Aerospace and Manufacturing Forum - Cronus Partners€¦ · • Aircraft component manufacturing...

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April 20, 2016 Aerospace and Manufacturing Forum

Transcript of Aerospace and Manufacturing Forum - Cronus Partners€¦ · • Aircraft component manufacturing...

Page 2: Aerospace and Manufacturing Forum - Cronus Partners€¦ · • Aircraft component manufacturing • Engine and component maintenance and support • Previous experience includes

Confidential – Cronus Aerospace Forum | April 2016 1

Capital Market ConditionsPublicly Traded Equities – Valuation Multiples

EV/EBITDA EV/Revenue

Debt Market Rates

0.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15

CP Aerospace Index - Average CP Aerospace Index - Adjusted Average

5.0x

6.0x

7.0x

8.0x

9.0x

10.0x

Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15

CP Aerospace Index - Average CP Aerospace Index - Adjusted Average

Source: Thomson Reuters Eikon; net adjustment is 30%

0.00%

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1.00%

1.50%

2.00%

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3.00%

Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16

10-yr Treasury Yield US Fed Target Rate Linear (10-yr Treasury Yield)

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Confidential – Cronus Aerospace Forum | April 2016 2

Speaker Introduction: Richard Brown

• Principal at ICF International, one of the world’s largest and most experienced aviation and aerospace consulting firms, forecasting industry production and demand and providing advisory support to MROs, operators, and OEMs

• 15+ years’ experience in the aerospace industry, including 10 consulting with ICF (formerly Aero Strategy) managing projects with a broad global client base, including airlines, manufacturers, and suppliers

• Extensive aerospace market forecasting experience leading to the development of the Aero Strategy business aviation maintenance market forecast

• Specialties: • Asia and Middle East market• Business aviation• Pilot and mechanic training• Aircraft component manufacturing• Engine and component maintenance and support

• Previous experience includes various market analysis roles at TRW Lucas Aerospace and Goodrich Corporation

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Confidential – Cronus Aerospace Forum | April 2016

Cronus Partners, a recipient of the ACG Boutique Investment Bank of the Year award, is a middle market focused independent investment bank headquartered in New York City

While Cronus works on investment banking mandates for companies across a broad spectrum of industries, weare unrivaled in our knowledge and experience with specific industries. We understand the drivers of changewithin each industry and nurture relevant and meaningful corporate and private capital market relationshipstherein. Cronus combines Wall Street expertise with the agility and attentiveness of a boutique firm. Ourinvestment bankers are highly experienced professionals who combine in-depth industry knowledge withtransactional execution skills and an intimate understanding of issues facing middle market companies. Cronus’focused attention and guidance through each step of the process enables each client to accomplish its goals.

3

Cronus Partners Overview

Firm Profile

Sales, divestitures, spinouts Mergers and acquisitions Bank facilities, senior,

subordinated and other debt financing (asset based, cash flow based, transaction oriented)

Private placements of equity and debt

Management buyouts Fairness opinions Corporate finance advisory

services

Investment Banking Services

Aerospace and Defense Alternative Energy Business Services Environmental Services Maritime Transportation

and Logistics Oilfield Technology Specialty Manufacturing

Sector Coverage

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Confidential – Cronus Aerospace Forum | April 2016 4

Contact Us

Cronus Partners LLCwww.CronusPartners.com

850 Third Avenue20th FloorNew York, NY 10022

Charles CarsonSenior [email protected]

John [email protected]

Ken LeungManaging [email protected]

Paul NowakManaging [email protected]

Jeffrey RubinManaging [email protected]

Andrea [email protected]

Britt BarclayAssociate

Conor WilliamsAnalyst

Jenni SingerManager, Administration

Lisa JohnsonMarketing Associate

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00

What's Happening with Aircraft Engine and MRO Demand?

20 April 2016 - Hartford, CT

Presented by:Richard BrownPrincipal, ICF International [email protected]

© ICF International 2016ICF International | icfi.com

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Market Context

MRO Forecast &The Battlegrounds

What’s Happened To MRO?

