Market Analysis

1st Quarter 2010

Industry Overview
• All players in value chain affected by global financial crisis – worst recession in 30 years. • Recovery now being predicted though growth in mature markets remains subdued, and recent volcanic ash crisis highlights vulnerability of sector to unpredictability of external factors. • Future growth along the value chain likely to be from emerging markets, especially Asia Pacific and Middle East regions.

• Emerging markets also offer cost advantages, though only a small proportion of the industry’s output to date is generated from these markets – likely to change in the foreseeable future.
“China and Russia are increasingly well positioned to supply Western aerospace OEMs….Western incumbents will have to focus relentlessly on improving their value-added activities.” (McKinsey, 2008) • Recent increase in demand for commercial business jets and first class/premium travel in first part of 2010 implies that recovery is evident.

Company profitability linked directly to GDP…

• Economic drivers have major impact on aviation sector from both a demand and supply point of view particularly GDP rates globally and regionally as well as fluctuating exchange rates. continuing regional conflicts/war. . corporate/airline profitability and the availability of credit to finance fleet renewal or upgrade. • Continued rationalisation and consolidation across the supply chain as well as popularity of LCCs in Europe. • Oil prices as well as regulations regarding fuel emissions have had knock-on effect on all sectors such as increased demand for turbo props in recent months.Industry Drivers • Political & regulatory drivers continue to exert both positive and negative pressures – open skies. USA and now Asia shall continue to push prices down and achieving sustainable competitive advantage shall become more difficult for all players.

Both Leisure & Aerospace sectors hit hard .

Latin America – Only Profitable Region in 2009 .

especially in mature markets. • Start of 2010. yet… • …smaller and regional players are unable to access capital markets as lenders view them as too risky.8 bn. though this may be adjusted substantially to take account of recent volcanic ash disturbance. most notably in Asia and IATA inititally halved its industry loss forecast to $2. • More consolidation is likely amongst players which shall in turn provide the potential for the operators to exert more influence over the supply chain and MRO providers. • Europe had highest number of airline failures in 2009 • Larger airlines tend to be able to attract more funding from new lenders to upgrade fleets. .In summary. faster than expected recovery.

Triad Markets yet to recover in passenger sector…. .

…Freight still to recover across all regions. .

2009 .Europe’s Recovery Shall be Slower than rest of World Source: Association of European Airlines.

2009 .Recovery in rest of world helped by governments Source: Association of European Airlines.

2009 .Population Density and Air Transport Activity in line with stage of economic development Source: MIT ICAT.

Only LCCs and China Experienced Growth Source: Ascend. 2009 .

Over 9% of Global Fleet.Over 2000 Aircraft Put in Storage Since Mid 2008. USA Accounting for Almost Half Source: Ascend. 2009 .

2010 . Source: IATA.Signs of Recovery but….

…demand uneven across regions. 2010 . Source: PaxIS.

2009 .Pressures for Trading Up Aircraft Size – and Down Seat Size Source: Ascend.

US Airlines. remaining cautious Source: MIT ICAT.Trends in Aircraft Size. 2009 .

Source: Teal Group. 2009 .

2009 .Source: Teal Group.

Source: Teal Group. 2009 .

• High labour unit costs in US and Europe increasingly making developing markets more attractive locations for MRO capabilities as well as manufacturing bases. • Trend in outsourcing and adopting lean practices likely to continue as operators seek to focus on core competencies and achieve cost and operational efficiencies.Summary of Industry Overview • Impact of global recession still being felt though signs of recovery within some segments of the market are visible. . • Growth is an emerging markets phenomenon as mature markets of US and Europe still coping with aftermath as well as intense competition from increasingly global players able to compete on price and quality.

.Future of Regional Aircraft? • Market has changed somewhat since manufacturers such as Fokker and BAE Systems ceased production and in many ways. has been redefined in terms of seat numbers. • The 20 – 59 seat segment is viewed by some (Bombardier) as the foundation of the regional airline industry and the base of the fleet for the near term. yet demand for new aircraft in this segment is small and has dwindled to very low levels however. • Long term view is that growth is in the 100-149 segment as market dynamics require higher capacity.… • …some signs of recovery in the secondary market including package freighter and corporate conversions which offers potential for some of the fleet.

Growth viewed as being in the 100-149 range .

Global Jet Fleet Analysis .

• Airbus with 28% share are followed by Embraer and Bombardier who together have 16% of the market making the top 4 players control 96%. Superjet or ARJ21 significantly eroding market share of the leading players in the short to medium term. .Commercial Jets • Boeing dominate market overall with more than half of global fleet in service. • Most commentators do not see the MRJ.

May 2010 .Total Number of Aircraft in Service – Commercial Jets 1%1% 1% 7% Boeing Count Airbus Count 8% Em braer Count Bom bardier (Canadair) Count Fokker Count BAE SYSTEMS Total Other 53% 28% Source: Ascend data.

