2013 MRO Market Forecast Industry Dynamics October 15

Presented by:
Jonathan M. Berger
Vice President ICF SH&E jberger@icfi.com
MRO Market Forecast & Industry Dynamics

October 15, 2013
ICF International | icfi.com
ICF SH&E 2013
2013 Airline E&M North America

Montreal, Canada
Todays Agenda:
1. MRO Market Forecast 2. MRO Industry Trends to Watch
joined ICF in 2007
joined ICF in 2011

ICF SH&E 2013
joined ICF in 2012 1
MRO Market Forecast
ICF SH&E 2013
MRO MARKET FORECAST
The current civil air transport fleet is in excess of 26K aircraft

2012 Global Air Transport Fleet
Narrowbody Jet Middle East
Turboprop
Africa Latin America
17%
Regional Jet
5% 5%
North America
8% 50%
Asia Pacific
15%
26,156 Aircraft 18%
24%
26,156 Aircraft 26%
~8,300 32%
Widebody Jet
Europe
Source: Flightglobal ACAS, ICF Analysis
ICF SH&E 2013
MRO MARKET FORECAST
The air transport fleet will grow at a 3.1% rate to 2022

Commercial Fleet Growth 20122022
(by Global Region)
Africa Middle East Latin America Asia / Pacific Europe North America
40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0
CAGR
35,600
4.9% 5.8% 4.3%
Key Assumptions
Air travel growth of 3.9% Fuel costs in $80100/bbl range 15,960 aircraft deliveries 6,560 aircraft retirements
26,200
Asia
4.9%
Europe North America ~8,300 (32%) 2012
2.0%
~9,500 (27%)
2022
1.3%
3.1% Average
Source: Flightglobal ACAS, ICF Analysis
ICF SH&E 2013
MRO MARKET FORECAST
The North American MRO market size in 2012 was $17.9 billion
2012 North American MRO Spend
Modifications
Turboprop
Line
5% 16% 41%
Engines
Regional Jet
5% 15%
Narrowbody Jet
$17.9B
Airframe
17% 21%
Components
31%
Widebody Jet
$17.9B
50%
Source: ICF SH&E forecast Forecast in 2012 USD, exclusive of inflation. Includes turboprops
ICF SH&E 2013
MRO MARKET FORECAST
Over the next decade, North American MRO absolute growth will be the lowest of all major global regions
$ Billions $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0
Difference in $ MRO Spend, 2022 vs. 2012By Region
$6.6 $4.6 $4.6 $2.9 $2.8 $2.2 $2.1 $2.0

Africa
Asia/Pacific (excl China)
China
Middle East
Source: ICF SH&E analysis Forecast in 2012 $USD, exclusive of inflation, Includes Turboprops
Eastern Latin America Latin Europe (incl America CIS)
North America
Western Europe
ICF SH&E 2013
MRO MARKET FORECAST
The North American MRO market is expected to grow to approx. $20B by 2022, at 1.2% per annum
Turboprop Regional Jet Widebody Jet Narrowbody Jet
North American MRO Spend 20122022 ($B)

$20.1B 3% 9% 38%
CAGR -2.9% -3.4% 3.4%
$25
ICF SH&E Insight

The limited North American MRO growth will be driven by widebody aircraft Turboprops and regional jets will see a decrease MRO spend Narrowbody MRO spend will hold steady
$20
$17.9B
4% 15%
$15
31%
$10
50%
$5
50%
1.1%
1.2% Average $0 2012 2022

Source: ICF SH&E forecast Forecast in 2012 USD, exclusive of inflation. Includes turboprops
ICF SH&E 2013
MRO Industry Trends to Watch
ICF SH&E 2013
MRO INDUSTRY TRENDS
Five key MRO industry trends to watch

Surplus Parts
Energy & Aviation Convergence
3-D Printing
M&A in MRO
Industry Trends
Airframe MRO
Source: ICF SH&E
ICF SH&E 2013
SURPLUS PARTS MARKET
ICF SH&E estimates that commercial MRO industry spending on surplus parts is approximately $3.0 billion
Air Transport Surplus Parts Market*
Airframe Engine Parts
ICF SH&E Insight

More innovative surplus parts supplier base Vertical integration of Lessors, Parts Traders & Repair Vendors Increased aircraft partouts Increased engine teardowns
5%
65%
$3.0B
Component
30%
Source: ICF SH&E analysis *Sales to end customers; excludes intra-dealer sales
ICF SH&E 2013
10
Aircraft retirements will average between 600 700 per year over the forecast period
# Retirements 800 700 600 500 400 300 200 100 0 1990-99 Average 171 2000-09 Average 410 Retirement as % of installed fleet 2010-22 Average 629 2.0% 1.5% 1.0% 0.5% 0.0%
Air Transport Annual Aircraft Retirements

