- 1 -

European Aviation Club12 March 2009

Brussels

Ulrich Schulte-StrathausAEA Secretary General

The State of the Industry – and what AEA can do

The current crisis – A catalyst for a structural change of

European aviation

- 2 -

AEA member airlines' brands give credibility and weight to the Association…

AEA leverages this weight and gives it back, multiplied, to each individual

member.

The Association of European Airlines

- 3 -

The worst crisis since the 1930s

0

1

2

3

4

5

6

7

8

19

61

19

63

19

65

19

67

19

69

19

71

19

73

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

%

Source: AEA research, IMF data

Timeline of crises since 1961 (GDP Growth)

1973-75Oil crisis

1979-80Oil crisis

1981-83Economic

crisis

1990-92Economic

crisis

1997-98Asian

Financial crisis

2001-039/11

Economic crisis

2008-?

World recession =GDP growth below 3%

- 4 -

Economies worldwide are suffering

-3

-1

1

3

5

7

9

US

EU

Ce

ntr

al &

Ea

ste

rnE

uro

pe

Ja

pa

n

Ch

ina

Ind

ia

Bra

zil

Wo

rld

% g

row

th r

ate

GD

P

20082009

Source: IMF

Recession is Here% growth GDP

- 5 -

Government bail-outs of banks and financial institutions

Targeted assistance to e.g. Fannie Mae, Freddie Mac, AIG, Fortis, Bradford & Bingley, Glitnir, Kaupthing, RBS, Lloyds TSB,…

Government guarantees for interbank lending

Government guarantees of savings deposits

Interest rate cuts to counter economic slide

IMF provides financial support to Iceland, Ukraine, Turkey

IMF, EU and World Bankprovide financial support to Hungary.

Global Action

Concerted governmental action to …contain the financial problems

Source: AEA staff research, BBC

Eurozonerescue

package EUR 1000 bn

Eurozonerescue

package EUR 1000 bn

UK rescuepackage

GBP 387 bn(EUR 480 bn)

UK rescuepackage

GBP 387 bn(EUR 480 bn)

US rescuepackage

US$ 700 bn(EUR 550 bn)

US rescuepackage

US$ 700 bn(EUR 550 bn)

- 6 -

World economic outlook weakens further

3.0

2.2

0.5

0

1

2

3

4

5

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

%

Source: IMF

IMF Revises World GDP ForecastGross Domestic Product, Constant Prices, Annual % Change

Nov'08

Jan'09

Oct'08

IMF has progressively revised its world forecast for 2009 down, from +3.0% to +0.5%.On 10 March 2009, Strass-Kahn warned that the world economy could shrink in 2009, suggesting an even gloomier outlook than the current official forecast of 0.5% growth.

- 7 -

Confidence Levels are at historic lows

In early 2009 the ESI for Euro Area and EU continued to fall. Both indicators stand at their lowest levels since the series was launched in 1985.

60

70

80

90

100

110

120

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

%

Base year of index is annual 2000. Source: European Commission.

