MRO Market Update & Industry Trends
Download as PPTX, PDF2 likes1,459 views
The document presents an MRO market update and industry trends, highlighting the global commercial air transport fleet's growth driven by rising air travel demand, expected to reach over $100 billion by 2026. The Latin American MRO market is projected to grow to approximately $6.4 billion by 2026, with significant investments in cabin modifications and fleet renewals. Overall, the aviation industry is experiencing record profitability, although challenges such as rising costs and macroeconomic factors persist.
![1212
Follow the Money:
Airlines are
spending their hard
earned profits in
three primary areas
Source: Company Reports, ICF Analysis
Airline Profit Spend Analysis
[CELLRANGE],
20%
[CELLRANGE],
38%
[CELLRAN
GE], 42%
Profit Sharing
15%
Wage
Increases
5%Fleet
23%
Equity
Investments
5%
Other capex
10%
Debt
Repayments
16%
Stock Buy-
Back &
Dividends
26%
1. Labor ~ 20%:
Profit sharing
Wage increases
2. Capex ~ 38%:
Fleet renewal & cabin
upgrades
Facilities, offices, lounges
Equity partner investments
3. Investors ~ 42%:
Stock buy-backs
Dividends
Debt repayment](https://image.slidesharecdn.com/j-170208211108/85/MRO-Market-Update-Industry-Trends-13-320.jpg)
MRO Market Update & Industry Trends
- 1. 0 MRO Market Update & Industry Trends Presented by: Jonathan M. Berger Vice President ICF [email protected] January 25-26, 2017 Cancun, Mexico
- 2. 11 Today’s Agenda Fleet & MRO Forecast 2016: What a long strange trip year it’s been… 2017: The year aviation & aerospace blinked…
- 4. 33 The current commercial air transport fleet consists of under 28K aircraft; over half are narrowbody aircraft Source: CAPA 2016 Narrowbody Jet Widebody Jet Turboprop Regional Jet 27,957 Aircraft 13% 54%14% 19% By Aircraft Type By Global Region 27,957 Aircraft 2016 Global Commercial Air Transport Fleet 5% 28% 25% 5% 30% 7% Latin America Africa North America Asia Pacific Europe Middle East
- 5. 44 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 2016 2026 Africa Middle East Latin America Europe Asia Pacific North America The combination of strong air travel demand and the need to replace ageing aircraft will drive fleet growth at a healthy 3.2% annually Source: ICF analysis: CAPA 2016 28,000 30% 25% 38,100 28% 25% 8% 33% 23% 8% # Aircraft 3.4% 2.4% 1.3% 4.8% 5.0% 4.1% CAGR 3.2% Avg. 5% 6% 10 Year Global Air Transport Fleet Growth
- 6. 55 Current commercial air transport MRO demand is $67.6B; Asia is now larger than North America and Europe in market size Source: ICF analysis; Forecast in 2016 $USD, exclusive of inflation Engines Components Line Airframe Modifications 14% 17% 22% 40% 8% North America Asia Pacific Europe Middle East Latin America Africa 27% 30% 26% 8% 6% 4% $67.6B$67.6B By MRO Segment By Global Region 2016 Commercial Air Transport Global MRO Demand
- 7. 66 The global MRO market is expected to grow by 4.1% per annum to over $100B by 2026 Source: ICF analysis; Forecast in 2016 $USD, exclusive of inflation Engine and component MRO markets remain the largest segments Modifications market will see the strongest growth (e.g. interiors, connectivity) Airframe market slows due to reduced man-hour intensity and increased check intervals as new fleets are introduced $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 2016 2026 Modifications Airframe Line Component Engine 40% 22% 14% 17% $67.6B $100.6B 2.8% 3.2% 4.2% 4.5% CAGR 4.1% Avg. 5.2% 41% 22% 16% 12% 10 Year Global Commercial Air Transport MRO Demand Growth $USD Billions
- 8. 77 The current Latin American fleet consists of over 2,100 aircraft; with narrowbody aircraft making up more than 50% of the installed base Source: CAPA 2016 Narrowbody Jet Widebody Jet Turboprop Regional Jet 2,099 Aircraft 15% 52% 23% 9% By Aircraft Type By Country Brazil Mexico Colombia Chile Venezuela Panama Other 2,099 Aircraft 25% 19% 8% 20% 11% 6% 6% 5% 2016 Latin American Commercial Air Transport Fleet
