MRO AMERICAS 2021 April 2021 - Tom Cooper, Vice President - Oliver ...
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MRO AMERICAS 2021 April 2021 Tom Cooper, Vice President
THIS PRESENTATION INCORPORATES OLIVER WYMAN’S 2021–2031 GLOBAL FLEET & MRO MARKET FORECAST AND 2021 MRO SURVEY BOTH OF WHICH ARE AVAILABLE AT OLIVERWYMAN.COM ALONG WITH OUR RECENT AIRLINE ECONOMIC ANALYSIS
OLIVER WYMAN’S AVIATION, AEROSPACE & DEFENSE PRACTICE
IS THE LARGEST AND MOST CAPABLE CONSULTING TEAM
DEDICATED TO THE INDUSTRY
STRATEGY RESTRUCTURING & OPERATIONS
POST TRANSACTION TRANSFORMATION
OLIVER WYMAN’S AVIATION, AEROSPACE & DEFENSE PRACTICE
IS THE LARGEST AND MOST CAPABLE CONSULTING TEAM
DEDICATED TO THE INDUSTRY
STRATEGY RESTRUCTURING & OPERATIONS
POST TRANSACTION TRANSFORMATION
Mega Trends & CEO agenda Business turnaround & recovery R&T and Engineering efficiency
Market forecast & business plan Cash management and financial Sourcing & Procurement value
rebaselining resilience
Logistics & Supply Chain
Aerospace Consolidation and PMI & Carve-out optimization
Mergers & Acquisition
Program Recovery and JIP Manufacturing & Industry 4.0
Go-to-markets & new business
models in Aerospace Footprint redesign & optimization Digital Services &
Aftermarket/MRO/RMU
Climate & sustainable Aerospace Target Operating Model &
Workforce optimization Digital Transformation
Innovation acceleration, CVC/VC
& partnerships Change management,
Empowerment & Leadership
IN 2019 WE ASKED IN THIS PRESENTATION IF A DOWNTURN WAS
ON THE WAY; OF COURSE, WE HAD NO IDEA WHAT WAS TO COME
Over the next five years, which three factors are most likely
In the short term, various to determine the direction of the MRO market?
global risks could impact the % of participants who selected each response
growth of the commercial fleet
and MRO demand Passenger Demand 54% 71%
Brexit Jet Fuel Costs 53% 55%
50%
Manufacturing and/or 45% 44% 46%
53% 43%
Fuel Prices supply chain capacity
33% 35%
Labor costs/labor
45%
Labor Shortage relations
Political Conditions 29%
Global Trade Wars
Passenger Jet Fuel Manufacturing
Trade Relations 18%
Demand Costs and/or supply
Rising Interest Rates chain capacity
Other 14%
MRO OEM Operator
THE GLOBAL IN-SERVICE FLEET WAS ~4,000 AIRCRAFT SMALLER AT THE BEGINNING
OF 2021 THAN IN 2019; LONG-TERM GROWTH IS FORECAST AT JUST 2.3 PERCENT
Global Commercial Air Transport Fleet Forecast Global Commercial Air Transport MRO Forecast
By Aircraft Class/number of Aircraft By MRO Segment/US$ BN
$115
40,000 35,389 2.3% $120 $108 3.1%
31,294
27,492 $100
30,000 -0.6% $82 1.7%
23,714 $80 $68
0.4% 3.6%
20,000 $60
1.7% 4.6%
$40
10,000 3.3% 0.8%
$20
0 $0
2019 2021 2025 2030 CAGR 2019 2021 2025 2030 CAGR
2019-2030 2019-2030
Narrowbody Widebody Regional Jet Turboprop Airframe Engine Component Line
Global MRO spend in 2021 is forecast to be 20% smaller than in 2019. Long-term growth is forecast to be
3.1% driven primarily by engines and components; airframe is forecast to remain nearly stagnant over
the next decade
Source: Oliver Wyman Global Commercial Air Transport Fleet Forecast
