SOUTHEAST AEROSPACE & DEFENSE CONFERENCE OEM …€¦ · 26/06/2018 · 8. 0. 2 4 6 8 10 12 14 16...

© Oliver Wyman | NYC-CIX16001-001

SOUTHEAST AEROSPACE & DEFENSE CONFERENCE

OEM CONSOLIDATION PERSPECTIVES

Derek CostanzaPartner – Aviation, Aerospace & Defense

JUNE 26TH, 2018

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© Oliver Wyman

Future looks good1

3© Oliver Wyman | NYC-CIX16001-001

The future looks good…


Global performance remains strong for OEM customers

Global Commercial Air Transport Industry Net ProfitBy year/US$ BN

0

5

-20

-15

-10

10

15

20

$25

-5

2007 20092008 2010 2011 2012 2013 2014 2015 2016 2017E 2018F

North America Rest of World

Source: Source: IATA

North American operators especially deliver strong performance


Asia Air Transport Fleet ForecastBy Aircraft Class/number of Aircraft

The global fleet is estimated to grow at 3.7%; Asia at 6.4% and North America at 1.5%

7,314

10,452

13,576

9.2%

3.8%5.6%3.8%

6.4%

3.0%

4.9%

1.7%

7.8%

3.4%5.3%2.7%

7.4%

5.4%

6.4%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2018 18–'23CAGR

2023 23–'28CAGR

2028 18–'28CAGR

7,8308,430

9,047

3.0%

2.6%

-1.0%

-3.6%

2.7%

1.8%

-0.8%

-3.9%

2.8%

2.2%

-0.9%

-3.7%1.5%

1.4%1.5%

0

2,000

4,000

6,000

8,000

10,000

12,000

2018 ’18–’23CAGR

2023 ’23–’28CAGR

2028 ’18–’28CAGR

North America Commercial Fleet ForecastBy Aircraft Class/number of Aircraft

Global Commercial Fleet ForecastBy Aircraft Class/number of Aircraft

26,307

32,321

37,978

5.9%

4.1%

-0.3%

-0.6%

4.5%

2.8%

-0.6%

-1.2%

5.2%

3.4%

-0.5%

-0.9%4.2%

3.3%

3.7%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2018 18–'23CAGR

2023 23–'28CAGR

2028 18–'28CAGR

Wide-body

Narrow-body

Turbo Prop

Regional Jet

Source: Oliver Wyman Global Commercial Air Transport Fleet Forecast

Presenter

Presentation Notes


30% 20% 5%35% 15%25% 0%10%

E-Jet / E2

A320

777

CRJ

737

A330

DHC-8

ATR

Other

757

767

737s and A320s will continue to dominate the global fleet over the next decadeGlobal Commercial Air Transport Fleet ForecastBy Aircraft type

10% 35%5%0% 30%15% 20% 25%

777

Other

787

CRJ

A330

E-Jet / E2

A350

ATR

737

A320

DHC-8

1

2

3

4

5

6

7

8

9

10

2018 Top Platforms 2028 Top PlatformsSource: Oliver Wyman Global Commercial Air Transport Fleet Forecast

Top 10 = 83% of Global Fleet Top 10 = 89% of Global Fleet

A320 and 737 will comprise 61% of the global fleet by 2028


Global Commercial Air Transport MRO ForecastBy year/US$ BN

All global MRO segments are expected to grow from 2 to 5% YOY

North America Commercial Air Transport MRO ForecastBy MRO Segment/US$ BN

$77

$92

$115

2.4%

3.3%

4.8%

4.3%

1.9%

6.5%

4.2%

3.2%

2.1%

4.9%

4.5%

3.8%3.5%

4.5%

4.0%

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

$120

$130

2018 ’18–’23CAGR

2023 ’23–’28CAGR

2028 ’18–’28CAGR

$20 $19

$24

0.8%

-3.3%

1.2%

2.1%

-0.5%

9.2%

2.2%

1.9%

0.1%

2.7%

1.7%

2.0%-0.5%

4.2%1.8%

$0

$10

$20

$30

2018 ’18–’23CAGR

2023 ’23–’28CAGR

2028 ’18–’28CAGR


EngineAirframe & Mods Component LineEngineAirframe &

Mods Component Line


2 4 86 16 2018 301412 24 32100 282622

Other

767

787

320

747

777

A330

737

E-Jet / E2

ATR

A350

Top 10 = 84% of MRO

26 24 18 162030 22 142832 10 2612 48 0

787

747

737

A330

767

A320

757

Other

CRJ

E-Jet / E2

777

737s, A320s, 777, 787, A330 and A350 are estimated to drive the vast majority of MRO spending by 2028Global Commercial Air Transport MRO ForecastBy MRO segment (Billions of US Dollars)

Top 10 = 85% of MRO


2018 Top Platforms 2028 Top Platforms

1

2

3

4

5

6

7

8

9

10

A320 and 737 will comprise 52%% of

the global MRO spend by 2028


Again, the future looks great … if you have a seat

“Airlines in Asia are concerned that OEMs will monopolize engine aftermarket services, limiting their MRO choices and driving up costs” –Leithen Francis, MRO Network

“If the OEMs get more than their fair share [of profitability in the aviation complex], then someone else is giving up more than their fair share.”