Agenda MRO Market Forecast & Key Battlegrounds

ICF International | icfi.com © ICF International 2016

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Aftermarket is significant at $135B, equivalent to 75% of the value of current production

© ICF International 2016ICF International | icfi.com 2

MARKET CONTEXT

Air Transport, 61%

Business & General

Aviation, 14%

Civil Rotary Wing, 3%

Military Rotary Wing, 10%

Production:$180.3B

Business & General

Aviation, 9%

Civil Rotary Wing, 3%

Air Transport, 48%

Military, 12%

Military, 27%

Military Rotary Wing,13%

Aftermarket:$135.1B

Source: ICF International

Aftermarket and Production Market Size (2015 $B)

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Boeing 20%

Airbus20%

Bombardier 6%

Embraer Cessna 6% 6%

Finmeccanica Helicopters…

Gulfstream 4%

Sikorsky 5%

Bell5%

Other 23%

Air Transport37%

BGA25%

Civil Rotary Wing 12%

Military Rotary Wing 16%

10%

Nearly 5,000 aircraft were produced in 2015 in all markets; air transport accounts for one-third of all production

© ICF International 2016ICF International | icfi.com 3

MARKET CONTEXT

2015 Aircraft Production Total = 4,466 Units

Military FixedWing

By Market By OEM

Source: ICF International

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Single Aisle 59%

TwinAisle 13%

Regional Jet9%

Next Gen TwinAisle

9%

Regional Prop 7%

Large Twin Aisle 3%

Boeing 46%

Airbus 38%

Embraer 5%

ATR 5%

Bombardier 4%

Sukhoi 1%

Xian 1%

The Boeing-Airbus duopoly in air transport accounts for 84% of all production units

© ICF International 2016ICF International | icfi.com 4

MARKET CONTEXT

2015 Air Transport Aircraft ProductionTotal = 1,674 Units

By OEM By Category

Source: ICF International

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A combination of high fuel prices and low cost of capital has createdfavorable aircraft buying conditions…..

© ICF International 2016ICF International | icfi.com 5

MARKET CONTEXT

Oil Prices and US Federal Funds Rate

Sources: EIA; US Federal Reserve, Teal Group

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Airbus and Boeing have record backlogs, approaching 8 years even at increased production rates

© ICF International 2016ICF International | icfi.com 6

MARKET CONTEXT

0 1000 5000 6000 7000

CSeriesCRJ

Q400

EJets EJets E2

737NG/MAX787

777X777-300ER/F

767747-8

A320ceo/ neoA350

A330ceo/ neoA380

Airb

us

Source: ICF Research, Boeing, Airbus, Bombardier, Embraer

Boei

ngEm

bBo

mb-

ardi

er

Air Transport Aircraft Backlogs

8 years6 years

5 years

5 years

7 years

5 years

4 years

2.5 years

3 years

2 years

3 years

3 years

4 years

3 years

<2 years

2000 3000 4000

Units in Firm Backlog

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Through 2025, air transport production will grow 3.5% annually, along withtotal value at 3.1% per annum

© ICF International 2016ICF International | icfi.com 7

MARKET CONTEXT

2015-2025 Air Transport Aircraft Production By OEM

#Aircraft

Total CAGR = 3.5%

Type, CAGR $B USD

$0

$20

$40

$60

$80

$100

$120

$140

$160

2015 2020 2025

Others, 13.9%

Bombardier, 1.3%

Embraer, 2.0%

Airbus, 3.5%

Boeing, 2.2%

Total CAGR = 3.1%

Type, CAGR

0

500

1,000

1,500

2,000

2,500

2015 2020 2025

Other, 11.6%

Bombardier, -1.9%

Embraer, 2.0%

Airbus, 3.5%

Boeing, 2.4%

Source: ICF Research & Analysis, Figures in Constant 2015 Dollars

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ICF’s anticipates mostly re-engine programs in the near-term

© ICF International 2016ICF International | icfi.com 8

MARKET CONTEXT

MOM

A380neo

777-X

A350-1100

737MAX-10

C919

MOM

C929

CS500*

E3

E2

New Aircraft Outlook

A322neo

* Assumes companysurvival

2020 2025 Airbus will prioritize the A350-1100; it may follow with a stretch A322neo and A380neo; a new single aisle (SA) likely ~2030

Boeing will stretch and re-wing the MAX in lieu of a MOM white sheet to fend off the A321neo; the MOM will wait until the mid-late 2020s…possibly in a family concept with a new single aisle similar to the 757/767

Bombardier will just survive after more government aid and/or entering a JV; it will launch the CS500 later this decade

Embraer and Comac will bring new aircraft to the market in the late 2020sSource: ICF analysis

Will end production ~ 2020

New SA

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MARKET CONTEXT

Aircraft OEMs are substantially less profitable than most Tier 1 suppliers…

© ICF International 2016ICF International | icfi.com 9

Aircraft OEMs perceive the risk-reward equation to be out of balance relative to more profitable Tier 1 and aeroengine OEMs

Airbus’s profitability is steadily improving from low single digits earlier this decade

Boeing would be less profitable ifit did not use program accounting(cumulative ~$30B loss on 787)

0.00%

5.00%

10.00%

15.00%

20.00%

2010 2011 2012 2013

Aircraft OEM Profitability

Tier 1 suppliers

(15%average)

Figures are EBIT (Airbus) and Operating Profit (Boeing)

Source: Airbus, Boeing.

