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March 26th, 2009San Diego, CA
11th Annual Gorham PMA Conference
PMA Market Outlook
Effects Of The Recession
Jonas Murby
Ann Arbor, Michigan • Amersham, United Kingdom • Singaporewww.AeroStrategy.com
11th Annual Gorham PMA Conference
• Old and mature aircraft currently represent 60 percent of MRO spend; this portion will decline to 26 percent by 2018
• In 2018, 60 percent of MRO spend will be generated by ”New” generation aircraft, like the 737NG, A320 Series, 777, or A330
-
10
20
30
40
50
60
2008 2018
OldMatureNewNext
There Is A Long-Term Transition From Older To Newer Generation Platforms
3
2008-2018 Air Transport MRO MarketBy Generation ($B)
Source: AeroStrategy/OAG Aviation
Current PMA Market
11th Annual Gorham PMA Conference
737‐3/4/500-300
-200
-100
0
100
200
300
400
500
Fleet retirements affected some key PMA markets
The Fuel Crisis Accelerated This Trend...
4
2008 Net Change In Air Transport Fleet(Number Of Aircraft)
Source: AeroStrategy/OAG Aviation
Current PMA Market
Launch market for Global Material
Solutions
11th Annual Gorham PMA Conference
...And The Fuel Crisis Was Followed By A Recession...
5
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000Series 1
Africa
Asia Pacific
Europe
Latin America
Middle East
North America
-1.8
-1.6
-1.4
-1.2
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
World GDP Forecast ($B) 2009 Expected Airline Losses ($B)
World GDP is expected to decline 1.8% in 2009, and lead to severe airline losses
Source: Economist Intelligence Unit, IATA
Current PMA Market
11th Annual Gorham PMA Conference
Africa AsiaPacific
China EasternEurope
India LatinAmerica
MiddleEast
NorthAmerica
WesternEurope
-350
-300
-250
-200
-150
-100
-50
0
50
100
150
200
Due to fleet restructuring, North American airlines have relatively healthy financials in 2009
...As A Result, The North American Fleet Contracted By More Than 250 Aircraft
6
2008 Net Change In Air Transport Fleet (Number Of Aicraft)
Source: AeroStrategy/OAG Aviation
Current PMA Market
11th Annual Gorham PMA Conference
0
10
20
30
40
50
60
70
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
NewOld
The MRO Market Will Lose Three Years Of Growth!
The Recession Will Reduce MRO Market Growth Considerably During The Next Three Years
7
2008-2018 Air Transport MRO Market ($B)
Source: AeroStrategy OAG Aviation
Current PMA Market
Market contracting in 2009
2018 Market $9 Billion lower than previously forecast
11th Annual Gorham PMA Conference
In Addition, Suppliers Could See An Even Steeper Decline In Revenue As A Result Of Airline Use Of ”Buffers”
8Source: Air Transport Association, AeroStrategy analysis
Current PMA Market
Reduction In Airline MRO
Demand
-4.2%
Airline Use Of Maintentance ”Buffers”
•Burn inventory•Defer maintenance•Surplus•Cannibalization
Short-Term Market Impact
-10% to -20%
0.80
0.85
0.90
0.95
1.00
1.05
1.10
2001 2002 2003 2004 2005 2006
ASM (indexed)
Maintenance Cost (indexed)
2001 – 2006 Maintenance Costs Versus Available Seat Miles In The US
11th Annual Gorham PMA Conference
• 2008 PMA market is down 8% versus 2007, from $416M to $381M
• Several factors drive the PMA market contraction
Capacity reductionsRetirement of PMA-friendly platformsAirline use of buffersOEM defensive measures
The Fuel Crisis In Combination With The Recession Contracted The PMA Market By 8% In 2008
9
Air Transport PMA Market ($M)
Source: AeroStrategy analysis
Current PMA Market
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
-
50
100
150
200
250
300
350
400
450
2007 2008
($M) PMA Penetration(%)
$381 M$416 M
11th Annual Gorham PMA Conference
Engine56%
Compo-nents34%
Airframe7%
Line3%
Engines Account For Half Of The Air Transport PMA Market...
