The Aerospace & Defense Forum Orange County Chapter May 5, 2016 Trends in A&D MRO and Aftermarket Jeff Johnston President & CEO Desser Holdings 5 May 2016 AGENDA � Desser Holdings Company Profile � Market Overview � The Aerospace Value Stream � Market Dynamics � Conclusion 1
The Aerospace & Defense Forum Orange County Chapter May 5, 2016 ESTABLISHED LEADER WITH INNOVATIVE CAPABILITIES Founded in Tires & Tires & Aero & Aero & Tire Wheel & Wheel & 1920, Desser is Aftermarket Aftermarket Motorcycle Motorcycle Retreading comprised of Brake Brake Products Products Glass Glass four business units, establishing its � One of the top two aftermarket leadership and distributors in the world for the three strong brand largest global tire OEMs name to serve � 400+ tire SKU’s covering 98% of the diverse world’s aircrafts aerospace markets � Designs own private label brand, Aero Classic � 25+ proprietary tires fitting 125+ aircrafts 3 ESTABLISHED LEADER WITH INNOVATIVE CAPABILITIES Founded in Aero & Aero & Tires & Tires & Tire Wheel & Wheel & 1920, Desser is Motorcycle Motorcycle Aftermarket Aftermarket Retreading Brake Brake comprised of Products Products Glass Glass four business units, establishing its � One of only two independent leadership and retreaders in the U.S. strong brand � Retreading requires FAA certification name to serve (by individual product type) specialized diverse equipment, and technical cooperation aerospace from OEMs markets � Retreads 70+ types and sizes of tires 4 2
The Aerospace & Defense Forum Orange County Chapter May 5, 2016 ESTABLISHED LEADER WITH INNOVATIVE CAPABILITIES Founded in Tires & Tires & Aero & Aero & Wheel & Wheel & Tire 1920, Desser is Aftermarket Aftermarket Motorcycle Motorcycle Retreading comprised of Brake Brake Products Products Glass Glass four business units, establishing its leadership and � FAA certified repair facility strong brand � Services over 460 wheel & brake name to serve assemblies , supporting 150+ aircraft diverse platforms worldwide aerospace markets 5 ESTABLISHED LEADER WITH INNOVATIVE CAPABILITIES Founded in Aero & Aero & Tires & Tires & Tire Wheel & Wheel & 1920, Desser is Aftermarket Aftermarket Motorcycle Motorcycle Retreading Brake Brake comprised of Products Products Glass Glass four business units, establishing its leadership and � Cee Bailey’s business segment strong brand manufactures transparencies for name to serve aviation and motorcycle markets diverse � Manufactures 200+ transparencies for aerospace 100+ aircrafts markets 6 3
The Aerospace & Defense Forum Orange County Chapter May 5, 2016 DESSER PRODUCTS & SERVICES Engine Inlet/Exhaust Covers Flight Crew Seat Dress Covers Aviation Transparency Manufacturing Transparency Cleaning and Private Label Tire Rain Repellant Chemicals Design and Branded Tire Supply Ballistic Tire In-House Covers for OEM Pitot and FAA Certified Wheel & Brake Production Rosemont Tire Retreading Parts and Covers Service 7 DESSER GLOBAL FOOTPRINT Synergistic cross-selling opportunities Global footprint & international distribution presence Wheels, Brakes, Tires, Hoses, etc Strong management team with extensive Longstanding customer relationships knowledge and experience as global leader in with major aircraft tire OEMs specialty aerospace distribution 8 4
The Aerospace & Defense Forum Orange County Chapter May 5, 2016 DESSER’S REACH & END MARKETS • Desser has global reach, Middle East / Geographic Footprint serving aircraft operators Other Australia 11% 2% and MRO customers in all markets around the world Europe • Desser has an long history of 27% North America developing private label 61% Other (PMA) alternative products to 13% serve its end market customers • Desser services all aircraft platforms enabling it to Market Segments Served identify products, and Business Jets markets available to PMA Business Jets 47% 33% ATR alternatives 41% • Desser has an excellent Moto reputation with its customers 5% Military Military for innovative and cost 14% 21% General Moto effective solutions Aviation 4% 8% 9 GROWTH THOUGHT PROCESS MAP � Capabilities Matrix & Revenue Analysis What Markets Do We Play In? What are their respective Growth Rates? • 2015 – 2018, 2020 Which Markets Should we Target? (Why?) • What Customers? What Platforms? What Products? Existing � Sales Campaigns (List) • New � Product Development Programs (List) • What are we Doing and Why are we Doing it? 10 5
