IndustryForecast

EngineMROTrendsin AsiaPacific

YenPu PaulChen

Director,ForecastsandAnalytics AviationWeek
1

Asiahasemergedasaheavyweightinaviation
Aviation Week Top 10 Airframe MROs Aviation Week Top 20 Performing Airlines

$
STAerospace Haeco/Taeco/Staeco Malaysian AerospaceEng SIAEngineeringCo. AFIKLME&M AARCorp. IAI/BedekAviation Group Aveos EgyptAir Maintenance&Eng ADAT/SRTechnics
* Based on total airframe man hours

$5

$10
AirAsia AirArabia RyanairHoldings HainanAirlines Allegiant TransasiaAirways VuelingAirlines Copa SingaporeAirlines WestJetAirlines AllNipponAirways RegionalExpress AerLingus AlaskaAirGroup SpiritAirlines Easyjet QantasAirways CebuAir DeutscheLufthansa GarudaIndonesia

50

100

* Based on score on financial health, liquidity, fuel management, financial health, earnings perform, asset utilization

Theworldsgrowthpowerhouse
Asiaseconomicgrowthtrends
China:Softlanding in2012,GDPreboundin2013 Japan:Recoveryseeneasingsomewhatin2013,but GDPgrowthremainshealthy Korea:propelledbyconstructioninvestments,U.S.free tradeagreement ChinadirectinvestmentinAfricancountriespropels additionaltrafficandflows Regionwide,tourismgains WesternaerospaceownershipsareshiftingtoAsia

Keyquestions
WhatisthestateoftheAsianmarketatpresentandwhat arethefactorspromptingitsimpressivegrowth? HowwillthenewaircraftordersimpacttheengineMRO sectorandhowwilldemandchangethrough2021?

Predictionofthefuture:Arollercoasterride

Year 10 of each 10-year forecast horizon

Units aircraft

35,000

30,000

25,000 2015 2016 2017

2018

2019

20,000 2020 2021

Year10

Source: Aviation Week

Asiarankshighintrafficgrowth
Capacity Capacity+4.5% +4.5%
ASKs ASKs+4.4% +4.4%

1 1
Departures Departures+2.5% +2.5%

2 2
Block BlockHours Hours+3.8% +3.8%

1 1
* Including China and India, Q3-Q4, 2012 vs. 2011, based on aircraft domiciled region. Source: OAG Schedules
6

2 2

Worldairlinesoperationstrends
15% 10%
6.1% 5.2% 8.9% 7.4% 5.7% 3.9% 2.8% 1.3% 0.9% 0.7% 0.2% 1.6% 0.7% 5.6% 4.0% 2.4%

ASKs
10.4%

4yearCAGR YOYCAGR

15% 10%

Departures
8.0% 5.6% 4.4% 2.8% 1.2% 1.2% 4.0% 2.1% 0.5% 0.4% 0.8% 1.2% 1.6% 4.4% 7.2%

5% 0% 5%

2.9%

3.9%

4.7%

5% 0% 5%

4.2% 5.4%

5.5%

10%
India China Africa LAmerica NAmerica World AsiaPacific MiddleEast EEurope WEurope

10%
China India Africa LAmerica NAmerica AsiaPacific Middle East EEurope WEurope World World

15% 10%

15% 10%
3.8% 0.6%

9.7% 6.4% 5.6%

Block Time
8.8% 7.3% 4.6% 3.3% 8.7% 4.8% 6.7% 5.5% 2.9%

Capacity
7.1% 4.8% 3.6% 2.1% 1.3% 2.4% 2.1% 2.0% 8.0%

5% 0%

3.2%

3.1% 0.4%

2.1%

2.8%

2.7% 1.9%

5% 0%

0.4% 0.7%

0.2%

5% 10%

5.1%

4.6%

5% 10%

2.7%

1.6%

0.4% 0.7% 1.9%

China

Africa

China

India

India

LAmerica

Africa

NAmerica

LAmerica

AsiaPacific

Middle East

AsiaPacific

Middle East

NAmerica

EEurope

World

WEurope

EEurope

Source: OAG Schedules. Q3/Q4 of each year Passenger jets and turboprops

WEurope

Worldwidetrend:largerequipment,moreseats perdeparture
Average capacity (Seats)

180 170 160 150 140 130 120 110 100

170

176

+12
164 160 162 161 154 142

2008 2011 2012

+14
140 135 126 126 115 126 120 124 118 112 110 114

+11

China

India

Africa

Latin America

MiddleEast

AsiaPacific

Western Europe

Source: OAG Schedules. Q3/Q4 of each year Passenger jets and turboprops

World Average

North America

Eastern Europe

Andlongerflights
Stage Length (km)

