Aircraft Markets: Outperforming The

Economy

Presentation To Mazak Regional Open HouseWindsor Locks, CTBy Richard AboulafiaVice President, AnalysisTeal Group Corporationwww.tealgroup.com May 2012

Aircraft Markets, Through Good And Bad Years

Worldwide Deliveries By 2012 $ Value

CAGR ’03-‘08

CAGR ’08-‘11

Change ‘08-‘11

Change ’10-‘11

Large Jetliners 7.6% 6.5% 20.8% 8.0%

Business Aircraft 17.5% -13.7% -35.8% -0.9%

Regionals 4.1% -10.1% -27.3% 3.3%

Civil Rotorcraft 17.1% -7.6% -21.2% 4.2%

Military Rotorcraft 8.7% 13.5% 46.2% 11.2%

Fighters 1.5% 7.4% 23.9% 6.6%

All Civil 9.8% 0.4% 1.2% 5.7%

Total 8.1% 2.0% 6.2% 5.8%

The Commercial Market

Our Forgotten Nemesis...CyclicalityLarge Jetliner Deliveries By Value

'59 '63 '67 '71 '75 '79 '83 '87 '91 '95 '99 '03 '07 '11$0

$10

$20

$30

$40

$50

$60

$70(Value in '12 $Bns)

‘01-‘03 -10.7% CAGR; -28.8% peak-trough

‘91-‘95 -12.5% CAGR; -41% peak-trough

‘80-‘84 -13.9% CAGR; -45% peak-trough

‘68-‘77 -11% CAGR; -65% peak-trough

‘84-‘9116.1% CAGR

‘95-‘9920.8% CAGR

‘03-‘087.6% CAGR

OR‘99-‘03 -11% CAGR; -37.3% peak-trough

GDP Year/Year Growth Rates

Source: Morgan Stanley

'92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

0%

2%

4%

6%

8%

10%

-2%

-4%

World EU US Asia Ex-Japan

Y/Y Traffic: Nice Recovery; Cargo A Concern

2011 Totals: RPKs 6.9%, ASKs 8.2%, FTKs -0.6%

Source: IATA

0%

10%

20%

30%

-10%

-20%

RPKs ASKs FTKs

Historical Jetliner Orders And DeliveriesFour Great Book-To-Bill Years, Followed By A Cliff Dive;

Good Recovery, But Driven By Long-Term Orders

All Airbus and Boeing aircraft

'69 '71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '110

400

800

1200

1600

2000

2400

2800(Number of aircraft)

Deliveries Net orders

What’s Different With This “Cycle”• High fuel prices.

• Stronger emerging markets.

• Government export credit finance.

–From 15% to ~35%.

• Other government support (sovereign funds, government banks and airlines).

• Global flight to safe assets (“excessive demand”?).

• Build to forestall emerging competition?

• The primes really need cash.

–Persistently high IR&D

–With declining defense, everyone needs a growth story.

Jetliner Segment DeliveriesSingle Aisles--Two Families--Were 54% Of 2011 Deliveries, 53% Of

2002-2011 Deliveries

Mainline only

'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '110

10

20

30

40

50

60

70(Deliveries By Value In '12 $bns)

Single Aisle 200/300 300/400 400+

Do You Believe In Super Cycles?History And OEM Plans For Large Jet Transport Deliveries By Value

'59 '63 '67 '71 '75 '79 '83 '87 '91 '95 '99 '03 '07 '11 '14f$0

$20

$40

$60

$80

$100

(Value in '12 $ Bns)

‘84-‘9116.1% CAGR184.3% Growth

‘95-‘9920.8% CAGR112.7% Growth

‘03-‘14 9.6% CAGR, 175.1% Growth;‘11-‘14 16.4% CAGR

Commercial Jetliners History And ForecastDangerous Words: It Really Is Different This Time

Airbus, Boeing, CSeries, C919 only; includes KC-46

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '210

200

400

600

800

1,000

1,200

1,400

(Units Delivered)

0

20

40

60

80

100

120(Market Value in '12$ Bns)

Units Value

A350XWB, 787, A320neo, 737Max Drive Up-cycle

Single Aisles: The Next Generation

• Bombardier: first engine adapter.

–Serious execution risk.

–Needed: airlines to reassure lessors. Lessors to reassure airlines. Seeking one good hit…

–Pioneer or martyr?

• Airbus: doing the right thing, aggressively and successfully.

• Boeing: belatedly but correctly following. Probably.

–The 68 inch question.

• Emerging players: more smoke than fire.

• Embraer: less of a wild card than thought.