EU Economic Sentiment Index

Euro Area ESI

EU ESI

- 8 -

Airlines

- 9 -

Traffic Trend Turnaround since mid-year

Passenger RPKs

Total Freight Tonne-Kms

-30

-25

-20

-15

-10

-5

0

5

10

15

Ja

n-0

8

Fe

b-0

8

Ma

r-0

8

Ap

r-0

8

Ma

y-0

8

Ju

n-0

8

Ju

l-0

8

Au

g-0

8

Se

p-0

8

Oc

t-0

8

No

v-0

8

De

c-0

8

%

Source: AEA

2008 RPK % H1: +3.4% H2: -0.8% = Year +1.2%

2008 TFTK % H1: +3.1% H2: -8.3% = Year -2.8%

Traffic Trend Turnaround came mid-year 2008AEA Total Scheduled Services

- 10 -

Traffic Volumes are in free fall since mid year 2008

Passenger RPKs

Total Freight Tonne-Kms

-25

-20

-15

-10

-5

0

5

10

15

Ju

l-0

5

Se

p-0

5

No

v-0

5

Ja

n-0

6

Ma

r-0

6

Ma

y-0

6

Ju

l-0

6

Se

p-0

6

No

v-0

6

Ja

n-0

7

Ma

r-0

7

Ma

y-0

7

Ju

l-0

7

Se

p-0

7

No

v-0

7

Ja

n-0

8

Ma

r-0

8

Ma

y-0

8

Ju

l-0

8

Se

p-0

8

No

v-0

8

Ja

n-0

9

% g

row

th

Source: AEA

Traffic Volumes Are in Free FallAEA Total Scheduled Services

- 11 -

All routes from Europe are affected

Cross Border Europe

North Atlantic

Far East Australasia

-10

-5

0

5

10

15

20

Ju

l-0

5

Oc

t-0

5

Ja

n-0

6

Ap

r-0

6

Ju

l-0

6

Oc

t-0

6

Ja

n-0

7

Ap

r-0

7

Ju

l-0

7

Oc

t-0

7

Ja

n-0

8

Ap

r-0

8

Ju

l-0

8

Oc

t-0

8

Ja

n-0

9

%

Source: AEA

Passenger Traffic Volumes on Major AEA Route AreasRPK % Growth

- 12 -

Passenger traffic will fall by 4% in 2009

-10

-5

0

5

10

15

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

% R

PK

gro

wth

Source: AEA

2009 will bring the lowest growth in 30 years of passenger air transportwith the exception of external shocks

1991Gulf War I

20019/11

2003-04Gulf War II, SARS

2009: - 4%

▼Passenger traffic levels started to fall in H2 2008 ▼ AEA forecasts -4% growth in RPK in 2009▼ Over a ‘normal’ baseline -4% equates to -6% loss in RPK

- 13 -

Freight is an indicator of economic health

-10

-5

0

5

10

15

20

25

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

% F

reig

ht

TK

gro

wth

Source: AEA

Freight traffic will weaken as recession spreads… and will not recover until economies do.

2008: -2.8%2009: - 5%

1981-83Economic

Crisis

▼Freight traffic levels started to fall mid-2008 ▼ AEA forecasts -5% growth in FTK in 2009▼ Over a ‘normal’ baseline -5% equates to -10% loss in FTK

- 14 -

Premium traffic is losing importance

Source: AEA RB2*AEA Airlines, International routes

Short haul Long haul2

1.0

17

.3

18

.1

16

.0

10

.4

10

.1

9.3

8.4

7.8

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2002 2004 2006 2008

Low

Premium

14

.4

13

.2

14

.3

13

.5

13

.7

13

.9

14

.4

14

.3

14

.4

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2002 2004 2006 2008

Low

Premium

- 15 -

European Capacity cuts go deep

-12

-10

-8

-6

-4

-2

0

Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09

% g

row

th

Number of FlightsAvailable Seat Kms

Source: Schedule analysis

European capacity cuts go deep% change in flights and seats on offer on services within Europe

- 16 -

Fewer aircraft are needed

0

1000

2000

3000

4000

5000

In Service Stored On Order On Option

nu

mb

er

of a

irc

raft

Nov-08

Feb-09

Source: ASCEND

In the last 3 months Europe's airlines have taken 102 aircraft out of service

102 aircraft taken out of

service

136 more aircraft parked

115 aircraft fewer on

order29 aircraft

more under option

- 17 -

Employment: 15,000 jobs lost already

300

350

400

450

500

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

& t

od

ate

Th

ou

sa

nd

s

Source: AEA Yearbook & staff research

Further Job Losses are inevitableAEA Carriers' total FTE count to 2007, announced cuts through 2008 to date

To date AEA carriers have already announced 15,000 job losses + another 5,000 positions affected by other labour cost saving measures (unpaid leave,reduced working hours,..) More are likely to follow.

40,000 job losses

- 18 -

Aviation in its entirety is losing traffic

-10

-5

0

5

10

Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08

%

Major Airports >25 mill/pax

Large Airports 10-25 mill/pax

Medium Airports 5-10 mill/pax

Small Airports <5 mill/pax

Source: ACI-Europe

ACI-Europe Passenger Traffic Development% month-on-month Growth rate, per Airport Category

- 19 -

Access to aircraft financing has been curtailed

The aircraft leasing sector has not been unaffected by the financial crisis. Although lease rates are falling, access to capital has become an issue which could touch airlines and manufacturers alike. The stock of white-tails and aircraft entering the market from bankruptcies will also depress the assest value of aircraft.