THE NORTH AMERICAN FLEET BEGAN 2021 WITH 1,000 FEWER ACTIVE AIRCRAFT THAN
2019; LONG-TERM GROWTH IS FORECAST TO BE JUST 1.2 PERCENT
North America Global Commercial Fleet Forecast North America Global Commercial MRO Forecast
By Aircraft Class/number of Aircraft By MRO Segment/US$ BN
$24 $24
10,000 9,190 1.2% $25 1.6%
8,535 $21
8,033
8,000 6,993 0.8% $20 $18 0.8%
6,000 -0.8% $15 1.7%
4,000 1.4% $10 2.5%
2,000 2.0% $5 0.6%
0 $0
2019 2021 2025 2030 CAGR 2019 2021 2025 2030 CAGR
2019-2030 2019-2030
Narrowbody Widebody Regional Jet Turboprop Airframe Engine Component Line
The acceleration in the retirement of older aircraft and those deemed to be undesirable in a post-COIVD
environment are forecast to slow long-term MRO growth in North America to just 1.6 percent as the
region emerges from COVID with a younger, more efficient fleet
Source: Oliver Wyman Global Commercial Air Transport Fleet Forecast
FLEET & MRO FORECAST – AGENDA 01 Global Context and Recovery Scenarios 02 Fleet, Delivery, Production Forecast 03 MRO Forecast 04 MRO Survey Insights 05 Conclusion
01 GLOBAL CONTEXT AND RECOVERY SCENARIOS
THERE ARE FOUR PRIMARY DEMAND DRIVERS; DESPITE SECOND WAVE IMPACT IN
CERTAIN LOCATIONS, TRAVELLER SENTIMENT BECOMES INCREASINGLY IMPORTANT
Key air travel demand drivers
Epidemiological timeline Traveler sentiment Government restrictions Macro-economic impact
As vaccine roll-outs continue, herd Increase in COVID cases significantly Domestic travel likely to resume earlier. The level of recessionary impact/damage
immunity is increasingly becoming a key depresses travel demand. Travel International travel likely to return in affects return to travel.
target for recovery, with demand sentiment recovers with a delay. phases – “corridors”.
expected to follow Business travel likely to take longer to
Dependence on government and health Rapid & cheap testing can help reduce recover than travel for personal reasons.
authority guidelines. mandatory quarantine measures.
Number of new cases, k1
400 Africa Asia Central/South America Europe Oceania US
300
200
100
0
Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
Note: 1 – 7 Day Moving Average
Source: Oliver Wyman Pandemic NavigatorIN Q4 2020 OLIVER WYMAN CONDUCTED A SECOND GLOBAL SURVEY GAUGING TRAVELER
SENTIMENT IN REPRESENTATIVE GEOGRAPHIES
Asked consumers about their… Conducted in 9 countries Monitored demographics
Appetite to resume
traveling
US Canada
4,600 Survey respondents
Who traveled by airplane
at least once in 2019
UK Spain
COVID-19 travel
experiences France Germany 24% Ages 55+ 11%
of total
have airline
Italy China
elite status
Changes in lifestyle
and travel preferences Australia 56% Ages 30–54
Air travel and
hospitality
21%
Survey 1 in early May 2020 of total
preferences 20% Ages 18–29 have hotel
Survey 2 in early October 2020 elite status
Source: Oliver Wyman Traveler COVID-19 Survey Edition 2IN OCTOBER RESULTS, TRAVELERS INDICATED INCREASED COMFORT ACROSS ALL MODES
AND ACTIVITIES – AIR TRAVEL COMFORT INCREASED FROM 43% TO 50%
After outbreak ends and travel restrictions are lifted, how comfortable will you feel?
