Global Aviation Sector Overview ... Source: Flight Fleets Analyzer, Flight Fleet Forecast,...

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Transcript of Global Aviation Sector Overview ... Source: Flight Fleets Analyzer, Flight Fleet Forecast,...

  • flightglobal.com/consultancy

    Global Aviation Sector

    Overview

    21st February 2017

    Rob Morris, Global Head of Consultancy

    1

  • flightglobal.com/consultancy 2

    FlightGlobal: Pioneering aviation insight and analytics

    business

    RELX Group:

    London, Amsterdam and New York

    Stock Exchange listed

    28,500 employees

    Market Capital $36.87bn

    FlightGlobal:

    370+ staff

    11 offices across the world

    Part of a leading data

    solutions group

  • flightglobal.com/consultancy 3

    Flight Ascend’s unique Value proposition as an

    appraiser

    Independent Global team – fully objective

    We do not invest in aircraft and we are not brokers – NO conflicts of interest

    Global perspective with offices in London, New York and Hong Kong

    Instant access to vast data for research

    The only Appraiser with globally recognized Fleets, schedules and values databases used by our

    clients on a day to day basis

    Unparalleled Historical values data

    Historical Market values from 1965

    Access to industry Tier 1 participants

    Clients are Airlines, all the top lessors, the major banks involved in aviation finance, MROs, OEMs,

    regulatory bodies

  • flightglobal.com/consultancy 4

    Global Aviation Sector Overview and Outlook

    Aviation Asset Value Risk

    Twin-Aisle Aircraft Markets

    Some Final Thoughts on Operating Leasing

  • flightglobal.com/consultancy

    Global Aviation

    Sector Overview and

    Outlook

    5

  • flightglobal.com/consultancy 6

    But first, why invest in commercial aircraft?

    Despite volatility in the aviation market over the past 20 years, investment in

    aircraft leasing has shown remarkably stable returns

    The Ascend Aircraft Investment Index measures this return and volatility

    On a risk reward basis, investment in aircraft has outperformed many other asset

    classes including shipping and precious metals

    Aircraft leasing has shown low correlation with indices that reflect the general

    economy such as the S&P500

  • flightglobal.com/consultancy 7

    Returns from investing in aircraft are stable and

    uncorrelated to other alternative investments

    0

    200

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    1,000

    1,200

    Aircraft Investment Index

    S&P 500 Index

    MSCI World Index

    Dow Jones Transportation Index

    S&P 500 Airlines Index

    Source: Ascend Aircraft Investment Index

  • flightglobal.com/consultancy 8

    Commercial aviation is a long-term growth sector

    Source: Ascend Analysis of IATA Data

    -10%

    -5%

    0%

    5%

    10%

    15%

    20%

    Y e a r-

    o n

    -Y e a r

    C h

    a n

    g e

    Traffic (RPK) Capacity (ASK)

  • flightglobal.com/consultancy 9

    2016 opened with a strong demand outlook…..

    Demand side looks very strong (“as good as it gets”?)

    Indicator Current level Trend

    Passenger traffic

    Freight traffic

    Yields

    Load Factors

    New aircraft orders

    Deferrals &

    cancellations

  • flightglobal.com/consultancy 10

    …..but closed in a very different place

    Demand side weakening, trends suggest may be past cyclical peak

    Indicator Current level Trend

    Passenger traffic

    Freight traffic

    Yields

    Load Factors

    New aircraft orders

    Deferrals &

    cancellations

  • flightglobal.com/consultancy 11

    Oil prices stabilised after falls that commenced in 2014

    Source: US EIA / IATA

    0

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    J e t

    F u

    e l C

    e n

    ts p

    e r

    U S

    G a ll

    o n

    C ru

    d e O

    il $

    p e r

    B a rr

    e l

    Oil Price Jet Fuel

    Crude oil price trajectory

    has considerable

    uncertainty at present

    IATA’s 2017 base case

    fuel scenario is now

    $64.90 per barrel Jet Fuel

    (=$1.54 per USG)