ICF SH&E forecast
% Installed Fleet 3.0% 2.5%
Source: ICF SH&E Analysis, Airline Monitor Feb 2013, ACAS Jan 2013,
ICF SH&E 2013
11
Surplus dealers now obtain over 80% of their inventory from parting-out aircraft
2007 & 2012 Supplier Channels for Obtaining Surplus Materials
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 20% 26% 82% 54% 10% 8%
ICF SH&E Insight

Leaner airline inventories Improved material planning (and MRO IT capabilities) Increased component pooling agreements OEM after-market material control strategies
2007
Aircraft Part-Out
2012
Direct Purchase From Airline Purchase From Surplus Dealer

Source: ICFI SH&E Analysis
ICF SH&E 2013
12
MRO INDUSTRY TRENDS

M&A in MRO
Surplus Parts
Airframe MRO
Industry Trends
3-D Printing
Source: ICF SH&E
ICF SH&E 2013
13
ENERGY & AVIATION CONVERGENCE
Growing interdependencies between Aviation, Energy, and the Oil & Gas industries will continue to impact the MRO industry
Aviation MRO safety, quality, and reliability best practices are transferable to O&G Cutting edge aerospace technologies are applicable (e.g. blow out preventers - BOPs) Major O&G growth creates new market opportunities for aerospace & MRO suppliers
AVIATION
Existing linkage aviation engines (aero-derivatives) and industrial gas turbines (IGTs) Cutting edge aviation engine technologies transferable to energy Energy sector growth creates new opportunities for MRO suppliers
ICF SH&E 2013
OIL & GAS
Rigs powered by industrial gas turbines (IGTs)
ENERGY
Demand for skilled technicians Exotic alloys and materials required in demanding environments
Source: ICF SH&E analysis
14
Hydraulic fracturing (i.e. fracking) is leading to a significant shift away from coal to natural gas power generation
Commodity Fuel Prices
8 7 6 5 4 3 2 1 0 Illinois 4lb NYMEX Spec Pennsylvania 4lb Henry Hub Gas
$/MMBtu
ICF SH&E Insight

Tumbling natural gas prices due to fracking have erased coals cost advantage
US Coal versus Gas Generation
-2% Total 34% 22% 43% -2% Other 34% 30% 35%
2,500 2,000 TWh 1,500 1,000 500 0
+34% Gas
-20% Coal
As a result, U.S. gaspowered power generation increased its market share from 22% to 30% in one year The result: Greater industrial gas turbine (IGT) demand and utilization
2011 Jan-Jun 2012 Jan-Jun Coal Generation Gas Generation Other Generation
Sources: ICF analysis, Bloomberg, EIA
ICF SH&E 2013
and should underpin expansion of the industrial gas turbine (IGT) market, currently valued at approx. $20B
2011 Global Gas Turbine Engine Production ($B)
$30 $25 $20 $15 $10 $5 $0
ICF SH&E Insight

Used for O&G and peak power generation
Military
Aeroderivative
Civil
Frame
Used for Power Generation
Lower natural gas prices are increasing demand IGT generationand should underpin production market growth over the next decade IGTs increasingly leverage leading aviation engine technologies developed for the aeroengine segment
Aeroengine
IGT
Source: ICF SH&E analysis, Forecast International
ICF SH&E 2013
16
MRO INDUSTRY TRENDS

M&A in MRO
Airframe MRO
3-D Printing
Industry Trends
Surplus Parts
Source: ICF SH&E
ICF SH&E 2013
17
M&A TRENDS IN THE MRO INDUSTRY
Positive market forces are driving continued investment interest in the MRO industry
GROWTH INDUSTRY favorable market dynamics OFF-SET REQUIREMENT Certain countries require reciprocal investment HORIZONTAL OR VERTICAL INTEGRATION Create synergies within existing portfolio of products, services, and customers
DIVERSIFICATION Mitigate risk of industry cyclicality
D-E-F-E-N-S-E Avoid competitor from acquiring first
COST REDUCTION Leverage emerging market labor rates
GEOGRAPHIC EXPANSION increase global footprint & customer base
MARKET SHARE Spread fixed costs over a large base
ICF SH&E 2013
18
While peaking in 2007, MRO-related M&A transactions have shown steady growth
180 160 140 120 100 80 60 40 20 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD
Source: Jefferies Research
MRO-Related M&A Activity Cumulative Annual Total Transactions

