RISK BULLETI ISSUE : 42 l JANUARY 2018

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UAV RISE
OF THE

DRONES
INSIDE

BLOCKCHAIN
US TAX REFORM
BOEING’s EMBRAER TAKEOVER
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AVIATION BOEING EYES ON PARTNERSHIP WITH EMBRAER
AMIDST AVIATION INDUSTRY CONSOLIDATION

Commercial Aircraft Industry Overview

ACQUISITIONS
Main production:-
Main production:- JV
1.Regional jet
1.Regional jet
2.Single-aisle COLLABORATIONS
2.Single-aisle
Developing:-
1.Wide-body

Main production:-
1. Single-aisle
2. Wide-body

Main production:-
1.Single-aisle ONGOING
2.Wide-body Main production:-
DISCUSSION
1.Regional jet
Developing:-
1.Single-aisle
2.Wide-body

Main production:-
1.Regional jet
2.Single-aisle

AIRCRAFT SEGMENTS

AIRCRAFT FORECASTS

 Demand for aircraft in emerging markets is surging broadly
resulted from increased number of low-cost airliners to meet
growing demand from middle income.
 Asia Pacific which is the largest and fastest growing aircraft market
is expected to purchase 17,520 aircraft which is 37% of global
demand over the next two decades, according to Boeing’s
forecast.
 Back in early 2000s, few of largest economies including China,
Russia and Japan have embarked into aviation program by
expanding resources, technology and capabilities to become
suppliers of higher-value aircraft components and eventually as
manufacturer of aircraft.
 These changes are already taking into place where China with its
ARJ21 and Russia with the Sukhoi SJ100 have commenced mass
production programs that potentially challenge the market
leadership of Bombardier and Embraer in regional jet segment.
 The cost of labour in these countries, which are on average three
to five times lower than in advanced economies, makes these
aircraft cheaper and more attractive for airliners to purchase.
 Meanwhile, Japan have been progressing toward production of
regional jet, the MRJ (Mitsubishi Regional Jet) which slated to
begin in 2020 despite of repeated delays in testing and
certification.
AVIATION BOEING EYES ON PARTNERSHIP WITH EMBRAER
AMIDST AVIATION INDUSTRY CONSOLIDATION

AIRCRAFT MARKET SHARE FORECAST 2030  Both acquisitions reflecting growing demand for small single-aisle
(100-150seats) which are more efficient in fuel consumption thus
increase profitability of low-cost airliner.
 Boeing and Airbus does produce small single-aisle but sluggish
sales continue to dominate as both are using the same engines as
in bigger single-aisle which leaves it overpowered and too heavy
to maximize profitability.

 In single-aisle aircraft market, the pace of development and

competition accelerates, where Russia with its MC-21 and China
with its C919 are currently in the midst of development, flight
testing, certification and expected to enter mass production
somewhere in 2021.
 Moreover, both countries strengthen their collaboration by
establishing a joint-venture company to develop and build wide-
body aircraft therefore securing all aircraft segments.
 Arising from the looming competition, Airbus has begun its move
to secure and strengthen its market share in single-aisle market by
the acquisition of Bombardier whereas Boeing is currently in a
discussion for a potential takeover of Brazil’s Embraer.

RISK INSIGHTS
 Entrance of new aircraft manufacturer namely United Aircraft Corporation (UAC) and Commercial Aircraft Corporation of China (COMAC)
expected to change the landscape of aviation industry in the next 10 years breaking Airbus and Boeing duopoly for decades.
 Furthermore, it would not only affecting OEM players but also aircraft suppliers since both countries are building up aviation supply chain
ecosystem to support the OEM which may leads to price wars among suppliers in future.
 Potential downside risk to CTRM in the long term due to growing numbers of collaborations in tier 1&2 suppliers’ with China and Russia
leveraging on the low cost of doing business reflecting a potential shift of supplier towards these countries.
 Opportunities for the CTRM to capture new businesses from Bombardier, Embraer and from the new OEM player through
collaboration/partnership with the countries’ supplier by offering CTRM expertise in composite manufacturing.
 CTRM may consider to strengthen its business position by merger & acquisition of local tier 2&3 aircraft supplier as consolidation of suppliers are
foreseen to take place to accommodate better cost structure due to price wars between OEM.
 Opportunity for CTRM to diversified revenue contribution and explores business opportunity in other aircraft component segment for example
avionics, interior cabin, engines and etc through joint-venture due to lack of expertise.

ECONOMY US TAX REFORM
BUSINESSES
 President Donald Trump signed a landmark tax reform on 24 th
December 2017 to replace a 30-year-old; complex U.S. tax system
reflecting his resolve to fulfil an election promise, impacting
citizens as well as domestic and international businesses.
 The bill will enact large changes to the tax code on both
businesses and households including the anticipated reduction of
corporate tax from 35% to 21% commenced in 1st January 2018.
 Experts predict that the bill will increase company profits, give a
small boost to the US economy and cut taxes for most Americans
households however it would also cause the federal deficit to
balloon.
Economy
 Most economists believe the bill will provide a boost to the US
economy in the short-term. But the size and length of that boost
may not be what Republicans have promised.
 According to The Joint Committee on Taxation, the official
scorekeeper in Congress, the bill would boost growth of US GDP
by 0.8% over the first 10 years the bill was passed which estimated
around 0.08% for GDP growth rate per year.
 Furthermore, the increased GDP could dissipate after 2020 and
then actually become a drag on the economy.
Permanent 21% Temporary 21%
Rate Rate
SETS TO TRANSFORM U.S.
Business
 Wall Street analysts expect a serious boost in businesses profits,
estimated that the tax bill would help boost the earnings per share
of S&P 500 companies by $10 per share in 2018.
 Analyst at Cowen Research Group estimated that Amazon, Google
and Facebook will save $4.5 billion in taxes in 2018 under the new
tax code.
 The new tax plan will also allow companies to bring funds kept
overseas back into the U.S. under a lower rate of 15.5% compared
to previous repatriation tax rate of roughly 35%.
 US Inland Revenue estimates that new repatriation tax rate could
lead to repatriation of $2 trillion of overseas investment including
US largest taxpayer, Apple which have pledged to bring back cash
to US and pay US$38 billion of tax.
TOP 8 U.S. COMPANIES BY AMOUNT OF
CASH HELD
RISK INSIGHTS
 Generally, US tax reforms are expected to provide a boost to the
US economy in the short-term and could dissipate after 2020 in
expectation of tax increase where tax reforms duration ended in
2025.
 Expects small increased in business activity despite of the huge
corporate tax rate cut due to high cost of labour making
businesses less profitable and anticipation of interest rate hike
making borrowing expensive compare to the safe heaven
countries such as in Europe, Japan and emerging economies.

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