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1
TODAY’S AGENDA
2017 Reflections
Alton Fleet & MRO Forecast
Latin American Market Update
Alton Watch List - 2018
2
Agile. Global. Independent.
COMPANY INTRODUCTION
Alton Aviation Consultancy is a boutique aviation consulting firm
with deep domain expertise across the aviation value chain
Aircraft Leasing &
Financing AdvisoryAirlines
Aviation &
Aerospace Investors
Business &
General Aviation
Aerospace Manufacturers
& Supply ChainMRO & Aftermarket Airports Specialty Projects
3
2017 REFLECTIONS
Source: Alton Aviation Consultancy
Hurricanes Irma and Maria devastated Puerto Rico & many Caribbean
islands; approx. 40% of Puerto Rico remain without power
4
The circle of life…
2017 REFLECTIONS
Source: Alton Aviation Consultancy
“Farewell to the Queen” “The C Series Resurrection”
C Series Aircraft Limited Partnership (CSALP)
5Source: Alton Analyses
2017 REFLECTIONS
Major Asian and African
Carriers RestructureEuropean Airline Shakeout
Middle East Carriers
Throttle Back
“The year aviation blinked”
- J. Berger: http://www.mro-network.com/maintenance-repair-overhaul/aviation-industry-could-face-headwinds-2017
6
“Policy matters…”: The United States is one of only two of the global
destinations to see a decline in long-haul travel
2017 REFLECTIONS
Canada 21.2%
Thailand 13.9%
Italy 2.2% China 9.3%
Saudi Arabia 20.3%
United Arab Emirates 16.5%
Germany 8%
United Kingdom 17.5%
France 4%Turkey (-6.7%)
United States (-6%)
Australia 22%
Percent Change in Arrivals from 2015 to 2017
Source: US Travel Association, Bloomberg
Estimated economic impact:
▪ $4.6B in lost spending
▪ 40,000 lost jobs
“Policy matters…”: US in-bound market share fell in 9 out the top 10
international source markets
2017 REFLECTIONS
China (2%)
United Kingdom (14%)
Japan (5%)
South Korea 0%
Brazil (25%)Australia (14%)
India (14%)
France (21%)
Italy (11%)
Source: US Travel Association
Germany (15%)
Percent Decrease in US International In-Bound Market Share from 2015 to 2017
7
8
“A new golden age of aircraft cabin interiors”
- J. Berger: https://www.linkedin.com/pulse/new-golden-age-aircraft-cabin-interiors-jonathan-berger/
2017 REFLECTIONS
Source: Alton Analyses
Airbus Interiors
Services (AIS)
Three business lines:
1. Tailored equipment
(SFE and BFE)
2. Upgrade solutions
(cabin & connectivity)
3. Innovative solutions
Airbus launches new
subsidiary
Joint venture with car
seat manufacturer
Adient
Focus on reducing
production delivery
delays and aftermarket
growth
Boeing forms aircraft seat
joint venture
$6.4bn transaction (and
subsequent $30B UTC
acquisition)
Integration of seats, IFE,
and onboard
connectivity
Expand cabin IoT
capabilities
Rockwell Collins acquires
B/E Aerospace
$9bn transaction
Create the world’s No.3
aerospace supplier
Improve Zodiac’s
production efficiency
and customer
satisfaction
Safran acquires Zodiac
10Source: CAPA, Alton analysis
Today’s commercial air transport fleet consists of approximately 28,000
aircraft, with Asia Pacific now equal in size to North America
COMMERCIAL AIR TRANSPORT FLEET FORECAST
Narrowbody Jet
Regional Jet
Turboprop
Widebody Jet
51%
24%
9%
16%
8,400
61%
11%
10%
18%
6,600
63%
5%
10%
22%
8,400
59%
17%
14%
10%
2,10041%
17%
28%
14%
1,300
39%
7%
3%
51% 2,100
Growing to 44,000 aircraft by 2028
3.8% CAGR
2028
2018
Historically, fleet growth has been directly correlated to GDP…
COMMERCIAL AIR TRANSPORT FLEET FORECAST
11Source: CAPA, USDA ERS, Alton analysis
Fleet and GDP Growth by Region (1997 – 2017)
10%
7% 7%
6%
5%
3%
3.8%
4.4%4.2%
2.5%
1.8%
2.2%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
0%
2%
4%
6%
8%
10%
12%
14%
Middle East Asia-Pacific Africa Latin America Europe North America
% Fleet growthGDP
Avg. GDP
Growth/yr
Avg. Fleet
Growth/yr
…perhaps a better determinant of future fleet growth is the so-called
“Disneyland factor”; the growth rate of a country’s middle class
COMMERCIAL AIR TRANSPORT FLEET FORECAST
12Source: Airbus Global Market Forecast 2017-2036, Alton analysis
103%
6%
51%
2%
149%
41%
75%
0%
20%
40%
60%
80%
100%
120%
140%
160%
-
500
1,000
1,500
2,000
2,500
3,000
20
Ye
ar
Gro
wth
Rate
Ho
us
eh
old
s (
mil
lio
ns
)
2016203620 yr % growth
Middle Class Growth by Region (2016 – 2036)
13Source: Alton Analysis, all figures constant dollars ($2018 USD)