  • flightglobal.com/consultancy 12

    Airline profits at record levels over past two years

    -30

    -20

    -10

    0

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    G lo

    b a l A

    ir li

    n e N

    e t

    P ro

    fi t

    ($ b

    n )

    Source: IATA

  • flightglobal.com/consultancy 13

    Supply side indicators suggest a different story

    Fewer concerns in supply side but watching for evolving capacity surplus if demand weakens

    Indicator Current level Trend

    Aircraft deliveries

    Deliveries for

    replacement/growth

    Deliveries as percentage

    of fleet

    Stored aircraft

    Used aircraft availability

    Aircraft economic life

    Aircraft utilisation

  • flightglobal.com/consultancy 14

    So where are we in the cycle?

    Mixed messages from the global economic cycle Economic recovery remains weak for such a long cycle

    Aviation demand cycle remains strong but trends suggest we are now past the

    peak Fuel prices previously helped on the cost / yield side but now expecting cost headwinds from

    increasing fuel and labour costs

    Watching closely for signs of evolving capacity surplus

    Expect to see retirement volumes tick up and potentially utilisation tick down

    Some amber / red indicators in aviation supply cycle which may be getting ahead

    of demand? Deliveries trending towards higher % of installed fleet

    Average age of retirement continues to decline

    Concerns over OEMs increasing production rates, particularly in single-aisle

  • flightglobal.com/consultancy

    1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

    0

    5000

    10000

    15000

    20000

    25000

    30000

    35000

    40000

    C o

    m m

    e rc

    ia l

    P a s s e n

    g e r

    J e ts

    i n

    S

    e rv

    ic e

    Single-Aisle Twin-Aisle

    15

    Passenger jet fleet forecast to increase by 10,600

    units in next ten years

    Source: Flight Fleets Analyzer, Flight Fleet Forecast

  • flightglobal.com/consultancy 16

    Record backlog driving increased production rates

    0

    500

    1000

    1500

    2000

    2500

    2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

    P la

    n n

    e d

    A n

    n u

    a l

    P ro

    d u

    c ti

    o n

    Regional Jet Single-Aisle Twin-Aisle

    Source: Flight Ascend Analysis of Announced OEM Production Rates

  • flightglobal.com/consultancy 17

    Airbus and Boeing each expected to deliver around

    820-830 aircraft in 2018 worth around $60 billion each

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    2016 2017 2018 2019 2020

    E s ti

    m a te

    d D

    e li

    v e ry

    V a lu

    e (

    2 0 1 7 $ )

    Airbus Boeing Bombardier Embraer Sukhoi COMAC Mitsubishi Irkut

    Source: Flight Fleets Analyzer, Flight Values from Ascend (delivery value assumed to be 2017 FLBV)

  • flightglobal.com/consultancy

    Aviation Asset Value

    Risk

    18

  • flightglobal.com/consultancy 19

    How should investors select their assets?

    Investors should favour assets that have liquidity

    The aircraft most preferred by investors today are single-aisles

    A320 and 737 families

    Business model drives portfolio strategy, can differentiate on

    Age

    Aircraft category (Regional, Single-aisle, Twin-aisle, Turboprop, Helicopter)

    Volatility of values must be considered in hand with depreciation

    Ratings estimate downside risk on future base value

  • flightglobal.com/consultancy 20

    The Herfindahl-Hirschman Index (HHI) is a recognised

    measure of liquidity

    0

    200

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    600

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    1,000

    1,200

    1,400

    1,600

    1,800

    2,000

    H H

    I

    Source: Flight Ascend Consultancy analysis

  • flightglobal.com/consultancy

    0

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    10

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    35

    1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

    21

    Historical CMV (US$ Mn) – Generic aircraft example

    Gulf War and

    Early 90s

    Recession 9/11

    Liquidity

    Crisis

    Oil

    Spike

    “marginal

    lift” benefits

    from upturn

    Out of production

    Older aircraft

    more

    exposed to oil

    Values move in relation to supply and demand driven

    by macroeconomic events

    Source: Flight Ascend Values

  • flightglobal.com/con