The Aerospace & Defense Forum Orange County Chapter May 5, 2016 MRO MARKET COMPARISONS 11 BGA MARKET FORECASTS BGA Flight Hours 2.9% • Primary Driver of the Business is Flight Hours/Cycles • Overall BGA Operating hours relatively flat • Significant growth in Bus Jet operating hours, offset by large drop in Piston GA operating hours • LSA growing at the fastest rate, but very small market • Focus on Bizjet/Helo/Exp MRO/FBO channels • Expand content per aircraft event through MRO (AWB) services and PMA strategy 12 6
The Aerospace & Defense Forum Orange County Chapter May 5, 2016 ATR Fleet 13 ATR FLEET 14 7
The Aerospace & Defense Forum Orange County Chapter May 5, 2016 ATR FLEET GROWTH 15 ATR MRO MARKET GROWTH 16 8
The Aerospace & Defense Forum Orange County Chapter May 5, 2016 MRO MARKET GROWTH BY REGION 17 MRO MARKET � Overall the market looks attractive...... � So what is the problem???? � Economic instability � Local crisis – Oil Economy – Currency Exchange Rates � Shifts in Business Models 18 9
The Aerospace & Defense Forum Orange County Chapter May 5, 2016 THE “REAL” MARKET OVERVIEW Defense spending as a share of GDP Defense spending as a share of GDP YoY YoY BizAv BizAv flight activity flight activity General Aviation Business Aviation • The active general aviation fleet is forecast • YoY flight activity (October 2015 vs. October to increase 0.2 % a year between 2015 and 2014), TRAQPak data indicate that October 2036 2015 posted an increase of 0.2%; • GA hours flown is projected to increase an • This missed TRAQPak’s forecasted yearly rise of average of 1.2 % per year through 2036 2.7%.The results by operational category continue to show growth on top of growth in • GA activity at FAA and contract tower the Part 135 industry, with a YoY increase of airports recorded a 0.3 % decline in 2015 3.2%. • In 2015, the GA industry experienced its • The Part 91 market recorded a slight decline first decline in deliveries since 2010. from 2014, down -0.4%, while the Fractional Turboprop deliveries were down by 10 %, market continued its run in the red for the third and much smaller category of multi-engine consecutive month, down -5.1%. piston deliveries declined 40 %. 19 MARKET OVERVIEW General / Business Aviation • Experimental/LSA/Fixed wing piston combines as a group are trending up • The GA fixed wing fleet hours are in decline from 2016 on, with no recovery • Fixed wing Turbine ( TBM, Pilatus, Caravan, Quest, King Air, Biz Jet) will continue to grow in service ATR 20 10
The Aerospace & Defense Forum Orange County Chapter May 5, 2016 THE VALUE STREAM Suppliers Customers Parts Design & Stocking & OEMs/Repair Owners & Production & Certification Distribution & Overhaul Operators Assembly Business models along the value stream are in fundamental conflict 21 DESSER FIVE FORCES Upgrades • STCs New Entrants • Refresh Customers Suppliers Competitors (Buyers) Substitutes: Substitutes • DER Repairs (-) • PMA Parts (+/-) Power Varies Broadly by Market Segment… 22 11
The Aerospace & Defense Forum Orange County Chapter May 5, 2016 CONCLUSIONS � Economic volatility is driving markets well below forecasted levels for the near term � Even if “times are good” lessons from last down cycle are well learned – End users are pressing for greater value / lower costs � Traditional business models are under attack � OEMs learning how to block and fight back � Growth will require nimble solutions and competitive advantage is short lived 23 12
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