mro asia pacific virtual conference 2020 · 2020. 9. 24. · faa and easa our headcount: > 6,000...

Information Classification: General

MRO Asia Pacific Virtual Conference 2020

Focus on China


Session 101: Focus On China

Norbert Marx

CEO / General Manager, GAMECO


Focus On China

1. How is the aviation industry recovering in China?

2. What does it mean for MRO?

3. What are the latest trends and developments?

4. Which role does the Chinese government play in the recovery?

5. Is this recovery transferable to other regions?

P 3


How is the aviation industry recovering in China?

Context of Global Airline Business

P 4

Recovery needs two key ingredients:

A. Effective control of the pandemic

B. Access to a large domestic market

2020 Aviation Week MRO Asia Pacific



P 5

Source: Tencent, BIAC Monthly Operation Report

-100.0%

-80.0%

-60.0%

-40.0%

-20.0%

0.0%

20.0%

Current Confirmed Cases – China

CAN Airport 2020 Key Operation Numbers vs. 2019

Cargo

Flights

Passenger




Impact and recovery in different regions

P 6

Weekly Domestic Seats – China, Australia, VietJet, Departure Frequencies – Singapore Airlines

Weekly domestic seats – China

Weekly domestic seats – VietJet

Weekly domestic seats – Australia

Weekly departing frequencies – SIA




P 7

Impact to RPK, PAX and Revenue of the “Big Three”

Source: China Southern, Air China, China Eastern 2020 Q1 & H1 Report

-

20,000

40,000

60,000

80,000

-

20,000

40,000

60,000

80,000

ChinaSouthern

Air China ChinaEastern

RPK 2019 Q1 Vs. 2020 Q1

2019 Q2 Vs. 2020 Q2

-

10,000

20,000

30,000

40,000

-

10,000

20,000

30,000

40,000

ChinaSouthern


Passengers 2019 Q1 Vs. 2020 Q1

2019 Q2 Vs. 2020 Q2

-

10,000

20,000

30,000

40,000

-

10,000

20,000

30,000

40,000

ChinaSouthern


Revenue 2019 Q1 Vs. 2020 Q1

2019 Q2 Vs. 2020 Q2

2019 Number 2020 Number

-53%

-52% -54%

-63%

-71% -70%

-54%

-52% -57%

-54%

-60%-63%

-44%-47%

-49%

-50%-74%

-66%



What does it mean for MRO in China?

Context of Global MRO Business

P 8

The impact is massive – for 2020 a predicted US$ 90bn market is cut into less than half

Common understanding is that it will take until +/- 2024, until the market will return to the level of

2019

The long term forecast for the MRO market will be permanently reduced by billions compared to

2019 forecast models

All forecasts are updated frequently – for the time being the market is a moving target



A JV between China Southern Airlines &

Hutchison Whampoa (China) Ltd.

50

%

50%

Our Products: Heavy Maintenance, Line

Maintenance, Component Repair, Landing Gear,

Painting, Cabin, Engineering, Training, GSE..

Our approvals: more than 25, including CAAC,

FAA and EASA

Our Headcount: > 6,000

Our Manhours: 6.7 mio 2019

Our Customers: 50+, incl. CSN, FedEx, Allegiant,

SF Express, Asiana, Air France, Lufthansa, Condor,

PAL, Cebu Pacific and CQA


Example GAMECO - Background

P 9


50%

Principles during pandemic:

- Health and safety of our employees and their families are top priority

- Safety and quality of our MRO work must be guaranteed

- Lay-offs of any employees due to the pandemic shall be avoided

- Guarantee the stability of the company (cash flow, efficiency, morale..)

- Focus on customers

- Take care of our employees

- Look beyond the pandemic and continue with our strategic projects

- Hangar Phase 3 project continue

- New CBC component business center continue

- New CRC composite repair center continue


Example GAMECO – Principles during pandemic

P 10 2020 Aviation Week MRO Asia Pacific



GAMECO – Strategic Project Hangar Phase III

Project Highlight:

Total investment RMB 1.000 M

Construction area: 1.0 mio ft², hangar hall 366,000ft²

Bays: 6 WB + 5 NB bays or 15 NB bays

Expand max total capacity to: over 30 HM lines

Project Schedule:

Ground breaking: 23.05.2019

Roof Lifting: 20.09.2020

Construction: 2019 thru 2021

Hangar ready and in operation: 2022




GAMECO – Strategic Project Component and Composite Center

Project highlights:

Total investment: RMB 600 Million, including RMB

365 M in CBC and RMB 235 M in CRC

Total construction: 600,000ft², including 420,000ft² in

CBC, and 180,000ft² in CRC

Aim at building a full capability and most advanced

component and composite center in China

Project schedule:

Groundbreaking: 24.06.2020

Construction during 2019 thru 2021

Shops ready and in operation in 2022

Open for cooperation with industry partner



50%

Total company

Sales YTD at 77%, Year End 80%

LM YDT 70% FC YE 75%

HM YTD 90% FC YE 90%

CM YTD 70% FC YE 70%

Others YTD 102% FC YE 95%

Line Maintenance

- Sales YTD 70%, Year End 75%

- Reduction of flights / FH (>45%), MH (> 10%)

