2013_03_26 Aerospace & Defence Briefing JPM

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North America Equity Research26 March 2013

Aerospace and DefenseThe Intelligence Briefing March 2013

Aerospace & Defense

Joseph B. Nadol IIIAC

(1-212) 622-6548

[email protected]

J.P. Morgan Securities LLC

Seth M. Seifman, CFA

(1-212) 622-5597

[email protected]


Christopher Sands

(1-212) 622-9224

[email protected]


Shailendra K Jain

(91-22) 6157-3325

[email protected]

J.P. Morgan India Private Limited

See page 51 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that tfirm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factormaking their investment decision.

The Intelligence Briefing is our monthly data handbook foraerospace/defense. It contains stock performance and valuation data,fundamental information on commercial aero and defense, and historical and

projected financial data for our universe.

We see downside risk to our estimates as a result of sequestration .Sequestration took effect on March 1st, imposing a ~$46 bn cut to the FY13

budget. Our forecast for 4-5% average organic revenue declines over the nextthree years reflects a $20 bn cut, and therefore we see an average of ~300 bps ofincremental pressure in each of those years due to the sequester. The sequesteris designed to cut each account, excluding military personnel, by the same

percentage, but we expect that DoD will ultimately have greater discretion overhow the cuts are allocated. Congress has passed a full-year FY13 defense

appropriations bill that just awaits the signature of the president, and this willalso give DoD some added flexibility to cope with the cuts this year. (pg. 39)

Investment account outlays declined sharply in February. For the month,investment account outlays declined 32% y/y, driven by a 38% y/y decline in

procurement spending and a 19% y/y decline in RDT&E outlays. LTMinvestment account outlays, which are generally a good proxy for industryaverage organic revenues, declined 5% y/y for the period ending in February.O&M outlays declined 12% y/y in the month, while total DoD outlaysdecreased 16% y/y in the period. On an LTM basis, both O&M and total DoDoutlays declined 4% y/y in February. (pg. 39)

Boeing and Airbus are still building backlogs.Narrowbody orders have beenthe source of strength for both OEMs. At Boeing, American and Ryanair have

placed an estimated 372 net orders YTD vs 2013 delivery guidance for ~640 andRyanair may order the 737 MAX as well. Similarly, American, Lufthansa,Turkish, and LionAir account for the bulk of the ~600 gross orders/commitments Airbus has announced, nearly reaching the companys 2013 targetof ~700 gross orders. Widebody activity has been more muted, though Boeingexpects a 777 book-to-bill of ~1.0x this year, implying nearly 100 orders. Recentorder activity reinforces our confidence in the cycle and in planned Boeing andAirbus production rates, though some segments of the market particularlySoutheast Asia may be ordering too aggressively. (pg. 20)

Global traffic growth should improve in Feb. The timing of Chinese NewYear should drive a bounce in Feb global traffic growth off of Jans 2.7%,though the adverse leap year comp should dampen the improvement. Our trafficmodel suggests 5.5-6.0% growth, though this does not account fully for the leap

year. Through Feb, YTD growth is running below our 2013 forecast of 4.5-5.0%; however, comps are tougher early in the year, and IATA last week raisedits 2013 RPK growth forecast to 5.4% from 4.5%. Chinese New Year timingshould mean substantial Feb growth in Asia/Pac, while US carriers reportedmodest declines in Feb, in part due to the leap year. Weekly AEA data showslow- to mid-single-digit growth for Europe. (pg. 7)


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North America Equity Research

26 March 2013Joseph B. Nadol III(1-212) [email protected]

Performance and ValuationPerformance

Table 1: Company Average Annual Total Return Comparison

As of Mar 25, 2013

Source: Bloomberg.

Company Symbol 2005 2006 2007 2008 2009 2010 2011 2012 YTD 1 Year 3 Year 5 Year 10 Year 15 Year

Alliant Te chsy stems ATK 17% 3% 45% -25% 3% -16% -22% 10% 15% 41% -4% -6% 4% 10%

B/E Aerospace BEAV 89% 17% 106% -85% 206% 58% 5% 28% 20% 26% 25% 12% 44% 5%

Boeing BA 38% 28% 0% -50% 32% 24% 15% 5% 13% 18% 8% 5% 15% 5%

Bombardier BBD/B 17% 43% 51% -25% 11% 6% -17% -4% 6% -5% -10% -5% 4% -4%

CACI CACI -16% -2% -21% 1% 8% 9% 5% -2% 2% -10% 4% 4% 5% 12%

Comtech CMTL 22% 25% 42% -15% -24% -20% 7% -7% -3% -23% -5% -7% 18% 18%

Embraer ERJ 21% 8% 12% -63% 40% 37% -12% 15% 20% 11% 15% -1% 15%

Ex elis XLS 29% -4% -9%

General Dy namics GD 11% 32% 21% -34% 22% 7% -4% 8% 0% -2% 0% -2% 12% 10%

Huntington Ingalls Industries HII 39% 21% 41%

Harris Corporation HRS 40% 8% 38% -38% 35% -3% -18% 40% -8% 5% 1% 2% 15% 7%

L-3 Communications LLL 2% 11% 31% -29% 20% -17% -3% 23% 5% 23% -1% -3% 9%

Lockheed Martin LMT 16% 47% 16% -19% -8% -4% 21% 20% 1% 8% 8% 2% 10% 6%

Northrop Grumman NOC 13% 15% 18% -41% 28% 20% 3% 20% 1% 16% 8% 2% 9% 5%

Precision Castparts PCP 58% 51% 77% -57% 86% 26% 18% 15% 0% 10% 16% 14% 32% 19%

Ray theon RTN 6% 34% 17% -14% 4% -8% 9% 23% -1% 13% 3% 1% 10% 2%

Rockw ell Collins COL 19% 38% 15% -45% 45% 7% -3% 7% 8% 11% 2% 4% 14%

SAIC SAI 13% -3% -3% -16% -23% -5% 15% 1% -11% -6%

Spirit AeroSy stems SPR 3% -71% 95% 5% 0% -18% 8% -26% -7% -4%

Tex tron TXT 6% 24% 54% -80% 37% 26% -21% 34% 20% 10% 10% -10% 10% 0%

TransDigm TDG 70% -26% 66% 52% 33% 56% 9% 41% 46% 39%United Technologies UTX 10% 14% 24% -28% 33% 16% -5% 15% 14% 16% 11% 8% 14% 12%

Wesco Aircraft Holdngs WAIR -6% 10% -7%

Average 22% 23% 32% -37% 37% 10% -1% 15% 7% 9% 6% 2% 14% 8%

S&P 500 SPX 5% 16% 5% -37% 26% 15% 2% 16% 9% 14% 12% 5% 8% 4%


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Joseph B. Nadol III(1-212) [email protected]

Comp Sheet

Table 2: Coverage Universe Valuation (as of Mar 25, 2013)

Valuation Metrics

Market P/E P/PAE EV/EBITDA EV/EBITDAP EV/Sales P/FCF Price Implied

Company Pri ce S ymbol Rating Cap (bln) 20 12E 2 01 3E 2 014 E 2 01 3E 2 014 E 2 013 E 2 014 E 2 0 13 E 20 14E 20 13E 20 14E 2 01 3E 2 014 E Target Ups ide

Alliant Techsystemsab

$71.22 ATK OW 2.3 9.0x 10.0x 10.3x 9.0x 9.3x 5.7x 5.5x 5.3x 5.2x 0.7x 0.7x 11.2x 9.0x $76.00 7%

B/E Aerospace $59.12 BEAV OW 6.1 20.9x 16.9x 13.4x 16.9x 13.4x 10.4x 8.4x 10.4x 8.4x 2.2x 1.8x NM 15.1x $57.00 -4%

Boeing $84.85 BA OW 64.8 16.6x 15.3x 14.3x 12.8x 11.7x 7.3x 6.5x 7.3x 6.5x 0.7x 0.6x 13.2x 8.3x $94.00 11%

Bombardierd $3.87 BBD/B CT N 6.7 11.6x 13.2x 9.5x 13.2x 9.5x 8.1x 6.5x 8.1x 6.5x 0.6x 0.5x NM NM NA NA

CACIb

$55.94 CACI N 1.4 9.0x 8.8x 8.8x 8.8x 8.8x 5.8x 5.5x 5.8x 5.5x 0.5x 0.5x 6.3x 7.2x $60.00 7%

Comtechc

$24.50 CMTL OW 0.4 20.9x 27.5x 14.9x NM 14.9x 5.1x 3.9x 5.1x 3.9x 0.8x 0.8x 18.5x 10.9x $29.00 18%

Embraer $34.19 ERJ UW 6.2 16.9x 12.2x 12.4x 12.2x 12.4x 6.6x 6.5x 6.6x 6.5x 1.0x 0.9x NM NM $32.00 -6%

Exelisa $10.77 XLS N 2.0 5.8x 7.3x 7.0x 7.3x 7.9x 4.0x 3.6x 4.0x 3.9x 0.5x 0.5x 8.8x 7.7x $11.00 2%

General Dynamics $69.53 GD OW 24.7 NM 10.4x 10.5x 10.4x 10.5x 5.9x 5.8x 5.9x 5.8x 0.8x 0.8x 10.4x 10.6x $73.00 5%

Harris Corporation $44.63 HRS UW 5.0 8.5x 9.1x 9.9x 9.1x 9.9x 5.4x 5.6x 5.4x 5.6x 1.2x 1.2x 8.5x 8.7x $45.00 1%

Huntington Ingallsa

$52.36 HII N 2.6 18.0x 13.3x 9.2x 10.3x 8.9x 5.6x 4.3x 4.9x 4.2x 0.5x 0.5x 17.1x 6.9x $50.00 -5%

L-3 Communications $79.82 LLL N 7.8 10.0x 9.8x 10.0x 9.8x 10.0x 7.0x 6.9x 7.0x 6.9x 0.8x 0.8x 7.1x 7.4x $80.00 0%

Lockheed Martina

$92.31 LMT N 30.3 11.0x 10.5x 10.4x 9.3x 10.1x 6.4x 6.1x 5.8x 6.0x 0.8x 0.8x 8.6x 10.1x $92.00 0%

Northrop Grummana $67.91 NOC UW 17.2 8.7x 9.8x 9.2x 10.3x 10.7x 5.2x 5.1x 5.4x 5.7x 0.7x 0.7x 11.5x 8.4x $64.00 -6%

Precision Castparts $189.62 PCP OW 27.8 20.5x 16.2x 14.2x 16.2x 14.2x 11.6x 9.9x 11.6x 9.9x 3.0x 2.7x 18.7x 16.6x $195.00 3%

Raytheona

$56.76 RTN N 19.0 10.0x 10.8x 10.6x 9.7x 10.0x 6.2x 5.9x 5.6x 5.6x 0.8x 0.8x 8.8x 9.8x $57.00 0%

Rockwell Collins $62.53 COL OW 9.0 14.8x 13.0x 11.9x 13.0x 11.9x 8.7x 7.5x 8.7x 7.5x 2.0x 1.9x NM 12.7x $66.00 6%

SAICc $12.89 SAI N 4.3 8.3x 10.8x 10.4x 10.8x 10.4x 5.7x 5.3x 5.7x 5.3x 0.5x 0.4x 7.0x 7.3x $12.00 -7%

Spirit AeroSystems $18.25 SPR N 2.6 NM 8.3x 6.4x 8.3x 6.4x 5.7x 4.8x 5.7x 4.8x 0.7x 0.6x NM 12.7x $22.00 21%

Textron $29.69 TXT N 8.7 15.1x 13.2x 11.4x 13.2x 11.4x 7.8x 6.6x 7.8x 6.6x 0.9x 0.8x NM 14.0x $30.00 1%

TransDigmb

$148.28 TDG N 8.0 27.0x 21.4x 18.2x NM 18.2x 13.1x 11.6x 13.1x 11.6x 6.1x 5.5x 16.4x 16.3x $130.00 -12%

