WINDS OF CHANGE
2016-2026 GLOBAL FLEET &
MRO MARKET FORECAST
APRIL 5, 2016
David A. Marcontell
Vice President
AVIATION
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© Oliver Wyman
1
This presentation incorporates the betterinsight™ 2016-2026 Global Fleet
and MRO Market Forecast and the Oliver Wyman MRO Survey 2016
The betterinsight™ Global Fleet & MRO Market Forecast Commentary, and
related market intelligence data is available at planestats.com/betterinsight
© Oliver Wyman
2
The future is now
© Oliver Wyman
3
Amid weakening economic conditions, the global airline industry is achieving
record passenger volumes, record cargo volumes, and record net profits
Global Air Transport Passenger Volume
by Year
Millions of
Seats
Global Air Transport Industry Financial Performance
by Year
Billions of
US Dollars
5,000
$800
4,000
3,000
$700
2,000
$600
1,000
$500
0
2010 2011 2012 2013 2014 2015F 2016F
Available
Seats
Revenue Passengers
Available
Revenue
Seats
Passengers
$400
$300
Global Air Transport Cargo Volume
by Year
$200
Millions of
Tons
$100
100
$0
2010
80
2011
Revenue
60
2012
2013
2014
Expenses
Expenses
Net Profit
Revenue
2015F
2016F
Net Profit
40
20
0
2010 2011 2012 2013
Available
Freight Tons
Available
Freight Tons
© Oliver Wyman
2014 2015F 2016F
Freight Tons
Freight Tons
The North American operators are, by far,
delivering the strongest financial performance
4
Record net profits are due in large part to the glut in the oil market. As oil
prices are expected to remain low over the short term, many are concluding
that operators will delay retirements, and defer new aircraft.
Crude Oil and Jet Fuel Spot Prices per Gallon
by Year
US Dollars
$4.0
$3.5
$3.0
$2.5
$2.0
$1.5
$1.0
New gen narrowbody aircraft are
more profitable than current gen
New gen widebody aircraft are
more profitable than current gen
$0.5
$0.0
2010
2011
2012
2013
Brent Crude Oil
2014
2015
2016
2017
2018
WTI Crude Oil Jet Fuel Jet Fuel
Brent
2019
2020
2021
2022
2023
2024
2025
2026
Cone of Uncertainty
WTI
To date, operators have not shown signs of significantly altering fleet plans. OEM
order backlogs continue to grow, and new aircraft deliveries are at an all time high.
© Oliver Wyman
5
Contrary to popular belief, jet fuel prices and economic indicators have not
had a direct effect on the delivery of new aircraft
2001-2015 Aircraft Delivery Year Over Year Growth Rate
Compared to Fuel Price
Compared to Economic Indicators
Compared to Net Profit
Aircraft Delivery
Growth Rate
Aircraft Delivery
Growth Rate
Percentage
Rate
20%
60.0%
15%
40.0%
10%
Aircraft Delivery
Growth Rate
Percentage
Rate
20%
6.0%
15%
4.0%
10%
20.0%
5%
0%
0.0%
-5%
-20.0%
-10%
-40.0%
-20%
-60.0%
2001 2004 2007 2010 2013
Jet Fuel
Jet Fuel
600.0%
15%
400.0%
10%
2.0%
5%
0%
0.0%
-5%
-2.0%
-10%
-15%
20%
Percentage
Rate
200.0%
5%
0%
0.0%
-5%
-200.0%
-10%
-4.0%
-15%
-20%
-6.0%
2001 2004 2007 2010 2013
Real GDP10 Year T Note
Real GDP
-400.0%
-15%
-20%
-600.0%
2001 2004 2007 2010 2013
Net Profit
Net Profit
10 Year T Note
Of all factors that could have an effect on new aircraft deliveries, net profit from two
years prior has the strongest correlation coefficient (70%)
© Oliver Wyman
6
In order to corroborate trends in deliveries and retirements, we asked
operators how the price of fuel was impacting their fleet decisions in the
Oliver Wyman MRO Survey 2016
Q: How much longer would oil prices need to stay below
$50 to have a real impact on your fleet decisions?