- 9. 88 The Latin American MRO market is expected to grow to approx. $6.4B by 2026, at 5.5% per annum Source: ICF analysis; Forecast in 2016 $USD, exclusive of inflation Modifications is the fastest growing MRO segment in Latin America MRO spend on widebodies in Latin America will nearly double by 2026 as the fleet increases by 56% $0 $1 $2 $3 $4 $5 $6 $7 2016 2026 Modifications Airframe Line Component Engine 37% 25% 13% 19% $3.8B $6.4B 4.0% 3.7% 4.7% 7.0% CAGR 5.5% Avg. 7.2% 42% 23% 16% 11% 8% 10-Year Global Latin American MRO Demand Growth $USD Billions 7%
- 10. 99 2016: What a long strong trip year it’s been…
- 11. 1010 Driven by low fuel costs and consolidation, the global airline industry achieved record profitability of over $35B USD in 2016 Source: IATA, ICF analysis 2016 was a historic year for airline profitability… Global Airline Profitability, 1997 - 2017F -$30 -$20 -$10 $0 $10 $20 $30 $40 $USD Billions Asia Pacific, $6.3B North America, $18.1B Europe, $5.6B Middle East, $0.3B Latin America, $0.2B Africa, ($0.8B)$35.6B
- 12. 1111 However, record profitability has been largely limited to carriers in North America Source: IATA, ICF Analysis -1.8% -4.7% 0.1% 2.3% 1.0% -0.9% 3.4% 4.7% 0.7% 1.5% 3.0% -0.4% 12.9% 5.2% 4.5% 2.9% 0.7% -3.6% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 2008 2012 2017F Global Airline EBIT Margin by Region …but many airlines continue to struggle
- 13. 1212 Follow the Money: Airlines are spending their hard earned profits in three primary areas Source: Company Reports, ICF Analysis Airline Profit Spend Analysis [CELLRANGE], 20% [CELLRANGE], 38% [CELLRAN GE], 42% Profit Sharing 15% Wage Increases 5%Fleet 23% Equity Investments 5% Other capex 10% Debt Repayments 16% Stock Buy- Back & Dividends 26% 1. Labor ~ 20%: Profit sharing Wage increases 2. Capex ~ 38%: Fleet renewal & cabin upgrades Facilities, offices, lounges Equity partner investments 3. Investors ~ 42%: Stock buy-backs Dividends Debt repayment
- 14. 1313 Aviation is experiencing a new golden age of aircraft cabin interiors Modifications demand includes labor and material spend *Passenger-To-Freighter Conversions **Airworthiness Directives / Service Bulletins Source: ICF analysis, constant 2016 US$ MRO modification market growth drivers include: Latest lie-flat seats are now the minimum standard Premium economy Wi-fi, on-board connectivity Capacity (ASM/K) increase (“Cabin Densification”) Coming soon: ADS-B Mod program Commercial Air Transport Modifications Forecast $2.8 $4.8 $0.8 $1.4 $0.6 $0.9 $0.3 $0.5 $0.3 $0.4 $0.2 $0.4 $0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 2016 2026 Cabin Connectivity AD/SB** PTF Conversions* Painting Avionics Upgrades Interiors $5.1B $8.5B 3.6% 4.2% 5.9% 5.6% CAGR 5.2% Avg. 2.9% $USD Billions 5.1%
- 15. 1414 $0 $5 $10 $15 $20 $25 $30 $35 $40 Amazon Quarterly Revenue Amazon is very well positioned to lead a major disruption of the air cargo industry Source: Amazon SEC Filings Amazon’s Growing Revenue & Shipping Costs 0% 2% 4% 6% 8% 10% 12% 14% Shipping Costs as a Percentage of Revenue $B USD
- 17. 1616 The good news… After a half decade of economic decline, Latin America is once again poised for growth in 2017 Note: All GDP Growth are calculated based on constant price (nation currency) Source: IMF Economic Outlook April 2016, ICF analysis -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Latin American GDP Growth
- 18. 1717 In 2017, while most countries in Latin America will see modest, but steady economic growth, the big increases will come from Brazil and Argentina Note: All GDP Growth are calculated based on constant price (nation currency) Source: IMF Economic Outlook April 2016, ICF analysis United States Brazil 0.0% 2.0% 4.0% 0.0% 2.0% 4.0% 6.0% 0.0% 5.0% 10.0% 0.0% 5.0% 10.0% 0.0% 5.0% 10.0% 0.0% 2.0% 4.0% -4.0% -2.0% 0.0% 2.0% 4.0% 2013 2014 2015 2016F 2017F -6.0% -4.0% -2.0% 0.0% 2.0% 4.0%
