Market Analysis - Global Aircraft (2010)

7/31/2019 Market Analysis - Global Aircraft (2010)

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Market Analysis

1st Quarter 2010


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Industry Overview

All players in value chain affected by global financial crisis worst recession in

30 years.

Recovery now being predicted though growth in mature markets remains

subdued, and recent volcanic ash crisis highlights vulnerability of sector to

unpredictability of external factors.

Future growth along the value chain likely to be from emerging markets,

especially Asia Pacific and Middle East regions.

Emerging markets also offer cost advantages, though only a small proportionof the industrys output to date is generated from these markets likely to

change in the foreseeable future.

China and Russia are increasingly well positioned to supply Western

aerospace OEMs.Western incumbents will have to focus relentlessly

on improving their value-added activities. (McKinsey, 2008)

Recent increase in demand for commercial business jets and first

class/premium travel in first part of 2010 implies that recovery is evident.


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Company profitability linked directly to GDP


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Industry Drivers

Political & regulatory drivers continue to exert both positive and negativepressures open skies, continuing regional conflicts/war.

Economic drivers have major impact on aviation sector from both a demand

and supply point of view particularly GDP rates globally and regionally as well

as fluctuating exchange rates, corporate/airline profitability and the availability

of credit to finance fleet renewal or upgrade.

Oil prices as well as regulations regarding fuel emissions have had knock-on

effect on all sectors such as increased demand for turbo props in recentmonths.

Continued rationalisation and consolidation across the supply chain as well as

popularity of LCCs in Europe, USA and now Asia shall continue to push pricesdown and achieving sustainable competitive advantage shall become more

difficult for all players.


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Both Leisure & Aerospace sectors hit hard


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Latin America Only Profitable Region in 2009


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In summary,

Europe had highest number of airline failures in 2009

Larger airlines tend to be able to attract more funding from new lenders to

upgrade fleets, yet

smaller and regional players are unable to access capital markets aslenders view them as too risky, especially in mature markets.

More consolidation is likely amongst players which shall in turn provide

the potential for the operators to exert more influence over the supply

chain and MRO providers.

Start of 2010, faster than expected recovery, most notably in Asia andIATA inititally halved its industry loss forecast to $2.8 bn, though this may

be adjusted substantially to take account of recent volcanic ash

disturbance.


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Triad Markets yet to recover in passenger sector.


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Freight still to recover across all regions.


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Europes Recovery Shall be Slower than rest of World

Source: Association of European Airlines, 2009


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Recovery in rest of world helped by governments

Source: Association of European Airlines, 2009


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Population Density and Air Transport Activity in linewith stage of economic development

Source: MIT ICAT, 2009


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Only LCCs and China Experienced Growth

Source: Ascend, 2009


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Over 2000 Aircraft Put in Storage Since Mid 2008, Over9% of Global Fleet, USA Accounting for Almost Half



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Signs of Recovery but.

Source: IATA, 2010


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demand uneven across regions.

Source: PaxIS, 2010


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Pressures for Trading Up Aircraft Size and Down


Seat Size


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Trends in Aircraft Size, US Airlines, remaining cautious

Source: MIT ICAT, 2009


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Source: Teal Group, 2009


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Summary of Industry Overview

Impact of global recession still being felt though signs of recovery within

some segments of the market are visible.

Growth is an emerging markets phenomenon as mature markets of US

and Europe still coping with aftermath as well as intense competition from

increasingly global players able to compete on price and quality.

Trend in outsourcing and adopting lean practices likely to continue as

operators seek to focus on core competencies and achieve cost and

operational efficiencies.

High labour unit costs in US and Europe increasingly making developing

markets more attractive locations for MRO capabilities as well asmanufacturing bases.


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Future of Regional Aircraft?

Market has changed somewhat since manufacturers such as Fokker andBAE Systems ceased production and in many ways, has been redefined

in terms of seat numbers.

The 20 59 seat segment is viewed by some (Bombardier) as the

foundation of the regional airline industry and the base of the fleet for the

near term, yet demand for new aircraft in this segment is small and hasdwindled to very low levels however,

some signs of recovery in the secondary market including package

freighter and corporate conversions which offers potential for some of the

fleet.

Long term view is that growth is in the 100-149 segment as marketdynamics require higher capacity.


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Growth viewed as being in the 100-149 range


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Global Jet Fleet Analysis


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Commercial Jets

Boeing dominate market overall with more than half of global fleet inservice.

Airbus with 28% share are followed by Embraer and Bombardier who

together have 16% of the market making the top 4 players control 96%.

Most commentators do not see the MRJ, Superjet or ARJ21 significantlyeroding market share of the leading players in the short to medium term.


