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Overview

1) ATAC Introduction and BackgroundThis will not be an ATAC Commercial!

2) The Case for Commercial Tactical Air Services

3) Case Studies of Requirements GenerationsSupersonic vs SubsonicRadar or No RadarOptimizing for Lowest Cost Can Be Hazardous

4) Requirement Generation TakeawaysScalabilityAchievable by Industry

5) Questions and Discussion

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Rich Zins – Director of Business Development• Joined ATAC in February 2011• Former Naval Aviator with over 21 years of active duty

service• Commanded VFA-87, an F/A-18 Squadron• Graduate of the US Navy Fighter Weapons School and the

US Naval Test Pilot School• M.Eng, Applied and Engineered Physics, Cornell University• Director of Business Development for Navy Contract Win

2015 and TEXTRON Merger• Current ATAC Hunter and L-39 Pilot

Presenter Background

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ATAC History

‒ RDT&E flying Carrier Training Fighter Training EW Training

• Began US Tactical CAS Industry as a start-up in 1996

• Established a market leader by navigating the challenges inherentin pioneering a new industry:

‒ Customers – None existed; first USN Prime contract in 2002;now 3 x incumbent; all contracts full-and-open

‒ Regulations and Airworthiness – Pioneered many aspects ofwhat was a nascent industry; now considered the ‘IndustryBenchmark’

‒ Capital Raising – Capital Intensive Business that FacesUnique Hurdles in Acquiring Tactical Aircraft

• Built strong positions with US Navy and USAF, progressively grewrequirements, flight hours and training capabilities

• General progression:

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“Providing excellence in professional, tactical airborne trainingto enhance US and allied warfighter combat readiness”

ATAC Pilots

4

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Training Mission Examples

5

15%13%

13%

12%12%

9%

9%

8%

4%3%

Fleet ReadinessSquadron

TOPGUN

JTAC

MIDPAC

7th Fleet

Other Carrier StrikeGroup 4

Carrier StrikeGroup 15

Strike FighterWing LANStrike Fighter

Wing PAC

Mission Examples and End-Customer Mix

Upper left: Aircraft Carrier StrikeGroups (Fleet Integrated / Pre-

deployment Training)

Upper right: Fighter Training(Squadrons, Strike-Fighter

Advanced Readiness)

Lower left: Advanced,Graduate-level Adversary

Training (TOPGUN, Airwing)

Lower right: Joint TerminalAttack Training (JTAC)

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Global Operational Footprint

Permanent basing sites

Additional support sites

West CoastPt Mugu, CA / Fallon, NVF-21 Kfir 2MK-58 Hunter 6L-39 Albatros 2Employees 25

Mid-PacificKaneohe Bay, HIMK-58 Hunter 2Employees 5

East Coast (HQ)Newport News, VAF-21 Kfir 4MK-58 Hunter 5Employees 54

AsiaAtsugi, JapanMK-58 Hunter 2

Europe1

Saarbrϋcken, GEL-39 Albatros 2

Global Operations

(1) L-39s being moved to Newport News following end of USAFE contract

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Capability Expansion

1996: US Navy Flight Test with J-35 Draken

1997: US Navy Surface Warfare Training Aircraft Carrier a Strike Group Training

1998: Electronic Warfare Training

1999: Air-to-Air Fighter Training, Unit Level

2002: Addition of F-21 Kfir

2003: Addition of MK-58 Hunter

2004: Graduate-level Adversary (TOPGUN)

2006: WESTPAC Training; Add Target Towing

2010: USMC JTAC with A-4s (Light INERT)

2011: Int’l JTAC; Addition of L-39

1996 2001 2006 2011 2015

4th Gen AdversaryEmergingCapabilities

Increase from 75annual flight hours in

1996 to ~4,500 in2015

2009: Begin MIDPAC Training

2013: Added CATM, NVG, & TCAS

USN Contract Growth & Innovation

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Overview

1) ATAC Introduction and BackgroundThis will not be an ATAC Commercial!

2) The Case for Commercial Tactical Air Services

3) Case Studies of Requirements GenerationsSupersonic vs SubsonicRadar or No RadarOptimizing for Lowest Cost Can Be Hazardous

4) Requirement Generation TakeawaysScalabilityAchievable by Industry

5) Questions and Discussion

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Global Defense Outsourcing Trends

*Note: Highlighted countries are primary spenders in regionSource: SIPRI, IDS, Open Source, RSAdvisors analysis

Emerging Themes & Opportunities in Live Air Training Outsourcing Globally*Canada

• Active experience withoutsourcing across the traininglifecycle, including on-the-jobtraining

Europe• EU watching MFTS as key indicator or

success for large-scale outsourcedundergraduate flight training

• Budget reductions creating opportunity foroutsourced aggressor/on-the-job trainingcapability

