LP AV Market review February 2008. LP AV – Market Intelligence – JP Grand2 March 3, 2008 Key...

LP AV

Market review

February 2008

LP AV – Market Intelligence – JP Grand 2March 3, 2008

Key topics• Indicators

– Highest level for Euro Vs USD on February 29: 1 € = 1,5239 $– Sharp increase of material composite index of the CPI in January

Vs reference period (no labor index available)

• OE:– Northrop Grumman Corp., the world's largest warship builder, wins a $35 billion U.S. Air Force contest over

heavily favored BOEING to build as many as 179 aerial refueling tankers based on the A330 airliner – Major actors expect a yearly traffic growth of 5-6% over next 20 years.

• Strategic:– European carriers face tough year in 2008– Focus on (potential) Commercial Airline mergers:

• EMA: AIR FRANCE-KLM – ALITALIA• NAM:

– DELTA AIRLINES and NORTHWEST AIRLINES– Talks between CONTINENTAL AIRLINES and UNITED AIRLINES, CONTINENTAL AIRLINES

discuss also a potential tie-up with AMERICAN AIRLINES• FEO: Mergers in India before potential moves in China

Information sources:

• Speednews – Main source used when no reference mentioned

• Bulletin hebdomadaire d’informations Michelin and Bibznews - Collection of articles published in different newspapers/magazines – Information will be reported with accurate reference (mainly in french)

• Weekly reports from Zones – Quoted as “Internal info”

Periodicity

• LP AV Market review will be issued 1st week every month


Indicators

Source: Banque de France

Source: SGA

Source: DGEMP-Direm

Source: Pricing Dept

Cours du brent en dollar par baril

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août

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sept

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oct-0

7

nov-

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Natural rubberMoyenne RSS3 & TSR20

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Monthly Evolution EMA & NAM CPI

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EMA CPI

NAM-FEO CPI

Parité Euro-USD

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OEM infoMILITARY• Northrop Grumman Corp., the world's largest warship builder, wins a $35 billion U.S. Air Force contest over heavily favored

BOEING. to build as many as 179 aerial refueling tankers based on the A330 airliner – Article Bloomberg 01/03/08

BOEINGBoeing Sales• BOEING delivered 34 airliners (26 737s, one 747-400ERF, one 767 and six 777s) in January '08 vs 29 (22 737s, one 747-

400ERF, one 767 and five 777s) in January 2007. It plans to deliver 475-480 in 2008 vs 441 in 2007 and 398 in 2006, and says it is considering increasing 737NG production to meet market demand; it delivered 330 737NGs in 2007. It has booked 66 orders in 2008 through February 12.

Boeing Aircraft information• 787: BOEING began final assembly on second of six flight-test 787s; aircraft is actually fourth on the production line, following two

static/fatigue test aircraft. It says there are currently 21 787s in various stages of production, including the two static/fatigue aircraft. BOEING will freeze development of 787-3 – Internal info.

Environment• VIRGIN ATLANTIC flew CF6-powered 747-400 between Heathrow and Schiphol with one engine using biofuel as part of

research program in partnership with BOEING, GE AVIATION and IMPERIUM RENEWABLES.

AIRBUSAirbus Sales• AIRBUS delivered 37 aircraft (31 A320 Family, five A330s, and one A380) in January 2008 vs 34 (29 A320 Family, four A330s,

and one A340) in January 2007. It plans to deliver >470 aircraft in 2008 vs 453 in 2007 and 434 in 2006. AIRBUS says it expects to book about 700 net orders in 2008, including 30 A380s and 100 A350s. Article in French Les Echos 21/02/08

• AIRBUS finalized previously announced orders with CASGC, China for 110 A320s (some will be assembled in Tianjin) and from LIBYAN AIRLINES for seven A320s, four A330-200s and four A350-800s. It booked 238 orders in January.

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Microsoft Word Document


OEM info (cont’d)Airbus Aircraft information• A320:

– AIRBUS says it now expects replacement aircraft for A320 Family will not be available until 2017-2020, when technology for 15-20% improvement in DOC consumption, needed to justify investment, will be available from engine OEMs.

– AIRBUS successfully flight tested a fuel cells system, developed by Airbus and MICHELIN, on DLR A320 as backup hydraulic and electric power systems; it has been working on fuel cell technology with Michelin, LIEBHERR and DLR since the end of 2005.