Already noticing a change
12
Months
23%
6%
71%
18 Months or longer
Q: Below what sustained oil price would you
consider adding older aircraft into your fleet?
$60-$70
$40-$50
At no price
12%
18%
70%
Delivery decisions are made many years in advance and make a very stable and
predictable variable that runs independently of macro level factors
© Oliver Wyman
7
Over the past year, status changes to 3,581 aircraft have lead the in-service
fleet to experience a net growth of 755 aircraft, representing a 3.2% annual
growth rate
Year Over Year Changes to the In-Service Fleet
by Transaction Type
3.2%
(1,413)
2,168
Aircraft Additions
24,540
Aircraft Removals
2016 In-Service Fleet
23,785
2015 In-Service Fleet
© Oliver Wyman
Storage for conversion
into a freighter
(3)
Transferred to a
commercial operator
8
Transferred to a
non-commercial operator
(18)
Completed freighter
conversion
49
Involved in an accident
(28)
Unknown prior exclusion
59
Formally retired
(166)
Removed from storage
419
Sent to storage
(1,198)
NewNew
aircraft
delivery
aircraft delivery
1,633
1,633
8
While the fleet is growing at a healthy rate, and the industry is reveling in
historic net profits, uncertainties surrounding economic growth, interest rates,
and oil could disrupt the delicate balance we are enjoying today
Global In-Service Fleet Forecast
by Year
Number of
Aircraft
43,000
34,437
Brent
38,000
33,000
24,540
28,000
23,000
18,000
2010
2011
2012
2013
Historical Fleet
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
betterinsight™ Forecast Fleet
We forecast the fleet will increase by nearly 9,900 aircraft by 2026, representing an
average annual growth rate of 3.4%
© Oliver Wyman
9
While the fleet is growing at a healthy rate, and the industry is reveling in
historic net profits, uncertainties surrounding economic growth, interest rates,
and oil could disrupt the delicate balance we are enjoying today
Global In-Service Fleet Forecast
by Year
Number of
Aircraft
43,000
Fleet
CLOUD NINE
38,000
33,000
24,540
GDP
TRAFFIC
FUEL PRICES
INTEREST RATES
28,000
23,000
18,000
2016
2017
2018
2019
Historical Fleet
2020
2021
2022
2023
2024
2025
2026
betterinsight™ Forecast
Likely Alternate Scenarios
Best/Worse Case Alternate Scenarios
No matter which forecast scenario comes to fruition, the winds of change are
blowing through our industry
© Oliver Wyman
10
While the fleet is growing at a healthy rate, and the industry is reveling in
historic net profits, uncertainties surrounding economic growth, interest rates,
and oil could disrupt the delicate balance we are enjoying today
Global In-Service Fleet Forecast
by Year
Number of
Aircraft
43,000
Fleet
BLACK SWAN
38,000
33,000
24,540
GDP
TRAFFIC
FUEL PRICES
INTEREST RATES
28,000
23,000
18,000
2016
2017
2018
2019
Historical Fleet
2020
2021
2022
2023
2024
2025
2026
betterinsight™ Forecast
Likely Alternate Scenarios
Best/Worse Case Alternate Scenarios
No matter which forecast scenario comes to fruition, the winds of change are
blowing through our industry
© Oliver Wyman
11
While the fleet is growing at a healthy rate, and the industry is reveling in
historic net profits, uncertainties surrounding economic growth, interest rates,
and oil could disrupt the delicate balance we are enjoying today
Global In-Service Fleet Forecast
by Year
Number of
Aircraft
43,000
Fleet
STRENGTHENED ECONOMY
38,000
33,000
24,540
