MRO Middle East: 10 Year Forecast and Trends
Presented by David Stewart
1 February, 2011
Aviation Week MRO Middle East, Dubai
Ann Arbor, Michigan • Amersham, United Kingdom • Singapore
www.AeroStrategy.com
Aviation Week MRO Middle East 2011© 2011 AeroStrategy
Agenda
2
MRO Middle East
MRO Market Recovery
Market Challenges And Trends
Aviation Week MRO Middle East 2011© 2011 AeroStrategy 3
2010 Air Transport MRO Market ($43.6B)
By
Activity
By
Region
Source: AeroStrategy/OAG Aviation
2010 Civil MRO Spend Was $43.6B; Middle East Operators Account For 5% Of Spend, Or $2.3B
Engine35%
Components23%
Line20%
Airframe Heavy15%
Modifications7%
North America, 32%
Europe, 30%
Asia Pacific, 17%
Latin America, 5%
Middle East, 5%, $2.3B
China, 5%
Africa, 4% India, 1%
Air Transport
MRO Market
Outlook
Aviation Week MRO Middle East 2011© 2011 AeroStrategy 4
CAGR
Air Transport MRO Market Growth By Segment ($M)*
Source: AeroStrategy OAG Aviation
* Constant 2009 US$
The Long Term Growth Rate Is 3.3%; Airframe Heavy Maintenance Has The Slowest Growth
Air Transport
MRO Market
Outlook
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2010 2019
Modifications, 8.4%
Airframe Heavy, 0.5%
Line, 1.3%
Components, 2.9%
Engine, 4.5%
$43.6B
$58.4B
Total = 3.3%
Aviation Week MRO Middle East 2011© 2011 AeroStrategy 5
Air Transport MRO Market Growth By Region ($M)*
CAGR
Source: AeroStrategy OAG Aviation
* Constant 2009 US$
The Fastest Regional Growth Rates Are India, China And Middle East; Middle East Grows To $4.8B Or 8% Of Global Demand In 2019
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2010 2019
India, 11%
Middle East, 8.3%
China, 10%
Rest of World, 3%
Asia Pacific, 4.1%
North America, 1.1%
Europe, 2.1%
Total = 3.3%
Air Transport
MRO Market
Outlook
$43.6B
$58.4B
M. East:
$2.3B, 5%
of total
M. East:
$4.8B, 8%
of total
Aviation Week MRO Middle East 2011© 2011 AeroStrategy 6
Military MRO Market Growth By Region ($M)*
Source: AeroStrategy OAG Aviation
* Constant 2009 US$
Military MRO Spend Is $60B Of Which Middle East Accounts For 7% ($4B); Middle East Shows Above Average Growth (3.1%) To $5.4B In 2019
Military MRO
Market
Outlook
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
2010 2019
Rest of World, 7%
Middle East, 3.1%
Asia Pacific, 1.5%
Europe, 1.2%
N. America, 1.5%
CAGR
Total = 3.1%
$59.8B
$71.5B
M. East:
$4B, 6.9%
of total
M. East:
$5.4B, 7.6%
of total
Aviation Week MRO Middle East 2011© 2011 AeroStrategy 7
Business Aviation MRO Market Growth By Region ($M)*
Source: AeroStrategy OAG Aviation
* Constant 2009 US$
Business Aviation MRO Spend Is $6.7B Of Which M. East Accounts For 3.4% ($227M); M. East Shows The Highest Growth (12%) To $640M In 2019
Business
Aviation
MRO Market
Outlook
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2010 2019
Rest of World, 10%
Middle East, 12.1%
Asia Pacific, 10.9%
L. America, 6.8%
Europe, 11%
N. America, 6.6%
CAGR
Total = 7.8%
$6.7B
$13.1B
M. East:
$227M,
3.4% of total
M. East:
$640M, 4.9%
of total
Aviation Week MRO Middle East 2011© 2011 AeroStrategy 8
Civil Helicopter MRO Market Growth By Region ($M)*
Source: AeroStrategy OAG Aviation
* Constant 2009 US$
Civil Helicopter MRO Spend Is $5.3B Of Which M. East Accounts For 6% ($335M); M. East Demand Grows To $412M In 2019
Civil
Helicopter
MRO Market
Outlook
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
2010 2019
Other, 2.5%
Middle East, 2.3%
L. America, 6.1%
Asia Pacific, 4.4%
Europe, 4.5%
N. America, 4.8%
CAGR
Total = 4.5%
$5.3B
$8B
M. East:
$335M, 6%
of total
M. East:
$412M, 5.2%
of total
Aviation Week MRO Middle East 2011© 2011 AeroStrategy 9
Middle East MRO Market Growth By Market Segment ($M)*
Source: AeroStrategy OAG Aviation
* Constant 2009 US$
