Ann Arbor, Michigan • Amersham, U.K. www.AeroStrategy.com Aviation Maintenance Professional Symposium San Diego, California 1 & 2 October 2008 Outlook For Performance Outlook For Performance - - Based Logistics Based Logistics An Overview Of The Global Military Aircraft MRO Market An Overview Of The Global Military Aircraft MRO Market Presented by Presented by Kevin Michaels, Principal Kevin Michaels, Principal AeroStrategy LLC AeroStrategy LLC
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Outlook For Performance-Based Logistics · Ann Arbor, Michigan • Amersham, U.K. Aviation Maintenance Professional Symposium San Diego, California 1 & 2 October 2008 Outlook For
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Ann Arbor, Michigan • Amersham, U.K.www.AeroStrategy.com
Aviation Maintenance Professional SymposiumSan Diego, California1 & 2 October 2008
Outlook For PerformanceOutlook For Performance--Based LogisticsBased LogisticsAn Overview Of The Global Military Aircraft MRO MarketAn Overview Of The Global Military Aircraft MRO Market
Presented byPresented byKevin Michaels, PrincipalKevin Michaels, Principal
The Military Fleet Continues Its Decline The Military Fleet Continues Its Decline –– Dropping Below Dropping Below 38,000 Aircraft By 201838,000 Aircraft By 2018
CumulativeDeliveries
2007Fleet Less
Retirements
Mili
tary
Airc
raft
Flee
t 37,95038,62639,133
2008 – 2018 Global Military Aircraft Fleet Forecast
US Military Aircraft MRO Expenditures Are More Than US Military Aircraft MRO Expenditures Are More Than Twice That Of The Next Largest RegionTwice That Of The Next Largest Region
2008 Military MRO MarketTotal = $60.7 B
Reset
Figures are for western aircraft onlySource: AeroStrategy/OAGback
Engine MRO Spending Exceeds $8.0B; GE Engines Engine MRO Spending Exceeds $8.0B; GE Engines Account For More Than OneAccount For More Than One--Third Of The DemandThird Of The Demand
Despite A Declining Fleet And Declining Reset Dollars, MRO Despite A Declining Fleet And Declining Reset Dollars, MRO Expenditures Still Grow To Almost $65 BillionExpenditures Still Grow To Almost $65 Billion
Global Military Maintenance Market Forecast2008 – 2018
• The decline in Reset causes overall growth to be less than 1%• 2% increase due to ageing offsets the fleet decline
–– Extending to CHExtending to CH--47 Chinook47 Chinook–– Boeing partnership with Corpus Boeing partnership with Corpus
Christi Army DepotChristi Army Depot–– Initially focused on rotor bladesInitially focused on rotor blades
•• Ogden ALC awards Honeywell $370M PBL Ogden ALC awards Honeywell $370M PBL contract to support Bcontract to support B--2 and C2 and C--130 APU 130 APU fleetsfleets
–– First PBL issued by OOFirst PBL issued by OO--ALCALC–– Could expand to FCould expand to F--15, C15, C--5, A5, A--10, B110, B1--B, B,
EE--3 and F3 and F--16s at Hill Air Force Base 16s at Hill Air Force Base •• USAF launches business case review of the USAF launches business case review of the
CC--17 GSP Program 17 GSP Program –– arguably the most arguably the most successful PBL programsuccessful PBL program
Source: secondary research, DAU
Number of ACAT I & II ProgramsSupported By PBL COntracts
France Have Progressed Quite Far Toward PBL / PFI; France Have Progressed Quite Far Toward PBL / PFI; Israel Is Beginning That JourneyIsrael Is Beginning That Journey
•• $2.2 billion in MRO spend (3$2.2 billion in MRO spend (3rdrd overall)overall)•• Significant organic capabilitySignificant organic capability
•• Advanced along the contracting spectrum Advanced along the contracting spectrum with several major contractswith several major contracts
–– €€50m EC145 ILS contract50m EC145 ILS contract–– €€319m Eurocopter helicopter support 319m Eurocopter helicopter support
contract (600+ helicopters with contract (600+ helicopters with availability guarantees)availability guarantees)
–– 22 year EC120 training PFI22 year EC120 training PFI
FRANCEFRANCE
ISRAELISRAEL
•• $2.0 billion in MRO spend (4$2.0 billion in MRO spend (4thth overall)overall)•• Typically relies upon several governmentTypically relies upon several government--
owned and private defense contractorsowned and private defense contractors–– IAI, governmentIAI, government--owned, but owned, but
increasingly independentincreasingly independent–– ElbitElbit–– Bet ShemeshBet Shemesh
•• Ability to outsource severely limitedAbility to outsource severely limited•• Moving into PBL and PFI contractsMoving into PBL and PFI contracts
–– PBH for Bell 206/209 training PBH for Bell 206/209 training helicopters with Cyclone (an Elbit helicopters with Cyclone (an Elbit subsidiary)subsidiary)
–– Grob 120 training PFIGrob 120 training PFI•• New programs / upgradesNew programs / upgrades
The UK Is The Leading Innovator In MilitaryThe UK Is The Leading Innovator In MilitarySupport; Turkey Has Limited PBL ExperienceSupport; Turkey Has Limited PBL Experience
•• $1.9 in MRO spend (5$1.9 in MRO spend (5thth Overall)Overall)•• Dramatic steps to restructure their Dramatic steps to restructure their
approach to aircraft supportapproach to aircraft support–– Creation of DE&S (DLO & DPA)Creation of DE&S (DLO & DPA)–– Sale of DARA Fleetlands (Helicopter Sale of DARA Fleetlands (Helicopter
support facilities) to Vectorsupport facilities) to Vector–– Defence Industrial Strategy (DIS)Defence Industrial Strategy (DIS)
