Business Environment Update | Fall 2017Is recent growth in air cargo sustainable?

BUISNESS ENVIRONMENT SPRING | 2017Copyright The Boeing Company 2017. All rights reserved.

2

Copyright The Boeing Company 2017. All rights reserved.1

A ir cargo volumes have been staging a strong recovery since 4Q2016. Year to date (September), revenue tonne kilometer (RTK) growth is 10.1%,

Strong recovery in air cargo - outlook for continuing growth

more than double the long-term trend growth rate of 4.2%. The strong growth of air cargo is being is being driven by the recovery of international trade and industrial production, regional characteristics, and booming e-commerce. Over the next few years they are all positioned to continue to provide a tail wind to sustain air cargo growth at rates at or above the long-term trend.

Air cargo growth is well above long-term trend

Long-term trend

Copyright The Boeing Company 2017. All rights reserved.2

T he global economy continued to gain momentum during 2017. World GDP growth is now at trend for the first time since 2011.

Underlying economic fundamentals have been strengthening in the last year. Recovery is occurring in many regions. E-commerce continues to increase at double digit rates, well above GDP. These all help support the drivers of strong air cargo growth.

World economy in synchronized expansion

Emerging market economies are also accelerating. Even Russia and Brazil, that both slipped into deep recessions, are growing again, though not at trend growth rates yet. In part the expansion can be credited to reduced volatility in global oil prices and exchange rates. The outlook for the world GDP growth over the next few years is for a continuation of the current expansion.

The U.S., E.U., and China, the World’s three largest economies, are now in a synchronized expansion with growth rates at or above long-term trend. Consumer and business confidence has moved into very positive territory.

2017-2021 contribution to global real GDP growth

Synchronized upswing in Global growth

2017 Growth

10 year forward CAGRSource: IHS Market

China28%

Other Emerging Markets

33%

AdvancedEconomies

39%

Copyright The Boeing Company 2017. All rights reserved.3

Retail sales10 Industrial production

Forecast

Industrial production recovering

Source: IHS Market

Source: Netherlands Bureau for Economic Policy Analysis / BCA calculations

Trade recovery underway

Global trade growth has accelerated dramatically in the last year, led by the US, EU and China. In the US, consumption continues to bolster air trade. Positive economic policies in Europe have driven air cargo growth. European manufacturing exports are showing a turnaround. In the first half of 2017 they posted eight percent growth after falling by five percent in 2016. Chinese trade remains strong at near double digits. Products that would typically go by air have shown solid growth over the past year; medical and pharmaceutical products, perishable goods, fashion goods, and electrical machinery have had sharp increases. European exports to the U.S. of medical and pharmaceutical products are up nearly 15 percent. Trade between the U.S and Asia is boosting air cargo. For example, fashion products are up 80 percent this year,

Period Average

above average growthbelow average growth

International Trade Growth Indicator

compared to a 34 percent decline in 2016. Trade growth is likely to moderate in 2018, as annual comparisons get tougher and some of the pent-up demand is satisfied. Still, the 2018 outlook for trade growth to be at or near the long term trend, which means the outlook for air cargo remains positive.

Copyright The Boeing Company 2017. All rights reserved.

All regions participating in

air cargo recovery

OPENING NEW MARKETSOver 130 new nonstop markets now connected with the 787

March 3. 2017

787 FOUND IN FLEETS IN EARLY EVERY REGION OF THE WORLDPercentage in each region

Source: Ascend, November 2016

Bergen

Bangkok

Brisbane

Boston

Guangzhou

Copenhagen

Chengdu

Dusseldorf

Doha

Denver

Edinburgh

Sao Paulo

Tokyo

Jakarta

AustinNew York

OsakaLos Angeles

Lagos

Orlando

Manchester

Nairobi

Oslo

Oakland Beijing

Shanghai

San Francisco

Ho Chi Minh

Wuhan

Helsinki

Cancun

Mauritius

Barbados

Warsaw

Xi'an

Toronto

Announced

In Operation

Vancouver

Aruba

MelbourneSydney

Dublin

Casablanca

Addis Ababa

Delhi

Rome Seoul

Calgary

Maputo

Tashkent

Santiago

Perth

March 3. 2017

N. America

15%L. America

9%SE Asia7%

S. Asia5%

Oceania4%

Europe

17% NE Asia(Japan)

18%China

8%

AFR6%

Middle East

11%

Source: Ascend, November 2016

Trade lane growth shows all regions participating

9.9%

9.3%

11.2%15.4%

3.9%14.5%

8.2%

2.2%

4.5%

Sources: U.S. Dept of Commerce (USFT920, Jan - Jul 2016/17,

AAPA (Jan - Jun 2016/17)

4

Growth in trade lanes around the world show that all regions are participating in the air cargo recovery. Recent cargo growth has been led by strong performance by airlines in Asia and Europe. These two regions are responsible for over 60 percent of the growth in 2017. Latin America, which has struggled economically since the commodities price collapse, remains weak for air cargo, although airlines in this region are showing signs of renewed growth.

Copyright The Boeing Company 2017. All rights reserved.5

767

777 A330

Less than 5 years

787

5 - 10 years More than10 years

6.3% 7.4% 8.6% 9.9%11.4%

12.8%$1.3

$1.7

$2.0

$2.5

$3.0

$3.6Retail e-commerce sales

% of total retail sales

Source: EMarketer

E-Commercecontributing to growthGlobal e-commerce, which demands the speed and reliability of delivery, which air cargo provides, is expected to grow at 15 percent annually through 2019 to total sales of $3.6 trillion. Most e-commerce air cargo growth to-date has been due to domestic markets, but cross-border growth is expected to expand rapidly.

Retail E-Commerce Sales Worldwide, USD (trillions)

The positive economic outlook points to a strong growth in air cargo through the end of the decade. All regions and major trade flows will participate in this growth.