Jetliner Programs: The Importance Of VolumeCumulative Deliveries Value in ‘12 $ Bns

A318-21/neo

737/737Max

777/777-X

787

A350 XWB

A330/KC-30

A380

747/747-8

767/KC-767

CSeries

$0 $50 $100 $150 $200

2012-2021 2002-2011

Comparative Backlog Values

130.0

107.8

79.5

148.1

199.1

281.2

300.4

271.1 270.0

300.1

48.6

112.6 114.1

153.6

171.2

246.4

279.0 265.4

274.5

306.6

2.0 3.5 5.2

0.0

80.0

160.0

240.0

320.0(Value in '12 $Bns)

Boeing Airbus Bombardier

Market Share Outlook By Deliveries ValueAssumes A350 XWB EIS 2Q2015

'77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '210

20

40

60

80

100

(Value in '12 $Bns)

Boeing Airbus Douglas/Lockheed Bombardier/COMAC

Regional Market: Focus On Large Jets, Turboprops

'61 '63 '65 '67 '69 '71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11$0

$2

$4

$6

$8

$10(Value of deliveries in '12$ Bns)

19/37-seat Props 38/72-seat Props

30/50-seat Jets 60/108-seat Jets

Regional Backlog Values By Manufacturer

“Other” assumes 65 MRJ, 68 ARJ21, 179 Superjet orders.

10.2

8.4

10.9 11.1 10.9

14.415.0

13.5

8.78.2 8.2

14.3

10.5

7.26.3

1.9

3.7

6.6 6.5

4.43.8

1.71.5

0.4 0.3 0.3

1.62.3

3.4

7.77.2

11.1

12.5

0.0

5.0

10.0

15.0

(Value in '12$ Bns)

Total Embraer Total Bombardier Total Other

Regional Market Entrances Possible; Exits More Common

'93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21$0

$2

$4

$6

$8

$10(Value of deliveries in '12$ Bns)

Bombardier Embraer Other ATR Saab BAE

Fokker MRJ SuperJet ARJ21

Business Aircraft

Bottom Half Bizjet Segment V. Top Half

'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '110

2

4

6

8

10

12

14(Market Value in 2012 $ Bns)

Bottom Half (<$25M) Top Half (>$25M)

‘03-‘08 CAGR: 20.2% Bottom, 15.7% Top

‘08-‘10: -57% Bottom, 1.3% Top

‘08-‘11: -56.4% Bottom, 0.3% Top

Business Aircraft Deliveries And Corporate Profits

Source: US BEA, Teal Group Research

'64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10'110

500

1,000

1,500

2,000(Corp. Profits in $ Bns)

0

5

10

15

20

25

30(Deliveries -'12 $Bns)

Corporate Prof its Value of Deliveries

Available Business Jets V. Available Workers

0%

4%

8%

12%

16%

(Jets Available For Sale)

0%

2%

4%

6%

8%

10%

(US Unem ploym ent Rate)

Business Aircraft Market By ClassBalance Shifting Towards Larger Aircraft

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21$0

$10

$20

$30

$40('12$ Billions)

Very Light Entry Level Mid-Sized Super Mid-Sized Large

Very Large Ultra Jetliners+RJs Turboprops

Business Jet Manufacturer Market Shares

By Deliveries Value, 2012-2021 Vs 2002-2011

Excludes jetliners, RJs, turboprops

29.9%

8.4%

16.4%18%

26%

1% 0.4%

32.8%

5.7%

14%

10.6%

29.7%

6.5%

0.6%

Bombardier Hawker Dassault Cessna Gulfstream Embraer Other0%

5%

10%

15%

20%

25%

30%

35%

'02-11 '12-21

Military And Rotorcraft

Defense Budget: The Sky’s Not Falling. But Keep An Eye On It Anyway.

Sequestration: Like A Game Of Chicken For Adults…Of A Kind.

• Sequestration will add another $492 bn in cuts to the planned $487 bn in cuts.

• There’s no way at all to stop it…except for a large “off” switch, located in Congress.

• A majority in both parties would like to push this switch, but on their own terms.– Most Democrats want to raise revenue to pay for it, at least

by letting some of the Bush tax cuts expire.

– Most Republicans want to pay for it by cutting other parts of the budget.

• A lot can happen November 6 – January 20…– Republicans: no reason to make Obama look bad after

election. Last chance to make a tax increase happen while Democrats control the Senate and White House.

– Democrats: last chance to leverage their final days of controlling the Senate.

DoD Investment, O&M FundingUpside: Iran. Downside: Sequestration

Budget Authority

115

140

173190

179

214

239 237

271

293285 284

272.8

245235 230

220

42 4657

65 69 73 78 77 80 80 8172 69.6 70 71 69 72

54 6178 83

97105

134

165

135 138 134121

108.5 112 118 124130

FY01 FY03 FY05 FY07 FY09 FY11 FY13 FY15 FY170

50

100

150

200

250

300($ bns)

Procurement RDT&E O&M

FY13 request; includes $9.7 bn in OCO

Source: DoD Selected Acquisition Reports/American Enterprise Institute

DoD Tactical Aircraft Procurement, FY1986-FY2013

Worst Recapitalization Ever

0

100

200

300

400(Units Procured)

0

2

4

6

8

10

12(Funding in '12 $Bns)