Boeing Commercial

Airbus Commercial

2014 2015

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MARKET CONTEXT

…and are engaging in several cost reduction initiatives to increase profitability

Source: ICF

Initiative ActivityNew commercial terms

• Unilateral price reductions and revised terms• “No fly” lists for suppliers that don’t participate

Part redesigns• Value engineering• Material substitution

New processes• Shift to lower cost process• Leverage new processes

Selective vertical integration

• Expand role in profitable product segments• Assume system integration role• Gain access to lucrative aftermarketrevenue

Aggregation& Dual Sourcing

• Aggregate fragmented segments (e.g. fasteners, interiorparts• Shift to dual sourcing

Capture revert• Where possible, capture revert fromsuppliers• Work with supply chain integrators to close loop on material

ICF International | icfi.com 10© ICF International 2016

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Market Context

MRO Forecast &The Battlegrounds

What’s Happened To MRO?

Agenda MRO Market Forecast & Key Battlegrounds

ICF International | icfi.com © ICF International 2016

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MRO MARKET FORECAST

The current commercial air transport fleet consists of over 27K aircraft

Narrowbody Jet

Widebody Jet

Turboprop

RegionalJet

27,110Aircraft

14%

53%14%

19%

By Aircraft Type By Global Region

North America

Asia Pacific

Europe

Latin America

Middle East

31%

Source: ICF International; Forecast in 2015 $USD, exclusive of inflation

© ICF International 2016ICF International | icfi.com 12

27%

25%

8%

5% 5%

27,110Aircraft

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The combination of strong air travel demand and the need toreplace ageing aircraft will drive fleet growth at 3.4% annually

© ICF International 2016ICF International | icfi.com 13

MRO MARKET FORECAST

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2015 2025

Africa Middle EastSouth America EuropeAsia PacificNorth America

27,100

27%

32%

37,900

31%

25%

8%

26%

23%

8%

# Aircraft

3.8%

Source: ICF International; Forecast in 2015 $USD, exclusive of inflation

2.5%

1.6%

5.2%

5.3%

5.1%

CAGR

3.4% Avg.

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Current air transport MRO demand is $64.3B; with Asia equivalentto North America and Europe in market size

© ICF International 2016ICF International | icfi.com 14

MRO MARKET FORECAST

Engines

Components

Line

Airframe

Modifications

14%

17%

22%

40%

7%North

America

Asia Pacific

Europe

Middle East

Latin America

Africa

29%

28%

26%

8%6%4%

$64.3B$64.3B

By MRO Segment By Global Region

Source: ICF International; Forecast in 2015 $USD, exclusive of inflation

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The global MRO market is expected to grow by 4.1% per annum to$96B by 2025

© ICF International 2016ICF International | icfi.com 15

MRO MARKET FORECAST

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

2015 2025

Modifications AirframeLine Component Engine

40%

22%

14%

17%

$64.3B

$96.0B

2.8%

Source: ICF International; Forecast in 2015 $USD, exclusive of inflation

3.6%

4.3%

4.4%

CAGR

4.1% Avg.

5.3%

41%

22%

16%

13%

Page 22: Aerospace and Manufacturing Forum - Cronus Partners€¦ · • Aircraft component manufacturing • Engine and component maintenance and support • Previous experience includes

CFMInternational

30%

GE Aircraft Engines

26%

Rolls-Royce 19%

Pratt & Whitney 12%

International Aero Engines

9%

Pratt & Whitney Canada

3%Other

1%CFM56-7B

15%

V2500-A59%

CFM56-5B<1

Trent 7008%

GE90-115B 8%

CF6-80C2 7%

PW4000-94 5%

AE3007A 2%

Trent 8002%

CFM56-3 3%

Other 32%

The air transport engine MRO market stands at $25 billion; the topfive platforms account for about half of the total demand