GDP
TRAFFIC
FUEL PRICES
INTEREST RATES
28,000
23,000
18,000
2016
2017
2018
2019
Historical Fleet
2020
2021
2022
2023
2024
2025
2026
betterinsight™ Forecast
Likely Alternate Scenarios
Best/Worse Case Alternate Scenarios
No matter which forecast scenario comes to fruition, the winds of change are
blowing through our industry
© Oliver Wyman
12
While the fleet is growing at a healthy rate, and the industry is reveling in
historic net profits, uncertainties surrounding economic growth, interest rates,
and oil could disrupt the delicate balance we are enjoying today
Global In-Service Fleet Forecast
by Year
Number of
Aircraft
43,000
Fleet
WEAKENED ECONOMY
38,000
33,000
24,540
GDP
TRAFFIC
FUEL PRICES
INTEREST RATES
28,000
23,000
18,000
2016
2017
2018
2019
Historical Fleet
2020
2021
2022
2023
2024
2025
2026
betterinsight™ Forecast
Likely Alternate Scenarios
Best/Worse Case Alternate Scenarios
No matter which forecast scenario comes to fruition, the winds of change are
blowing through our industry
© Oliver Wyman
13
While the fleet is growing at a healthy rate, and the industry is reveling in
historic net profits, uncertainties surrounding economic growth, interest rates,
and oil could disrupt the delicate balance we are enjoying today
Global In-Service Fleet Forecast
by Year
Number of
Aircraft
43,000
Fleet
CLOUD NINE
38,000
STRENGTHENED ECONOMY
33,000
24,540
WEAKENED ECONOMY
BLACK SWAN
28,000
23,000
18,000
2016
2017
2018
2019
Historical Fleet
2020
2021
2022
2023
2024
2025
2026
betterinsight™ Forecast
Likely Alternate Scenarios
Best/Worse Case Alternate Scenarios
No matter which forecast scenario comes to fruition, the winds of change are
blowing through our industry
© Oliver Wyman
14
1 2 3 4
New
Technology
© Oliver Wyman
Regional
Shift
Fleet
Mix
Aircraft
Retirements
15
1 2 3 4
The increase in new technology will be the prevailing tailwind behind the
changes in the global fleet and the airline industry over the next decade
2016-2025 Global New Aircraft Delivery Forecast
Next Gen vs Legacy
2016-2026 Global In-Service Fleet Forecast
Next Gen vs Legacy
Number of
Aircraft
Number of
Aircraft
2,500
35,000
30,000
2,000
25,000
1,500
33%
10%
20,000
54%
15,000
1,000
10,000
500
97%
0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Legacy Legacy Next
Gen
Next Gen
5,000
0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Legacy Legacy
Next Gen
Next Gen
By the end of the forecast period, next generation aircraft will account for nearly all
new deliveries and comprise over half of the global fleet
© Oliver Wyman
16
1 2 3 4
Next generation aircraft are equipped with new technologies enabling
unprecedented collection and transmission of data at both the system
and part level
Global In-Service Fleet Data Generation per Year
by Year
Billions of
Gigabytes
98
120
Fleet
100
80
60
40
4
1
20
0
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
This surge of data, in the hands of a new breed of data scientists and innovative
management teams, creates massive potential to change how aircraft are cared for
© Oliver Wyman
17
1 2 3 4
Without a clear plan for its collection and application, big data can bring
distractions for resource-constrained operators, leading to squandered efforts
or abandoned intentions to integrate advanced analytics into MRO
Q: “Due to aircraft health monitoring we have experienced a noticeable...”
