MRO Market Update & Industry Trends

October 18-20, 2016 Amsterdam, Netherlands Presented by: Jonathan M. Berger Vice President Aerospace & MRO Advisory jberger@icf.com MRO Market Update & Industry Trends 0

Today s Agenda Bizarro Aviation MRO Forecast Trend Watch: Aircraft Cabin Interiors New Technology Aircraft Virtual Reality 1 1

Bizarro Aviation 2 2

Four external macro-economic forces are having a significant impact on the aviation industry and the MRO supply chain The CRABS Source: ICF analysis 3 3

The dramatic increase in oil & gas market supply and reduced demand for commodities has led to a strong US Dollar FOREX Impact Partially offsets the positive impact of low fuel costs for operators Increases the cost of dollar based flight hour agreements (and parts/material in general) Cost of labor for in-country MROs is cheaper driving up margins for US dollar based contracts Buying/leasing aircraft becomes more expensive The CRABS : Countries with economies that are heavily dependent on commodity exports 10% 0% -10% -20% -30% -40% -50% Russian Ruble -37.6% R Global Currency Exchange Rates vs USD % Value Change, September 2014 September 2016 Brazilian Real -24.6% B S. African Rand -19.1% S Can Dollars -15.3% C Aus Dollars -12.5% A Euro -11.7% Indian Rupee -7.8% Chinese Yuan -7.8% Source: USForex, ICF analysis 4 4

Commercial aircraft OEM production backlog remains at historical record levels driven by: Order Backlog 16,000 Commercial Aircraft OEM Production Backlog Backlog/ % Active Fleet 70% Emerging market growth 14,000 60% Low interest rates 12,000 50% Previously high oil and commodity prices Introduction of new technology aircraft/engines 10,000 8,000 6,000 4,000 40% 30% 20% 2,000 10% 0 0% Source: CAPA, ICF Analysis 5 5

Low fuel costs appear to be reversing aircraft retirements trends # Retirements 1,200 Commercial Air Transport Annual Aircraft Retirements % Installed Fleet 3.5% Industry Impact: MRO Suppliers - Positive: Increased spend on older airframes & engines Surplus Market - Negative: Reduced part-out feed stock - OEMs: Improved new part sales - Distributors: Improved used part values / pricing - Operators: Increased material costs 1,000 800 600 400 200 0 1991-1999 Average: 203 Retirement as % of installed fleet 2000-2009 Average: 473 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Source: CAPA, Airline Monitor, ICF analysis 6 6

Airline return on invested capital (ROIC) is clearly correlated with the drop in fuel costs % of Airline Operating Expenses 40% Fuel Price as a % of Airline Operating Expenses Crude Oil Price/BBL 120 30% 100 80 20% 10% 17% 22% 28% 30% 36% 28% 28% 31% 33% 33% 32% 28% 20% 60 40 20 0% 0 Source: IATA, ICF Analysis 7 7

Airline return on invested capital (ROIC) is clearly correlated with the drop in fuel costs Fuel Price and Global Airline Return On Invested Capital (ROIC) Jet Fuel Price ($/barrel) Airline ROIC (%) $140 $120 Jet Fuel Price 12.0% 10.0% $100 $80 $60 $40 $20 $0 Airline ROIC $$$ 8.0% 6.0% 4.0% 2.0% 0.0% Source: IATA, ICF Analysis 8 8

Driven by low fuel costs and consolidation, airline the industry is on target to achieve record profitability in 2016 of almost $40B USD These are the good old days: - for some airlines $USD Billions $40 $30 $20 Global Airline Profitability, 1996-2016F $39.4B Africa, ($0.5B) Latin America, $0.1B Middle East, $1.6B Asia Pacific, $7.8B $10 $0 Europe, $7.5B North America, $22.9B -$10 -$20 -$30 Source: IATA, ICF analysis 9 9

However, profit margin improvement has been largely limited to carriers in North America and Europe but not all many airlines continue to struggle 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -1.8% 3.4% 15.4% Global Airline EBIT Margin by Region -4.7% 4.7% 8.4% 0.1% 0.7% 5.6% 2.3% 2.6% 3.0% 2.8% 1.5% 1.0% 2008 2012 2016F -0.4% -0.9% -1.1% -10.0% Source: IATA, ICF Analysis 10 10