United Technologies $92.80 UTX OW 84.1 17.4x 15.0x 13.0x 15.0x 13.0x 9.0x 7.7x 9.0x 7.7x 1.6x 1.4x 13.1x 11.4x $98.00 6%

Wesco Aircraft Holdingsc $14.50 WAIR OW 1.4 15.9x 12.2x 10.4x 12.2x 10.4x 9.1x 8.0x 9.1x 8.0x 2.1x 1.9x 12.3x 14.7x $17.00 17%

Average/Total: $342.6 14.1x 12.8x 1 1.2x 11.3x 11.0x 7.2x 6.4x 7.1x 6.4x 1.3x 1.2x 11.6x 10.8x

S&P 500 (Consensus) $1,551.69 SPX 14.0x 12.6x 11.4x

A & D discount/(premium) 0% -2% 2%

Other Financial Metrics

EPS PAEPS FCF (per share) Sales (bln) Operating Margin Dividend Dividend / Market Net Debt /

Company 20 12E 2 013 E 2 01 4E 2 013 E 20 14E 2 01 3E 2 014 E 2 01 2E 2 013 E 2 014 E 2 0 12 E 2 013 E 20 14E Yi el d '13 PAEPS Cap Net Debt EV ' 13 EB ITDAP

Alliant Techsystemsab

$7.96 $7.11 $6.89 $7.91 $7.64 $6.37 $7.92 4.5 4.1 3.9 10.2% 9.8% 9.7% 1.5% 13.1% 2.3 0.7 3.1 1.3x

B/E Aerospace 2.83 3.50 4.40 3.50 4.40 2.50 3.91 3.1 3.4 3.9 17.5% 18.4% 19.5% 0.0% 0.0% 6.1 1.6 7.6 2.2x

Boeing 5.11 5.53 5.94 6.65 7.25 6.41 10.23 81.7 85.3 92.7 7.7% 7.5% 7.3% 2.3% 29.2% 64.8 (3.1) 61.7 (0.4x)

Bombardierd

0.33 0.29 0.40 0.29 0.40 (0.43) (0.16) 16.8 18.2 20.8 4.1% 5.1% 5.6% 2.5% 34.2% 6.7 2.5 9.2 1.9xCACI 6.22 6.37 6.38 6.37 6.38 8.85 7.75 3.7 3.7 3.6 7.6% 7.7% 7.7% 0.0% 0.0% 1.4 0.7 2.1 2.0x

Comtechc

1.17 0.89 1.64 0.89 1.64 1.33 2.24 0.4 0.3 0.3 11.7% 10.6% 13.7% 4.5% 123.3% 0.4 (0.2) 0.3 (3.1x)

Embraer 2.03 2.80 2.75 2.80 2.75 1.12 1.46 6.2 6.3 6.6 10.1% 10.5% 9.7% 2.3% 28.6% 6.2 (0.1) 6.1 (0.1x)

Exelisa 1.85 1.47 1.53 1.47 1.37 1.22 1.40 5.5 4.9 4.6 10.2% 9.3% 10.4% 3.8% 28.1% 2.0 0.4 2.4 0.6x

General Dynamics (0.93) 6.70 6.60 6.70 6.60 6.68 6.58 31.5 31.9 30.5 2.6% 11.2% 11.4% 3.2% 33.4% 24.7 0.6 25.3 0.1x

Harris Corporationb

5.23 4.90 4.50 4.90 4.50 5.26 5.13 5.4 5.2 5.0 17.4% 17.4% 16.4% 3.3% 30.2% 5.0 1.6 6.6 1.4x

Huntington Ingallsa

2.91 3.95 5.70 5.06 5.86 3.05 7.62 6.7 6.7 6.8 5.3% 6.2% 8.2% 0.8% 7.9% 2.6 0.8 3.4 1.1x

L-3 Communications 8.00 8.15 8.00 8.15 8.00 11.26 10.78 13.1 12.6 12.2 10.3% 10.0% 9.9% 2.5% 24.5% 7.8 3.3 11.1 2.2x

Lockheed Martina

8.36 8.80 8.85 9.88 9.15 10.77 9.15 47.2 44.7 43.6 9.3% 9.6% 10.0% 5.0% 46.5% 30.3 4.4 34.7 0.8x

Northrop Grummana 7.81 6.95 7.35 6.62 6.37 5.89 8.09 25.2 23.8 22.8 12.4% 11.2% 11.7% 3.2% 33.2% 17.2 0.1 17.3 0.0x

Precision Castparts 9.26 11.69 13.32 11.69 13.32 10.16 11.40 7.9 10.1 10.9 25.8% 26.0% 27.3% 0.1% 1.0% 27.8 3.3 31.1 1.3x

Raytheona

5.65 5.25 5.35 5.82 5.68 6.43 5.81 24.4 23.6 22.9 12.2% 11.3% 11.6% 3.9% 37.8% 19.0 0.7 19.7 0.2x

Rockwell Collins 4.23 4.82 5.25 4.82 5.25 3.02 4.92 4.7 4.7 4.9 18.7% 19.5% 20.1% 1.9% 24.9% 9.0 0.8 9.8 0.7x

SAICc 1.56 1.19 1.24 1.19 1.24 1.83 1.76 11.2 10.7 10.1 6.7% 6.8% 7.1% 3.7% 40.2% 4.3 0.8 5.1 0.9x

Spirit AeroSystems 0.24 2.20 2.85 2.20 2.85 (0.36) 1.44 5.4 6.0 6.9 -1.0% 9.6% 9.7% 0.0% 0.0% 2.6 1.6 4.2 2.2x

Textron 1.97 2.25 2.60 2.25 2.60 1.17 2.12 12.2 12.6 13.4 8.0% 8.0% 8.5% 0.3% 3.5% 8.7 2.6 11.3 1.9x

TransDigm 5.48 6.94 8.14 6.94 8.14 9.02 9.10 1.8 1.9 2.0 40.9% 43.1% 44.4% 0.0% 0.0% 8.0 3.3 11.3 3.7x

United Technologies 5.33 6.20 7.15 6.20 7.15 7.08 8.14 57.7 65.1 69.1 13.3% 14.4% 15.4% 2.3% 34.5% 84.1 18.4 102.5 1.6x

Wesco Aircraft Holdingsc 0.91 1.19 1.39 1.19 1.39 1.18 0.99 0.8 0.9 1.0 19.3% 21.3% 21.8% 0.0% 0.0% 1.4 0.6 2.0 2.7x

Average/Total: 377.2 387.0 398.6 12.2% 13.2% 13.8% 2.0% 25.0% 1.0x

S&P 500 110.51 123.34 136.49

Note: J.P. Morgan ratings: OW = Overweight; N = Neutral; UW = Underweight; NR = Not rated. Price targets are for Dec 31 '13. a. PAEPSexcludes net pension expense for BA (estimated) LMT , NOC, RTN, ATK, XLSand HII.

b. ATK, CACI, COL, HRS, PCP, TDG, and WAIR estimates are calendar year; c. CMTL and SAI years are from Feb. to Jan. Estimates are in U.S. Dollars; d. BBD stock price converted from Canadian Dollars for multiple calculations based on current exchange rates.

Source: Bloomberg, Company reports, and J.P. Morgan estimates.


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Historical Valuation

Figure 1: J.P. Morgan Aerospace/Defense Universe 2 Year Forward

P/E vs. S&P 500, 1990 2013 YTD

Source: Bloomberg. Note: SPX multiple reflects Bloomberg generated earnings data.

Figure 2: J.P. Morgan Aerospace/Defense Universe Multiple Points

Disc/Prem. to S&P 500, 1990 2013 YTD

Source: Bloomberg. Note: SPX multiple reflects Bloomberg generated earnings data.

Figure 3: Aerospace Forward P/E vs. Historical Average, 2001 -2013YTD

Source: Bloomberg. Note: Includes BA, BBD/B, BEAV, COL, ERJ, GR, PCP, SPR, TDG, and

WAIR. GR was acquired in July 2012, hence removed from the Aero Index since then.

Figure 4: Defense Forward P/E vs. Historical Average, 2001 -2013YTD

Source: Bloomberg. Note: Includes GD, LLL, LMT, NOC, and RTN.

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Commercial Aerospace

Delivery Forecast and Supply/Demand Outlook

Table 3: J.P. Morgan Large Commercial Aircraft Delivery Forecast

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016EBoeing717 13 5 0 0 0 0 0 0 0 0 0 0737 212 302 330 290 372 376 372 415 439 492 504 504747 13 14 16 14 8 0 9 31 24 18 18 18757 2 0 0 0 0 0 0 0 0 0 0 0767 10 12 12 10 13 12 20 26 24 24 24 24777 40 65 83 61 88 74 73 83 98 100 100 100787 0 0 0 0 0 0 3 46 65 125 128 120Subtotal 290 398 441 375 481 462 477 601 650 759 774 766

Airbus

300/310 9 9 6 0 0 0 0 0 0 0 0 0A320 Family 289 339 367 386 402 401 421 455 480 480 480 480330/340 80 86 79 85 86 91 87 103 110 110 90 75350 0 0 0 0 0 0 0 0 0 1 20 40380 0 0 1 12 10 18 26 30 25 35 30 30Subtotal 378 434 453 483 498 510 534 588 615 626 620 625

OtherE190/5 12 43 78 92 82 75 92 85 66 45 40 33CSeries 0 0 0 0 0 0 0 0 0 20 50 100Subtotal 12 43 78 92 82 75 92 85 66 65 90 133

Total 680 875 972 950 1,061 1,047 1,103 1,274 1,331 1,450 1,484 1,524

Source: J.P. Morgan estimates Company data.

Table 4: J.P. Morgan Commercial Aircraft Supply/Demand Model

2013E 2014E 2015E 2016E 2017EInitial Seats (th) 3,202 3,371 3,556 3,738 3,926Additions (th) 259 279 282 292 303Retirements (th) (90) (94) (100) (105) (110)Ending Seats (th) 3,371 3,556 3,738 3,926 4,119Growth 5.3% 5.5% 5.1 5.0 4.9%

Retirement Rate 2.8% 2.8% 2.8 2.8 2.8%

Seats CAGR, 2013-2017 5.2%Traffic CAGR, 2013-2017 5.0%

Source: Ascend, company reports, and J.P. Morgan estimates.

Table 5: Monthly Build Rate Projections

Model 2010 2011 2012 2013E 2014E737 31.5 31.5 35 38 (2Q) 42 (1H)A320 family 34, 36 (Dec) 36, 38 (Aug) 40(1Q), 42 (4Q) 42 42777 6 6 7 8.3 (1Q13) 8.3A330/340 8 8 9 10 (2Q) 10

Source: Company reports and J.P. Morgan estimates.


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Air Traffic Trends and Distribution

Global

Figure 5: Global Traffic Growth to GDP Growth Multiple, 1980 2012E

Source: ICAO and J.P. Morgan economics. Note: 1982 removed from average because traffic grew while GDP fell.

Figure 6: Global GDP Growth, Traffic Growth, and Multiple, 2001-2012E

Source: ICAO, and J.P. Morgan economics.

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Figure 7: Global Air Traffic Distribution (ICAO), 2012E

Source: ICAO.

Figure 8: Global Air Traffic Growth Contribution by Region, 2000 2012

Source: ICAO, Ascend, JAL, ANA, and J.P. Morgan estimates.

Africa2%

Asia/Pacific30%

Europe27%

Latam

5%

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North America27%

Africa3%

Asia Pacific37%

Europe28%

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US

Figure 9: US: Quarterly Traffic Growth to GDP Growth Multiple, 1Q01-4Q12

Source: ATA and J.P. Morgan economics. Note: All Multiples have been capped at -10 to make chart more readable.

EuropeFigure 10: Europe: Quarterly Traffic Growth to GDP Growth Multiple, 1Q01-4Q12

Source: AEA and J.P. Morgan economics. Note: All multiples have been capped at 10 and -10 to make chart more readable.

We excluded 4Q11, 1Q12, 2Q12, and 3Q12 from the Multiple line as traffic grew while GDP fell or remained flat.