0

250

500

750

1000

1250

1500

1750

2000G

EC

AS

ILF

C

Avi

atio

nC

apit

al G

rou

p

AW

AS

CIT

Aer

osp

ace

Bab

cock

&B

row

n

Aer

Cap

Bo

ein

gC

apit

al C

orp

DA

E C

apit

al

RB

S A

viat

ion

Cap

ital

Nu

mb

er

of

Air

cra

ft

Current Fleet

On Order

Source: ASCEND

Aircraft Lessors were caught in the financial markets turmoil

For Sale

For Sale

- 20 -

AEA Airline financial outlook is dismal

-4

-3

-2

-1

0

1

2

3

4

5

2000 2001 2002 2003 2004 2005 2006 2007 2008e 2009f

EU

R b

n

Operating ProfitNet Profit (after Interest)

Source: AEA

AEA Airlines will once again post losses in 2009after just 5 years of profits

Forecast Loss-1.5bn to -2.5bn

- 21 -

2008 marks the beginning of recession

Fuel: Single biggest, and most volatile cost factor

Economic downturn will reduce demand increasingly

Cost factors such as airport charges, ATC likely to increase

Volume-dependent no-frills likely to maintain overcapacity

Governments could impose further taxes to fund bail-out of other sectors

EU ETS could lead to trade sanctions from third countries

Key figures 2007 2008 and beyond

Demand (RPK) +5.3% +2.0% ▼

Capacity (ASK) +4.6% +4.0%

Seat Load Factor 77.0% 75.5% ▼

- 22 -

Global recession makes it even more imperative to drive down external costs:

An ETS in 2012 – from a cap-and-trade system to a disincentive tax measure

A proliferation of national taxes

Volatility of fuel price: from 9% of our operating costs in 1998 to 34% in 2008

And ATM fragmentation costs the environment €16mln tons of CO2 and airlines € 5 bln a year

Airport charges and ATM Unit Rates will increase in 2009 despite the recession

External costs of utmost urgency

- 23 -

ANSP Unit Rates rise, less traffic

% Increase 2009 over 2008

-15

-10

-5

0

5

10

15

20

25

30

Slo

ve

nia

Bo

sn

ia &

He

rz.

Cze

ch

Re

p.

Cro

ati

a

Slo

va

kia

Be

lgiu

m-L

ux

.

Mo

ldo

va

Sw

ed

en

Ne

the

rla

nd

s

Sp

ain

Hu

ng

ary

Ire

lan

d

Fra

nc

e

De

nm

ark

Alb

an

ia

Sw

itze

rla

nd

Ge

rma

ny

Ro

ma

nia

Po

lan

d

Po

rtu

ga

l

Sp

ain

Ca

na

rie

s

Po

rtu

ga

l S.

Se

rbia

-Mo

nt.

Ma

lta

Au

str

ia

Fin

lan

d

Tu

rke

y

Gre

ec

e

Ita

ly

Lit

hu

an

ia

No

rwa

y

FY

RO

M

Bu

lga

ria

UK

Cy

pru

s

% c

ha

ng

e 2

00

9 o

ver

20

08

Source: Eurocontrol

European ATC Unit Rates will rise by 3.2% in 2009, despite reduced traffic levels

Average increase of +3.2%in unit rates for ATC Charges

- 24 -

Europe needs a Single European Sky

For passengers: delays caused by bottlenecks in the sky, circuitous

routings and holding patterns above airports…

For the environment: unnecessary emissions of 16 million tons of CO2 a

year

For the airlines: unnecessary costs of around €5 billion a year

- 25 -

EU ATM : more costs… inferior performance

1 ATC Organisation (civil + mil.)21 En-Route Centres1 Operating System

ATM Airspace: 9,8 million km²

USAUSAATM Airspace: 10,5 million km²

47 ATC Organisations (civil + mil.)

58 En-Route Centres22 Operating Systems

EuropeEurope

900 Movements per Air Traffic Controller

$400 ATM Cost / Flight

480 Movements per Air Traffic Controller

$800 ATM Cost / Flight

- 26 -

Airport Charges increases 2008/2009

- 27 -

Buying 15% of carbon allocation will massively increase the cost base → additional financial hardship;

Increase of administrative burden with regard to the MRV guidelines + additional requirements by individual Member States;

ETS will fundamentally change the operating economics of every route and flight: Many communities will lose service;

International distortion of competition;

Some non-EU competitors will see traffic diversion as a gift; for others, the EU ETS will be unacceptable, and will spark trade wars.

Consequences of ETS post 2012

- 28 -

2009 crisis management to ensureEurope’s global sustainable competitiveness

Europe as a region must confront unnecessary regulatory burdens:

ETS & MRV as economic instrument

Proliferation of national taxes (UK, NL, Ireland)

Non-safety EASA rulemaking proposals

Surge of costs for security measures

Further unnecessary administrative burdens

Role of EU institutions in airline restructuring process

Structural inefficiencies of the value chain to be addressed jointly:

Cost efficiency of airport services

Cost efficiency of ANSP services

Sufficient and well organised infrastructure

Review of market orientation of all aviation service providers