turbulence ahead disengage the autopilot · 2015-2025 global fleet forecast by aircraft class key...
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© OLIVER WYMAN
TURBULENCE AHEAD DISENGAGE THE AUTOPILOT
2015-2025 GLOBAL FLEET & MRO MARKET FORECAST
2015 MRO AMERICAS CONFERENCE
David A. Marcontell
Vice President
1 © OLIVER WYMAN 1 © OLIVER WYMAN
The respected TeamSAI Global Fleet & MRO Market Forecast, and related
betterinsightTM market intelligence data, remains available at
www.PlaneStats.com/betterinsight
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in DFW and ATL
(Supported by +250 Oliver Wyman
aviation consultants)
+70% of CAVOK staff hold FAA certification/license
+2,300 years of combined airline operations expertise
Oliver Wyman acquired TeamSAI and integrated the business into CAVOK, its aviation technical consulting and services practice
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Global Fleet &
MRO Market Outlook
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The global air transport jet and turboprop fleet will grow by more than 10,000 net new aircraft by 2025
2015-2025 Global Fleet Forecast
by Aircraft Class
Key Fleet Forecast
Growth Rates
• Global fleet will grow on
average 3.7% annually over
the full forecast period
• Passenger fleet is expected
to grow at 3.8% annually
• Cargo fleet is forecast to
grow by 2.3% annually
• Narrowbody aircraft will lead
the growth
• Regional jets will actually
decline in the mix
13,124 16,949
21,089
4,686
5,753
7,181
3,396
3,222
2,906
2,721
3,079
3,232
5.2%
4.2%
-1.0%
2.5% 23,927
29,003
34,408
4.5%
4.5%
-2.0%
1.0%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2015 2015-2020CAGRS
2020 2020-2025CAGRS
2025
Nu
mb
er
of
Air
cra
ft
Forecast Year and Forecast CAGR
Narrowbody Widebody Regional Jet Turboprop
The growth outlook, however, varies widely from region to region
3.9%
3.5%
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2015
Fleet Size
722
A 5 pt spread in regional growth rates leads to a significant share shift over the decade ahead
The mature North American and Western European markets will continue to
undergo significant refleeting efforts during the next 10 years
North America
Europe
Latin America
& the Caribbean
Africa / Middle East
Asia Pacific / China / India
0.9%
2.8%
4.7%
5.5%
6.1%
7,420
6,131
1,720
2,204
6,452
1,965
997
1,562
5,235
10YR
CAGR
2015- 2025
Absolute Growth
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2025
Fleet Size
A 5 pt spread in regional growth rates leads to a significant share shift over the decade ahead
The mature North American and Western European markets will continue to
undergo significant refleeting efforts during the next 10 years
North America
Europe
Latin America
& the Caribbean
Africa / Middle East
Asia Pacific / China / India 6.1%
7,420
6,131
1,720
2,204
6,452
8,142
8,096
2,717
3,766
11,687
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The systematic elimination and replacement of older aircraft with new technology
aircraft will drive significant change is the business for airlines and maintainers
43% of all new aircraft deliveries will replace old technology aircraft over the forecast period
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1970's 2%
1980's 26%
1990's 63%
2000's 9%
1970's 0.1%
1980's 9%
1990's 46%
2000's 16%
2010's 29%
2015 Global Air Transport Fleet
by Vintage
2025 Global Air Transport Fleet
by Vintage
The significant move towards late generation aircraft, in addition to improving airline
costs, will undoubtedly impact MRO dynamics
The result is a staggering change in fleet mix by 2025
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22% 19% 17%
42% 45% 47%
19% 18% 19%
18% 18% 18%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2015 2020 2025
Forecast Year
Airframe Engine Component Line
The fleet dynamics of the period result in a forecast that tops $100 billion by 2025, a 4.1% average annual growth rate
2015-2025 Global MRO Market Size Forecast
by MRO Segment
2015-2025 Global MRO Market Share Forecast
by MRO Segment
MR
O S
pe
nd
in
2015 D
oll
ars
($
US
B)
Mark
et
Sh
are
$14.5 $15.9 $16.7
$27.9 $37.1
$46.8
$12.4
$15.2
$19.2
$12.3
$15.0
$17.8
1.9%
5.9%
4.1%
4.0% $67.1
$83.2
$100.4
1.0%
4.8%
4.7%
3.5%
$0
$20
$40
$60
$80
$100
$120
2015 2015-2020CAGRS
2020 2020-2025CAGRS
2025
Bill
ions
Forecast Year and Forecast CAGR
Airframe Engine Component Line
Airframe Heavy Maintenance costs improve with the new technology while both
Engine and Component sectors will take a larger share
4.4%
3.8%
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$1.3
Shadowing the fleet trends, large differences in regional growth rates will lead to a significant shift in MRO demand over the decade ahead