© ICF International 2016ICF International | icfi.com 16

2015 Engine MRO Market

Total = $25.5 Billion

MRO MARKET FORECAST

By OEM By Engine Group

Source: ICF International

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Engine MRO demand will grow about 4.4% annually through 2025, aperiod that will witness production ramp-ups and new engines

© ICF International 2016ICF International | icfi.com 17

MRO MARKET FORECAST

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

2015 2025

Other, -10.9%

IAE, 3.5%

Rolls-Royce, 3.9%

GE, 5.4%

CFM, 4.8%

OEM, CAGR Group, CAGR

Total = 4.4% Total = 4.4%

$ Billions

2015 – 2025 Air Transport Engine MRO Forecast By Engine OEM & Engine Group

$ Billions

$0

$5

$10

$15

$20

$25Pratt & Whitney, 1.2%

$30

$35

$40

$45

2015 2025

Other, 3.8%

Genx-1B, 39.8%

CF6-80C2, -7.3%

Trent 700, 3.0%

V2500-A5, 3.4%

CFM56-5B, 4.0%

GE90-115B, 8.6%

CFM56-7B, 5.3%

Source: ICF International

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The aftermarket has evolved from being an afterthought to amarket of significant importance and a revenue opportunity

© ICF International 2016ICF International | icfi.com 18

THE BATTLEGROUNDS

Airlines Maintenance mainly a cost

centre

LCC’s drive new approach tomanaging maintenance

Increased outsourcing

US airline bankruptcies and restructuring

Limited focus on aftermarket;Rolls-Royce ahead of thegame

Significant growth of point-of-aircraft sale MRO contracts byengine OEMs

Increasing economic imperative forComponent OEMs given design investment on new programmes

OEMs

MROs Supply mostly in-house – fewlarge airline MRO suppliersand hugely fragmentedindependent sector

Growth of integrated component

Source: ICF International

services

Globalization of demand

The aftermarket has evolved from a cost centre to a highly competitive market1980 – 2000 Post-2000s

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Engine OEMs have the most mature and strongest OEM positionacross the main air transport aftermarket segments

© ICF International 2016ICF International | icfi.com 19

THE BATTLEGROUNDS

55%

35%

2% 0%

20%

25%

44%

82%

25%40%

54%

18%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Engine overhaul

Component O&R

Airframe Heavy

Line maintenance

Non-OEM MRO

Airline in-house

OEM

Highlights

Source: ICF International

OEMs tend to have the strongest share in the more material intensive markets (e.g. engine overhaul)

Component OEM market sharelower than engine OEMs

Aircraft OEMs have an almost non-existent position in the airframe-related aftermarket

Air Transport Supply (2015)

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The ramp up and introduction of new generation aircraft creates theopportunity to change the aftermarket supply chain

© ICF International 2016ICF International | icfi.com

THE BATTLEGROUNDS

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Aircraft deliveries (units)Highlights

New aircraft with higher reliability, lower manhours and complex technology change the business case for establishing MRO capability

…especially with greater airlinefocus on financial returns

This is a catalyst to change the MRO supply model….

Creating new opportunity for OEMs and aftermarket providers

Mature Aircraft

New Generation

Source: ICF International

20

Aircraft

Page 27: Aerospace and Manufacturing Forum - Cronus Partners€¦ · • Aircraft component manufacturing • Engine and component maintenance and support • Previous experience includes

Agenda MRO Market Forecast & Key Battlegrounds

ICF International | icfi.com © ICF International 2016

Market Context

MRO Forecast &The Battlegrounds

What’s Happened To MRO?

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MRO demand growth is considerably lower than global capacitygrowth…

© ICF International 2016ICF International | icfi.com 22

WHAT HAPPENED TO AFTERMARKET DEMAND?

Global YoY ASK Growth

MRO Demand Growth vs Global Capacity (ASK) Growth

Sources Canacord Genuity, ICAO

The conundrum

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…And airlines are enjoying lower fuel prices

© ICF International 2016ICF International | icfi.com 23

WHAT HAPPENED TO AFTERMARKET DEMAND?

$0.8

$1.1

$3.2

$2.9

$2.6

$2.3

$2.0

$1.7

$1.4

~67% Decline

U.S. Gulf Coast Jet Fuel Price per Gallon

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Continued lower fuel prices may encourage airlines to keep older in service for longer… as has already started to happen

© ICF International 2016ICF International | icfi.com 24

WHAT HAPPENED TO AFTERMARKET DEMAND?

