industry outlook has continued shift to the right
Global growth is expected to maintain a 3.9% CAGR through 2021
$46.9B industry will grow to $69.0B over 10-year forecast period
– 2011 up 10.8% from 2010
Engine remains largest segment with the highest growth rate
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Looking at the regions combined show relative parity in ten years time
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
Americas Europe Asia Middle East Africa
2011 2021
Americas Europe Asia Middle East Africa
Market ($B)(2011) $17.0 $13.7 $11.6 $3.1 $1.5
Mkt Share (2011)
36% 29% 25% 7% 3%
Note: Americas = North America and Latin America & the CaribbeanEurope = Western and Eastern Europe; Asia = Asia Pacific, China, and India
CAGR (2011-21)
2.4% 4.7% 6.8% 5.3% 3.5%
Mkt Share (2021)
29% 30% 30% 7% 3%
Mid-term growth in North America will be slow
Limited aircraft are slated for NA operators
– Only NB fleet is expected to grow in next 5 years
– WB and RJ fleet to contract (RJ contraction continues through 2021)
– Negative 0.3% CAGR from 2011 to 2016 overall– Then a positive 1.4% CAGR from 2016-2021
Operators are unlikely to bring back most parked aircraft
Economic recovery is giving airlines confidence to make longer term plans
– Supply of hangar and engine slots is tightening– But rising oil prices could erase positive impact
of capacity discipline
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North America’s MRO growth is limited by low fleet growth
Regional MRO North America
Billions 2011 2016 2021
# Aircraft 7,130 7,028 7,529
ASM (M) 1,073,977 1,209,355 1,388,362
Line Mtce $2.6 $2.6 $2.8
Components $2.8 $2.8 $3.1
Engines $6.5 $6.9 $7.6
HMV& Mods $3.0 $3.0 $3.1
Total MRO $14.9 $15.3 $16.5
© 2010 TeamSAI, Inc.
In Summary
Business expectations are changing rapidly
Relationship Based Performance Based
Inventory Tolerant Inventory Intolerant
Asset Utilization Not a Focus Turn-Around Time Prioritized
Little Accountability Accountability for Results
Limited Competitive Threat Global Competition
Metal & Mechanical Composites & Electronic
Western Focused Eastern Focused
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Business strategies must recognize the changing conditions
When the world is stable and the customer is expanding, creating a sustaining business if reasonably predictable
But when instability disrupts the status quo, profitability becomes very challenging and calls for adjustments in strategy
Growth in the airline business will continue to generate new MRO demands– The good life of 2007 is gone forever and the business is changing rapidly
– Cost and performance pressures will continue to intensify
– Demand may be more erratic as airlines quickly adjust capacity for disruptive conditions
The MRO business challenge remains the same: – Create value for the airline customer
– Grow the business and thrive despite the changeable input from airline operators
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Whether a “big player” or a “small player,” key adjustments in the business model will be more important than in the past
MRO growth strategies
Keep in mind MRO’s place and sensitivity to the total transportation value chain
Four strategies for MRO growth: especially pertinent to non-OEM MROs
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Oil prices, airline cost pressures
OEM MRO growth
Less maintenance
intensive airframes Capital
requirements to develop new product lines
Global labor shortage
Labor Value Creation M&A Diversification
An increased OEM MRO presence can have a greater impact on independent MROs than on other OEM competitors
Four basic strategies for MRO growth
AIRLINE MRO INDEPENDENT MRO
Labor Outsource non-core activity Develop expertise in core activity areas
Capitalize on outsourcing needs of airlines
Develop expertise in core activity areas
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Value Creation Implement cost reductions and new efficiencies
Adopt supply chain innovations Embrace new, smart aircraft systems
Implement cost reductions and new efficiencies
Adopt supply chain innovations Focus on reliability and dependability
Diversification Expand market offerings Expand geographical reach Pursue full-service capabilities
Merger & Acquisition
JVs and large scale parts pooling with other airlines
Leverage alliances
Target small, bolt-on acquisitions Identify value-oriented innovations that
contribute to airline customer’s cost focus
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Transforming the MRO business model around value creation
Thank you to our partners
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THANK YOU!
David Marcontell
President & COO
TeamSAI M&E Solutions
404-762-7257 Ext. 105