Total Middle East MRO Demand Is $7B And This Is Set To Grow To $11.2B In 2019 At 5.3% CAGR
Middle East
MRO Market
Outlook
CAGR
0
2,000
4,000
6,000
8,000
10,000
12,000
2010 2019
Helicopter, 2.3%
Business Aviation, 12%
Military, 3.1%
Air Transport, 8.3%
$7B
$11.2B
Total = 5.3%
Aviation Week MRO Middle East 2011© 2011 AeroStrategy
Agenda
10
MRO Middle East
MRO Market Recovery
Market Trends And Challenges
Aviation Week MRO Middle East 2011© 2011 AeroStrategy
In Times Of Crisis, Spending Behaviour Changes And De-Stocking, Deferred Maintenance And Reduced Workscopes Attenuate Fundamental Spend
11
Simplified MRO Supply Chain
• Predicted airline maintenance
spending as a result of
aircraft demographics,
utilization, equipment
reliability, maintenance
programs and regulations
• A good predictor of supplier
MRO and aftermarket activity
in normal times
1. Fundamental Demand For Aircraft MRO
• Inventory stocking &
destocking, use of surplus
components, deferred and
reduced scope maintenance
• All of the above act as a
buffer between fundamental
demand and realized revenue
by OEMs and MRO suppliers
• Important in times of crisis
2. MRO Supply Chain Practices
Air Transport
MRO Market
Recovery
Aviation Week MRO Middle East 2011© 2011 AeroStrategy
…As A Result, OEM Aftermarket And MRO Supplier Revenues Plunged In 2009
12
Airline
Operator Overhaul
Shop
Outside
Parts
Repairs &
Processes
Service
Parts
Casting,
Forging &
Raw
Materials
2009 Reduction In MRO Supply Chain Revenues Due To Industry Crisis
(10 – 15%) (15 – 30%) (20 – 40%)Near-term reduction in
supplier revenues
Fundamental
MRO demand
down in 2009
• Most suppliers had a 10 –25% reduction in MRO/aftermarket revenue in 2009; the effects
were more pronounced for parts suppliers than overhaul shops
Source: AeroStrategy
Air Transport
MRO Market
Recovery
Aviation Week MRO Middle East 2011© 2011 AeroStrategy
12%
88%
A Key Difference From Previous Recessions Is The Smaller Scope Of Parked Aircraft That Could Come Back – Given Today’s Fuel Prices
13
Air Transport Fleet: Temporarily Inactive/ In Storage
1,553
High
potential to
return to
service at
current fuel
prices
Low-
moderate
potential /
obsolete
• Despite the large size (1,553) of the parked fleet, only a
small portion – 200 – is likely to return to service at current
fuel prices
• This equates to 1% of global capacity….or approximately
two months of production rates
Source: OAG Aviation
Aircraft Family Sep-10
737-3/4/500 201
MD80 181
DC9 136
737-1/200 106
146 74
727 73
EMB-135/140/145 78
757 54
747-1/2/300 47
747-400 47
CRJ-100/200 56
F100 48
A300-600 43
DC8-6/70 32
DC10 38
F28 31
328JET 29
A310 12
A300 19
MD11 9
717 9
L1011 12
707 10
F70 4
BAC 1-11 2
MD10 5
MD90 6
Total 1,362
Aircraft Family Sep-10
767 67
737-6/7/8/900 15
777 3
A320 Series 64
A330 11
A340 20
CRJ-700/900/1000 4
EMB-170/190 7
Total 191
Air Transport
MRO Market
Recovery
Aviation Week MRO Middle East 2011© 2011 AeroStrategy
An Estimated 15-20 Aircraft Are Being “Parted Out” Each Month…
14
• Globally, 15-20 aircraft per month are being “parted out”
• Engines, avionics, and other aircraft components are re-
circulated to the market, thereby suppressing MRO
demand
• Facilitating this phenomenon is a new breed of surplus
parts suppliers, with an impressive blend of financial
skills, technical capability and market savvy
• “Parting out” is not limited to mature aircraft; new
generation aircraft are also being cannibalized including
A320, A340, and advanced B767 models
• “Hot” surplus parts markets include:
− Aircraft: B737-3/4/500, B767, B747-400, CRJ
− Engines: CFM56-3, CFM56-5, CF34, V2500A1,
CF6-80C2
− High value components: APUs, avionics, others
• Surplus parts represent 15%+ of total aircraft parts
spending…and for some products 30-40%!