- 19. 1818 Latin America is in the midst of an “LCC Renaissance” Source: OAG, Airbus, ICF Analysis LCC Market Share (seats offered) by Global Region 38% 21% 24% 30% 40% 49% 20% 20% 13% 6% 9% 4% 7% 6% 3% 0% 10% 20% 30% 40% 50% 60% Domestic Intra-regional International Copa restructuring Copa Colombia into new ultra-LCC called Wingo VivaColombia launches subsidiary Viva Air in Peru Flybondi plans to launch ultra-LCC in Argentina in 2017 Chilean based Sky Airline switching its business model to ultra-LCC Mexican LCC Volaris announces new subsidiary in San Jose, Cost Rica
- 20. 1919 There continues to be significant interest and external financial investment in Latin American carriers Source: ICF analysis United States Brazil
- 21. 2020 2017: The year aviation & aerospace blinked…
- 22. 2121 Commercial aircraft OEM production backlog remains at historical highs Source: CAPA, ICF Analysis Commercial Aircraft OEM Production Backlog 0% 10% 20% 30% 40% 50% 60% 70% 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Order Backlog Backlog/ % Active Fleet Emerging market growth Very low interest rates Previously high oil and commodity prices Introduction of new technology aircraft/engines
- 23. 2222 Lower fuel costs appear to be reversing aircraft retirements trends Source: CAPA, Airline Monitor, ICF analysis Industry Impact: MRO Suppliers - Positive: Increased spend on older airframes & engines Surplus Market - Negative: Reduced part-out “feed stock” - OEMs: Improved new part sales - Distributors: Improved used part values / pricing - Operators: Increased material costs - PMA Suppliers: Very Positive Commercial Air Transport Annual Aircraft Retirements 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 0 200 400 600 800 1,000 1,200 # Retirements Retirement as % of installed fleet % Installed Fleet 1991-1999 Average: 203 2000-2009 Average: 473
- 24. 2323 Four external macro- economic forces are creating headwinds for global airlines and the broader aerospace & MRO supply chain Source: ICF analysis Strengthening US Dollar Growth of Populism/Nationalism & Impact to Global Trade Increased airline costs: - Aircraft financing - Fuel - Labor - MRO flight hour agreements Downward pressure on global GDP growth Downward pressure on aircraft valuations Potential for increase in aircraft delivery deferrals (backlog risk) Middle East airline titans stressed Advantage = Airbus
- 25. 24 For questions regarding this presentation, please contact: Jonathan M. Berger Vice President Aerospace & MRO Advisory [email protected] +1 404.819.7669 THANK YOU! January 25-26, 2017 Cancun, Mexico
- 26. 2525 Market Research & Analysis Airline Maintenance Benchmarking M&A Commercial Due Diligence OEM Aftermarket Strategy Aviation Asset Valuations & Appraisals MRO Information Technology (IT) Advisory Strategic Sourcing & Supply Chain Mgt. LEAN Continuous Process Improvement Military Aircraft Sustainment ICF provides a full range of Aerospace & MRO advisory services
- 27. 2626 ICF is one of the world’s largest and most experienced aviation and aerospace consulting firms Airports • Airlines • Aerospace & MRO • Aircraft Finance 53 years in business (founded 1963) 80+ professional staff − Dedicated exclusively to aviation and aerospace − Blend of consulting professionals and experienced aviation executives Specialized, focused expertise and proprietary knowledge Broad functional capabilities More than 10,000 private sector and public sector assignments Backed by parent ICF International (2015 revenue: 1.13 billion USD) Global presence –– offices around the world joined in 2011joined in 2007 joined in 2012 joined in 2014 New York • Boston • Washington DC • London • Singapore • Beijing