Africa• African market is nascent, but large operators

actively seeking to improve pilot training &combat capability

• Provides opportunity to shape requirement• Egypt, South Africa, and Algeria represent

most capable operators in region

Australia• Increasingly seeking to

outsource trainingcapability

• Crowded market withlarge primes holding keyposition

• Other regionsdemonstrate greater near-term actionability

Asian Allies• T&S being driven by advanced

militaries (Korea, Japan, Singapore),with increasing demand for aggressorand advanced outsourced training

Middle East• No organic capability for training in ME• Increased outsourcing of land and naval

lifecycle• Traditional allied training with USAF or UK

RAF creates potential contractor-outsourced• Current outsourced special mission (EW)

and Advanced Undergraduate trainingopportunities suggest increased drive tooutsource capability to contractors

Live Military Budget by Region (2015E, $bn)

US3.6

Asia-Pacific

1.1

Europe1.0

M.E.0.6

Africa0.1

Canada0.1L.A.

0.2

Latin America• In-sourced flight training continues,

with USAF and USA a key partnerin many countries

• Low current addressable market,but…

• Outsourcing on the increase, withopportunity for aggressor/on-the-job training across the region

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• Severe adversary aircraft inventory shortfalls, aging F/A-18 aircraft• Asking ATAC to increase capacity now

• Establishing the first major CAS program at Nellis AFB which alonecould be as large as the Navy’s program

• Outsourcing of Live training already established across UK, France,Germany, and Sweden

• Faced with budget pressures, reviewing outsourcing in context ofNext-Gen programs

• The ‘next stage’ of growth• Adversaries must be ‘dissimilar’ and prohibitive costs of either

operating 5th Gens or retaining ‘legacy fleets’ as adversaries

• Middle East, Asia and Latin America nations investing in readinesstraining

• Looking to import training expertise (ALL TYPES) alongsidehardware, often times broad, integrated contracts

US Navy

USAF

Europe

Rest ofWorld

4.5 and 5th

Gen

Ongoing Live Needs & Requirement

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Commercial Services Rationale

If You Do It Correctly

ContractedTacticalServices

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Military Flight Training Components

Note: Examples not exhaustiveSources: NTSA Air Force Training 2015 document, NDIA, Open Source, RSAdvisors analysis

Key: - Classroom - Live - Virtual - Constructive

Amou

nt o

f Tim

eSp

ent o

n Tr

aini

ngMilitary Flight Training Lifecycle of a Pilot

Initial FlightScreening (IFS)

UndergraduateTraining (UAT)

Unit-level TacticalTraining

Mar

ket S

truc

ture • Basic comprises 50% of global budgets

• Historically has been a growth market due to adoption oftechnology (simulators) and outsourcing of classroom andbasic flight training

• Recent outsourcing contracts have begun to push intoadvanced, aircraft-specific transition training, e.g. Australia’sAAT&S contract (Boeing), UK’s MFTS contract (LMT &Babcock), US Army SH&FS (CSC NPS)

Basic Flight Training Tactical Training – e.g. Adversary, JTAC

• Tactical comprises 40% of global budgets• Historically, addressable market has been

simulators and LVC technologies• Tactical Live Training outsourcing has been

selectively outsourced, e.g. US Navy (ATAC),Canada and Germany (Discovery)

• Substantial new outsourcing initiatives havestarted, e.g. USAF, Middle East, others

Aircraft-specificTransition Training

ATAC Core Focus Market

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Select Outsourcing Contracts

Sources: Company Documents, Open Source, Country MoDs, RSPartners analysis

Country Name of Contract TimeframeEst. Value(US $M)

Awardee /Incumbent

Scope (Pilot Training Lifecycle)

Contracted FlyingTraining Support (CFTS) 2006-2027 $1,500

Basic Flying Training 2011-2019 $123

Military Flight TrainingSystem (MFTS) 2012-2036 $10,000

020 EW Training 2014-2019 $300

Fast Jet Training 2015-2019 Unkn.

Navy Commercial AirServices 2015-2020 $223

Advanced Jet Training 2016-2021 $800+ TBD

USAF Commercial AirServices 2016-2021 $270 TBD

Contracted AirborneTraining Services (CATS) 2016-2025 $600

Helicopter Air TrainingSupport 2017-2027 $500 TBD

Air 5428 – Basic FlightTraining 2017-2042 $2,000

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US Navy Adversary Aircraft Inventory Projections

Sources: US Navy Budget Docs, DoD Docs, LtCdr. McLaughlin (2013 - Naval PostGrad School MSC Dissertation), Open Source, RSAdvisors analysis

0

20

40

60

80

100

120

140

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

# of

Airc

raft

in in

vent

ory

NSAWC F/A-18A-F

VFA/VFC F/A-18A/C

VFC F-5F/N

NSAWC F-16 A/B

Unfunded F-5Life Extension

Unfunded F-16 FalconStar Life Extension

Period of CurrentATAC Contract

Unfunded VFC F/A-18 E/F

ATAC’s CurrentFleet

Aircraft Supply Gap(Potential

Addressable Market)

Est. Funded DedicatedAdversary Supply

US Navy Example

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-

1,000

2,000

3,000

4,000

5,000

6,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Navy USAFE

Tactical CAS Growth

ATAC Flight Hours

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Overview

1) ATAC Introduction and BackgroundThis will not be an ATAC Commercial!