China

Figure 11: China: Quarterly Traffic Growth to GDP Growth Multiple, 1Q01-4Q12

Source: CAAC and J.P. Morgan economics. Note: All multiples have been capped at 10 to make chart more readable.

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Q12002

Q12003

Q12004

Q12005

Q12006

Q12007

Q12008

Q12009

Q12010

Q12011

Q12012

Multiple 1 Year Average Multiple 2 Year Average Multiple

-6.0-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Q12001

Q12002

Q12003

Q12004

Q12005

Q12006

Q12007

Q12008

Q12009

Q12010

Q12011

Q12012



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Figure 12: China Domestic/Regional vs. International Traffic Growth, 2011-2013 YTD

Source: CAAC. Note: 2013 through Jan.

Figure 13: China Traffic Distribution (Major Airlines and Domestic vs International), 2012

Source: CAAC and company traffic reports.

India

Figure 14: India: Quarterly Traffic Growth to GDP Growth Multiple, 1Q01-3Q12

Source: DGCA and J.P. Morgan economics. Note: All multiples have been capped at 10 to make chart more readable.

We have removed Kingfisher Airlines and Air India Express data from 2Q12, 3Q12, 2Q11, and 3Q11 to make data comparable.

0%

5%

10%

15%

20%

25%

30%

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Domestic International

China Eastern

22%

ChinaSouthern

27% Air China19%

Others32%

Domestic80%

International20%

-6.0-4.0-2.0

0.02.04.06.08.0

10.0

Q12001

Q12002

Q12003

Q12004

Q12005

Q12006

Q12007

Q12008

Q12009

Q12010

Q12011

Q12012



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11



Figure 15: India Domestic vs. International Average Monthly Traffic (RPKs), 2000 2012

Source: DGCA. Note. 2012 data through November.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012YTD

Domestic International


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IATA Traffic Monitor

Table 6: International RPK Growth by Region

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013JanuaryAfrica 12.0% 7.3% 9.4% 7.4% 8.1% 2.8% -2.6% 6.3% 14.3% -3.6 9.1%Asia/Pacific 13.3% 6.3% 2.5% 6.4% 5.0% 5.7% -8.4% 6.5% 5.8 6.0% 0.1%Europe 11.6% 3.8% 9.9% 5.2% 5.5% 0.3% -5.7% 3.1% 7.9 5.3% 2.1%Latin America 15.4% 3.3% 15.0% 2.8% -8.7% 16.9% -1.4% 11.0% 11.0% 7.9% 12.2Middle East 24.8% 30.3% 10.7% 18.3 19.8 7.4% 3.1% 23.6% 11.7% 14.5% 14.3North America 6.4% 3.3% 11.8% 3.6% 6.6% 5.0% -6.2% 2.1% 8.7 -0.3 1.5%Global 11.0% 5.9 7.9 6.2% 6.1% 4.3 -5.6% 6.4% 8.2 5.5 3.7%

FebruaryAfrica 9.6% 4.0% 9.3% 9.0% 9.4% -0.7% -13.7% 9.8% -1.3% 24.7%Asia/Pacific 4.6% 3.8% 7.9% 7.3% 5.7% 9.0% -12.8% 13.5% 3.0 5.9%Europe 7.0% 9.6% 2.6% 6.4% 7.4% 5.8% -10.1% 4.3% 7.4 7.6%Latin America 8.5% 15.4% 11.7% 3.3% 1.3% 23.5% -3.8% 8.5% 11.8% 13.3%Middle East 17.6% 28.7% 11.5% 15.3 18.0 20.3% 0.4% 25.8% 8.4 23.4%North America -4.4% 10.8% 8.2% 3.6% 6.8% 8.8% -12.0% 4.4% 6.7 4.9%Global 5.1 9.8 6.6 6.8% 6.8% 9.2 -10.1% 9.5% 6.0 9.3

MarchAfrica -3.2% 2.0% 16.1% 7.4% 11.9 -4.3% -15.6% 13.6% -7.1% 14.3%Asia/Pacific -9.9% 10.2% 13.4% 6.2% 6.9% 4.3% -14.5% 12.6% -0.6% 8.1%Europe -3.4% 10.8% 7.5% 3.3% 8.2% 3.7% -11.6% 6.0% 5.3 8.8%Latin America 4.0% 5.0% 19.0% 1.3% 0.5% 19.7% -5.9% 4.6% 22.7% 7.7%Middle East -8.2% 40.2% 17.3% 18.1 20.4 15.4% 4.7% 25.9% 5.3 20.9%North America -11.5% 15.0% 14.9% 5.5% 5.0% 6.3% -13.4% 7.8% 3.7 5.3%Global -6.7% 13.3% 12.1 5.7% 7.8% 5.8 -11.1% 10.3 3.7 9.6

AprilAfrica -5.3% 12.1% 9.2% 12.3 9.9% -5.6% -7.1% 8.6% 1.2 7.0%Asia/Pacific -44.8% 74.8% 8.0% 9.2% 5.7% 2.6% -8.6% 3.5% 5.1 9.3%Europe -4.8% 20.4% 4.3% 8.4% 3.6% 1.6% -2.7% -11.7% 29.3% 5.9%Latin America 5.3% 18.3% 13.2% 7.3% 2.2% 4.0% 7.5% 1.2% 25.9% 9.0%Middle East -9.4% 64.2% 10.2% 22.1 17.8 11.0% 11.2% 13.0% 12.1% 16.0%North America -23.5% 36.6% 10.1% 9.5% 3.1% 3.8% -4.2% -1.9% 11.9% 1.6%Global -18.5% 36.3% 7.5 9.9% 5.4% 3.0 -3.1% -2.4 16.5% 7.4

MayAfrica -0.1% 8.3% 8.8% 9.8% 11.2 -2.2% -6.0% 16.9% 1.1 9.7%Asia/Pacific -50.8% 107.9% 7.3% 7.5% 5.1% 4.5% -14.3% 13.2% 4.7 5.5%Europe -5.5% 19.1% 6.6% 6.3% 3.2% 4.1% -9.4% 8.3% 10.9% 4.1%Latin America 2.0% 11.5% 13.3% 3.2% 4.2% 13.6% -9.2% 23.6% 21.3% 7.4%Middle East -1.6% 43.9% 17.9% 15.6 19.6 12.8% 9.5% 17.5% 7.8 15.8%North America -20.6% 32.8% 11.5% 4.9% 4.2% 8.2% -10.9% 10.9% 4.5 1.5%Global -21.0% 38.1% 8.8 7.0% 5.5% 6.0 -9.3% 11.7 8.0 5.6

JuneAfrica 1.1% 8.2% 0.0% 7.6% 7.6% -1.5% -5.9% 21.3% -2.9% 10.1%Asia/Pacific -35.8% 69.9% 0.0% 6.2% 5.0% 3.2% -14.5% 15.5% 3.3 6.0%Europe -0.8% 12.5% 0.0% 6.0% 2.7% 2.1% -7.1% 7.8% 8.9 7.3%Latin America 4.4% 4.0% 0.0% 1.9% 7.6% 12.5% -4.7% 14.7% 14.3% 11.2%Middle East 4.0% 36.7% 17.9% 17.3 16.2 9.6% 12.9% 18.0% 6.4 18.2%North America -12.4% 21.2% 0.0% 5.7% 5.8% 4.4% -6.7% 10.8% 2.4 1.6%Global -11.8% 25.5% 8.3 6.5% 5.3% 3.8 -7.2% 11.9 5.9 7.4

July

Africa 1.3% 12.4% 5.4% 13.1 5.9% 0.7% -5.5% 13.0% 6.6 5.2%Asia/Pacific -14.0% 27.7% 7.9% 4.4% 5.5% -0.5% -7.6% 10.9% 4.9 0.9%Europe 2.4% 11.5% 7.1% 3.3% 4.5% 1.3% -3.1% 6.2% 9.3 4.8%Latin America 5.3% 13.0% 12.9% -4.9% 6.7% 8.1% -3.5% 14.2% 10.3% 5.7%Middle East 17.5% 21.8% 12.3% 12.9 18.8 5.3% 13.2% 16.8% 9.7 11.2%North America -7.8% 16.2% 10.0% 8.0% 3.7% 4.2% -3.2% 7.9% 3.9 -2.1Global -3.6% 18.0% 8.5 5.2% 5.9% 1.9 -2.9% 9.2% 7.3 3.5

AugustAfrica 1.6% 2.4% 8.5% 8.9% 4.7% -5.0% -4.9% 10.8% 5.2 3.2%Asia/Pacific -4.6% 14.8% 5.8% 5.3% 9.5% -3.1% -1.6% 6.2% 5.3 2.9%Europe 4.4% 7.1% 5.0% 3.5% 6.4% 1.6% -2.8% 5.0% 7.9 5.6%Latin America 8.2% 7.9% 8.4% -8.5% 14.4 11.9% -2.3% 8.7% 5.6 7.3%Middle East 18.7% 17.7% 8.7% 11.9 19.8 4.3% 10.8% 12.3% 6.7 16.7%North America -6.5% 10.9% 7.1% 5.8% 6.3% 5.2% -2.5% 5.3% 2.9 0.5%


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14



Table 7: International ASK Growth & Load Factor

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

January ASK 10.2 3.7% 7.8 4.6% 5.6% 4.2% -2.0% 1.2% 9.1% 4.2% 2.7% Load Factor 71.6 73.3% 73.5% 74.6% 74.9 76.0% 72.8% 75.9% 75.7% 76.6% 77.6%February ASK 9.3% 8.1% 5.4 5.1% 6.1% 10.1% -5.9% 1.9% 9.3% 7.3% Load Factor 70.4 71.3% 72.0% 73.3% 73.3 75.1% 69.9% 75.5% 73.0% 74.4%March ASK 5.6% 5.5% 9.7 5.2% 5.8% 6.0% -4.4% 2.0% 8.6% 5.0% Load Factor 68.8 73.4% 75.0% 75.5% 76.4 73.3% 72.1% 78.0% 74.6% 77.7%April ASK -6.2% 17.2% 7.6 5.5% 5.6% 5.0% -2.5% -5.0% 16.8% 4.3% Load Factor 63.5 73.4% 73.4% 76.5% 76.3 77.7% 74.4% 76.9% 76.7% 79.1%May ASK -12.6% 26.2% 7.3 4.9% 5.2% 5.4% -5.0% 4.8% 8.1% 4.1% Load Factor 65.0 71.0% 71.9% 73.6% 73.7 75.4% 71.2% 76.0% 75.8% 77.0%June ASK -9.6% 21.7% 7.0 4.4% 5.0% 5.5% -4.3% 5.9% 7.2% 5.0%

Load Factor 73.0 75.6% 76.6% 78.3% 78.4 74.3% 75.3% 79.8% 79.0% 81.0%July ASK -4.1% 16.4% 7.0 3.9% 5.5% 3.8% -2.8% 6.1% 7.2% 3.5% Load Factor 77.5 78.4% 79.6% 80.8% 81.0 77.6% 80.3% 82.9% 83.1% 83.3%August ASK -1.4% 12.4% 5.3 4.3% 7.5% 3.7% -2.5% 5.5% 6.6% 4.1% Load Factor 79.5 78.3% 78.9% 79.4% 80.3 79.9% 80.9% 81.6% 81.2% 82.1%September ASK 0.7% 10.4% 6.3 4.4% 7.5% 1.1% -2.4% 7.3% 7.5% 3.1% Load Factor 75.8 75.5% 76.6% 76.9% 77.4 79.2% 77.1% 80.0% 79.5% 80.9%October ASK 0.7% 10.3% 5.4 4.8% 6.1% 0.9% -3.3% 8.2% 7.1% 2.2% Load Factor 74.6 74.5% 74.8% 74.9% 76.5 74.8% 78.0% 79.6% 77.6% 78.3%November ASK 2.0% 8.1% 4.6 5.5% 7.6% -1.0% -1.4% 7.8% 5.2% 3.1% Load Factor 72.6 71.8% 73.0% 73.9% 75.4 75.0% 75.4% 75.6% 74.6% 76.3%December ASK 1.8% 8.9% 4.3 5.5% 6.1% -1.5% -0.7% 5.8% 7.4% 2.8% Load Factor 74.0 72.9% 74.2% 75.0% 76.0 72.7% 77.6% 77.2% 76.2% 77.9%

Source: IATA.