Today’s commercial air transport MRO market demand is approx. $69B,
growing to $103B by 2028 – an annualized growth rate of 4.1%
COMMERCIAL AIR TRANSPORT MRO FORECAST
$0 $20 $40 $60 $80 $100 $120
World Total
Asia Pacific
North America
Europe
Middle East
Latin America
Africa
$103B
10yr CAGR
5.0%
5.0%
6.5%
2.2%
1.6%
5.7%
$0 $20 $40 $60 $80 $100 $120
World Total
Engine
Components
Line
Airframe Heavy
Modifications
10yr CAGR
$103B
6.1%
2.9%
3.9%
3.1%
4.4%
$0 $20 $40 $60 $80 $100 $120
World Total
Asia Pacific
North America
Europe
Middle East
Latin America
Africa
$69B
$3.8B
$7.4B
$16.4B
$16.9B
$22.6B
$2.4B
$0 $20 $40 $60 $80 $100 $120
World Total
Engine
Components
Line
Airframe Heavy
Modifications
$69B
$6B
$8B
$13B
$14B
$29B
15
0%
2%
In 2017, Latin American GDP growth was ~1.0%; 2018 is showing strong
signs of growth, more the doubling to ~2.25%
LATIN AMERICAN MARKET UPDATE
BRAZIL
UNITED
STATES
ARGENTINA
MEXICO
0%
2%
4%
-4%
-2%
0%
2%
-3%
0%
3%
0%
2%
4%
0%
1%
2%
3%
0%
2%
4%
6%
0%
2%
4%
6%
Source: USDA Economic Research Service
PERU
COLOMBIA
0%
4%
8%
BOLIVIA
16
If you build it, they will come…
LATIN AMERICAN MARKET UPDATE
BRAZIL
BOLIVIA COLOMBIA
COSTA RICA
PUERTO RICO
MEXICO
UNITED
STATES
EL SALVADOR
2018
6th hangar being
added, 32 NB
capacity
2015
20,000 sqm
5 NB capacity
2016
44,000 sqm
5 NB or 2 WB
capacity
2017
Construction of
first hangar
2016
100,000 sqm
12 NB capacity
2018
Construction of
new hangar -
4NB and 2WB
PERU
Source: Alton analysis
2017
2 WB Line Mtc.
hangar
2016
7WB or 19NB
capacity
ARGENTINA
18Source: CAPA, IATA, Alton Analysis
A rising tide lifts all cargo aircraft…
ALTON WATCH LIST - 2018
19
A rising tide lifts all cargo aircraft (con’t)
ALTON WATCH LIST - 2018
Source: Source: Boeing, US Dept. of Commerce, FTI Consulting, Internet Retailer, China Daily, GB Times, China Xinhua, Alton Analyses
▪ “Amazon Air”, recently renamed from
Amazon “Prime Air” to better distinguish
the airline from its new drone-based
delivery service
▪ The virtual cargo carrier’s current fleet
consists of 32 Boeing 767s; in talks for
additional P2F conversions and new
freighters
▪ Amazon Air’s new $1.5B hub in Cincinnati
International Airport (CVG) is projected to
have capacity to handle approx. 100
freighters
▪ In Europe, Amazon utilizes a single Boeing
737-400(F) operated by ASL Airlines France
in the UK, France, Spain, and Italy
Alton Insight
20Source: Nasdaq, Bloomberg BusinessWeek, Alton Analysis
0
20
40
60
80
100
120
140
160
180
200
Ind
ex
ed
Sto
ck
Va
lue
Boeing Stock Value
S&P 500
AAR Stock Value
GE Stock Value
+89%
+20%+19%
- 43%
Stock Value ComparisonJanuary 2017 thru January 2018
Notable aviation industry stocks to watch in 2018
ALTON WATCH LIST - 2018
“Famous for great
management, General
Electric is staring down a
plunging share price, a
federal investigation, and
possible breakup”
Bloomberg BusinessWeek
February 1, 2018
21
Competition for the aftermarket is reshaping the Tier 1 OEM landscape
ALTON WATCH LIST - 2018
Source: Canaccord Genuity, Alton Analysis
Stated Goal: $50B in aftermarket revenue within 10 years
Vertical integration strategy:
Created new in-house avionics unit
