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Aviation Industry Scenario

Revenue passenger kilometres expected to increase from 3800 Billion Km in 2005 to 9400 Billion Km in 2024 By 2024, the world passenger air travel is expected to grow at 4.8% CAGR (Compound Annual Growth Rate) The global commercial fleet size would increase from 16,800 airplanes in 2004 to 35,300 airplanes in 2024. 18,500 new airplanes (except replacements) will be added in the global airline fleet Asia Pacific to witness significant growth in passenger and cargo traffic. Asia as a region is expected to receive the second largest passenger airplane deliveries (7163), only after North America by 2024. Asia is Expected to receive second highest number of cargo plane aircrafts by 2024 The above estimates only infer that there is a tremendous opportunity for MRO and Engineering Services. Developing economies such as China, India, Mexico and Brazil are expected to emerge as big marketplace for aerospace products and services in future

Global Aviation MRO

MRO activities a major expense head for airlines globally Maintenance Cost contributes as high as 12.2% of the total cost of an airline. In 2004, global aviation MRO industry was estimated to be a $36 Bn industry. Estimated to cross $ 62 Bn by 2014 representing a growth of 5.6% Airlines increasingly outsourcing MRO activities to achieve convenience, expertise and minimisation of MRO cost

Airlines are acquiring new wide-body and narrow-body aircrafts: need for scheduled Maintenance is increasing What do the airline spend money on ?
/ Depreciatio n A dministrative A mo rtizatio n 6.7% 7.5% Transpo rt Related 1 0.0% In-flight service 8.3% / P ro mo tio n Sales 9.3% A ircraft and Traffic Service 1 5.9% M a int e na nc e 12 .2 %
70 60

Estimated growth in the global MRO market


CAGR 5.62%
62.2

Fuel and pilo t salaries 30.1 %

50 40 30 20 10 0 2004 2014
36

MRO in Asia- Improving Significance

Many organizations in China and rest of East Asia are rapidly building skill-base in the aviation maintenance field Owing to the labor intensive nature of MRO services Asia is emerging as an important hub for MRO. Asia market estimated to grow at a CAGR of 7.4% by 2014 Asia market estimated to reach approx. $ US 15.4 Bn Asias share in the global MRO market is also expected to increase from 21% in 2004 to 24.5% in 2014 Within Asia, China, Japan, India and Australia emerging as the top 4 countries in airline traffic and MRO potential China rapidly tapping share of the Asia MRO market through setting up dedicated industrial zones for aviation related manufacturing and MRO activities

2004 global commercial market- $36 billion

2014 Projected global commercial MRO market- $ 62.2Bn


North America 21.9

North America 14.4

Af rica 1.6

Africa 0.7 Europe 10.1 Middle East 1.4 Latin America 1.8 Asia 7.6

Europe 17.7

Middle East 2.5

Asia 15.4 Latin America 4.0

India-MRO Market Potential


All those looking at the MRO space need to appreciate that there is enough business for multiple players, today rather than outsourcing TO India, there is outsourcing FROM India Assuming 1000 aircrafts in India by the year 2012, there will be a need for over 50,000 weekly checks, 3500 A checks, millions of night halts which can be done on the tarmac itself Over 1000 C will become due each year which will need hangars for executing those checks. Since each hangar can only take 50 C checks in a year, there will be a need for several hangars across the country with a three shift operation of staff, going by all projections currently, this gives ample business for half a dozen MROs to thrive Globally 25% of all departure delays are maintenance related, our Research shows that in India these are about 60%

Presently GMR along with Malaysian airline is setting up an MRO in Hyderabad worth 400 crores which would cater not more than 60 to 80 aircrafts per annum

Industry Players

While leasing is a popular mode for aircraft acquisition world-wide, in India many new airlines have opted for acquisition through purchase. This model puts the onus of maintenance on the airlines themselves. So, the airlines are required to enter into comprehensive maintenance contracts. The following chart shows the maintenance relationships established by various airlines. Since Sahara was taken over by Jet and Air Deccan by King Fisher, All the maintenance is carried out at their respective bases.

Metrics

Both Air India and Indian Air have their jet and engineering shops in Mumbai and Delhi respectively which are equipped to carry out `C' checks but constraints on their capacities often lead to the two carriers outsourcing major engine repairs to workshops in Korea, Hong Kong and Germany While for each A-320 aircraft a `C' check costs between $300,000 and $500,000, for bigger aircraft of Air India the cost can go up to $1.5 million per aircraft. Jet Airways has plans to procure aircraft worth $3.2 billion from Airbus and Boeing and IndiGo has ordered 100 A-320 aircraft. Kingfisher have also opted for the A-320 family while Spice Jet has placed orders for Boeing 737-800 aircraft. Low-cost carriers (LCCs) have to either fly their aircraft to Abu Dhabi, Singapore or Belgium for secondary services. The demand for MRO is expected to increase further as many of the Indian airline companies plan fleet expansion. Overhaul of commercial transport engines is not only the most profitable segment of the MRO market, it is also the segment with the strongest growth prospects over the next 10 years. Engine MRO spending worldwide in 2006/07 is estimated at $14-17 billion--a figure that AeroStrategy expects to grow by an aeverage 4.5% a year, reaching $27 billion by 2016/17

Metrics Cont

The engine overhaul market comprises the largest segment in Indian MRO segment worth $174 million and is expected to grow to $490 million 2014. The state owned airlines have developed capabilities for engine maintenance and the private airlines routinely source their needs from independent MROs OEMs have also developed a significant market share in the component overhaul market in India. The market size of the component overhaul market was $120 million in 2007 and is expected to grow to $204 million by 2014. Modifications is another smaller market in terms of size. The 2007 market was worth $43 million and is expected to be $77.5 Million by 2014. The percentage of the maintenance market is: Engines 40 percent; Modifications 7.3 percent; Airframe (Heavy) 12 percent; Components 20 percent; and Line maintenance 17 percent.

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