Figure 16: Global RPK and ASK Growth, Apr 11 - Jan 13

Source: IATA. Note: Feb 2012 adjusted for estimated leap year impact.

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13

RPKs ASKs


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15



Figure 17: Difference between RPK Growth and ASK Growth

Source: IATA. Note: 2013 YTD through Jan.

Figure 18: Global RPK Growth for Last Twelve Months (Monthly)

Source: IATA. Note: February and 2012 growth rates are adjusted to reflect the estimated impact of the leap year.

Figure 19: 2012 and 2013 YTD RPK Growth by Region

Source: IATA. Note: 2013 through Jan and 2012 adjusted for the leap year effect.

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%4.0%

5.0%

Africa Asia/Pacific Europe LatinAmerica

ME North Am Total

2011 2012 2013 YTD

5.7%4.9%

7.6%

6.1%

4.5%

6.2%

3.4%

5.3%

4.1%

2.8%

4.6% 4.2%

2.7%

4.7%

0.0%1.0%

2.0%3.0%4.0%5.0%6.0%7.0%8.0%

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

LTM

7.0%5.8%

4.8%

9.3%

14.9%

1.0%

5.0%

9.7%

-0.1%

1.5%

6.3%

13.2%

2.6% 2.7%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Africa Asia/Pacific Europe Latin America ME North America Total

2012 2013 YTD


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16



Figure 20: 2012 and 2013 YTD Domestic RPK Growth

Source: IATA. Note: 2012 growth rates are adjusted for the estimated impact of the leap year; 2013 through Jan.

Figure 21: 2012 and 2013 YTD International RPK Growth

Source: IATA. Note: Growth rates are adjusted for the estimated impact of the leap year; 2013 through Jan.

5.0%

8.3%9.2%

-2.4%

3.3%

0.5%

3.7%4.8%

-3.7%

0.1%

-4.9%

-3.0%

3.2%

1.1%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%8.0%

10.0%

Australia Brazil China India Japan US Domestic

2012 2013 YTD

7.3%

4.9% 5.0%

8.4%

15.1%

1.6%

5.8%

9.4%

0.1%

2.1%

12.2%

14.3%

1.5%

3.7%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Africa Asia/Pacifi c Europe Latin America ME North America Total

2012 2013 YTD


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17



Table 8: International FTK and AFTK Growth

2007 2008 2009 2010 2011 2012 2013

January FTK 3.0% 4.5% -23.2% 28.3% 9.1% -8.1 4.5% AFTK 5.7% 1.1% -4.9% 3.7% 10.9% -0.6 2.3%February FTK 2.4% 5.9% -22.1% 26.5% 2.3% 5.1% AFTK 5.6% 6.6% -7.9% 4.0% 7.9% 7.7%March FTK 2.3% 3.3% -21.4% 28.1% 3.7% 0.1% AFTK 4.3% 4.2% -7.8% 5.3% 9.1% 1.7%April FTK 2.8% 3.7% -21.7% 25.2% 5.4% -4.5 AFTK 4.9% 5.2% -6.8% 3.2% 12.3% 0.2%May FTK 5.0% 1.3% -17.4% 34.3% -4.3% -2.2 AFTK 5.8% 4.2% -9.7% 12.3% 3.6% 1.2%June FTK 4.9% -0.8 -16.5% 26.5% -3.0% 1.1%

AFTK 4.5% 3.3% -9.8% 12.2% 3.0% 2.5%July FTK 5.5% -1.9 -11.3% 22.7% -0.4% -3.3 AFTK 5.3% 2.0% -8.1% 11.9% 4.6% -0.1August FTK 6.0% -2.7 -9.6% 19.6% -3.5% -1.3 AFTK 5.6% 1.1% -8.2% 11.9% 2.4% 0.7%September FTK 5.0% -7.7 -5.4% 14.8% -3.0% 0.5% AFTK 6.4% -0.9 -8.5% 11.9% 2.5% -0.4October FTK 3.6% -7.9 -0.5% 14.4% -4.8% -3.8 AFTK 4.2% -1.3 -7.4% 11.1% 1.8% -2.0November FTK 3.5% -13.5% 9.5% 5.4% -3.8% 1.4% AFTK 6.4% -3.7 -3.5% 7.5% 1.9% 0.1%December FTK 4.7% -22.6% 24.4% 6.7% -0.8% -0.5 AFTK 5.7% -5.4 0.6% 6.7% 4.5% -2.0%

Source: IATA.

Figure 22: Seasonally Adjusted International Cargo Traffic Index, Jan 02 - Jan 13

Source: IATA and J.P. Morgan estimates.

90

100

110

120

130

140

150

160

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13


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18



Figure 23: Global Premium Traffic Growth, May 2006 Jan 2013

Source: IATA.

ICAO Annual Traffic

Figure 24: Global Airline Revenue Passenger Kilometers (in bn), 1970 2012E

Source: ICAO.

Figure 25: Global Airline Available Seat Kilometers (in bn), 1970 2012E

Source: ICAO.

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

May-06

Aug-06

Nov-06

Feb-07

Ma

-07

Au

-07

Nov-07

Feb-08

May-08

Aug-08

Nov-08

Feb-09

May-09

Aug-09

Nov-09

Feb-10

Ma

-10

Aug-10

Nov-10

Feb-11

May-11

Aug-11

Nov-11

Feb-12

May-12

Aug-12

Nov-12

-500

500

1,500

2,500

3,500

4,500

5,500

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012E

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012E


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20



Large Commercial Aircraft Orders, Deliveries and Backlog

Figure 29: Large Commercial Aircraft Total World Orders and Deliveries, 1965 -2012

Source: Ascend and company reports.

Figure 30: Large Commercial Aircraft Orders, 1984 - 2012

Source: Ascend and company reports.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010

Total Orders Total Deliveries

0

500

1,000

1,500

2,000

2,500

3,000

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Widebodies Narrowbodies


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22



Table 10: Large Gross Commercial Aircraft Orders, 1975 - 2012


1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Through 2012

Airbus

A300 17 8 25 70 71 19 45 5 0 20 24 7 29 21 5 4 31 40 18 6 0 2 15 6 32 0 2 61 0 6 2 7 0 0 0 0 0 0 0 643

A310 0 0 0 0 61 13 19 11 6 22 29 17 27 23 32 40 16 14 3 0 4 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 338

A318 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 120 41 0 0 0 4 41 4 13 5 1 0 2 231

A319 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 3 0 6 0 41 30 57 240 1 90 65 120 46 148 44 80 206 253 185 54 36 44 31 20 1,900

A320 0 0 0 0 0 0 0 0 0 5 1 39 147 58 111 130 131 16 65 13 33 39 128 74 195 183 158 98 78 104 183 568 312 676 446 167 357 1327 713 6,600

A321 0 0 0 0 0 0 0 0 0 0 0 0 0 4 80 51 3 9 0 21 1 2 50 50 52 40 69 31 9 7 12 103 104 40 54 24 51 110 50 1,036

A330 0 0 0 0 0 0 0 0 0 0 0 0 0 0 112 25 5 1 2 2 9 42 64 24 32 110 52 24 54 51 64 104 198 140 50 88 99 82 1,434A340 0 0 0 0 0 0 0 0 0 0 0 0 0 1 79 8 27 22 14 28 10 34 25 63 36 20 2 31 35 28 15 15 23 6 1 2 0 0 525

A350 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 87 15 290 186 27 70 10 40 725

A380 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 85 10 34 10 20 17 33 9 4 32 29 9 292

Total 17 8 25 70 1 32 32 64 16 6 93 92 171 11 4 1 60 4 88 289 10 7 13 5 38 1 2 5 106 3 26 4 60 55 6 4 76 52 0 37 5 3 00 284 37 0 1 ,1 11 8 24 1, 458 9 00 3 10 64 4 1, 608 914 13 ,72 4

Ma rke t Share 9% 3 % 7 % 1 0% 2 2% 7 % 18% 5 % 3% 2 2 % 1 4% 2 4% 19% 1 4% 2 8% 27% 2 5% 29% 1 1% 4 2% 17% 3 0% 4 5% 46% 5 5% 46% 5 3% 54% 5 3% 5 7% 52 % 4 4% 5 1% 5 7% 5 4% 5 1% 64% 41% 3 9%

Boeing

707 10 4 14 6 1 21 0 5 15 0 0 6 11 0 0 11 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 104

717 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 50 0 0 65 15 21 6 32 8 8 0 0 0 0 0 0 0 0 205

727 50 113 134 131 112 93 38 11 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 683

737 35 39 3 8 146 76 111 129 72 69 140 286 219 181 330 471 169 71 1 15 1 12 7 0 177 449 320 373 2 63 391 1 88 1 62 2 05 1 52 574 733 850 488 1 97 508 625 1 184 10,718

747 22 14 42 83 79 49 23 14 24 22 42 83 68 50 68 173 38 26 2 16 39 75 37 14 35 32 16 17 4 10 48 72 25 4 5 1 7 7 1,386

757 0 0 0 40 0 72 27 4 26 2 45 13 46 192 231 97 51 39 40 12 13 59 45 50 18 43 44 0 7 0 0 0 0 0 0 0 0 0 1,216

767 0 0 0 84 51 31 7 4 16 10 21 23 57 82 127 57 74 22 66 24 26 44 98 42 37 12 51 8 11 9 19 8 36 29 7 3 42 22 1,260

777 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 49 27 42 29 0 90 92 51 71 23 119 30 32 13 42 153 77 143 54 30 76 202 75 1,520

787 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 56 235 160 369 94 24 37 45 50 1,070

Total 117 170 2 28 490 319 377 224 110 151 174 394 344 36 3 6 54 8 97 556 26 1 2 44 249 1 22 395 7 19 5 51 61 5 3 91 61 8 3 35 2 51 248 27 7 1 ,0 29 1, 05 0 1 ,4 23 6 69 263 62 5 921 1, 33 8 18 ,16 2

Mark et S ha re 6 2% 6 5% 6 4% 6 8% 5 4% 7 9% 6 4% 3 6% 6 6% 4 1% 5 9% 4 8% 61% 5 8% 5 2% 51% 6 2% 53% 7 0% 4 1% 62% 6 6% 5 4% 51% 4 5% 54% 4 7% 46% 4 7% 4 3% 48 % 5 6% 4 9% 4 3% 4 6% 4 9% 36% 59% 5 2%

w/MD 55% 54% 45% 54% 47% 46% 47% 43% 48% 56% 49% 43% 46% 49% 36% 59% 59%

McDonnell Douglas

MD-8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

MD-9 21 37 22 45 33 6 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 166

MD-10 9 17 36 45 45 13 8 84 2 7 3 5 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 278

MD-11 0 0 0 0 0 0 0 0 0 0 0 14 22 53 37 57 10 8 6 4 9 10 11 13 0 0 0 0 0 0 0 0 0 0 0 0 0 0 254

MD-80 0 0 30 29 16 23 30 94 45 1 28 1 30 1 30 90 255 191 59 28 30 10 9 14 17 2 24 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,384

MD-90 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 76 0 26 0 9 62 18 4 4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 199

Total 30 54 8 8 1 19 94 42 40 178 47 135 133 149 114 310 228 192 38 64 16 22 85 45 17 41 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2,281

Mark et S ha re 1 6% 2 1% 25 % 1 7 % 1 6 % 9 % 1 1 % 5 8 % 2 1% 3 2% 2 0% 2 1% 19% 27% 13% 18% 9% 14% 5% 7% 13% 4% 2% 3% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 7%

Other

Fokker (F28, F10, F7 23 14 12 13 11 13 19 3 24 19 46 50 0 8 119 44 16 19 52 29 48 6 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 589

