MROMarketOutlook-AsiaPacific

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The MRO Market Outlook Asia PacificPresented by:

Dennis LingSingapore Office Leader

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Todays Agenda The New Economics

MRO Market Forecast

Asia Pacific MRO Opportunities for growth?

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The New Economics

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Four factors are reshaping aircraft economics and MRO

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1990 1995 2000 2005 2010

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These new economics are tilting fleet decisions toward new aircraft for some models

Source: Airline Monitor Aug 2012Based on data for average 737-700 and 737-300 operated by Southwest Airlines, BofA Merrill Lynch Global Research estimates and assumptions

Cost / ASM New (737-700) Old (737-300)

Fuel at 93 $/bbl WTI 3.24 3.80

Other costs excl. maintenance / ASM 2.46 3.49

Maintenance Costs / ASM 0.10 0.24

Total Other Costs / ASM 3.21 3.73

Cost of buying new at 7% interest rate / Gain from selling at 1% cash return

1.11

Total Costs 6.90 7.53

737-700 vs. 737-300 at $93/bbl -8.30%

11%

Fuel

Maintenance

Flight Crew

Capital Cost Others

59%

16%

13%

1%

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and as a result, average retirement ages appear to be trending down slightly for certain narrowbody aircraft

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5

10

15

20

25

30

35

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

A ve r

a ge

A ge

of R

e ti r e

me n

t

Year Retired

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and the impending arrival of aircraft with new technology engines will impact retirements for current models

0

50

100

150

200

250

300

350

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 5 10 15 20 25 30 35 40

De l

i ve r

i es

I n

S er v

i ce

P ro

b ab i

l i ty

Years Since Delivery

Oldest aircraft

approaching 20 years

Median retirement age appears on track for less than 25 years

How will the A320neo affect retirements?

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ICF SH&E has therefore moved to a more sophisticated approach to project aircraft economic lives

0

5

10

15

20

25

30

35

CRJ-200 A320-200(-5A/-A1)

A320-200(-5B/-A5)

737-800 757-200 747-400

Significant risk exists in making business decisions on simplified or generic assumptions.

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.and ICF projects more than 6,500 retirements through 2022, which will drive 41% of deliveries

Source: ICF SH&E AnalysisNote: includes turboprops and regional jets

B737-NG

-

2,000 4,000 6,000 8,000

10,000 12,000 14,000 16,000 18,000

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Retirements will average between 600 700 per year over the forecast period

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

0

100

200

300

400

500

600

700

800

Includes TurbopropsSource: Airline Monitor Feb 2013, ACAS Jan 2013, ICF SH&E

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however a decrease in retirement age could have a significant impact on retirements

0

200

400

600

800

1,000

1,200

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

ICFs nominal forecast ~6,500

retirements

However if the average

retirement age decreases three

years retirements increase to

~8,600

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MRO Market Forecast

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Todays active fleet is about 27,000 aircraft with 57,700 enginesMRO MARKET PROFILE: 2013 GLOBAL FLEET

excludes all Russian built aircraftexcludes all Russian built aircraftSource: ICF SH&E analysisSource: ICF SH&E analysis

2013 Global Aircraft Fleet (total = 27,050)

Single Aisle,

13,700; 51%

Twin Aisle 18%

Regional Jets 14%

Turboprop 17%

Todays single aisle fleet of 13,700 aircraft accounts for 51% of the fleet

The twin aisle and turboprop fleets are roughly the same size between 4,500-5,000 aircraft each

The smallest fleet is regional jets with about 3,900 in total

These aircraft carry ~57,700 enginesi.e., the average engines per aircraft is 2.13

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The global fleet is expected to grow by 950 aircraft a year to about 35,600 aircraft in 2022, led by Asia Pacific (incl. China)

MRO MARKET PROFILE: 2013 GLOBAL FLEET

-4,000

1,000

6,000

11,000

16,000

21,000

26,000

31,000

36,000

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2013 2022

AfricaSouth AmericaAsia / PacificMiddle EastEuropeNorth America

Fleet Growth 2013-2022

Source: ICF SH&E analysisSource: ICF SH&E analysis

CAGR

4.6%

5.7%

1.9%

1.5%

3.1% Average

4.1%

4.9%

6,8506,850

10,25010,250

25%

29%

32% 27%

35,60035,600

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MRO MARKET PROFILE: 2013 GLOBAL MARKETSIZE

Source: ICF SH&ESource: ICF SH&E

The 27,000 aircraft generate an MRO market of $59B with engine MRO accounting for about 40%

North America,

30%

Asia / Pacific,

28%

Europe, 26%

Middle East 6%

South America,

6%

Africa, 4%

Global MRO Spend (2013 USD Billions)

