Things Are Great! So Start Worrying. Aviation/Defense Industry Overview And Forecast Presentation To...

Things Are Great!So Start Worrying.

Aviation/Defense Industry Overview

And Forecast

Presentation To The National Aeronautic AssociationArlington, VARichard AboulafiaVice President, AnalysisTeal Group Corporationwww.tealgroup.comJanuary 2015

Aircraft Market Performance 1990-2014

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

0%

5%

10%

15%

20%

25%

-5%

-10%

-15%

(% Change YoY)

$0

$30

$60

$90

$120

$150

$180(Value of Deliveries in '15 $ Bns)

Market Change YoY Value of Deliveries

Civil And Military Aircraft DeliveriesAggregate 2005-2014: 74.5% Growth (6.4% CAGR)

'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '140

20

40

60

80

100

120

140(Market Value in 2015 $ Bns)

Civil Military

‘05-‘14: 42.0% Growth(4.0% CAGR)

‘05-‘14: 88.7% Growth (7.3% CAGR)

Aircraft Markets, Through Good And Bad Years

The Numbers Are Better Than We Feel….Worldwide New Deliveries In

2014 (2015 $) CAGR ’03-‘08

CAGR ’08-‘13

Change ‘08-‘13

Change ’13-‘14

Large Jetliners ($98.8 b) 7.5% 10.3% 63.4% 7.8%

Business Aircraft ($23.2 b) 17.1% -3.7% -17.0% -0.6%

Regionals ($7.2 b) 4.3% -6.4% -28.2% 7.7%

Civil Rotorcraft ($5.9 b) 18.4% -1.5% -7.1% -4.2%

Military Rotorcraft($16.8 b) 10.3% 9.0% 53.6% 17.1%

Military Transports ($5.3b) 3.2% -1.2% -6.0% -8.1%

Fighters ($18.3 b) 1.9% 0.8% 4.0% 10.2%

All Civil ($135.3 b) 10.0% 5.0% 27.8% 5.7%

All Military ($44.5 b) 3.9% 3.7% 20.0% 10.2%

Total ($179.8 b) 8.2% 4.7% 25.8% 6.8%

US Aircraft Industry Output

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '140%

10%

20%

30%

40%

50%

60%

70%(% of World)

$0

$20

$40

$60

$80

$100(Value of Deliveries in '15 $ Bns)

US Output As % of World Total Value of Deliveries

2014: $96.9 bn/ 54.3% of World

DoD Investment, O&M Funding

Budget Authority

115

140

173190

179

214

239 237

271

293285 284

256265

250260265

42 4657

65 69 73 78 77 80 80 8172

64 63 64 67 7054 61

78 8397

105

134

165

135 138 134121

104 101 97108113

FY01 FY03 FY05 FY07 FY09 FY11 FY13 FY15 FY170

50

100

150

200

250

300($ bns)

Procurement RDT&E O&M

DoD Tactical Aircraft Procurement, FY1986-2016

Worst. Recapitalization. Ever.

0

100

200

300

400(Units Procured)

0

2

4

6

8

10

12(Funding in '15 $Bns)

Units Funding

World Fighter Production Shares

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '240

4

8

12

16

20

24

28(Share By '15 $bns Value)

F-35 US F-35 International Undetermined Europe

Russia RoW Non-F-35 US

LRS-B Looking GoodBut What About The Other Funding?

12 13 14 15 16 17 18 190

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

289.6 291.7379.4

1045.3

1818

2707.32836

258.7359.4

913.7

1590.6

2372.2

3090.8

3451.2

FY14FY15

FY

$M

The US Military Fixed Wing WaterfallThere’s A Lot Riding On The F-35...

