EXPERT INSIGHTS AND RELIABLE INFORMATION FOR THE AVIATION INDUSTRY

28th Annual Commercial Aviation Industry Suppliers Conference

March 3-5, 2014

BUSINESS MODEL INNOVATION IN THE

COMMERCIAL AIRCRAFT AFTERMARKET

PRESENTED BY:

KATE SCHAEFER
GENERAL MANAGER, COMMERCIAL AIRCRAFT SERVICES

Proceedings Sponsored by:

 Business Model Innovation In
The Commercial Aftermarket

Kate Schaefer
General Manager – Commercial Aircraft Services

28th Annual Commercial Aviation Industry Suppliers Conference

Beverly Hills, California March 4, 2014
 Moog - Precision Control Systems, Products and Components

ƒ Founded in 1951 by Bill Moog

ƒ Multinational company

• $2.6B sales in FY’13

• Locations in 25 countries

• Over 11,000 employees

ƒ Traded on the New York Stock

Exchange (MOGA & MOGB)

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
1
Evolution of Our Aircraft Group Strategy: Sensor to Surface

• Flight Sensors & IMUs
• Pilot Controls
• Flight Control Systems 
Integration
• Flight Control Systems  • Flight Control 
Integration Computers & Software
• Flight Control  • Actuator Control 
Computers & Software Electronics
• Flight Control Actuation  • Actuator Control  • Flight Control Actuators
Systems Electronics • Specialty Actuators
• Actuator Control  • Flight Control Actuators • Servovalves
Electronics • Specialty Actuators
• Flight Control Actuators • Servovalves
• Specialty Actuators
• • Servovalves
Flight Control Actuators
• Specialty Actuators
• Servovalves
• Specialty Actuators
• Servovalves

• Servovalves

Flight Control Computers & 
Actuator Control  Software
Primary & Secondary Flight Control  Electronics
Actuators

Inlet Guide Vane  Autopilot 
Actuators Actuators

Flight Control  Engine Control  High Lift Actuation (Actuators, Gearboxes 

Servovalves Servovalves and Accessories)

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
Agenda

ƒ The evolution of the MRO market

ƒ Customer needs in the current environment

ƒ OEM Business Model Innovation in the aftermarket

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
 The Evolution of the MRO Market Segmented into Distinct Periods

Evolution of the MRO Market

1990 1995 2000 2005 2010

Early 1990s Late 1990s Early 2000s Late 2000s Present

Airframe /
Aftermarket Increased Engine Emergence of Airline
Component OEM
Afterthought OEM Awareness MRO Integrators Bankruptcy
Response

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
 Aftermarket was an Afterthought in the Early 1990s

1990 1995 2000 2005 2010

Participants 1990-1995
Airlines • Mostly captive
maintenance
• Maintenance cost
center

OEMs • Aftermarket ƒ Most airlines performed maintenance in

house
afterthought
• Rolls-Royce ahead of ƒ Rolls-Royce first to introduce flying hour
support via TotalCare® contract with
game
Cathay Pacific A330 EIS in 1995
ƒ GE purchased British Airways engine
Independents • Large independents MRO shop (GE Wales)
ƒ Emergence of profit focused airline MROs
e.g. Lufthansa Technik, Swiss Air, TEAM
Aer Lingus, SIAEC

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
 Airlines Began Seeking Maintenance Cost Savings in the Late 1990s

1990 1995 2000 2005 2010

Participants 1996 - 2000

Airlines • Airlines scrutinizing
maintenance
investment
• Increasing outsourcing ƒ Economic pressure forcing airlines to
seek cost savings whenever possible
OEMs • Increase awareness ƒ Emergence of low cost carriers with total
with some OEMs outsourced maintenance e.g. easyjet
• GE acquisition binge ƒ FLS Aerospace and LHT innovate with
component management solutions
ƒ PMA parts gain traction as airlines face
Independents • Boom times escalating OEM spare parts pricing
• Emergence of PMA ƒ Lufthansa Technik acquired a 20 percent
stake in HEICO in 1997

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
 Several Large MRO Integrators Established in the Early 2000s

1990 1995 2000 2005 2010

Participants 2001-2005
Airlines • Maintenance still not
viewed as core
ƒ Structural change in the market as major
US carriers spun off maintenance arms

