Global Engine Fleet and Market Forecast

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1 Global Engine Fleet and Market Forecast April 15, 2015 Tom Cooper Vice President CAVOK, a division of OLIVER WYMAN 1003 Virginia Ave, Suite 300 Atlanta, Georgia Office +1 (404) tcooper@cavokgrpup.com

2 1 Engine Fleet Forecast

3 The global air transport jet and turboprop engine fleet will grow by more than 20,000 net new engines by Engine Fleet Forecast by Engine Manufacturer Key Fleet Forecast Highlights CFM Int'l GE Pratt & Whitney Rolls-Royce IAE Honeywell P&W Alliance Power Jet New TP Engine Aviadvigatel 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 18,512 30,842 10,630 12,119 9,214 13,772 5,898 7,078 5, ,478 engines 5, ,563 engines Global engine fleet will grow on average 3.4% over the full forecast period. Today, the top 3 engine manufacturers are CFM Int l, GE, and Pratt & Whitney CFM International s fleet has the greatest market share (36.7%) More than 15 points larger than the next largest fleet CFMI s installed base will widen the gap by 2025 Pratt and Whitney also makes large gains over the next ten years, increasing their fleet size by nearly 50% The growth outlook, however, varies widely from region to region 2

4 A 5 pt. spread in regional growth rates leads to a significant share shift over the decade ahead Engine Fleet Size 10YR CAGR Absolute Growth North America 15,257 16, % 1,247 Europe 13,179 16, % 3,506 Latin America & the Caribbean 3,539 5, % 1,906 Africa / Middle East 4,903 7, % 3,084 Asia Pacific / China / India 23,942 13, % 10,342 The mature North American and Western European markets will continue to undergo significant re-fleeting during the next 10 years 3

5 Fleet growth and systematic replacement of older aircraft with new technology aircraft will drive significant change in the engine MRO business 2015 Engine Fleet Forecast by Engine Model 2025 Engine Fleet Forecast by Engine Model PW4000 2,160 CFM56-3 1,926 GE90 JT8D 1,644 1,456 Other 10,924 GEnx GEnx 2,920 CF34 2,920 3,880 LEAP-1A LEAP-1A 4,468 4,468 GE90 2,248 Other 15,039 CF6 3,390 PW100 4,086 CF34 4,640 V2500 5,072 CFM56-5B 5,680 CFM56-7B 9,500 V2500 5,082 PW100 5,150 CFM56-5B 6,068 PW1000G PW1000G 6,736 6,736 CFM56-7B 12,010 LEAP-1B LEAP-1B 6,962 6,962 Next generation engines will comprise 30% of the fleet by

6 2 Engine MRO Market Forecast

7 The engine MRO grows to nearly $47 billion by Global MRO Market Forecast by MRO Segment Engine MRO Market Forecast by Engine OEM MRO Spend in 2015 Dollars ($USB) $120 $100 $80 $60 $40 $20 $0 $67.1 $12.3 $12.4 $ % 4.1% 5.9% $15.0 $15.2 $37.1 $17.8 $19.2 $ % 1.0% $14.5 $15.9 $ $ % 4.7% 4.8% Forecast Year and Forecast CAGR Airframe Engine Component Line $ OEM CAGR GE Aviation $8.2 $10.2 $ % CFM Int'l $5.3 $7.8 $ % Rolls-Royce $5.2 $7.3 $ % IAE $4.8 $7.4 $ % Pratt & Whitney $4.3 $3.4 $ % GE - P&W Alliance $0.2 $1.0 $ % Honeywell $0.1 $0.0 $ % Grand Total $27.9 $37.1 $ % Engine on-wing times growing; shop visits more expensive. 6

8 New technology engines are forecast to make up an increasing share of the market over the period Global Engine Fleet Forecast Legacy vs New Generation Global Engine MRO Market Forecast Legacy vs New Generation Engine Fleet Size 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 60,160 50, % 14,118 4, % 45,876 46, % -3.2% 70,563 31,532 39,031 MRO Spend in 2015 Dollars ($USB) $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $27.9 $1.9 $ % 3.4% $ % $37.1 $17.7 $ % $30.7 $ Forecast Year and Forecast CAGR Legacy New Generation 2025 $ Forecast Year and Forecast CAGR Legacy New Generation 2025 Largest MRO growth through 2025 for new technology engines 7

9 With 78% of the new aircraft deliveries forecast to replace older aircraft, the North American engine MRO forecast is virtually flat North American Engine Fleet Forecast Legacy vs New Generation North American Engine MRO Forecast Legacy vs New Generation Engine Fleet Size 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 16,027 15, % 1,768 3, % 13,489 12, % -5.2% 16,504 7,258 9,246 MRO Spend in 2015 Dollars ($USB) $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 $8.2 $0.9 $ % -1.1% $9.3 $ % $1.0 $ % $6.9 $ Forecast Year and Forecast CAGR Legacy New Generation 2025 $ Forecast Year and Forecast CAGR Legacy New Generation 2025 Honeymoon periods for new engines will impact the market in the near term; long term trend towards OEM engine MRO will accelerate 8

10 With aggressive fleet renewal, interesting to consider how engine management practices change over time Engine management practices over engine life cycle Strong MRO market PBTH T&M New material Cost/hour is key metric Strong Asset Management market Exchanges Leases Short life builds Repairs/Used material/der/pma Cost/SV is key metric Years from EIS of Program Asset management will be very active in current/coming fleet renewal cycle 9

11 3 Divining the Future

12 Trends and Challenges Big changes underway Strong world growth Re-fleeting for North America New technology engines as growing share of fleet Fuel efficiency dominates operating economics Operators expect maintenance costs to be flat relative to current models Operators more sophisticated and demanding More consideration of maintenance at the time of equipment purchase/lease With fewer and more expensive shop visits, look for creative solutions at each SV opportunity New generation of engines are being designed by OEMs with expectation that they will control MRO over the life of the engine Life cycle and roll of lessors increasingly important Challenge for independent engine MRO to maintain share 11

13 QUALIFICATIONS, ASSUMPTIONS AND LIMITING CONDITIONS This report is for the exclusive use of the CAVOK client named herein. This report is not intended for general circulation or publication, nor is it to be reproduced, quoted or distributed for any purpose without the prior written permission of CAVOK. There are no third party beneficiaries with respect to this report, and CAVOK does not accept any liability to any third party. Information furnished by others, upon which all or portions of this report are based, is believed to be reliable but has not been independently verified, unless otherwise expressly indicated. Public information and industry and statistical data are from sources we deem to be reliable; however, we make no representation as to the accuracy or completeness of such information. The findings contained in this report may contain predictions based on current data and historical trends. Any such predictions are subject to inherent risks and uncertainties. CAVOK accepts no responsibility for actual results or future events. The opinions expressed in this report are valid only for the purpose stated herein and as of the date of this report. No obligation is assumed to revise this report to reflect changes, events or conditions, which occur subsequent to the date hereof. All decisions in connection with the implementation or use of advice or recommendations contained in this report are the sole responsibility of the client. This report does not represent investment advice nor does it provide an opinion regarding the fairness of any transaction to any and all parties.

TURBULENCE AHEAD DISENGAGE THE AUTOPILOT 2015-2025 GLOBAL FLEET & MRO MARKET FORECAST

TURBULENCE AHEAD DISENGAGE THE AUTOPILOT 2015-2025 GLOBAL FLEET & MRO MARKET FORECAST Tuesday, October 13 th 2015 Christopher Doan Vice President Oliver Wyman acquired TeamSAI and integrated the business