January 25-26, 2017 Cancun, Mexico ICF delivered a presentation at the MRO Latin America Conference in Cancun, Mexico. The presentation provides a forecast for the maintenance, repair, and overhaul (MRO) industry and highlights trends in aircraft operations.

1. 0
MRO Market Update & Industry Trends
Presented by:
Jonathan M. Berger
Vice President  ICF
jberger@icf.com
January 25-26, 2017
Cancun, Mexico

2. 11
Today’s Agenda
Fleet & MRO Forecast
2016: What a long strange trip
year it’s been…
2017: The year aviation &
aerospace blinked…

3. 22
MRO Forecast

4. 33
The current
commercial
air transport fleet
consists of under
28K aircraft; over
half are narrowbody
aircraft
Source: CAPA 2016
Narrowbody
Jet
Widebody
Jet
Turboprop
Regional
Jet
27,957
Aircraft
13%
54%14%
19%
By Aircraft Type By Global Region
27,957
Aircraft
2016 Global Commercial Air Transport Fleet
5%
28%
25%
5%
30%
7%
Latin
America Africa
North
America
Asia
Pacific
Europe
Middle East

5. 44
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2016 2026
Africa
Middle East
Latin America
Europe
Asia Pacific
North America
The combination of
strong air travel
demand and the
need to replace
ageing aircraft will
drive fleet growth at
a healthy 3.2%
annually
Source: ICF analysis: CAPA 2016
28,000
30% 25%
38,100
28%
25%
8%
33%
23%
8%
# Aircraft
3.4%
2.4%
1.3%
4.8%
5.0%
4.1%
CAGR
3.2% Avg.
5%
6%
10 Year Global Air Transport Fleet Growth

6. 55
Current commercial
air transport MRO
demand is $67.6B;
Asia is now larger
than North America
and Europe in
market size
Source: ICF analysis; Forecast in 2016 $USD, exclusive of inflation
Engines
Components
Line
Airframe
Modifications
14%
17%
22%
40%
8%
North
America
Asia Pacific
Europe
Middle East
Latin
America
Africa
27%
30%
26%
8%
6% 4%
$67.6B$67.6B
By MRO Segment By Global Region
2016 Commercial Air Transport Global MRO Demand

7. 66
The global MRO
market is expected
to grow by 4.1% per
annum to over
$100B by 2026
Source: ICF analysis; Forecast in 2016 $USD, exclusive of inflation
 Engine and component MRO
markets remain the largest
segments
 Modifications market will see
the strongest growth (e.g.
interiors, connectivity)
 Airframe market slows due
to reduced man-hour
intensity and increased
check intervals as new fleets
are introduced
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
2016 2026
Modifications
Airframe
Line
Component
Engine
40%
22%
14%
17%
$67.6B
$100.6B
2.8%
3.2%
4.2%
4.5%
CAGR
4.1% Avg.
5.2%
41%
22%
16%
12%
10 Year Global Commercial Air Transport MRO Demand Growth
$USD
Billions

8. 77
The current Latin
American fleet
consists of over
2,100 aircraft; with
narrowbody aircraft
making up more than
50% of the installed
base
Source: CAPA 2016
Narrowbody
Jet
Widebody
Jet
Turboprop
Regional
Jet
2,099
Aircraft
15%
52%
23%
9%
By Aircraft Type By Country
Brazil
Mexico
Colombia
Chile
Venezuela
Panama
Other
2,099
Aircraft
25%
19%
8%
20%
11%
6%
6%
5%
2016 Latin American Commercial Air Transport Fleet

9. 88
The Latin American
MRO market is
expected to grow
to approx. $6.4B
by 2026, at 5.5% per
annum
Source: ICF analysis; Forecast in 2016 $USD, exclusive of inflation
 Modifications is the fastest
growing MRO segment in
Latin America
 MRO spend on widebodies
in Latin America will nearly
double by 2026 as the fleet
increases by 56%
$0
$1
$2
$3
$4
$5
$6
$7
2016 2026
Modifications
Airframe
Line
Component
Engine
37%
25%
13%
19%
$3.8B
$6.4B
4.0%
3.7%
4.7%
7.0%
CAGR
5.5% Avg.
7.2%
42%
23%
16%
11%
8%
10-Year Global Latin American MRO Demand Growth
$USD
Billions
7%