65%
Increased need for data analysis skills
45%
Increased need for internal IT skills
Increased need for data storage
Increased interaction with
third parties to interpret data
Increased guidance from
third parties to plan and
schedule maintenance
27%
22%
10%
The pathway to a high-impact, productive big data platform will begin with targeted
successes on modest improvement initiatives, such as statistically reliability
analysis on high-failure parts
© Oliver Wyman
18
1 2 3 4
As the mature North American and Western European markets continue to
undergo significant re-fleeting efforts and tightly control capacity, there will be
boisterous shift towards Asia
2016 In-Service Fleet
by Region
Eastern Europe
1,209
Western Europe
4,942
North America
7,491
China
2,460
Middle East
1,234
India
408
Africa
1,048
2016
© Oliver Wyman
2017
Latin America
Asia Pacific
1,762
3,986
2018
2019
2020
2021
2022
2023
2024
2025
2026
19
1 2 3 4
As the mature North American and Western European markets continue to
undergo significant re-fleeting efforts and tightly control capacity, there will be
boisterous shift towards Asia
2026 In-Service Fleet
by Region
Eastern Europe
1,453
Western Europe
5,820
North America
8,067
China
5,771
Middle East
2,313
3,000
India
706
Africa
2,000
1,213
Latin America
Asia Pacific
2,614
1,000
6,477
0
2016
© Oliver Wyman
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
20
1 2 3 4
If you are thinking about growth,
you should be thinking about Asia
© Oliver Wyman
21
1 2 3 4
Seeking to mitigate the financial risk from historically volatile fuel prices and
to operate more efficiently, operators around the world are discarding smaller
regional jets and turboprops to move up to narrow-body aircraft
2016-2026 Global Fleet Forecast
by Aircraft Class
2016-2026 Global Fleet Forecast
by Aircraft Usage
Share of
Fleet
Share of
Fleet
100%
100%
100%
100%
90%
90%
98%
98%
80%
80%
96%
96%
70%
70%
94%
94%
60%
92%
50%
90%
40%
40%
88%
88%
30%
30%
86%
86%
20%
20%
84%
84%
10%
10%
82%
82%
60%
50%
63%
56%
0%
0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
NB
NB
WB
WB
RJ
TPRJ
TP
94%
92%
92%
90%
80%
80%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Passenger
Passenger Cargo
Cargo
The cargo fleet will always play an important role in air service, but it’s relative share
of the fleet will decrease over the next decade. New generation passenger aircraft
offer more cargo space, and competition from ships, trucks, and trains is mounting.
© Oliver Wyman
22
1 2 3 4
Nearly half of the current global fleet is forecast to retire by 2026 with the
majority of those being of 1990s vintage. In light of this, we asked operators
about their retirement planning
2016-2025 Global Aircraft Retirement Forecast
by Aircraft Vintage
Q: When does your organization start planning for a
fleet retirement?
Number of
Aircraft
1,400
1 Year
16%
2 Years
5%
1,200
1,000
800
600
400
47%
3-5 Years
200
0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
1970’s1980's
1970's
2000’s
1980’s 2000's
1990's
2010’s
1990’s
2010's
5+ Years
32%
Nearly 80% reported that retirements are planned at least three years in advance,
indicating that short-term industry events are not influencing retirement schedules
© Oliver Wyman
23
1 2 3 4
Record increases in retirements are expected to have a significant impact on
the availability and use of used serviceable material over the next decade
2016-2026 Global Materials Market Forecast
USM vs All Other Materials
Billions of
US Dollars
$70
5.9% CAGR
$65
$60
4.3% CAGR
$55
$50
$45
$40
$35
$30
2016
2017
2018
All Other Materials
2019
USM
2020
2021
All Other Materials
2022
2023
2024
2025
2026
USM
Greater utilization of USM material, particularly in 1990’s vintage aircraft, will impact
material pricing, and may reduce the cost of an engine shop visit by 10%-20%
© Oliver Wyman
24
1 2 3 4
Though growing, the USM market is not without challenges. OEMs are
currently the largest customers of USM, and it is expected that their control of
the market will continue to grow as they look to regain material pricing power
Q: What is your current activity or near team (next 12 months) plan to purchase used serviceable material (USM) for
aircraft maintenance in lieu of purchasing new or repairing an existing part?
