MRO Global Outlook

In light of Industry Recessionary Pressure and Dynamics

Frost & Sullivan Annual

Commercial Aerospace
Executive Briefing, May 19, 2009
Long Beach CA

Industry Analyst
Nathan K. Smith
Topics
1. Commercial MRO
ƒ Commercial Aerospace Outlook
ƒ Next generation aircraft and MRO
capabilities
ƒ Geographic Region Analysis
ƒ MRO Outsourcing Analysis
ƒ Aircraft Components
ƒ Boeing B787 Outsourcing
ƒ Airbus A380 Outsourcing
ƒ U.S. MRO Outsourcing – HMV / Mod
ƒ MRO – PMA Parts and Inventory
ƒ Global Commercial Aircraft
ƒ Competitors
ƒ Competitive Assessment
ƒ MRO – Market Analysis
ƒ Global Forecast
ƒ Conclusion
2
Commercial Aerospace Outlook

ƒ Largest regional market share – North

America
ƒ Highest growth area – Asia
ƒ MRO industry is expected to be principally
driven by emerging markets
ƒ Latin America is growing rapidly with labor
rates up to 25 percent cheaper than North
America.
ƒ The Middle East continues to grow faster
than many other regions in both commercial
and business aviation.
ƒ Greater acceptance and wider use of PMA
parts

3
Commercial MRO

ƒ Next Generation Aircraft

ƒ Quieter, more Fuel Efficient Engines
ƒ Reduced NOx Emissions
ƒ Reduced Engine Maintenance
ƒ Advancements in Composites
ƒ Advance Electronic Technology

ƒ MRO Capabilities
ƒ Total Aircraft Support – One Stop
Shopping
ƒ Engine Test Facilities
ƒ Engine On-Wing Support
ƒ Engineering Design and Technical
Services
ƒ Trained Staff

4
Geographic Region Analysis of the Total Market in 2008

MRO Market: MRO Spending by Region (Global), 2008

Eastern Europe /
North America Europe
Russia $1.50
$16.60 Billion $12.00 Billion
Billion

China
$2.80 Billion
Latin and South
America
$2.20 Billion

Africa Middle East Asia Pacific

$1.60 Billion $2.60 Billion $5.90 Billion

Note: All figures are rounded; the base year is 2008. Source: Frost & Sullivan

5
Geographic Region Analysis of the Total Market in 2013

MRO Market: MRO Spending by Region (Global), 2013

Eastern Europe /
North America Europe
Russia
$17.10 Billion $12.80 Billion
$2.4 Billion

China
$3.70Billion
Latin and South
America
$2.60 Billion

Africa Middle East Asia Pacific

$1.8 Billion $2.90 Billion $9.60 Billion

Note: All figures are rounded; the base year is 2008. Source: Frost & Sullivan

6
MRO Outsourcing Analysis

Engine Outsourcing (Global), 2008

ƒ MRO Outsourcing
78 6

Spending ($Billion)
Outsourced (%)
ƒ Competitive Pricing 76 5
4
74
ƒ Greater Operator Flexibility 72
3
2
70
ƒ Smaller Parts Inventory 1
68 0
North
ƒ Lower Operating Cost Asia Europe
America

Engine 71 73 77
Spending 3.2 3.5 5.3
Note: All figures are rounded; the base year is 2008. Source: Frost & Sullivan

: MMV Outsourcing (Global), 2008 Outsourced Vs In-House (Global), 2009

HMV Outsourcing (%)

80 1.8 Spending ($Billion)

Segment (%)
1.6
60 1.4
1.2
1
40 0.8
0.6
20 0.4 HMV Engine Compo Line
0.2
0 0 In-House 57 79 17 80
North
Asia Europe 43 21 83 20
America Outsourced

HMV 56 47 64
Spending 0.6 1.1 1.6 Aircraft Segment
Note: All figures are rounded; the base year is 2008. Source: Frost & Sullivan Note: All figures are rounded; the base year is 2008. Source: Frost & Sullivan

7
Aircraft Components

Horizontal Stabilizer
Horizontal Stabilizer
Vertical Stabilizer
Vertical Stabilizer
Flaps
Flaps
Mid-Fuselage
Mid-Fuselage
Leading
Empennage LeadingEdge
EdgeSlats
Slats
Empennage Aft-Fuselage
Aft-Fuselage

