Engine MRO Forecast & Industry Trends. October 31 November 2, 2017: Singapore

Transcription

1 Engine MRO Forecast & Industry Trends October 31 November 2, 2017: Singapore

2 COMPANY INTRODUCTION Alton Aviation Consultancy is a boutique aviation consulting firm with deep domain expertise across the aviation value chain Aircraft Leasing & Financing Advisory Airlines Aviation & Aerospace Investors Business & General Aviation Aerospace Manufacturers & Supply Chain MRO & Aftermarket Airports Specialty Projects Agile. Global. Independent. 1

3 COMPANY INTRODUCTION Alton supports a global client base from offices in the U.S., China, Hong Kong, and Tokyo, with additional associates worldwide New York Beijing Hong Kong Tokyo 380 Lexington Avenue 17 TH Floor New York, New York USA 8 Guanghua Dongli China Overseas Plaza South Tower, Floor 11, Suite A053 Chaoyang, Beijing China 136 Des Voeux Road Central Suite 903 Central Hong Kong Konan Minato-Ku Tokyo, Japan New.York@AltonAviation.com Beijing@AltonAviation.com Hong.Kong@AltonAviation.com Tokyo@AltonAviation.com In China, Alton Aviation Consultancy is known as 德世国际航空咨询 ( 北京 ) 有限公司, or De Shi. 2

4 TODAY S AGENDA Global Fleet Dynamics The Power & Impact of Little Data New Engine Technologies on the Horizon 3

5 GLOBAL FLEET DYNAMICS Today s commercial air transport fleet consists of approx. 27,000 aircraft, with Asia-Pacific recently surpassing North America 18% 9% 16% 24% 8,040 51% 10% 11% 6,952 61% 51% 1,505 39% 22% Narrowbody Jet Regional Jet Turboprop Widebody Jet 10% 14% 17% 1,878 59% 28% 14% 41% 1,174 17% 7% 3% 10% 5% 8,147 63% Source: CAPA, Alton analysis 4

6 GLOBAL FLEET DYNAMICS Historically, fleet growth has been directly correlated to GDP Avg. Fleet Growth/yr 14% Fleet and GDP Growth by Region ( ) Avg. GDP Growth/yr 4.5% 12% 4.4% 4.2% % Fleet growth GDP 4.0% 10% 3.8% 10% 3.5% 3.0% 8% 6% 4% 7% 7% 2.5% 6% 5% 1.8% 2.2% 2.5% 2.0% 1.5% 1.0% 2% 3% 0.5% 0% Middle East Asia-Pacific Africa Latin America Europe North America 0.0% Source: CAPA, USDA ERS, Alton analysis 5

7 Households (millions) 20 Year Growth Rate GLOBAL FLEET DYNAMICS Perhaps a better determinant of future fleet growth is the so-called Disneyland factor ; the growth rate of a country s middle class Middle Class Growth by Region ( ) 3,000 2,500 2, % yr % growth 149% 160% 140% 120% 100% 1,500 75% 80% 1, % 51% 2% 41% 60% 40% 20% - 0% Source: Airbus Global Market Forecast , Alton analysis 6

8 GLOBAL FLEET DYNAMICS Over the past 25 years, the global fleet has grown at a rate of 5.1%, with narrowbody aircraft accounting for over 55% of today s fleet 30,000 25,000 20,000 15,000 Global Fleet Count ( ) Widebody Jet Turboprop 20% Regional Jet Narrowbody Jet 10% 13% Engines by Manufacturer ( ) 60,000 Other IAE 50,000 Rolls-Royce 40,000 Pratt & Whitney GE, CFM 30,000 10,000 5,000 57% 20,000 10, Source: CAPA, Alton analysis 7

9 Driven by narrowbody aircraft deliveries, the installed engine base in Asia-Pacific primarily consists of the CFM56-5/7 and V2500 5,000 GLOBAL FLEET DYNAMICS Installed Base by Engine Model (Asia-Pacific Region) 7,000 Installed Base by Country (Top 10 by Volume; Asia-Pacific Region) 4,000 3,000 6,000 ~ 9,400 engines ~ 6x 5,000 4,000 OTHER CF34 CF6 Trent 700 V2500 CFM56-7 GEnx PW4000 GE90 PW100 CFM56-5 2,000 3,000 1,000 2,000 1, Source: CAPA, Alton analysis 8

10 GLOBAL FLEET DYNAMICS Given the timing of aircraft deliveries, a massive bow wave of CFM56-5/7 and V2500 shop visits will occur over the coming decade 500 Engines by Year of Delivery (Asia-Pacific Region) 10,000 Cumulative Engines by Year of Delivery (Asia-Pacific Region) 450 9, , , , , , , ,000 1,000 0 CFM56-7B CFM56-5B V2500-A5 V2500-A5 CFM56-5B CFM56-7B Source: CAPA, Alton analysis 9

11 GLOBAL FLEET DEMOGRAPHICS Record high OEM backlog continues to drive investor interest, joint venture, and M&A activity in MRO providers and OEM supply chain 4, Year Backlog by Region 4, Year Engine Backlog by OEM 4,000 3,500 3,000 2,500 Widebody Jet Turboprop Regional Jet Narrowbody Jet 3,500 3,000 2,500 Other IAE Rolls-Royce Pratt & Whitney GE, CFM 2,000 2,000 1,500 1,500 1, , Source: CAPA, Alton analysis 10

