ENGINE AFTERMARKET OUTLOOK · Oliver Wyman rigorously applies internal confidentiality practices to...
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ENGINE AFTERMARKET OUTLOOKMRO Asia Pacific 2020
David Stewart
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CONTENTS
Covid-19 in context
Fleet and MRO spend impact
Engine aftermarket
COVID-19 IN CONTEXT
01
THE IMPLICATIONS OF COVID-19 WILL BE PROFOUND AND PERSISTENT FOR OUR SOCIETY, OUR ECONOMY AND OUR INDUSTRY
We are in unchartered territory. Health concerns are resonating through the real economy. Public health and government actions matter more than ever
A widespread vaccine will not be available before mid-2021; timing and implications of other treatments are not yet clear
Containment efforts willbe successful…but… this means that the numbers of persons infected are well below those required for ‘herd immunity’
Areas which have contained the virus will need to impose ongoing measuresto mitigate this risk of future outbreaks
We are expecting at least 12–18 months of iterative and partially controlled cycles of outbreak and containment
The implications of this ‘new normal’ will be profound and persistent for certain sectors and notably aviation, aerospace and MRO
Recovery scenarios (illustrative)
Forecast
2000 2004 20082002 2010 20142006 20242012 2016 2018 2020 2022-6%
0%
-4%
-2%
2%
4%
6%
THE DEPTH AND SCALE OF COVID-19’S IMPACT ON THE GLOBAL ECONOMY WILL BE THE WORST SINCE THE GREAT DEPRESSION
0-1 1
100%
1132 64 5 7 8 109 12
25%
50%
75%
125%
150%
Months after event
9/11/01 (US only) SARS (US-HKG only) Covid-19 (Global)12008 Financial Crisis (US only)
Forecast in 2019 Latest forecast
• COVID-19 impact is the most profound global shock in modern civil aviation
• At a global level, the impact on ASMs will be worse than the hardest-hit regions for 9/11, SARS, and GFC, respectively
– 9/11 in the US
– SARS in HK
– GFC in the US
1. Month 0 for Covid-19 assumed to be Jan ’20, Wuhan shutdown; 2. Per IMF. Source: Economist intelligence Unit, Goldman Sachs, IATA Economics, Oxford Economics, Oliver Wyman PlaneStats, OW analysis
Global GDP growth ratesReal GDP growth per annum
Global Economy
• World GDP currently projected to shrink by 4.9 percent in 20202 – the worst downturn since the Great Depression
• Global rebound in 2021 to 5.4 percent growth assumes pandemic fades in second half of 2020
Aviation SectorImpact on aviation, year-over-year capacity change¹ASM, indexed to capacity in same month of prior year
9/11 2008 Financial Crisis
2020 AIRCRAFT DELIVERIES MAY DROP ALMOST 50 PERCENT, BY FAR THE LARGEST SINGLE-YEAR DECLINE IN RECENT HISTORY
Impact of recent crises on near-term commercial aircraft deliveries¹
262322 303 314
252 266295
326270
324
Q1 08Q3 07 Q1 09Q3 08 Q3 09
-5%
279 292 267313
267 261204
266211
Q1 02Q1 01 Q3 01 Q3 02 Q1 03
-4%
2001 (9/11) Terrorist Attacks 2002 SARS Epidemic • Throughout past crises, aircraft manufacturers have been able to adjust to declines in demand through gradual declines in deliveries while maintaining aircraft production
• Due to larger global scale, declines were greatest after 9/11 and GFC, with a 4–5% YoY decline in deliveries industry-wide