–Aengus Kelly, CEO at Aercap

“The OEMs have taken over the aftermarket, and we do not support it. We’d rather maintain competition.”

–Heiko Holm, CTO at Wizz Air

“With the introduction of next-generation aircraft, there is a marked encroachment of OEMs in the aftermarket, providing more choice for the airlines and putting more pressure on MROs…With OEMs gaining ground in the MRO sector, MRO companies need to be vigilant.”

–Nick Rice, MRO Network

“Airlines and maintenance providers have grown increasingly wary of efforts by large OEMs to significantly expand their aviation services divisions and to capture huge swaths of the MRO industry.”

–Jon Hemmerdinger, FlightGlobal

“If airframe OEMs manage to gain control of a sizeable foothold in after-sales market as successfully as the engine OEMs have done, we will miss edges of competitiveness in the industry”

- Robert Gaag, Luthnasa Technik

“As OEMs increase presence in the aftermarket, airlines fear less competition and higher costs for MRO.”

–Victoria Moores, MRO Network

What’s going on and where might we be going?

2


So how did we get here?1990s

“Mature” OEMs pursueVertical Disintegration

• OEM shakeout ends with merger of Boeing + MD, founding of EADS

• New OEM focus on core competencies (e.g. R&D, integration) and outsourcing

• OEMs divest core IP and facilities to suppliers

• Problem: many small and under-capitalized suppliers

• GE, Honeywell, others finding profits in the aftermarket

2000s

• “Divvying up” of work to strong T1 suppliers create new gate keepers

• Concurrent trend for airlines to outsource / consolidate MRO

• M&A scale begins to increase, e.g. Safran Group, Smiths, and Goodrich

• Led to Super Tier 1s having control of majority of IP on next generation aircraft components

Rise of Super Tier 1s to support NextGen Aircraft

TODAY

• Status quo continues for 777x, Max, Neo; no major platforms /tech. on horizon

• Super Tier 1s continue to separate from pack

• OEM counter moves• Both OEMs and Super Tier

1s seek greater share of profits and control

Super Tier 1s get bigger; OEMs push back

• Aftermarket as an immediate battleground (where the $$$ is)

• IP ownership and ramp rate support drive production strategies and positioning


10%

16%

57%

37%

42%

38%

29%

56%

OW survey respondents indicated growth in in OEM aftermarket presence and industry consolidation as the top-2 disruptersTop disruptors that will warrant the greatest attention and challenge for respondents over the next five years% of participants who selected each response, 2018 and 2017 MRO surveys

3%

7%

14%

35%

36%

39%

47%

55%

60%

2018 survey 2017 survey

Growth in OEM aftermarket presence

Aftermarket industry consolidation

Game-changing advancements in technology

Labor shortage in the maintenance technician field

Labor/material cost management

Changes to fleet plans and strategies

Business impact from rising oil prices and interest rates

Lessors becoming more active in MRO

Other

• Growth in Airframers aftermarket • Digital enablement

• On condition & pay as your maintenance arrangements

These categories represent the largest +delta

since 2017

Respondent concern over fleet changes has dropped

by over 20 % pts since 2017


Top disruptors that will warrant the greatest attention and challenge for respondents over the next five years% of participants who selected each response, 2018 and 2017 MRO surveys

Top disruptors that will warrant the greatest attention and challenge for respondents over the next five years% of participants who selected each response, 2018 and 2017 MRO surveys

75%+ of survey respondents see OEMs as credible in their aftermarket ambitions and expecting them to gain market shareDo you think OEMs’ growth targets for their aftermarket business units are achievable within the next decade?Distribution of total responses

Compared to the market growth, OEMs’ share of the aftermarket over the next 3 years will… Distribution of total responses

12%

63%

25%

Yes

No, but they will come close

No, they will miss their goal by a

wide margin 5%

10%

7%

40%

38%Increase significantlymore rapidly

Increase slightly less rapidly

Increase significantlyless rapidly

Increase about the same

Increase slightlymore rapidly

75% 78%


Respondents expect OEMs to leverage the strength of their IP positions to increase their share of the aftermarket in the near term How will OEM grow their presence in the aftermarket?Weighted average of rankings (highest to lowest ranking, scale of 1–3)