Brexit has clearly had an impact on European airline stock performance; specifically UK based carriers Share Performance of European Airlines Since Brexit Easy Jet, -41.5% 23 June 2016 13 October 2016 IAG, -28.1% Air France-KLM, -24.8% Wizz, -23.2% Norwegian, -16.5% Ryan Air, -16.2% Lufthansa, -15.2% SAS, -6.3% -50% -40% -30% -20% -10% 0% Source: Company websites 11 11

Follow the Money: Airlines are spending their hard earned profits in three primary areas Debt Repayments 16% Airline Profit Spend Analysis Stock Buy- Back & Dividends 26% 1. Labor ~ 20%: Profit sharing Wage increases 2. Capex ~ 38%: Fleet renewal & cabin upgrades Facilities, offices, lounges Equity partner investments Other capex 10% Investors, 42% Capex, 38% Labor, 20% Profit Sharing 15% 3. Investors ~ 42%: Stock buy-backs Dividends Debt repayment Equity Investments 5% Fleet 23% Wage Increases 5% Source: Company Reports, ICF Analysis 12 12

After positive signs in 2014, air cargo supply continues to exceed demand Global Freight Traffic (FTK) and Capacity Growth (AFTK) Year-Over-Year Percent Change 8% Traffic (FTK) Capacity (AFTK) 6.3% 6% 6.0% 5.4% 6.3% 4% 3.7% 5.0% - $$$ 2% 0% 0.4% 3.0% 0.6% 2.3% 2.1% -2% -0.9% Source: IATA, ICF Analysis 13 13

Amazon is very well positioned to lead a major disruption of the air cargo industry $B USD $40 $35 $30 $25 $20 $15 $10 $5 $0 Amazon s Growing Revenue & Shipping Costs Amazon Quarterly Revenue 14% 12% 10% 8% 6% 4% 2% 0% Shipping Costs as a Percentage of Revenue Source: Amazon SEC Filings 14 14

March of the Middle East Titans: European Secondary Airports Average Number of Seats per Departure in 2016 Middle East carriers have been very effective in capturing valuable business passenger traffic from European secondary airports 500 450 400 350 300 250 200 150 100 Gulf Carriers Non-Gulf Carriers 408 400 400 394 363 180 148 146 128 121 370 163 343 149 400 400 117 135 306 149 Lufthansa s Frankfurt hub has lost nearly a 3 rd of its market share on routes between Europe and Asia since 2005, with more than three million people now flying annually via Gulf hubs The Economist Source: OAG Data, ICF Analysis 15 15

MRO Forecast 16 16

The current commercial air transport fleet consists of over 27K aircraft; over half are narrowbody aircraft Turboprop Widebody Jet Regional Jet 14% 14% 19% 2015 Global Commercial Air Transport Fleet 27,114 Aircraft Narrowbody Jet 53% Europe Latin America Middle East 25% 8% 5% 5% 27,114 Aircraft 27% North America 31% Asia Pacific By Aircraft Type By Global Region Source: CAPA 2015 17 17

The combination of strong air travel demand and the need to replace ageing aircraft will drive fleet growth at a healthy 3.4% annually # Aircraft 40,000 35,000 30,000 25,000 10 Year Global Air Transport Fleet Growth Africa Middle East Latin America Europe Asia Pacific North America 27,100 5% 8% 37,900 6% 8% 23% CAGR 5.1% 5.3% 3.8% 2.5% 20,000 25% 15,000 10,000 27% 32% 5.2% 5,000 31% 26% 1.6% 0 2015 2025 3.4% Avg. Source: ICF analysis: CAPA 2015 18 18

Current commercial air transport MRO demand is $64.3B; with Asia equivalent to North America and Europe in market size Airframe Line 17% 2015 Commercial Air Transport Global MRO Demand 14% Modifications 7% $64.3B 22% Components Engines 40% Middle East Europe Latin America 26% Africa 6% 4% 8% $64.3B 28% 29% North America Asia Pacific By MRO Segment By Global Region Source: ICF analysis; Forecast in 2015 $USD, exclusive of inflation 19 19

