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Cloudy, With Bluer Skies Ahead ���Economic Outlook for the ���
Part 135 Air Carrier Industry
Rolland Vincent President Rolland Vincent Associates, LLC
© 2010 Rolland Vincent Associates, LLC
NATA 2010 - Air Charter Summit Chantilly, VA June 7-9, 2010
Outline
1. Economic environment and outlook 2. Industry and market dynamics 3. Opportunities for growth
© 2010 Rolland Vincent Associates, LLC 2
1. Economic Environment and Outlook
© 2010 Rolland Vincent Associates, LLC 3
World economy
Wide performance divergence between developed and developing economies
Sovereign debt crisis has revealed that expansive fiscal policies are unsustainable • 180° turn at G20 since April 2010
Stock market rallies are now stalled Investor confidence is again being shaken
© 2010 Rolland Vincent Associates, LLC 4
Diverging regional economic performances
U.S. economy: on the path to recovery
© 2010 Rolland Vincent Associates, LLC 5
Source: U.S. BEA
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After almost a 20-year run, the deepest, longest recession since 1929
U.S. economy: on the path to recovery
© 2010 Rolland Vincent Associates, LLC 6
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Source: U.S. BEA
Rebound fueled by inventory re-stocking, fiscal stimulus; now slowing
Officially, U.S. recession still not over
© 2010 Rolland Vincent Associates, LLC 7
June 7-9, 2010
Peak TroughDuration (months)
Aug-29 Mar-33 43May-37 Jun-38 13Feb-45 Oct-45 8Nov-48 Oct-49 11Jul-53 May-54 10Aug-57 Apr-58 8Apr-60 Feb-61 10Dec-69 Nov-70 11Nov-73 Mar-75 16Jan-80 Jul-80 6Jul-81 Nov-82 16Jul-90 Mar-91 8Mar-01 Nov-01 6Dec-07 ???
1810
U.S. economic recessions
Average Recession Duration1919-1945 (6 cycles)1945-2001 (10 cycles)Source: U.S. BEA
….until the NBER says it is
Corporate profits have rebounded
© 2010 Rolland Vincent Associates, LLC 8
June 7-9, 2010
Source: U.S. BEA; profits after tax with inventory valuation and capital consumption adjustments
Businesses are adjusting: Profits in Q1 2010 were up 24% YOY
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Federal deficits have become the norm
© 2010 Rolland Vincent Associates, LLC 9
March 9-10, 2010
Source: U.S. Congressional Budget Office
Annual deficit in 2010 may reach $1.3 trillion; total = $8.8 trillion
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Stock markets grew strongly in 2009
© 2010 Rolland Vincent Associates, LLC 10
Region IndexJan. 2009
OpenDec. 2009
Close%
ChangeAmericas DJIA 8,772 10,428 18.9%Americas Bovespa 37,550 68,588 82.7%Europe FTSE 100 4,434 5,413 22.1%Europe DAX 4,857 5,957 22.7%Europe CAC 40 3,241 3,936 21.5%Asia Pacific Hang Seng 14,448 21,873 51.4%Asia Pacific Nikkei 225 8,991 10,546 17.3%
Key Stock Market Indices in 2009
Developing economies are at the forefront of global growth
The DJIA roller coaster
© 2010 Rolland Vincent Associates, LLC 11
June 7-9, 2010 Markets abhor uncertainty, and there is lots of it right now
53% fall 50% rise
U.S. consumer confidence Official unemployment hovering near 10% 8 million+ jobs have been lost 6.5 million are chronically unemployed
• More than 27 weeks off the job; 2X one year ago Personal incomes are declining Stubbornly high levels of debt, defaults
© 2010 Rolland Vincent Associates, LLC 12
Consumers: discouraged, hard hit in a ‘jobless’ recovery
Economic outlook – key markets
© 2010 Rolland Vincent Associates, LLC 13
Recovery: stronger in 2010, then tempering somewhat in 2011
2000-2008 2009 2010F 2011FUnited States 2.4% -2.4% 3.4% 2.7%Canada 2.6% -2.5% 3.6% 2.7%Mexico 2.8% -6.5% 4.8% 3.5%Euro zone 1.9% -4.1% 0.8% 1.0%China 10.1% 8.7% 10.0% 9.0%India 7.3% 6.7% 8.0% 7.0%Brazil 3.3% 0.5% 6.5% 5.0%World 3.3% -2.0% 3.4% 3.1%
2000-2008 2009 2010F 2011FUnited States 5.3% -3.8% 25.0% 13.0%Canada 7.8% -32.3% 27.5% 14.0%
2000-2008 2009 2010F 2011FUnited States 5.1% 9.3% 9.6% 9.0%Canada 6.9% 8.3% 8.1% 7.9%