Engine $23.7B,

40%

Airframe Heavy, 22%

Component 21%

Line 17%

$59B $59B

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$59.2

$84.7

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

2013 2022

LineHeavy AirframeComponentsEngine

The global MRO market is expected to grow to $85B by 2022, at 4.1% per annum

MRO MARKET PROFILE: LONG TERM FORECAST - GLOBAL

Forecast in 2012 $USD, exclusive of inflation. Includes turbopropsForecast in 2012 $USD, exclusive of inflation. Includes turboprops


CAGR

3.2%

4.2%

4.5%

4.1%

4.1% Average

Average growth is forecast to be 4.1% CAGR to $85B in 2022

Growth outlook reflects the blended impact of: Fleet and utilisation growth Typically higher cost/event Improvements in reliability Fleet age demographics

The strongest driver of growth are expected to be the engine and component markets

Despite reducing manhour intensity of airframe heavy checks as the fleet renews, upgrade and modification demand means airframe heavy MRO grows at 4.2% CAGR


17%

22%

21%

40%

16%

22%

22%

40%

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Asia Pacific active fleet is about 6,850 aircraft with over 14,600 enginesMRO MARKET PROFILE: ASIA/PACIFIC FLEET

excludes all Russian built aircraftexcludes all Russian built aircraftSource: ICF SH&E analysis; China/Far East includes China, Hong Kong, Macao, Japan, Mongolia, South Korea and TaiwanSource: ICF SH&E analysis; China/Far East includes China, Hong Kong, Macao, Japan, Mongolia, South Korea and Taiwan

2013 Asia Pacific Aircraft Fleet (total = 8,850)

Asia Pacifics single aisle fleet of 3,700 aircraft accounts for 54% of the fleet (vs. 51% for global feet)

The twin aisle fleet accounts for about 24% of the Asia Pacific aircraft fleet

The smallest fleet is regional jets with about an estimated 400 in total

The aircraft fleet carry ~14,600 enginesi.e., the average engines per aircraft is 2.13

Single Aisle, 54%

Twin Aisle 24%

Regional Jets 6%

Turboprop 16%

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The Asia Pacific fleet is expected add about 3,400 aircraft to reach 10,300 aircraft in 2022, a CAGR of 4.6%

MRO MARKET PROFILE: ASIA/PACIFIC FLEET

0

2,000

4,000

6,000

8,000

10,000

12,000

2013 2022

TurbopropRegional JetTwin AisleSingle Aisle

Fleet Growth 2013-2022


CAGR

1.5%

5.6%

4.0%

5.5%

4.6% Average

10,30010,300

6,8506,850

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MRO MARKET PROFILE: 2013 ASIA PACIFIC MARKETSIZE

The 6,850 aircraft generate an MRO market of $16.4B (28% of global MRO spend) with engine MRO accounting for 40%

Asia Pacific MRO Spend (2013 USD Billions)

Engine, 40%

Airframe Heavy, 21%

Component 21%

Line 18%

$16.4B

Source: ICF SH&E analysis; China/Far East includes China, Hong Kong, Macao, Japan, Mongolia, South Korea and TaiwanSource: ICF SH&E analysis; China/Far East includes China, Hong Kong, Macao, Japan, Mongolia, South Korea and Taiwan

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$16.4

$26.5

$0

$5

$10

$15

$20

$25

$30

2013 2022

LineHeavy AirframeComponentsEngine

The Asia Pacific MRO market is expected to grow to $26.5B by 2022, at 5.5% per annum

MRO MARKET PROFILE: LONG TERM FORECAST ASIA/PACIFIC



CAGR

4.0%

5.7%

6.0%

5.7%

5.5% Average

Average growth is forecast to be 5.5% CAGR to $26.5B in 2022

Heavy airframe MRO see strong growth due to heavy checks becoming due by the 2022 time frame, as well as modifications

Component and engine MRO also grow faster than global average


17%

20%

21%

42%

15%

21%

21%

42%

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$6.0

$4.2 $4.1$2.6 $2.6 $2.4 $1.8 $1.8

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

Asia/Pacific(excl China)

Middle East China EasternEurope (incl

CIS)Latin

AmericaNorth

AmericaAfrica Western

Europe

Absolute MRO growth in $ terms is emphatically in Asia/Pacific/China and the Middle East

MRO MARKET PROFILE: LONG TERM FORECAST


Difference in $ MRO Spend, 2022 vs. 2013, By Region(USD Billions)


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Asia Pacific MRO

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The MRO (and aerospace OEM) supply chain continues to globalizeASIA PACIFIC MRO

There are several drivers of this globalization: Market growth in

developing economies Local presence

enhances market access

Get behind customs barriers

Excellence in (or access to excellent) logistics has become a critical success factor

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Aerospace Investments In UAE

ASIA PACIFIC MRO

Slightly further from Asia, the UAE is becoming the Middle East hub for MRO

Bombardier/ExecuJetJV in Dubai (Service Centre/Spare parts

depot)

B/E Aerospace in Dubai (MRO/ Distribution)