Source: AeroStrategy interviews
Air Transport
MRO Market
Recovery
Aviation Week MRO Middle East 2011© 2011 AeroStrategy
…Which Is Suppressing Aftermarket Demand Even As Inventory De-Stocking Runs Its Course
+%
-%
Start of
global
recessionReduction To
Fundamental MRO
Demand Due To
Deferred Maintenance
& Destocking
Reduction To
Fundamental MRO
Demand Due To
Aircraft Cannibalization
& High Use Of Surplus
Parts
Addition To
Fundamental MRO
Demand Due To
Deferred Maintenance
& Destocking
“Normal”
MRO Demand
(Fundamental
Demand =
realized
supplier
demand)
15
Factors Supressing Fundamental MRO Demand
Source: AeroStrategy
Air Transport
MRO Market
Recovery
Aviation Week MRO Middle East 2011© 2011 AeroStrategy
AeroStrategy Anticipates Mid-To-Upper Single Digit MRO Growth In 2011
16
Air Transport MRO Market – Realized Supplier Revenue($B) *
0
10
20
30
40
50
60
2008 2010 2012 2014 2016 2018
Source: AeroStrategy
* Constant 2009 US$
2009: Down 15-20%
Fundamental MRO
demand
Realized supplier
revenue
2010: Low Single
digit growth
2011: Mid-to-upper
single digit growth
2012: Low double
digit growth
Key Assumptions
• Fuel costs remain
high (>$80/bbl)
• Modest global GDP
growth
• Improved airline
profitability
continues in 2011
Air Transport
MRO Market
Recovery
Aviation Week MRO Middle East 2011© 2011 AeroStrategy
Agenda
17
MRO Middle East
MRO Market Recovery
Market Trends And Challenges
Aviation Week MRO Middle East 2011© 2011 AeroStrategy
There Are Six Trends That Will Drive The Structure Of The Overall MRO Sector In The Long Term…
Growing interest
in MRO market
from Airframe
OEMs
Continued
increases in
outsourcing
Continuing focus
on cost reduction
Demand for
integrated
support services
Larger share of
demand from
newer generation
aircraft
Civil MRO
Market
Trends
Source: AeroStrategy
Globalisation
18
Aviation Week MRO Middle East 2011© 2011 AeroStrategy
Why?
Growing interest
in MRO market
from Airframe
OEMs
Continued
increases in
outsourcing
Continuing focus
on cost reduction
Demand for
integrated
support services
Larger share of
demand from
newer generation
aircraft
Civil MRO
Market
Trends
Source: AeroStrategy
Globalisation
• New source of revenue and
margin growth for airframe
OEMs
• Natural fleet
migration to
more
efficient
airframes
• Economic
imperative
for airlines
• High relative
growth in
developing
regions
• Global supply
chain
• Predictable
cash flow
• Outsource
investment/
risk
• Focus on core business
• Cost of establishing capability
• Competitive third party market
19
Aviation Week MRO Middle East 2011© 2011 AeroStrategy
As A Result, Airlines And MROs Face A Number Of Key Challenges In The Future
Civil MRO
Market
Challenges
Source: AeroStrategy
• Increasingly OEM-centric
supply chain in the long
term
• New relationships
between airframe and
component OEMs,
airlines and independents
will need to develop
• Challenge to airline costs
represented by OEM
price escalation
• Reduce the complexity of
MRO and the supply
chain
• Size, financial strength
and breadth of service
increasingly important
to win larger contracts
• Logistics management
as critical success
factor
20
Growing interest
in MRO market
from Airframe
OEMs
Continued
increases in
outsourcing
Continuing focus
on cost reduction
Demand for
integrated
support services
Larger share of
demand from
newer generation
aircraft
Globalisation
Aviation Week MRO Middle East 2011© 2011 AeroStrategy
1Thank you for your attention!
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