Elevator
Elevator Doors
Doors

Forward-Fuselage
Forward-Fuselage
Windows
Windows

Ailerons
Ailerons

Interior
InteriorStructural
Structural Windshields
Windshields

Wing
Wing Landing
Engine
Engine LandingGears
Gears

8
Boeing B787 Outsourcing

Manufacture and Manufacture and

Section Section
Country Country

Fixed and Moveable Leading Rolls-Royce, United

Sprit, U.S. Engine
Edge Kingdom

Wing Mitsubishi, Japan Engine General Electric, U.S.

Wing Tips KAL- ASD. Korea Engine Housings Goodrich, U.S.

Movable Trailing Edge Boeing, Australia Aft Fuselage Vought, U.S.

Landing Gear Messier-Dowty, UK Center Fuselage Alenia, Italy

Passenger-Entry Doors Latecoere. France Vertical Stabilizer Boeing, U.S.

Horizontal Stabilizer Alenia, Italy

Cargo-Access Doors Saab, Sweden
Main Landing-Gear Wheel
Wing-Body Fairing, Landing Kawasaki, Japan
Boeing, Canada Well
Gear Door
Wing-Body Fairings,
Forward Fuselage Sprit, U.S Boeing Canada
Landing-Gear Door

Forward Fuselage Section II Kawasaki, Japan Center Wing Box Fuji, Japan

9
Airbus A380 Outsourcing

Section and Systems Manufacture Section and Systems Manufacture

Interior Furnishing/Air Fuselage Components Garnesa

Aircabin
Duct System Flap Track Beans GKN
Central Fuselage Modules Alenia Fin Leading and Trailing
Fuji Heavy Industries
Edges
Slats/Slat Track System Belairbus
Upper Deck Floor Carbon
Various Wing Component BAE Systems Jamco
Cross Beans
Wing Leading Edge Fan Cowl/Electrical
CTRM Labinal
Access Panels Architectural
Doors Eurocopter
Lower Forward Fuselage Latecoere
Various Airframe
EADS
Components Various Airframe
RUAG
Components
Various Airframe
EADS Socats
Components Fixed Leading Edges
Saab
(Wing)
Fuselage Sections EADS Sogerma
Center Lower Fuselage Sabca
Wing Spoilers Finaviteac
Moving Leading Edges
Sonaca
Fuselage/Wing Parts Fokker (Wing)

10
 U.S. MRO Outsourcing – HMV / Mod

Heavy Airframe Maintenance Repair Stations for Nine Major U.S. Carriers (Global), 2008

Canada
69

The United States

661
Asia
79
Mexico
69

Central America
81

South America, Africa, Europe, Middle East and Russia

0
Source: Frost & Sullivan

11
MRO – PMA Parts and Inventory

ƒ Parts Manufacturing Authority

(PMA)

IMM
ƒ OEM Vs Third Party

L
ƒ Economic Impact

PB
ƒ Growth Continuation

ƒ Power-by-the Hour
the Hour
ow er-by-
P
ƒ Performance Base Logistics (PBL)

ƒ Integrated Material Management

(IMM)
Source: Frost & Sullivan

12
Global Commercial Aircraft 2008

Russia / Eastern Europe

Europe 631
4438

North America
7234
Asia Pacific
3329

South America / Caribbean

1138 Africa / Middle East
1236
Oceania
840

Source: Frost & Sullivan

13
Global Commercial Aircraft

Aircraft Fleet – 2009 - 2013 Aircraft Fleet Mix - 2009

Regional 17%
2013 craft
8 0 Air
226

N ar r o
18

wbod
20 Air
84

08 cr
6

3%

y 60%
19300 Aircra

2
a

dy
ft

o
2009

b
ide W
ft

CAGR 3.77%

Source: Frost & Sullivan Source: Frost & Sullivan

14
Competitors

MRO Market: Market Leaders (Global), 2008

ƒ MRO Competitors
ƒ Total Support
ƒ Critical Outsourcing Components Air France / KLM
Requirements: ST Aerospace
ƒ Quality HAECO
ƒ Turn-around time (TAT) Lufthansa Technik
ƒ Technical capability TIMCO

