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flightglobal.com/consultancy
Global Aviation Sector
Overview
21st February 2017
Rob Morris, Global Head of Consultancy
1
flightglobal.com/consultancy 2
FlightGlobal: Pioneering aviation insight and analytics
business
RELX Group:
London, Amsterdam and New York
Stock Exchange listed
28,500 employees
Market Capital $36.87bn
FlightGlobal:
370+ staff
11 offices across the world
Part of a leading data
solutions group
flightglobal.com/consultancy 3
Flight Ascend’s unique Value proposition as an
appraiser
Independent Global team – fully objective
We do not invest in aircraft and we are not brokers – NO conflicts of interest
Global perspective with offices in London, New York and Hong Kong
Instant access to vast data for research
The only Appraiser with globally recognized Fleets, schedules and values databases used by our
clients on a day to day basis
Unparalleled Historical values data
Historical Market values from 1965
Access to industry Tier 1 participants
Clients are Airlines, all the top lessors, the major banks involved in aviation finance, MROs, OEMs,
regulatory bodies
flightglobal.com/consultancy 4
Global Aviation Sector Overview and Outlook
Aviation Asset Value Risk
Twin-Aisle Aircraft Markets
Some Final Thoughts on Operating Leasing
flightglobal.com/consultancy
Global Aviation
Sector Overview and
Outlook
5
flightglobal.com/consultancy 6
But first, why invest in commercial aircraft?
Despite volatility in the aviation market over the past 20 years, investment in
aircraft leasing has shown remarkably stable returns
The Ascend Aircraft Investment Index measures this return and volatility
On a risk reward basis, investment in aircraft has outperformed many other asset
classes including shipping and precious metals
Aircraft leasing has shown low correlation with indices that reflect the general
economy such as the S&P500
flightglobal.com/consultancy 7
Returns from investing in aircraft are stable and
uncorrelated to other alternative investments
0
200
400
600
800
1,000
1,200
Aircraft Investment Index
S&P 500 Index
MSCI World Index
Dow Jones Transportation Index
S&P 500 Airlines Index
Source: Ascend Aircraft Investment Index
flightglobal.com/consultancy 8
Commercial aviation is a long-term growth sector
Source: Ascend Analysis of IATA Data
-10%
-5%
0%
5%
10%
15%
20%
Year-
on
-Year
Ch
an
ge
Traffic (RPK) Capacity (ASK)
flightglobal.com/consultancy 9
2016 opened with a strong demand outlook…..
Demand side looks very strong (“as good as it gets”?)
Indicator Current level Trend
Passenger traffic
Freight traffic
Yields
Load Factors
New aircraft orders
Deferrals &
cancellations
flightglobal.com/consultancy 10
…..but closed in a very different place
Demand side weakening, trends suggest may be past cyclical peak
Indicator Current level Trend
Passenger traffic
Freight traffic
Yields
Load Factors
New aircraft orders
Deferrals &
cancellations
flightglobal.com/consultancy 11
Oil prices stabilised after falls that commenced in 2014
Source: US EIA / IATA
0
50
100
150
200
250
300
350
0
20
40
60
80
100
120
140
Jet
Fu
el C
en
ts p
er
US
Gall
on
Cru
de O
il $
per
Barr
el
Oil Price Jet Fuel
Crude oil price trajectory
has considerable
uncertainty at present
IATA’s 2017 base case
fuel scenario is now
$64.90 per barrel Jet Fuel
(=$1.54 per USG)
flightglobal.com/consultancy 12
Airline profits at record levels over past two years
-30
-20
-10
0
10
20
30
40
Glo
bal A
irli
ne N
et
Pro
fit
($b
n)
Source: IATA
flightglobal.com/consultancy 13
Supply side indicators suggest a different story
Fewer concerns in supply side but watching for evolving capacity surplus if demand weakens
Indicator Current level Trend
Aircraft deliveries
Deliveries for
replacement/growth
Deliveries as percentage
of fleet
Stored aircraft
Used aircraft availability
Aircraft economic life
Aircraft utilisation
flightglobal.com/consultancy 14
So where are we in the cycle?