• A350: Une version trés long courrier à l’etude – Article in French Les Echos 21/02/08 • A380: AIRBUS has FAA/EASA approval for reduced A380 transition training for A320 Family, A330 or A340 qualified pilots

under its Cross Crew Qualification (CCQ) program between all Airbus fly-by-wire aircraft; an A318 pilot can be qualified for A380 in 13 days.

Environment• AIRBUS completed first test flight of ROLLS-ROYCE Trent-powered A380 (Filton-Toulouse) using SHELL-supplied synthetic

liquid fuel processed from gas (Gas to Liquids) to evaluate the environmental impact of alternative fuels.

CESSNA• CESSNA unveiled the Model 850 Citation Columbus (its largest jet at 77 feet in length with 80-ft wingspan) with target range

of 4,000 nm range at Mach .80 carrying eight pax; development costs are estimated at $780m. First flight is planned in 2011, certification in 2013, and entry into service in 2014.

EMBRAER plans to deliver 175-180 aircraft in 2008 compared with 169 a year ago. Asia Pacific is growing 20% per year going from 5% of the current fleet to 20%-25% of the deployed fleet by the end of the 4th year



OEM info (cont’d)

ADAM AIRCRAFT: VLJ manufacturer ADAM AIRCRAFT has suspended operations at its Eaglewood, Colorado facility, where it employs 500. The decision is a product of its inability to raise $100m required to stay afloat, the deadline for which was set at January 31. The Centennial Airport-based company had already suspended operations at its Ogden, Utah facility, laying off 300 staff. Roughly $1bn-worth of aircraft is on order from Adam, which produces the A500 and A700 carbon composite jets - Internal Info

Forecasts• THE AIRLINE MONITOR is forecasting delivery of 37,900 jet transports in 2008-2030: 16,100 Airbus; 16,675 Boeing;

2,940 Embraer; and 2,185 Bombardier. It is projecting world airline fleet of 48,159 jets (4,754 freighters) at end 2030 vs estimated 19,000 (1,840) at end of 2007; 8,411 aircraft (366 per year) will be retired and/or scrapped in 2008-2030.

• BOEING forecasts Asia Pacific will require 8,350 jets worth $1,020b in 2007-2026, based on 6.3% annual traffic growth (vs 5% global growth): 3,380 in China, 1,930 in SE Asia, 1,390 in NE Asia, 1,070 in SW Asia, and 580 in Oceana. Asia Pacific currently represents 36% of BCA's total backlog. Boeing says it has 250 suppliers in region providing $1.98b in goods/services annually.

• AIRBUS forecasts Asia Pacific will require 7,678 jets worth $1,100b in 2007-2026: 4,371 single-aisle; 2,357 twin-aisle; 950 VLAs.

• AIRBUS forecasts delivery in 2008-2026 of 24,300 new aircraft (16,600 single aisle, 6,000 twin-aisle and 1,700 VLAs), including 900 new freighters, worth $2,800b, based on 4.9% pax and 5.8% cargo annual traffic growth, creating average annual delivery of 1,215 aircraft (vs 1,130 in previous forecast). It estimates 31% will be delivered in Asia Pacific, 27% in North America and 24% in Europe, and world >100-pax fleet will grow from 13,300 to 28,550 by 2026.

• EMBRAER forecasts traffic in Asia Pacific will grow 5.3% annually over next 20 years, and foresees a demand in region for 1,270 jets worth US$4.2b in the 30-to-120-seat segment the Asia-Pacific region and China: 610 in 2008-2017 and 660 in 2018-2027


Clients info – Strategic - EMAJETBLUE AIRWAYS and AER LINGUS plan April 3 to launch previously announced strategic partnership to enable Irish and US

customers to book a single reservation between Ireland and 40 continental US destinations.

AEROFLOT had US$357m net profit on $2.8b revenues in January-September vs $171m on $2.1b a year ago.

AIR FRANCE-KLM had €139m net income on €5.98b revenues for third quarter ended Dec 31 vs €229m on €5.75b.

(ALITALIA lost €363.9m on €4.86b revenues in 2007 vs €605.2m loss on €4.72b in 2006.)

BRITISH AIRWAYS had £623m after tax profit on £6.62b revenues in April-December vs £509m on £6.56b a year ago.

EASYJET • EASYJET had £418m revenues (£36.98 per seat) in October-December vs £366m (£36.79) a year ago.• EASYJET carried 2.76m pax (earned seats) in January, up 7.3% vs 2.57m in January 2007; PLF was 72% vs 74.9%. • EASYJET opened its 19th based at Paris CDG as part of €600m investment over four years; it plans to increase fleet in France

from six based A319s to 20 and to double number of pax emplacements from 6m in 2007 to 12m in 2011.