OEMs • Some OEMs develop

dedicated aftermarket ƒ Swiss Air and Sabena bankruptcies create
organization two new independent integrators: SR
• Isolated innovation Technics and Sabena Technics

Independents • Some encroachment by

OEMs ƒ Beginning of broad component support
• Emergence of large era - Lufthansa Technik launched Total
Integrators Component Support® with Spirit Airlines
• PMA heyday

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
 Late 2000’s were Characterized by Airline Bankruptcies and
Maintenance Arm Spin Outs

1990 1995 2000 2005 2010

Participants 2006-2010
Airlines • Spin out or slim down
• Bankruptcy

ƒ Several airline bankruptcies in North

OEMs • More OEM aftermarket America: US Airways, United, Air Canada,
organization Northwest etc.
• Some service ƒ Airlines maintenance arm spin outs: Air
innovation Canada Technical Services
ƒ GE launched TRUEngine® program in
Independents • Independents losing 2008 as defensive measure against PMA
usage
market share
• PMA growth slows ƒ Rapid growth of Middle East carriers;
Goodrich opened Dubai campus in 2006
down

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
 The Focus is Now on Airframe and Component OEM
Response in the Aftermarket

1990 1995 2000 2005 2010

Participants Present
Airlines • ROIC focus
• Consolidation

ƒ Aircraft OEMs establishes aftermarket

OEMs • Aircraft and component support programs: Airbus FHS / Boeing
OEMs get aggressive GoldCare
ƒ Component OEMs grows flying hour
offering and introduces licensed service
Independents • Independents center model
struggling ƒ Era of surplus parts and aircraft
• PMA market flat cannibalization; Emergence of AJ Walter
• Asset management
giants (AJ Walter)
• Decision to compete or
partner

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
Agenda

ƒ The evolution of the MRO market

ƒ Customer needs in the current environment

ƒ OEM aftermarket business model innovation

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
 Each Customer Desires Different Aftermarket Support

Narrow Output Oriented Broad Output Oriented

Key • Total cost Key
• Access to inventory
Selection guarantees Selection
• Total cost
Criteria • Engineering Criteria
Output
Key Success • Technical support • Asset management
oriented
Factors organization solutions Narrow • Large rotable pool
Key Success
Broad Output • Logistics
Output Factors
• Customer support
• Tier 1 Oriented
Key Oriented • Account support
Component Service
Suppliers
OEMs Integration Key • Global Integrators
Suppliers • Aircraft OEMs
Narrow Broad
Narrow Transactionals Transactional Transactional
Key Broad Transactional
• Cost Transactional
Selection Key Selection • Price
• TAT solutions
Criteria Criteria • Breadth of offering
Few ATA Most of ATA
• Low overhead Breadth
Key Success Chapters Chapters Key Success • Low overhead
• Product Focus
Factors Factors • Supplier management
• Execution
Key • Component brokers
Key • Small
Suppliers • Larger independents
Suppliers independents

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
 Buying Behavior is also Dependent on the Aircraft Lifecycle

2013 Air Transport Component Aftermarket Vs Lifecycle

GROWTH MATURE ERJ-140

SUNSET
$1B
CRJ-7/9/1000 MD11 A320*
737 NG (Old)
ERJ-170/190 Bubble size
proportional to
777-2LR/3ER 737-3/4/500
Component
A300-600/310 MRO spend
747-400
A320*
A340
(New) A330 CRJ-1/2/400
777
Integrated 767 757
A380 Solutions
MD80 A300
SSJ 100

Future: Transactional
A350 Solutions
CSeries
A320neo 747-1/2/300
737 MAX 747-8 DC10
C919 737-1/200
MRJ 787

0 10 25 Source: ICF
Years since Entry into Service * New: CFM56-5B / V2500-A5 / PW6000
Old: CFM56-5A / V2500-A1

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
 Estimated 50-70% of the 787 and A350XWB Fleet Will
Seek Integrated Aftermarket Solutions

Air Transport Component 787 Integrated Customers

MRO Market ($B)
Airline Fleet

20 22
18
26
16
14 Traditional 13
12
Integrated MRO Programs*
10
777 787/A350*
8
~20% 50%-70%
6 Integrated*
4 39% Drivers
• Fleet size<25
2 7%
23% • Perceived technology risk
0 • Improved ROIC
• Maintenance no longer core activity
2001 2011 2021 • Cash preservation
• Attractive value propositions