2) The Case for Commercial Tactical Air Services

3) Case Studies of Requirements GenerationsAerodynamic PerformanceRadar or No RadarOptimizing for Lowest Cost Can Be Hazardous

4) Requirement Generation TakeawaysScalabilityAchievable by Industry

5) Questions and Discussion

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Aircraft Requirements

• Aircraft Requirements Generally Drive Process– Hard to Change Aircraft Perf Significantly– Services Contracts Usually Must Use Existing Hardware

• Not Affordable/Timely to Design New Aircraft• Make Sure There are Enough Airframes Available

– Much Easier to Add New Tech (Radar, Pods, Emitters), than tochange Basic Aircraft Requirements

– Aircraft Regulatory Environment is Not Permissive

• Start with Basic Aircraft Requirements– Don’t Overspecify – More Perf = Higher Cost

• Remember They Will Not be Combat Aircraft– Retain Enough Flexibility to Achieve Competition

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Aircraft Criteria & Experience

• Low acquisition costs• Low operating costs• Fuel efficient

• Meets or exceeds contractperformance specifications

• OEM level support• Parts and spares availability• Operates in remote locations

(Pacific theatre)

• Upgradeable• Meets emerging requirements

Economical

Performance

Supportability

Adaptability

Selection Criteria Aircraft Experience

Draken

A-4N/L

Alpha Jet

Hunter, L-39, Kfir

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Tailored Performance Solutions

Platform F-21 Kfir MK-58 Hunter L-39 Albatros

Fleet Size 6 owned 16 leased 4 owned

Capability Supersonic Adversary High Subsonic Adversary Low Subsonic Tactical

Primary Mission Adversary Support Fleet OPFOR Support JTAC Training

Only Buy the Performance You Need – Consider a High/Low Mix of Aircraft

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Radar Cost Benefit Analysis• Radar

– Traditionally a Fighter Aircraft Would Have a Radar– Not Necessarily So For Air Services

• Radars Can Cost More Than the Aircraft!– Again Don’t Overspecify Performance

• Radar Alternatives– TCAS– ACMI or Link Picture in Cockpit– Emitters can Generate Spikes, Cue Passive Detection

• High/Low Capability Mix an Option– Some Airframes with Radars, Some Without– Ability to Grow Sensors As Contract Matures

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Lowest Cost Traps

• Lowest Cost May Not Be Wise (or Lowest Cost)• Starting a Small Air Force

– Safety Concerns– Continuity of Service Concerns

• Specifications Hazards– Sorties vs Hours vs On-Station Time– Basing Proximity to OpArea

• Other Ways to Lower Cost– Government Furnished Equipment

• USAFE / ATAC Case Study Example

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Overview

1) ATAC Introduction and BackgroundThis will not be an ATAC Commercial!

2) The Case for Commercial Tactical Air Services

3) Case Studies of Requirements GenerationsAerodynamic PerformanceRadar or No RadarOptimizing for Lowest Cost Can Be Hazardous

4) Requirement Generation TakeawaysScalabilityAchievable by Industry

5) Questions and Discussion

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Cost/Requirements Tradeoff

• You Will Get What You Pay For – Don’t Over spec!• Size Does Matter – More Perf = More $ € £ Kčs

– Numbers of Aircraft and Aero Perf– Sensor Systems– Length of Schedule Day– Home Bases and Deployments– Regulatory and Oversight Requirements

“I Want an F-15E for an L-39 Price” – AFSOC 2011

• Lowest Costs Procurements Sometimes Cost More– Write to “Best Value” vs “Lowest Cost” if able– If “Lowest Cost”; then Detailed Specifications

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Industry Perspective

• The Services Must Be Financially Executable– Need to Recover Investment in Unique Aircraft– Need to Make Some Money– Longer and Larger is Better – Better Investment Case

• The Services Must Be Executable– Startup Times– Regulatory Requirements– Technology Must Be Obtainable

• Need Solid Specs But Leave Flexibility for the “How”

Never tell people how to do things. Tell them what to doand they will surprise you with their ingenuity.

George S. Patton

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Discussion and Questions