2015-2025 Asia-Pacific Fleet and Asian MRO Market Forecast
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© Oliver WymanAVIATION
Christopher DoanVice President
TUESDAY, NOVEMBER 3, 2015
TURBULENCE AHEADDISENGAGE THE AUTOPILOT2015-2025 GLOBAL FLEET & MRO MARKET FORECAST
1© Oliver Wyman
Oliver Wyman acquired TeamSAI and integrated the business into CAVOK, its aviation technical consulting and services practice
The respected TeamSAI Global Fleet & MRO Market Forecast, and related betterinsight™ market intelligence data, remains available at www.planestats.com/betterinsight
~150Dedicated CAVOK employees
located in DFW and ATL(Supported by +250 Oliver Wyman
aviation consultants)
+70%of CAVOK staff hold FAA certification/license
+2,300 yearsof combined airline operations expertise
Global Fleet &MRO Market Outlook
3© Oliver Wyman
13,12416,949
21,089
4,686
5,753
7,181
3,396
3,222
2,906
2,721
3,079
3,232
23,927
29,003
34,408
5.2%
4.2%-1.0%2.5%
4.5%
4.5%-2.0%1.0%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2015 '15-'20CAGRS
2020 '20-'25CAGRS
2025
Narrowbody Widebody Regional Jet Turboprop
• Global fleet will grow on average 3.7% annually over the full forecast period
• Passenger fleet expected to grow at 3.8% annually
• Cargo fleet forecast to grow by 2.3% annually
• Narrowbody aircraft will lead the growth
• Regional jets will actually decline in the mix
Key Fleet Forecast Growth Rates
2015-2025 Global Fleet Forecastby Aircraft Class
The global air transport jet and turboprop fleet will grow by more than 10,000 net new aircraft by 2025
Num
ber o
f Airc
raft
The growth outlook, however, varies widely from region to region
3.9%
3.5%
4© Oliver Wyman
A 5 pt spread in regional growth rates leads to a significant share shift over the decade ahead
The mature North American and Western European markets will continue to undergo significant refleeting efforts during the next 10 years
2015 Fleet Size
722North America
Europe
Latin America& the Caribbean
Africa / Middle East
Asia Pacific / China / India
0.9%
2.8%
4.7%
5.5%
6.1%
6,131
1,720
1,965
997
1,562
5,235
10YRCAGR
2015- 2025Absolute Growth
2,204
7,420
6,452
5© Oliver Wyman
A 5 pt spread in regional growth rates leads to a significant share shift over the decade ahead
The mature North American and Western European markets will continue to undergo significant refleeting efforts during the next 10 years
2025 Fleet Size
North America
Europe
Latin America& the Caribbean
Africa / Middle East
Asia Pacific / China / India 6.1%
7,420
6,131
1,720
2,204
6,452
8,096
2,717
3,766
11,687
8,142
6© Oliver Wyman
New Cargo Deliveries
423
New Passenger Deliveries
18,068
664
Cargo Retirements
7,346
Passenger Retirements
Passenger Fleet
716
P2F ConversionsCargo Fleet
43% of all new aircraft deliveries will replace old technology aircraft over the forecast period
The systematic elimination and replacement of older aircraft with new technology aircraft will drive significant change is the business for airlines and maintainers
7© Oliver Wyman
New Cargo Deliveries
423
New Passenger Deliveries
18,068
664
Cargo Retirements
7,346
Passenger Retirements
Passenger Fleet
716
P2F ConversionsCargo Fleet
10,481Net Growth
43% of all new aircraft deliveries will replace old technology aircraft over the forecast period
The systematic elimination and replacement of older aircraft with new technology aircraft will drive significant change is the business for airlines and maintainers
8© Oliver Wyman
2025 Global Air Transport Fleetby Vintage
2015 Global Air Transport Fleetby Vintage
The significant move towards late generation aircraft, in addition to improving airline costs, will undoubtedly impact MRO dynamics
The result is a staggering change in fleet mix by 2025
1970's2%
1980's26%
1990's63%
2000's9%
1970's0.1%
1980's9%
1990's46%
2000's16%
2010's29%
9© Oliver Wyman
22% 19% 17%
42% 45% 47%
19% 18% 19%
18% 18% 18%
0%10%20%30%40%50%60%70%80%90%
100%
2015 2020 2025
Airframe Engine Component Line
$14.5 $15.9 $16.7
$27.9$37.1
$46.8$12.4
$15.2$19.2
$12.3
$15.0
$17.8
$67.1
$83.2
$100.4
1.9%
5.9%
4.1%
4.0%
1.0%
4.8%
4.7%
3.5%
$0
$20
$40
$60
$80
$100
$120
2015 '15-'20CAGRS
2020 '20-'25CAGRS
2025
Airframe Engine Component Line
Global MRO Market Share Forecastby MRO Segment
Global MRO Market Size Forecastby MRO Segment
The fleet dynamics of the period result in a forecast that tops $100 billion by 2025, a 4.1% average annual growth rate
2015
Dol
lars
($U
SB)
Mar
ket S
hare
Airframe Heavy Maintenance costs improve with the new technology while both Engine and Component sectors will take a larger share
4.4%
3.8%
10© Oliver Wyman
Shadowing the fleet trends, large differences in regional growth rates will lead to a significant shift in MRO demand
