2015-2025 America Fleet and MRO America Market Forecast

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2015-2025 American Fleet and N. America MRO Forecast by Oliver Wyman

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2015-2025 America Fleet and MRO America Market Forecast

  1. 1. © OLIVER WYMAN TURBULENCE AHEAD DISENGAGE THE AUTOPILOT 2015-2025 GLOBAL FLEET & MRO MARKET FORECAST 2015 MRO AMERICAS CONFERENCE David A. Marcontell Vice President
  2. 2. 1© OLIVER WYMAN 1© OLIVER WYMAN The respected TeamSAI Global Fleet & MRO Market Forecast, and related betterinsightTM market intelligence data, remains available at www.PlaneStats.com/betterinsight ~130 Dedicated CAVOK employees located in DFW and ATL (Supported by +250 Oliver Wyman aviation consultants) +70% of CAVOK staff hold FAA certification/license +2,300 years of combined airline operations expertise Oliver Wyman acquired TeamSAI and integrated the business into CAVOK, its aviation technical consulting and services practice
  3. 3. 2© OLIVER WYMAN 2© OLIVER WYMAN CAVOK expanded technical consulting & services capabilities Technical Consulting Certification, Compliance, Quality, & Safety Operations Performance Improvement Aircraft Acquisition & Conformity Program Development & Redesign Technical Data Auditing & Validation M&E Solutions Maintenance Program Management Technical Publications Management Engineering & Technical Services Reliability & CASS Support Aircraft Records Management Market Forecasting & Intelligence PlaneStats Schedule, Traffic & Financial Data betterinsight™ MRO Market Intelligence
  4. 4. Global Fleet & MRO Market Outlook
  5. 5. 4© OLIVER WYMAN 4© OLIVER WYMAN The global air transport jet and turboprop fleet will grow by more than 10,000 net new aircraft by 2025 2015-2025 Global Fleet Forecast by Aircraft Class Key Fleet Forecast Growth Rates • Global fleet will grow on average 3.7% annually over the full forecast period • Passenger fleet is expected to grow at 3.8% annually • Cargo fleet is forecast to grow by 2.3% annually • Narrowbody aircraft will lead the growth • Regional jets will actually decline in the mix 13,124 16,949 21,089 4,686 5,753 7,181 3,396 3,222 2,906 2,721 3,079 3,232 5.2% 4.2% -1.0% 2.5%23,927 29,003 34,408 4.5% 4.5% -2.0% 1.0% 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 2015 2015-2020 CAGRS 2020 2020-2025 CAGRS 2025 NumberofAircraft Forecast Year and Forecast CAGR Narrowbody Widebody Regional Jet Turboprop The growth outlook, however, varies widely from region to region 3.9% 3.5%
  6. 6. 5© OLIVER WYMAN 5© OLIVER WYMAN 2015 Fleet Size 722 A 5 pt spread in regional growth rates leads to a significant share shift over the decade ahead The mature North American and Western European markets will continue to undergo significant refleeting efforts during the next 10 years North America Europe Latin America & the Caribbean Africa / Middle East Asia Pacific / China / India 0.9% 2.8% 4.7% 5.5% 6.1% 7,420 6,131 1,720 2,204 6,452 1,965 997 1,562 5,235 10YR CAGR 2015- 2025 Absolute Growth
  7. 7. 6© OLIVER WYMAN 6© OLIVER WYMAN 2025 Fleet Size A 5 pt spread in regional growth rates leads to a significant share shift over the decade ahead The mature North American and Western European markets will continue to undergo significant refleeting efforts during the next 10 years North America Europe Latin America & the Caribbean Africa / Middle East Asia Pacific / China / India 6.1% 7,420 6,131 1,720 2,204 6,452 8,142 8,096 2,717 3,766 11,687
  8. 8. 7© OLIVER WYMAN 7© OLIVER WYMAN The systematic elimination and replacement of older aircraft with new technology aircraft will drive significant change is the business for airlines and maintainers 43% of all new aircraft deliveries will replace old technology aircraft over the forecast period
