pma potential: an industry forecast marpa annual...

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NAVIGATING THROUGH THE UNPREDICTABLE

UNCERTAINTY AND RISK . . .

PMA POTENTIAL: AN INDUSTRY FORECASTMARPA ANNUAL CONFERENCE

OCTOBER, 2014

10/02/2014

©TeamSAI


GLOBAL FLEET AND MRO OUTLOOK

210/02/2014

©TeamSAI

23,010

28,019

32,906

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2014 2019 2024

NB WB RJ TP

2014-2024 GLOBAL FLEET FORECAST

GLOBAL FLEET OUTLOOK – COMMERCIAL AIRLINE SECTOR

2014-2024 REGIONAL FLEET FORECAST

310/02/2014

- 5,000 10,000

NA

WE

AP

CH

LA&C

EE

ME

AF

IN

2014 2019 20242014-2024

CAGR2024

Mrkt Share Region

0.8% 24%

2.1% 18%

4.4% 17%

7.3% 12%

5.1% 8%

5.6% 6%

5.8% 6%

5.1% 5%

11.4% 3%

©TeamSAI 4

GLOBAL MRO OUTLOOK

10/02/2014

4.2%2014-2024 CAGR

$58B $87BGLOBAL MARKET SIZE

$11.5B $11.8B $12.3B $12.5B $13.0B $13.2B $14.6B $15.2B $15.6B $16.1B $17.2B

$22.1B $22.9B $22.9B $23.4B $24.7B$29.9B $29.1B $29.0B $29.5B $31.7B $33.2B

$12.2B $13.1B $13.5B $14.2B $14.5B$15.3B $16.0B $16.7B $17.4B

$17.8B$18.7B

$11.9B $12.5B $13.0B $13.6B$14.2B

$14.8B $15.4B $16.0B $16.6B$17.2B

$17.7B

$57.7B $60.3B $61.7B $63.6B $66.3B$73.2B $75.1B $76.9B $79.1B

$82.8B$86.8B

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Airframe Engine Component LineCAGR 4.1% 4.1% 4.4% 4.1%

% of 2024 Market 19.8% 38.3% 21.5% 20.4%

©TeamSAI


GLOBAL MATERIAL MARKET OUTLOOK

510/02/2014

©TeamSAI 6

GLOBAL MRO MATERIAL DEMAND

10/02/2014

4.2%2014-2024 MATERIAL DEMAND CAGR

$37B $55BGLOBAL MATERIAL DEMAND

$20.9B $21.0B $20.6B $20.7B $21.5B $25.4B $26.6B $26.5B $26.9B $28.7B $31.5B

$36.8B $39.2B $41.1B $42.9B $44.8B$47.8B $48.5B $50.4B $52.2B

$54.1B$55.4B

$57.7B $60.3B $61.7B $63.6B $66.3B$73.2B $75.1B $76.9B $79.1B

$82.8B$86.8B

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Labor Material% of 2024 Market 36.2% 63.8%

©TeamSAI 7

MRO BASED DEMAND COMPOSITION

10/02/2014

MaterialCosts(2)

PARTS REPAIRCOSTS

MATERIALCOSTS(1)

Labor Costs

LABORCOSTS

MRO BASED DEMAND

(1) Expendable and Consumable only(2) Expendable and Consumable used to repair a Rotable

©TeamSAI 8

MRO BASED DEMAND COMPOSITION

10/02/2014

Labor60%

Labor9%

Labor41%

Labor77%

Material40%

Material91%

Material59%

Material23%

HMV & MOD Engine Component Line

Each MRO sector has unique labor & material demands

©TeamSAI 9

SPARES BASED DEMAND COMPOSITION

10/02/2014

ROTABLE SCRAP

REPLACEMENT

SPARES IN TRANSIT

SPARES ON THE SHELF

SPARES BASED DEMAND(1)

(1) Expendable, Consumable and Rotable

Rotables are generally capitalized and viewed as investments

©TeamSAI 10

GLOBAL MATERIALS DEMAND COMPOSITION

10/02/2014

MRO Based

Demand

Spares & Availability

Based Demand

Total Post-Delivery Parts

Demand

©TeamSAI 11

GLOBAL MATERIALS MARKET – DEMAND BY SEGMENT

10/02/2014

$4.6B $5.5B $7.4B

$20.1B

$27.2B

$30.3B

$7.2B

$9.0B

$11.0B

$2.8B

$3.7B

$4.5B

$2.1B

$2.4B

$2.1B

$36.8B

$47.8B$55.4B

2014 2019 2024

Total Materials Demand is 63.8% of MRO Total in 2024

Airframe Engine Component Line SparesCAGR 4.8% 4.2% 4.4% 4.9% 0.2%

% of 2024 Market 13% 55% 20% 8% 4%

©TeamSAI

4.6%$3.3B $5.2B2014-2024 HARVESTED MATERIAL CAGRHARVESTED MATERIAL IMPACT ON GLOBAL SPARE MATERIALS MARKET

12

GLOBAL MATERIAL MARKET – DEMAND FULFILLED BY HARVESTED MATERIAL

10/02/2014

$33.5B

$43.7B$50.2B

$3.3B

$4.1B

$5.2B

$36.8B

$47.8B$55.4B

2014 2019 2024

All Other Harvested% of 2024 Market 90.6% 9.4%

©TeamSAI


PMA PARTS MARKET OUTLOOK

1310/02/2014

©TeamSAI 1410/02/2014

PMA PARTS DEMAND

Global MRO MarketGlobal MRO Market

Global Material Demand

Global Material Demand

Spares Based

Demand

MRO Based

DemandPMA

©TeamSAI 1510/02/2014

TOTAL PMA PARTS DEMAND

Airframe Engine Component Line SparesCAGR 0.8% 3.0% -0.1%

% of 2014 Market 11.5% 49.4% 29.0% 3.4% 6.8%% of 2024 Market 19.2% 39.7% 29.0% 7.2% 5.0%