Asia Pacific / China / India will be challenged to build the necessary infrastructure
capable of handling the volume of MRO the combined region will demand
North America
Europe
Latin America
& the Caribbean
Africa / Middle East
Asia Pacific / China / India
0.6%
3.3%
7.3%
5.5%
6.6%
$20.0
$17.9
$3.2
$7.5
$18.3
$7.0
$3.3
$5.3
$16.5
2015
MRO Spend ($USB)
10YR
CAGR
2015- 2025
Absolute Growth
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2025
MRO Spend ($USB)
Shadowing the fleet trends, large differences in regional growth rates will lead to a significant shift in MRO demand over the decade ahead
Asia Pacific / China / India will be challenged to build the necessary infrastructure
capable of handling the volume of MRO the combined region will demand
North America
Europe
Latin America
& the Caribbean
Africa / Middle East
Asia Pacific / China / India 6.6%
$20.0
$17.9
$3.2
$7.5
$18.3
$21.3
$24.9
$6.5
$12.8
$34.8
North American MRO Market
Outlook
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2015 PASSENGER TRAFFIC (RPK) GROWTH
7.0%
2015 CURRENT FLEET
7,420
4,100+
2015-2025 AIRCRAFT DELIVERIES
3,100+
2015-2025 AIRCRAFT RETIREMENTS
+0.9%
2015-2025
FLEET CAGR
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
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$4.6B in MRO from ’70s and ’80s vintage aircraft will be lost over the next 10 years; however, ’90s, ’00s and ’10s vintage aircraft will see a $5.9B increase
A320C/NEO
737NG/MAX
757
CRJ
777
767
ERJ
EJET
MD-80
747
737NG/MAX
A320C/NEO
777
787
CRJ
767
EJET
A330C/NEO
A350
MRJ
Top 10 North American Aircraft Families in 2015 Top 10 North American Aircraft Families in 2025
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$1.00
$2.00
$3.00
2,000 2,400 2,800 3,200 3,600 4,000 4,400 4,800
$1.00
$2.00
$3.00
2014 2015
WTI Brent Jet A
Oil prices have plummeted over the past year and could remain low over the short term. Many are concluding that this will cause airlines to alter fleet plans and drive an increase in MRO.
Crude Oil Spot Price
per Gallon
Aircraft Profitability Curve
Current Generation vs New Generation
Sp
ot
Pri
ce p
er
Ga
llo
n (
$U
SD
)
Jet-
A S
po
t P
rice p
er
Gallo
n (
$U
SD
)
Utilization in Hours
Our view: Long term, oil prices will likely recover, OEM order books will remain
largely unaffected, and net fleet growth will progress as forecasted
1 YEAR
PRICE DROP
New gen aircraft are more
profitable than current gen
New gen aircraft are less
profitable than current gen
April 2014
April 2015
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There are currently 140 commercial operators based in North America. The top 20 operators comprise over 80% of the North American fleet.
Top 20 North American Airlines
by Fleet Size
969
777
700
677
403
340
332
237
224
199
168
162
136
131
127
107
85
71
70
66
0 200 400 600 800 1,000 1,200
American/US Airways
Delta Air Lines
United Airlines
Southwest Airlines
ExpressJet Airlines
SkyWest Airlines
FedEx
UPS Airlines
Envoy
JetBlue Airways
Endeavor Air
Air Canada
Alaska Airlines
Republic Airlines
Jazz
WestJet
Mesa Airlines
Air Wisconsin
Allegiant Air
Shuttle America
Fleet Size
Op
era
tor
Nam
e
The top 4 operators carry over 50% of the North American Traffic
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2015-2025 North American MRO Market Forecast
by MRO Segment
With 78% of the new deliveries forecast to replace older aircraft, the MRO forecast is virtually flat
North American MRO will be impacted by less maintenance intensive HMV work
and honeymoon periods of engines and components
$20.0
$18.1 $17.4
$18.6 $18.3 $19.2 $19.0
$18.0 $19.0 $19.2
$21.3
$0
$5
$10
$15
$20
$25
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Bill
ions
Forecast Year and Forecast CAGR
Airframe Engine Component Line
MR
O S
pe
nd
in
2015 D
oll
ars
($
US
B)
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Fleet changes and technological advances will create turbulence for the MRO business
Market participants will need aggressive and innovative plans for growth
• Decisions necessary enter new markets for each of airframe,
engine and component repairs
New repair capabilities
required
• Health monitoring and predictive maintenance will reduce overall
time-on-tool requirements for individual checks with fewer repairs Less maintenance
• Increased aftermarket market share for the newest generation of
aircraft
OEM’s increased
aftermarket presence
• Critical new source of value to the aftermarket driven by those who
design the best algorithms and most rigorous data management
Increased use of data
analytics
MRO Survey Results
© OLIVER WYMAN © OLIVER WYMAN 20
The collection, storage, aggregation and analysis of data will be key factors in aircraft health monitoring and predicative maintenance.
