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EATS 2007 Maintenance Conference
Aviation Maintenance Market Outlook
Berlin
October 17, 2007
071017© 2007. All rights reserved.VZM Management Services bv
Z
“De weg er n aa r toe” www.vzm.net
071017-2© 2007. All rights reserved.VZM Management Services
Z
“De weg er n aa r toe” www.vzm.net
Commercial Maintenance Market Outlook
Industry-wide optimism is back ...
• The industry will show overall profit in 2007
• More profits expected in 2008
-10
-5
0
5
2004 2006 2008
source: IATA
Net profits development
North AmericaEuropeAsiaN
et p
rofi
ts (
$ bi
llio
n)
World Airline financial results
Res
ult
s ($
bil
lion
)
-20
-10
0
10
20
1991 1995 1999 2003 2007
source: ICAO/IATA/VZMOperating ResultNet Result
071017-3© 2007. All rights reserved.VZM Management Services
Z
“De weg er n aa r toe” www.vzm.net
Commercial Maintenance Market Outlook
… although new challenges and pressures …
An
nu
al g
row
th
0%
2%
4%
1998 2000 2002 2004 2006 2008
World annual growth
Airlines fuel burden
0%
10%
20%
30%
2000 2002 2004 2006 2008
source: IATA
% o
per
atin
g co
sts ?
Overall yield trend
75
100
2000 2002 2004 2006 2008
source: IATA/VZM
Yie
ld i
nd
ex
actualadjusted
• Slowdown after 2007/2008?
• Yields tapering off
• Increasing fuel burdens
• Cost pressures & further consolidation
071017-4© 2007. All rights reserved.VZM Management Services
Z
“De weg er n aa r toe” www.vzm.net
Commercial Maintenance Market Outlook
Jet orders
nu
mb
er o
f ai
rcra
ft
0
1,000
2,000
2000 2002 2004 2006
source: Speednews
RJ large
RJ small
WB
NB
Fleet deliveries vs profitability
Ind
ex f
leet
del
iver
ies
Net
res
ult
s (U
S$
b)
60
100
140
1989 1993 1997 2001 2005-15
-10
-5
0
5
10
20
Jet deliveriesNet results
… while order levels are high
• High aircraft orders
• Gradual shift larger aircraft
• Overcapacity threat
• Entry of new aircraft types
071017-5© 2007. All rights reserved.VZM Management Services
Z
“De weg er n aa r toe” www.vzm.net
Commercial Maintenance Market Outlook
Global warming an inconvenient truth … and opportunity
Worldwide CO2 emission
(year 2000)
0%
50%
100%
Air
Road
Int'l shippingNon-road land
source: EDGAR
Transportation emissions
0%
25%
50%
75%
100%
Transport
(19.2%)
Energy Generation
Industry
Residential, commercial
Land use
Fossil Fuel Retrieval
• Aviation small contribution
• Still affects airline industry
• Less fuel – less emission
• Opportunities & threat for MRO
071017-6© 2007. All rights reserved.VZM Management Services
Z
“De weg er n aa r toe” www.vzm.net
Commercial Maintenance Market Outlook
In a prosperous growing and profitable MRO market ...M
ark
et v
olu
me
ind
ex
100
120
2000 2002 2004 2006 2008 2010
MRO market size
Euro exchange rates
80
100
120
140
160
2000 2002 2004 2006 2008
Ind
ex e
xch
ange
rat
e USD
CNY
SGD
source: Speednews
Deliveries Mainliner Jets
Nu
mb
er a
/c
0
500
1,000
1995 2000 2005
WBNB
• Millennium fleet driver growth
• Engine maintenance fastest
• US Dollar mixed effect
• Most MROs profitable
071017-7© 2007. All rights reserved.VZM Management Services
Z
“De weg er n aa r toe” www.vzm.net
Commercial Maintenance Market Outlook
… each airline and MRO has its own strategy …
Typical airline outsource strategies
Very-small & start-ups
Large – MRO history
Small multiple types
Large – small fleet type
Small single type
Medium multiple types
Medium single type
Large - no MRO
Engineering LM BM Engines/Comp
outsourced
mix strategy
Bas
e M
aint
enan
ce
Engine Maint.
Component Maint.
Component
Management
Engine Management
Lin
e M
aint
.
-10%
0%
10%
20%
Mar
gin
Potential margin per segment
Engineering Services
Tot
al S
ervi
ce
Pac
kage
s
• Airline size & history drives outsource strategy
• MROs: focus & scale, driving M&As
071017-8© 2007. All rights reserved.VZM Management Services
Z
“De weg er n aa r toe” www.vzm.net
Commercial Maintenance Market Outlook
… taking into account arising shortages …
labor costs up
insufficient capacity
move to lower labor rate countries
Strategies for labor shortages
improve efficiencies
improved productivity
reduced capacity needs
optimal solution per maintenance task
optimum task scheduling based on utilization and maintenance history
dynamic packaging per maintenance
occasion
process improvement
Labor Shortages
Strategies
• Spares & capacity shortages
• Labor shortages visible
• How far east is solution for Europe?
071017-9© 2007. All rights reserved.VZM Management Services
Z
“De weg er n aa r toe” www.vzm.net
Commercial Maintenance Market Outlook
... and continues to work on improvements …
Price• Quoted price• No invoice surprises
Turn time• Quoted turn time• Reliability• Comprehensiveness• “Slot” availability
Quality• Trouble free operation• “Best in Class” MTBRs• Responsiveness
• Salary costs
• Productivity• Project/process control• Workscope• Material cost control
• Project/process control
• Productivity• Commitment personnel
• Craftsmanship• Engineering capabilities• Shop repair capabilities• Material logistics control• Facilities/equipment
• Project/process control• Commitment personnel
• Craftsmanship• Customer focus
Low
cos
t Good
Fast
Safe
071017-10© 2007. All rights reserved.VZM Management Services
Z
“De weg er n aa r toe” www.vzm.net
Commercial Maintenance Market Outlook
… creating opportunities for training services
• Growth markets
• New technologies
• Contribute MRO improvements
• Basic training
• Outsourcing training?
071017-11© 2007. All rights reserved.VZM Management Services
Z
“De weg er n aa r toe” www.vzm.net
Commercial Maintenance Market Outlook
071017-12© 2007. All rights reserved.VZM Management Services
Z
“De weg er n aa r toe” www.vzm.net
Commercial Maintenance Market Outlook
Who is VZM Management Services?
• Started in December 1996– US office since 2003
• VZM Management Team’s experience– Airline and MRO executive management– Organization redesign to meet business goals– Management of change and structure for profitable growth– Business development, JV/mergers/acquisitions and integration
• Worldwide customer base– Airlines– Maintenance Organizations– OEMs
VZM Management Services
Z
“De weg er n aa r toe”
P.O. Box 4102300 AK LeidenThe NetherlandsHomepage: www.vzm.net
Phone
+31-252-222 123Fax
+31-252-216 851E-mail
[email protected] Management Services
Z
“De weg er n aa r toe”
5840 Bent Pine DriveVero Beach, FL 32967USAHomepage: www.vzm.net
Phone
(772) 562 0592Fax
(772) 562 0592E-mail
Provides change leadership support to enhance business results