Other 0 0 0 0 1 3 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5

Lockheed (L-1011) 2 15 5 26 37 12 5 0 0 6 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 108

Total 25 29 17 39 49 28 24 3 25 25 46 50 0 8 119 44 16 19 52 29 48 6 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 702

Mark et S ha re 1 3% 1 1% 5% 5% 8% 6% 7% 1% 11% 6% 7% 7% 0% 1% 7% 4% 4% 4% 15% 10% 8% 1% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 2%

TOTAL ORDERS 189 261 3 58 718 594 479 352 307 229 427 665 714 591 1 ,132 1 ,732 1 ,081 422 462 355 298 634 1 ,096 1 ,029 1 ,212 867 1 ,138 710 551 532 647 2 ,140 1 ,874 2 ,881 1 ,569 573 1 ,269 2 ,529 2 ,252 34,869


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Figure 31: Large Commercial Aircraft Deliveries, 1984 - 2016E


Table 11: Large Aircraft Delivery Market Share by Manufacturer, 2005 - 2016E

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016ENarrowbody

Boeing 227 307 330 290 372 376 372 415 439 492 504 504 Share 43 45% 43% 38% 43% 44% 42% 43% 45% 47% 47% 45%Airbus 289 339 367 386 402 401 421 455 480 480 480 480 Share 55 49% 47% 50% 47% 47% 48% 48% 49% 46% 45% 43%

Embraer (E190/5) 12 43 78 92 82 75 92 85 66 45 40 33 Share 2% 6% 10% 12% 10% 9 10% 9 7% 4% 4 3%Bombardier (Cseries) 0 0 0 0 0 0 0 0 0 20 50 100 Share 0% 0% 0 0% 0 0 0% 0 0% 2% 5 9%

Total 528 689 775 768 856 852 885 955 985 1,037 1,074 1,117

WidebodyBoeing 63 91 111 85 109 86 105 186 211 267 270 262

Share 41 49% 56% 47% 53% 44% 48% 58% 61% 65% 66% 64%Airbus 89 95 86 97 96 109 113 133 135 146 140 145 Share 59 51% 44% 53% 47% 56% 52% 42% 39% 35% 34% 36%Total 152 186 197 182 205 195 218 319 346 413 410 407

Total 680 875 972 950 1,061 1,047 1,103 1,274 1,331 1,450 1,484 1,524


0200400600800

1,0001,2001,4001,600

1,800

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012E

2013E

2014E

2015E

2016E

Widebodies Narrowbodies


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24



Table 12: Large Commercial Aircraft Deliveries, 1965-2012



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Table 13: Large Commercial Aircraft Backlog (by Model)

2013 2014 2015 2016 2017 2018 2018+ Total

Boeing737NG 354 385 406 307 187 107 219 1,965737 MAX 0 0 0 0 45 193 947 1,185747 4 14 8 0 0 0 0 26767 8 2 0 0 0 0 0 10777 70 62 66 39 8 4 58 307787 69 132 134 136 124 122 116 833Total 505 595 614 482 364 426 1,340 4,326

AirbusA320ceo 371 437 514 226 84 10 209 1,851A320neo 0 0 11 131 305 405 1,146 1,998A330 81 84 33 12 12 6 18 246A350 7 36 55 109 132 276 615A380 21 40 32 26 28 3 14 164Total 473 568 626 450 538 556 1,663 4,874

BombardierCS100 10 29 27 66CS300 1 32 40 21 4 16 114CSeries 0 9 59 66 21 4 16 180

EmbraerE190/195 51 26 23 8 5 7 9 129

Total 1,029 1,200 1,324 1,007 928 993 3,028 9,509

Source: Ascend. As of Mar 19, 2013. Note: Passenger only aircraft.

Figure 32: Year End Backlog: Boeing vs. Airbus, 1965-2012

Source: Company reports and Ascend.

0

1,000

2,000

3,000

4,000

5,000

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

Boeing Airbus


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26



Installed Base and Backlog Regional Distribution

Figure 33: Commercial Aircraft Installed Base Share (Emerging Market vs. Developed Market)

Source: Ascend. Note: Aircraft ordered by leasing companies that have been placed with airlines are categorized by the location of the carrier leasing the aircraft; aircraft ordered by leasing

companies that have not been placed with airlines are categorized by the location of the leasing company.

Figure 34: Commercial Aircraft Backlog Share (Emerging Market vs. Developed Market)



Figure 35: Boeing (Left) and Airbus (Right) Large Aircraft Backlog Distribution (by Region)



Emerging37%

Developed63%

2000

Emerging46%

Developed54%

2012

Emerging19%

Developed81%

2000

Emerging53%

Developed47%

2012

Africa2%

Asia Pacific37%

Europe23%

Latin America andCaribbean

7%

Middle East10%

North America20%

Unknown area1%

Africa1%

Asia Pacific28%

Europe15%


7%

Middle East7%

North America36%

Unknown area6%


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Table 14: A320neo Engine Market Share

Airline GTF Airline LEAP Airline Undecided

Cebu Pacific 30 AirAsia 264 Arkia Israel 4GoAir 72 AvianceTaca 33 American Airlines 130IndiGo 150 Aviation Capital Group 18 Garuda Citilink 25JetBlue 40 Garuda Citilink 10 Gulf Air 10

Lufthansa 30 Qantas 78 Interjet 40Norwegian 50 Republic 80 LAN 20

Qatar 50 SAS 30 Lion Air 174Transasia 12 Virgin America 30 Lufthansa 70ALAFCO 50 ALAFCO 35 Middle East Airlines 10

CIT 30 CIT 15 Norwegian 50ILFC 60 GECAS 60 Pegasus 75Total 574 ILFC 40 Philippine Airlines 10Share 45% Total 693 Spirit Airlines 45

Share 55% Turkish Airlines 57TAM 15

Transaero 8Volaris 30

ACG 12ALC 50

Avolon 20BOC Aviation 25

CIT 5ICBC Leasing 20

Total 905

Source: Airbus, Ascend and Company news.

Figure 36: Parked Fleet, 2001-2013 YTD

Source: Ascend.

5.0%

6.0%

7.0%

8.0%

9.0%10.0%

11.0%

12.0%

13.0%

0

500

1,000

1,500

2,000

2,500

3,000

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

%ofWorldFleet

#ofParkedAirc

raft

Total % of Fleet


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28



Aftermarket

Figure 37: Average Aftermarket Sales Growth vs. ASM Growth

Source: Company reports, OAG, and J.P. Morgan estimates. Note: Aftermarket includes COL, UTX (UTAS & Pratt), TDG (pro forma), HON, HEI, GR, Safran (Propulsion and Aircraft Equipment),MTU Aero Engines, and Meggitt.

Figure 38: Average YoY Organic Aftermarket Sales Growth (US only)

Source: J.P. Morgan estimates and company data. Note: Aftermarket growth reflects average of four quarters for 2008-2012. GR data ends after Q1 due to acquisition by UTX.

Figure 39: 2012 Organic Aftermarket Sales Growth by Company (US only)


-15%

-10%

-5%

0%

5%

10%

15%

20%

1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12

Avg AM Sales Growth ASM Growth

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2008 2009 2010 2011 2012

COL UTAS TDG UTX (Pratt) HON GR HEI Average

-20%

-15%

-10%-5%

0%

5%

10%

15%

20%

COL UTAS TDG UTX

(Pratt)

HON HEI

1Q12 2Q12 3Q12 4Q12


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29



Regional Jets

Table 15: J.P. Morgan Regional Jet Delivery Forecast

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E

BombardierCRJ 100/200 100 44 1 0 0 0 0 0 0 0 0 0 0CRJ 700 64 63 14 7 4 27 18 10 1 6 4 4 4CRJ 900 14 14 50 55 52 33 14 12 5 9 8 6 6CRJ 1000 0 0 0 0 0 0 9 11 8 15 18 25 25Subtotal: 178 121 65 62 56 60 41 33 14 30 30 35 35

EmbraerERJ 135 1 2 0 0 0 0 0 0 0 0 0 0 0ERJ 140 0 0 0 0 0 0 0 0 0 0 0 0 0ERJ 145 87 46 12 7 6 7 6 2 0 0 0 0 0ERJ 170/175 46 60 43 45 65 33 19 11 21 29 40 35 32Subtotal: 134 108 55 52 71 40 25 13 21 29 40 35 32

Other

328 Jet 8 4 1 0 0 0 0 0 0 0 0 0 0Superjet 100 0 0 0 0 0 0 0 5 8 35 50 35 50ARJ21-700 0 0 0 0 0 0 0 0 0 0 5 15 30MRJ 0 0 0 0 0 0 0 0 0 0 0 8 30Subtotal 8 4 1 0 0 0 0 5 8 35 55 73 110

Total 320 233 121 114 127 100 66 51 43 94 145 128 162Growth 5% (27.2%) (48.1%) (5.8%) 11 (21.3%) (34.0%) (22.7%) -16.0% 119% 54 (11.7)% 27%


Table 16: 20-125 Seat Aircraft Backlog, 1997 - 2012

Aircraft Model 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

20-50 SeatERJ 135 8 154 124 87 34 31 17 17 15

ERJ 140 139 152 116 20 20 20ERJ 145 124 140 134 260 181 109 146 66 10 53 47 40 8 2CRJ 100/200 103 165 249 302 365 264 163 91 19Subtotal 235 459 507 788 732 520 346 194 64 53 47 40 8 2 0 0

70-125 SeatEmbraer 170 30 80 82 88 120 112 106 29 31 45 17 10 6 10Embraer 175 15 8 74 70 20 15 40 45 35Embraer 190 111 156 180 271 276 238 185 157 162 109Embraer 195 30 30 30 30 15 15 29 41 47 83 40 41 35 31CRJ 700 29 96 99 174 173 133 96 83 64 5 32 46 45 26 9 15CRJ 900 10 30 35 15 20 20 73 93 61 21 22 10 53CRJ 1000 39 45 49 46 29 39ARJ-21 35 35 35 35 85 90 92 122 132 132Superjet 30 61 73 98 122 152 163 165BBD CS100 33 33 61 66BBD CS300 17 57 72 82

MRJ 15 15 65 65 165Subtotal 29 96 159 294 315 286 392 436 472 589 746 741 651 771 789 902

Total 264 555 666 1,082 1,047 806 738 630 536 642 793 781 659 773 789 902

Source: Ascend, Company Data.


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Table 17: 20-125 Seater Aircraft Orders, 1997 2012

Aircraft Model 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

20-50 SeatERJ 135 8 146 -14 8 -26 0 0 1 0 -15 0 0 0 0 0 0ERJ 140 139 35 0 -80 0 0 -20 0 0 0 0 0 0ERJ 145 122 76 74 238 25 10 92 9 -10 55 0 0 -25 0 0 0CRJ 100/200 125 135 165 152 187 35 56 34 -25 -15 0 0 0 0 0 0Subtotal 255 357 225 537 221 45 68 44 -35 5 0 0 -25 0 0 0

70-125 SeatEmbraer 170 30 50 2 6 32 38 40 -45 13 23 -6 4 -3 5Embraer 175 7 77 30 6 6 33 16 14Embraer 190 110 45 36 125 86 33 10 30 73 32Embraer 195 30 0 0 0 -15 0 14 17 14 51 -24 18 18 19BBD CRJ 700 29 67 3 75 21 -3 29 39 45 -29 22 24 22 0 -5 7BBD CRJ 900 10 20 5 -10 20 14 95 73 25 -4 14 4 48BBD CRJ 1000 39 6 4 0 0 18Comac ARJ-21 35 0 0 0 50 5 2 30 10 0

Sukhoi Superjet 30 31 12 25 24 33 10 11BBD CS100 33 0 28 10BBD CS300 17 40 15 30Mitsubishi MRJ 15 0 50 0 100Subtotal 29 67 63 135 43 8 181 142 186 271 339 213 84 252 166 294

Total 284 424 288 672 264 53 249 186 151 276 339 213 59 252 166 294

Source: Ascend, Company Data.