•• Moving to Moving to ““ThroughThrough--LifeLife”” support. E.g. :support. E.g. :–– BAE / all fast jetsBAE / all fast jets–– AgustaWestland AgustaWestland –– most helicoptersmost helicopters
•• Most advanced along the Most advanced along the ““Transformation StaircaseTransformation Staircase”” with a with a number of number of ““integratedintegrated”” contractscontracts
•• $1.5 billion in MRO spend (7$1.5 billion in MRO spend (7thth overall)overall)
•• Most MRO provided via governmentMost MRO provided via government--owned Turkish Aerospace Industriesowned Turkish Aerospace Industries
•• TAI responsible for the utilization of the TAI responsible for the utilization of the capabilities of 5th Main Maintenance capabilities of 5th Main Maintenance Center (MMC) and Air Force Supply and Center (MMC) and Air Force Supply and Maintenance Centers (ASMC) of the Maintenance Centers (ASMC) of the Turkish Armed ForcesTurkish Armed Forces
•• Several key new programsSeveral key new programs–– FF--16i Block 5016i Block 50–– FF--35 (TAI to build under license and 35 (TAI to build under license and
provide MRO services)provide MRO services)–– A400M (10 ordered through OCCARA400M (10 ordered through OCCAR
•• Limited experience with PBL or PFILimited experience with PBL or PFI
Germany Has Begun Pursuing PerformanceGermany Has Begun Pursuing Performance--Base Base Contracting; Italy Has Shown Little InterestContracting; Italy Has Shown Little Interest
•• $1.5 billion in MRO spend (8$1.5 billion in MRO spend (8thth overall)overall)•• Some organic capabilities, but fewer than Some organic capabilities, but fewer than
FranceFrance•• Germany has begun the trek moving Germany has begun the trek moving
towards PBL and PFI contractstowards PBL and PFI contracts•• Several Public Private Partnerships with Several Public Private Partnerships with
MTU for engine supportMTU for engine support–– RB199RB199–– EJ200EJ200
•• Recently entered GermanyRecently entered Germany’’s first PFIs first PFI–– NH90 trainingNH90 training–– €€488m, 14.5 year contract with 488m, 14.5 year contract with
Helicopter Flight Training services Helicopter Flight Training services (CAE, Eurocopter, Rheinmetall (CAE, Eurocopter, Rheinmetall Defense Electronics and Thales)Defense Electronics and Thales)
The Level Of PBL Contracts The Level Of PBL Contracts –– Platform Versus System Or Platform Versus System Or Component Level Component Level –– Is The Source Of Much DebateIs The Source Of Much Debate
PBL Contract TypesPBL Contract Types
Component LevelComponent Level
Systems Level Systems Level (e.g. (e.g. –– Avionics, electrical Avionics, electrical
system, or propulsion system, or propulsion system)system)
Platform Level Platform Level (e.g. (e.g. –– CC--17, F17, F--22 or NH22 or NH--90)90)
2004 GAO Report noted limited use of Platform Level PBLs in private industry and recommended a focus on component or subsystem PBLs
The Aircraft Life Cycle Provides One Framework To The Aircraft Life Cycle Provides One Framework To Consider The Appropriate PBL StructureConsider The Appropriate PBL Structure
The UK Transformation Staircase Illustrates The Step Beyond The UK Transformation Staircase Illustrates The Step Beyond PBL PBL –– Contracting For Capability, Typically Via PFIContracting For Capability, Typically Via PFI
TraditionalTraditional
SparesSparesInclusiveInclusive
ContractingContractingForFor
AvailabilityAvailability
ContractingContractingForFor
CapabilityCapability
Source: UK MoD
DE&SDE&S
ProviderProvider DeciderDecider
UK Support Transformation StaircaseSu
pplie
rSu
pplie
rIncreasedIncreased
InvolvementInvolvement
Contracting for availability:Contracting for availability:Supplier responsible for delivering platforms and equipment to agreed performance and output standards
Contracting for capability:Contracting for capability:Supplier responsible for providing a capability (e.g. Air to Air Refueling) and outputs to agreed performance standards
DE&S = Defense Equipment & Support, the UK organization responsible for managing acquisition and support
Key MessagesKey Messages•• Over 39,000 military aircraft generate Over 39,000 military aircraft generate
$60.7 billion in MRO activity in 2008$60.7 billion in MRO activity in 2008•• Reconstitution / Recap has a noticeable Reconstitution / Recap has a noticeable
impact on the marketimpact on the market•• Military MRO will grow to almost $65B by Military MRO will grow to almost $65B by
2018 despite a shrinking fleet2018 despite a shrinking fleet•• The countries examined resist simple The countries examined resist simple
generalization generalization →→ suggesting there is no suggesting there is no ““oneone--size fits allsize fits all”” solution. A complex solution. A complex set of factors govern a countryset of factors govern a country’’s s progress along the contracting progress along the contracting continuumcontinuum
•• Several issues must be considered when Several issues must be considered when evaluating a support strategyevaluating a support strategy
–– Platform maturityPlatform maturity–– MissionMission–– Level of contracting (Platform vs. System)Level of contracting (Platform vs. System)–– Pros and cons of contracting for Capability Pros and cons of contracting for Capability
To learn more about AeroStrategy please contact:US OfficeKevin Michaels, Principal Hal Chrisman, PrincipalPh: +1 (734) 821-0220 Ph: +1 (734) [email protected][email protected]