Richard AboulafiaVice President, AnalysisTeal Group Corporation

www.tealgroup.com

Fifth Update; September 17, 2020

About As Bad As We Feared. Maybe Worse.

Aviation Segments By Damage

Most to LeastAnnotated, Six Months In

International traffic hit hardest and longest.Already an overcapacity situation.Secular shift towards single aisles already underway.It’s just that bad.

Twin aisle jetliners

Fuel prices a big problem.

China comeback uncertain.

Some relief due to deferred Airbus ramp, and MAX stop.

Same.

Single aisle jetliners

Large cabin strongly correlated with oil prices.

Small/medium strongly correlated with corporate profits, equities indices.

Might recover quickly; still a 2020/21 downturn

Business Jets

Oil and gas segment (large) hit again, before recovery even began.

About right…wait and see.

Civil Rotorcraft

Emphasis on “shovel-ready.”

Advance development programs at greater risk.

Pure-play contractors in best shape; suppliers with most defense in best shape.

All good. In fact, better.

Military Programs

Aircraft Markets, In Good And Bad Years

World New Deliveries CAGR CAGR CAGR Change

In 2019 (2020 $) ’03-‘08 ’08-‘14 ’14-18 ’18-‘19

Jetliners-SA ($46.2 b) 9.7% 6.9% 5.0% -23.9%

Jetliners-TA ($55.3 b) 5.0% 13.5% 1.7% 2.0%

Regionals ($5.8 b) 3.9% -3.1% -5.2% -5.1%

Business Aircraft ($22.4 b) 16.7% -2.2% -5.0% 15.6%

Civil Rotorcraft ($3.9 b) 18.5% -2.5% -7.4% -6.6%

Military Rotorcraft($13.3 b) 10.6% 9.6% -11.8% 16.9%

Military Transports ($4.9 b) 3.2% -0.9% 0.2% -1.2%

Fighters ($24 b) 1.6% 0.8% 2.5% 25.5%

All Civil ($133.8 b) 9.7% 5.6% 1.4% -7.6%

All Military ($45.5 b) 3.9% 4.0% -3.3% 16.6%

Total ($179.3 b) 8.0% 5.2% 0.3% -2.4%

-100

-80

-60

-40

-20

0

20

40

Y/T

Tra

ffic

Ch

na

ge

(%

)Traffic: Like Nothing We've Ever Seen Before

63% Decline in 2020?2019 Totals: RPKs 4.2%, ASKs 3.4%, FTKs -3.3%

2018 Totals: RPKs 6.5%, FTKs 5.4%; 2017: RPKs 7.6%, FTKs 9%

RPKs ASKs FTKsSource: IATA

More Unprecedented Numbers•Traffic decline, parked fleet like no previous shock.

• Per Paul Krugman, reflect a world economy in a “medically-induced coma.”

• Traffic recovery is determined by the virus, not politicians or economics.

• Back to peak in late 2023.

• Backlogs holding up (MAX a concern), but meaningless in a downturn.• Just 1% of January backlog has cancelled; nearly half deferred.

•Many early retirements coming, particularly twin aisles.• Primarily twin aisles; A380 bloodbath.

• Aftermarket catastrophe.

IATA’s 63% y/y

2020 decline

still optimistic

about a 4Q

recovery0

1000

2000

3000

4000

5000

6000

World Air Traffic (RPM Bns)

0

2000

4000

6000

8000

10000

12000

14000

16000

0%

10%

20%

30%

40%

50%

60%

70%

Park

ed

Jets

Perc

en

t P

ark

ed

World Jet Fleet: Now ~33% Unemployed

Parked Percentage Of Total Fleet

Two Metrics To WatchOne Crisis May Be Peaking; The Next Might Be

Starting

0

100

200

300

400

500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

BRIC Deliveries: Peaked; Watch ChinaGrowth May Not Resume For A Few Years

China Russia India Brazil

2018:

China is

23% of

world

Market

2000:

China is

2% of

world

Market

-1000

-500

0

500

1000

1500

2000

2500

3000

3500

Large Jetliner Orders And DeliveriesBook-To-Bill No Longer A Thing

Deliveries Net Orders

-

10

20

30

40

50

60

70

80

90

Deli

ve

rie

s In

20

20

$ B

illi

on

sThe Air Transport Market By Segment

Regionals Single Aisles Twin Aisles

Return to peak:

2024

Now With Greater Misery

Too much, too sudden (A330s,

777s, 787s, Gulf carriers, etc.)

Hit Hardest and Longest; Capacity

hangover, international traffic

problems, and shift towards single

aisles

737MAX

Problem, and

flood;

includes

delivery of

~450 already-

built jets

Return to peak:

after 2029...

probably

1h1997

1h2001

End2004

End2006

End2008

End2009

End2010

End2011

End2012

End2013

End2014

End2015

End2016

End2017

End2018

End2019

1H2020

Boeing 130.0 107.8 79.5 199.1 300.4 271.1 270.0 300.1 317.0 365.3 421.2 412.9 398.9 402.1 408.0 378.8 356.5

Airbus 48.6 112.9 115.5 173.0 281.8 268.2 277.6 309.5 321.6 399.9 439.9 461.2 468.1 441.8 481.6 463.6 465.1

Bombardier — — — — — 1.9 3.3 4.9 5.5 6.7 9.0 9.0 8.7 8.5 — — —

0

50

100

150

200

250

300

350

400

450

500

20

20

$B

illi

on

sFirm Order Backlog Values (July 1):

Boeing Taking A Hit

Jetliner Types And Fleets Trends And Themes

• Downsizing trend: demand for jets offering equivalent functionality and equal/better economics, fewer seats, than older models.• Thus, A321neo will do well as replacement for older, mid-range twin aisles; A220

will do well as replacement for older 737s and A319/320s.

