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U.S. Military MRO OutlookU.S. Military MRO OutlookSmoke On The Horizon?Smoke On The Horizon?
Presented byPresented by
Hal Chrisman, PrincipalHal Chrisman, PrincipalAeroStrategy LLCAeroStrategy LLC
Military MRO ConferencePhoenix, AZ21 April 2010
Ann Arbor, Michigan • Amersham, U.K. • Singaporewww.AeroStrategy.com
Military MRO April 2010
Agenda
Military MRO in Perspective
Military MRO – U.S. Details – Winners & Losers
Military Aircraft Sustainment – A Broader View
Key Sustainment Trends & Implications For Industry
Military MRO April 2010
There Are Four Main, And Different, “User” Or Aircraft Market Segments
3
AIR TRANSPORT• Airlines and freight carriers
• Turboprop and jet aircraft
• Fleet of about 25,000
• 60 million flying hours a year or ~ 2,400 per aircraft
MILITARY• Attack, transport, trainers
• Fixed- and rotary wing
• Fleet of about 39,000
• 11 million flying hours a year or ~ 300 per aircraft
BUSINESS AVIATION• Corporate, charter,
fractional
• Jet and turboprop aircraft
• Fleet of about 30,000
• 10 million flying hours a year or ~340 per aircraft
CIVIL HELICOPTER• Corporate, government,
resource development
• Fleet of about 17,000
• 5 million flying hours a year or ~ 300 per aircraft
Putting Military MRO In
Perspective
Military MRO April 2010
Maintenance Suppliers Today Support Over 110,000 Active Aircraft That Generate $120B In MRO Spend
Putting Military MRO In
Perspective
4Source: AeroStrategy / OAG Aviation
Current Global Aircraft Fleet Current Global Aircraft MRO Spend
110,200Aircraft $120B
Military MRO April 2010
In North America, Which Accounts For 44% Of MRO Spend, Military Is The Largest Segment; In Europe And Asia, Air Transport Is The Largest
Global Total MRO Market ($120B)
5Source: AeroStrategy / OAG Aviation
N. America(44%)
Europe(25%)
Asia (17%)
ROW (13%)
Air Transport
Military
Bus. AviationCivil Helicopter
Putting Military MRO In
Perspective
Military MRO April 2010
Military MRO Is Driven By Field Maintenance; Engine Overhaul Is The Driver Of Spend In Air Transport
2009 Global Total MRO Market ($120B)
6Source: AeroStrategy / OAG Aviation
Military (50%) Air Transport (39%)
Bus. Aviation
(6%)
Civil Helicopter
(4%)
Airframe
Components
Engine
Field/Line
Modifications
Note: modifications is excluded as in military, these tend to be under program / capital budgets rather than support/MRO
Putting Military MRO In
Perspective
Military MRO April 2010
Military MRO Spend Has Been And Will Continue To Be Relatively Stable
7
Military Aviation MRO Spend 2009-2019 $B
Source: AeroStrategy / OAG Aviation
Putting Military MRO In
Perspective
Military MRO April 2010
Agenda
Military MRO in Perspective
Military MRO – U.S. Details – Winners & Losers
Military Aircraft Sustainment – A Broader View
Key Sustainment Trends & Implications For Industry
Military MRO April 2010
U.S. Air Force Has The Largest Fleet At Almost 5700 Aircraft
9
US Military MRO
Market
Source: AeroStrategy / OAG Aviation
2009 U.S. Military Aircraft Fleet By Service And Mission14,107 Aircraft
Military MRO April 2010
Fighter / Attack Aircraft Account For Over 30% Of MRO Spending
10
Field
Airframe
Component
Engine
Reset
Figh
ter /
Atta
ck
Tran
spor
t H
elic
opte
r
Tran
spor
t /
Tank
er
Spec
ial
Mis
sion
Atta
ckH
elic
opte
r
Trai
ner
Oth
er
$10.8 $7.1 $6.2 $3.8 $2.6 $0.9 $0.3
2009 U.S. Military Aircraft MRO Spend By Mission And Service Type$32.0 Billion USD
Source: AeroStrategy / OAG Aviation
US Military MRO
Market
Military MRO April 2010
As Reset Goes Away, US MRO Spending Could Decline Slightly In The Near Term
11
2009 – 2019 US Military MRO Forecast
All Values In 2009 U.S. Dollars
Source: AeroStrategy / OAG Aviation
US Military MRO
Market
Some Key Trends To Consider
•The impact of the economy on the defense budget and the market
•The increasing importance of rotary wing lift
•Moves by the US Military to in-source more work that has previously been outsourced
Military MRO April 2010
JSF And V-22 Will Have The Greatest MRO Growth Through 2019 … The F-16 Market Drops By $1.7B
12
The Winners ….