FINNAIR• FINNAIR ordered an eighth A330-300 for 2010; it also has two on option, plus two A340s and 11 A350s on order.• FINNAIR earned EUR97m on EUR2.2b revenues in 2007 vs EUR11m on EUR2b in 2006; pax traffic rose 13%.

QATAR AIRWAYS stands as the main challenger of EMIRATES – Les Echos 11/02/08

European Carriers Face Tough Year: Air France-KLM SA, EasyJet PLC and Aer Lingus Group PLC report weaker load factors for January, adding to fears that 2008 will be a tougher year - The Wall Street Journal 8/02/08





Clients info – Strategic FEO

NAM• FRONTIER AIRLINES took delivery of first (3389) of 10 A320s with CFM56s. It also has 11 A318s and 49 A319s.• DELTA and NORTHWEST shares fell on Monday February 25 from concerns that their merger talks may fail on the inability of

pilots to agree on how to combine their ranks.• SKYWEST reported net profits of $40.9m for 4Q07 (vs $31.2m in 4Q06) and $159.2m for 2007 (vs $145.8m in 2006); revenues

were $855m in 4Q07 (vs $790m) and $3.37b in 2007 (vs $3.11b). Total block hours increased 10.8% in 2007.


Clients info – High PotentialEMA

RYANAIR– RYANAIR had €35m after tax profit on €569m revenues in October-December vs €48m on €493m a year ago. – RYANAIR carried 3.68m pax (earned seats) in January, up 17% vs 3.14m in January 2007; PLF was 69% vs 71%.– RYANAIR - with 200+ x B737NG's are said to be very interested with changing to radial as it would reduce by 50% the

number of removals and it would mean they could continue the service levels without increasing the number of engineers they employ. Ryanair are also said not to be happy with both Good Year and Honeywell and would terminate the contracts to make the Carbon brake / radial tyre change – Internal info.

FEOGARUDA, Indonesia ordered four 777-300ERs, confirmed a previously unidentified order in 2007 for seven 737-800s, and

converted orders for 18 737-700s to -800s and six 777-200ERs to -300ERs. It plans to raise $200m by selling shares to help finance buy.

LION AIR, Indonesia ordered 56 more 737-900ERs, and has now ordered 178 (nine delivered). It plans to operate 60 in Indonesia with the remaining aircraft for international joint venture airlines being formed in Asia, including Australia and Thailand.

SINGAPORE AIRLINES GROUP had S$590m net profit on S$4.3b revenues in Oct-Dec vs $S589.2m on S$3.8b.

VIRGIN BLUE– VIRGIN BLUE had A$113.3m net income on A$1.21b revenues in six months ended Dec 31 vs $124.3m on A$1.12b a

year ago. It says launch of V AUSTRALIA transpacific long haul services is progressing on target and on budget for December 2008; it plans to operate 10 services weekly (via new US-Australia Open Skies deal), and plans to announce product, pricing and routes in March. + Article in English Reuters 20/02/08

– VIRGIN BLUE, Australia ordered four more E190s (unidentified order from 2007); it also converted three purchase rights to options (now six options and 10 purchase rights). Virgin Blue now has 18 E190s and three E170s (in addition to three delivered) on order.



Clients info – High PotentialFEO (cont’d)

OTHERS FEO– KOREAN AIR ordered three more A380s with GP7200s, and has now ordered eight for delivery starting in 2010. – QANTAS had A$618m net profit on A$8.1b revenues for six months ended December 31 vs A$307.5m on A$67.7b a

year ago. + Article Financial times 22/02/08– MALAYSIA AIRLINES reported record net profit of RM851m for 2007 (vs RM136m loss in 2006) on 13% higher

revenues. They announced 5-year business plan that targets RM2b-3b annual profit by 2012 vs RM1b in '07.

NAMAIR CANADA had C$429m net income on C$10.6b revenues in 2007 vs C$74m loss on C$10.2b in 2006.

CONTINENTAL AIRLINES ordered eight 777s and 19 737NGs, and now has 111 aircraft (25 787s, eight 777s and 78 737s) on order with BOEING for delivery over next six years, plus 102 options.