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

0

200

800

# Retirements

1,200

1,000

Retirement as %of installed fleet

% Installed Fleet

1990-99 Average: 191

600

4002000-09 Average: 473

Potential Impact:

Airline capacity increases

Reduced part-out feed stock for surplus market

Increase in airframe and engine MRO spend onolder airframes

Less pressure OEM new parts sales

Higher used part values / pricing

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ICF believes that four major trends are behind the aftermarketshortfall

© ICF International 2016ICF International | icfi.com 25

WHAT HAPPENED TO AFTERMARKET DEMAND?

4Used & Serviceable

Material

RONA-DrivenAirlines

Currency Exchange Fluctuations

New Age Provisioning

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Historically, airlines have not generated investor returns, and someairlines are intent to improve this…

WHAT HAPPENED TO AFTERMARKET DEMAND?

9.0%

8.0%

7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

WACC

ROIC

Source: McKinsey / IATA

2004-2013 Global Airline ROIC vs. WACC

RONA-DRIVEN AIRLINES

© ICF International 2016ICF International | icfi.com 26

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…and for these airlines, capacity management and asset utilizationare replacing market share as key metrics

WHAT HAPPENED TO AFTERMARKET DEMAND?

70%

72%

74%

76%

78%

80%

82%

0

0.5

1

1.5

2

2.5

3

3.5

2004 2005

ScheduledPassengers

Load Factor

Billions of Passengers

2006 2007 2008 2009 2010 2011 2012 2013 2014F

The airlines have historically been run by operationally-minded people, who tended tothrow planes onto routes in a fight for market share. The name of the game is nowcapacity management, and the decision makers are the finance people.

Derek Kerr, CFO, American Airlines

Source: ICF Research / IATA

2004-2014 Global Airline Scheduled PassengersLoad Factor

RONA-DRIVEN AIRLINES

© ICF International 2016ICF International | icfi.com 27

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Delta Airlines is at the vanguard of this sea-change in airlinemanagement philosophy…

WHAT HAPPENED TO AFTERMARKET DEMAND?

It’s been about changing themindset and the approach to theindustry, and really treating theairline industry like any otherindustrial business. For thatreason, we target 15% ROIC justlike other high-quality industrialtransports.

Richard Anderson, CEO, Delta Airlines

RONA-DRIVEN AIRLINES

© ICF International 2016ICF International | icfi.com 28

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Delta’s approach to up-gauging results in the same capacity with 14% fewer aircraft…

WHAT HAPPENED TO AFTERMARKET DEMAND? RONA-DRIVEN AIRLINES

© ICF International 2016ICF International | icfi.com 29

Source: Delta Airlines

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…Delta’s philosophy results in reduce maintenance expenditureswith OEM purchases as a last resort

WHAT HAPPENED TO AFTERMARKET DEMAND?

Aircraft impacted• MD80• 767s• 757s• 747-400s

• Delta has a group dedicated to parting out aircraft and has purchased aircraft from other operators to cannibalize (e.g. SAS MD80s)

• Actively cannibalizes its own retired aircraft

• Recent repair volume fell by 20% partly through use of USM• Leverages its internal engineering capability to develop DER repairs

and modified repair scopes (e.g. hard time on condition)• Buys from OEMs only as last resort

RONA-DRIVEN AIRLINES

“Opportunities to acquire older airplanes and harvest them forparts has provided significant savings for us going forward interms of a lower-cost basis for the overhauls that we have”

Paul Jacobson, Delta CFO, Delta Airlines

“Historically in this industry, management teams becameinfatuated with new airplanes. Instead, we look at airplanes notas emotional decisions but as investment decisions. Each assethas to have a return on capital”

Richard Anderson, CEO, Delta AirlinesSource: ICF International

© ICF International 2016ICF International | icfi.com 30

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The share of integrated programs in component support isincreasing, which is limiting initial provisioning sales

WHAT HAPPENED TO AFTERMARKET DEMAND?

Component Support Buying Behaviour

Growth Drivers Small fleet size

• Perceived technology risk

• Improved ROIC

• Maintenance no longer coreactivity

• Predictable outgoings

• Attractive value propositions

• Lower investment, less infrastructure

0%

10%

20%

30%

40%

50%

60%

70%

80%

100%

90%

Integrated*

Traditional

Integrated Component Programs Penetration

777 787/A350

~20% 55%-70%

9%

2004 2014 2024

30%45%

Control of assets enables aftermarket players to support integrated programs moreeffectively:The more inventory held by a supplier, the lower the inventory cost per aircraftsupported

New Age Provisioning

Source: ICF International

© ICF International 2016ICF International | icfi.com 31

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Pooling results in greater asset productivity…and less demand forinitial provisioning

WHAT HAPPENED TO AFTERMARKET DEMAND?