2,000 1,800 1,600 1,400 1,200 1,000 800 600

+127

2008 2011 2012

+112 +237

India

North America

MiddleEast

Source: OAG Schedules. Q3/Q4 of each year Passenger jets and turboprops

GrandTotal

AsiaPacific

Western Europe

Latin America

China

Eastern Europe

Africa

Regionaloperationstrends 2008
2008
Average Stage Length (miles)
1,250

1,000

Eastern North America Europe Africa

Asia Pacific Middle East

750

500

Western Europe
Latin America

India

China

250 100

125

150

175

Average Capacity per Departure

Source: OAG Schedules. Q3/Q4 of each year Passenger jets and turboprops

10

Regionaloperationstrends 2012
2012
Average Stage Length (miles)
1,250

North America
1,000

Africa

Eastern Europe

Asia Pacific Middle East

750

Western Europe
Latin America

India

China

500

250 100

125

150

175

Average Capacity per Departure

Source: OAG Schedules. Q3/Q4 of each year Passenger jets and turboprops

11

Airlinesinallregionssharesimilardirectionsince economiccrisis
Net change in average stage length (miles) per departure

150

W Europe

100
China N America

Middle East

E Europe

50

Latin America Africa India

Africa Asia Pacific China E Europe India L America Middle East N America W Europe

0 5
Asia Pacific

10

15

50
Net change in average capacity per departure 2012 vs. 2008
Source: OAG Schedules. Q3/Q4 of each year Passenger jets and turboprops
12

Jetsretireatyoungerages
35
NARROWBODY JETS WIDEBODY JETS

Factorsaffecting retirement:
Rapidtechnology advancement Operatingeconomics Residualvalue Earlypartout Lastofthelineeffects Versatilityand flexibility,e.g., passengertofreighter conversionoptions

30

25

20

15

10 1992 1997 2002 2007 2012

Source: Aviation Week, Aircraft delivered post 1960

13

Anotherlookattheretirementtrends
100% 75%

50% Freighter(3years) Freighter(5years) Passenger(3years) Passenger(5years)

25%

0%

100%

10

15

20

25

30

35

40

45

Passengerjets retirementagesshow moremovement towardsyoungerage thanfreighters Narrowbody retirementages decreasedmorethan widebodypassenger jets

75%

NB3yr NB5yr WB3yr WB5yr

50%

25%

0%
0 5 10 15 20 25 30 35
14

40

45

Source: Aviation Week

Worldfleetisexpectedtogrowto33,500in2021
Aircraft unit

35,000 30,000 25,000 20,000 15,000 10,000 5,000 0

Installedbase CumulativeDeliveries

Expectover16,000 aircraftdeliveries,of which

5,200for replacement 11,600forgrowth

Asiaaccountsfor 38%ofalldeliveries, ranksNo.1among worldregions

2012 2015 2018 2021

Source: Aviation Week

15

Moredeliveriesareforgrowthratherthan replacement
35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Growth Replacement RetainedFleet

Growth 11,600 (69%)

Replacement 5,200 (31%)

Retained 16,400

Source: Aviation Week

16

Asiawilltake38%of8,000+jetsonorder
3,500 3,000 2,500 2,000 1,500 1,000 500 0
Unknown Africa

Firm orders by region

Asiaordered54% ofallworldwide RJs,morefocuson therightgauge

EEurope L America Middle East WEurope N America AsiaPacific

Africa
100%

Africa
E Europe

80

Middle East E Europe L America W Europe

L America W Europe N America

Morethan2,000 Africa NBforregional Middle East growth,startup, E Europe lowcost L America W Nearly800WBto continueWB dominance

Europe
N America

60

N America Middle East

40

Asia
20

Asia

Asia

NB
17

WB

RJ

Source: Aviation Week

Beyondfirmorders,Asiaislikelytotake6,000+ jets,retire800+by2021
RETIREMENT INCREMENTALDELIVERY FIRMORDER

750

500

StrongregionalGDP growthwillresultin sustainableaircraft deliveriesthroughout forecasthorizon Amountoffuture ordersareexpected tomatchthefront loadedfirmordersas of2012
2013 2015 2017 2019 2021

250

(250)