2008 Global Financial Crisis 2020 Covid-19 Pandemic• In response to the COVID-19 crisis, Boeing
and Airbus both suspended production in its facilities (e.g. Airbus reducing production by ~30%)
• Combined with a likely record drop in near-term aircraft demand and increasing delivery deferrals, we forecast a 46% YoY decline in deliveries in 2020
Airline industry recovery period2
224185
248219
256214 227 230
254
Q2 05Q2 03 Q4 04Q4 03 Q2 04
+3%
1,374
746
2020F2019
-46%
1. Boeing, Airbus only. 2. Based on YoY capacity change. Source: Chicago Tribune, Aviation Market Intelligence, Oliver Wyman analysis
FLEET AND MROSPEND IMPACT
2
World total
ASM -61%
Departures -47%
Seats -49%
North America
-61%-61%
Europe
-54%
Asia
-68%
Africa/Middle East
-85%Oceania
-75%Latin America
CURRENT GLOBAL CAPACITY IS DOWN 61% FROM 2019
Current snapshot: Airline capacity and by regionYOY change in August ASMs
Source: OAG schedules as of August 2020
FOUR PRIMARY FACTORS DRIVING DEMAND RECOVERY PROFILES
Epidemiological timeline Traveler sentiment Government restrictions Macro-economic impact
OW Epidemiological modeling (SIR models) predicting the number of cases by country and when the peak is expected to happen and downward curve
First trips are likely domestic/ regional for vacation or VFR
Dependence on government guidelines
Policy variations and uncertainties
International travel likely to return in phases – “corridors”
The level of recessionary impact/ damage affects return to travel
Recovery profilesAcceleratedSingle-wave outbreak with steady recovery & GDP bounce-back
NominalMulti-wave outbreaks, continual, gradual recovery
ProlongedLarge multi-wave outbreaks depress recovery and GDP
60
0
20
40
100
80
120
2019
DUE TO THE DEMAND CRUNCH, THE GLOBAL COMMERCIAL FLEET WILL STAGNATE THROUGH 2022
Forecasted in-service fleet size¹Number of in-service aircraft (K), 2018–2022F
• In-service fleet reduced by 20% in 2020–2021 from extensive fleet groundings
• Overall commercial fleet sees zero growth through 2022 as airlines recover
1.7%
-4.4%
-4.7%
-0.7%
CAGR2019–2022
2020
15.1 15.9 16.1
6.6
11.513.9
16.7
5.3 5.5 5.7
3.0
3.9
4.2
4.8
5.96.1 6.0
3.1
4.1
4.8
5.4
2018
19.5
2019 January 2022FApril July
26.3
2021F
27.5 27.8
12.7
22.9
26.9
Regional Jet/Turboprop Narrow-bodyWide-body
1. As of beginning of yearSource: Oliver Wyman Global Fleet and MRO Market Forecast, 2020–2030, Revised; Oliver Wyman analysis
Decline of 12% of 2030 fleet size (i.e. -4.7 K A/C) compared to initial forecast pre-Covid
2018–2030F Global in-service fleet size – incl. cargo and passenger fleet# thousands of aircraft, as of Jan 31 each year
2024
32.3
5.9
15.1
5.7
2018
5.95.5
37.9
6.1
2019
16.1
4.8
6.0
4.9
2022January
10.6
3.7
4.1
4.0
5.4
June
13.9
23.7
4.2
19.9
31.2
2021
16.7
5.4
2027
30.4
17.4
5.2
20282023
18.2
2029
4.9
6.1
4.2
6.0
19.0
4.7
33.4
6.3
2025
39.0
4.6
34.6
2026
6.6
20.9
6.2
4.4
32.4
22.8
6.4
21.9
35.7
15.9
4.1
5.3
36.8
26.3 27.5
2030
18.4
22.9
26.9 27.9 29.0 29.7 30.6 31.533.4 34.3
27.8
-18%
+1.2%
+3.0%
Total - Pre-Covid Forecast1NB TotalWB RJ/TP
CAGR’20–’23
-4.7%
-1.8%
CAGR’23–’30
-3.3%
+2.9%
+2.6% +4.5%