Table 18: Regional Jet Backlog Analysis

OEM 2013 2014 2015 2016 2017 2017+ Total

Bombardier 21 47 9 6 15 98COMAC 16 41 34 29 12 132Embraer 27 38 12 6 8 91Mitsubishi 8 31 49 77 165

Sukhoi 26 53 46 17 12 9 163Total 74 154 116 94 90 121 649

Source: Ascend, company data, and J.P. Morgan estimates. Note: ERJ backlog does not include 190/195s. Note: As of 19 March 2013.


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31



Business Jets/General Aviation

Table 19: J.P. Morgan Business Jet Delivery Forecast

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

BombardierChallenger 600 34 36 42 38 41 31 24 29 36 29 35 44 36 38 43 34 35 40Challenger 300 1 28 51 55 51 60 33 29 37 48 45 52Challenger 800 4 18 12 17 7 6 6 4 5 6Global Express 3 32 35 30 17 14 20 14 22 25 27 25 24 25 25 34 38Global 5000 4 17 18 23 25 26 25 28 29 31 37Learjet 40 17 21 26 23 21 14 6 14 13 13 12Learjet 45 / 45X 7 43 71 63 27 17 22 30 30 34 27 19 10 10 14 15 16Learjet 60/60XR 32 32 35 29 17 12 9 18 15 23 23 26 13 12 19 12 5 Learjet 85 10Discontinued Models 21 22 24 28 17 9 2

Total 79 100 173 207 180 101 70 129 188 213 226 247 173 150 182 179 183 211

Cessna (Textron)Citation Mustang 1 45 101 125 73 45 38 28 12Citation M2 20 44Citation Jet/CJ1 63 64 59 56 61 30 22 20 18 25 34 20 14 3 2 - - -Citation Jet/CJ2 8 41 86 56 27 23 37 44 56 21 17 15 19 22 26

Citation Jet/CJ3 6 48 72 78 88 40 20 22 21 22 26Citation Jet/CJ4 19 48 44 44 60Citation Encore 6 37 36 21 24 17 14 23 28 5 5 4 - - -Citation Excel 15 39 79 85 81 48 55 62 73 82 80 44 22 27 31 34 36Citation Ten 8 15Citation Sovereign 9 46 57 65 77 33 16 19 22 20 24Citation X 28 30 36 37 34 31 18 15 14 12 17 16 7 3 3 6 2 -Discontinued Models 90 91 82 66 48 41 31 25 21 18 -

Total 181 200 216 252 306 305 196 181 249 309 388 466 289 178 183 181 200 243

DassaultFalcon 50/EX 10 13 11 18 13 10 8 5 5 5 2 1 Falcon 900/B/C 7 5 8 6 6 4 3 3 1 Falcon 900DX 2 4 10 4 1 3 Falcon 900EX 16 15 16 23 21 17 10 15 16 16 18 19 17 21 12 7 13 15Falcon 2000 18 14 34 26 35 35 12 11 6 6 1 3 1 5 8Falcon 2000EX 16 29 21 30 33 18 3 Falcon 2000LX 6 23 30 20 22 20 22Falcon 7X 6 21 32 41 31 37 32 30

Total 51 47 69 73 75 66 49 63 51 61 70 72 77 95 63 66 70 75EmbraerPhenom 100 2 97 100 47 29 32 40Phenom 300 1 26 36 48 50 60Legacy 450/500 10Legacy 600/shuffle 8 13 13 14 27 35 36 18 10 13 19 24 27Lineage 1000 5 8 3 3 3 5Discontinued Models 2 5

Total 2 5 8 13 13 14 27 35 38 121 144 99 99 109 141

GulfstreamG100/ G150 6 14 9 11 5 9 5 9 12 20 32 39 11 13 7 7 8 16G200/ 280 1 6 25 15 19 13 14 22 27 30 8 11 10 10 18 24G300/ 350 8 5 12 12 13 12 G400/ 450/ IV/ IVSP 22 32 39 37 36 29 13 19 14 16 20 20 30 31 35 31 32 26G500/ 550/ V/ VSP 29 29 31 34 35 32 29 32 37 43 46 55 45 44 43 49 44 40G650 12 24 36 44Total 57 75 80 88 101 85 74 78 89 113 138 156 94 99 107 121 138 150Hawker Beechcraft

Premier IA/Hwkr 200 18 29 29 37 30 23 54 31 16 11 11 4 Hawker 400XP 43 43 45 51 25 19 24 28 53 53 41 35 11 12 1 Hawker 800 series 33 48 55 67 55 46 47 50 58 64 67 88 51 34 30 18 Hawker 4000 6 20 16 10 5 Discontinued Models 2

Total 78 91 100 118 98 94 100 115 141 140 162 160 98 73 52 27 HondaJet 5 40

Total w/o VLJs 446 513 638 740 765 659 502 579 732 862 974 1,033 628 566 596 611 640 768% change 37% 15% 24% 16% 3% -14% -24% 15% 26% 18% 13% 6% -39% -10% 5% 3% 5% 20%

Total w/ VLJs 446 513 638 740 765 659 502 579 732 863 1,019 1,136 846 739 686 678 705 860% change 37% 15% 24% 16% 3% -14% -24% 15% 26% 18% 18% 11% -26% -13% -7% -1% 4% 22%

Source: Company reports, GAMA, and J.P. Morgan estimates. Note: Gulfstream data reflects green deliveries. VLJs includes Citation Mustang, Phenom 100, and HondaJet.


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Figure 40: Business Jet Deliveries by Quarter

Source: GAMA.

Figure 41: Estimated Business Jet Billings by Quarter ($ in mn)

Source: GAMA and J.P. Morgan estimates.

Figure 42: Historical and Projected Market Share by Value, 2000 - 2012

Source: GAMA, Teal Group and J.P. Morgan estimates.

0

50

100

150

200

250300

350

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Q1 Q2 Q3 Q4

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

2005 2006 2007 2008 2009 2010 2011 2012

1Q 2Q 3Q 4Q

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Bo mba rdier C essna Da ss aul t Em bra er G ulf st re am H aw ke r Be echc raft


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34



Table 20: Global Used Jet Inventory Distribution (by Age)

Active Fleet For Sale %

0-5 Years 4,225 327 7.7%6-10 Years 3,762 374 9.9%11-15 Years 3,372 412 12.2%16-20 Years 1,547 241 15.6%21-25 Years 1,216 204 16.8%26-30 Years 1,223 261 21.3%> 30 Years 3,554 720 20.3%Total 18,899 2,539 13.4%

Source: Jetnet as of 2012. Note: The data include all business jets available in the market.

Figure 46: Current Used Business Jet Market Share (by Category)

Source: Jetnet. Note: Market share based on Embraer, Cessna, Bombardier, Hawker Beechcraft, Dassault, and Gulfstream in production models.

Figure 47: Business Jet Deliveries vs. Used Jet Inventories

Source: Jetnet and GAMA.

Light45%

Medium24%

Heavy31%

2%

4%

6%

8%

10%

12%

14%16%

0

50

100

150

200

250

300

350400

1Q01

3Q01

1Q02

3Q02

1Q03

3Q03

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

Deliveries Used Jet Inventories


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Figure 48: Business Jet Deliveries vs. Avg. Asking Price (mm$)

Source: Jetnet and GAMA.

Figure 49: Current In Service Business Jet Age and Geographical Distribution

Source: Ascend (as of 2012). Note: Geographical data is available only for wholly owned aircraft; thus, the global fleet in Figure 49 is smaller than in Table 20, which includes fractionally owned

aircraft as well.

Figure 50: US Business Jet Flight Operations Growth (y/y), Jan 02 Jan 13

Source: FAA. Note: Includes flight ops into, out of, and with-in the US.

$10

$12

$14

$16

$18

$20

0

50

100

150

200

250

300

350400

1Q01

3Q01

1Q02

3Q02

1Q03

3Q03

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

Deliveries Avg. Asking Price

4,214

3,1783,013

1,503

1,202 1,367

1,748

725401

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1-5 6-10 11-15 16-20 21-25 26-30 31-35 36-40 >40

North America

Europe


Asia Pacific

Africa

Middle East

Others

AircraftAge Group

-40%

-30%

-20%

-10%

0%10%

20%

30%

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12


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Defense

Historical and Projected Budget and Outlays

Figure 52: Total US Defense Budget Authority by Title (Current $ in bn), FY48-FY13

Source: DoD.

Figure 53: Supplemental Defense Budget Authority by Account (Current $ in bn), FY01 FY13

Source: DoD.

Table 21: US Defense Budget and Outlays, FY06 - FY15E

Source: DoD, J.P. Morgan estimates.

$0

$100

$200

$300

$400

$500

$600

$700

$800

Personnel O&M Procurement RDT&E Others

$0

$50

$100

$150

$200

Military Personnel O&M Procurement RDT&E Others

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15ETotal Base BA $413 $433 $487 $511 $533 $532 $535 $512 $506 $500

Growth 5% 12% 5% 4% 0% 1% -4% -1% -1%

Total Supplemental BA $124 $169 $187 $153 $163 $159 $115 $88 $40 $10

Growth 37% 10% -18% 6% -3% -28% -23% -55% -75%

Total BA $536 $602 $673 $665 $696 $691 $651 $600 $546 $510

Growth 12% 12% -1% 5% -1% -6% -8% -9% -7%

Total Outlays $499 $529 $595 $636 $667 $681 $652 $621 $563 $521

Growth 6% 12% 7% 5% 2% -4% -5% -9% -7%


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39



Table 23: Total Addressable Market, FY09 - FY15E

Source: DoD, Congress, J.P. Morgan estimates.

Table 24: O&M Budget and Outlays, FY06 - FY15E

Source: DoD, J.P. Morgan estimates.

Figure 56: Defense Outlays Relative to GDP and Federal Spending, 1950-2012

Source: DoD.

Table 25: Monthly DoD Outlays ($ mn)

Source: DoD.

FY09 FY10 FY11 FY12 FY13E FY14E FY15E

Total Investment Account Outlays $209 $211 $203 $195 $183 $169 $159

Growth 1% -4% -4% -6% -7% -6%

Foreign Deliveries $19 $17 $23 $25 $27 $30 $33

Growth -12% 31% 10% 10% 10% 10%

Total Addressable Market $229 $228 $225 $220 $210 $199 $192

Growth 0% -1% -2% -4% -5% -4%

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E

Base O&M BA $140 $147 $163 $180 $185 $195 $198 $200 $197 $194

Growth 5% 11% 11% 3% 6 % 2% 1% -2% -2%

Supplemental O&M BA $73 $93 $93 $92 $109 $110 $87 $64 $28 $7

Growth 27% 0% -2% 19% 1% -21% -26% -56% -75%

Total O&M BA $214 $240 $256 $272 $294 $305 $285 $264 $225 $201

Growth 13% 7% 6% 8% 4% -7% -7% -15% -11%Total O&M Outlays $204 $217 $245 $259 $276 $291 $282 $266 $231 $205

Growth 6% 13% 6% 6% 5% -3% -6% -13% -11%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

1950 1960 1970 1980 1990 2000 2010

% of FederalSpending% of GDP

DoD as % of GDP

DoD as % of Total Federal

Feb-13 Jan-13 Dec-12 Nov-12 Oct-12 Sep-12 Aug-12 Jul-12 Jun-12 May-12 Apr-12 Mar-12

Procurement $6,905 $12,736 $9,212 $8,990 $8,998 $10,899 $9,322 $10,003 $10,636 $10,233 $7,849 $12,237

