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UBS Investment Research
UBS Business Jet Survey
Bouncing Along
Index at 45
Our November Business Jet Market Index came in at 45, slightly higher from ourprior survey in September, indicative of continued slowing in the rate of marketdeterioration. However, our index continues to be weighed down by record highused inventory levels and weak pricing and does not yet reflect actual improvementin market conditions that has historically led meaningful upside for the stocks(Chart 1). Our straight up measure of absolute business conditions, while higher,continues to reflect a depressed market.
Improved interest and financing driving upside
The improvement in our survey primarily reflects increased customer interest onthe back of 30-40% price declines and what appears to be improved financingavailability. Despite incremental buyer interest, we think significant oversupply onthe used market will continue to overhang new aircraft orders.
Prefer BBD/COL
While our key indicators point to a market that is stabilizing at low levels, we stillsee risk of an extended downturn given significant oversupply, fractional weaknessand tight financing, although weak dollar should help. Among the OEmanufacturers, we prefer BBD on the strength at its Transportation business. Wemaintain Neutral ratings on TXT/GD. Of the suppliers, Buy rated COL is ourpreferred play on business jets.
Global Equity Research
Americas
Aerospace
Sector Comment
16 November 2009
www.ubs.com/investmentresearch
David E. Strauss
Cristina Fernandez
Darryl Genovesi
Fadi Chamoun, CFA
Tasneem Azim
Chart 1: UBS Business Jet Market Index Chart 2: Overall Business Conditions Score
4 4 4 8 4 8 5 4 5 8 6 3 6 6 6 1 5 8 6 0 6 5 6 8 6 7 6 6 6 1 6 7 6 3 6 4 6 3 6 3 5 5 5 5 6 1 6 0 6 4 6 2 5 7 5 5 5 4 4 8 3 9 2 9 2 6 1 3 1 4 2 0 2 5 3 5 3 7 4 3 4 5
050100
A p r - 0 3 N o v - 0 3 J u l - 0 4 M a r - 0 5 N o v - 0 5 S e p - 0 6 M a y - 0 7 J a n - 0 8 S e p - 0 8 M a r - 0 9 N o v - 0 9 S u r v e y I n d e x
050100150200250300350400
S t o c k s
UBS Business Jet Market Index* Stocks (RHS)
3 . 94 . 35 . 15 . 4 5 . 4 5 . 3 5 . 3 5 . 45 . 8 6 . 0 6 . 2 6 . 2 6 . 16 . 4 6 . 5 6 . 5 6 . 4 6 . 5 6 . 3 6 . 4 6 . 3 6 . 2 6 . 3 6 . 4 6 . 26 . 4 6 . 2 6 . 1 5 . 6 5 . 2 4 . 7 3 . 2 2 . 6 2 . 4 2 . 22 . 7 2 . 73 . 23 . 5
0510
J u n - 0 3 N o v - 0 3 M a r - 0 4 J u l - 0 4 N o v - 0 4 M a r - 0 5 J u l - 0 5 N o v - 0 5 M a r - 0 6 S e p - 0 6 J a n - 0 7 M a y - 0 7 S e p - 0 7 J a n - 0 8 A p r - 0 8 S e p - 0 8 D e c - 0 8 M a r - 0 9 J u l - 0 9 N o v - 0 9 B u s i n e s s C o n d i t i o n s S c o r e
* Simple average stock price performance index includes GD/TXTSource: UBS Business Jet Survey #1-42Source: UBS Business Jet Survey #1-42
This report has been prepared by UBS Securities LLC ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 16.
UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm mayhave a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in makingtheir investment decision.
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UBS Business Jet Survey
16 November 2009UBS
2
Business Jet Market Survey
Our UBS Business Jet Market Survey is designed to provide timely market datasupplied directly by industry professionals. We regularly survey a group of USdomestic and international broker/dealers, manufacturers, fractional providers,financiers and others, from whom we received 156 responses in November.