153 123 84 61 87 70 133 93 70
76
84
ICF SH&E 2013
19
also peaking in 2007, MRO related M&A EBITDA multiples appear to have stabilized
MRO-Related M&A Activity Average Transaction EBITDA Multiple
14x 12x 10x 8x 6x 4x 2x 0x 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD
Source: Jefferies Research
12.5x 10.6x 9.0x 8.5x
13.1x 10.0x 8.0x 10.0x
9.2x
8.5x
9.0x
ICF SH&E 2013
20
ICF SH&E anticipates strong growth in MRO related M&A activity to continue over the next few years
Summary of active participants in MRO M&A
acquired UK-based Airinmar acquired safety equipment supplier AmSafe acquired Vector Aerospace acquired Mechanical Enterprises (MEI) acquired Aviall
acquired Vought Aircraft Industries and cabin repair specialist Aviation Network Services
acquired Satair
acquired Aersospace Coatings International (ACI), AMSafe
acquired Goodrich
acquired M&M Hardware
acquired aircraft component manufacturer South Bend Controls
acquired German galley manufacturer Sell and finalizes Contour Acquisition
acquired Connector Maker Switchcraft
acquired Finnair Engine shop
acquired The Memphis Group
acquired SAS Components acquired Aero Maintenance Group (AMG)

acquired DeCranes bizjet interior production and completes Microtecnica acquisition
acquired Dansk Fly Elektronik
acquired Aero Technology acquired Aveos Components
ICF SH&E 2013
21
MRO INDUSTRY TRENDS

Airframe MRO
3-D Printing
M&A in MRO
Surplus Parts
Industry Trends
Source: ICF SH&E
ICF SH&E 2013
22
Airframe MRO is very fragmented; no supplier has more than a 6% market share
Airframe Heavy Maintenance Market Share
OEM Airline Third Party
AIRFRAME MRO TRENDS
2%
In-House
ST Aerospace
18%
$9.1B
36%
Independent
44%
$9.1B
Others
LHT AFI KLM E&M 6% 4% TIMCO 4% 3% HAECO 3% AAR 3% 2% Ameco EGAT TAECO AA-MRO
By Supplier Type
Source: ICF SH&E analysis Includes Turboprops
Supplier Market Share
ICF SH&E 2013
23
AIRFRAME MRO TRENDS
Three of the top four airframe MRO by man-hours are Asian owned
2012 Top Airframe MROs by Performed Man-Hours (millions)
0 2 4 6 11.5 7.4 4.6 4.2 4.1 3.9 3.2 2.8 2.5 2.3 8 10 12 14
ST Aero Haeco Group AAR SIAEC Lufthansa Technik AFI KLM E&M Timco Ameco Beijing ADAT / SRT Iberia
Source: Aviation Week Overhaul and Maintenance June 2013 Note: Subsidiaries are included if they are majority owned/operated
ICF SH&E 2013
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The cost advantage enjoyed by Asian MRO suppliers will continue to erode due to the shortage of skilled labor and wage inflation
$70 $60 $50 $40 $30
North America Average Widebody Airframe Heavy Maintenance 3rd Party Labor Rates In North America vs. Asia (USD per Man-Hour) Labor Rate Convergence
AIRFRAME MRO TRENDS
$20 $10 1990
Mature Asian MROs Emerging Asian MROs
1995
2000
2005
2010
2015
2020
The convergence of global labor rates will require airlines to reconsider their airframe sourcing strategies and create new opportunities for MRO suppliers
Source: ICF SH&E analysis
ICF SH&E 2013
25
AIRFRAME MRO TRENDS
Widebody airframe heavy check migration from North America to Asia will peak
Shifting Heavy Airframe MRO Migration Patterns ICF SH&E Insight
Less Trans-Pacific Heavy Check Migration More Heavy Maintenance Stays in Americas Average labor hours per heavy maintenance check is declining High fuel prices increase maintenance ferry flight costs Skilled labor shortages in Asia driving up labor rates South-eastern US labor rates now comparable to leading emerging market MRO rates Excess facility supply in North America increasing local competitiveness
Right-shoring is the new Outsourcing

Source: ICFI SH&E
ICF SH&E 2013
26
AIRFRAME MRO TRENDS
.and as a result, we will see continued investment activity in the airframe MRO sector
ICF SH&E 2013
27
MRO INDUSTRY TRENDS

