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ICF International | icfi.com © ICF International 2015 0
MRO Market Forecast and Key Trends January 13-14, 2015 – Buenos Aires, Argentina
Presented by: Jonathan M. Berger Vice President ICF International [email protected]
ICF International | icfi.com © ICF International 2015 1
Today’s Agenda:
founded 2001, joined ICF in 2011
founded 1963, joined ICF in 2007 May 2010–May 2014
These are the “Good Old Days”
MRO Market Forecast
Latin American MRO Industry Dynamics
Aviation Week MRO Latin America Buenos Aires, Argentina
ICF International | icfi.com © ICF International 2015 2
These Are the “Good Old Days”
ICF International | icfi.com © ICF International 2015 3
AVIATION INDUSTRY HEALTH & GROWTH INDICATORS
Aviation fuel costs have dropped over 50% during the past 6 months
$1.5
$1.8
$2.0
$2.3
$2.5
$2.8
$3.0
Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14
U.S. Gulf Coast Jet Fuel Price per Gallon In US Dollars
Source: EIA data of 1/7/2015; ycharts 1/7/2015 info for Dec 2014 data
(USD)
Should these low fuel costs continue, there will be a dramatic repercussions throughout the aviation & MRO supply chain (and geopolitics…)
~52%
ICF International | icfi.com © ICF International 2015 4
AVIATION INDUSTRY HEALTH & GROWTH INDICATORS
Most airlines’ growth plans assume oil pricing of around $110/bbl, having proved stable over the past decade…
14% 17%
22% 26% 27%
33%
26% 26% 29% 31% 30% 29%
26%
0%
10%
20%
30%
40%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F 2015F
Source: IATA Airline Industry Economic Report, December 2014
Evolution of Fuel Cost as a Share of Operating Expenses Fuel Cost as a Share of Operating Expenses
…resulting in plans for accelerated fleet replacement, and therefore record OEM backlogs…
Forecast
ICF International | icfi.com © ICF International 2015 5
Commercial aircraft OEM production backlog remains at historical record levels
AVIATION INDUSTRY HEALTH & GROWTH INDICATORS
0%
10%
20%
30%
40%
50%
60%
70%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Note: includes narrowbody, widebody, and regional jets in commercial service. Excludes Russian-manufactured aircraft. Only includes passenger, freighter, quick change and combi operational roles Source: Flightglobal ACAS, September 2014
Order Backlog
Backlog/ Active Fleet
ICF International | icfi.com © ICF International 2015 6
Source: IATA Air Transport Market Analysis – Dec reports from 2010-2012; IATA Air Passenger Monthly Analysis 2013, 2014
AVIATION INDUSTRY HEALTH & GROWTH INDICATORS
0.4%
-0.9%
0.6%
4.3% 4.5%
6.0%
3.0% 3.6%
4.9%
6.8%
-2%
0%
2%
4%
6%
8%
2011 2012 2013 2014 2015F
Traffic (FTK) Capacity (AFTK)
Forecast
Air cargo, a key leading indicator of industry growth, has (at long last) shown positive signs of recovery
Freight Traffic / Capacity Growth Year-Over-Year Percent Change
ICF International | icfi.com © ICF International 2015 7
Airlines appear to have embraced the art of “capacity discipline” in recent years to the delight of the investment community…
Source: IATA Air Transport Market Analysis – Dec reports from 2010-2012; IATA Air Passenger Monthly Analysis 2013, 2014
AVIATION INDUSTRY HEALTH & GROWTH INDICATORS
8.0%
6.3%
5.3% 5.4% 5.8%
7.0%
4.5%
6.6%
4.0%
5.0% 5.6%
7.3%
0%
2%
4%
6%
8%
2010 2011 2012 2013 2014 2015F
Traffic (RPK) Capacity (ASK)
Forecast
Passenger Traffic / Capacity Growth Year-Over-Year Percent Change
8 © ICF International 2015
$0
$10
$20
$30
2011 2012 2013 2014F 2015F