Percentage of respondents
Comfort change since May (pts)
Take a flight 28% 22% 50% +7
Rent a car 20% 32% 48% +10
Transport
Take a long-distance train 32% 29% 39% +8
modes
Use public transportation 44% 26% 31% +7
Use a rideshare 46% 27% 27% +8
Stay at a hotel 19% 24% 56% +12
Dine at a restaurant 18% 26% 56% +14
Attend concert / sporting event 44% 24% 32% +8
Activities
Attend convention / trade show 43% 25% 32% +9
Take a bus tour 45% 26% 28% n/a
Take a cruise 48% 24% 28% n/a
Uncomfortable Neutral Comfortable
Note: N=4,630
Source: Oliver Wyman Traveler COVID-19 Survey Edition 2; Oliver Wyman analysisASM COMPARISONS YEAR-OVER-YEAR (FEB20/FEB21) HIGHLIGHT THREE DIFFERENT
SPEEDS OF RECOVERY AROUND THE WORLD
Percent change in capacity (ASMS),
February 2021/February 2020 (schedule date: 2/10/2021)
North America -49.7%
World total
Canada -79.1%
US -46.6% Departures -41.4%
Seats -42.5%
Latin America -51.5%
Caribbean -57.2%
ASM -52.9%
Central America -37.0%
South America -57.3%
Europe -76.0%
Africa/Middle East -59.5%
Africa -57.5%
Middle East -60.2%
14-day COVID-19 case notification rate per 100,000
Asia/Oceania -36.3%
Asia -31.3% < 20.0 20.0 - 59.9 60.0 - 119.9 120.0 – 239.9
Map Provided By:
Oceania -72.7% 240.0 - 479.9 480.0 – 959.9 > 960.0
Source: Source: OAG schedule data via PlaneStats.comOLIVER WYMAN HAS DEVELOPED A PASSENGER REVENUE RECOVERY MODEL TO FORECAST
TIMING OF RECOVERY TO 2019 REVENUE LEVELS
Revenue recovery index: Global roll-up
Baseline (100%) represents 2019 industry revenue; worldwide results for currently impacted countries
Scenario outcomes Accelerated (mid-2022) Baseline (mid-2023) Prolonged (early 2024)
Outbreak with early vaccine, steady Multi-wave outbreaks, vaccine in fall Large multi-wave outbreaks, no vaccine,
recovery & GDP bounce-back 2021, gradual recovery slow recovery and GDP
120 Expected vaccine
distribution
100
80
60
40
20
0
2019 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2020 2021 2022 2023 2024
Implications Accelerated Baseline Prolonged
Shorter planning horizon, quick Multi-year horizon, more variable profile Longer horizon & most variability;
and predictable recovery requires maximum flexibility
Source: OW Pandemic Navigator, OW Forecasting and analysis Less likely More likely02 FLEET, DELIVERY, PRODUCTION FORECAST
THE GLOBAL IN-SERVICE FLEET CONTRACTED IN THE WAKE OF COVID-19, SEEING A
DECLINE OF 16% THROUGHOUT 2020
2020 Fleet Growth
By Event Type
~2,500 aircraft that were in–
-16% service at the start of the year
remain in storage, minimally
offset by 500 aircraft that were
(6,557) in-storage at the start of the year
27,884 and are now operational
2020 In-Service Aircraft Removals 1,966
Fleet Aircraft Additions 23,293 Only 776 new aircraft were
2021 In-Service delivered in 2020, a 44% reduction
Fleet from 2019 and 57% reduction
from 2018IN 2020 THE GLOBAL FLEET SAW STRONG RECOVERY THROUGHOUT THE SUMMER, BUT
GROWTH SLOWED SIGNIFICANTLY OVER THE FOURTH QUARTER