Program Delays And Life Extensions Could Significantly Change This Picture…
Source: AeroStrategy / OAG Avation
US Military MRO
Market
And The Losers …
Military MRO April 2010
Sikorsky Aircraft Show The Greatest Growth In MRO Spend Through 2019
13
OEM, CAGR
Total CAGR = 0.9%
2009 – 2019 US Military Aircraft MRO Forecast By OEM
All Values In 2009 U.S. Dollars
Source: AeroStrategy / OAG Aviation
US Military MRO
Market
Military MRO April 2010
Agenda
Military MRO in Perspective
Military MRO – U.S. Details – Winners & Losers
Military Aircraft Sustainment – A Broader View
Key Sustainment Trends & Implications For Industry
Military MRO April 2010
Sustainment Includes Four Additional Non-MRO Services
15
Military Aircraft
Sustainment – A Broader
View
AirframeDepot
PilotTraining
Field Maintenance
Engine Overhaul
Component Repair
Sustaining Eingineering
Supply Chain Management
MaintenanceTraining
MROServices
Non-MROServices
Military MRO April 201016
Six Regional Studies Are Planned For 2009 / 2010Military Aircraft
Sustainment – A Broader
View
Region Planned Start Planned Completion Countries For Detailed Profiling*
Europe A Feb 2009 May 2009
UKFRANCEGERMANYITALYSPAINPORTUGALNORWAY
SWEDEN NETHERLANDS SWITZERLAND BELGIUM FINLANDDENMARK
Middle East & Africa
July 2009 November2009
SAUDI ARABIAISRAELUNITED ARAB EMIRATESJORDANKUWAITEGYPT
OMANBAHRAINQATARMOROCCOSOUTH AFRICA
North America July 2009 November 2009 UNITED STATES CANADA
Europe B December 2009 April2010
AUSTRIATURKEYGREECEPOLANDHUNGARYSLOVENIA
CROATIACZECH REPUBLICROMANIABULGARIASLOVAKIA
Asia Pacific January 2009 May 2010
JAPANS.KOREATAIWANPAKISTANAUSTRALIAINDIA
THAILANDSINGAPOREMALAYSIAINDONESIAPHILIPPINES
Latin America February 2010 May 2010BRAZILCHILEARGENTINACOLOMBIA
MEXICOPERUECUADORURUGUAYEL SALVADOR
Complete
Complete
Complete
Source: AeroStrategy Regional Military Aircraft Sustainment Studies
Military MRO April 2010
Addition Sustainment Services Increase The Market By $11B
2009 U.S. Military Aircraft Sustainment Market
$43B
Military Aircraft
Sustainment – A Broader
View
Source: AeroStrategy Regional Military Aircraft Sustainment Studies
Military MRO April 2010
Total Sustainment Market Will Remain Flat Through 2014
18
Service Type, CAGR
Total CAGR = 0%
2009 – 2014 U.S. Military Aircraft Sustainment Forecast
All Values In 2009 U.S. Dollars
Military Aircraft
Sustainment – A Broader
View
Source: AeroStrategy Regional Military Aircraft Sustainment Studies
Military MRO April 2010
The Approach To Sustainment Is Captured For Each Platform …
19Source: AeroStrategy Regional Military Aircraft
Sustainment Studies
Sustainment Services By Aircraft Type
Platform Beechjet C-130 C-135 C-17 C-5
Airframe Depot Outsourced to L-3 VertexOrganic at WRALC and outsourced to AAII and LMALC
Organic at OCALCOutsourced to Boeing IDS – performed at WRALC
Organic at WRALC
Engine Maintenance Outsourced to Pratt & Whitney
Outsourced to Kelly Aviation Center Organic at OCALC Outsourced to Pratt &
WhitneyOutsourced to Kelly Aviation Center
Component Overhaul Outsourced to L-3 Vertex Organic at WRALC with multiple suppliers
Organic at OCALC with multiple suppliers
Outsourced to Boeing IDS
Organic at WRALC with multiple suppliers
Field Maintenance Outsourced to L-3 Vertex Organic at Squadron Organic at Squadron Organic at Squadron Organic at Squadron
Supply Chain and Inventory Management Outsourced to L-3 Vertex Organic at WRALC Organic at OCALC Outsourced to Boeing
IDS Organic at WRALC
Engineering and Technical Services Outsourced to L-3 Vertex Organic at WRALC Organic at OCALC Outsourced to Boeing
IDS Organic at WRALC
Training Outsourced to L-3 Vertex Organic Organic Organic except type training
Pilot training organic with maintenance training outsourced
Completely Outsourced Partially Outsourced Organic Information unavailable
