TURBULENCE AHEAD

DISENGAGE THE AUTOPILOT

2015-2025 GLOBAL FLEET & MRO MARKET FORECAST

WEDNESDAY, FEBRUARY 3, 2016

Andrew Medland
Principal

AVIATION
Oliver Wyman

Oliver Wymans aviation practice integrated TeamSAI into

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reliability
Regulatory approvals
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Due diligence
Post-acquisition implementation
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Global Fleet &

MRO Market Outlook

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

40,000

3.5%

Number of Aircraft

35,000

3.9%
23,927

20,000

2,721
3,396

2.5%
-1.0%
4.2%

15,000

4,686

5.2%

10,000

5,000

3,079
3,222

1.0%
-2.0%
4.5%

5,753

4.5%

29,003

30,000
25,000

34,408

7,181

0
2015
Narrowbody

'15-'20
CAGRS

2020

'20-'25
CAGRS

Widebody

Regional Jet

Passenger fleet expected

to grow at 3.8% annually

Cargo fleet forecast to

grow by 2.3% annually
21,089

16,949

13,124

3,232
2,906

Global fleet will grow on

average 3.7% annually
over the full forecast
period

2025

Narrowbody aircraft will

lead the growth

Regional jets will actually

decline in the mix

Turboprop

The growth outlook, however, varies widely from region to region

Oliver Wyman

A 5 pt spread in regional growth rates leads to a significant

share shift over the decade ahead
2015
Fleet Size

10YR
CAGR

2015- 2025
Absolute Growth

North America 7,420

0.9%

722

Europe 6,131

2.8%

1,965

Latin America
1,720
& the Caribbean

4.7%

997

Africa / Middle East 2,204

5.5%

1,562

Asia Pacific / China / India 6,452

6.1%

5,235

The mature North American and Western European markets will continue to
undergo significant refleeting efforts during the next 10 years
Oliver Wyman

A 5 pt spread in regional growth rates leads to a significant

share shift over the decade ahead
2025
Fleet Size
North America 7,420
8,142

6,131
Europe 8,096

Latin America
1,720
2,717
& the Caribbean
2,204
Africa / Middle East 3,766

6,452
Asia Pacific / China / India 11,687

6.1%

The mature North American and Western European markets will continue to
undergo significant refleeting efforts during the next 10 years
Oliver Wyman

43% of all new aircraft deliveries will replace old technology

aircraft over the forecast period
New Passenger Deliveries

New Cargo Deliveries

18,068

423

716
P2F Conversions
Cargo Fleet

Passenger Fleet

7,346

664

Passenger Retirements

Cargo Retirements

The systematic elimination and replacement of older aircraft with new technology
aircraft will drive significant change is the business for airlines and maintainers
Oliver Wyman

43% of all new aircraft deliveries will replace old technology

aircraft over the forecast period
New Passenger Deliveries

New Cargo Deliveries

18,068

423

10,481
716

P2F Conversions

Passenger Fleet

Cargo Fleet

Net Growth

7,346

664

Passenger Retirements

Cargo Retirements

The systematic elimination and replacement of older aircraft with new technology
aircraft will drive significant change is the business for airlines and maintainers
Oliver Wyman

The result is a staggering change in fleet mix by 2025

2015 Global Air Transport Fleet
by Vintage

2000's
9%

2025 Global Air Transport Fleet

by Vintage

1970's
2%
2010's
29%
1980's
26%

1970's
0.1%

2000's
16%

1980's
9%

1990's
63%

1990's
46%

The significant move towards late generation aircraft, in addition to improving airline
costs, will undoubtedly impact MRO dynamics
Oliver Wyman

The fleet dynamics of the period result in a forecast that tops

$100 billion by 2025, a 4.1% average annual growth rate

$120

Global MRO Market Share Forecast

by MRO Segment

3.8%
$100.4
4.4%

$100
$80
$60

3.5%

$17.8
$19.2

$67.1

4.0%

$15.0

4.7%

$12.3

4.1%

$15.2

4.8%

$12.4

5.9%

$40

1.0%

1.9%

$14.5
2015

$46.8

$37.1

$27.9
$20
$0

$83.2

$15.9

$16.7

'15-'20 2020 '20-'25 2025

CAGRS
CAGRS
Airframe Engine Component Line

Market Share

2015 Dollars ($USB)Billions

Global MRO Market Size Forecast

by MRO Segment

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

18%

18%

18%

19%

18%

19%

42%

45%

47%

22%

19%

17%

2015

2020

2025

Airframe

Engine

Component

Line

Airframe Heavy Maintenance costs improve with the new technology while both
Engine and Component sectors will take a larger share
Oliver Wyman