Global In-Service Fleet Historical Growth
Count of Aircraft
• After achieving a long-term
30,000 growth rate of 3.6% over the
+4.2% past decade—4.2% over the past
25,000 five years—the global in-service
fleet saw a decline of 55% in
20,000 April 2020
• After most countries relaxed
15,000 lockdown measures, the global
fleet saw strong rebound
10,000 growth, increasing by 56% from
May through September
5,000
– Since that point, growth
stagnated, averaging less than
0
10 11 12 13 14 15 16 17 18 19 21 1% month-over-month
2020
through the end of the yearWITH A RECORD NUMBER OF RETIREMENTS IN 2020, THE MIX WAS HEAVILY SKEWED
TOWARDS WIDEBODY AIRCRAFT IN NORTH AMERICA AND WESTERN EUROPE
2020 Retirement Composition v Fleet Composition 1
By Class, Region
6% • Despite making up 1/3 of the
17% global fleet, the total Asia region
41%
58% 13% only made up 7% of total
5% retirements in 2020
55% 6%
5%
35% • In total, operators in North
20% 27% America and Western Europe
made up over 80% of 2020
24% 22% 27%
19% retirements
Retirements Fleet Retirements Fleet – This was driven by both age
Africa Latin America characteristics of those
NB WB Others
Asia Pacific Middle East regional fleets and COVID-19
China North America
Eastern Europe Western Europe
impact
India
1. Some portion of 2020 retirements estimate; actuals may take up to 12 months to be reported
Source: Oliver Wyman Analysis/AviationWeek Fleet DiscoveryREVISED IN-SERVICE FLEET FORECAST SHOWS A STRONGER REBOUND IN 2023, AND
CONFIRMS A STEADY RECOVERY AFTERWARDS; 9% GAP IN 2030 REMAINS
2019A-2030F Global in-service fleet size – incl. cargo and passenger fleet
# thousands of aircraft, as of Jan 31 each year
39.0
37.9
35.7 36.8
34.6 35.4
32.3 33.4 33.2 34.3
30.4 31.2 31.8 32.5
30.7 31.3
29.8
27.8 27.8 27.5
23.7
32.4 33.4 34.3
29.7 30.6 31.5
12.7 28.2 28.9
2019 January April 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
1. 2019 -2021 actual data, 2021 to 2030 forecast data
Source: Oliver Wyman analysis Actuals Post-Covid 2021 Forecast Post-Covid July ’20 Update Pre-Covid ForecastNEW AIRCRAFT PRODUCTION IS EXPECTED TO RECOVER TO 2018 LEVELS BY MID 2025,
WITH A DIFFERENT AIRCRAFT MIX
Annual Production and Deliveries
2019 Forecast Production Deliveries Deliveries
(Undelivered1) (Future Production)
2,400
2,085 2,102
Actuals 1,972
1,899
2,000 1,804
1,788 1,726
1,637 1,633 1,629
1,600 1,386 1,404
1,200
776
800
400
0
’18 ’19 ’20 ’21 ’22 ’23 ’24 ’25 ’26 ’27 ’28 ’29 ’30
Production and delivery levels will align by the end of 2024, as all excess inventory is fully cleared and
progressively reintroduced into the market
1. Undelivered as of 12/31/2020FLEET MIX DYNAMICS WILL CONTINUE TO EVOLVE OVER THE NEXT DECADE, WITHIN BOTH
NARROWBODY AND WIDEBODY PLATFORMS
Narrow-body fleet forecast 2020-2030F by platform Wide-body fleet forecast 2020-2030F by platform
# thousands of aircraft, as of January of each year # thousands of aircraft, as of January of each year
22.7