Military Aircraft
Sustainment – A Broader
View
Military MRO April 2010
Organic
Outsourced
Fiel
d
Airfr
ame
Com
pone
nt
Engi
ne
Supp
ly C
hain
M
anag
emen
t
Engi
neer
ing
Serv
ices
Pilo
t Tra
inin
g
Mai
nten
ance
Tr
aini
ng
$13.1 $7.0 $5.2 $4.3 $3.7 $2.9 $2.7 $2.1
… Overall, Component And Engine Overhaul Are The Most Heavily Outsourced Services
20
2009 U.S. Military Aircraft Sustainment MarketUS$43 Billion
Military Aircraft
Sustainment – A Broader
View
Source: AeroStrategy Regional Military Aircraft Sustainment Studies
Military MRO April 2010
Agenda
Military MRO in Perspective
Military MRO – U.S. Details – Winners & Losers
Military Aircraft Sustainment – A Broader View
Key Sustainment Trends & Implications For Industry
Military MRO April 2010
Three Key Military MRO Trends …
22
Key Military MRO Trends
The Economy’s Impact On The Industry
Shifting Mission Mix
US Government Move To Insource
Key Military MRO Trends and Issues
33
22
11U.S. Military MRO Outlook
Smoke On The Horizon?
Presented by
Hal Chrisman, PrincipalAeroStrategy LLC
Military MRO ConferencePhoenix, AZ
22 April 2010
Ann Arbor, Michigan • Amersham, U.K. • Singaporewww.AeroStrategy.com
Military MRO April 2010
The Economic Crisis Combined With OEF And OIF Has Pushed The Deficit To More Than $1.2 Trillion In 2009
23
Key Military MRO Trends
Source: US Department of CommerceBureau of Economic Analysis
The Economy’s Impact On The Industry11
Military MRO April 2010
The Resulting Budget Pressures Have Halted A Significant Growth In Military Spending
24
Key Military MRO Trends
Source: DoD FY 2010 Budget Request Summary Justification
The Economy’s Impact On The Industry11
• Base budget grows 4.1% to $534 billion
• OCO / Supplemental drops from $142B to $130B (-8.5%) as efforts begin to move OCO into baseline budget
• Overall, defense budget is flat, Underlying details are telling …
Military MRO April 2010
Increases In Military Personnel And O&M Budgets Are Offset By Declines In Other Budgets
25
Key Military MRO Trends
Source: DoD FY 2010 Budget Request Summary Justification
The Economy’s Impact On The Industry11
2009 2010 Change PercentMilpers 142,719 149,602 6,883 4.8%O&M 268,498 274,783 6,285 2.3%Procurement 130,086 128,835 (1,251) -1.0%RDT&E 79,939 78,873 (1,066) -1.3%Mil Const 24,004 22,385 (1,619) -6.7%Family Housing 3,158 1,959 (1,199) -38.0%Revolving Funds 4,003 3,517 (486) -12.1%Stimulus 7,000 0 (7,000) -100.0%Misc 2,687 3,887 1,200 44.7%Total 662,094 663,841 1,747 0.3%
Combined Base and OCO / Supplemental Budgets - US$ (Millions)
With Declining Procurement Budgets, Many OEMs Must Turn To Sustainment For Growth
Military MRO April 2010
Operational Need For Vertical Lift Will Drive A Shift In MRO Spend
26
Key Military MRO Trends
Source: AeroStrategy
Shifting Mission Mix33
Current Warfighter Requirements Are Driving Increased Use Of Vertical Lift
MRO Forecast By Mission HelicopterFleet
Growth09-19
V-22 323
UH-60/SH-60 274
UH-72 88
AH-64 44
Military MRO April 2010
In-Sourcing Is Also A Hot Topic With Direction Coming From The Top
27
Key Military MRO Trends
Source: May 28, 2009 Lynne Memo
US Government Move To In-source33Three General Categories Of “In-Sourcing”
1: Authorization for 33,400 new civilian DoD Employees
• April 6, 2009 – Secretary Gates announced that the DoD would scale back the use of contractors in support services
• April 8, 2009 – the Comptroller signed Resource Management Decision (RMD) 802 realigning resources for the 2010 – 2014 increasing funding for 33,400 new civilian employees, 10,000 of which are for the Defense Acquisition Workforce
• Commonly perceived to be focused on the acquisition workforce …
• … However, specifically tells DoD Components that they should “not construe the RMD as limiting or mandating in-sourcing to specific object classes or to the acquisition workforce.”