• Boeing single aisle product line now boxed in; MAX8 fine, but outflanked from above and below.• A321neo increasingly dominant in 180/220-seat segment; CDB MAX10 order

conversion further indication that larger MAXs uncompetitive.

• Embraer JV termination means Boeing abandoning 100/130-seat segment.

• BA 25% R&D cut announced in 1Q call not a good sign for product development.

• MAX8 lease rates, orders (particularly lessor orders) also taking a hit.

• Boeing, in short, is therefore at risk of losing out due to airline downsizing.

• E-Jets will lose market share and/or profit without a large partner against A220, but E175 might control its segment.

• A330neo increasingly at risk of MD-11-like fate.

• Almost all remaining quadjet fleets look set to retire young (1/3 of 380 fleet so far).

• Large twins (777X, A350-1000) look marginal for most of decade.

0

500

1000

1500

2000

2500

3000

3500

4000

<150 Single aisle 150 Single aisle 200 Single Aisle 250-300 Twin aisle >300 Twin aisle

Airbus, Boeing Jetliner Backlogs (July 1)

Boeing Airbus

No Clear Relationship Between US Defense Spending, Economy

0

5

10

15

20

25

'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 '26 '27 '28 '29

Deli

ve

rie

s in

20

20

$ B

illi

on

sUS Military Fixed Wing Aircraft Deliveries

C-17 AV-8B F/A-18 F-15 F-16 F-22 T-45 T-6 C-130 F-35 T-7 B-21

The Last

Jetliner

Downturn

Global Aircraft Market Outlook In One Page

Segment 2020 ’20-‘21 Risk Elevator Comment

Jetliners-SA -41.3% 55.0%Includes some already-built MAXs. Watch

China, fuel, traffic.

Jetliners-TA -47.2% -7.2%Overcapacity, slow international recovery,

secular shift to SAs

Regionals -27.0% -2.5%No Boeing supply chain effect on E-2; Scope

clause de-risked, but little growth.

Business Aircraft -20.3% -8.9%Another hit after many false starts over a

disappointing decade.

Civil Rotorcraft -11.4% -6.2%Large civil hit again. Too many new models

aimed at a weak segment (oil/gas).

Military Rotorcraft -5.2% 2.6%Programs end/slow; no risk of accelerated

downturn; FVL beyond forecast, exc FARA.

Military Transports -29.5% 4.7% A seriously underperforming market.

Fighters -22.0% 46.0%I like this market. F-35 (after COVID

disruption), plus strong Gen 4.5

All Civil -38.7% 13.3%SAJetliner snapback due to MAX, weakness

in other segments; more overcapacity risk.

All Military -17.4% 23.5%Global insecurity, Tension, Malice. Special

mission also boosts topline.

Total Industry -33.3% 16.6% No strong recovery until 2024

$0 $50 $100 $150 $200 $250 $300 $350

Airbus A320/Neo

Boeing 737NG/MAX

Lockheed Martin F-35

Boeing 787

Airbus A350XWB

Boeing 777/X

Airbus A220

Boeing 767/KC-46

Gulfstream 650/700

Gulfstream 500/600

Embraer E-Jets

Airbus A330/Neo

Boeing AH-64

BBD Global 7500

Sikorsky H-60

Su-30/57

BBD Glob. 5/6500

Boeing FA-18

ATR42/72

Lockheed C-130

Top 20 Aviation Programs; Volume MattersCumulative Deliveries Value in '20 $ Bns

2020-2029 2010-2019

Top 5 are 54% of total; next 15

are 22%; remaining 100+ are

24%

0

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40

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80

100

120

140

160

20

20

$ B

illi

on

sWorld Aircraft Deliveries By Value, 1989-2029

Military Civil (January) Civil (September)

Concluding Observations, and a Few Consolations

•This situation might get worse.

•This is a synthetic market, not an organic one.

•Deliveries mostly driven by exogenous factors: government aid, third-party and first party finance. These may not hold.

•Boeing faces a very serious mid market challenge.

•Defense companies have an opportunity to grow their civil side. Will they?

•There is some good news:

•An airline paradise, except for the traffic.

• Fuel, Jet costs, Crew costs, interest rates, government support

(for most, and for now); Stimulate traffic, or restore profit?

•Defense: budgets, export demand, industrial support.

•Less business jet frothiness.

•Financial sector stronger going into this crisis.

COVID-19 And Civil Aviation Markets

For more information about Teal Group:

www.tealgroup.com

Tom Zoretich

Senior Economist

tzoretich@tealgroup.com