MRO INDUSTRY TRENDS Four key MRO industry trends to watch Surplus Parts Fleet Dynamics Industry Trends Role of OEM in MRO Additive Manufacturing ICF International icfi.com ICF SH&E 2014 13
KEY TRENDS: SURPLUS PARTS Today, spending on air transport surplus parts is approximately $3 billion Typically slow moving structural parts Air Transport Surplus Parts Market* ~$3 Billion Airframe 5% 65% Surplus material for engines predominantly consist of piece parts (e.g., LLPs) Engine Components Component surplus are primarily rotables LRUs; Demand is driven by AOGs, BER and provisioning 30% * Sales to end customers; excludes intra-dealer sales ICF International icfi.com ICF SH&E 2014 14
KEY TRENDS: SURPLUS PARTS Surplus dealers now obtain over 80% of their inventory from parting-out aircraft 2007 & 2012 Supplier Channels for Obtaining Surplus Materials 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 10% 20% 8% 26% 82% 54% 2007 2012 Purchase From Surplus Dealer Direct Purchase From Airline Aircraft Part-Out ICF SH&E Insight Leaner airline inventories Improved material planning (and MRO IT capabilities) Increased component pooling agreements OEM after-market material control strategies Source: ICFI SH&E Analysis ICF International icfi.com ICF SH&E 2014 15
KEY TRENDS: SURPLUS PARTS The surplus parts value chain is evolving as suppliers pursue integrated solutions Aircraft & Engine Leasing Surplus Parts Trading Aircraft & Engine Disassembly Component & Engine Repair Asset Management GECAS acquires Memphis Group adding disassembly and surplus trading capabilities ILFC acquires AeroTurbine (aircraft & engine disassembly and surplus trading) GA Telesis acquires Finnair Engine Services moving from disassembly / trading into component & engine repair Lufthansa acquires 15% holding in AeroTurbine Finnair Engine Services AJ Walter acquires ex-aveos component facility moving into component repair and asset management Kellstrom acquires AirLiance, merging surplus operations Upstream Downstream ICF International icfi.com ICF SH&E 2014 16
MRO INDUSTRY TRENDS Four key MRO industry trends to watch Role of OEM In MRO Surplus Parts Industry Trends Additive Manufacturing Fleet Dynamics ICF International icfi.com ICF SH&E 2014 17
KEY TRENDS: EVOLVING SUPPLIER RELATIONSHIPS Relationships between the various MRO suppliers continue to evolve Airframe OEMs Grow aftermarket services revenue FHS, GoldCare, MRO Network Part consignment programs Engine & Component OEMs Focus on controlling IP Continue successful capture of market share (especially for new gen equipment) Increased support in growth regions via licensed service centers Independent MROs Evaluating strategic options Seek partnerships? Niche competitor? PMA/DER usage? Access to new aircraft IP? Integrators Scale Engine/ Component JV opportunities? Evaluation of core vs. non-core ICF International icfi.com ICF SH&E 2014 18
KEY TRENDS: EVOLVING SUPPLIER RELATIONSHIPS Aircraft OEMs are fast becoming major MRO players Typical OEM Revenue Mix 100% The EADS Vision 2020 goal is 25% services revenue by 2020 80% 60% 50% 60% 90% Manufacturing Two major acquisitions in 2011: Satair and Vector Aerospace Numerous FHS contracts 40% 20% ~50% ~40% Services 0% Engine OEMs Component OEMs ~10% Aircraft OEMs Launched EDGE in 2012 to create coordinated services brand Major player in flight training, distribution, and consumables management Two new GoldCare contracts Sources: ICF SH&E Analysis, EADS Vision 2020 ICF International icfi.com ICF SH&E 2014 19
KEY TRENDS: EVOLVING SUPPLIER RELATIONSHIPS Component OEMs are increasingly embracing licensed service centres and/or partnerships to address growth regions Recent Examples of Component OEM Agreements The engine licensed service centre network model is being replicated by component OEMs (e.g., following success of CF34/AE3007/CFM56 networks) Some of the recent signings focus on support for new aircraft such as 787 The licensed service centre model has several benefits for OEMs Reduced need for bricks and mortar Access integrated support customers The upshot: creates opportunities for well-positioned independent MROs on new generation equipment / Company press releases ICF International icfi.com ICF SH&E 2014 20
MRO INDUSTRY TRENDS Four key MRO industry trends to watch Additive Manufacturing Surplus Parts Fleet Dynamics Industry Trends Role of OEM In MRO ICF International icfi.com ICF SH&E 2014 21
KEY TRENDS: ADDITIVE MANUFACTURING Additive manufacturing is a long-term trend to watch in MRO; Aeroengines are a near-term opportunity Examples of Additively Manufactured Aeroengine Parts Fuel Nozzles LPT Blades/Vanes Housings/Features CFM Leap Fuel Nozzles Improved performance, reduce part count, better durability JV with Parker Aerospace will make LEAP fuel nozzles GENX Ti-Al LPT Blade (Avio) Reduced material production on expensive Ti-Al parts Not in production Housings/Casing Features External features added to forgings Reduces material waste and complexity Applications are currently limited to complex-geometry static parts analysis, GE Aviation, Avio, EU Project Merlin (Rolls-Royce) ICF International icfi.com ICF SH&E 2014
KEY TRENDS: ADDITIVE MANUFACTURING Additive manufacturing is also being used for repairs Repair of Turbine Components Using Direct Metal Deposition (DMD) Turbine blade squealer tip is built up using DMD As deposited DMD turbine blade tip Rebuilt turbine blade tip DMD includes a patented closed loop feedback control of the deposition process Source: DM3D, MT Additive ICF International icfi.com ICF SH&E 2014 23