IN-SERVICE FLEET FORECASTFacing an 18% drop in 2021, the Global in-service Fleet will not recover before 2023 and By 2030, there will be ~4.7 K fewer aircraft than expected prior to COVID
1. Forecast as of July 2020 Source: Oliver Wyman analysis
Covid-19 pandemic crisis
2020
-20%
UNPRECEDENTED MISMATCH OF PRODUCTION AND DELIVERIES WILL CHALLENGE AEROSPACE SUPPLY CHAINSCommercial aircraft productionNumber of aircraft, 2018–2022F
Commercial aircraft deliveriesNumber of aircraft, 2018–2022F
+11%
-13%
-9%
2%
CAGR2019–2022
-4%
-13%
-9%
-6%
CAGR2019–2022
1,207
785 750 766
1,060
359
190252
256
223
389
165
152
200
1,789
2018
1,468
406
2022F2019 2020F 2021F
1,034
1,780
1,183
94
Narrow-body Wide-bodyMax, 2019 Vintage Regional Jet
1,207
785
344
766
1,060
359
389
256
223
200
190
252
152
94
165
2018
118
2019 2022F2020F
288
1,789
2021F
1,374
746
1,471 1,468
• Dramatic decrease in 2020 aircraft production (-42%) and deliveries (-46%)
• 3-year production levels (2020–2022) will not return to the scale of 2019, particularly in widebody
• ~18% of future deliveries will be 737MAX A/C produced in prior years
Source: Oliver Wyman Global Fleet and MRO Market Forecast, 2020–2030, Revised; Oliver Wyman analysis
EARLY RETIREMENTS IN AGED FLEETS WILL EXACERBATE THE DROP IN FORECASTED AFTERMARKET SPENDING
Early vs. Scheduled Retirements, 2020By class
Early Retirements, 2020By platform
533287
1,459
609
420291
139
RJTotal TPNB
74
WB
896
1,992
494370
232
79 93
X2.7
184
136
123115
109 108 103
90
Additional Early Retirements Scheduled Retirements
Aircraft platform
A320 737 NG 777 CRJ 767 ERJ 757 737 CL
Average age
21.8 18.1 19.7 16.7 22.7 17.1 22.8 24.3
NB WB Other
Source: Oliver Wyman analysis
WITH A REDUCED GLOBAL FLEET IN 2020, EXPECTED MRO SPEND DROPS BY 45%
Number of aircraft (K) in storage, 2020 base caseBy month
2020 MRO spend forecast Pre- and post-COVID-19
2020 2021
0
5
10
15
JulJanJan Apr Jul Oct Apr
Turboprop Regional Jet NarrowbodyWidebody
$43.5
$23.2
$17.9
$7.9
$16.3
$10.1
$13.5
$9.1
Pre-COVID Post-COVID
$91.2
$50.3
LineEngine Airframe Component
2020 MRO SPEND BY SEGMENT FORECASTS REDUCTIONS ACROSS ALL SEGMENTS AND AIRCRAFT CLASSES
2020 MRO Spend by Segment, $BNInitial Forecast vs. COVID Forecast
2020 MRO Spend by Class, $BNInitial Forecast vs. COVID Forecast
Component
$10
Engine Aiframe Line
$14
$8
$44
$23
$18$17
$9
-47%
-56%-39%
-33%
Initial Forecast COVID Forecast
TPWB NB RJ
$38
$20
$44
$25
$6$3 $3
$2
-46%
-44%
-46%-42%
Source: Oliver Wyman analysis
2018–2030F MRO SpendUS$ BN, by year
$0 BN
$75 BN
$25 BN
$50 BN
$150 BN
$125 BN
$100 BN
54.5
31.6
17.6
2027
17.9
19.2
53.1
14.0
14.1
12.1
2018
15.314.8
37.3
10.1
18.1
2019
23.2
7.9
9.1
47.3
2020
16.6
13.8
11.320.1
2021
56.345.1
14.4
20.1
18.6
13.3
2023
16.9 18.2
12.8
20252022
111.9
46.6 49.845.6
19.119.4
18.9
19.413.6
19.6
2028
18.7
19.2
18.9
2026
19.8
15.7
14.6
55.4
20.9
20.2
16.2
2030
35.1
2024
12.879.3
2029
50.3
73.2
93.5 96.6 96.4 99.6 102.3107.2 108.6
112.7
82.9
-39%
AirframePre-COVID Forecast Total ComponentEngine Line
MRO FORECASTFacing a ~45% drop in 2020, MRO spend will not recover until 2022 and over the next ten years $184 BN in MRO spend will be erased by COVID-19