Not a priority
15%
Use it occasionally
15%
Use it occasionally for cost analysis
34%
Aggressively incorporate USM in all activities
37%
Q: In five years, who will exert the greatest
control over the surplus market?
Other
5%
MROs
5%
Airlines
OEMs
© Oliver Wyman
10%
80%
25
Translating the fleet dynamics into MRO, we forecast the 2016 global
commercial MRO market to be $67.7B
2016 Global MRO Market Forecast
by MRO Segment
AIRFRAME & MODS $16.0B
ENGINE $25.6B
COMPONENT $13.1B
LINE $12.8B
Engine MRO continues to be the driver of growth in the market
© Oliver Wyman
26
As MRO is a product of the size, complexion, and utilization of the fleet, the
market should continue to grow at a robust pace, weathering all but the most
traumatic economic shifts
Global MRO Market Forecast
by Year
Billions of
US Dollars
$98.9
$120
Fleet
$110
$100
$67.7
$90
$80
$70
$60
$50
$40
2010
2011
2012
2013
Historical MRO
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
betterinsight™ Forecast Fleet
We forecast total MRO spend to increase by over $31 billion by 2026, which would
represent a year-over-year increase of 3.9%
© Oliver Wyman
27
As MRO is a product of the size, complexion, and utilization of the fleet, the
market should continue to grow at a robust pace, weathering all but the most
traumatic economic shifts
Global MRO Market Forecast
by Year
Billions of
US Dollars
$120
CLOUD NINE
Fleet
$110
STRENGTHENED ECONOMY
$100
WEAKENED ECONOMY
$67.7
$90
BLACK SWAN
$80
$70
$60
$50
$40
2016
2017
2018
2019
Historical MRO
2020
2021
2022
2023
2024
2025
2026
betterinsight™ Forecast
Likely Alternate Scenarios
Best/Worse Case Alternate Scenarios
The uncertainty surrounding global economic conditions, while adversely impacting
the size of the global fleet, could benefit the MRO Market
© Oliver Wyman
28
When singling out North America the picture looks quite different. The North
American fleet is forecast to have an average annual growth rate of less than
1% as operators continue to refleet at unprecedented rates.
2016-2026 North American MRO Market Forecast
by MRO Segment
2016-2026 North American MRO Market Forecast
Next Gen vs Legacy
Billions of
US Dollars
Billions of
US Dollars
$25
$25
$20
$20
$15
$15
$10
$10
$5
25%
21%
$0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Airframe Engine
Component
Airframe
Engine
Component
Line
3%
15%
$5
$0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Legacy
Legacy
Next
Gen
Next Gen
Line
Additionally, the influx of new-build next generation aircraft, and the systematic
elimination of aging fleets is expected to cause stagnation in the MRO Market
© Oliver Wyman
29
With market stagnation expected, if you are thinking about growth in North
America, you should think about how to compete on:
Q: In the next five years, the top three elements of differentiation and
Competitive advantage for MROs will be:
50%
Customer
Service
53%
33%
Labor Rate
32%
33%
OEM Network
Relationship
32%
17%
Overhaul
Efficiency
Asset
Availability
42%
17%
More Time
On-wing
26%
AIRLINE RESPONDENTS
MRO RESPONDENTS
58%
© Oliver Wyman
58%
Price
21%
5%
30
Take the controls and make
strategic investments now:
New technology aircraft are creating
unprecedented needs for data analysis
The mature markets are stagnating,
and the nexus of MRO is shifting to Asia
The regional jet and turboprop markets will decline
as operators upgauge to narrowbodies
Increased retirements will lead to greater
availability and use of USM, which will significantly
impact MRO costs
Price and customer service are the driving
levers to compete in a stagnant MRO market
© Oliver Wyman
31
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