South Korea - Civil Aerospace: A volume driven market (Strategy, Performance and Risk Analysis)
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South Korea is one of the growing economies in the world with nominal GDP increasing at 3.1% growth rate from US$1.38 trillion in 2015 to US$1.43 trillion in 2016 and is expected to grow at 4.3% CAGR over 2017-21 to reach US$1.84 trillion by 2021. This is attributed to the growth in exports. The country also has strong political and economic support from the US. South Korea’s infrastructure is one of the most advanced in the world and scores higher than the global and regional median in terms of infrastructure. The country has a well developed network of roads, airways and waterways. The presence of advanced infrastructure provides lots of growth opportunities for all major sectors including civil aerospace. South Korea’s civil aerospace industry has started undertaking activities related to the manufacturing of aircraft and related components at Sacheon, Daejeon and Seosan. The country has started manufacturing engines and fuselage parts at the Gyeongsangnam-do facility.
Increase in number of air passengers driving growth in deliveries
In South Korea, the number of air passengers increased at a growth rate of 16.8% from 65.4 million in 2015 to 77.1 million in 2016 and is expected to increase at 8.2% CAGR over 2017-2021 from 82.5 million in 2017 to 112.9 million in 2021. This increase in the number of air passengers in the country coupled with the launch of new direct air routes is expected to drive the growth of deliveries in South Korea in the forecast period. The wide body deliveries are expected to increase from 16 in 2017 to 17 in 2021 and the number of new deliveries are expected to increase from 16 in 2017 to 17 in 2021.
Deliveries leading to an increase in active fleet size
The increase in the number of deliveries combined with the increasing number of air passengers are also expected to drive the active fleet size in the country as the airlines look to capitalize on the increasing number of air passengers by launching new routes and increasing the frequency of operations on existing popular routes. The active fleet size increased at a growth rate of 14.7% from 299 aircraft in 2015 to 343 aircraft in 2016 and is forecast to increase at 8.3% CAGR from 368 aircraft in 2017 to 507 aircraft in 2021.
MRO expenses to increase
The maintenance, repair and overhaul (MRO) expenditure in South Korea increased at a growth rate of 10.4% from US$555.7 million in 2015 to US$613.8 million in 2016 and is expected to increase at 9% CAGR from US$735.3 million in 2017 to US$1,039.0 million in 2021. The increase is due to an increase in the number of aircraft in higher age groups (more than 20 years) between 2015 and 2016 as they require high maintenance in order to stay airworthy. The number of aircraft aged more than 20 years increased from 12 in 2015 to 16 in 2016.