Shadowing the fleet trends, large differences in regional growth

rates will lead to a significant shift in MRO demand
2015
MRO Spend ($USB)

10YR
CAGR

2015- 2025
Absolute Growth ($USB)

North America $20.0

0.6%

$1.3

Europe $17.9

3.3%

$7.0

Latin America
$3.2
& the Caribbean

7.3%

$3.3

Africa / Middle East $7.5

5.5%

$5.3

6.6%

$16.5

Asia Pacific / China / India $18.3

Asia/Pacific, China, & India will be challenged to build the necessary infrastructure
capable of handling the volume of MRO the combined region will demand
Oliver Wyman

10

Shadowing the fleet trends, large differences in regional growth

rates will lead to a significant shift in MRO demand
2025
MRO Spend ($USB)
$21.3
North America $20.0

Europe $17.9
$24.9
Latin America
$3.2
$6.5
& the Caribbean
Africa / Middle East $12.8
$7.5

Asia Pacific / China / India $18.3

$34.8

6.6%

Asia/Pacific, China, & India will be challenged to build the necessary infrastructure
capable of handling the volume of MRO the combined region will demand
Oliver Wyman

11

Middle East and Africa Fleet &

MRO Market Outlook

Passenger traffic is soaring in the Middle East surpassing 11%

growth in the last year. Traffic growth in Africa has remained
mostly flat
2015 PASSENGER TRAFFIC (RPK)
GROWTH

2015 CURRENT FLEET

11.1%

2,204
+5.5%
2015-2025
FLEET CAGR

2,100+

800+

2015-2025 AIRCRAFT DELIVERIES

2015-2025 AIRCRAFT RETIREMENTS

Oliver Wyman

13

In 10 years, over 42% of the Middle East and Africa fleet will be
new technology aircraft requiring new technical skills and
capabilities
Top 10 Middle East and Africa Aircraft Families - 2015

777
A320C/NEO

Top 10 Middle East and Africa Aircraft Families - 2025

777
A320C/NEO

A330

A380

A340

737NG/MAX

747
737NG/MAX

A350

787

A380

A330

767

A340

737CL
A300
Oliver Wyman

747
ATR
14

A sharp increase in the rate of deliveries drives a 5.5% growth

rate in MRO spend over the next ten years

MRO Spend in 2015 US Dollars ($USB)

2015-2025 Middle East and Africa MRO Market Forecast

by MRO Segment
$14

$12.9

$12

$10.3 $10.2 $10.6

$10
$8

$7.6

$7.6

$7.5

2015

2016

2017

$8.4

$8.8

2018

2019

$11.6 $11.5

$6
$4
$2
$0
Airframe

Engine

2020

2021

Component

2022

2023

2024

2025

Line

Despite the solid growth, aftermarket participants will still need to have an
aggressive and innovative plan to maintain or grow market share.
Oliver Wyman

15

Many different dynamics are at play in a region comprised of 62

countries and states; differences in individual economies and
resource availability will produce uneven growth in the region
2015 Middle East and Africa MRO Market Forecast
by Operator Country
$2.0
$2.7
2015 US Dollars ($USB)

$1.8
$1.6
$1.4
$1.2
$1.0
$0.8
$0.6
$0.4
$0.2
$0.0

Middle East
Oliver Wyman

Africa
16

Saudi Peninsula
Fleet Size: 284
MRO Market: $1.1B
With so many options around it and current
MRO options already in place, we do not
anticipate above average investment in this
region.

North Africa
Fleet Size: 307
MRO Market: $0.6B
The fleet consists of mostly aging
turboprops and regional jets adds up to a
relative small maintenance cost base,
leaving little opportunity in this sub region..

