surplus part market overview

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0 icfi.com/aviation | 0 Surplus Part Market Overview May 18, 2015 – Punta Cana, Dominican Republic Presented by: Jonathan M. Berger Vice President ICF International [email protected]

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0icfi.com/aviation | 0

Surplus Part Market OverviewMay 18, 2015 – Punta Cana, Dominican Republic

Presented by:

Jonathan M. BergerVice President ICF [email protected]

1icfi.com/aviation |

ICF is one of the world’s largest and most experienced aviation and aerospace consulting firms

52 years in business (founded 1963)

100+ professional staff

− Dedicated exclusively to aviation and aerospace

− Blend of consulting professionals and experienced aviation executives

Specialized, focused expertise and proprietary knowledge

Broad functional capabilities

More than 10,000 private and public sector assignments

Backed by parent company ICF International (2014 revenue - $1.05B)

Global presence –– offices around the world

Airports • Airlines • Aerospace & MRO • Aircraft Asset Advisory

joined ICF in 2011

joined ICF in 2007

New York • Boston • Ann Arbor • London • Singapore • Beijing • Hong Kong

2icfi.com/aviation |

Today, spending on air transport surplus parts is ~$3.5BSURPLUS PARTS MARKET

Engines

Components

Airframe

5%

65%

30%

Air Transport Surplus Parts Market*

* Sales to end customers; excludes intra-dealer sales

Surplus material for engines predominantly consist of piece parts (e.g., LLPs)

Component surplus are primarily rotables LRUs; Demand is driven by AOGs, BER and provisioning

Typically slow moving

structural parts

Source: ICF International

~$3.5B

3icfi.com/aviation |

Annual retirements will exceed 1,000 aircraft by 2024; 2014 saw a significant drop-off in retirements however…

SURPLUS PARTS MARKET

Air Transport Annual Aircraft Retirements

Includes TurbopropsSource: FlightGlobal ACAS March 2015, Airline Monitor, ICF International Analysis

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

0

200

400

600

800

1,000

1,200

# Retirements

Retirement as % of installed fleet

% Installed Fleet

ICFforecast

1990-99 Average 191

2000-09 Average 432

2010-24 Average 806

4icfi.com/aviation |

SURPLUS PARTS MARKET

2003-2014 Total Retired Aircraft(By Aircraft Category)

2003-2014 Total Retired Aircraft(By Aircraft Type)

Source: FlightGlobal ACAS, ICF International Analysis

About 6,700 aircraft were retired between 2003-2014; of which over half were narrowbody jets

Narrowbody Jet

Turboprops

Widebody Jet

Regional Jet

~ 6,700Retirements

727

737 Classic

737-1/200

DC-9

MD-80

747 ClassicA300 / A310

A320 FamilyDC-8

DC-10

~ 6,700Retirements

13%

9%

8%

7%

7%6%4%4%3%

2%

54%

21%

19%

7%

Others37%

5icfi.com/aviation |

ICF forecasts 8,600 retirements through 2024, which will drive 42% of deliveries, compared to the historical 20%

SURPLUS PARTS MARKET

Source: ICF InternationalNote: includes turboprops and regional jets

Air Transport Retirements 2014 – 2024

-

5,000

10,000

15,000

20,000

25,000

Composition of Demand 2014 – 2024

20,500 Deliveries…

…of which 8,600 to offset retirements

…and 11,900 for new growth

42%

58%

A320 Family

737NG

737 Classic

767

CRJ-1/2/400

MD-80ERJ757

DHC6

747-400

~ 8,600Retirements

20%

8%

8%

5%

6%

Others35%

4%5%

3% 3%3%

Retirements historically drove 20% of deliveries; ICF estimates this % will double over the next 10 years

6icfi.com/aviation |

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

00's Tech

90's Tech

80's Tech

70's Tech

60's Tech

Historical Air Transport Retirements By Technology Era

SURPLUS PARTS MARKET

Source: FlightGlobal ACAS, ICF International Analysis

The emphasis on retirements is shifting towards aircraft that were manufactured during the 1980s

Percentage of

Retirements

2000s (e.g ERJ170s, A340-500/600s)1990s (e.g.A320 Family, A330s, 737NG, 777s)1980s (e.g A300/A310s, 757s, 767s, MD80s)1970s (e.g BAe146s, 737 Classics, DC9s, DC10, L1011)1960s (e.g 707s, 727s, 1-11s, F27s)

e.g. 707s, 727s

e.g. 737 Classics, DC9s, L-1011s e.g. A310s, 757/767s, MD80s

e.g. A320, 737NG, 777

7icfi.com/aviation |

Commercial aircraft OEM production backlog remains at historical record levels

SURPLUS PARTS MARKET

0%

10%

20%

30%

40%

50%

60%

70%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Note: includes narrowbody, widebody, and regional jets in commercial service. Excludes Russian-manufactured aircraft. Only includes passenger, freighter, quick change and combi operational rolesSource: Flightglobal ACAS, April 2015

Order Backlog

Backlog/Active Fleet

Commercial Aircraft OEM Production Backlog

High oil prices Low interest rates Emerging market growth New Technology aircraft/engines

8icfi.com/aviation |

Surplus dealers and MROs now obtain approx. 85% of their inventory from parted-out aircraft

SURPLUS PARTS MARKET

54%

85%

26%

6%20%9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2014

Aircraft Part-Out

Direct Purchase From Airline

Purchase From Surplus Dealer

Supplier Channels for Obtaining Surplus Materials

Increased component cost per flight hour agreements

Leaner airline inventories – fewer airlines own inventory assets

Improved material planning (and MRO IT capabilities)

Growth of sophisticated parts brokers & lessors

ICF Insight

Source: ICF International

9icfi.com/aviation |

Surplus Market Overview Appendix

SURPLUS PARTS MARKET

AOGs: (Aircraft On Ground) – Aviation industry term indicating an aircraft is out of service for a technical reason.

BER: (Beyond Economical Repair) – When the cost to repair an aircraft part exceeds the replacement value cost.

OEM: (Original Equipment Manufacturer) – A company whose products are used as components in another company's product

BRICS: Brazil, Russia, India, China, South Africa

MRO: Maintenance, Repair, and Overhaul

CAGR: Compound Annual Growth Rate

10icfi.com/aviation |

Thank you!For questions regarding this presentation, please contact:

Jonathan M. BergerVice President – Aerospace & MRO

+1 (404) [email protected]