Trading PlacesGeopolitical Change, Macroeconomic
Uncertainty And Aircraft Markets
Presentation To The National Aeronautic Association
Arlington, VA
By Richard Aboulafia
Vice President, Analysis
Teal Group Corporation
www.tealgroup.com
January 2017
Aircraft Markets, Through Good And Bad Years
World New Deliveries CAGR CAGR Change Change
In 2016 (2017 $) ’03-‘08 ’08-‘14 ’14-15 ’15-‘16
Large Jetliners ($105.4 b) 7.5% 9.9% 4.9% 1.7%
Business Aircraft ($21.2 b) 17.1% -2.2% -2.8% -11.2%
Regionals ($7.1 b) 4.6% -2.8% -10.5% 0.3%
Civil Rotorcraft ($4.2 b) 18.1% -1.7% -10.6% -22.1%
Military Rotorcraft($13.6 b) 10.3% 8.8% -17.0% -4.8%
Military Transports ($6.6b) 3.2% -1.7% 6.2% 13.2%
Fighters ($17.8 b) 1.9% 1.1% 9.0% -5.3%
All Civil ($138 b) 10.0% 5.0% 1.9% -1.5%
All Military ($41.7 b) 3.9% 3.3% -0.9% -2.5%
Total ($179.8 b) 8.3% 5.0% 1.3% -1.7%
DoD Investment, O&M FundingThe Trump Effect
Then-year dollars
FY01 FY03 FY05 FY07 FY09 FY11 FY13 FY15 FY17 FY19 FY210
50
100
150
200
250
300
($ bns)
Procurement (pre-Trump) Procurement (post-Trump) RDT&E
O&M (pre-Trump) O&M (post-Trump)
USAF Aircraft Investment Funding
FY2016-2021
Source: CRS
FY2016 FY2017 FY2018 FY2019 FY2020 FY20210
4
8
12
16(Funding in then-year $ Bns)
F-35A
KC-46
LRS-B
C/MC/HC-130
RPA (MQ-9, MQ-4)
PAR
CRH
JSTARS recap
T-X
About Those Trump Tweets: Two Possibilities
1. He’s a businessman and a tough negotiator.
2. He’s driven by a mix of four compatible factors:
i. Placating fiscal conservatives while being fiscally
loose. (http://www.richardaboulafia.com/shownote.asp?id=502)
ii. Close correlation with Putin’s objectives and goals.(http://www.forbes.com/sites/richardaboulafia/2016/12/26/putins-us-aircraft-wish-list/#4faee16c56b3 )
iii. Asserting power of government to reward friends and
punish enemies (as with Carrier); a.k.a. cronyism.
iv. Ego.
• If it’s the first, there’s little risk. If it’s the second,
we’re in for a very difficult four years.
– Complication: keeping a handle on costs and profits
while “draining the swamp.”
• In any case, flattery essential.
DoD Tactical Aircraft Procurement, FY1986-2017
A Sudden Return To The Peak, But Still A Fundamental Problem
FY86
FY88
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
FY12
FY14
FY16
FY17
0
100
200
300
400(Units Procured)
0
2
4
6
8
10
12
(Funding in '16 $Bns)
Units Funding
SMA Market Development By MissionThe Past Ten Years Have Been Transformative
1989
-199
1
1992
-94
1995
-97
1998
-200
0
2001
-03
2004
-06
2007
-09
2010
-12
2013
-15
0
10
20
30
40
(Deliveries in '16 $ Bns)
AEW GBI GTT LACOIN MP MP-C
SAR SCE SPT Str Tanker
Missile/Munition/UAV Forecast
'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25
0
2
4
6
8
10
12
14
16
18(Market value in '16 $Bns)
AAM ASM ADM ATM Anti-Ship
SSM Smart munitions UAVs
Our Forgotten Nemesis...CyclicalityLarge Jetliner Deliveries By Value
'58
'60
'62
'64
'66
'68
'70
'72
'74
'76
'78
'80
'82
'84
'86
'88
'90
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
'12
'14
'16
$0
$20
$40
$60
$80
$100
(Value in '17 $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-‘91
16.1% CAGR
‘95-‘99
20.8% CAGR
‘04-‘15
9.2% CAGR;
A 12-Year
Supercycle
OR
‘99-‘03 -11%
CAGR; -37.3%
peak-trough
Y/Y Traffic: Nicely Above Trend2015 Totals: RPKs 6.5%, ASKs 5.6%, FTKs 2.2%; 2014 Totals: RPKs 5.9%,
ASKs 5.6%, FTKs 4.5%; 2013 Totals: RPKs 5.2%, ASKs 4.8%, FTKs 1.4%
Source: IATA
Jul '
08Sep
Nov
Jan '0
9M
arM
ayJulSep
Nov
Jan '1
0M
arM
ayJulSep
Nov
Jan '1
1M
arM
ayJulSep
Nov
Jan '1
2M
arM
ayJulSep
Nov
Jan '1
3M
arM
ayJulSep
Nov
Jan '1
4M
arM
ayJulSep
Nov
Jan '1
5Apr
Jul
Oct
Jan '1
6Apr
JulSep
0%
10%
20%
30%
-10%
-20%
RPKs ASKs FTKs
The State Of The Industry, 2017
• The Great Boom is over.
– We won’t see it’s kind again for some time.
• But good news: minimal threat of bust cycle.
• Military replacing civil as growth engine.
– Geopolitical tension, uncertainty good for military, bad
for civil.
– Trade more important than ever for civil, under greatest
threat since WW2.
– Defense not cyclical. But sometimes counter-cyclical.
• Good (-ish): Inflation.
• Bad: strong dollar.
• Few new programs. Horizontal industry
squabbling being replaced by vertical squabbling.
– Boeing’s unique challenges imply supply chain
pressure won’t let up.
Global Aircraft Market Outlook In One Page
Market 2017 Risk Elevator Comment
Large Jetliners -0.6%Tough to de-rail the SA ramp, but fuel prices and
China are big concerns. TA overcapacity too.
Business Aircraft -0.7%Weak emerging markets and resource-
extraction country/company demand.
Regionals -2.3% Scope clause is only big risk.
Civil Rotorcraft 1.0%Ugly. Too many new models aimed at a weak
Segment (oil).
Military Rotorcraft 9.8%Will trend down as programs of record
end/slow; no risk of accelerated downturn.
Military Transports 6.7%Drop due to C-17 end. Only risk is A400M
execution; C130J benefits if it’s a problem.
Fighters 10.5% I like this market.
All Civil -0.6%Jetliner growth not compensating for weakness in other
segments; more risk from emerging markets, oil.
All Military 10.6%Global insecurity, Tension, Malice. Trainers
boost topline.
Total Industry 2.0% Downshifting, with more risk