$49.4M $71.1M$111.1M

$212.7M$220.2M

$229.8M

$124.7M$144.6M

$167.6M$14.6M

$24.6M

$41.4M

$29.2M

$29.1M

$28.8M

$430.6M$489.5M

$578.6M

2014 2019 2024

PMA Parts Demand is currently 1.2% of Total MRO Materials Demand

©TeamSAI 1610/02/2014

PMA PARTS DEMAND BY REGION 2014

$12.6M

$84.2M

$31.5M

$16.6M

$6.8M

$19.9M

$32.1M

$130.9M

$96.0M

Top three regions make up 73% of the PMA parts market

©TeamSAI 1710/02/2014



$16.9M

$99.6M

$49.3M

$21.7M

$10.6M

$27.9M

$43.4M

$120.4M

$99.6M

©TeamSAI 1810/02/2014



$21.6M

$115.9M

$71.2M

$28.4M

$17.4M

$37.8M

$55.8M

$124.2M

$106.3M

©TeamSAI 1910/02/2014

PMA PARTS DEMAND BY AIRCRAFT CLASS

Narrowbody Widebody Regional Jet TurbopropCAGR 3.9% 3.5% -4.2% 0.8%

2024 Penetration 1.1% 1.0% 1.1% 1.1%

$186.9M$227.3M

$274.2M

$180.1M

$207.2M

$254.0M$42.9M

$33.0M

$28.0M

$20.6M

$22.0M

$22.3M

$430.6M$489.5M

$578.6M

2014 2019 2024

©TeamSAI 2010/02/2014

PMA DEVELOPMENT TRENDS

0 2 4 6 8 10 12 14 16 18 20 22 24

Years Since New Model Introduction

PMA Development Activity Over Time

Warranty ExpiresOEM LTAs Begin

ExpiringAircraft Part-Outs Begin Picking Up

PMA Sweet SpotPMA Sweet Spot

©TeamSAI

• Operators looking to reduce costs in all areas of operations –Including aircraft maintenance

• Or rather, maintenance is one of the more significant lever operators have to pull–So identifying specific areas of improvements within maintenance is critical

22

MARKET DYNAMICS

10/02/2014 Cost Distribution

2%Profit

6%Tax/Fee

17%Maintenance

10%Ownership

38%Fuel

23%Labor

4%Other

Segment Labor Material

Airframe 60% 40%

Engine 9% 91%

Comp. 41% 59%

Line 77% 23%

MRO 36% 64%

©TeamSAI 23

MARKET DYNAMICS

10/02/2014

PMAMarket Size

$400-500M

in context <2% of MRO material demand

…yet there is a rationale

Attractiveto airlines

creates competition for spare parts30-50% discount over OEMreduced sourcing lead times over OEM

small…

$

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•Considering the many benefits, why doesn’t PMA take off?–The popularity of generic drugs is a common analogy

24

MARKET DYNAMICS

10/02/2014

OEM Product Improvement; LTSA; Fear

Cost Savings; Long Production

Runs

PMA

Succ

ess

PMA

Succ

ess

Answer: Competition!

©TeamSAI 25

MARKET DYNAMICS

10/02/2014

Constituency Position on PMA

Lessors Hesitant• Residual values• Marketability• Depends on acceptance

OEMs Opposed• Protect market share• Long-term Service Agreements (LTSA)

• Offering lessor-specific products (e.g., PML, V-Secure, Opera)

PMAs Proponent• Expanding MRO presence• Access end-user• Access OEM content

MRO

©TeamSAI 26

MARKET DYNAMICS

10/02/2014

•Engine PMA market likely to all but disappear in the distant future because…1. Fleets shifting to new generation

aircraft and engines2. OEMs locking up new gen

aftermarket on LTSA3. Dismantled aircraft providing

additional alternative supply of parts

OEM64%

Distributors9%

Surplus8%

PMA1%

Parts Repair18%

Engine Maintenance Material Providers

Sour

ce:

Team

SAI C

onsu

lting

Ser

vice

s an

alys

is

OEMs’ LTSA share of demand-side forecast for global engine MRO revenuesAvailable refers to engine MRO work not on long-term service agreements

So where will PMA growth come from?

How are PMA providers responding?

©TeamSAI 27

MARKET DYNAMICS – WHERE THE GROWTH WILL BE

10/02/2014

Airframe Engine Component Line SparesCAGR 0.8% 3.0% -0.1%

% of 2014 Market 11.5% 49.4% 29.0% 3.4% 6.8%% of 2024 Market 19.2% 39.7% 29.0% 7.2% 5.0%

$49.4M $71.1M$111.1M

$212.7M$220.2M

$229.8M

$124.7M$144.6M

$167.6M$14.6M

$24.6M

$41.4M

$29.2M

$29.1M

$28.8M

$430.6M$489.5M

$578.6M

2014 2019 2024

Airframe and Cabin Components as well as Line Maintenance…

…but these markets are notably smaller than engine

©TeamSAI 28

DIVERSIFICATION IS KEY

10/02/2014

Licensed suppliers

Producing parts in collaboration with OEMs to help meet demand & reduce cost of production

Competitive suppliers

Challenging OEMs for market share

©TeamSAI


THANK YOU

2910/02/2014

David A. MarcontellPresident & COOTeamSAI, Inc.(404) [email protected]

WWW.TEAMSAI.COM

pma potential: an industry forecast marpa annual...

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