Accordingly, driven by a combination of capacity discipline, airline consolidation, and lower fuel costs, the industry has successfully returned to profitability
AVIATION INDUSTRY HEALTH & GROWTH INDICATORS
Global Airline Profitability
Source: IATA Central Forecast Dec 2014
$ Billions
$25B
$20B
9 © ICF International 2015
Driven by a combination of capacity discipline, airline consolidation and lower fuel costs, the industry has successfully returned to profitability
AVIATION INDUSTRY HEALTH & GROWTH INDICATORS
Latin America Global $ Billions
Source: IATA Central Forecast Dec 2014
$0
$10
$20
$30
2011 2012 2013 2014F 2015F
$ Billions
-$0.5
$0.0
$0.5
$1.0
$1.5
2011 2012 2013 2014F 2015F
$1B
$.7B
10 © ICF International 2015
Driven by a combination of capacity discipline, airline consolidation and lower fuel costs, the industry has successfully returned to profitability
AVIATION INDUSTRY HEALTH & GROWTH INDICATORS
North America Global $ Billions
Source: IATA Central Forecast Dec 2014
$0
$10
$20
$30
2011 2012 2013 2014F 2015F
$ Billions
$0.0
$3.0
$6.0
$9.0
$12.0
$15.0
2011 2012 2013 2014F 2015F
Latin America $ Billions
-$0.5
$0.0
$0.5
$1.0
$1.5
2011 2012 2013 2014F 2015F
$13B $12B
11 © ICF International 2015
Driven by a combination of capacity discipline, airline consolidation and lower fuel costs, the industry has successfully returned to profitability
AVIATION INDUSTRY HEALTH & GROWTH INDICATORS
Rest of World Global $ Billions
Source: IATA Central Forecast Dec 2014
$0
$10
$20
$30
2011 2012 2013 2014F 2015F
$ Billions
$0.0
$3.0
$6.0
$9.0
$12.0
$15.0
2011 2012 2013 2014F 2015F
Latin America $ Billions
-$0.5
$0.0
$0.5
$1.0
$1.5
2011 2012 2013 2014F 2015F
North America $ Billions
$0.0 $3.0 $6.0 $9.0
$12.0 $15.0
2011 2012 2013 2014F 2015F
$11B
$7B
ICF International | icfi.com © ICF International 2015 12
AVIATION INDUSTRY HEALTH & GROWTH INDICATORS
Current industry forecasts are based on $85/bbl – given today’s price, tremendous short-term upside exists…
$(40)
$(20)
$-
$20
$40
$60
$80
$100
$120
$50 $55 $60 $65 $70 $75 $80 $85 $90 $95 $100 $105 $110
Prof
it ($
Bill
ions
)
Crude Oil Cost per Barrel
2015 IATA Forecast: $25B industry profit
based on $85/bbl
However, in the long-term, low fuel costs will lead to increased capacity and new market entrants ….ultimately eroding hard fought margins gains…
Source: IATA Airline Industry Economic Report, December 2014; ICF Analysis
13 © ICF International 2015
MRO Market Forecast
ICF International | icfi.com © ICF International 2015 14
NarrowbodyJet
Widebody Jet
Turboprop
Regional Jet
The current civil air transport fleet consists of over 27K aircraft
MRO MARKET FORECAST
Source: FlightGlobal ACAS September 2014
North America
Asia Pacific
Europe
Latin America
Middle East
2014 Global Air Transport Fleet
27,531 Aircraft
17%
50% 15%
18%
31%
26%
25%
8% 5% 5%
By Aircraft Type By Global Region
27,531 Aircraft
ICF International | icfi.com © ICF International 2015 15
The air transport fleet will grow at a 3.2% rate over the coming decade
MRO MARKET FORECAST
0
5000
10000
15000
20000
25000
30000
35000
40000
2014 2024
Africa Middle East Latin America Europe Asia Pacific North America
Commercial Fleet Growth 2014–2024
Source: ICF analysis, ACAS September 2014
27,500
31% 26%
37,900
ICF Insight
Air travel growth of 4.0%
Fuel costs in $80-100/bbl range
20,500 aircraft deliveries
8,624 aircraft retirements
26%
25%
8%
30%
24%
9%
CAGR
3.2% Average
3.8%
2.7%
4.7%
1.4%
5.3%
4.8%
ICF International | icfi.com © ICF International 2015 16
Engines
Components
Line
Airframe
Modifications
15%
17%
22%
40%
6%