- Loss of CSN international business, long range flights, w/b fleet, feeder flights

- International airlines reduce flights

- Highlight in CSN is the intense utilization of A380


Example GAMECO – Performance 2020

-600%-500%-400%-300%-200%-100%

0%100%200%300%400%

Jan Feb Mar Apr May Jun Jul Aug

Net sales budget implementation rate %



50%

Heavy Maintenance


- Reduction international business (cost saving, access reps), cancellation of booked slots

- CSN allowed us to pull business forward, use ground time, give us time for acquisition

- Get more domestic business (SF Express, Hainan, Capital, YTO)

- Catch up with 3 party after travel restrictions allowed crews and reps to come back

- Highlight Cargo conversions (preighter and real conversions), Boeing 2nd line B737-800 BCF

- Loss of big W/B checks, especially A380

Component Maintenance


- Reduction of flights (limits)

- Cost reduction measures

- Green time conservation, cash saving

- Competition


Example GAMECO – Performance 2020


0%

20%

40%

60%

80%

100%

120%

140%

Jan Feb Mar Apr May Jun Jul Aug

HM Sales

LM Sales

CBC Sales


What are the latest trends and developments in the

MRO market due to Covid-19?

P 15

Workload – Reduced – market changed from supplier market to customer market

Financial – Revenue, profit and margins reduced, cash management, less investments

Digitalization – Speed of development and implementation has increased, 5G apps

Market segmentation – Phase of consolidations, M&A, changes in strategy, “lean out”

Labor market – Loss of jobs, lower salary, loss of talents, less attractive to “Gen Z”

Material – Profit squeeze out between new market entries (material is IP safeguarded) and

sunset aircraft (growing USM usage, early retirement)

Cargo market – Increase in air cargo operation, higher demand of freighter conversions



What are the latest trends and developments in the

MRO market due to Covid-19?

P 16

Cabin services – Passenger separation solutions, cleanliness and disinfection

services

Fleet structure – Right sizing and early retirements (4-engine A340, A380, B747)

Leasing market – Airlines want to end leases early, unwilling to take airplanes, order

reduction, asset devaluation…

OEM market – Before covid-19 the Chinese market for new aircraft represented about

25% market share. After covid-19 it is expected to rise to 33%.

Consumer market change – Passenger confidence, video conferencing, economic

fallout puts global recovery at risk



Which role does the Chinese government play in the recovery?

P 17

Government support

Effective control of the pandemic – Central control and effective management, full

mobilization of all necessary resources to fight the pandemic, use of the latest technology to

collect data and track on an individual basis, discipline and cooperation by the ordinary people

Benefit through China Southern as a state-owned enterprise – Stable operation and cash

flow, CSN allowed GAMECO to pull forward heavy maintenance and non routine work

Government attention to operation and recovery – Many personal visits of government

officials to inspect the situation on site and listen to the industry what they need

Encouragement to airlines to operate domestic routes – Sense of responsibility to provide

infrastructure over short term profit calculation

Investment in infrastructure – e.g. realization of airport projects was accelerated

Investment in domestic consumer market - From “quantity to quality”, establish “inner

circle” beside export orientation.

Strategic projects and global cooperation – Belt & Road initiative



Which role does the Chinese government play in the recovery?

P 18

Government support:

PPE – Organize production and provision of goods (esp. PPE) at the early stage of the pandemic,

ensuring no companies are closed due to PPE shortages, even distribution and fair pricing

Rent reduction – For companies registered in the region and renting SOE’s properties in the

region, exempt 2 months rental fees

Tax reduction – For small businesses heavily hit by the pandemic (whole sale and distribution,

small hotels, logistics, travels and leisure, etc.), establish policies to reduce taxes

Tax deferral – Allow companies to defer tax payment.

Finance aids – Encourage banks to provide loans to companies, esp. small

companies, esp. small companies; interest rate at low level

Employment aids – Reduce companies costs of welfare,

provide financial supports

Market orientation – Most of the policies are done in a

market orientation way



Is this recovery transferable to other regions?

P 19

The recovery in any region depends on two key issues:

A. Effective control of the pandemic

B. Access to a large domestic market…

Present situation:

→ Regions with large markets like North America, Latin America, India and Europe

do not have sufficient control over the pandemic

→ Regions with effective control over the pandemic like Singapore, Dubai, Qatar

(network hubs) and some European countries don’t have a large enough

domestic market



Is this recovery transferable to other regions?

P 20

Expectation:

→ Full recovery is only likely after sufficient immunity has been established

→ Recoveries in other regions will be on a lower level compared to China

→ Recovery of MRO in China will level off with a negative gap compared to 2019,

because of the suppressed international market

→ Some trends and developments are independent from the region (e.g cargo business,

digitalization etc.)

On a positive note:

➢ A global vaccine approval in Q42020-Q12021 seems realistic. Already

millions of doses are produced in advance. Several countries have started to

prepare vaccination projects.

➢ The recovery in China is an important bridge in an uncertain time and it

makes the recovery of the global aviation industry much easier


mro asia pacific virtual conference 2020 · 2020. 9. 24. · faa and easa our headcount: > 6,000...

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