Mixed messages from the global economic cycle Economic recovery remains weak for such a long cycle
Aviation demand cycle remains strong but trends suggest we are now past the
peak Fuel prices previously helped on the cost / yield side but now expecting cost headwinds from
increasing fuel and labour costs
Watching closely for signs of evolving capacity surplus
Expect to see retirement volumes tick up and potentially utilisation tick down
Some amber / red indicators in aviation supply cycle which may be getting ahead
of demand? Deliveries trending towards higher % of installed fleet
Average age of retirement continues to decline
Concerns over OEMs increasing production rates, particularly in single-aisle
flightglobal.com/consultancy
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035
0
5000
10000
15000
20000
25000
30000
35000
40000
Co
mm
erc
ial
Passen
ger
Jets
in
S
erv
ice
Single-Aisle Twin-Aisle
15
Passenger jet fleet forecast to increase by 10,600
units in next ten years
Source: Flight Fleets Analyzer, Flight Fleet Forecast
flightglobal.com/consultancy 16
Record backlog driving increased production rates
0
500
1000
1500
2000
2500
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Pla
nn
ed
An
nu
al
Pro
du
cti
on
Regional Jet Single-Aisle Twin-Aisle
Source: Flight Ascend Analysis of Announced OEM Production Rates
flightglobal.com/consultancy 17
Airbus and Boeing each expected to deliver around
820-830 aircraft in 2018 worth around $60 billion each
0
20
40
60
80
100
120
140
160
2016 2017 2018 2019 2020
Esti
mate
d D
eli
very
Valu
e (
2017$)
Airbus Boeing Bombardier Embraer Sukhoi COMAC Mitsubishi Irkut
Source: Flight Fleets Analyzer, Flight Values from Ascend (delivery value assumed to be 2017 FLBV)
flightglobal.com/consultancy
Aviation Asset Value
Risk
18
flightglobal.com/consultancy 19
How should investors select their assets?
Investors should favour assets that have liquidity
The aircraft most preferred by investors today are single-aisles
A320 and 737 families
Business model drives portfolio strategy, can differentiate on
Age
Aircraft category (Regional, Single-aisle, Twin-aisle, Turboprop, Helicopter)
Volatility of values must be considered in hand with depreciation
Ratings estimate downside risk on future base value
flightglobal.com/consultancy 20
The Herfindahl-Hirschman Index (HHI) is a recognised
measure of liquidity
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
HH
I
Source: Flight Ascend Consultancy analysis
flightglobal.com/consultancy
0
5
10
15
20
25
30
35
1984 1985 1986 1987 1988 1989 1990 19911992 1993 1994 1995 1996 1997 1998 1999
21
Historical CMV (US$ Mn) – Generic aircraft example
Gulf War and
Early 90s
Recession9/11
Liquidity
Crisis
Oil
Spike
“marginal
lift” benefits
from upturn
Out of production
Older aircraft
more
exposed to oil
Values move in relation to supply and demand driven
by macroeconomic events
Source: Flight Ascend Values
flightglobal.com/consultancy 22
Ratings use historical volatility to forecast a downside
risk envelope
Source: Ascend Values & Ratings, 2005 build 777-300ER, 2% future inflation
0
20
40
60
80
100
120
140
160
Valu
e, U
S$ M
n
Downside Volatility BV CMV
flightglobal.com/consultancy
Twin-Aisle Markets
23
flightglobal.com/consultancy 24
4,100 passenger and 1,000 cargo twin-aisles in
service today
0
1,000
2,000
3,000
4,000
5,000
6,000
19
90
19
91
19
92
19
93
19
94
19
95
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
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
In-S
erv
ice T
win
-ais
le J
et
Fle
et
StoredCargoPassenger
Source: Flight Fleets Analyzer
flightglobal.com/consultancy 25
Twin-aisle deliveries increased significantly over past
few years but paused in 2016…..
0
50
100
150
200
250
300
350
400
450
Tw
in-a
isle
Air
cra
ft D
eli
veri
es
747 767 777 787 A300 A310 A330 A340 A350 A380 MD-11
Source: Flight Fleets Analyzer, commercial aircraft for passenger / cargo use only
flightglobal.com/consultancy 26
…..before heading upwards marginally again?