Units Funding

Highest Value Fighter Programs: History and Forecast

Cumulative US '12 $Bns Value

F-35

Undetermined

Eurofighter

Su-27/30

F/A/EA-18

F-15

Rafale

F-16

A/T-50

LCA

F-22

MiG-29

Gripen

$0 $10 $20 $30 $40 $50 $60 $70

2012-2021

2002-2011

World Fighter Production Shares

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '210

5

10

15

20

(Share By '12 $bns Value)

F-35 Undetermined Europe RoW Non-F-35 US

World Trainer/Light Attack Market Shares

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '210

0.5

1

1.5

2

2.5(Share By '12 $bns Value)

Props Jets T-X

Military Transport Market Shares

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '210

2

4

6

8(Deliveries By '12 $Bns Value)

C-17 C-130J A400M

KC-390 Other

Military Rotorcraft Market Still Growing; Civil Market Recovers To Higher Level

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '210

2

4

6

8

10(Market Value in '12 $ Bns)

Civi l Mil i tary (US) Mil i tary (International)

2007-2011 military market: 16% CAGR, 80.8% growth

Key Rotorcraft MarketsMilitary Lift Is Majority Of Demand

(2012 $)

$2.5B13.7%

$1.0B5.2%

$2.5B13.5%

$8.0B43.7%

$4.4B23.9%

$2.7B14.6%

$0.4B2.2%

$1.8B9.9%

$8.1B44.5%

$5.3B28.8%

Scout/Attack Naval/ASW Tiltrotor

Other Military Transport Civil (non-tiltrotor)

20212012

Military Rotor Programs: History And ForecastCumulative $ Value

'12$ Bns; merges co-produced helos, rebuilds.

U/MH-60M/SV-22

AH-64DCH-47

H-90S/MH-60R

CH-53KAS.332

EC/KAI SurionUH-1Y/AH-1Z

TigerIndia (undet.)

AW 101CVLSP/CSAR-X2

AW129AW Lynx

VXXHAL ALH

Bell OH-58D

$0 $5 $10 $15 $20 $25

2012-2021 2002-2011

Rotorcraft Manufacturer Market Shares2012-2021 Vs 2002-2011

Excludes AAS, CVLSP, CSAR, VXX, India MRH/RSH

14.2%

12.1%

25.1%

22%22.8%

3.8%

15.8%

13.7%

22% 22.1%23.9%

2.5%

AgustaWest. Bell Boeing Eurocopter Sikorsky Other0%

5%

10%

15%

20%

25%

2002-2011 2012-2021

World UAV Market 2002-2021

Includes UCAVs; excludes R&D.

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '210

500

1,000

1,500

2,000

2,500

3,000(Units)

0

1

2

3

4(Market value In '12 $bns)

Units Value

Missile/Munition/UAV Forecast

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '210

3

6

9

12

15

18(Market value in '12 $Bns)

AAM ASM ADM ATM

Anti-Ship SSM Smart munitions UAVs

What Happens NextMarket Growth

’11-‘12 CAGR ’12-‘17

Comment

Large Jetliners 18.6% 2.3% 5-year CAGR hurt by single aisle product gap

Business Aircraft 6.3% 11.9% Big structural change

Regionals 9.7% -2.0% Recovery, but still not a great market

Civil Rotorcraft 0.9% 6.5% Strong recovery

Military Rotorcraft 9.2% 1.5% Strong plateau, for now

Fighters -19.5% 3.7% Gradual F-35 ramp-up; export-driven growth

Military Transports -5.4% 7.2% C-130J grows, C-17 shrinks; A400M lives

All Civil 15.4% 3.9% Recovery and growth

Total 9.1% 4.3% No bust, less boom

The Big Aircraft Builders

2012 20210

40

80

120

160

200(Deliv eries in '12 $ bns)

Boeing

EADS

Lockheed Martin

Bombardier

Embraer

Gulfstream

Textron

Finmeccanica

Dassault

Sikorsky

Other

US Aircraft Parts/Structures Imports By OriginTop 12 Countries

Source: ITC NAIC 336413; in order, as of 2011

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

(Thousands)

Japan Canada United Kingdom France Italy

Mexico Korea China Germany Austral ia

Netherlands Israel

Growth Rates By Supplier Nation: Top 10 (By Volume)

Source (To US); Largest to Smallest

CAGR ’97-‘11

CAGR ’07-‘11

Japan 5.5% 8.5%

Canada 4.4% 5.2%

United Kingdom 4.3% -0.7%

France 8.7% 5.6%

Italy 5.4% 18.7%

Mexico 24.1% 42.5%

Korea 10.4% 8.8%

China 18.0% 19.7%

Germany 8.8% 7.0%

Australia 6.2% 17.5%

Total US Imports 6.4% 7.8%

Aircraft Production 2002-2021Largely Sheltered From The Storm; Long-Term Growth, Too

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '210

40

80

120

160

200(Market Value in '12 $ Bns)

Fighters Business Aircraft Rotorcraft

Mil i taryTransports/Trainers/Other Jetl iners/Regional AC