The current civil air transport MRO market is valued at $62.1 billion USD
MRO MARKET FORECAST
North America
Asia Pacific
Europe
Middle East
Latin America
Africa
29%
27%
27%
7%
6% 4%
2014 Global MRO Demand
$62.1B $62.1B
By MRO Segment By Global Region Source: ICF analysis Forecast in 2014 $USD, exclusive of inflation
ICF International | icfi.com © ICF International 2015 17
$60.7B
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
2014 2024
Modifications Heavy Airframe Line Components Engine
The global MRO market is expected to grow to $90B by 2024, at 3.8% per annum
MRO MARKET FORECAST
Global MRO Spend 2014–2024
15%
17%
22%
40%
13%
17%
24%
38%
6%
8%
Source: ICF analysis Forecast in 2014 $USD, exclusive of inflation
ICF Insight
Average growth is forecast to be 3.8% CAGR
The strongest driver of growth is expected to be the engine market
Reduced labor intensity of airframe heavy checks as the fleet renews and increased intervals...offset in emerging markets by increasing labor rates
Aircraft upgrades (e.g. interiors, winglets) drive high modifications growth
2.6%
3.7%
4.5%
3.5%
5.9%
CAGR
3.8% Average
$90B
$62.1B
ICF International | icfi.com © ICF International 2015 18
$0
$1
$2
$3
$4
$5
$6
$7
2014 2024
Turboprop Regional Jet Widebody Jet Narrowbody Jet
The Latin American MRO market is expected to grow to approx. $5.9B by 2024, at 5.2% per annum
MRO MARKET FORECAST
Latin American MRO Spend 2014–2024 ($B)
2.8%
3.1%
7.0%
5.3%
Source: ICF analysis Forecast in 2014 USD, exclusive of inflation.
10% 13%
17%
60%
8% 10%
21%
61%
CAGR
5.2% Average
$3.6B
$5.9B
ICF Insight
Latin American MRO growth is driven by continued narrowbody aircraft deliveries
Turboprop & Regional Jet aircraft will see a decrease in total share
Widebody deliveries will remain stable
ICF International | icfi.com © ICF International 2015 19
Over the next decade, Latin America will drive $2.3B in absolute MRO spend growth
MRO MARKET FORECAST
Difference in $ MRO Spend, 2024 vs. 2014 – By Global Region US$ Billions
Source: ICF analysis Forecast in 2014 $USD, exclusive of inflation
$6.9 $5.4
$4.2
$2.6 $2.5 $2.3 $2.3 $1.8
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
Asia/Pacific (excl China)
China Middle East Eastern Europe (incl
CIS)
Western Europe
Latin America North America
Africa Asia/Pacific (ecl. China)
China Middle East
ICF International | icfi.com © ICF International 2015 20
The top 7 Latin American airlines account for over 50% of the total MRO spend in the region
LATAM 23%
GOL 8%
Aeromexico 5%
Avianca 5%
Aerolineas Argentinas
4% Azul 3%
COPA 3%
Other 49%
$3.6B
2014 Latin American Operator MRO Spend By Major Airline Group
LATIN AMERICAN INDUSTRY DYNAMICS
Source: ICF analysis Forecast in 2014 USD, exclusive of inflation. Includes turboprops
ICF Insight
While the aviation market in Latin American remains quite fragmented…
...the region has seen significant airline consolidation over the past few years…
Investment in MRO infrastructure, however, has been limited
ICF International | icfi.com © ICF International 2015 21
Latin American Industry Dynamics
ICF International | icfi.com © ICF International 2015 22
LATIN AMERICAN INDUSTRY DYNAMICS
Latin American countries continue to polarize around two alternative trading blocks: Pacific Alliance vs. Mercosur
Source: ICF analysis, Economist, Moody’s Analytics * Costa Rice- currently in the process of becoming 5 member of bloc Boliva – Accessing member, soon to be a full member
Intra-regional trade makes up just 27% of total trade in Latin America; compared with 63% in the European Union, and 52% in Asia