RDT&E 4,196 6,397 6,548 4,883 4,695 5,663 6,782 5,434 5,256 6,772 5,827 7,904

O&M 20,707 23,444 21,686 22,152 20,925 24,982 26,477 23,114 22,569 24,770 21,561 20,141

MILPERS 11,463 6,392 11,060 15,773 26,106 7,804 16,665 7,107 16,661 11,388 6,882 16,228

Other 444 1,508 1,829 2,384 2,224 (153) 2,984 3,024 1,885 2,042 1,476 7,547

Total $43,715 $50,477 $50,335 $54,182 $62,948 $49,195 $62,230 $48,682 $57,007 $55,205 $43,595 $64,057

y/y growth -16.2% 6.8% -18.7% 1.9% 9.0% -22.9% 10.0% -7.5% 0.3% 12.4% -25.3% 4.4%

Investment Accounts $11,101 $19,133 $15,760 $13,873 $13,693 $16,562 $16,104 $15,437 $15,892 $17,005 $13,676 $20,141

y/y growth -32.1% 10.2% -12.9% -12.1% 7.8% 2.1% -4.8% -9.1% -6.7% 7.3% -10.4% -0.4%

LTM growth -5.2% -2.2% -1.1% -1.4% -2.6% -3.8% -5.9% -5.1% -4.2% -4.2% -5.0% -5.9%


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Table 29: Organic Growth by Company, 2007-2013E

2007E 2008E 2009E 2010E 2011E 2012E 2013E

Commercial AerospaceBoeing Commercial Airplanes 15% -15% 20% -7% 14% 36% 9B/E Aerospace 39% 12 -24% 0% 15% 15% 9Bombardier (Aerospace) 18% 3% -6% -8% 0 0% 6Embraer 38% 21 -14% -2% 8 6% 2Goodrich 9% 10 -6% 1% 13% n/a* n/a*Gulfstream (GD) 17% 10 -25% 2% 13% 15% 15%Hamilton (UTX) 11% 10 -10% 1% 9 7% 8Pratt & Whitney (UTX) 9% 7% -3% 4% 3 1% 2Precision Castparts 18% 22 -2% -23 11% 10% 2Rockwell Collins (Aerospace) 19% 10 -21% -5% 11% 6% 8Spirit AeroSystems 20% -2% 8% 2% 9 19% 12%Textron (Cessna) 20% 13 -41% -23 17% 4% 9TransDigm 14% 9% -2% -1% 12% 11% 7Wesco Aircraft Holdings Inc. 24% 23 -9% 7% 8 7% 10%Average 19% 9% -10% -4% 10% 11% 7%

Large Cap DefenseBoeing BDS 1% 0% 5% -6% -1% 2% -4%GD (ex Gulfstream) 8% 6% 10% 0% -2% -14% -3%L-3 Communications 10% 5% 4% -1% -4% -2% -5%Lockheed Martin 6% 2% 2% 4% 2 1% -5%Northrop Grumman 5% 7% 5% 2% -4% -4% -6%Raytheon 8% 9% 7% 2% -3% -2% -3%Average 6% 5% 6% 0% -2% -3% -4%

SMID Cap DefenseATK 14% 8% 7% -2% -4% -2% -10%CACI 10% 14 10% 12% 11% -4% -3%Comtech 26% 7% -22% 47% -41% -22% -20%Exelis 13% 8% 0% -3% -1% -5% -10%Huntington Ingalls 9% 8% 5% 5% -4% 2% 0Harris 12% 5% -14% 9% 0 -2% -3%Rockwell Collins (Defense) 3% 1% 7% 3% -2% -8% -8%SAIC 7% 11 7% 0% -1% 1% -6%Textron (Bell) 10% 10 1% 14% 9 21% 4Textron (Systems) 26% 41 1% 4% -5% -7% 8Sikorsky (UTX) 48% 12 18% 6% 10% -8% 3Average 16% 11% 2% 9% -3% -3% -4%

Total Average 16% 9% -3% 2% 3% 3% 1%


Table 30: Large Cap Organic Growth by Quarter (y/y)

1Q11E 2Q11E 3Q11E 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 1Q13E 2Q13E 3Q13E 4Q13EBoeing BDS -1% -5% 0% 4% 8% 7% -4 -2% -13 -5% 1% 3%GD (ex Gulfstream) 1% -3% -4% -2 -13 -8% -13% -19% -4% -4% -3 -1L-3 Communications -3% -6% -2% -6 2% -4% -2 -1% -6% -6% -3 -3Lockheed Martin 3% 2% 7% -5 6% 3% -2 -1% -9% -5% -4 -4

Northrop Grumman 0% -7% -4% -4 -8% -4% -5 0% -4% -5% -7 -7Raytheon 0% -2% -3% -7 -2% -4% -1 0% -4% -3% -3 -3

Average 0% -3% -1% -3% -1% -2% -5% -4% -6% -5% -3% -3%



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Operating Margin

Table 31: Operating Margin by Company, (Calendar Year) 2007 2013E

2007 2008 2009 2010 2011 2012 2013ECommercial Aerospace

Boeing Commercial Aerospace 8.9% 3.7% -2.6% 8.3% 8.2% 7.7 7.8B/E Aerospace 14.7% 16.8% 15.3% 15.9% 17.1% 17.5% 18.4%Bombardier (Aerospace) 5.8% 9.2% 5.1% 5.2% 5.8% 4.7 4.6Embraer 8.7% 8.5% 6.1% 7.3% 5.5% 10.1% 10.5%Goodrich 13.8% 15.6% 13.9% 14.3% 16.7% n/a* n/a*Gulfstream (GD) 16.8% 18.5% 13.7% 16.2% 12.2% 12.4% 15.5%Hamilton/UTC Aerospace (UTX) 16.5% 17.0% 14.6% 15.6% 16.9% 10.6% 15.0%Pratt & Whitney (UTX) 15.9% 15.7% 13.9% 14.6% 14.2% 10.6% 11.5%Precision Castparts 21.1% 22.8% 25.8% 24.4% 24.0% 25.8% 26.0%Rockwell Collins (Aerospace) 21.0% 21.0% 16.2% 15.0% 17.4% 18.4% 21.7%Spirit AeroSystems 10.9% 10.8% 7.4% 8.6% 7.3% 1.7 8.6Cessna (Textron) 17.3% 16.0% 6.0% -1.1% 2.0% 2.6 4.4TransDigm 39.4% 41.9% 44.0% 43.9% 34.0% 41.2% 42.4%Wesco Aircraft Holdings Inc. 21.2% 24.3% 22.7% 19.3% 21.3%

Weighted Avg 12.4% 11.9% 7.3% 11.6% 10.9% 10.2% 11.7%

Large Cap DefenseBoeing BDS 9.8% 9.9% 8.8% 7.8% 8.8% 8.5 9.0GD (ex Gulfstream) 10.3% 11.1% 11.1% 11.4% 11.6% 10.6% 9.8L-3 Communications 10.4% 10.5% 10.6% 11.2% 10.8% 10.3% 10.0%Lockheed Martin 11.0% 11.7% 11.1% 10.4% 10.8% 11.0% 10.7%Northrop Grumman 9.0% 9.5% 9.1% 10.0% 10.9% 11.9% 10.7%Raytheon 12.1% 11.8% 12.1% 12.6% 13.2% 13.3% 12.5%Weighted Avg 10.4% 10.8% 10.4% 10.4% 10.9% 10.9% 10.4%

SMID Cap DefenseATK 6.8% 9.9% 10.3% 10.3% 11.4% 11.1% 10.8%CACI 6.8% 6.7% 6.5% 6.4% 7.7% 7.6 7.7Comtech 20.0% 17.9% 11.6% 15.6% 14.8% 12.4% 10.6%Exelis 12.0% 10.7% 11.6% 11.7% 9.8% 9.0 9.3Huntingon Ingalls 9.3% 2.6% 4.8% 4.4% 6.3% 6.3 7.5Harris 12.4% 14.0% 16.0% 18.2% 15.9% 17.4% 17.4%Rockwell Collins (Defense) 18.4% 19.9% 21.1% 19.1% 19.0% 19.3% 18.5%SAIC 7.5% 7.7% 8.0% 8.6% 7.7% 7.1 6.8Bell (Textron) 3.5% 8.6% 9.1% 11.9% 13.8% 13.7% 12.8%Systems (Textron) 12.3% 12.1% 11.1% 10.3% 9.7% 7.2 8.0Sikorsky (UTX) 7.1% 8.2% 9.0% 10.0% 10.7% 9.7 8.8Weighted Avg 9.3% 9.3% 10.0% 10.6% 10.5% 10.1% 10.0%

Total Weighted Avg 10.9% 10.9% 9.4% 10.8% 10.8% 10.5% 10.8%

Source: Company reports and J.P. Morgan estimates . Note: Defense margins exclude FAS/CAS adjustmen ts. *UTX acquired GR in 3Q12 in its Hamilton segment, which is now known as UTC

Aerospace Systems.


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Table 32: Impact of EAC Adjustments on Defense Margins

2009 2010 2011 2012 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12

LMTUnderlying Margin 6.9 6.8% 6.9% 6.5% 6.6% 7.0% 7.1% 6.7 6.1% 6.7% 6.4% 6.9%

Space JV Equity Inc. 0.5 0.6% 0.5% 0.5% 0.5% 0.7% 0.3% 0.5 0.4% 0.1% 1.0% 0.5%

Adjustments 3.6 3.1% 3.4% 4.0% 3.1% 3.7% 3.4% 3.6 4.3% 5.0% 3.6% 3.2%

Reported Margin 11.1% 10.4% 10.8% 11.0% 10.2% 11.3 10.8% 10.7% 10.8% 11.8% 11.0 10.5%

RTN

Underlying Margin 10.3% 10.5% 10.6% 10.8% 10.5% 10.5 11.1% 10.4% 10.7% 10.6% 11.2 10.6%

Adjustments 1.8 2.2% 2.5% 2.5% 2.1% 1.9% 2.3% 3.8 2.4% 2.9% 2.6% 2.2%

Reported Margin 12.1% 12.6% 13.2% 13.3% 12.5% 12.4 13.4% 14.2% 13.1% 13.6% 13.8 12.8%

NOC

Underlying Margin 7.6 7.6% 8.1% 8.0% 8.4% 8.2% 8.0% 7.7 8.1% 8.2% 7.8% 7.9%

Adjustments 1.5 2.4% 2.8% 3.9% 2.1% 3.1% 3.0% 3.0 4.3% 3.5% 3.4% 4.4%Reported Margin 9.1 10.0% 10.9% 11.9% 10.5% 11.3 11.0% 10.8% 12.3% 11.8% 11.2 12.2%

BA (BDS)

Underlying Margin 8.2 6.8% 7.5% 6.8% 6.8% 7.4% 7.9% 7.8 6.5% 6.5% 7.5% 6.8%

Space JV Equity Inc. 0.5 0.6% 0.6% 0.6% 0.5% 0.9% 0.4% 0.6 0.4% 0.3% 1.3% 0.3%

Adjustments 0.1 0.4% 0.7% 1.2% 0.7% 1.3% 0.3% 0.6 1.4% 1.5% 0.9% 0.9%

Reported Margin 8.8 7.8% 8.8% 8.5% 8.0% 9.6% 8.6% 9.0 8.2% 8.2% 9.7% 8.0%

GD (ex Gulfstream)

Underlying Margin NA 10.1% 9.8% 9.8% 9.5% 9.9% 10.4% 9.4 9.9% 9.8% 10.2 9.4%

Adjustments NA 1.3% 1.8% 0.7% 1.3% 1.5% 1.8% 2.6 1.1% 1.4% 0.7% -0.4%

Reported Margin 11.1% 11.4% 11.6% 10.6% 10.8% 11.4 12.1% 12.0% 11.0% 11.3% 11.0 9.0%

LLL

Underlying Margin 10.1% 10.9% 10.3% 9.7% 10.1% 10.4 10.0% 10.1% 9.7% 9.3% 9.6% 10.1%

Adjustments 0.5 0.3% 0.5% 0.6% 0.7% 0.3% 0.7% 0.2 0.7% 1.2% 0.5% 0.1%

Reported Margin 10.6% 11.2% 10.8% 10.3% 10.8% 10.7 10.7% 10.3% 10.3% 10.6% 10.1 10.2%

Weighted Average

Underlying Margin 8.6% 8.7% 8.4% 8.5% 8.9% 8.9% 8.6 8.2% 8.2% 8.9% 8.4%

Adjustments 1.8% 2.2% 2.5% 1.9% 2.3% 2.1% 2.5 2.7% 3.0% 2.3% 2.0%

Reported Margin 10.4% 10.4% 10.9% 10.9% 10.3% 11.1 11.0% 11.1% 10.8% 11.2% 11.1 10.4%

Source: Company reports, J.P. Morgan estimates. Note: Reported margins exclude FAS/CAS adjustments.