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Total Number of Aircraft in Service Commercial Jets

Source: Ascend data, May 2010

53%

28%

8%

7%1%1% 1%

Boeing Count

Airbus Count

Embraer Count

Bombardier (Canadair) Count

Fokke r Count

BAE SYSTEMS Total

Other


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Number of Aircraft - Jets by Manufacturer in Storage

There are more than 2000 western built jets in storage with just under

70% of these Boeing, 11% Airbus and the remainder of other OEMs.

This implies much potential for both Boeing in the secondary market as

well as a possible abundance of spares for Boeing type aircraft.

It may also go some way to explain the declining value of aircraft as well

as the move away from regional jets to Boeing and Airbus narrow bodies

in the secondary market as price and availability influence buyers as do

the obvious functional benefits (fuel, range and capacity).



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Fleet Summary

Total Western built jet fleet in service globally totals almost 20,000 aircraft

with the majority located by operator in North America, Europe and Asia.

Note: Refers to Western Built Jets, in Service, Ascend Online, April 2010.

% of Total Jet Fleet

37%

26%

20%

6%

5%

4% 2%North America Count

Europe Count

Asia Count

Latin America and Caribbean

Count

Middle East Count

Africa Count

Australasia Count


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Positive Growth Forecast

Growth driven by consumer demand for air transportation

Demand being driven from emerging markets but also the replacement

and upgrade of older aircraft in developed markets and orders for new

more fuel-efficient fleets.

Variations in forecasts exist, but overall, the outlook is positive across allsources.

Despite surges in demand being seen, concerns about financing still

remain high on the agenda as airlines are still struggling with operating

profitably.

Growth is also forecast in the MRO and servicing sectors of theaftermarket as airlines continue to adopt lean principles and cut costs

over the medium to short term by opting for more outsourcing and joint

venture arrangements with third parties.


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Growth in Passenger Transport Driven by EmergingMarkets

Market

2008 RPKs

(bn) 2028 RPKs (bn)

Average Annual

Growth Rates

Within North America 969 1642 2.70%

Within Europe 527 947 3.00%

Europe Leisure Airlines 166 247 2.00%

Within Asia Pacific 582 1713 5.50%

Within China 241 1186 8.80%

Within India 39 213 9.40%

Within Africa and Middle East 111 313 5.30%

Within Latin America 126 361 5.40%

North America- Europe 441 841 3.30%

North America - Asia Pacific 271 797 5.50%

North America - Latin America 155 378 4.60%

Europe - Asia Pacific 331 1075 6.10%

Europe - Africa and Middle East 251 720 5.40%

Europe - Latin America 171 423 4.60%

Asia Pacific - Africa and Middle East 150 560 6.80%

CIS Airlines 144 414 5.40%

Others 47 180 7.00%

Source: Rolls-Royce Market Outlook, 2009


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Impact of Fleet Retirements

Retirements are main driver of new aircraft deliveries

Regulatory implications regarding fuel emissions also impacting

-11,415

-3,595

-10,897-20,000

-10,000

0

10,000

20,000

30,000

40,000

50,000

Business Jet Total

Regional Aircraft Total

Mainline Aircraft TotalMarket Segment

No.ofAircraft

2008 Fleet

Retirements

Deliveries

2028 Fleet

Source: Rolls Royce Market Outlook, 2009

BAE Systems Regional Aircraft portfolio, consistently reducing over time as more

aircraft reach the end of their life cycles.


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Regional Fleet Analysis - Jets


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Market Share of Regional Aircraft Current Fleet

Analysis undertaken of current fleet used for commercial passengers withseat capacity of between 10 and 130.

Globally this amounts to around 6000 aircraft in service, with over 1000 in

storage, though only just over 5000 of these are used specifically for

passenger transport.


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Bombardier retain leadership in the 10-130 seat band

27%

26%

26%

13%

5%3% 2%

Bombardier (Canadair)

Embraer

Boeing

Airbus

Fokker

BAE System s

Other

Note: Only included aircraft for passenger usage and excludes all other usages such as VIP, Medevac, business etc.


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44% of fleet still within 100-130 seats

Global Fleet - Passe nger Usage

2,312

1,161

1,559

250

50

500

1000

1500

2000

2500

100-130 Count 70-99 Count 50-69 Count 30-49 Count < 30 Count

Seat Band

No.ofAircraft



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but 50-99 still popular in Europe & North America

Commercial Passenger Planes - 10 - 130 Seats

0

500

1000

1500

2000

2500

3000

Africa Asia Australasia Europe Latin

America

Middle East North

America

Operator Region

No.ofAircraft

100-130 70-99 50-69

30-49 < 30



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High proportion of older fleet in Africa and LatinAmerica

%age of Fleet 40 years +

45%

22%

17%

8%

5%3%

North Amer ica

Africa

Latin America and

Caribbean

Europe

Middle East

Asia

Source: Ascend data, April 2010Note: Refers to Regional Aircraft -


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...yet surprisingly high number still operating in USA

Source: Ascend data, April 2010Note: Refers to Regional Aircraft -

Market Analysis - Global Aircraft (2010)

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