• The ”start-up” inventory for the first aircraft is very high.

• When more aircraft are added to fleet, the start-up inventory is spread on more aircraft, and the required investment per aircraft is reduced.

• The scale effect flattens outwhen the pool reaches critical size.

• Inventory management firms with sufficient size and fleet size can take advantage of their scale and effectively move an operator down the inventory holding curve

Notional Inventory Holding Curve

Number of aircraft

Req

uire

dIn

vent

ory

($pe

rairc

raft) Traditional In-House

Inventory Management

Large Scale Inventory Management Programs

New Age Provisioning

© ICF International 2016ICF International | icfi.com 32

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The availability of used and serviceable material (USM) has grownwith aircraft retirements in recent years…

WHAT HAPPENED TO AFTERMARKET DEMAND?

Air Transport Annual Aircraft Retirements

Includes TurbopropsSource: FlightGlobal ACAS June 2015, Airline Monitor, ICF International Analysis

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

ICF International forecast

1990-99 Average 191

2000-09 Average 473

2010-24 Average 825

Used & Serviceable Material

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Page 40: Aerospace and Manufacturing Forum - Cronus Partners€¦ · • Aircraft component manufacturing • Engine and component maintenance and support • Previous experience includes

OEM New

Partsrepair, incl.

DER

USM Parts

PMA Parts, 1%

Total commercial aircraft material related spend is estimated to be$37.5B with OEM new parts accounting for about two-thirds

WHAT HAPPENED TO AFTERMARKET DEMAND?

Air Transport MRO Material Related Spend

Total parts demand consists of OEM New + USM parts + PMA: Repair activity is outside this parts demand. Source: ICF analysis

$37.5B 67%

22%

9%

Alternative (to OEM new) parts choices today account for one-third of total material spend

USM parts market is $3.5B – and nine times greater than PMA

Parts repair, including DER, is even higher

Used & Serviceable Material

Engine Parts

Component

Airframe

5% 65%

30%

Air Transport Surplus PartsMarket*

$3.5B

Over 80% of airlines have an active surplus parts strategy (up from 71% in 2013) according to Oliver Wyman

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Page 41: Aerospace and Manufacturing Forum - Cronus Partners€¦ · • Aircraft component manufacturing • Engine and component maintenance and support • Previous experience includes

WHAT HAPPENED TO AFTERMARKET DEMAND? Currency Fluctuations

• The USD has strengthened 20-35% since January for important currencies

• MRO material is typically priced in USD, thereby increasing input costs considerably to non-US MROs

• Anecdotal evidence suggests that MRO expenditures dropped in regions with large shifts in exchange rates

-55.1% -41.1% -34.1%Russian Ruble Brazilian Real S. African Rand Mexican Peso

-25.9%CanDollars

-23.1%AusDollars

-20.8%Euro

-20.0%British Pound JapaneseYen

-12.8% -11.9%Indian Rupee ChineseYuan

-7.8% -7.2%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

Finally, the dramatic strengthening of the USD is weakeningaftermarket results from some regions

Exchange Rates: January 2014 - present% Value Change

Jan. 2014 – Jan. 2016

B

R

C

S

I

Source: Source: Oanda historical exchange rates, ICF International Analysis

The “CRABS”: Countries with economies

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that are heavily dependent on commodity exports

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ICF is one of the world’s largest and most experienced aviation and aerospace consulting firms

© ICF International 2016ICF International | icfi.com 36

51 years in business (founded 1963)

100+ professionalstaff− Dedicated exclusively to aviation and aerospace

− Blend of consulting professionals and experienced aviation executives

Specialized, focused expertise and proprietary knowledge

Broad functional capabilities

More than 10,000 private sectorand public sector assignments

Backed by parent company ICF International ($937M 2013 revenue)

Global presence –– officesaround the world

Airports • Airlines • Aerospace & MRO • Asset Advisory

joined ICF in 2012

joined ICF in 2011

joined ICF in 2007

New York • Boston • Ann Arbor • London • Singapore • Beijing • Hong Kong

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

Richard Brown PrincipalAerospace & MRO Advisory

+44 (0)7718 893 [email protected]

icfi.com/aviation

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