Investment Conclusion
Our November Business Jet Market Index came in at 45, 5% higher from ourprior survey in September and the seventh consecutive move higher, indicativeof continued slowing in the rate of market deterioration. Our index continues tobe weighed down by weak pricing and record high used inventory levels and hasnot yet crossed the 50 threshold indicative of actual improvement in marketconditions that has historically led meaningful upside for the stocks (Chart 1).However, our straight up measure of absolute business conditions has begun toshow some incremental improvement, increasing 11% this time to 3.5.Our market index measures the change in our respondents’ views from our priorsurvey and is not meant to be an absolute measure of business conditions. Thismonth’s increase was driven by a significant increase in our Pricing score, 29%higher from September, although still below 50 reflecting an overall incrementaldecline in pricing. Our Customer Interest and Inventory scores also increasedslightly, while our Willingness to Increase Inventory score declined and remainsbelow 50. Our 12-month Outlook score was unchanged and continues to reflecta view that the market is at or near bottom. While not a component of ourcomposite index, our young inventory score increased this time, but remainswell below 50.
Table 1: UBS Business Jet Survey Results and Comparison to Prior Survey
Component Better Same Worse Score Last Time Change
Interest 60% 34% 6% 77 74 4%Pricing 8% 63% 29% 39 30 29%Outlook 62% 32% 6% 78 78 0%Inventory 0% 6% 94% 3 2 47%Willingness 14% 46% 40% 37 42 -11%
Composite Index 26% 38% 36% 45 43 5%
Young Inventory 3% 22% 75% 14 8 68%Financing 27% 65% 7% 60 58 4%
Business Conditions n/a n/a n/a 3.5 3.2 11%
Source: UBS Business Jet Survey #41-42
Overall, we think our survey continues to reflect increasing customer interest onthe back of 30-40% price declines along with what appears to be improvedfinancing availability. Despite incremental buyer interest, we think significantoversupply on the used market will continue to overhang new aircraft orders.While our key indicators point to a market that is stabilizing at lower levels, westill see risk of an extended downturn given significant oversupply, fractionalweakness and tight financing. Among the OE manufacturers, we prefer BBD onstrength at its Transportation business. We maintain Neutral ratings on TXT/GD.Of the suppliers, Buy rated COL is our preferred play on business jets.
UBS Business Jet Survey
16 November 2009UBS
3
Chart 3: GD and TXT Forward P/E Multiples
0x5x10x15x20x25x30x
D e c - 9 1 D e c - 9 2 D e c - 9 3 D e c - 9 4 D e c - 9 5 D e c - 9 6 D e c - 9 7 D e c - 9 8 D e c - 9 9 D e c - 0 0 D e c - 0 1 D e c - 0 2 D e c - 0 3 D e c - 0 4 D e c - 0 5 D e c - 0 6 D e c - 0 7 D e c - 0 8 D e c - 0 9 E
F o r w a r d P / E M u l t i p l e
GD TXT
Note: Forward PE using rolling 12-month (actual) EPS through June 2009 and UBS estimates for future periods.TXT PE multiple for the current period reflects our 2010 estimate. Source: UBS estimates
UBS Business Jet Market Index
Our UBS Business Jet Market Index is a proprietary index designed to measurethe total “value” of the responses to our monthly survey questions. We haveweighted each factor in our index based on our perception of its overallimportance to the condition of the new business jet market. Our index is scoredon a scale of zero to 100, with 51-100 representing incrementally strengtheningmarket conditions, 50 incrementally stable market conditions, and 0-49incrementally weakening market conditions. Our November Index came in at 45,5% higher from September. While our index is still below 50, reflectingcontinued deterioration in market conditions, this seventh consecutive movehigher indicates that the rate of deterioration continues to slow.
Chart 4: UBS Business Jet Market Index
4448485458636661586065686766616763646363555561606462575554483929261314202535374345
050100
A p r - 0 3 M a y - 0 3 J u n - 0 3 S e p - 0 3 N o v - 0 3 J a n - 0 4 M a r - 0 4 M a y - 0 4 J u l - 0 4 S e p - 0 4 N o v - 0 4 J a n - 0 5 M a r - 0 5 M a y - 0 5 J u l - 0 5 S e p - 0 5 N o v - 0 5 J a n - 0 6 M a r - 0 6 M a y - 0 6 S e p - 0 6 N o v - 0 6 J a n - 0 7 M a r - 0 7 M a y - 0 7 J u n - 0 7 S e p - 0 7 N o v - 0 7 J a n - 0 8 F e b - 0 8 A p r - 0 8 J u n - 0 8 S e p - 0 8 N o v - 0 8 D e c - 0 8 J a n - 0 9 M a r - 0 9 M a y - 0 9 J u l - 0 9 S e p - 0 9 N o v - 0 9
I n d e x V a l u e
Source: UBS Business Jet Survey #1-42
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