Insight on Industry Trends and the Next 5 Years for aviation MRO industry in Eastern Europe

1. The Crystal Ball
Industry Trends and the Next 5 Years
Central & Eastern Europe and Russia
Jonas Butautis, CEO of Magnetic MRO

2. The Approach
• The Past; What Shaped MROs in our Region
• The Present; Current Industry State and Call for Action
• The Future; The next 5 Years
Crystal Ball
A clear glass ball in which some people say they can see
the future by using magic. (merriam-webster.com)
Instead of a glass ball and magic:

3. The Past (I of II)
Timeline of Key Macro Events
1990 1995 2000 2005 2010 2015
Timeline of MRO Industry in the Region
1990 1995 2000 2005 2010 2015

4. The Past (II of II)
• Relocating Labor Intensive Work to lower cost zone – because it is cheaper
• Russia/CIS Opportunity of Growth – because it grew, it grows, it will continue to grow
• Inherited MROs as part of national airline package – Just because...
Positioning of CEE&R MRO Organizations 1990-2015
Why do we exist?

5. The Present (I of II)
• Labor cost advantage is fading away fast, productivity improvements do not compensate
• Russian market closing down for lower know-how intensity work (HM, LM, etc.)
• Lack of true key differentiators, „the edge“
• Mixed experiences with Western European customers
• Very limited high technology investments made (Engines, Components, Manufacturing, IT etc.)
• No market scale for OEM interest to drive the aftermarket clusters (CEE vs UAE vs Turkey etc.)
• CEE&R MROs are at the crossroads as never: Develop or Become Extinct
Current State of MRO Industry CEE&R

6. The Present (II of II)
• Technology innovation
• IT innovation
• R&D labs with Universities,
Schools, etc.
• OEM partnerships
• JVs
• Production, certification
processes
To Access or Develop Technological Edge
• Investments into Capital-
Intensive MRO areas
• Equal competition with global
MRO brands
To Access Cash
• Morphing into International or
Global MRO players
• Accessing global Talent Pool
and Customer Pool
To Grow Out of CEE&R Region
Call for Action to MRO Industry CEE&R
It is a Matter of Survival to master these three strategic pillars

7. The Future – 5 Years from Now
Group 1
• A number of MROs stuck in the “Go Bust – Find New Dream Investor - Rent Hangars – Launch Part 145 – Struggle for 3 years – Go Bust” cycle
• Will be harder and harder to justify Hangar-based start up, should run out of Dream Investors
3 Key Groups of MROs will Evolve in CEE&R
Group 2
• „Just because“ group, usually backed up by the Government and in constant conflict with ROIC concept
• This group will continue surviving each election
Group 3
• Unique few who will develop Technological Differentiators, OEM alignment, JVs
• Will access cash on global scale
• Will evolve as true International Players, growing out of CEE&R region

8. The Future – 5 Years from Now
Consolidation – Will it Happen?
• No objective reasons for major consolidation of CEE&R MRO industry by global or regional players
• Ego-driven occasional acquisitions may be present within the region

9. Summary
More Urgency than Ever: Develop or Become Extinct
Let’s discuss more on ‘’How’’ at this Conference
CEE&R MRO Industry Historically Created for the Reasons which are Fading Away Fast
• Russia/CIS – focused strategies exposed to major Political and Credit risks post 2014
• Labor Cost Advantage Disappearing
• No key differentiators among MROs for offsetting such risks
No ‘’external factors’’ will change the CEE&R MRO Industry
• No objective reasons for acquisitions or consolidation from local or global players
• Low interest from OEMs in the CEE&R region (manufacturing, transfer of know-how, etc.)
• Local Change Agents are needed, practically driving the change of the industry

10. Thank You
Jonas Butautis, CEO of Magnetic MRO
www.magneticmro.com