Aviation Maintenance Industry Outlook and Economic Impact March 18, 2015 David A. Marcontell Vice President CAVOK, a division of Oliver Wyman 1003 Virginia Ave, Suite 300 Atlanta, Georgia 30354 Office: +1 404 334 8040 Mobile: +1 404 427 3079 dmarcontell@cavokgroup.com
1 Global Fleet and MRO Market Forecast
Active Commerical Fleet llars ($USB) The global air transport jet and turboprop fleet currently stands at 23,927 and will increase by more than 10,000 aircraft by 2025 2015-2015 Global Fleet Forecast by Aircraft Class Key Fleet Forecast Growth Rates 40,000 35,000 30,000 25,000 20,000 15,000 23,927 2,721 3,396 4,686 2.5% -1.0% 4.2% 5.2% 29,003 3,079 3,222 5,753 1.0% -2.0% 4.5% 4.5% 34,408 3,232 2,906 7,181 Global fleet is expected to grow 3.9% annually from 2015-2020 Growth is expected to slow to 3.5% per year from 2020-2025 Global fleet will grow on average 3.7% annually over the full forecast period Passenger fleet is expected to grow at 3.8% annually 10,000 5,000 13,124 16,949 21,089 Cargo fleet is forecast to grow by 2.3% annually 0 2015 2015-2020 CAGRS 2020 2020-2025 CAGRS Forecast Year and Forecast CAGR Narrowbody Widebody Regional Jet Turboprop 2025 The in-service fleet growth outlook varies by region. North America, while creating the most demand for new aircraft will experience the slowest rate of growth. 3
MRO Spend in 2015 Dollars ($USB) Market Share Translating the fleet to global MRO growth, we expect an average 4.1% CAGR through 2025 2015-2025 Global MRO Market Size Forecast by MRO Segment 2015-2025 Global MRO Market Share Forecast by MRO Segment $120 100% $100 $80 $67.1 4.0% $83.2 $15.0 3.5% 4.7% $100.4 $17.8 $19.2 90% 80% 70% 60% 18% 18% 18% 19% 18% 19% $60 $12.3 4.1% $15.2 4.8% 50% $40 $20 $0 $12.4 $27.9 5.9% $37.1 $46.8 1.9% 1.0% $14.5 $15.9 $16.7 2015 2015-2020 CAGRS 2020 2020-2025 CAGRS Forecast Year and Forecast CAGR Airframe Engine Component Line 2025 40% 30% 20% 10% 0% 42% 45% 47% 22% 19% 17% 2015 2020 2025 Forecast Year Airframe Engine Component Line Engine MRO will continue to significantly increase its share over the forecast period. Engines are having longer on-wing times; however, Shop Visits are more expensive 4
2 North American Fleet and MRO Market Forecast
Passenger traffic is picking up; however, the fleet growth will be limited over the next 10 years as most deliveries are slated to replace aging aircraft 2015 PASSENGER TRAFFIC (RPK) GROWTH 7.0% 2015 CURRENT FLEET 7,420 +0.9% 2015-2025 FLEET CAGR 4,100+ 2015-2025 AIRCRAFT DELIVERIES 3,100+ 2015-2025 AIRCRAFT RETIREMENTS 6
MRO Spend in 2015 Dollars ($USB) Market Share With most of the new deliveries forecast to replace older aircraft, the MRO forecast is virtually flat 2015-2025 North American MRO Market Forecast by MRO Segment 2015-2025 North American MRO Market Share Forecast by MRO Segment $25 100% $20 $15 $20.0 $3.2 $4.3 1.1% -0.9% -0.7% $19.2 $3.4 $4.1 1.1% 1.9% 3.3% $21.3 $3.6 $4.5 90% 80% 70% 60% 50% 16% 18% 19% 22% 21% 24% $10 $8.2 $7.9 $9.3 40% 30% 41% 41% 48% $5-2.5% 0.6% $4.3 $3.7 $3.9 20% 10% 21% 19% 20% $0 2015 2015-2020 CAGRS 2020 2020-2025 CAGRS Forecast Year and Forecast CAGR Airframe Engine Component Line 2025 0% 2015 2020 2025 Forecast Year Airframe Engine Component Line North American MRO will be impacted by less maintenance intensive HMV work and honeymoon periods of engines and components 7
Millions North American (NA) operators currently generate $4.3B in component maintenance demand per year 71% of this demand is met by component MRO providers in North America Approximately $1.2B of this component maintenance demand is performed in regions outside North America an additional $1.5B is conducted for other regions This results in a total of $4.5B of component maintenance supplied by North American component maintenance providers Thus, North America is a net exporter of component maintenance services $8,000 $6,000 $4,000 $2,000 $- Supply Demand Demand Supply AF AP CH EE IN LA&C ME NA WE AF 19% 4% NEGL NEGL NEGL NEGL 5% 5% 67% AP NEGL 22% 5% NEGL NEGL NEGL NEGL 25% 48% CH NEGL 13% 67% NEGL NEGL NEGL NEGL 19% 1% EE NEGL 1% NEGL 3% NEGL NEGL NEGL 6% 90% IN NEGL NEGL NEGL NEGL 16% NEGL NEGL 7% 77% LA&C NEGL NEGL NEGL NEGL NEGL 18% NEGL 43% 39% ME NEGL NEGL NEGL NEGL NEGL NEGL 18% 7% 75% NA NEGL NEGL NEGL NEGL NEGL 2% 4% 71% 23% WE NEGL 2% NEGL NEGL NEGL NEGL NEGL 15% 83% Note: Left column indicates region demand is generated in (region of operator). Top row indicates region maintenance is supplied/performed in (region of MRO). NEGL = Negligible 8
3 U.S. Civil MRO Employment and Economic Impact in 2015
The US civil aviation maintenance industry employees over 289,281 people and generates $43.2B in economic activity. MRO accounts for 75.4% of the total employment in the US with 218,130. Number of Civil Aviation MRO Entities by firm classification Economic Activity ($USB) by firm classification Parts Mfg/Dist 71,151 Part 121 25,929 Part 145 192,201 Parts Mfg/Dist $24,202 MRO $19,041 MRO generates over 42.8% of the economic activity or $19.0B. With 24.6% of the total employment, parts manufacturing and distribution, accounts for 56.0% of the total economic activity or $24.2B. 10
CA AZ WA TX CT KS GA FL IA OH NY MI OK VA IL IN NE NJ TN NC AL PA MN MA AR MD LA OR WI UT CO SC MO KY NV ME VT MS DE WV AK NH NM SD HI ND ID RI MT PR WY GU MP VI Economic Activity ($USB) Number of Employees CA TX FL WA GA AZ CT OK KS OH NY MI IA IL AL NJ NC VA TN IN PA MN AR MA NE LA WI OR CO SC MO KY MD NV ME UT WV AK DE MS NH HI NM VT ID ND MT RI SD PR WY GU MP VI California, Florida, Georgia, and Texas combined represent 35.0% of the total U.S. civil aviation maintenance employment with an estimated 101,147 employees. US Employment and Economic Activity by State/Territory 40,000 30,000 20,000 10,000 0 $5 $4 $3 $2 $1 $0 California and Arizona generate the most economic activity followed by Washington, Texas, Connecticut, and Kansas; together, these six states generate nearly 50% of the total economic activity. 11
The U.S. civil MRO industry contributes more than $5.3B in federal income taxes annually Total Federal Income Tax Contribution by MRO Employees Total Federal Income Tax Contribution by MRO Firms $3.3B $2.0B MRO firms generate an estimated $283,000 in revenue per worker for the nearly 290,000 employees in the industry 12
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