Actual 18.6 19.1 Actual
18.1
A320 neo 787
16.2 16.3 A320 ceo A350
6.6
14.2 6.1 6.3
737 MAX 777
5.7 5.7
737 NG 777X
5.0
737 CL A330 ceo
4.4
A220 A330 neo
C919 767
Other Other
2020 2021 2022 2023 2024 2025 2030 2020 2021 2022 2023 2024 2025 2030
Source: Oliver Wyman Fleet & MRO forecast 2021-2031SINCE THE APRIL BOTTOM, GLOBAL FLIGHT HOURS HAVE INCREASED AT AN AVERAGE
MONTHLY RATE OF 9% AND ARE NOW AT ~60% OF 2019 LEVELS
Monthly Flight Hours - Actuals
Pre v Post-COVID, millions
7
COVID-19 Impact Flight hour to flight cycle ratios
2019 Avg
6 ratios have seen significant change
across all classes, with widebody
5 -75%
-49%
aircraft being affected most
4 significantly
+9%
3
2
1
0
J F M A M J J A S O N D J F M A M J J A S O N D J F M
2019 2020
Source: AWIN ADSB Data, Oliver Wyman Analysis03 MRO OUTLOOK
COVID-19 WILL CAUSE AN EROSION OF $132B IN GLOBAL MRO SPENDING OVER THE NEXT
DECADE COMPARED TO PRE-COVID EXPECTATIONS
2019A-2030F1 Global MRO spending
In billion $
112 113
107 109
100 102
97 96
93
73
110 112 112 115
104 108 108
102
91
83
68
50
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
1. 2019 actual data, 2020 to 2030 forecast data
Actuals Total - Post-Covid Total - Post-Covid Total - Pre-Covid
Source: Oliver Wyman analysis 2021 Forecast July ’20 Forecast ForecastALL MRO SEGMENTS WERE IMPACTED BY COVID-19, WITH OVERALL DEMAND FACING A
39% DROP IN 2020 AND 17% DROP IN 2021 COMPARED TO 2019
2018A-2030F1 MRO spending by segment
US$ BN, by year
114.7
Covid-19 108.5
• Engine MRO will increase share
pandemic crisis 102.0 104.1
to almost half of total MRO by
-17% 90.7 2030
82.9 54.4
79.3
48.5 49.1
52.3
• Airframe and engine MRO will
68.4 40.3 see recovery growth first,
37.3
35.1 benefited by deferred
50.3 29.5
23.0 maintenance events coming due
21.6 21.6
18.1
23.2 21.3
21.3
as aircraft re-enter service
17.9
16.2
20.6
7.9 18.1 18.9 19.5
14.1 14.6 16.2
12.1
10.1
12.8 12.9 14.1 14.5 15.1 16.8
12.1 9.1 10.7
2018 2019 2020 2021 2022 2023 2024 2025 2030
Engine Airframe Component Line
1.2019 actual data, 2020 to 2030 forecast data. Source: Oliver Wyman analysisTHERE IS A GREATER DOWNSIDE RISK IN THE LONG-TERM TO THE CURRENT BASELINE
MRO FORECAST
Global Commercial MRO Market Forecast
Forecast Scenarios, $BN
120 • The current baseline case
assumes continued progress
100 with vaccine distribution
• An accelerated recovery scenario
80 would see a much faster
recovery in 2021 and 2022
60 • A prolonged MRO recovery
scenario could occur with
40 disruptions in vaccine
distribution or efficacy
20
Accelerated Baseline Prolonged
0
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 203104 MRO SURVEY INSIGHTS
THE MAJORITY OF MRO SURVEY RESPONDENTS EXPECT MRO DEMAND TO RECOVER IN
2022, IN LINE WITH THE OLIVER WYMAN OUTLOOK
Airlines were asked: When will overall MRO demand MROs were asked: When will overall MRO demand
return to 2019 levels? return to 2019 levels?