  9. 9. 8© OLIVER WYMAN 8© OLIVER WYMAN 1970's 2% 1980's 26% 1990's 63% 2000's 9% 1970's 0.1% 1980's 9% 1990's 46% 2000's 16% 2010's 29% 2015 Global Air Transport Fleet by Vintage 2025 Global Air Transport Fleet by Vintage The significant move towards late generation aircraft, in addition to improving airline costs, will undoubtedly impact MRO dynamics The result is a staggering change in fleet mix by 2025
  10. 10. 9© OLIVER WYMAN 9© OLIVER WYMAN 22% 19% 17% 42% 45% 47% 19% 18% 19% 18% 18% 18% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2015 2020 2025 Forecast Year Airframe Engine Component Line The fleet dynamics of the period result in a forecast that tops $100 billion by 2025, a 4.1% average annual growth rate 2015-2025 Global MRO Market Size Forecast by MRO Segment 2015-2025 Global MRO Market Share Forecast by MRO Segment MROSpendin2015Dollars($USB) MarketShare $14.5 $15.9 $16.7 $27.9 $37.1 $46.8 $12.4 $15.2 $19.2 $12.3 $15.0 $17.8 1.9% 5.9% 4.1% 4.0%$67.1 $83.2 $100.4 1.0% 4.8% 4.7% 3.5% $0 $20 $40 $60 $80 $100 $120 2015 2015-2020 CAGRS 2020 2020-2025 CAGRS 2025 Billions Forecast Year and Forecast CAGR Airframe Engine Component Line Airframe Heavy Maintenance costs improve with the new technology while both Engine and Component sectors will take a larger share 4.4% 3.8%
  11. 11. 10© OLIVER WYMAN 10© OLIVER WYMAN $1.3 Shadowing the fleet trends, large differences in regional growth rates will lead to a significant shift in MRO demand over the decade ahead Asia Pacific / China / India will be challenged to build the necessary infrastructure capable of handling the volume of MRO the combined region will demand North America Europe Latin America & the Caribbean Africa / Middle East Asia Pacific / China / India 0.6% 3.3% 7.3% 5.5% 6.6% $20.0 $17.9 $3.2 $7.5 $18.3 $7.0 $3.3 $5.3 $16.5 2015 MRO Spend ($USB) 10YR CAGR 2015- 2025 Absolute Growth
  12. 12. 11© OLIVER WYMAN 11© OLIVER WYMAN 2025 MRO Spend ($USB) Shadowing the fleet trends, large differences in regional growth rates will lead to a significant shift in MRO demand over the decade ahead Asia Pacific / China / India will be challenged to build the necessary infrastructure capable of handling the volume of MRO the combined region will demand North America Europe Latin America & the Caribbean Africa / Middle East Asia Pacific / China / India 6.6% $20.0 $17.9 $3.2 $7.5 $18.3 $21.3 $24.9 $6.5 $12.8 $34.8
  13. 13. North American MRO Market Outlook
  14. 14. 13© OLIVER WYMAN 13© OLIVER WYMAN 2015 PASSENGER TRAFFIC (RPK) GROWTH 7.0% 2015 CURRENT FLEET 7,420 4,100+ 2015-2025 AIRCRAFT DELIVERIES 3,100+ 2015-2025 AIRCRAFT RETIREMENTS +0.9% 2015-2025 FLEET CAGR Passenger traffic is picking up; however, the fleet growth will be limited over the next 10 years as most deliveries are slated to replace aging aircraft
  15. 15. 14© OLIVER WYMAN 14© OLIVER WYMAN $4.6B in MRO from ’70s and ’80s vintage aircraft will be lost over the next 10 years; however, ’90s, ’00s and ’10s vintage aircraft will see a $5.9B increase A320C/NEO 737NG/MAX 757 CRJ 777 767 ERJ EJET MD-80 747 737NG/MAX A320C/NEO 777 787 CRJ 767 EJET A330C/NEO A350 MRJ Top 10 North American Aircraft Families in 2015 Top 10 North American Aircraft Families in 2025
  16. 16. 15© OLIVER WYMAN 15© OLIVER WYMAN $1.00 $2.00 $3.00 2,000 2,400 2,800 3,200 3,600 4,000 4,400 4,800 $1.00 $2.00 $3.00 2014 2015 WTI Brent Jet A Oil prices have plummeted over the past year and could remain low over the short term. Many are concluding that this will cause airlines to alter fleet plans and drive an increase in MRO. Crude Oil Spot Price per Gallon Aircraft Profitability Curve Current Generation vs New Generation SpotPriceperGallon($USD) Jet-ASpotPriceperGallon($USD) Utilization in Hours Our view: Long term, oil prices will likely recover, OEM order books will remain largely unaffected, and net fleet growth will progress as forecasted 1 YEAR PRICE DROP New gen aircraft are more profitable than current gen New gen aircraft are less profitable than current gen April 2014 April 2015
