What’s hot and what’s not: the latest review of market trends, aircraft values and lease rates

7/31/2019 Whats hot and whats not: the latest review of market trends, aircraft values and lease rates

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Whats hot and whats not10th July 2012

Les Weal, Head of ValuationsOlga Razzhivina, Valuations Manager

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Aircraft values- whats hot, whats not

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Markets values across the sectorsi. Cargoii. Single aisleiii. Twin aisle

iv. Turboprops

2012 Base Values update

Recovery path


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Cargo a sector transforming?

FedEx founder Fred Smith said that the global freight business would see some drastic changes

in the future. Not only would air carriers face competition fromships, customers would look for customised door-to-door delivery options.

FedEx has seen a decline in fiscal fourth-quarter profits -- international priority airfreight-shippingvolumes fell 3 per cent in its fiscal fourth quarter that ended on May 31, while its US domesticexpress volume fell 5 per cent, compared to a 4 per cent decline in the previous quarter -- and haschalked out a plan for cost-cutting. Speaking at a post-earnings conference, Smith said that

the traditional airport-to-airport business "is not growing. This while thedoor-to-door express segment is growing, and the movement of goods on thewater is growing".

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Core freighter widebodies

4

$0m

$20m

$40m

$60m

$80m

$100m

$120m

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

B744F-5yr

MD11F-10yr

B744SF trend


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Click to edit Master title style

ascendworldwide.com

Single-Aisle aircraft utilisation 2.5% below peak levels

Source: Ascend Online Fleets


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Market values in harmony


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Market values on different tracks?


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Market values in different universe?


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In production widebodies the bright spot

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$0m

$10m

$20m

$30m

$40m

$50m

$60m

$70m

$80m

2006 2007 2008 2009 2010 2011 2012

A333HGW MV 10yrA333HGW BV 10yr

B772ER MV 10yr

B772ER BV 10yr


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Geographical spread: A330s

9%

4%3%

24%

46%14%


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Out of production prone to catastrophe

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$0m

$10m

$20m

$30m

$40m

$50m

$60m

$70m

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

A343MV-10yr

A343BV-10yr


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Turboprops the real hot spot

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$0m

$2m

$4m

$6m

$8m

$10m

$12m

$14m

$16m

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

AT72-10yr

D8Q4-5yr


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Base values 2012

No radical changes but plenty of aircraft on watch

Economic and fuel prices in keeping with recent trends

Default inflation realigned to 2%

Useful lives will they become shorter?

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ascendworldwide.com

Retirements of younger aircraft are increasing

Source: Ascend Online Fleets


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Useful life analysis-aggregation of 24 type/series

0%

25%

50%

75%

100%

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36

%RemaininginP

axService

Aircraft Age (yrs)

AggregatedEarly Middle

Late All Vintages


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Market recovery-pushed to the right?

Historical MV/BV relationship

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

History Optimistic Pessimistic


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Looking beyond the horizon: cycle indicators10th July 2012

Eddy Pieniazek, Director & Global Head of Consultancy

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Agenda Looking beyond the horizon

What is the Horizon? How far is Beyond? World Economics and long-term changes in traffic patterns

Fuel and Airline Profits

Show me the Money

Aircraft financing and impact on production cycle

Deliveries Next Five Years 2012-2016

Aircraft trading used marketplace

Beyond the Horizon

10 Year outlook - funding

Narrowbody and Widebody Landscape 2020-2022


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Developing world marching to a catch up beat

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Major change in the balance of key route markets


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New paradigm of high fuel prices

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0

50

100

150

200

250

300

350

0

20

40

60

80

100

120

140

JetFuelcperUSGallon

CrudeOil$

perBarrel

Global Crude Oil and Jet Fuel Prices

Oil Price Jet Fuel


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Profit cycle shows a break from previous trends

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Recent profits/losses have been in two year cyclesIATA forecast range for 2012 was +/- 0.8%


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Traffic data trends

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Passenger traffic growth of 6.9% and capacity increase of 8.2% in 2011Passenger markets still showing gains however Air freight hascontinued to decline or stagnate (-1.9% in February 2012)


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2012 Jet Deliveries


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2012 New Deliveries Funding


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New Sources of Capital

Since 2008 there have been few new sources of capital to the industry

Unsecured lessor marketExIm backed bondsSmall number of commercial banksSmall number of credit funds

Is it sufficient to make up for the scaling back of European banks?Opportunity exists for new sources but they have been slow to enter marketOld aircraft - big concern: new sources likely to start with new aircraft

ECA backed loans in 2011/2012: c.30-35% of finance provided.2013 unclear with the intro of new ASU and greater costs for export credit may still becheaper than commercial loans but gap is smaller (100bps to 30bps for Category 1borrower). With deliveries rising, hard to see ECA going away

Capital markets - Unsecured finance has replaced ABS for some lessors.Restrictions on financing older aircraft and increased new aircraft funding requirements will

make increased capital markets issuance a must


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Commercial Jet Deliveries Forecast Next 5 YearsIn 2012$ assuming Base Value on delivery

Source Ascend Online Fleets & Global Fleet Forecaster

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

2012 2013 2014 2015 2016

US

$

Bill

ions

SINGLE-AISLE TWIN-AISLE REGIONAL JET


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Commercial Jet Deliveries Forecast Next 5 Years

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

SA FORECAST SA BACKLOG TA FORECAST TA BACKLOG RJ FORECAST RJ BACKLOG

No

ofa

ircraft

2012 2013 2014 2015 2016

FEW SLOTS LEFT

Source Ascend Online Fleets & Global Fleet Forecaster


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Used Western Built Aircraft Sales Transactions

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0

100

200

300

400

500

600

Jan Feb March April May June July Aug Sept Oct Nov Dec

Numberofusedaircraftsalestransactions

2006

2007

2008

2009

2010

2011

2012

Source: Ascend Online


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Sales with lease attached the missingcomponent

These trades are held back by lack of secondarypurchasers and the lack of finance


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MV/BV closely linked to volume of transactions

These volumes are at similar levels to 2004


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Forecast 10 Year Global Deliveries By Region13,000+ ordered aircraft, ~$1,000 billion based on 2012 Base Value (2012$ terms)

Asia/Pacific,

$242b, 23%

Latin America,

$52b, 5%

Middle East,$144b, 14%

North America,

$186b, 18%

Europe, $262b,

24%

China, $139b,

13%

Africa, $33b, 3%

36% of $1,000bn market in Asian region


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Beyond the Horizon - Narrowbody LandscapeJet Segmentation by Type:1960 to 2011, Forecast to 2020

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

NumberofAircraft

inService

MS-21

C919

737 Max

A320neo Family

CSeries

717

737 (NG)

MD-90

A320ceo Family

737 (CFMI)

757

MD-80

737 (JT8D)

DC-9

727

Convair

Soviet Types

Caravelle

Old British Types


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0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

NumberofAircraftinService

A350

787

A380

777

A330

A340

MD-11

A310

767

A300

DC-10

L-1011

TriStar

Beyond the Horizon - Widebody LandscapeJet Segmentation by Type:1960 to 2011, Forecast to 2022


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The information contained in our databases and used in this publication has been assembled from many sources, and whilst reasonable care has been taken to ensure accuracy, theinformation is supplied on the understanding that no legal liability whatsoever shall attach to Ascend A Flightglobal Advisory Service, part of Reed Business Information Limited, its offices,or employees in respect of any error or omission that may have occurred

What’s hot and what’s not: the latest review of market trends, aircraft values and lease rates

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Transcript of What’s hot and what’s not: the latest review of market trends, aircraft values and lease rates