Excludes jetliner derivatives

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '240

5

10

15

20

25(Value in '15$ Bns)

C-17 AV-8B F/A-18 F-15 F-16 F-22 T-45

T-6 C-130 F-35 T-X B-X

Boeing Military Fixed Wing Deliveries

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '240

2

4

6

8

10

(Value in '15$ Bns)

C-17 AV-8B F/A-18 F-15 P-8 KC-46

Military Rotorcraft Market Falls In US; Civil Market Recovers To Higher Level

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '240

2

4

6

8

10

12(Market Value in '15 $ Bns)

Civil Military (US) Military (International)

Our Forgotten Nemesis...CyclicalityLarge Jetliner Deliveries By Value

$0

$20

$40

$60

$80

$100(Value in '15 $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

‘04-‘149.6% CAGR; An 11-Year Supercycle

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

Y/Y Traffic: Strong Numbers Again, Even For Cargo2013 Totals: RPKs 5.2%, ASKs 4.8%, FTKs 1.4%; 2012 Totals: RPKs 5.3%,

ASKs 3.9%, FTKs -1.5%; 2011: RPKs 6.9%, ASKs 8.2%, FTKs -0.6%

Source: IATA

0%

10%

20%

30%

-10%

-20%

RPKs ASKs FTKs

Comparative Backlog Values

130.03

107.75

79.53

199.11

300.42

271.06 269.97

300.11 316.81

365.33

421.92

48.55

112.93 115.48

173.03

281.81 268.21

277.58

309.53 321.6

397.42

436.27

1.95 3.51 5.19 5.8 7.1 9.5

0

50

100

150

200

250

300

350

400

450(Value in '15 $Bns)

Boeing Airbus Bombardier

Market Share Outlook By Deliveries ValueThe Duopoly Endures

'76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '240

20

40

60

80

100

(Value in '15 $Bns)

Boeing Airbus Douglas/Lockheed Bombardier/COMAC/Irkut

Orders Composition: The Great Re-Engining Shift

$16$32

$50$30 $33 $33 $27$2

$23

$36

$19 $5

$65

$2$7

$45

$21

$22$57

$65

$95

$3

$24 $1

$1

$25

$40

$68

2002 2006 2008 2010 2012 2013 2014$0

$50

$100

$150

$200

(Value in '15 $ bns)

Legacy Next-Gen

Major Derivative Re-engine Minor Derivative Re-engine

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 '11 '12 '13 '140

4

8

12

16

(Market Value in '15 $ Bns)

Bottom Half (<$26M) Top Half (>$26M)

‘03-‘08 CAGR: 19.7% Bottom, 15.3% Top ‘08-‘14:

-54.7% Bottom, 24.8% Top

‘08-‘10: -56.8% Bottom , 3.5% Top

Aircraft Forecast By Composition

(2015-2024; 2015 $)

$526.8B26.6%

$1,450.7B73.4%

$901.2B45.6%

$552.1B27.9% $524.1B

26.5%

Remainder

Next 15

Civil

Military

Top 5 Programs

Top 20 Aviation Programs: Volume MattersCumulative Deliveries Value in ‘15 $ Bns

Airbus A320/NeoBoeing 737NG/MAX

Boeing 787Boeing 777/X

Airbus A350XWBLockheed Martin F-35

Airbus A330/NeoBombardier Global

Embraer E-JetsSikorsky H-60

Gulfstream 650Su-30/T-50

Airbus A400MAirbus A380

Boeing 767/KC-46Boeing AH-64

Gulfstream 500/600Gulfstream 550

Lockheed Martin C-130JDassault Falcon 7/8X

$0 $50 $100 $150 $200 $250

2015-2024 2005-2014

Big Picture Risks And Opportunities• The US: only healthy big economy.• All jetliner market change is bad.

–Fuel is changing.–A post-2020 bust?

• 787 deferred costs.• Does Boeing need a new single-aisle?• Everything about the A380.• CSeries and BBD.• Republican shift: back to non-deficit hawks.• LRS-B: M&A precipitator?• USN and the tactical combat market.• Oil prices and civil helos.• Business jet market recovery sustainability.

Aircraft Production 2005-2024Largely Sheltered From The Storm; Long-Term Growth, Too

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '240

30

60

90

120

150

180

210(Market Value in '15 $ Bns)

Fighters Business Aircraft Rotorcraft

MilitaryTransports/Trainers/Other Jetliners/Regional AC