3-D Printing
Surplus Parts
Airframe MRO
Industry Trends
M&A in MRO
Source: ICF SH&E
ICF SH&E 2013
28
3-D PRINTING
Additive manufacturing, also known as 3-D printing, has the potential the be the next disruptive technology in aviation
The GE Aviation-Parker Aerospace joint venture will 3-D print more than 30,000 LEAP-X fuel nozzles per year by 2017
Source: ICF SH&E Research & analysis
ICF SH&E 2013
29
3-D PRINTING
HEICO is using 3-D printers to produce PMA part prototypes as well as tooling fixtures
ICF SH&E 2013
30
3-D PRINTING
Boeing is using 3-D printing to fabricate plastic interior parts for prototypes and test evaluation units
ICF SH&E 2013
31
3-D PRINTING
NASA has certified a 3-D printer to be used on the International Space Station in 2014
ICF SH&E 2013
32
3-D PRINTING
Chinas AVIC heavy machinery is using large 3-D printed titanium parts for landing gear and other structural related parts.
ICF SH&E 2013
33
3-D PRINTING
Pratt & Whitney will feature 25 different 3-D printed parts in its next generation GTF engine family
ICF SH&E 2013
34
3-D PRINTING
Industry experts predict that 3-D printing technology could lower the cost of structural parts by up to 90% Not surprisingly, GE plans to invest $3.5B in 3-D printing technology within the next 5 years!
ICF SH&E 2013
35
Thank you!
ICF SH&Es MRO advisory services include the following:
MRO Market Research & Analysis M&A Commercial Due Diligence Aerospace Manufacturing Strategy Aviation Asset Valuations & Appraisals MRO Cost & Performance Benchmarking MRO Information Technology (IT) Assessment MRO Strategic Sourcing Support Supply Chain Management LEAN Continuous Process Improvement Military Aircraft Sustainment
ICF SH&E 2013
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ICF SH&E is one of the most experienced global aviation and aerospace consultancies
Airports Airlines Aerospace & MRO Asset Advisory Safety & Security
50 years in business (founded 1963) 100+ professional staff

Dedicated exclusively to aviation and aerospace Recruited from the industry
Specialized, focused expertise and proprietary knowledge Broad functional capabilities More than 8,000 private sector and public sector assignments Backed by parent company ICF International ($937M revenue) Global presence seven major offices
New York Boston Ann Arbor London Singapore Beijing Hong Kong
ICF SH&E 2013
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ICF International delivers professional services and technology solutions in three focus areas, which ICF SH&E draws upon, further expanding its service offerings and technology solutions
Energy Environment Transportation
Health, Social Programs, and Consumer/Financial
Public Safety and Defense
$937M Revenues 4,500+ Employees ICFI NASDAQ

One of ICF's founders and its first president was a Tuskegee Airman. C.D. "Lucky" Lester flew more than 90 missions and earned the Distinguished Flying Cross. In 1969, "Lucky" and 3 DoD analysts founded the organization that is now ICF International.
38
ICF SH&E 2013
Jonathan M. Berger Vice President jberger@icfi.com
icfi.com
ICF SH&E 2013
39

2013 MRO Market Forecast Industry Dynamics October 15

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2013 MRO Market Forecast Industry Dynamics October 15

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Presented by:

Vice President ICF SH&E jberger@icfi.com

MRO Market Forecast & Industry Dynamics

2013 Airline E&M North America

joined ICF in 2007

joined ICF in 2011

joined ICF in 2012 1

ICF International | icfi.com

MRO Market Forecast

ICF International | icfi.com

ICF SH&E 2013

MRO MARKET FORECAST

The current civil air transport fleet is in excess of 26K aircraft

Africa Latin America

26,156 Aircraft 18%

26,156 Aircraft 26%

Source: Flightglobal ACAS, ICF Analysis

ICF International | icfi.com

ICF SH&E 2013

MRO MARKET FORECAST

The air transport fleet will grow at a 3.1% rate to 2022

40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0

4.9% 5.8% 4.3%

Europe North America ~8,300 (32%) 2012

Source: Flightglobal ACAS, ICF Analysis

ICF International | icfi.com

ICF SH&E 2013

MRO MARKET FORECAST

ICF International | icfi.com

ICF SH&E 2013

MRO MARKET FORECAST

Difference in $ MRO Spend, 2022 vs. 2012By Region

$6.6 $4.6 $4.6 $2.9 $2.8 $2.2 $2.1 $2.0

Asia/Pacific (excl China)

Eastern Latin America Latin Europe (incl America CIS)

ICF International | icfi.com

ICF SH&E 2013

MRO MARKET FORECAST

North American MRO Spend 20122022 ($B)

ICF SH&E Insight

1.2% Average $0 2012 2022

ICF International | icfi.com

ICF SH&E 2013

MRO Industry Trends to Watch

ICF International | icfi.com

ICF SH&E 2013

MRO INDUSTRY TRENDS

Five key MRO industry trends to watch

Energy & Aviation Convergence

Source: ICF SH&E

ICF International | icfi.com

ICF SH&E 2013

SURPLUS PARTS MARKET

ICF SH&E Insight

ICF International | icfi.com

ICF SH&E 2013

SURPLUS PARTS MARKET

Air Transport Annual Aircraft Retirements

% Installed Fleet 3.0% 2.5%

ICF International | icfi.com

ICF SH&E 2013

SURPLUS PARTS MARKET

ICF SH&E Insight