11
2008 Air Transport PMA Market
$381M
Source: AeroStrategy analysis, AeroStrategy Engine Overhaul Survey
PMA Market Outlook
11th Annual Gorham PMA Conference
CFM27%
GE25%
Rolls Royce21%
Pratt & Whitney
19%
IAE7%
Other1%
...And GE Engine Models Account For Half Of The Engine MRO Market
12
2008 Air Transport Engine MRO Market
Source: AeroStrategy/OAG Aviation
PMA Market Outlook
$15.3 Bn
11th Annual Gorham PMA Conference
By Adopting A Licensed Service Center Aftermarket Strategy, GE Gains Significant Influence Over 17%Of The GE/CFM Market
13Source: GE, AeroStrategy/OAG Aviation, Company websites
PMA Market Outlook
GE/Snecma
31%
Licensed Service Center17%
Other 52%
2008 GE/CFM Engine MRO Market, By Supplier Segment
$8.0 Bn
MOU MRO cooperationGE90, CF6, CF34
2007
CFM56-7, CF80E, GE90, GP7200
2002-
CFM56 CFM56-5ACF34, CFM56-2/-3/-5A
and –5C
2008
Recent GE Agreements With MROs
11th Annual Gorham PMA Conference
GE24%
SNECMA17%
IBERIA11%
AFI9%
ST Aero8%
AVEOS8%
OTHER23%
The CFM56-5B Is An Excellent Case Study Of The Effectivness Of GE’s Aftermarket Strategy
14
2008 CFM56-5B Overhaul SpendBy Supplier
$550M
Around 70-75% of the material for CFM56-A/-B are controlled by the OEMs
Source:: AeroStrategy/OAG Aviation
• CFM56-5B entered service in 1995 and powers nearly 45% of the current A320 fleet
• The MRO market for this engine is projected to reach $1 Billion within the next five years
• From an age perspective, this engine would have been one of the growth platforms for engine PMA
• However, with current market shares, 77 percent of the supply side uses OEM parts
PMA Market Outlook
11th Annual Gorham PMA Conference
In Addition, GE’s Branding Campaign Reduces The Addressable Market For Two Popular Engine Models
15Source: GE, Shephard, Aviation Week
PMA Market Outlook
Nearly 20 percent of the CFM56-3 and CFM56-7B are branded TRUEngine
0%10%20%30%40%50%60%70%80%90%
100%
CFM56-3 CFM56-7B
OtherTrue Engine
Portion Of Global Fleet Marked As ”TRUEngine”
11th Annual Gorham PMA Conference
In Contrast, Airframe And Component PMA Markets Are Expected To Continue Robust Growth
16AeroStrategy analysis
PMA Market Outlook
• Major suppliers of Broad Component Support have embraced PMA and are gaining an increasing share of the market
• Lesser risk for lessors to bring PMA onto the aircraft• Components is a more fragmented market relative to engine,
and many OEMs have relatively less aftermarket control.• Below-average service from certain OEMs enhances the
airlines’ benefit of shifting to PMA
• Growing activity in competitive PMA for aircraft interiors• For many operators, use of PMA for interiors is not a flight
critical issue• Barriers to entry are lower than for engines and components• Defensive measures from OEMs are less sophisticated than
in the engine segment
Components
Airframe
11th Annual Gorham PMA Conference
• Total material spend grows from $16.6 Billion to $21.4 Billion
• PMA Market increases from $380 Million to $680 Million
• PMA penetration expected to reach 3.6% of total material consumption
• Components and Airframe will have the highest growth rates and become more prominent
• Engines will see less growth as a result of strong OEM defensive measures
The Air Transport PMA Market Is Expected To Reach $680 M Within The Next Five Years
17
2008-2013 Air Transport PMA Forecast
Source: AeroStrategy analysis, AeroStrategy Engine Overhaul Survey
PMA Market Outlook
-
100
200
300
400
500
600
700
800
2008 2013
AirframeEngineComponents
($M)
PMA Penetration (%)
2.3%
3.6%
11th Annual Gorham PMA Conference
• The fuel crisis in combination with the recession contracted the PMA market By 8% in 2008
• Engine OEMs have launched defensive measures, which have strengthened their control of the engine material market
• In contrast, airframe And component PMA markets are expected to continue robust growth
• The PMA market is expected to reach $680M the next five years with 3.6% overall market penetration
Key Messages
18
11th Annual Gorham PMA Conference
Thank You For Your Attention!
19
• AeroStrategy is a specialist management consulting firm devoted to aviation and aerospace sectors with offices in Ann Arbor, Michigan, Amersham, U.K., and Singapore
• To learn more about AeroStrategy please contact:
David Stewart, PrincipalPh: + 44 1494 431 [email protected]
Kevin Michaels, PrincipalPh: +1 734 821 [email protected]
Hal Chrisman, PrincipalPh: +1 734 821 [email protected]