ICF Aerospace in Asia Pacific

ICF International | icfi.com © ICF 2015 00

Aerospace in Asia Pacific - Webinar

November 2015 - Singapore

Presented by:

David StewartGlobal LeadAerospace & MRO

Hosted by:

US Commercial Service


The global airline industry has returned strongly to profitability since the recent economic/financial recession

AVIATION OVERVIEW

Global Airline Profitability

Source: IATA Central Forecast June 2015

$USD Billions

Asia Pacific Airline Profitability$USD Billions

$29.3B

-$30

-$20

-$10

$0

$10

$20

$30

$40

$5.1B

-$10

-$5

$0

$5

$10


The aircraft OEM* production backlog is at historical record levels and demonstrates strong industry confidence looking forward

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: ICF research. OEM = original equipment manufacturer

Order Backlog

Backlog/Active Fleet

Commercial Aircraft OEM Production Backlog

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

AVIATION OVERVIEW


The Asian fleet will see robust growth over the next decade and the second fastest growth globally of 4.7% CAGR*; +4,200 aircraft

FLEET OUTLOOK

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2014 2024

Africa

Middle East

South America

Europe

Asia Pacific

North America

Air Transport Fleet Growth 2014–2024

Source: ICF International, ACAS September 2014; CAGR = compound annual growth rate

3.8%

2.7%

4.7%

1.4%

5.3%

4.8%

27,500

37,900CAGR

3.2% Average

~7,15025%

~11,35030%

ICF Insight

Air travel growth of ~4%

~19,000 aircraft deliveries

~8,600 aircraft retirements


The current air transport MRO* market is $62.1B of which engines account for 40%; Asia Pacific drives for ~27% of global demand

MRO MARKET

Engines

Components

Line

Airframe

Modifications

15%

17%

22%

40%

6%North

America

Asia Pacific

Europe

Middle East

South America

Africa

29%

27% / $17B

27%

7%

6% 4%

2014 Global MRO Demand

Source: ICF International * MRO = maintenance repair and overhaulForecast in 2014 $USD, exclusive of inflation

$62.1BTotal

$62.1BTotal

By MRO Segment By Region


Over the next decade, MRO growth will be 3.8% with Asia Pacific & China driving this growth….

MRO MARKET

Source: ICF analysisForecast in 2014 $USD, exclusive of inflation * absolute growth in annual spend

US$ Billions

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

$70.0

$80.0

$90.0

$100.0

2014 2024

Africa

Eastern Europe (Incl. CIS)

Latin America

Middle East

China

Asia/Pacific (Excl. China)

Western Europe

North America

2014-2024 Annual MRO Spend By Region

6.8%

1.7%

1.2%

CAGR

3.8% Average

$62.1B

$90.1B

6.7%

5.2%

6.1%

6.4%

4.9%

Africa

E. Europe

L. America

M. East

China

APAC (ex. China)

W. Europe

N. America


…especially in absolute $ terms

MRO MARKET

Source: ICF analysisForecast in 2014 $USD, exclusive of inflation

Difference in $ MRO Spend, 2024 vs. 2014 – By Global RegionUS$ Billions

$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 EasternEurope (incl

CIS)

WesternEurope

Latin America NorthAmerica

AfricaAsia/Pacific(excl. China)

China Middle East


There are four key MRO industry trends to watch…

Industry Trends

MRO MARKET TRENDS

MaterialStrategies

Airframe MRO

E-enabled Aircraft

Greater OEM Centricity

• Airframe, component and engine OEMS are increasingly focused on the MRO market and will likely gain market share and position

• New aircraft are increasingly data intensive and e-enabled, and growth of the related fleet will be dramatic

• Outsourcing of airframe related MRO to Asia Pacific from other regions has likely peaked

• Growing volumes of aircraft retirements is generating significant availability of surplus parts, providing new cost reduction opportunity to airlines and MROs


Whilst opportunity clearly exists, whether/where to locate depends (partly) on the nature of the business and what it takes to succeed

Aerospace and MRO ActivitiesValue-added vs. Labour intensity

Labour Intensity

Value-

Added

High

High

Low

Low

Repair development

& engineering

Airframe

heavy maintenance

Parts repair

Engine & component

overhaulModifications

* touch labour

Modifications

engineering

IMPLICATIONS

Business

Aviation MRO

Position of activities on chart are illustrative only

Engineering & Design

Manufacturing


IMPLICATIONS

Drive for lower cost and access to markets has led to new aerospace clusters emerging in southern latitudes

Source: ICF International

* Note – Russia is emerging for Western certificated equipment

Southern California

Eastern Canada

Southeast US

Central US

Mexico

Washington

Brazil

North Africa

France

United Kingdom Germany

Eastern Europe

UAE

Malaysia

Singapore

China

Established Clusters

Emerging Clusters

Connecticut

Russia*

Spain

IndiaJapan

Global Aerospace Manufacturing Clusters

Aerospace suppliers concentrated

In North America and Europe…

…and labor intensive activities

are shifting South


Recent research spoke to Singapore being the top and most competitive MRO hub for air transport and business aviation in Asia

IMPLICATIONS


Example growth opportunities might include....

IMPLICATIONS

Big Data

Composite NDT and

Repair

Logistics Support

Training

Additive Manufacturing

Engineering and Design

Services

High Tech Repairs

Selective Manufacturing

Aircraft Surplus Supply

Chain

Business Aviation

Support


Outside looking in, questions to investigate and address include…

KEY CONSIDERATIONS

Whether to enter the market – a function of e.g., size of available market, extent of local competition?

How to enter market ?

Where to locate – which country?

What value proposition (Asia operators buy differently) ?

Separate strategy and approach for China?

Key

Qu

est

ion

s

13© ICF International 2015

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

David StewartVice PresidentAerospace & MRO Advisory

+44 (0)7770 410011 [email protected]

icfi.com/aviation

mailto:[email protected]