1H 2021 1H 2021
Unsure 2025 or later
2H 2021 2H 2021
2025 or later 2% 6% 5% 3%
8%
3% 3%
1H 2022
2024
2024 22% 18%
15% 1H 2022
25%
2022: 42% 2022: 33%
15%
2H 2022
25%
17%
2023 33%
2H 2022
2023
Sample: 65 Respondents Sample: 60 Respondents
Airlines were generally more optimistic with half of respondents expecting maintenance demand to
recovery before 2023, compared to just 39 percent of MRO respondentsIMPACT TO U.S. MRO WORKFORCE HAS BEEN MODERATED BY SUPPORT PROGRAMS
Airlines and MROs were asked: what measures has your Government support has allowed US airlines to
company taken to respond to COVID? avoid significant headcount reduction
93%
89% • In March 2020, the U.S passed
Reduced Headcount 31% 36% the CARES Act with $25B in
Parked/cannibalization funding for airline payroll
29% 47%
Airlines
of older aircraft support
Increased use of green time 46% 21%
• $15B in additional aid was
Decreased inventories 43% 17% passed in December 2020 that
40% allowed airlines to return more
than 32,000 employees that
Have not used Used significantly had been previously furloughed
Used moderately
• Additional funding of $14B
Reduced Headcount 43% 37% approved in March 2021
extends support through fall
MROs
Pursued more military MRO 26% 14%
Reduced Headcount 2021
Expand outside of traditional by region
9% 9%
aerospace MRO
Rest of World North America
Western
Maintaining payrolls throughout the COVID crises gives the U.S. Europe
a leg up for upcoming labor challengesA LACK OF INDUSTRY STABILITY AND MORE OUTSIDE COMPETITION HAS COMPOUNDED
ALREADY PRESENT LABOR CHALLENGES
US Civil Aviation Maintenance Employment, thousands of employees
279 288 296
273
FAA Repair Station Air Carrier Parts Manufacturing/Distribution
After growing 3 percent annually from 2018-2020, US maintenance
employment saw an 8 percent decline over the last past year
2018 2019 2020 2021
Which are challenges in securing aircraft technicians How is your company attracting/retaining aircraft
over the next five years? technicians?
Lack of stability in the industry 42% 40% Apprentice programs 35% 24%
Competition from other industries 35% 40% Partnerships with technical schools 37% 18%
Lack of qualified applicants 46% 38% Increasing compensation 28% 6%
Reduction in long-term labor supply 55% 29% Internet-based recruiting platforms 22% 4%
Others 57% 29% Others 13%5%
Little to no challenge Moderate challenge Somewhat to very challenging Little to Moderately effective Very effective Extremely effective
Apprentice and technical school partnerships were the key paths identified to increase AMT labor supplyEXPANDING DIVERSITY EFFORTS IS AN ADDITIONAL WAY TO ATTRACT CANDIDATES AND
IMPROVE THE LABOR SUPPLY, AS WOMEN REPRESENT ONLY 5 PERCENT OF AMTS
What are your company's goals in pursuing diversity How would you rank your company on its progress
and inclusion efforts? (select top 3) toward diversity and inclusion goals?
Excellent None/little
7% 12%
76%
60%
45%
Good 33%
28% 23%
10% 9%
Supporting Identify and Improve Corporate- Increase A way to Fulfill
diversity and develop decision wide retention combat labor external 48%
inclusion is leaders making, requirements shortages requirements Average
the right from within innovation, with
thing to do and problem customers or
solving regulators
Only 10 percent of respondents view expanding diversity efforts as a way to combat labor shortages, and
only 23 percent view these measures as a way to increase retention05 CONCLUSIONS
CONCLUSIONS Global fleet and MRO long-term growth has Labor availability will soon return as a been negatively impacted critical challenge for MRO • North America and other mature markets • Reduced demand and payroll support are forecast to stagnate towards the end programs have provided relief through of the decade COVID-19 • International passenger demand is not • Must overcome perceptions of instability expected to recover until 2024 and competition from other industries • There remains downside risk to both • Apprenticeships, technical school domestic and international demand if partnerships and expanding diversity there are disruptions in vaccine efficacy efforts are key paths identified in and/or distribution addressing labor supply shortages The smaller fleet that emerges from the Airlines and MROs have shown incredible pandemic in 2022 will be more lean and versatility to mitigate the affects of a once- efficient in-a-century health crisis • An acceleration of aircraft retirements • Innovative use of fleet cycling and during the crisis has removed many older, deferred maintenance have kept aircraft less desirable aircraft from the global fleet flying • Significant backlog of already produced • Health and safety protocols have received aircraft is set to enter the fleet over the the utmost attention and respect next two years throughout the crisis
READ OUR LATEST FORECAST ON THE GLOBAL FLEET AND MRO SECTOR Oliver Wyman and our parent company Marsh & McLennan (MMC) have been monitoring the latest events and are putting forth our perspectives to support you clients and the industries you serve around the world. Read the latest Global Fleet and MRO Forecast 2021-2031 for more information. Q&A
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