1. Forecast as of July 2020Source: Oliver Wyman analysis
IN 2020, EVERY REGION WILL EXPERIENCE A SIGNIFICANT DECREASE IN MRO DEMAND
2020 demand: Pre-COVID-19 vs. post-COVID-19US$ BN
India: -47%
Rest of World: -46%
China: -26%
Western Europe: -53%
North America: -43%
Asia Pacific: -48%
20.3
9.7
Initial Forecast COVID Forecast
22.8
12.9
22.3
12.1
8.76.4
15.9
8.21.7
0.9
ENGINE AFTERMARKET
3
THE GLOBAL ENGINE FLEET IS FORECAST TO GROW AT JUST 1.1% OVER THE NEXT FIVE YEARS BEFORE ACCELERATING TO 2.8% ANNUALLY FROM 2025 TO 2030
2019–2030 Global Engine In-Service FleetBy Class
• The in-service engine fleet will be reduced by nearly 11,000 in 2021 …
• …with more than 7,500 engines on aircraft in storage
• Through 2019–2030, the engine fleet will grow by more than 12,000, an average annual rate of 1.9%
0
10,000
50,000
20,000
30,000
40,000
60,000
70,000
20212019 20302020 2025
Storage WB NBTP RJ
3.7%
-4.3%-2.9%1.9%
CAGR2019–2030
1.0%
Actual
Note: Annual fleet counts are as of the beginning of each year
2019–2030 Global Engine MROBy Class
• After the MRO market stabilizes post-crisis, engine MRO is forecast to grow 3.2% annually from 2025–2030
• In the same period, narrow body engine MRO will quicken to 5.6% annual growth while wide body MRO will grow at just 1.5% annually
• By 2030 engine MRO is forecast to reach $55 BN, a 48% increase from 2019
$25
$10
$30
$35
$0
$5
$20
$15
$40
$45
$50
$55
$60
2019 2020 2021 2025 2030
TP WBRJ NB
GLOBAL ENGINE MRO IS FORECAST TO DROP FROM $37 BN IN 2019 TO JUST $23 BN IN 2020, A DECREASE OF 38%The market is not expected to surpass 2019 MRO levels until 2022
Note: Annual fleet counts are as of the beginning of each year
Actual
5.6%
0.6%-1.2%3.6%
CAGR2019–2030
2.3%
ENGINES FOR NARROWBODY AIRCRAFT WILL ACCOUNT FOR 73% OF GLOBAL DELIVERIES OVER THE NEXT DECADE
2020–2029 Annual Engine DeliveriesBy Class
2020–2029 Annual Engine DeliveriesBy Manufacturer
0
500
1,000
3,500
3,000
1,500
2,500
2,000
4,000
4,500
20242020 2021 2022 2023 2025 2026 2027 2028 2029
4,500
1,000
3,500
0
2,000
500
3,000
1,500
2,500
4,000
20282020 2021 2022 2023 2024 2025 2026 2027 2029
TP RJ NBWB
CFM International engines will comprise 53% of global engine deliveries over the next decade
Safran
Rolls-Royce
General Electric CFM International
Pratt & Whitney
GLOBAL SHOP VISITS ARE NOW EXPECTED TO NUMBER JUST OVER 5,000 FOR 2020, A 45% DECLINE FROM ORIGINAL EXPECTATIONS
2019–2030 Global Shop Visit ForecastBy Class
2020–2030 Global Shop Visit ForecastTotal Shop Visits
4,000
0
2,000
6,000
10,000
8,000
12,000
20202019 2021 2025 2030
TP RJ WB NB
13%
87%
Shop visit volumes will grow at 6.4% CAGR from 2019 through 2030; over this period, the COVID crisis will result in 16,000 fewer forecasted shop visits
Shop Visits COVID Loss
6.4%
-2.1%-2.2%2.9%
CAGR2019–2030
-0.5%
2020–2030Shop Visits:
109,300
AVAILABILITY AND USE OF GREEN TIME ENGINES TO REPLACE OR DEFER WORK WILL REDUCE THE NUMBER OF SHOP VISITS BY A FURTHER 5% THROUGH 2024
Shop Visits Displaced by Greentime EnginesNumber of Shop Visits, 2020–2024
MRO Spend Displaced by Greentime EnginesMRO Engine Spend, 2020–2024