* Source: ICF estimate; “integrated” programs include MRO

services and asset management with commercial guarantees

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
New Fleet Introduction is an Opportunity for Airlines to
Change Their Component Support Strategy

Examples of publicly announced 787 component MRO approaches

Airline Total Previous 787 Selected providers for 787 support
orders approach approach
Tailored Fleet
77 In-house
Contracts

Full Full
3 Component Component
Support Support
Full
Price
12 Component
Shopper
Support

Tailored Fleet
47 In-house
Contracts

Full
8 In-house Component
Support
Full
Total Aircraft
18 Component
Support
Support
Full
Tailored Fleet
10 Component
Contract
Support

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
Agenda

ƒ The evolution of the MRO market

ƒ Customer needs in the current environment

ƒ OEM aftermarket business model innovation

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
Maybe Controversial?

Leaving aftermarket embedded in a manufacturing/engineering

organizations is difficult in the long term………aftermarket will always
suffer.

Aircraft Aftermarket Services Aircraft Component Manufacturing

• Massive global customer base • Limited customer base

• Short term or transactional deals • Long lead times
• Low barriers to entry • Very long term contracts
• Work “turns up at the door” • High barriers to entry
• Works rates have to adjusted on a • PO’s placed years in advance
week by week basis • Works to factory “beat rates”
• Multiple work scopes and • One defined product output
customer requests • Pricing fixed
• Depending on life cycle pricing is
at “market value”

FLEXIBILITY DEPENDABILITY

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
Broad Transactional

Output
oriented
solutions Narrow
Broad Output
Output
Oriented
Oriented
Service
Integration

Narrow Broad
Transactional Transactional

Transactional • Package Pricing

solutions

Few ATA Most of ATA

• Moog Asset Trading
Breadth
Chapters Chapters
• Configuration and SB management

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
Broad Output Oriented

Output
oriented
solutions Narrow
Broad Output
Output
Oriented
Oriented
Service
Integration

Narrow Broad
Transactional Transactional

Transactional
solutions
• License Agreements
Few ATA Most of ATA
Breadth
Chapters Chapters
• Back to Back FH rates
• Repair Packages

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
Narrow Output Oriented

Output
oriented
solutions Narrow
Broad Output
Output
Oriented
Oriented • Flight hour based maintenance
Service
Integration • Asset Support
• Global stocking locations
Narrow Broad
Transactional Transactional • Technical training
Transactional
solutions • On-site technical support
Few ATA
Chapters
Breadth Most of ATA
Chapters
• 24/7 Service Centre

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
Narrow Transactional

Output
oriented
solutions Narrow
Broad Output
Output
Oriented
World Class Repair Station
Oriented
Service
Integration
• 6 day TAT
Narrow Broad • Price Competitive
Transactional Transactional • Advanced Exchanges
Transactional • 24/7 Service Centre
solutions

Few ATA Most of ATA

• Global stocking locations
Breadth
Chapters Chapters
• Variety of pricing options
• Flexible work scopes
• Extended guarantees

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
Key Messages

ƒ OEMs must adapt to market needs to protect their aftermarket long

term.

ƒ A wide variety of options that addresses aircraft lifecycle and market

segment are essential.

ƒ Innovation needs to be fluid.

DON’T EXPECT THE MRO LANDSCAPE TO

LOOK THE SAME IN 5 YEARS TIME!

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.
 THANKYOU!

Cautionary Statement Regarding Forward Looking Information, Opinions Expressed Herein and the Use of Logos, 
Trademarks and Sevicemarks
The forecasts, projections and estimates contained in these materials, which can be identified by the use of forward 
looking terms, such as “project,” “estimate,” “2014E” or variations thereon or comparable terminology, are forward 
looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. 
Several factors described under the heading “Cautionary Statement” in Moog’s Press Release or 8‐K of 01/24/2014, or 
Moog’s Form 10‐Q filed 01/29/2014, could cause actual results to differ materially from results referred to in the 
forward looking statements. The views expressed in the presentation are not necessarily the views of Moog’s 
Corporate management. Any use of logos, or trademarks and service marks is for identification only. Their use is in no 
way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services. 

Any use of logos, or trademarks and service marks is for identification only. Their use is in no way shown as an endorsement of Moog or Moog Aircraft Group or Moog Aftermarket services.