Pacific Alliance Mercosur Year Founded 2011 1991
Members Chile, Colombia, Costa Rica*, Mexico, Peru
Argentina, Brazil, Paraguay, Uruguay, Venezuela, Bolivia*
Economic Approach Free-market capitalism, globalization, international trade deals
More state-control, protectionism for certain industries, heavy tax burden
GDP Growth (5 yr avg) 3.7% 2.9%
Population 212 million 280 million
GDP per Capita (PPP) USD $15,640 USD $12,582
Key Programs
Removing trade tariffs Seamless border agreements Standardized labeling for goods &
services Common stock exchange
Free movement of people and goods within Mercosur
Common trade policy towards non-members
ICF International | icfi.com © ICF International 2015 23
706
418
286
161
155
133
101
82 59 55
49 0
10
20
30
40
50
60
70
0 5 10 15 20 25 30 35
Latin American Fleet Profile by Country
Brazil
Venezuela Mexico
Colombia Argentina
Chile Bolivia
Peru Panama
Ecuador El Salvador
Num
ber o
f Ope
rato
rs
Average Fleet Age Source Data: ACAS September 2014
LATIN AMERICAN INDUSTRY DYNAMICS
Brazil operates the largest fleet followed by Mexico and Colombia; Venezuela and Bolivia operate the oldest fleets
ICF International | icfi.com © ICF International 2015 24
GDP growth, the key driver of aviation growth, has slowed across the region, well below the trailing 5-year average
United States
Brazil
Argentina 5 Yr. GDP Avg: 6.0% GDP 2014F: 1.1%
GDP Avg. 2009-2013: CAGR (%)
Note: GDP growth in local currency (real);
Source: IMF World Economic Outlook October 2014, The Conference Board Dec-2014, Focus Economics Dec-2014
Brazil 5 Yr. GDP Avg: 3.4% GDP 2014F: 0.2%
United States 5 Yr. GDP Avg: 2.3% GDP 2014F: 2.2%
Mexico 5 Yr. GDP Avg: 3.5% GDP 2014F: 2.3%
Panama 5 Yr. GDP Avg: 9.3% GDP 2014F: 6.3%
Colombia 5 Yr. GDP Avg: 4.8% GDP 2014F: 4.9%
Peru 5 Yr. GDP Avg: 6.7% GDP 2014F: 2.9%
Chile 5 Yr. GDP Avg: 5.3% GDP 2014F: 1.9%
LATIN AMERICAN INDUSTRY DYNAMICS
ICF International | icfi.com © ICF International 2015 25
Most Latin American airlines remain profitable – led once again by Copa; LATAM appears to be turning a corner
United States
Brazil
Source: Respective company websites, except for Avianca which ICF used investing.businessweek, IATA for regions in 2013, 2014F Note: All values expressed in USD
Copa Q1-3 2014 Net Profit: $335.6M Q1-3 2014 Net Margin: 16.2%
AeroMexico Q1-3 2014 Net Profit: $1.5M Q1-3 2014 Net Margin: 0.1%
GOL
Q1-3 2014 Net Profits: (182.6M) Q1-3 2014 Net Margins: -6.6%
North American Carriers
2013 Net Profit: $7.2 billion 2014F Net Profit: $11.9 billion
Latin American Carriers
2013 Net Profit: $0.2 billion 2014F Net Profit: $0.7 billion
LATIN AMERICAN INDUSTRY DYNAMICS
Avianca
Q1-3 2014 Net Profit: $24.3M Q1-3 2014 Net Margin: 0.7%
LAN & TAM (LATAM)
Q1-3 2014 Net Profits: ($208M) Q1-3 Net Margins: -2.2%
ICF International | icfi.com © ICF International 2015 26
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
Dec-11 Dec-12 Dec-13 Dec-14
The Argentine Peso, Venezuelan Bolivar, and Brazilian Real have depreciated significantly vs. the US dollar over the last 3 years
LATIN AMERICAN INDUSTRY DYNAMICS
Source: OANDA.com
Foreign Currency Exchange Rate vs. US Dollar
Colombia
Peru Mexico
Chile
Brazil
Argentina
Weaker national currencies make purchases of dollar-denominated goods and services (i.e. fuel, aircraft parts) more expensive;
Conversely, Latin American MROs gain a labor rate advantage
Venezuela
-52%
-34%
-25%
0%
ICF International | icfi.com © ICF International 2015 27
AIRFRAME MRO