Asia/Pacific, China, & India will be challenged to build the necessary infrastructure capable of handling the volume of MRO the combined region will demand
2015 MRO Spend ($USB)
$1.3North America
Europe
Latin America& the Caribbean
Africa / Middle East
Asia Pacific / China / India
0.6%
3.3%
7.3%
5.5%
6.6%
$17.9
$3.2
$7.0
$3.3
$5.3
$16.5
10YRCAGR
2015- 2025Absolute Growth ($USB)
$7.5
$18.3
$20.0
11© Oliver Wyman
Shadowing the fleet trends, large differences in regional growth rates will lead to a significant shift in MRO demand
Asia/Pacific, China, & India will be challenged to build the necessary infrastructure capable of handling the volume of MRO the combined region will demand
2025 MRO Spend ($USB)
North America
Europe
Latin America& the Caribbean
Africa / Middle East
Asia Pacific / China / India 6.6%
$20.0
$17.9
$3.2
$7.5
$18.3
$21.3
$24.9
$6.5
$12.8
$34.8
Asian Fleet &MRO Market Outlook
13© Oliver Wyman
Passenger traffic is soaring in Asia, outpacing fleet growth by 3.0%. Still, the young fleet is growing very quickly
2015 PASSENGER TRAFFIC (RPK) GROWTH
9.1%2015 CURRENT FLEET
6,452
6,500+2015-2025 AIRCRAFT DELIVERIES
1,300+2015-2025 AIRCRAFT RETIREMENTS
+6.1%2015-2025
FLEET CAGR
14© Oliver Wyman
Top 10 Asia Aircraft Families - 2025Top 10 Asia Aircraft Families - 2015
In 10 years, over 56% of Asia’s fleet will be new technology aircraft requiring new technical skills and capabilities
A320C/NEO
737NG/MAX
777
747
A330
A340
737CL
A380
767
ATR
A320C/NEO
737NG/MAX
777
A330
787
A350
747
C919
A380
ATR
15© Oliver Wyman
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
2,000 2,800 3,600 4,400$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
2014 2015WTI Brent Jet A
Aircraft Profitability CurveCurrent Generation vs New Generation
Crude Oil Spot Priceper Gallon
Oil prices have plummeted over the past year and could remain low over the short term. Many are concluding that this will cause airlines to alter fleet plans and drive an increase in MRO.
2015
US
Dol
lars
($U
SD)
2015
US
Dol
lars
($U
SD)
Flight Hours
Our view: Long term, oil prices will likely recover, OEM order books will remain largely unaffected, and net fleet growth will progress as forecasted
AUG2014
AUG2015
1 YEARPRICE DROP
New gen aircraft are more profitable than current gen
New gen aircraft are less profitable than current gen
16© Oliver Wyman
$18.3 $19.9$22.3 $22.5 $23.8
$26.6 $27.8 $29.2 $30.3 $32.4$34.8
$0
$5
$10
$15
$20
$25
$30
$35
$40
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025Airframe Engine Component Line
2015-2025 Asia MRO Market Forecastby MRO Segment
A sharp increase in the rate of deliveries drives a world-leading 6.6% growth rate in MRO spend over the next ten years
MR
O S
pend
in 2
015
US
Dol
lars
($U
SB)
Despite the solid growth, aftermarket participants will still need to have an aggressive and innovative plan to maintain or grow market share.
17© Oliver Wyman
$0.0
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
$1.6
$1.8
$2.0
Asia/Pacific China India
2015 Asia MRO Market Forecastby Operator Country
Many different dynamics are at play in a region comprised of 44 countries and states; differences in individual economies and resource availability will produce uneven growth in the region
2015
US
Dol
lars
($U
SB)
$5.1
Australia/New Zealand• Fleet Size: 689• MRO Market: $1.6BHighly affected by strong currencies, operators and MROs in these countries are finding it difficult to compete with the emerging economies of the region.
Indonesia/Malaysia/Singapore• Fleet Size: 877• MRO Market: $2.4BWith a broad range of MRO capabilities, the countries act as the hub of the Asian MRO Market. Continued investments in capabilities and skilled labor will help the countries continue to grow and remain highly competitive with new entrants in the Philippines, Thailand, and Vietnam.
Philippines/Thailand/Vietnam• Fleet Size: 475• MRO Market: $1.5BCountries can open a broad market for themselves by targeting MRO work within Asia. Introducing new capacity and developing a skilled labor force to meet future demand in the region.
China/Hong Kong/Taiwan• Fleet Size: 2,467• MRO Market: $7.5BChina will be a key driver of growth in the region for the next decade. This rapid growth, coupled with rises in labor costs will ultimately cause the operators in the region to look south and east to fulfill their maintenance needs.
Japan• Fleet Size: 593• MRO Market: $1.7BJapan suffers from a lack of workforce. The country will continue supplying materials to the industry, but it does not have the human resources to take on a significant amount of contracted MRO work.