The global MRO market is expected to grow by 4.1% per annum to $96B by 2025 10 Year Global Commercial Air Transport MRO Demand Growth $USD Billions $100 $90 $80 Modifications Airframe Line Component Engine $96.0B 13% CAGR 5.3% 2.8% Engine and component MRO markets remain the largest segments Modifications market will see the strongest growth (e.g. interiors, connectivity) Airframe market slows due to reduced man-hour intensity and increased check intervals as new fleets are introduced $70 $60 $50 $40 $30 $20 $10 $0 $64.3B 16% 14% 22% 17% 22% 41% 40% 2015 2025 3.6% 4.3% 4.4% 4.1% Avg. Source: ICF analysis; Forecast in 2015 $USD, exclusive of inflation 20 20

The current European fleet consists of over 6,700 aircraft; with almost 60% consisting of narrowbody Turboprop Widebody Jet Regional Jet 12% 18% 2015 European Commercial Air Transport Fleet 11% 6,746 Aircraft Narrowbody Jet 59% Others 21% Spain 5% 6,746 Aircraft 6% 6% Ireland France United Kingdom 28% 7% 17% 11% Turkey Russia Germany By Aircraft Type By Country Source: CAPA 2015 21 21

The European MRO market is expected to grow to approx. $21.3B by 2025, at 2.3% per annum Modifications is the fastest growing MRO segment in Europe MRO spend on engines will experience the largest absolute growth $USD Billions $25 $20 $15 $10 10-Year Global European MRO Demand Growth Modifications Airframe Line Component Engine $17.0B 7% 15% 16% 22% $21.3B 8% 13% 17% 23% CAGR 3.0% 1.0% 2.5% 2.7% $5 39% 39% 2.3% $0 2015 2025 2.3% Avg. Source: ICF analysis; Forecast in 2015 $USD, exclusive of inflation 22 22

Trend Watch: A New Golden Age of Aircraft Cabin Interiors 23 23

Modifications growth is driven by airlines seeking differentiation in the cabin and customer experience MRO modification market growth drivers include: Premium lie-flat seats are now the minimum standard Premium economy Wi-fi, on-board connectivity Coming soon: ADS-B Mod program Capacity (ASM/K) increase Commercial Air Transport Modifications Forecast $USD Billions $8 $7 $6 $5 $4 $3 $2 $1 AD/SB** PTF Conversions* Painting Avionics Upgrades Interiors $4.4B $0.3 $0.4 $0.4 $0.6 $2.7 $7.4B $0.5 $0.4 $0.5 $1.1 $4.9 CAGR 3.6% 0.0% 3.7% 6.9% 5.9% $0 Modifications demand includes labor and material spend *Passenger-To-Freighter Conversions **Airworthiness Directives / Service Bulletins Source: ICF analysis, constant 2015 US$ 2015 2025 5.3% Avg. 24 24

Cabin densification has emerged as cost effective strategy for airlines to increase capacity and drive bottom line growth 2015-2025 Capacity Bridge 2015 ASMs Fleet Growth 6.2T 84% Example: Delta A320 Interior Modification Program Total = 150 Seats 12 Seats 16 Seats 18 Seats Total = 164 Seats 18 Seats Cabin Upgrades: Slim seats Slim lavatories Longer Stage Lengths 8% 120 Seats 130 Seats Slim galleys Slim coat closets Increased Seat Density 8% 2025 ASMs 8.8T 0 2 4 6 8 10 Available Seat-Miles (ASMs), Trillions New seats, outlets, IFE, overhead bins Space-saving galleys to add a row of seats Source: ICF analysis, delta.com 25 25