0
50
100
150
200
250
300
350
400
450
500
Tw
in-a
isle
Air
cra
ft D
eli
veri
es /
B
acklo
g
747 767 777 787 A330 A340 A350 A380 Scheduled Production
Source: Flight Fleets Analyzer, commercial aircraft for passenger / cargo use only
flightglobal.com/consultancy 27
Deliveries normalised for fleet have increased
significantly
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0
50
100
150
200
250
300
350
400
450
Tw
in-a
isle
Deli
veri
es a
s S
hare
of
Fle
et
Tw
in-a
isle
Air
cra
ft D
eli
veri
es
Twin-aisle Deliveries As Share of FleetSource: Flight Fleets Analyzer, commercial aircraft for passenger / cargo use only
flightglobal.com/consultancy 28
530 twin-aisles in store, but 75% of these are more
than 15-years old
0
5
10
15
20
25
30
35
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45
Sto
red
Tw
in-a
isle
Fle
et
Aircraft Age (Years)
Other
A380
A350
A330
787
777
767
747
Source: Flight Fleets Analyzer, commercial aircraft for passenger / cargo use only
400 passenger aircraft, ~10%
have known future placements,
~10% scheduled for part-out
flightglobal.com/consultancy 29
Used twin-aisle jet availability stable
0
20
40
60
80
100
120
140
160
180
200
Jan
-10
Apr-
10
Jul-
10
Oct-
10
Jan
-11
Apr-
11
Jul-
11
Oct-
11
Jan
-12
Apr-
12
Jul-
12
Oct-
12
Jan
-13
Apr-
13
Jul-
13
Oct-
13
Jan
-14
Apr-
14
Jul-
14
Oct-
14
Jan
-15
Apr-
15
Jul-
15
Oct-
15
Jan
-16
Apr-
16
Jul-
16
Oct-
16
Jan
-17
Tw
in-a
isle
Jet
Mo
nth
ly A
vail
ab
ilit
y
Source: Airfax, 6-month rolling average of aircraft available for lease or sale (excludes wet-lease / ACMI)
flightglobal.com/consultancy 30
1,360 twin-aisles retired since 2008
5
10
15
20
25
30
0
50
100
150
200
250
Avera
ge A
ge a
t A
ircra
ft
Reti
rem
en
t
Air
cra
ft R
eti
red
<15 Years Old at Retirement >15 Years Old at RetirementAverage Age at Retirement Average Age at Economic Retirement
Source: Flight Fleets Analyzer
flightglobal.com/consultancy 31
94 operating lessors managing 1,700 twin-aisle aircraft
worth ~$100 billon
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
0
50
100
150
200
250
300
350
Tw
in-a
isle
Po
rtfo
lio
Valu
e (
$m
n)
Tw
in-a
isle
Po
rtfo
lio
Source: Flight Fleets Analyzer
flightglobal.com/consultancy 32
Operating lessor share of deliveries increases at times
of market stress?
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0
50
100
150
200
250
300
350
400
450
Op
era
tin
g L
esso
r S
hare
of
New
D
eli
veri
es
Tw
in-a
isle
Air
cra
ft D
eli
veri
es
Direct Order PLB Non Lessor Lessor Share
Source: Flight Fleets Analyzer, commercial aircraft for passenger / cargo use only
flightglobal.com/consultancy 33
710 known scheduled lease expiries through 2026
0
20
40
60
80
100
120
140
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Tw
in-a
isle
Air
cra
ft S
ch
ed
ule
d
Lease R
etu
rns
747 767 777 787 A330 A350 A380 Other
Source: Flight Fleets Analyzer
flightglobal.com/consultancy 34
Twin-aisle market summary
Deliveries increased over past few years but likely to have peaked now
Deliveries normalised for fleet currently close to historical highs
Idle fleet marginally down today; 410 passenger aircraft including 57 777s and
78 A330sAround 10% known to be placed and another 10% scheduled for part-out
Passenger aircraft 50% removed from service at 20-years
~160 retirements annually since 2008
Share of fleet trading as used aircraft currently in decline
Only around 30% of fleet in operating lease ownership / management
Operating lessor share of deliveries increases at times of market stress
flightglobal.com/consultancy
Twin-Aisle Market
Outlook
35
flightglobal.com/consultancy 36
4,200 commercial twin-aisle deliveries forecast
through 2026
0
50
100
150
200
250
300
350
400
450
500
Tw
in-a
isle
Air
cra
ft F
ore
cast
Deli
veri
es 2
017
-2026
747 767 777 787 A330 A350 A380