  17. 17. 16© OLIVER WYMAN 16© OLIVER WYMAN There are currently 140 commercial operators based in North America. The top 20 operators comprise over 80% of the North American fleet. Top 20 North American Airlines by Fleet Size 969 777 700 677 403 340 332 237 224 199 168 162 136 131 127 107 85 71 70 66 0 200 400 600 800 1,000 1,200 American/US Airways Delta Air Lines United Airlines Southwest Airlines ExpressJet Airlines SkyWest Airlines FedEx UPS Airlines Envoy JetBlue Airways Endeavor Air Air Canada Alaska Airlines Republic Airlines Jazz WestJet Mesa Airlines Air Wisconsin Allegiant Air Shuttle America Fleet Size OperatorName The top 4 operators carry over 50% of the North American Traffic
  18. 18. 17© OLIVER WYMAN 17© OLIVER WYMAN 2015-2025 North American MRO Market Forecast by MRO Segment With 78% of the new deliveries forecast to replace older aircraft, the MRO forecast is virtually flat North American MRO will be impacted by less maintenance intensive HMV work and honeymoon periods of engines and components $20.0 $18.1 $17.4 $18.6 $18.3 $19.2 $19.0 $18.0 $19.0 $19.2 $21.3 $0 $5 $10 $15 $20 $25 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Billions Forecast Year and Forecast CAGR Airframe Engine Component Line MROSpendin2015Dollars($USB)
  19. 19. 18© OLIVER WYMAN 18© OLIVER WYMAN Fleet changes and technological advances will create turbulence for the MRO business Market participants will need aggressive and innovative plans for growth • Decisions necessary enter new markets for each of airframe, engine and component repairs New repair capabilities required • Health monitoring and predictive maintenance will reduce overall time-on-tool requirements for individual checks with fewer repairs Less maintenance • Increased aftermarket market share for the newest generation of aircraft OEM’s increased aftermarket presence • Critical new source of value to the aftermarket driven by those who design the best algorithms and most rigorous data management Increased use of data analytics
  20. 20. MRO Survey Results
  21. 21. © OLIVER WYMAN© OLIVER WYMAN 20 The collection, storage, aggregation and analysis of data will be key factors in aircraft health monitoring and predicative maintenance. 0% 7% 9% 19% 65% PMA Manufacturers MROs Too early to predict OEMs Airlines Who is best positioned within the industry to benefit from predictive maintenance? Source: Oliver Wyman’s 2015 MRO Survey
  22. 22. 21© OLIVER WYMAN 21© OLIVER WYMAN Oliver Wyman’s 2015 MRO Survey identified a slew of new technologies that are poised to come to market Aircraft Health Monitoring Systems Predictive Maintenance “Live” maintenance through wearable and mobile technology Composite repair capabilities New repair technology Additive manufacturing Artificial intelligence Drone-supported maintenance 4% 6% 25% 26% 35% 57% 66% 66% Most prominent new technologies by 2020 (All respondents) Source: Oliver Wyman’s 2015 MRO Survey
  23. 23. 22© OLIVER WYMAN 22© OLIVER WYMAN However, digesting innovative change is not standard fare for the MRO industry… Survey respondents completed this sentence: “The MRO industry innovates...” • Historically, little need to build internal organizations devoted to R&D, corporate strategy and product development • Lack of regular disruptions decrease relative: ‒ Devoted resources ‒ Tried and tested review processes ‒ Time and attention of executives ‒ Clarity of ownership / leadership ‒ Assessment infrastructure • Internal ability to recognize, assess and prepare for change is not a core capability for the industry … frequently 13% 21% … primarily as a response to OEM innovation 27%… sporadically 39%… periodically Source: Oliver Wyman’s 2015 MRO Survey
