DOING BUSINESS IN INTERNATIONAL MARKETS 2014 ARSA STRATEGIC LEADERSHIP CONFERENCE OCTOBER 2014 UNCERTAINTY AND RISK... NAVIGATING THROUGH THE UNPREDICTABLE
TODAY S DISCUSION The current environment of uncertainty and risk Global outlook for the MRO market Strategic concerns when implementing international expansion UNCERTAINTY AND RISK... NAVIGATING THROUGH THE UNPREDICTABLE
THE ENVIRONMENT: RISKS NAVIGATING THROUGH THE UNPREDICTABLE 3
WHAT DOES IT MEAN FOR MRO PLANNING? risks and uncertainty abound Forecast Uncertainties Natural Disaster Risks MRO PLANNING Geo- Political Risks MRO Uncertainties TeamSAI 10/15/2014
DON T GET COMPLACENT GEO-POLITICAL & MRO RISKS CONTINUE MRO GEO-POLITICAL 5
FLEET AND MRO OUTLOOK FAVORS INTERNATIONAL GROWTH NAVIGATING THROUGH THE UNPREDICTABLE 6
GLOBAL FLEET OUTLOOK - COMMERCIAL AIRLINE SECTOR SHOWS CURRENT NA/WE DOMINANCE 2014-2024 Growth Rate 2024 Market Share 0.8% 24% 2.1% 18% 4.4% 17% 7.3% 12% 5.1% 8% 5.6% 6% 5.8% 6% 5.1% 5% 11.4% 3% TeamSAI 04/08/2014 7
BUT MRO REGIONAL MARKET SHARES CHANGE DRAMATICALLY BY 2024 ME/Africa ME will double by 2024, driving majority of growth ME/Africa Asia Asia will be the largest MRO market by 2024 Asia Europe EU to have moderate MRO growth, at 2.9% Europe Americas Large-scale fleet replacement in NA translates to flat MRO LA&C market drives growth Americas 8
BALANCE OF TRADE ANALYSIS INDICATES EMERGING REGIONS HAVE OPPORTUNITIES FOR EXPANSION net exporter net importer net exporter net importer net importer net importer net importer net importer net importer 9
DEALING WITH UNCERTAINTY AND RISK NAVIGATING THROUGH THE UNPREDICTABLE 10
LABOR RATE PARITY COULD CHANGE CONTRACTING TRENDS MRO labor costs general labor costs Labor arbitrage benefits Contracting considerations: Maintenance cost MRO capabilities Ferry costs Work quality Turn-around time Customer service Contracting NA HMV to Asia Contracting to Latin America will continue to have value LA&C: $14 or 25% HMV labor cost advantage over NA Contracting to parts of LA&C remains competitive at even a $5 labor rate gap
GROWING WB PRESENCE IN FAR EAST AND LABOR RATE PARITY COMBINE TO POTENTIALLY RESHAPE AIRLINES WB HMV LANDSCAPE 2% N. AMERICA 38% WB HMV GROWING 8% LOCAL WB SUPPLY 25% IN HOUSE 30% 10% ON SHORE 2% 9% GROWING LOCAL WB DEMAND 49% L. AMERICA 65% WB HMV ALL IN HOUSE THE OPPORTUNITY TO REPATRIATE WB HMV IS FEASIBLE, BUT NOT WITHOUT RISK 12
WB REPATRIATION MOVEMENT DOES APPEAR TO BE DEVELOPING DEC 2013 FEB 2014 AUG 2014 SEP 2014 ATS announces plans to invest $7M in Kansas City MRO base to service WB and NB aircraft HAECO completes acquisition of TIMCO Aviation Services, Inc., under speculation U.S.-based WB MRO could return to free-up capacity to handle increased demand for Asian WB work AAR and Rockford, Illinois agree to expand MRO facility, focusing on servicing next-gen WB work AAR Lake Charles wins multiple contracts with mix of major U.S. carriers, leasing institutions, and VIP operators covering a broad range of WB aircraft BUT REMEMBER, THIS IS A RE-BALANCING, NOT A WHOLESALE SHIFT, TO ACCOMMODATE INCREASING INTERNATIONAL WB WORK AND TAKE ADVANTAGE OF LABOR RATE PARITY 13
CAVEAT: MRO LABOR SHORTAGE IS SIGNIFICANT CHALLENGE TO EXPANSION MRO industry requires specialized labor Medium- and high-skilled workers with technical training Boeing: 500K new technicians needed worldwide in the next 20 years Retirements coming: 6-8 years to achieve adequate performance Shortage of skilled MRO workers has the potential to drive up labor rates Driving land grab for skilled workers New Technician Outlook 2013-2032 Source: Boeing Pilot and Technician Outlook Shortage of Skilled Workers in 2020 HAECO case study: even #2 MRO struggling 2013: highlighted losses due to labor shortage 2014: has worked to reverse this, but it is a long-term process Improved pay Improved career development Improved training Sought government support to attract ex-pats Note: market conditions (e.g., shifting market landscape for RB211 & Trent 500 work) exacerbate performance Mediumskill Highskill TeamSAI 10/16/2014
POSITIONING FOR INTERNATIONAL GROWTH Market reach Market offerings Operations transition MRO presence develop MRO offerings transition capabilities Ph1 export home country domination/foreign sales office international offerings same as home country home country supply chain with international capabilities Procurement shift supply chain international use focuses on lowcost/commodity Ph2 regionalize active presence in multiple regions w/ local partners offerings adjusted to local needs production increasingly localized suppliers increasingly localized IP development change IP mindset protect HQ improve local capabilities Capital Talent target new financial resources develop human capital capital financing from home country home country provides & deploys management financial sources globalized Local training and recruitment begins Operating model change structure hub & spoke structure collaboration increases Ph3 originate each region has long-term structural commitment local demand drives local products local production under global footprint global tiered network all regions developing shared MRO expertise localized source of capital across network local regions produce management operating model adapted as needed Governance & risk evolve governance command & control oversight regulatory and compliance more localized Integrated global/ local governance & regional P&Ls 15
THANK YOU WWW.TEAMSAI.COM Dave Marcontell President & COO TeamSAI, Inc. (404) 334-8040 dmarcontell@teamsai.com NAVIGATING THROUGH THE UNPREDICTABLE 16