Trend Watch: New Technology Aircraft 26 26

Over the next decade, the global fleet of new generation aircraft fleet will grow by approx. 531% to nearly 19,000 aircraft 22,212 10-Year Fleet Forecast by Aircraft Generation 18,487-17% -70% Old Gen Mid Gen New Gen 5,689 4,487-21% -74% 2,993 18,896 +531% 612 4,045 +561% 2015 2025 Global 2015 2025 Europe Old Gen: 727, 737 Classic, 747 Classic, DC10, L1011, A300 Mid Gen: 757, 767, 747-400, A320 Family, A330/A340, 737NG, 777, ERJ, CRJ New Gen:, 777X, 787, A350, A330neo, A380, E170/175/190/195, CRJ-7/9/1000, 737MAX Source: ICF analysis 27 27

Over the next decade, MRO spend on new technology Airbus A350 & Boeing 787 aircraft will double every three years 10-Year MRO Spend for New Technology A350 and 787 Aircraft $ USD Billions Africa Latin America Middle East North America Europe Asia Pacific $3.3 $4.4 $0.35 +2000% $5.8 $0.46 $7.1 $0.47 $8.4 $0.52 $9.7 $0.53 $11.1 $0.62 $0.5 $1.0 $1.6 $2.3 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Source: ICF analysis; Forecast in 2015 $USD, exclusive of inflation, includes Boeing 787 and Airbus A350 28 28

New technology aircraft challenge traditional MRO sourcing strategies 12 Year Heavy Maintenance Schedule 767 A/C Age 1 2 3 4 5 6 7 8 9 10 11 12 787 Return on investment challenges: = Light C-Check = Heavy C-Check Volume (C-checks) Impact Intensity (man-hours) Days (Hangar) Facilities 767 8 95,000 136 Tooling & Equipment 787 4 33,000 47 Training IT Systems Cost Savings: ~65% fewer routine airframe heavy maintenance man-hours drives an estimated savings of ~$3.5M Asset Utilization: ~90 additional available flying days enables increased revenue generation potential *Based on 4,000 FH/yr utilization 767 C-check = 18mo, 4C = 72mo; 787 C-check = 36mo, 4C = 144mo Assumed industry standard labor man-hour rate Aircraft out of Service (AooS) calculated for C/4C/8C checks assuming industry standard MRO hangar productivity Source: ICF analysis 29 29

Challenge: How best to realize value from the disparate terabytes of data generated by new technology aircraft Aircraft Health Monitoring and Data Generation Outlook ~ 28MB 767: 10,000 ~ 137TB A320: 15,000 Stakeholder Battle: Who will control and benefit most from the operating data IP? Operators B787: 100,000 < 1MB ~1,100% ~11TB Lessors 777 787 Yr 1 Yr 10 OEMs MRO Suppliers Number of AHM Parameters Transmittable Data (MB/Flt) A/C Data Generated (TB/Year) Source: ICF analysis 30 30

ICF believes that virtual reality (VR) technology will be as disruptive to MRO training as 3Dprinting is to parts manufacturing Training 2.0: Virtual Reality 31 31

October 18-20, 2016 Amsterdam, Netherlands THANK YOU! For questions regarding this presentation, please contact: Jonathan M. Berger Vice President Aerospace & MRO Advisory jberger@icf.com +1 404.819.7669 32

ICF provides a full range of Aerospace & MRO advisory services Market Research & Analysis Airline Maintenance Benchmarking M&A Commercial Due Diligence OEM Aftermarket Strategy Aviation Asset Valuations & Appraisals MRO Information Technology (IT) Advisory Strategic Sourcing & Supply Chain Mgt. LEAN Continuous Process Improvement Military Aircraft Sustainment 33 33

ICF is one of the world s largest and most experienced aviation and aerospace consulting firms Airports Airlines Aerospace & MRO Aircraft 53 years in business (founded 1963) 80+ professional staff Dedicated exclusively to aviation and aerospace Blend of consulting professionals and experienced aviation executives Specialized, focused expertise and proprietary knowledge Broad functional capabilities More than 10,000 private sector and public sector assignments Backed by parent ICF International (2015 revenue: 1.13 billion USD) Global presence offices around the world joined in 2007 joined in 2011 joined in 2012 joined in 2014 New York Boston Ann Arbor London Singapore Beijing Hong Kong 34