Who is the (majority) owner of the IP your current aftermarket service offering depends on?Distribution of responses by segment

0.2

0.2

1.5

1.7

2.1

Other

New internal startups

M&A

Joint ventures with existing MROsand suppliers

Usage restrictions on existing IP and licensing

An OEM owns the IP

77%74%

33%76%

70%

My company owns the IP

23%22%

56%14%

24%

A non-OEM company owns

the IP

0%4%

11%10%

6%

OtherOperatorsOEMsMROsOverall


Where might we be going?1990s 2000s TODAY

• Problem: many small and under-capitalized suppliers

• GE, Honeywell, others finding profits in the aftermarket

“Mature” OEMs pursueVertical Disintegration

• OEM shakeout ends with merger of Boeing + MD, founding of EADS

• New OEM focus on core competencies (e.g. R&D, integration) an outsourcing

• OEMs divest core IP and facilities to suppliers

• “Divvying up” of work to strong T1 suppliers create new gate keepers

• Concurrent trend for airlines to outsource / consolidate MRO

• M&A scale begins to increase, e.g. Safran Group, Smiths, and Goodrich

• Led to Super Tier 1s having control of majority of IP of next generation aircraft components

Rise of Super Tier 1s to support NextGen Aircraft

• Status quo continues for 777x, Max, Neo; no major platforms / tech. on horizon

• Super Tier 1s continue to separate from pack

• OEM counter moves• Both OEMs and Super

Tier 1s seek greatershare of profits and control

Super Tier 1s get bigger; OEMs push back

• Aftermarket as an immediate battleground (where the $$$ is)

• IP ownership and ramp rate support drive production strategies and positioning

FUTURE

• Unclear, but here are topics that the aircraft manufactures and Super Tier 1 are talking about:

?????

• Suppliers should be thinking about each of these dimensions to improve their current opportunities and ensure a place on platforms

1. Aftermarket ambitions

2. Production rates3. Intellectual

Property4. Digital

Collaboration


Aftermarket Ambitions

With stable technology, lifecycle economics are driving aerospace strategies and investments• Super Tier 1’s adopting business models

from Engine OEMs to ring-fence aftermarket revenues & profits

• Aircraft manufacturers also want to participate as the “platform owner”

• Smaller suppliers and MROs increasingly turning to OEM friendly and contrarian strategies

• Who owns your customer relationships? How do you provide value to airlines?

• What are your points of control in the aftermarket? Do you own underlying IP?

• Is an OEM-contrarian strategy viable? How does it impact your position on future platforms?

• Would open partnering with major OEs be a significant hurdle or shift?

Context Considerations / Thought Starters


Production Rates

Airlines are at record levels of profitability, with Boeing, Airbus looking to raise single aisle production rates

• Rate increases will put significant pressure on suppliers to perform

• Ability to dive deep supply chains, evaluate readiness, make investments (time and dollars) is limited

• OEMs are making multiple moves to reduce risk from rate increases

• What are you telling the OEMs in terms of production rate readiness?

• Have you simulated rate increases on the factory floor and in your supply chains?

• Are you vulnerable to a dual-sourcing or vertical integration play?

• Do you have flexibility to scale down in the event of an economic jolt or “temporary” rate reductions?



Intellectual Property

Intellectual property (IP) has become more important in today’s “digital” world than ever before • OEMs are increasing their IP control,

monetizing IP access/use by 3rd parties

• IP comes in many forms

• More and more, IP is important beyond just producing and maintaining aircraft

• Is your IP vital / replicable / replaceable?

• How much IP does your company own/control? Where do you rely on 3rd parties?

• Could your IP and/or place on a platform be superseded / re-spec’ed / “upgraded”?

• What IP safeguards has your company put in place?

• How does additive manufacturing and other emerging technologies change your IP safeguards and strategies?



Digital Collaboration

Industry 4.0 (“Smart Factory”) is here; airlines, OEMs and other industry participants expect seamless, automated processes• Digital collaboration is now a requirement of

doing business

• Key levers for digital collaboration include:– Real-time data– Predictive (vs reactive) analytics– Dynamic planning and decision making– Transparency and common standards

• OEMs and 3rd parties developing competing platforms for digital collaboration

• Who will own the data related to your products?

• How innovative has your company been creating digital hooks for partners and customers?

• What extended value could you offer to the major OEs via increased digitalization?

• Does your company have a Digital Roadmap?

• How well is your company positioned against cyber attacks?



Oliver Wyman Discussion Panel

Chris [email protected]

Brian [email protected]

Derek [email protected]


’s

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SOUTHEAST AEROSPACE & DEFENSE CONFERENCE OEM …€¦ · 26/06/2018 · 8. 0. 2 4 6 8 10 12 14 16...

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