Source: Flight Fleets Analyzer, Flight Fleet Forecast, commercial aircraft for passenger / cargo use only
flightglobal.com/consultancy 37
1,940 twin-aisles predicted to be retired from service
through 2026
0
100
200
300
400
500
600
747 767 777 787 A300 A310 A330 A340 A380 DC-10 MD-11
Tw
in-a
isle
Air
cra
ft F
ore
cast
Reti
rem
en
ts 2
017-2
026
Source: Flight Fleet Forecast
flightglobal.com/consultancy 38
Twin-aisle fleet expected to total around 7,750 aircraft
by 2026
0
1000
2000
3000
4000
5000
6000
7000
8000
900019
90
19
91
19
92
19
93
19
94
19
95
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
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
Tw
in-a
isle
Air
cra
ft F
leet
in S
erv
ice
747 767 777 787 A330 A350 A380 Other
Source: Flight Fleets Analyzer, Flight Fleet Forecast, commercial aircraft for passenger / cargo use only
38% of the fleet in 2027
expected to be A350 / 787, 42%
expected to be A330 / 777
flightglobal.com/consultancy
Some Final Thoughts
on Operating Leasing
39
flightglobal.com/consultancy 40
Operating lessors currently manage around 42% of
the global passenger fleet
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Ja
n-9
0
Ja
n-9
1
Ja
n-9
2
Jan
-93
Ja
n-9
4
Ja
n-9
5
Ja
n-9
6
Ja
n-9
7
Ja
n-9
8
Ja
n-9
9
Jan
-00
Ja
n-0
1
Ja
n-0
2
Ja
n-0
3
Ja
n-0
4
Ja
n-0
5
Ja
n-0
6
Jan
-07
Ja
n-0
8
Ja
n-0
9
Ja
n-1
0
Ja
n-1
1
Ja
n-1
2
Ja
n-1
3
Ja
n-1
4
Ja
n-1
5
Ja
n-1
6
Ja
n-1
7 Op
era
tin
g L
esso
r F
leet
as R
ati
o
of
To
tal F
leet
Passen
ger
Fle
et
Man
ag
ed
by
Op
era
tin
g L
esso
rs
Single-Aisle Twin-Aisle Share of Fleet
Source: Flight Fleets Analyzer (passenger aircraft in service / stored)
flightglobal.com/consultancy 41
The top 20 lessors account for close to 80% of the
total lease fleet today
Source: Flight Fleets Analyzer (passenger single and twin-aisles only)
2017 Ranking (by Fleet +
Backlog)Manager Current Fleet
Order
Backlog
Current Fleet
CMV ($mn)
2016 Ranking (by Fleet
+ Backlog)
1 AerCap 1,150 348 30,713 1
2 GECAS 979 311 23,699 2
3 Avolon (Inc CIT) 571 260 20,217 9
4 SMBC Aviation Capital 446 200 14,677 4
5 Air Lease Corporation 262 365 11,449 3
6 BOC Aviation 276 188 11,260 5
7 BBAM LLC 388 16,531 7
8 Aviation Capital Group 257 126 5,852 8
9 ICBC Leasing Co 266 47 11,769 12
10 AWAS 236 15 6,415 10
11 Macquarie 202 40 5,181 11
12 Aircastle 192 5,447 17
13 ALAFCO 59 125 1,812 14
14 Boeing Capital Corp 177 1,412 13
15 China Aircraft Leasing 82 91 2,888 15
16 CDB Leasing Company 142 23 5,357 18
17 ORIX Aviation 163 4,173 16
18 Standard Chartered 116 12 3,952 20
19 Jackson Square Aviation 119 5,088 19
20 BoCom Leasing 111 4,595 21
flightglobal.com/consultancy 42
Although lessor fleets will continue to grow 50%
penetration is unlikely to be achieved any time soon
Global passenger fleet at end of 2026 (excluding RJs) is predicted to be ~28,900 aircraft
Leasing fleet in service to achieve 50% would need to be ~14,470 aircraft
Equivalent leasing fleet today is ~8,300 aircraft
So net addition of ~6,200 aircraft required over next ten years
Flight Fleet Forecast predicts delivery of ~17,100 commercial passenger jets through 2026
~40% of the operating lease fleet from seven years ago has been replaced; on today’s fleet this equates
to 3,300 aircraft that could be expected to exit the leased fleet in the next 7-10 years
So to achieve 50% fleet market share by 2026, under this scenario lessors would need to add 9,500 new
aircraft (6,200 growth plus 3,300 replacement) to their portfolios over the next ten years – that’s
equivalent to 55% of new deliveries predicted over that period
Even to maintain today’s market share under this scenario would require ~7,300 new deliveries –
43% of all new deliveries
flightglobal.com/consultancy 43
Rob Morris
Head of Consultancy
+44 (0)20 8564 6735
+44 (0)7730 213189
rob.morris@ascendworldwide.com
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