Today, more than half of the $460M Latin American airline airframe MRO spend is performed in-house
Source: ICF analysis
2014 Latin American Airframe MRO Sourcing Behavior
60%
28%
12%
0%
20%
40%
60%
80%
100%
Outsourced (Out of Region)
Outsourced (In-Region)
In-House
$460M
ICF Insight
Competitive labor costs and high quality skilled labor make Latin America a net importer of airframe heavy maintenance
Virtually all engine MRO and the majority of component MRO are outsourced by Latin American carriers
Very limited widebody capacity in the region
ICF International | icfi.com © ICF International 2015 28
North American carriers account for over 90% of “imported” airframe heavy maintenance to Latin America
AIRFRAME MRO
*Note: AHM spend includes modifications / Source: ICF International, based on publicly announced contracts
North America
93%
Europe 3%
Other 4%
$130M $130M
$121M $4.2M
$2.2M
$0.5M
$1.8M
2013 Global Airframe Heavy maintenance flows into Latin America: $130M
ICF International | icfi.com © ICF International 2015 29
Change is in the air in the Latin American skies LATIN AMERICAN INDUSTRY DYNAMICS
New Generation Widebodies are replacing mid generation aircraft – LAN is operating 9 B787s with 23 more on order – Aeromexico is operating 5 B787s with 10 more on
order – Avianca has 15 B787s on order, and is expecting to
commence scheduled flights in 2015 – TAM has orders for 27 A350s, with entry into service
as early as 2015
Low Cost Carriers (LCCs) continue to making significant inroads in Latin America, signaling significant growth in the future – Grupo Viva was recently created by the owners of
Mexico’s VivaAerobus and Colombia’s VivaColombia – Based in Panama City, the group seeks to expand the
Viva airlines footprint across the continent
ICF International | icfi.com 30 © ICF International 2015 30
Thank you!
MRO Market Research & Analysis
Airline Maintenance Benchmarking
M&A Commercial Due Diligence
Aerospace Manufacturing Strategy
Aviation Asset Valuations & Appraisals
MRO Information Technology (IT) Assessment
MRO Strategic Sourcing Support
Supply Chain Management
LEAN Continuous Process Improvement
Military Aircraft Sustainment
ICF’s MRO advisory services include the following:
ICF International | icfi.com 31 © ICF International 2015 31
ICF is one of the world’s largest and most experienced aviation and aerospace consulting firms
51 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 sector and public sector assignments Backed by parent company ICF International ($937M 2013 revenue) Global presence –– offices around the world
Airports • Airlines • Aerospace & MRO • Asset Advisory
joined ICF in 2012
joined ICF in 2011
joined ICF in 2007
New York • Boston • Ann Arbor • London • Singapore • Beijing • Hong Kong
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ICF delivers professional services and technology solutions in three focus areas, which the aviation group draws upon, further enhancing its service offerings and technology solutions to the aviation community
One of ICF's founders and its first president was a Tuskegee Airman. C.D. "Lucky" Lester flew more than 90 missions and earned the Distinguished Flying Cross. In 1969, "Lucky" and 3 DoD analysts founded the organization that is now ICF International.
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33 icfi.com/aviation |
Thank you! For questions regarding this presentation, please contact:
Jonathan M. Berger Vice President Global MRO Practice
630 Third Avenue 11th Floor New York, NY 10017 +1 (404) 819-7669 [email protected]