Source: Aviation Week

18

2/3ofAsiadeliverieswillbeWB,whichaccount for40%ofallWBdeliveries
7%
RJ
40%

2012

NB

WB

30% RJ NB WB

30%

63%

20%

7%
10%

28%

2021
RJ NB WB

0% Installed base2012 Delivery Installed base2021

65%

As % of world
Source: Aviation Week
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Asianfleet:highsharesinmostpopularaircraft families
Aircraft Engine

Asia

OtherRegions

Asia

OtherRegions

A320/321/330

36% 41% 31%

V2500A/D

37% 52% 30%

777

TRENT7/8/9/1000

737 3/4/5/6/7/8/9

CFM563/7

0% 25% 50% 75% 100%

0% 25% 50% 75% 100%

Source: Aviation Week

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Asia:Youngestfleetintheworld
Age
16 14 12 10 8 6 4 2 0
Africa Asia EEurope L Middle N W America East America Europe
21

2012
14.5 12.4

2021

15.7 14.3

12.4 11.2 10.4

FleetinAsiais generallyyounger thusless retirementsare expectedthan otherregions Asaresult, averagefleetage inAsiawill increase

* Jets only

Theagefactor:determineswhenengineshop visitskickin
2012
100% 50% 56% 0%
Asia Other 7+years 07years

In2012,56%ofaircraftin Asiahavelessthan7years inservice,comparedwith 34%inotherregions In2021,49%ofaircraftin Asiahavelessthan7years inservice,comparedwith 38%inotherregions EngineMROdemandinAsia willincreaseoverthenext 10yearswhenmorefirst shopvisitskickin
22

34%

2021
100% 50% 49% 0%
Asia
* Jets only

7+years 07years

38%
Other

Incrementalorders impactonengineMRO outlook:backloaded,lateimpact

All engines
ShopvisitSpend

V2500-A5
ShopvisitSpend

30 25 20 15
6.8%

5 4 4 3 3 2

IncrementalOrders FirmOrder Inserviceaircraft

15%

10 5

2 1 1

0
2012 2014 2016 2018 2020
23

0
2012 2014 2016 2018 2020

Source: Aviation Week

ExpectworldMROtogrowfrom$49Bin2012to $69Bin2021
$B
80 70 60 50 40 30 20 10 0 2012 2021 21 11
LAmerica EEurope WEurope NAmerica MiddleEast AsiaPacific Africa

$B
80 70 60 50 40 30 20

Modifications Components LineMx AirframeHeavyMx Engine

30
10 0 2012 2021

19

Total Asia MRO: 7.3% CAGR

* Jets only
24

World Engine MRO: 5.1% CAGR

AsiaengineMROoutlook:from$4.4Bin2012to $9.6Bin2021at9%CAGR
$B
25
Modifications Components LineMx AirframeHeavyMx Engine

Shop visits
4,000 3,500 3,000 2,500 2,000

20

15

3,784

10

1,500 1,000

9.6 4.4

1,727

500 0

0 2012 2021 Asia Engine MRO spend: 9.0% CAGR

* Jets only
25

2012

2021

Asia Engine SV 9.1% CAGR

Enginespendwillgrowtobecomemore concentratedonfewermodels
Other Top5
2012 Top 5: CFM56-7 CF6-80C2 V2500-A5 RB211-535 CFM56-3 2021 Top 5: CFM56-7 V2500-A5 GE90-115B CFM56-5B TRENT700 2012 Top 5: CFM56-7 Other TRENT800 Top5 PW4000-94 CF6-80C2 V2500-A5 2021 Top 5: CFM56-5B TRENT700 GE90-115B CFM56-7 V2500-A5

100% 75% 50% 25% 0%

2012 2021

100%
40% 56%

33% 75% 50% 50%

60% 44%

67% 25% 0%
2012 2021

50%

World
* Jets only
26

Asia

Andthepredictionsare
Asia AsiaEngine Engine MRO spend MRO spend

No.1 No.1
Asia AsiaTotal Total MRO spend MRO spend

No.1 No.1
1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

Asia Asiafleet fleet size size

No.1 No.1
2018 2019 2020 2021

2012

2013

2014

2015

2016
27

2017

Challenges
HowdoMROs inAsia TakeadvantageofAsiamarketsspecificcharacteristics Penetratewesternmarket Maintaincompetitivenesswhenlaborratesarerising,and competitionsfromotheremergingregionssuchasEastern Europeiscatchingon Increaseengineeringcontentsofserviceoffering,to providevalueadded,completesolutions Expandservicenetworktoestablishaglobalpresence MaximizemarginsinmarketswhereOEMmaintain dominanceinpartssupplies ApplyContinuousImprovementtoreduceTATand optimizecapacityutilization
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