Russian MRO market reality Speaker Vladimir Perekrestov CEO

Russian MRO market reality Speaker: Vladimir Perekrestov CEO v. perekrestov@e-mro. aero Aircraft Maintenance Russia and CIS 8 th international conference Moscow, Russia, 20 -21 February 2013 www. engineering-ru. com Ready to serve the world

Content • Development of Western-built aircraft MRO market in Russia • Russia&CIS MRO market • Advanced market segments • Competition in market of core products and services • Characteristics of Russian MRO market • Conclusion www. engineering-ru. com Ready to serve the world

Development of Western-built aircraft MRO market 1992 – Airbus A 310 was the first western-built aircraft to be operated in Russia 1996 – First time when Russian company gained EASA Part 145 approval 2004 – First С-Check maintenance on Airbus A 320 Family was implemented in Russia 2005 – 2006 –Soviet-built to Western-built large-scale fleet replacement in Russia 2005 – 2008 – High demand for engineering and technical personnel to perform maintenance on aircraft and parts 2006 – Establishing the first EASA Part-147 approved training center to provide engineering and technical personnel training services 2011 – Cancellation of customs duties on western-built aircraft spare parts 2011 – First D-Check maintenance implemented on Airbus A 320 Family in Russia 2012 – First Redelivery Check performed on Boeing 737 CL in Russia 2012 – Establishing the consignment stock of commercial western-built aircraft spare parts in Russia www. engineering-ru. com Ready to serve the world

Number of western aircraft in Russia/Other CIS fleets 200 180 160 140 120 100 80 60 40 20 CIS 95 /1 ER J- 19 0 14 5 -9 13 5/ C H ER J- D 70 0 00 R J C /2 10 0 77 C R J B 7 67 B 7 57 B 7 47 B 7 -7 B 7 2 37 C L B 7 37 N G AT R R -4 2 30 AT A 3 21 A 3 20 19 A 3 10 A 3 00 0 Russian Federation Wide-body aircraft Narrow-body aircraft Regional aircraft Total RF 89 387 78 554 CIS 25 156 57 238 Total 114 543 135 792 *Source Aero. Transport Data Bank, October 2012 www. engineering-ru. com Ready to serve the world

MRO market Russia and CIS, USD M* Wide body A/C Regional A/C Narrow body A/C Base Market volume Russia and CIS, USD M Line Modifications Components Engine Total 232 357 161 393 644 1 787 * 2012, estimate made by Engineering Holding www. engineering-ru. com Ready to serve the world

MRO providers in Russia and CIS market: competition MRO providers in Russia and CIS: The World’s MRO providers: Vostok Technical Service Analysts are forecasting competition increase among organizations which provide MRO services on the territory of Russia www. engineering-ru. com Ready to serve the world

MRO market in Russia and CIS, capability High Engineering Base Maintenance Line Labor share of total cost Landing Gear Cabin interiors Evacuation Equipment Wheels & brakes Thrust Reverser ? APU Hydraulics Fire protection & Oxygen Low Source: ICF SH&E Analysis Cabin Systems Fuel Air system Batteries Electric Power Engine Avionics Up-front capital investments required High Current market www. engineering-ru. com Ready to serve the world Potential market

Breakdown of Total Airline Costs – From World Experience Maintenance costs typically range between 7%-14% of an airline’s operating budget Typical Airline Cost Breakdown Typical Airline’s MRO Cost Breakdown Maintenance 9% Annual airline maintenance spend as a % of total cost will fluctuate year-to-year based on timing of major visits (e. g. D-checks & engine overhauls), fleet age, size, mix and the price of fuel Source: Form 41 & ICF SH&E Analysis www. engineering-ru. com Ready to serve the world

Characteristics of Russian MRO market: Planning & IT Airlines’ insufficient maintenance insufficient IT support: planning horizon and • Failure to plan preparation for maintenance checks (aircraft spare parts and labour resources) • Increasing maintenance TAT • Maintenance costs increase Only 5 customers of Engineering Holding develop and provide long-term (1 -2 years) maintenance plans www. engineering-ru. com Ready to serve the world

Characteristics of Russian MRO market: spare parts stocks & supply chain management Absence of market players who own large aircraft spare parts stocks on the territory of Russian Federation and insufficient supply chain management: • Minimum spare parts stocks for the most demanded aircraft types • Poorly developed aircraft parts-out business & A J Walter Aviation www. engineering-ru. com Ready to serve the world

Characteristics of Russian MRO market: additional services Insufficient Airlines’ attention to the technical aspects such as: • Aircraft interior and cabin equipment repair • AC delivery/redelivery • AC documentation and records keeping www. engineering-ru. com Ready to serve the world

Characteristics of Russian MRO market: changing aircraft fleet structure Airlines fleet renewal: • Russian operators reduce their Boeing 737 CL fleet • Reducing average of aircraft • Reducing maintenance checks man-hours • Demand for modern aircraft maintenance www. engineering-ru. com Ready to serve the world

Conclusion: Opportunities to reduce airlines’ maintenance expenditures • Improvement of maintenance planning horizon • Implementation of proper IT solutions • Increase of aircraft maintenance outsourcing share in segments where in-house maintenance is not cost effective • Growth of aircraft spare parts stocks in Russia • Improvement of supply chain management efficiency www. engineering-ru. com Ready to serve the world

Thank you for your attention! www. engineering-ru. com Ready to serve the world