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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
Source: Ascend, 2009
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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
Source: Ascend, 2009
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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Source: Teal Group, 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).
Source: Ascend data, May 2010
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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
Source: Ascend data, May 2010
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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
Source: Ascend data, May 2010
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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 -
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