0%
7%
9%
19%
65%
PMA Manufacturers
MROs
Too early to predict
OEMs
Airlines
Who is best positioned within the industry to benefit
from predictive maintenance?
Source: Oliver Wyman’s 2015 MRO Survey
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Oliver Wyman’s 2015 MRO Survey identified a slew of new technologies that are poised to come to market
Aircraft Health Monitoring Systems
Predictive Maintenance
“Live” maintenance through
wearable and mobile technology
Composite repair capabilities
New repair technology
Additive manufacturing
Artificial intelligence
Drone-supported maintenance 4%
6%
25%
26%
35%
57%
66%
66%
Most prominent new technologies by 2020 (All respondents)
Source: Oliver Wyman’s 2015 MRO Survey
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However, digesting innovative change is not standard fare for the MRO industry…
Survey respondents completed this sentence: “The MRO industry innovates...”
• Historically, little need to build internal
organizations devoted to R&D,
corporate strategy and product
development
• Lack of regular disruptions decrease
relative:
‒ Devoted resources
‒ Tried and tested review processes
‒ Time and attention of executives
‒ Clarity of ownership / leadership
‒ Assessment infrastructure
• Internal ability to recognize, assess
and prepare for change is not a core
capability for the industry
… frequently 13%
21% … primarily as a
response to OEM innovation
27% … sporadically
39% … periodically
Source: Oliver Wyman’s 2015 MRO Survey
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We can quickly translate the identified opportunities into pilot projects and fast-to-market roll-out programs
Our innovation process allows us to quickly translate identified opportunities into plans and get sign-off from top management
We use a strategic planning method to visualize areas of opportunity and identify the most promising prospects
Top management has a clear, shared vision and strategy for growth in new business areas
…and though they have a vision, many organizations struggle with how to rapidly evaluate and bring innovative ideas to market
Positive survey responses
Use a strategic planning method to visualize areas of opportunity and identify the most promising prospects
Our innovation process allows us to quickly translate identified opportunities into plans and get sign-off
We quickly pilot ideas and roll out fast-to-market programs
Decreasing
impact;
More
difficulty
bringing vision
to market
76%
68%
43%
33%
Top management has a clear, shared vision and strategy for growth in new business areas
Source: Oliver Wyman’s 2015 MRO Survey
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6%
21%
21%
32%
35%
44%
44%
50%
So what’s really inhibiting change in MROs?
Note: Responses to the question: “The primary inhibitors of innovation at my organization are:”, Percent of MRO responses per inhibitor (multiple selections
possible per category). Not shown “Other” responses from a total of 9% of respondents; Source: Oliver Wyman’s 2015 MRO Survey
Budget / capital availability
Total cost / lack of clear payback
Inability to prove innovative process
/ product / service will offer margin
benefits over current techniques
Organization resistance
Implementation difficulties
Review and approval process
Lack of personal capability
Lack of need for change
How can you eradicate
these barriers within your
own organization?
The primary inhibitors of innovation at my organization are:
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New technologies will reshape our perception of MRO aftermarket commercial offers. Advances could cut or redistribute 15 to 20 percent of MRO spend, but also spawn new business models and revenue streams.
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• Expected to be a significant driver
of innovation over the next five
years
• Boeing recently invested $100M
into expanding AHM
• A 787 flight can generate 500GB
of data
Aircraft Health Monitoring
(AHM) and Big Data
Additive Manufacturing
(3D Printing)
• Quickly gaining traction
– A350 will feature 3D-printed
plastic and metal brackets
– GE will introduce 3D-printed
fuel nozzles in its CFP LEAP
engine
– Out-of-production parts can be
printed “on-demand”
Augmented Reality and
Automated Inspection Tech
• Augment reality allows for live
audio and visual communication
with OCC
• Robots used for visual
inspections and non-destructive
testing
– Highly efficient
– Highly accurate
Take the controls and make strategic investments now: Technologies will likely come online faster than anticipated
27 © OLIVER WYMAN 27 © OLIVER WYMAN
Time to disengage the Autopilot
Is your corporate Auto Pilot engaged?
• Focusing solely on business as usual is a risky
strategy in the coming years
• Relying on current commercial offers, sales
practices, resources, will challenge an MRO’s future
business
• Advances could cut 15-20% of MRO spending from
the aftermarket
– But also spawn new business models and revenue
streams
• Amounts to a reduction or redistribution of $10-15B
among current industry players & new competitors
• MROs and operators must actively choose
technologies to develop and exploit
• Those that fail will end up as innovation takers,
ceding further aftermarket control to competitors
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The future is now