GOL – GOL reported net loss of R$24.1m for 4Q07 (vs R$92.7m profit in 4Q06) and R$102.5m net income for 2007 (vs

R$569.1m in 2006); revenues totaled R$1.44b in 4Q07 (vs R$1.01) and R$4.9b in 2007 (vs R$3.8b). It ended 2007 with 99 737s/seven 767s.

– GOL reported that its Internet sales rose 15% in 2007 to R$4.3b, which accounted for 80% of its R$5.4b total gross sales in 2007.

MESA lost $4.2m on $326.6m revenues in first quarter ended December 31 vs $8m profit on $333.5m a year ago.

WESTJET reported net profits of C$75.4m for 4Q07 (vs C$26.7m in 4Q06) and C$192.8m in '07 ($114.7m in 2006); revenues were C$553m in 4Q07 (C$452m) and C$2.15b in '07 (vs C$1.77b). It experienced record PLF each month.



Commercial Airline mergersFocus on (potential) merge:• NAM:

– DELTA AIRLINES and NORTHWEST AIRLINES – Article in English Financial Times 20/02/08– Talks between CONTINENTAL AIRLINES and UNITED AIRLINES about a possible merger, CONTINENTAL

AIRLINES discuss also a potential tie-up with AMERICAN AIRLINES – Article in English The Wall Street Journal 16/02/08

• EMA – Internal info:– Negotiations between ALITALIA and AIR FRANCE-KLM can proceed according to Italian justice – Article in

French Les Echos 21/02/08– AIR FRANCE-KLM ready to inject €3b in ALITALIA - Article in French Les Echos 20/02/08– In UK GB Airways has been swallowed by EASYJET, beginning of 2008. ( 15 A320 CPAL will divide their

prices by two...)– TUI UK just swallowed First choice and would probably soon join LUFTHANSA CITYLINE and TUI Germany

to create a 150 aircrafts customer.– Thomas Cook swallowed My Travel.– BRITISH MIDLAND took British Mediterranean, and is now nearing either VIRGIN or BA.– Hapag Loyd joined TUI.(biggest European Tour Operator)– Spanair in Spain (SAS related) awaits to be purchased, Grupo Marsans might win the deal.– IBERIA is not any more spoken about, but will be probably back on the table soon.– The Low Cost carriers development drew every commercial Airline to this trend.– 15 Aircrafted carriers can not survive alone, pressed between price reductions driven by LCC and high

kerosene costs unbearable in Europe for old aircrafts.– Regional Airlines on the contrary seem not to be that much concerned in the moment.






Commercial Airline mergers (cont’d)• FEO – Internal info:

– India:• JET AIRWAYS has purchased Sahara Airline and renamed Sahara Jetlite• KINGFISHER has purchased Air Deccan• Air India and Indian Air have merged and operate as Air India

– China:• SINGAPORE AIRLINES has tried to purchase 24% of CHINA EASTERN AIRLINES, rebuffed by shareholders.• AIR CHINA and CATHAY PACIFIC AIRWAYS have made a bid for CHINA EASTERN AIRLINES, also rebuffed.

– Malaysia:• Air Asia is franchising its operations in Indonesia (Indonesia Air Asia) Malaysia (Thai Air Asia) and is planning to

have an operation in Vietnam.– Australia:

• Qantas and or Jetstar have Jetstar Asia operating in Singapore and have 24% ownership of Pacific Airlines in Vietnam.

– Indonesia:• LION AIRLINES, through an investment in a local regional operator will Operate as Lion Air Australia.

– Singapore:• SINGAPORE AIRLINES has taken an investment stake in Yangtse River Express Cargo.• Tiger Air Singapore has opened Tiger Air Australia.


Miscelaneous• Aviation sector gives investor new lease of life – Article Financial times 25/02/08

• Low cost carriers in Asia – Asiana (South Korea) to start budget carrier to compete with rivals – Article Bloomberg 14/02/08

• IRAQ is in talks with Boeing (reportedly 40 aircraft due from 2013) and Bombardier (six aircraft in 2008-2009) for fleet renewal.

GENERAL AVIATION• NETJETS EUROPE has accelerated delivery to 2008 of 39 new business jets from Hawker Beechcraft (seven

Hawker 400XPs; nine 750s; four 4000s), Dassault (three Falcon 2000LXs; two 7Xs), Gulfstream (three G550s; one G450) and Cessna (10 Citation XLS); new aircraft will increase fleet by 29% to 174 total aircraft. It operated 73,622 flights in 2007 – Internal Info



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