Number of Aircraft . May 2010 . 11% Airbus and the remainder of other OEMs. • It may also go some way to explain the declining value of aircraft as well as the move away from regional jets to Boeing and Airbus narrow bodies in the secondary market as price and availability influence buyers as do the obvious functional benefits (fuel.Jets by Manufacturer in Storage • There are more than 2000 western built jets in storage with just under 70% of these Boeing. • This implies much potential for both Boeing in the secondary market as well as a possible abundance of spares for Boeing type aircraft. range and capacity). Source: Ascend data.

% of Total Jet Fleet 4% 5% 6% 37% 2% North America Count Europe Count Asia Count Latin America and Caribbean Count Middle East Count Africa Count Australasia Count 20% 26% Note: Refers to Western Built Jets. Ascend Online. . April 2010.000 aircraft with the majority located by operator in North America.Fleet Summary • Total Western built jet fleet in service globally totals almost 20. Europe and Asia. in Service.

• Despite surges in demand being seen. • Growth is also forecast in the MRO and servicing sectors of the aftermarket as airlines continue to adopt “lean” principles and cut costs over the medium to short term by opting for more outsourcing and joint venture arrangements with third parties. but overall. • Variations in forecasts exist. concerns about financing still remain high on the agenda as airlines are still struggling with operating profitably.Positive Growth Forecast • Growth driven by consumer demand for air transportation • Demand being driven from emerging markets but also the replacement and upgrade of older aircraft in developed markets and orders for new more fuel-efficient fleets. . the outlook is positive across all sources.

00% 5.Europe 166 582 241 39 111 126 441 247 1713 1186 213 313 361 841 2.30% 5.40% 5.00% . 2009 271 155 331 251 171 150 144 47 797 378 1075 720 423 560 414 180 5.10% 5.50% 4.Asia Pacific Europe .60% 6.50% 8.Latin America Europe .60% 6.80% 5.Growth in Passenger Transport Driven by Emerging Markets Market Within North America Within Europe 2008 RPKs (bn) 969 527 2028 RPKs (bn) 1642 947 Average Annual Growth Rates 2.70% 3.40% 7.30% North America .Asia Pacific North America .80% 9.Latin America Asia Pacific .Africa and Middle East Europe .40% 3.Africa and Middle East CIS Airlines Others Source: Rolls-Royce Market Outlook.00% Europe Leisure Airlines Within Asia Pacific Within China Within India Within Africa and Middle East Within Latin America North America.40% 4.

Source: Rolls Royce Market Outlook. 2009 . consistently reducing over time as more aircraft reach the end of their life cycles.000 2008 Fleet 40.000 No.415 -20.897 Mainline Aircraft Total • BAE Systems Regional Aircraft portfolio.000 Retirements Deliveries 2028 Fleet 0 -10.000 20.000 -3.Impact of Fleet Retirements • Retirements are main driver of new aircraft deliveries • Regulatory implications regarding fuel emissions also impacting 50. of Aircraft 30.000 10.000 Business Jet Total Regional Aircraft Total Market Segment -10.595 -11.

Jets .Regional Fleet Analysis .

.Market Share of Regional Aircraft – Current Fleet • Analysis undertaken of current fleet used for commercial passengers with seat capacity of between 10 and 130. • Globally this amounts to around 6000 aircraft in service. with over 1000 in storage. though only just over 5000 of these are used specifically for passenger transport.

business etc. . Medevac.Bombardier retain leadership in the 10-130 seat band 5% 3% 2% 27% Bom bardier (Canadair) Em braer Boeing Airbus Fokker BAE System s 13% 26% 26% Other Note: Only included aircraft for passenger usage and excludes all other usages such as VIP.

44% of fleet still within 100-130 seats… Global Fleet .161 Source: Ascend data.312 1. May 2010 . of Aircraft 2.559 1500 1000 500 0 100-130 Count 70-99 Count 50-69 Count Seat Band 30-49 Count < 30 Count 250 5 1.Passenger Usage 2500 2000 No.

10 .130 Seats 3000 2500 No.…but 50-99 still popular in Europe & North America Com m ercial Passenger Planes . May 2010 . of Aircraft 100-130 30-49 70-99 < 30 50-69 2000 1500 1000 500 0 Africa Asia Australasia Europe Latin Am erica Middle East North Am erica Operator Region Source: Ascend data.

<130 seats . April 2010 Note: Refers to Regional Aircraft .High proportion of older fleet in Africa and Latin America… %age of Fleet 40 years + 5% 8% 3% North Am erica Africa Latin Am erica and Caribbean Europe Middle East Asia 22% 45% 17% Source: Ascend data.

.. April 2010 Note: Refers to Regional Aircraft .<130 seats.. . over 40 years old.yet surprisingly high number still operating in USA Source: Ascend data. North America.

Sign up to vote on this title
UsefulNot useful