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Earnings & Cash Flow

Table 33: Earnings by Company ($ in mn)

Company Symbol 2008 2009 2010 2011 2012** 4Q12** 1Q13E 2Q13E 3Q13E 4Q13E 201Alliant Techsystems ATK $248 $188 $300 $272 $260 $63 $66 $53 $57 $54 $2B/E Aerospace BEAV 354*** 296 316 428 234 75 85 88 93 97 36Boeing BA 2,684 1,335 3,311 4,011 3,903 978 977 990 1,084 1,154 4,2Bombardier BBD/B 1,026 707 769 837 590 14 78 108 149 189 52CACI CACI 89 102 119 166 160 40 40 41 37 37 15Comtech CMTL 71 40 77 45 24 2 1 4 6 6 1Embraer ERJ 389 248 347 112 305 123 106 118 131 156 51Exelis XLS 414 459 448 326 330 86 40 67 86 85 27General Dynamics GD 2,478 2,407 2,627 2,552 (332) (2,130) 584 600 585 604 2,3Goodrich GR 674 563 577 822 434 n/a* n/a* n/a* n/a* n/a* n/Huntington Ingalls HII (2,420) 124 135 (94) 146 50 47 49 49 53 19Harris Corporation HRS 490 224 631 528 ( 261) 49 142 140 130 125 53L-3 Communicat ions LLL 949 902 954 956 781 212 181 169 183 203 73Lockheed Martin LMT 3,217 2,999 2,645 2,653 2 ,745 569 684 714 721 721 2,8Northrop Grumman NOC (1,280) 1,683 2,038 2,086 1 ,978 533 4 22 406 401 4 13 1,6

Precision Castparts PCP 1,041 950 984 1,161 1,348 338 413 424 434 453 1,7Raytheon RTN 1,702 1,985 1,843 1,897 1,901 468 429 416 422 456 1 ,7Rockwell Collins COL 675 564 591 596 611 132 160 160 185 145 65SAIC SAI 445 500 569 (8) 529 190 102 104 103 99 40Spirit AeroSystems SPR 265 1 92 2 20 194 36 61 70 80 84 82 31Textron Inc. TXT 486 (31) 86 242 589 149 138 148 158 191 63TransDigm TDG 146 124 123 221 296 36 90 99 106 85 38United Technologies UTX 4,689 3,829 4,373 4,979 5,947 2,057 1,184 1,464 1,507 1,479 5,6Wesco Aircraft WAIR 59 62 74 77 87 18 25 28 31 29 11

Total $18,536 $20,452 $24,157 $25,059 $22,642 $4,113 $6,064 $6,469 $6,741 $6,916 $26,

Source: Company reports and J.P. Morgan estimates. Note: * UTX acquired GR in 3Q12. GR 2Q12 estimated. ** All companies have reported 4QCY12 earnings except SAI, which is scheduled to

announce Q4 results on Mar 26. *** BEAV adjusted for Goodwill impairment charges.

Table 34: Free Cash Flow by Company

Company Symbol 2008 2009 2010 2011 2012** 4Q12** 1Q13E 2Q13E 3Q13E 4Q13E 201

Alliant Techsystems ATK $226 $953 $63 $264 $280 $130 $139 ($239) $140 $162 $2B/E Aerospace BEAV 84 54 227 241 230 110 (132) 65 134 193 26Boeing BA (2,041) 4,444 1,890 2,404 5,805 3,672 225 1,253 1,662 1,737 4,8Bombardier BBD/B 342 (215) 605 (1,257) (792) 841 (819) (780) 186 661 (75CACI CACI 148 180 199 226 252 20 62 62 46 45 21Comtech CMTL 88 83 133 58 47 (2) 3 7 9 9 2Embraer ERJ 524 31 297 1 (82) 205 (159) (36) (24) 312 9Exelis XLS 464 625 533 239 266 255 28 55 74 73 23General Dynamics GD 2,620 2,455 2,614 2,753 2 ,235 614 214 405 765 984 2,3Goodrich GR 502 488 292 875 398 n/a* n/a* n/a* n/a* n/a* n/Huntington Ingalls HII 121 (269) 168 331 170 303 (363) 104 104 308 15Harris Corporation HRS 406 701 614 375 660 120 157 215 105 95 57L-3 Communicat ions LLL 1,175 1,225 1,295 1,300 1,026 452 100 243 246 427 1,0Lockheed Martin LMT 3,495 2,321 2,727 3,439 619 (1,743) 1,143 898 630 805 3,4Northrop Grumman NOC 2,420 1,411 1,677 1,627 2,309 922 104 314 259 715 1,3Precision Castparts PCP 888 753 889 828 1,377 193 360 365 376 396 1,4Raytheon RTN 1,637 2,378 1,552 1,719 1,542 837 27 (59) 700 1,425 2,0Rockwell Collins COL 436 562 569 372 504 0 52 100 270 (16) 40SAIC SAI 522 562 663 707 145 54 145 90 189 185 60Spirit AeroSystems SPR (31) (242) (163) (297) 295 223 (71) (50) 5 162 4Textron Inc. TXT 219 794 723 645 455 368 (101) 84 68 276 32TransDigm TDG 185 176 187 246 415 89 91 110 129 165 49United Technologies UTX 4,945 4,527 5,041 5,607 5,127 1,313 1,358 1,668 1,711 1,695 6,4Wesco Aircraft WAIR 13 22 87 124 32 3 31 13 4 64 11

Total $19,388 $24,018 $22,884 $22,827 $23,316 $8,981 $2,596 $ 4,887 $7,789 $10,880 $26,

Source: Company reports and J.P. Morgan estimates. Note: * UTX acquired GR in 3Q12. GR 2Q12 estimated. . ** All companies have reported 4QCY12 earnings except SAI, which is scheduled to

announce Q4 results on Mar 26.


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Table 37: Summary of Sequential Changes in Backlog

Company Backlog Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Backlog

Alliant Techsystems Funded 1.5% -7.5% 4.8% -6.2% 3.3% -3.2 4.9% 4.7% $6,164Boeing Defense Funded 2.9% -3.4% -3.1% -0.4% 14.9% 1.7% -3.5% 5.4% 55,100CACI Funded -10.8% -7.4% 40.0% -13.1% -6.8% -3.4 24.4% -14.3% 2,100Comtech Telecommunications Funded -1.8% -26.1% -12.4% -0.6% 8.8% 12.0 -13.4 -5.2% 126Exelis Funded 0.0% -7.3% 5.3% -10.0% -8.3% -3.0 0.0% -9.4% 2,900General Dynamics Defense Funded 1.6% -0.2% 4.9% -1.9% 9.1% -5.6 -1.7% 6.1% 29,067Huntington Ingalls Funded 9.0% 13.8% -0.4% -8.3% 8.7% 7.0% 2.4% -1.2% 12,757L-3 Communications Funded -1.6% 0.1% 5.6% -7.3% 6.4% 2.9% -6.4% -0.6% 10,884Lockheed Martin Total 2.0% -3.5% -5.4% 10.5% -5.1% -1.4 0.1% 8.9% 82,300Northrop Grumman Funded -3.9% -1.7% 6.5% -6.9% 7.9% 3.6% -1.2% 0.2% 25,700Raytheon Funded -3.9% -3.7% 3.8% 3.3% 2.3% 0.5% -0.9% 5.1% 24,047SAIC Funded -9.5% 5.2% 18.6% -11.5% 3.3% -3.5 3.7% n/a* 5,721Textron (Bell + Systems) Total 0.9% -5.2% 2.2% 10.0% -1.3% 9.6% -1.8% 13.0% 10,421Weighted Average -1.0% -3.6% 5.4% -3.2% 3.3% 1.3% 0.5% 3.2% 267,287

Source: Company reports, J.P. Morgan estimates Note: Include acquisitions and divestitures. Note: * 4Q12 results are not out yet.

Table 38: LTM Book-to-Bills and Organic Growth

Source: Company reports, J.P. Morgan estimates.

Large Cap R2 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12

Raytheon 55%

LTM book-to-bill 1.01x 1.05x 0.99x 1.02x 0.97x 0.91x 0.96x 1.00x 1.07x 1.08x 1.03x 1.06x 1.09x

3 period fwd organic growth 0% 3% 0% -2% -3% -7% -2% -4% -1% 0%

Boeing Defense 40%


4 period fwd organic growth -6% -1% -5% 0% 4% 8% 7% -4% -2%

Northrop Grumman 17%


1 period fwd organic growth 5% 3% 5% -5% 0% -7% -4% -4% -8% -4% -5% 0%

L-3 Communications 5%


2 period fwd organic growth 0% -2% -2% -3% -6% -2% -6% 2% -4% -2% -1%

General Dynamics Defense


1 period fwd organic growth -8% -1% 1% 9% 1% -3% -4% -2% -13% -8% -13% -19%

SMID Cap

Comtech Telecommunications 58%LTM book-to-bill 0.97x 0.72x 0.73x 0.67x 0.70x 0.71x 0.68x 0.74x 0.85x 0.87x 1.02x 1.02x 1.00x

3 period fwd organic growth 33% -5% -39% -45% -36% -39% -24% -20% -20% -25%

CACI 57%


3 period fwd organic growth 11% 10% 14% 12% 8% 9% -1% -5% -3% -7%

Harris Corp. 51%


2 period fwd organic growth 7% 11% 10% -1% 5% -3% -4% 3% -4% -6% -2%

Alliant Techsystems 25%


4 period fwd organic growth -3% 2% -11% -8% -1% 1% 1% -4% -5%

Huntington Ingalls 24%


3 period fwd organic growth 1% 4% -2% -3% -4% 0% -7% 10% 0% 5%

SAIC 19%

LTM book-to-bill 0.88x 0.93x 0.96x 0.96x 1.15x 1.19x 1.17x 1.24x 1.11x 0.96x 0.93x 1.02x

3 period fwd organic growth 2% 1% 1% -7% -2% 3% 2% 8% -1%

Exelis 10%

LTM book-to-bill 0.98x 0.95x 0.84x 0.91x 0.83x 0.87x 0.93x 0.94x 0.92x 0.86x 0.89x 0.85x 0.88x1 period fwd organic growth -4% -3% -10% 5% -4% 0% 11% -9% 6% -7% -12% -9%

Textron Defense


1 period fwd organic growth -7% 18% 14% 15% 11% -2% 6% 1% 15% 9% 9% 13%


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Share Repurchases and Capital Deployment

Table 39: Large Cap Defense Stock Repurchases, FY05-FY13E

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014ELMT $1,310 $2,115 $2,127 $2,931 $1,851 $2,420 $2,555 $990 $1,200 $1,200GD $348 $85 $505 $1,522 $209 $1,185 $1,468 $602 $1,000 $1,000RTN $436 $352 $1,642 $1,700 $1,200 $1,450 $1,250 $825 $1,100 $1,100LLL $0 $26 $500 $794 $505 $834 $958 $872 $500 $500NOC $1,210 $825 $1,175 $1,555 $1,100 $1,177 $2,295 $1,316 $1,500 $1,500


Table 40: Capital Deployment Trends, 2003 2012

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 CumulativeFCF 9,285 12,055 16,920 17,967 20,709 13,076 17,536 15,501 17,549 17,637 158,235

Cash for ACQ 5,201 1,855 6,262 6,316 3,572 5,818 2,955 1,465 3,036 15,010 51,490% FCF 56% 15% 37% 35% 17%

2013_03_26 Aerospace & Defence Briefing JPM

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