Goodrich in Dubai and Abu Dhabi (MRO)

Chromalloy/Masaood JV in Dubai

(MRO)

Moog in Dubai (Distribution)

Thales/GAMCO JV in Abu Dhabi

(MRO)

GE/MubadalaJV in Abu Dhabi

(MRO)

Rolls Royce/ Mubadala JV in

Abu Dhabi (MRO)

EADS/Mubadala JV in Abu Dhabi

(composites manufacturing); JV

with Tawazun (alloys)

Finmeccanica/ Mubadala JV in Abu Dhabi (composites

manufacturing)

Sikorsky/ Mubadala in Abu Dhabi (military aviation MRO)

The broad-based initiative of the UAE to become an aerospace cluster is bearing fruit; Mubadala is an important catalyst

Several leading OEMs have made MRO investments; market clusters are emerging

Composites manufacturing capability is a key focus area

The key challenge for the UAE is human resources; most firms are heavily dependent on expensive expatriate labor

Source: ICF SH&E

Partnered TransworldAviation

distribution/MRO

Aerostructures plant

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ASIA PACIFIC MRO

Subang is the hub for MRO activities in Malaysia; MAEs main facility is at Subang so co-location makes sense

Subang is also a key hub for business aviation & rotary wing

Penang is a major electronics manufacturing hub in the region; Kedah and Melaka has seen some success in composites manufacturing

Malaysia has comparative advantages in availability of land, good infrastructure and lower labour costs

Source: ICF SH&E

Subang: AAR/AIROD JV (Landing gear

MRO)

Subang: Full-fledged regional hub for

maintenance and servicing

Bukit Kayu Hitam: Boeing/Hexcel JV

(Manufacture, sell and distribute composite parts for secondary

structures for Boeing commercial aircraft)

Subang: EADS SECA/MAE JV (PW100

engines MRO)Subang: Sales and

distribution centre of EC products; and MRO

service centreSubang: GE/MAS JV

(Repairs and overhauls for GE, CFM56, and PW4000

engines for MAS and other Asia-Pacific airlines

Subang: Jet Aviation/AIROD JV (FBO,

line maintenance, AOG and tenant services to local

and regional aircraft operators)

Klang: Hamilton Sundstrand/MAS JV (Overhaul and repair

of aircraft air management systems)

Subang: Hawker Pacific/ExecuJet JV

(Full handling services, VIP lounge and fuel provision)

Perai: Avionics integrated supply

chain activities

Petaling Jaya: MTU/Lufthansa Technik JV (Engine repair workshop)

Subang: P&W/MAE JV (Composite repair and

overhaul of engine nacelles)

Subang: Sabena/MAE JV (Component repair and overhaul) [MoU]

Subang: Manufacture composites

subassemblies

Malaysia is also developing a good and broad base for MRO

Melaka: CTLA: CTRM/CTL JV

(Composites testing)

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ASIA PACIFIC MRO

And while China has been very popular for manufacturing investments, it will also grow in importance as an MRO destination

Broad and deep manufacturing capability and comparative advantage in labor

The second most popular destination for OEMs to establish JVs or new manufacturing facilities

Also has a growing roster of second and third tier aerospace suppliers; some OEMs prefer arms length relationships with Chinese suppliers over direct investment

Manufacturing and raw material capabilities will grow as the indigenous aircraft industry continues to develop

Source: ICF SH&E

Selected Aerospace Investment In China

Tianjin: Composites

manufacturing

Shanghai: COMAC 919 manufacture

Harbin: ERJ145 Assembly

Harbin: EC175 design and production

Suzhou: Autoclaved

composite parts

Xian: Landing gear and engine nacelle

components

Nanjing: Design and production of ECS

Suzhou: Engine partsShanghai: Wheels and Brakes (C919)

Suzhou: Landing gear components

Xian: NacellesShanghai: ECS

Xiamen: Sensors, valves, nozzles

Chengdu: Precision sheet metal

Shengyang: Heat shields

Xian: turbine NGVs, turbine rings,

compressor seals Harbin: A350 composite parts

Tianjin: A320 Final Assembly Line

Xian: Electrical systems C919

Chengdu: Commsand Nav for C919

Shanghai: Fuel systems (C919)

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Singapore, Malaysia, China/HK are established aerospace clusters; gaps/opportunities, perhaps, exist in Indonesia, Thailand

ASIA PACIFIC MRO

wsj.com

Transport Minister Chadcharts fb post on 23 Aug 2013:

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Thank you

~85 professional staff, dedicated exclusively to aerospace and aviation

Specialized, focused expertise and proprietary knowledge

Global presence six major officesAnn Arbor Boston New York London

Singapore Beijing

Airports Airlines Aerospace & MRO Asset Advisory Safety & SecurityAirports Airlines Aerospace & MRO Asset Advisory Safety & Security

Dennis [email protected]

MROMarketOutlook-AsiaPacific

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