General Perception – Focused on White Collar, Acquisition Positions / Control
Military MRO April 2010
Changing The Responsibility For PSIs Is Also A Part Of In-Sourcing
28
Key Military MRO Trends
Source: National Defense Authorization Act for Fiscal Year 2010
US Government Move To In-source33Three General Categories Of “In-Sourcing”
2: Change in Product Support Integrator Role
• October 27, 2009 – President Obama signed the National Defense Authorization Act of 2010
• Section 805 requires that the product support manager role “be performed by a properly qualified member of the armed forces or full-time employee of the Department of Defense (DOD).”
• Driven by major perceived failures of contractors filling the PSI role in programs such as Deepwater and FCS
• Effectively a move to regain ultimate decision making authority in the product support area
General Perception – Focused on Decision Making Authority / Control
Military MRO April 2010
Bringing MRO Programs In House Is The Third Element
29
Key Military MRO Trends
US Government Move To In-source33Three General Categories Of “In-Sourcing”
3: In-sourcing of MRO activities
• In the past several years, there have been a notable number of announcements of in-sourcing engine, component and airframe work. For example …
• Recent announcement that OCALC is establishing capability for the F117 engine for the C-17, currently performed by Pratt & Whitney and United Services
• Similarly, OCALC is making plans to bring the T56 (C-130) and the TF39 engines in house. Both have been maintained at Kelly Aviation in San Antonio
General Perception – Focused on touch labor jobs
Source: AeroStrategy
Military MRO April 2010
The In-Sourcing Issue Raises A Number Of Important Questions
30
Key Military MRO Trends
US Government Move To In-source33
Need Constructive Discussion Between OSD, Depots, OEMs and Independents
• What does available financial data say about the relative cost of organic versus outsourced work, especially PBL?
• How does mission readiness compare under organic and outsourced situations?
• If PBL success stories are accurate, how can this reversal deliver cost savings as well?
• What are the potential impacts of in-sourcing on the industrial base? Could in-souring have measurable impacts on other parts of the economy?
• Could in-sourcing have an impact on the aerospace trade balance?
• What does available financial data say about the relative cost of organic versus outsourced work, especially PBL?
• How does mission readiness compare under organic and outsourced situations?
• If PBL success stories are accurate, how can this reversal deliver cost savings as well?
• What are the potential impacts of in-sourcing on the industrial base? Could in-souring have measurable impacts on other parts of the economy?
• Could in-sourcing have an impact on the aerospace trade balance?
Source: AeroStrategy
Military MRO April 2010
• The global military fleet of 38,500 aircraft is part of a total fleet of over 110,000 turbine powered aircraft across all segments
• This fleet generates over half of the $120B global MRO market
• Military MRO is the largest segment in North America … in Europe and Asia, it is Air Transport MRO
• Globally, the military MRO market grows slowly at 1.2% CAGR
• The US Military flies over 14,000 aircraft which generate more than $32B in MRO demand
• Decline in Reset could result in a near-term dip in the market
• The F-35 and V-22 both show $1.4B in MRO growth by 2019; The F-16 market declines by $1.7B
• Additional sustainment services increase the US market to $43B
• Component repair and engine overhaul are the most outsourced
• The economy is impacting government budgets and the fiscal environment of suppliers
• Vertical lift is increasing in importance
• In-sourcing raises important questions and constructive dialogue is needed
Key Messages
31
Military MRO April 2010
Thank You For Your Attention!
32
• AeroStrategy is a specialist management consulting firm devoted to aviation and aerospace sectors with offices in Ann Arbor, Michigan, Amersham, U.K., and Singapore
• To learn more about AeroStrategy please contact:
David Stewart, PartnerPh: + 44 1494 431 [email protected]
Kevin Michaels, PartnerPh: +1 734 821 [email protected]
Hal Chrisman, PrincipalPh: +1 734 821 [email protected]