12 GLOBAL FLEET DYNAMICS There are already over 4,400 confirmed orders for the CFM LEAP & P&W Geared Turbo Fan (GTF) engines in the APAC region Year Engine Count by Country (Top 10 Asia Pacific Countries by Volume) $66B Source: CAPA, Alton analysis P&W GTF CFM LEAP Alton Insight Both the CFM LEAP and P&W GTF are meeting fuel efficiency targets Given the recent Airbus / Bombardier venture, analysts predict a potential doubling of previous C Series order estimates great news for P&W! P&W has secured significant GTF MRO capacity in APAC via JVs with SAIEC (Eagle Services Asia in Singapore) and Air New Zealand (Christchurch Engine Center), IHI in Japan, and MTU Zuhai (China Southern JV) In APAC, GE plans to support the LEAP in its Singapore facility; MTU will also support the LEAP in its Zuhai, China facility 11

13 GLOBAL FLEET DYNAMICS Fleet retirements are down from peak levels Total Aircraft Aircraft Retired % Fleet $66B % Fleet 3.0% 2.5% Alton Insight Typical aircraft life is approx. 25 years; there was a large spike in aircraft deliveries in the late 1980 s Avg. 144 Avg. 294 Avg. 601 Avg % 1.5% 1.0% 0.5% 0.0% Increased retirements was also driven by high fuel prices and uneconomic 50-seat regional jets Low fuel prices and a strong traffic growth environment contributed to the slowdown in retirements rates The surge in aircraft retirements spawned the aircraft tear-down/partout industry (very disruptive to OEM new parts sales) Source: CAPA, Alton analysis 12

14 THE POWER & IMPACT OF LITTLE DATA 13

15 lit tle da ta Noun: Little Data Definition: Life before Big Data Traditional, old school engineering design, planning, entrepreneurship, communication, and leadership Source: Alton Aviation Consultancy 14

16 THE POWER & IMPACT OF LITTLE DATA The MRO industry and aerospace supply chain continues to evolve, driven by technological, commercial, and geopolitical events Pre-Globalization Era of Self-Sufficiency Globalization 1.0 Era of Labor Cost Arbitrage Globalization 2.0 Era of Machine Learning Airlines build/operate own maintenance facilities Aircraft and inventory owned, limited leasing Outsourcing noncore competencies End of cold war Rise of the BRICS New oil/gas drilling technology U.S. energy revolution Supply chain rightshoring Manufacturers with fully integrated supply chains Limited international airline networks Rise of LCCs and PBH agreements Open skies agreements NAFTA Growth of the internet & advanced communications Global Financial Crisis Airline bankruptcies & consolidation Cloud computing Global labor rate convergence Advanced manufacturing technology (robotics, automation, 3D printing) Source: Alton Aviation Consultancy 15

17 THE POWER & IMPACT OF LITTLE DATA The aviation & MRO industry benefits of Little Data have been substantive and impressive Then Now Alton Insight Engineering design and maintenance program development Business model structure and strategy (e.g. creation of LCC) Supply chain innovation (e.g. use of surplus material and PMA, strategic sourcing, consignment programs, etc.) Commercial innovation (e.g. cost per flight hour programs for engines and components) Creative financing (e.g. sale-leaseback programs) Safety: 1, % Engine MTBR: 6,000 25, % $66B Productivity: 380, ,000 18% PMA Parts: 10,900 1,350,000 12,000% Cost: Technical Dispatch Rate: % 0.6% Source: Alton analysis, Safety - ICAO 1977 vs 2016, MTBR Old gen vs new gen narrowbody jet engine, Productivity 15 years FAA Licensed Technicians, PMA 25 years FAA approved parts, Cost 25 years FAA Form 41 Maintenance Cost per ASM, TDR Old Gen vs New Gen Aircraft 16

18 NEW ENGINE TECHNOLOGIES ON THE HORIZON 17

19 NEW ENGINE TECHNOLOGIES ON THE HORIZON Additive manufacturing (or 3D printing) is already transforming traditional engine design and production Alton Insight GE s new Advanced Turboprop is being touted as the world s most printed engine The Advanced Turboprop will power Cessna s new Denali aircraft Additive manufacturing replaces 855 normally made parts with just 12 printed components GE claims the engine is designed to achieve 20% better fuel burn with 10% more power than comparative engines Source: Aviation Week, May

20 NEW ENGINE TECHNOLOGIES ON THE HORIZON An army of tiny robots are on the march; with plans to disrupt engine MRO inspection and repair processes Alton Insight OEMs are developing very small robots which can venture inside an engine to perform inspections and carry out any necessary repairs The robots are small enough to navigate their way around all the various fan and turbine blades, taking video of everything they see, and will relay the pictures wirelessly to technicians Once the video has been analyzed by technicians, the robots will be able to carry out certain repairs (at the gate between flights!) Source: The Economist, September

21 SUMMARY & CONCLUSION The Asia-Pacific region has become the engine MRO demand capital of the world Airbus C Series investment is an industry game changer While Big Data analytics will inevitably drive further industry improvements, Little Data has been, and will continue to be, the cornerstone of aviation & MRO innovation Emerging technologies including 3D printing and robotics are transforming engine manufacturing and MRO processes 20

22 Jonathan M. Berger ALTONAVIATION.COM NEW YORK HONG KONG BEIJING TOKYO