Established seat JV with Adient
Awards 777X landing gear contract to Heroux-Devtek that
includes parts distribution rights (Aviall)
Acquired Jeppesen and AerData
22Alton analysis
More than other MRO segments, the role of the Line Maintenance
technician has undergone significant changes in recent years
ALTON WATCH LIST - 2018
Hat #1
Priority: On-Time
Performance & Dispatch
Reliability
▪ Troubleshooting live aircraft
at the gate
▪ Deferred defect rectification &
MEL approval coordination
▪ Airworthiness release
Hat #2
Priority: Scheduled
Maintenance
▪ Overnight maintenance checks
▪ A-checks
▪ Scheduled component
removals, engine washes and
changes, etc.
Hat #3
Priority: Cabin Condition &
Appearance
▪ In-flight entertainment (IFE) &
connectivity
▪ Premium seat defect
rectification
▪ Galleys & lavatories
Line technicians wear several hats and must manage numerous, often competing, priorities…
23Alton analysis, typical new generation narrowbody aircraft
To phase or not to phase, that is the question!
ALTON WATCH LIST - 2018
A1-A8 Checks, tasks scheduled ~
every 10 days
Planned aircraft out-of-service time =
6-8 hours (one shift)
Cabin items and scheduled
component removals (time permitting)
Deferred C-Check items (if tooling &
material availability)
Single A-Check, scheduled ~ 90 days
Planned aircraft out-of-service time = 14-
18 hours (1.5 - 2 shifts)
Planned deferred C-Check items, cabin
items, & scheduled component removals
Dispatch a “clean” aircraft: Pre-planned
availability of parts, paperwork, tooling,
manpower, skill, etc.
vs.
Higher Operational Risk Lower Operational Risk
Phased A-Check Program“Optimize ground time; take advantage
of layovers and overnights”
Block A-Check Program“Provide operational buffer; plan it,
find it, fix it”
18Source: The Economist, September 2017
An army of tiny robots are on the march; with plans to disrupt
engine MRO inspection and repair processes
ALTON WATCH LIST - 2018
Alton Insight
▪ OEMs are developing very small
robots which venture inside an
engine to perform inspections and
carry out any necessary repairs
▪ The robots are small enough to
navigate their way around various
fan and turbine blades, taking
videos of everything they see, and
will wirelessly send to technicians
▪ Once the video has been analyzed,
the robots will be able to carry out
certain repairs
▪ All at the gate - between flights!
ALTONAVIATION.COM
NEW YORK | HONG KONG | BEIJING | TOKYO
Jonathan M. Berger
+1 212 301 0573
In China, Alton Aviation Consultancy is known as 德世国际航空咨询(北京)有限公司, or De Shi.
Alton supports a global client base from offices in the U.S., China,
Hong Kong, and Tokyo, with additional associates worldwide
COMPANY INTRODUCTION
380 Lexington Avenue
17TH Floor
New York, New York 10168
USA
+1 212 256 [email protected]
New York
8 Guanghua Dongli
China Overseas Plaza
South Tower, Floor 11,
Suite A053
Chaoyang, Beijing 100020
China
+86 10 8598 [email protected]
Beijing
136 Des Voeux Road Central
Suite 903
Central
Hong Kong
+852 8191 [email protected]
Hong Kong
Konan
Minato-Ku
Tokyo, Japan
+81 90 8057 [email protected]
Tokyo
26