Greentime engines usage will decrease engine spend by a total of $1.5 BN over the next two years
0
20,000
10,000
30,000
40,000
50,000
60,000
Original SV Forecast
(2020–2024)
Reduction due to COVID-19
Post-COVID SV Forecast
(2020–2024)
Available engines to
displace SVs
Post-COVID SV Forecast
(2020–2024)
82%
17%
1%
COVID LossMRO Greentime EffectSVs displaced by retired motors Full SHVs
THE ASIA FLEET IS FORECAST TO GROW AT AN ANNUAL RATE OF 4.3% THROUGH 2030 WITH A SIGNIFICANT AMOUNT CONCENTRATED IN NARROWBODIES
2019–2030 APAC, India and China Engine In-Service FleetBy Class
• The mature regions of North America and Western Europe will experience flat or negative growth over the next ten years while China and India are forecast to growth at annual rates of 5.9% and 11.2%, respectively
• There remain in storage more than 2,200 installed engines on aircraft in 2021
• The combined Asia region is forecast to grow by nearly 10,000 aircraft from 2020 to 2030
0
10,000
20,000
5,000
15,000
25,000
30,000
20252019 2020 2021 2030
Storage NBWBTP RJ
5.6%
-1.7%
0.4%
4.3%
CAGR2019–2030
2.7%
Note: Annual fleet counts are as of the beginning of each year
Actual
ENGINE MRO IN ASIA IS FORECAST TO GROW AT AN ANNUAL RATE OF 6.2% THROUGH 2030 COMPARED TO 2.4% GROWTH FOR THE REST OF THE WORLD
2019–2030 Global Engine MROBy Region
• Engine MRO is expected to return to pre-COVID levels by end 2022. Over the second half of the forecast period, Asia engine MRO is forecast to grow at an annual rate of 4.2%
• Asia Pacific, China and India combined are forecast to comprise 39% of global engine MRO by 2030, up from less than 30% in 2019
• Engine MRO in Asia is expected to nearly double by 2030, growing from $11 BN in 2019 to more than $21 BN in 2030
$30
$50
$0
$5
$35
$10
$25
$15
$20
$40
$45
$55
$60
2019 2020 2021 2025 2030
2.4%
11.0%
7.5%
3.6%
CAGR2019–2030
3.0%
Rest of WorldAsia PacificIndia China
Actual
Note: Annual fleet counts are as of the beginning of each year
THE TOP 10 ENGINE PLATFORMS COMPRISE 88% OF ALL ENGINES IN 2020 – IN 2030 THIS SHARE WILL BE JUST 67% DUE ALMOST TO LEAP ENGINE GROWTH
Largest Engine Fleets by Platform2020–2030
Largest Engine Fleets by Platform2030, Fleet vs. MRO Percentage
10,0000 15,0005,000 20,000 25,000
GE90
CFM56
LEAP
PW1000G
GEnx
PW4000
CF6
Trent
PW100
CF34
V2500
2020 2030
0%
10%
20%
5%
30%
15%
25%
GEn
x
CFM
56
CF6
LEA
P
PW
10
00
G
Tren
t
V2
50
0
PW
10
0
CF3
4
GE9
0
PW
40
00
Fleet MRO
In 2030, LEAP engines will account for 28% of the global engine fleet but just 16% of MRO. In contrast, Trent engines will comprise 21% of MRO with just 8% of the engine fleet
ENGINES POWERING THE 737 AND A320 WILL COMPRISE 57% OF ALL SHOP VISITS IN ASIA OVER THE NEXT TEN YEARS
2020–2030 Asia Shop Visit ForecastBy Engine Platform
2020–2030 Asia Shop Visit ForecastBy Engine Platform
Shop visits for the LEAP are forecast to number fewer than half the CFM56 in 2025 before accelerating to 50% more than the platform by 2030
1,400400 1,2000 200 600 800 1,000
CFM56
LEAP
PW1000G
GE90
Trent
PW100
V2500
Other
2020 2025 2030
16%23%
5%
14%
10%
13%
8%
12%
Other
PW100
PW1000G
GE90 CFM56
V2500
Trent
LEAP
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