19© Oliver Wyman
• Decisions necessary enter new markets for each of airframe, engine and component repairs
New repair capabilities required
• Health monitoring and predictive maintenance will reduce overall time-on-tool requirements for individual checks with fewer repairsLess maintenance
• Increased aftermarket market share for the newest generation of aircraft
OEM’s increased aftermarket presence
• Critical new source of value to the aftermarket driven by those who design the best algorithms and most rigorous data management
Increased use of data analytics
Market participants will need aggressive and innovative plans for growth
Fleet changes and technological advances will create turbulence for the MRO business
MRO Survey Results
21© Oliver Wyman
Oliver Wyman’s 2015 MRO Survey identified a slew of new technologies that are poisedto come to marketMost prominent new technologies by 2020 (All respondents)
Aircraft Health Monitoring Systems
Predictive Maintenance
“Live” maintenance through wearable and mobile technology
Composite repair capabilities
New repair technology
Additive manufacturing
Artificial intelligence
Drone-supported maintenance 4%6%
25%26%
35%57%
66%66%
22© Oliver Wyman
The collection, storage, aggregation and analysis of data will be key factors in aircraft health monitoring and predicative maintenanceWho is best positioned within the industry to benefit from predictive maintenance?
0%
7%
9%
19%
65%
PMA Manufacturers
MROs
Too early to predict
OEMs
Airlines
23© Oliver Wyman
However, digesting innovative change is not standard fare for the MRO industry…
Survey respondents completed this sentence: “The MRO industry innovates...”
• Historically, little need to build internal organizations devoted to R&D, corporate strategy and product development
• Lack of regular disruptions decrease relative:– Devoted resources– Tried and tested review processes– Time and attention of executives– Clarity of ownership / leadership– Assessment infrastructure
• Internal ability to recognize, assess and prepare for change is not a core capability for the industry
… frequently 13%
21%… primarily as a
response to OEM innovation
27%… sporadically
39%… periodically
24© Oliver Wyman
…and though they have a vision, many organizations struggle with how to rapidly evaluate and bring innovative ideas to marketPositive survey responses
We can quickly translate the identified opportunities into pilot projects and fast-to-market roll-out programs
Our innovation process allows us to quickly translate identified opportunities into plans and get sign-off from top management
We use a strategic planning method to visualize areas of opportunity and identify the most promising prospects
Top management has a clear, shared vision and strategy for growth in new business areas
Use a strategic planning method to visualize areas of opportunity and identify the most promising prospects
Our innovation process allows us to quickly translate identified opportunities into plans and get sign-off
We quickly pilot ideas and roll out fast-to-market programs
Decreasing impact;
More difficulty
bringing vision to market
76%
68%
43%
33%
Top management has a clear, shared vision and strategy for growth in new business areas
25© Oliver Wyman
So what’s really inhibiting change in MROs?
• The primary inhibitors of innovation at my organization are:
Budget / capital availability
Total cost / lack of clear payback
Inability to prove innovative process / product / service will offer margin
benefits over current techniques
Organization resistance
Implementation difficulties
Review and approval process
Lack of personal capability
Lack of need for change
How can you eradicate
these barriers within your
own organization?
6%
21%
21%
32%
35%
44%
44%
50%
26© Oliver Wyman
New technologies will reshape our perception of MRO aftermarket commercial offers.
Advances could cut or redistribute 15 to 20 percent of MRO spend, but also spawn new business models and revenue streams.
27© Oliver Wyman
Take the controls and make strategic investments now:Technologies will likely come online faster than anticipated
• Expected to be a significant driver of innovation over the next five years
• Boeing recently invested $100M into expanding AHM
• A 787 flight can generate 500GB of data
Aircraft Health Monitoring (AHM) and Big Data
Additive Manufacturing(3D Printing)
• Quickly gaining traction– A350 will feature 3D-printed
plastic and metal brackets– GE will introduce 3D-printed
fuel nozzles in its CFP LEAP engine
– Out-of-production parts can be printed “on-demand”
Augmented Reality and Automated Inspection Tech
• Augment reality allows for live audio and visual communication with OCC
• Robots used for visual inspections and non-destructive testing– Highly efficient– Highly accurate
28© Oliver Wyman
Time to disengage the Autopilot
• Focusing solely on business as usual is a risky strategy in the coming years
• Relying on current commercial offers, sales practices, resources, will challenge an MRO’s future business
• Advances could cut 15-20% of MRO spending from the aftermarket
• But also spawn new business models and revenue streams
• Amounts to a reduction or redistribution of $10-15B among current industry players & new competitors
• MROs and operators must actively choose technologies to develop and exploit
• Those that fail will end up as innovation takers, ceding further aftermarket control to competitors
Is your corporate Auto Pilot engaged?
29© Oliver Wyman
The future is now
30© Oliver Wyman
Oliver Wyman insights come directly from the industry, and we value your insights
as they help shape the future.
If you are interested in shaping our 2016 MROSurvey in January, send an email to
MROSURVEY@OLIVERWYMAN.COMInclude a subject line with the phrase “count me in”
and you’ll receive the survey upon its release
Thank You!
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