ƒ Cost Ameco Beijing

SAI Engineering

TAECO

British Airways Engineering

AAR
Source: Frost & Sullivan

15
Competitive Assessment

ƒ Aircraft Engine MRO Heavy Airframe Maintenance Outsourcing (Global), 2003-2008

ƒ HMV / Mod MRO

1,500 1,212 1,208 1,274 1,308
1,126 1,163

Aircraft (000)
965
ƒ Component MRO 1,000 662
815 907

385 455
500
ƒ Line MRO
0
2003 2004 2005 2006 2007 2008
Year
Heavy Checks Outsourced
Note: All figures are rounded; the base year is 2008. Source: Frost & Sullivan

Engine MRO Revenue Share (Global), 2008 Widebody MRO Market Share (Global), 2008
GE Engine Services
3.1% 7.8%
4.6% Rolls-Royce
6.1% 6.7% Air France / KLM E & M
23.2% Lufthansa Technik ST Aerospace
6.1% Pratt & Whitney 5.9% HAECO
MTU Lufthansa Technik
5.8% TIMCO
7.7% Delta TechOps 50.0%
Ameco Beijing
Air France/KLM 5.9% SIA Engineering
13.8% Snecma TAECO
10.8% 4.1%
American Airlines British Airways Engineering
3.8%
SR Technics 3.6% AAR
3.1% 3.3% Others
12.3% 12.3%
Note: All figures are rounded ; the base year is 2008. Source: Frost & Sullivan Note: All figures are rounded; the base year is 2008. Source: Frost & Sullivan

16
Global Forecast

ƒ Forecasts of the global market, MRO Regional Market Share (Global), 2008

highlighting emerging regions and 2.0%

trends 25.0%
37.0%
North America
South America
ƒ Emerging Regions Europe
Asia Pacific
ƒ U.S. Market Share Decreasing Africa/Middle East

ƒ Widebody aircraft global 30.0% 6.0%

ƒ Narrowbody aircraft regional Note: All figures are rounded; the base year is 2008. Source: Frost & Sullivan

ƒ Continual expansion through joint MRO Market Share by Segment (Global), 2013
ventures, acquisition and consolidation
3%
ƒ MRO cost trends for next generation North America
33%
aircraft 30% South America

Europe

Asia Pacific
7% Africa / Middle
27%

Note: All figures are rounded; the base year is 2008. Source: Frost & Sullivan

17
Global Forecast

ƒ Global MRO Growth Flat in 2009 Global MRO Forecast , 2008 - 2013

ƒ Continued Global MRO Segment $53

$45 $46.4
9.5
Growth for Forecast Period 8 8.2
10.7
10.1

$ Billion
9.5
ƒ Industry is Expected to begin recovery 21.8
18.7 18.9
in 2010
8.5 9.2 11
2008 2009 2013

Component Engines HMV Line

Note: All figures are rounded; the base year is 2008. Source: Frost & Sullivan Note: All figures are rounded; the base year is 2008. Source: Frost & Sullivan

MRO Revenue Forecast (Global), 2008 - 2013 MRO Revenue Forecast (U.S.), 2008 - 2013
54 3 20 3

Revenue Growth (%)

Revenues ($ Billion)
Revenues ($ Billion)

52
Revenue Growth (%)

2.5 2
50 15
2
48 1
1.5 10
46 0
1
44 5
0.5 -1
42
40 0 0 -2
2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013
Year Year
Revenues
Revenues
Revenue Growth Rate Revenue Growth Rate
Note: All figures are rounded; the base year is 2008. Source: Frost & Sullivan Note: All figures are rounded; the base year is 2008. Source: Frost & Sullivan

18
Conclusion

ƒ Key Take-a-Ways

ƒ Expectations of further MRO retraction ƒ Continuing growth in global MRO

in 2009 outsourcing
ƒ Long-term global MRO growth positive,
current expectations are a CAGR of
3.4% 2010 to 2013
ƒ Aircraft engine MRO to remain the
largest outsourced segment increasing
from $18 billion in 2008 to $22 billion in
2013
ƒ Industry labor rates increasing

Source: Frost & Sullivan

19
Thank You