10. 99
2016: What a long strong trip
year it’s been…

11. 1010
Driven by low fuel
costs and
consolidation, the
global airline
industry achieved
record profitability
of over $35B USD in
2016
Source: IATA, ICF analysis
2016 was a historic year for airline
profitability…
Global Airline Profitability, 1997 - 2017F
-$30
-$20
-$10
$0
$10
$20
$30
$40
$USD
Billions
Asia Pacific, $6.3B
North America, $18.1B
Europe, $5.6B
Middle East, $0.3B
Latin America, $0.2B
Africa, ($0.8B)$35.6B

12. 1111
However, record
profitability has
been largely limited
to carriers in North
America
Source: IATA, ICF Analysis
-1.8%
-4.7%
0.1%
2.3%
1.0%
-0.9%
3.4%
4.7%
0.7%
1.5%
3.0%
-0.4%
12.9%
5.2%
4.5%
2.9%
0.7%
-3.6%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2008
2012
2017F
Global Airline EBIT Margin by Region
…but many airlines continue to struggle

13. 1212
Follow the Money:
Airlines are
spending their hard
earned profits in
three primary areas
Source: Company Reports, ICF Analysis
Airline Profit Spend Analysis
[CELLRANGE],
20%
[CELLRANGE],
38%
[CELLRAN
GE], 42%
Profit Sharing
15%
Wage
Increases
5%Fleet
23%
Equity
Investments
5%
Other capex
10%
Debt
Repayments
16%
Stock Buy-
Back &
Dividends
26%
1. Labor ~ 20%:
 Profit sharing
 Wage increases
2. Capex ~ 38%:
 Fleet renewal & cabin
upgrades
 Facilities, offices, lounges
 Equity partner investments
3. Investors ~ 42%:
 Stock buy-backs
 Dividends
 Debt repayment

14. 1313
Aviation is
experiencing a
new golden age
of aircraft cabin
interiors
Modifications demand includes labor and material spend
*Passenger-To-Freighter Conversions
**Airworthiness Directives / Service Bulletins
Source: ICF analysis, constant 2016 US$
MRO modification market
growth drivers include:
 Latest lie-flat seats are now
the minimum standard
 Premium economy
 Wi-fi, on-board connectivity
 Capacity (ASM/K) increase
(“Cabin Densification”)
 Coming soon: ADS-B Mod
program
Commercial Air Transport Modifications Forecast
$2.8
$4.8
$0.8
$1.4
$0.6
$0.9
$0.3
$0.5
$0.3
$0.4
$0.2
$0.4
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
2016 2026
Cabin Connectivity
AD/SB**
PTF Conversions*
Painting
Avionics Upgrades
Interiors
$5.1B
$8.5B
3.6%
4.2%
5.9%
5.6%
CAGR
5.2% Avg.
2.9%
$USD
Billions
5.1%

15. 1414
$0
$5
$10
$15
$20
$25
$30
$35
$40
Amazon Quarterly Revenue
Amazon is very well
positioned to lead a
major disruption of
the air cargo industry
Source: Amazon SEC Filings
Amazon’s Growing Revenue & Shipping Costs
0%
2%
4%
6%
8%
10%
12%
14%
Shipping Costs as a
Percentage of Revenue
$B
USD

16. 1515
Latin American
Aviation Outlook

17. 1616
The good news…
After a half decade
of economic decline,
Latin America is
once again poised
for growth in 2017
Note: All GDP Growth are calculated based on constant price (nation currency)
Source: IMF Economic Outlook April 2016, ICF analysis
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Latin American GDP Growth