Sub-Saharan Africa
Fleet Size: 723
MRO Market: $1.4B
Declining commodities prices and lower
demand from the sub regions largest
importer China greatly hamper the economic
outlook of the region. This paired with
constant geopolitical strife limits the
opportunities for MRO in the region.

Fertile Crescent
Fleet Size: 335
MRO Market: $0.9B
While, economic development continues in
parts of the region, the current refugee
crises and current strife within this region will
limit any promise of growth for the
foreseeable future.

United Arab Emirates/Qatar

Fleet Size: 555
MRO Market: $3.5B
The largest opportunities exist in Dubai, Abu
Dhabi and Doha. leading to future joint
ventures and increased OEM presence.

Fleet changes and technological advances will create

turbulence for the MRO business
OEMs increased
aftermarket presence

Increased aftermarket market share for the newest generation of

aircraft

New repair capabilities Decisions necessary enter new markets for each of airframe,
required
engine and component repairs

Less maintenance

Health monitoring and predictive maintenance will reduce overall

time-on-tool requirements for individual checks with fewer repairs

Increased use of data

analytics

Critical new source of value to the aftermarket driven by those who

design the best algorithms and most rigorous data management

Market participants will need aggressive and innovative plans for growth
Oliver Wyman

18

2015 MRO Survey Results

Oliver Wymans 2015 MRO Survey identified

a slew of new technologies that are poised
to come to market
Most prominent new technologies by 2020 (All respondents)

Aircraft Health Monitoring Systems

66%

Predictive Maintenance

66%

Live maintenance through

wearable and mobile technology

57%
35%

Composite repair capabilities

New repair technology

26%

Additive manufacturing

25%

Artificial intelligence
Drone-supported maintenance

Oliver Wyman

6%
4%

20

The collection, storage, aggregation and

analysis of data will be key factors in aircraft
health monitoring and predicative maintenance
Who is best positioned within the industry to benefit from predictive maintenance?

65%

Airlines

19%

OEMs

9%

Too early to predict

7%

MROs
PMA Manufacturers

Oliver Wyman

0%

21

However, digesting innovative change is not

standard fare for the MRO industry
Survey respondents completed this sentence: The MRO industry innovates...

periodically

39%

sporadically

27%

primarily as a
response to
OEM innovation

21%

frequently

13%

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
Oliver Wyman

22

and though they have a vision, many

organizations struggle with how to rapidly
evaluate and bring innovative ideas to market
Positive survey responses
Top management has a clear, shared vision and strategy for
Top
management
hasareas
a clear, shared vision and
growth
in new business

strategy for growth in new business areas

Use
a strategic
methodtotovisualize
visualize
areas
We use
a strategicplanning
planning method
areas
of of
opportunity and
identify
the the
mostmost
promising
prospects
opportunity
and
identify
promising
prospects
Our
process
allows
us tous to
Our innovation
innovation
process
allows
quickly
identified
opportunities
quicklytranslate
translate
identified
into plans and get sign-off from top
opportunities
management into plans and get

43%

76%
68%

Decreasing
impact;
More
difficulty
bringing vision
to market

sign-off

We can quickly translate the

We quickly
pilot ideas
and
identified
opportunities
into
roll out
fast-to-market
pilot
projects
and fast-to-market
programs
roll-out programs

Oliver Wyman

33%
23

So whats really inhibiting change in MROs?

The primary inhibitors of innovation at my organization are:

50%

Budget / capital availability

Inability to prove innovative process
/ product / service will offer margin
benefits over current techniques

44%
44%

Total cost / lack of clear payback

Organization resistance

35%
32%

Review and approval process

Lack of personal capability

21%

Implementation difficulties

21%

Lack of need for change

Oliver Wyman

How can you

eradicate
these barriers
within your
own
organization?

6%
24

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.

Oliver Wyman

25

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 MROs 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

Oliver Wyman

26

The future is now

Oliver Wyman

27

Our Survey insights come directly from the

industry, and we want to hear from you.
Our 2016 MRO survey is closing
Friday, February 5th
To share your opinion send an email to:

MROsurvey@oliverwyman.com
Include a subject line with the phrase Count me in and
youll receive the survey later today.

Thank you!
Oliver Wyman

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