  24. 24. 23© OLIVER WYMAN 23© OLIVER WYMAN We can quickly translate the identified opportunities into pilot projects and fast-to-market roll-out programs Our innovation process allows us to quickly translate identified opportunities into plans and get sign-off from top management We use a strategic planning method to visualize areas of opportunity and identify the most promising prospects Top management has a clear, shared vision and strategy for growth in new business areas …and though they have a vision, many organizations struggle with how to rapidly evaluate and bring innovative ideas to market Positive survey responses Use a strategic planning method to visualize areas of opportunity and identify the most promising prospects Our innovation process allows us to quickly translate identified opportunities into plans and get sign-off We quickly pilot ideas and roll out fast-to-market programs Decreasing impact; More difficulty bringing vision to market 76% 68% 43% 33% Top management has a clear, shared vision and strategy for growth in new business areas Source: Oliver Wyman’s 2015 MRO Survey
  25. 25. 24© OLIVER WYMAN 24© OLIVER WYMAN 6% 21% 21% 32% 35% 44% 44% 50% So what’s really inhibiting change in MROs? Note: Responses to the question: “The primary inhibitors of innovation at my organization are:”, Percent of MRO responses per inhibitor (multiple selections possible per category). Not shown “Other” responses from a total of 9% of respondents; Source: Oliver Wyman’s 2015 MRO Survey Budget / capital availability Total cost / lack of clear payback Inability to prove innovative process / product / service will offer margin benefits over current techniques Organization resistance Implementation difficulties Review and approval process Lack of personal capability Lack of need for change How can you eradicate these barriers within your own organization? The primary inhibitors of innovation at my organization are:
  26. 26. 25© OLIVER WYMAN 25© OLIVER WYMAN New technologies will reshape our perception of MRO aftermarket commercial offers. Advances could cut or redistribute 15 to 20 percent of MRO spend, but also spawn new business models and revenue streams.
  27. 27. 26© OLIVER WYMAN 26© OLIVER WYMAN • Expected to be a significant driver of innovation over the next five years • Boeing recently invested $100M into expanding AHM • A 787 flight can generate 500GB of data Aircraft Health Monitoring (AHM) and Big Data Additive Manufacturing (3D Printing) • Quickly gaining traction – A350 will feature 3D-printed plastic and metal brackets – GE will introduce 3D-printed fuel nozzles in its CFP LEAP engine – Out-of-production parts can be printed “on-demand” Augmented Reality and Automated Inspection Tech • Augment reality allows for live audio and visual communication with OCC • Robots used for visual inspections and non-destructive testing – Highly efficient – Highly accurate Take the controls and make strategic investments now: Technologies will likely come online faster than anticipated
  28. 28. 27© OLIVER WYMAN 27© OLIVER WYMAN Time to disengage the Autopilot Is your corporate Auto Pilot engaged? • Focusing solely on business as usual is a risky strategy in the coming years • Relying on current commercial offers, sales practices, resources, will challenge an MRO’s future business • Advances could cut 15-20% of MRO spending from the aftermarket – But also spawn new business models and revenue streams • Amounts to a reduction or redistribution of $10-15B among current industry players & new competitors • MROs and operators must actively choose technologies to develop and exploit • Those that fail will end up as innovation takers, ceding further aftermarket control to competitors
  29. 29. 28© OLIVER WYMAN 28© OLIVER WYMAN The future is now

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