18. 1717
In 2017, while most
countries in Latin
America will see
modest, but steady
economic growth,
the big increases will
come from Brazil
and Argentina
Note: All GDP Growth are calculated based on constant price (nation currency)
Source: IMF Economic Outlook April 2016, ICF analysis
United States
Brazil
0.0%
2.0%
4.0%
0.0%
2.0%
4.0%
6.0%
0.0%
5.0%
10.0%
0.0%
5.0%
10.0%
0.0%
5.0%
10.0%
0.0%
2.0%
4.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
2013 2014 2015 2016F 2017F
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%

19. 1818
Latin America is in
the midst of an
“LCC Renaissance”
Source: OAG, Airbus, ICF Analysis
LCC Market Share (seats offered) by Global Region
38%
21%
24%
30%
40%
49%
20% 20%
13%
6%
9%
4%
7% 6%
3%
0%
10%
20%
30%
40%
50%
60%
Domestic
Intra-regional
International Copa restructuring Copa
Colombia into new ultra-LCC
called Wingo
 VivaColombia launches
subsidiary Viva Air in Peru
 Flybondi plans to launch
ultra-LCC in Argentina in 2017
 Chilean based Sky Airline
switching its business model
to ultra-LCC
 Mexican LCC Volaris
announces new subsidiary in
San Jose, Cost Rica

20. 1919
There continues to be
significant interest
and external financial
investment in Latin
American carriers
Source: ICF analysis
United States
Brazil

21. 2020
2017: The year aviation &
aerospace blinked…

22. 2121
Commercial aircraft
OEM production
backlog remains at
historical highs
Source: CAPA, ICF Analysis
Commercial Aircraft OEM Production Backlog
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
Order
Backlog
Backlog/
% Active Fleet
 Emerging market growth
 Very low interest rates
 Previously high oil and
commodity prices
 Introduction of new
technology aircraft/engines

23. 2222
Lower fuel costs
appear to be
reversing aircraft
retirements trends
Source: CAPA, Airline Monitor, ICF analysis
Industry Impact:
 MRO Suppliers - Positive:
Increased spend on older
airframes & engines
 Surplus Market - Negative:
Reduced part-out “feed
stock”
- OEMs: Improved new
part sales
- Distributors: Improved
used part values /
pricing
- Operators: Increased
material costs
- PMA Suppliers: Very
Positive
Commercial Air Transport Annual Aircraft Retirements
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
0
200
400
600
800
1,000
1,200
# Retirements
Retirement as %
of installed fleet
% Installed
Fleet
1991-1999 Average: 203
2000-2009 Average: 473

24. 2323
Four external macro-
economic forces are
creating headwinds
for global airlines
and the broader
aerospace & MRO
supply chain
Source: ICF analysis
Strengthening US Dollar
Growth of Populism/Nationalism
& Impact to Global Trade
 Increased airline costs:
- Aircraft financing
- Fuel
- Labor
- MRO flight hour agreements
 Downward pressure on global GDP
growth
 Downward pressure on aircraft
valuations
 Potential for increase in aircraft
delivery deferrals (backlog risk)
 Middle East airline titans stressed
 Advantage = Airbus

25. 24
For questions regarding this
presentation, please contact:
Jonathan M. Berger
Vice President  Aerospace & MRO Advisory
jberger@icf.com  +1 404.819.7669
THANK YOU!
January 25-26, 2017
Cancun, Mexico

26. 2525
 Market Research & Analysis
 Airline Maintenance Benchmarking
 M&A Commercial Due Diligence
 OEM Aftermarket Strategy
 Aviation Asset Valuations & Appraisals
 MRO Information Technology (IT) Advisory
 Strategic Sourcing & Supply Chain Mgt.
 LEAN Continuous Process Improvement
 Military Aircraft Sustainment
ICF provides a full range of Aerospace &
MRO advisory services

27. 2626
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world’s largest and
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aviation and
aerospace
consulting firms
Airports • Airlines • Aerospace & MRO • Aircraft Finance
 53 years in business (founded 1963)
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