Ready to serve the world Russian MRO market reality Speaker: Vladimir Perekrestov CEO Aircraft Maintenance Russia and CIS 8th international conference Moscow, Russia, February 2013

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

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

Ready to serve the world Number of western aircraft in Russia/Other CIS fleets CISRussian Federation *Source AeroTransport Data Bank, October 2012 Wide-body aircraftNarrow-body aircraftRegional aircraftTotal RF CIS Total

Ready to serve the world MRO market Russia and CIS, USD M* * 2012, estimate made by Engineering Holding Wide body A/C Regional A/C Narrow body A/C BaseLineModificationsComponentsEngineTotal Market volume Russia and CIS, USD M

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

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

Ready to serve the world Breakdown of Total Airline Costs – From World Experience Typical Airline Cost BreakdownTypical Airline’s MRO Cost Breakdown 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 Maintenance costs typically range between 7%-14% of an airline’s operating budget Source: Form 41 & ICF SH&E Analysis Maintenance 9%

Ready to serve the world Characteristics of Russian MRO market : Planning & IT Airlines’ insufficient maintenance planning horizon and insufficient IT support: 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

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 &

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

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 age of aircraft Reducing maintenance checks man-hours Demand for modern aircraft maintenance

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

Ready to serve the world Thank you for your attention!