Real GDP Growth (annualized)
Pre-Tax Corporate Profit Growth
Unemployment Rate %
Source: Scotiabank Group, June 1, 2010
Regional economic outlook Europe
• Eurozone debt crisis = accelerated fiscal restraint in south • Diverging fiscal policies; more cautious lending • Widening credit spreads; higher interbank lending rates • Sharp depreciation in the Euro – will help German exports
Developing economies (esp. Asia, Latin America) • Fast-track growth • Solid domestic demand and strong inter-regional trade
© 2010 Rolland Vincent Associates, LLC 14
March 9-10, 2010 Analysts expect a stronger $US ‘safe haven’
2. Industry and Market Dynamics
© 2010 Rolland Vincent Associates, LLC 15
U.S. business jet operations
© 2010 Rolland Vincent Associates, LLC 16
3826564 4198012 4285420
4606122 4727826 4745746 4824960
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3449204
3432176 3769630 3804224
4092010 4191692 4166506 4180510
3681606
2929476
394388 428382 481196 514112 536134 579240 644450 609498 519728
2001 2002 2003 2004 2005 2006 2007 2008 2009
FAA Business Jet Arrivals and Departures
Total Domestic International
Source: FAA
Domestic flying fell 30% from 2007 peak
U.S. business jet operations
© 2010 Rolland Vincent Associates, LLC 17
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
FAA Business Jet Arrivals and Departures Year-Over-Year Change – 2009/2010
Total
Domestic
International
Source: FAA
Growth is returning, but from a lower base and ‘easy comparables’
Avinode Demand Index
© 2010 Rolland Vincent Associates, LLC 18
On-line charter bookings are up YOY with flat U.S. pricing
Index (Jan 1 2009) = 100 = $13.7M in daily order value for flights requested in next 30 days
NetJets rebounding from trough Pre-tax $711 M loss in 2009 (vs. $213M)
• Mark-to-market asset write downs and downsizing charges of $676M (vs. $54M)
• 77% reduction in aircraft sales • 19% decline in live hours
Q1 2010 • Pre-tax earnings of $57M (vs. -$96M YOY) • Worldwide live hours up 7% YOY
Debt peaked at $1.9B in April 2009 Headquarters, NJI consolidation Fleet downsizing continuing
© 2010 Rolland Vincent Associates, LLC 19 June 7-9, 2010
Program Holder - Jets Fleet SizeNetJets, Inc. 448NetJets Europe 157Flight Options 83Flexjet 78CitationAir 59Aerolineas Ejecutivas 12Executive AirShare 10Total 847
Program Holder - Turboprops Fleet SizeAvantair 55Alpha Flying, Inc. - PlaneSense 34Total 89
Excess capacity has severely curtailed charter sell-off
Pre-owned market Used aircraft inventories continue gradual decline
• 2,689 business jets on the market available at May 31, 2010 • Represents 15% of worldwide fleet
1,000 aircraft 10 years old or newer • 0-5 years old = 594 aircraft (22% of fleet), including 111 whitetails • 6-10 years old = 407 aircraft (15% of fleet)
Older aircraft are particularly hard to sell, finance • 10+ years old = 1,688 aircraft (63% of fleet) • Retirement wave looming – 60-year old airframes?
© 2010 Rolland Vincent Associates, LLC 20
Available jet inventory has declined 12% from May 2009 peak
Source: JETNET and UBS
For sale: Pre-owned business jet fleet
© 2010 Rolland Vincent Associates, LLC 21
Source: Jetnet, March 2010
Supply well ahead of demand; larger aircraft performing better
Pre-owned prices still seeking a floor
© 2010 Rolland Vincent Associates, LLC 22
June 7-9, 2010
Source: JETNET and UBS
Manufacturer ModelPrice
($US million)Change
YOYChange since recent peak
Gulfstream G-550 38.0$ -7% -37%Bombardier Global Express 28.0$ -21% -43%Gulfstream G-V 23.7$ -22% -47%Dassault Falcon 2000EX 17.8$ -30% -50%Bombardier Challenger 604/605 16.3$ -23% -39%Bombardier Challenger 300 14.5$ -20% -41%Gulfstream G-IVSP 14.3$ -22% -54%Cessna Citation X 10.3$ -5% -45%Cessna Citation XLS 7.9$ -26% -33%Hawker Beechcraft Hawker 800XP 5.3$ -21% -45%Cessna Citation Encore 5.1$ -21% -37%Bombardier Learjet 45XR 4.3$ -43% -54%
Average Asking Prices - May 2010
Asking prices for most models are 40-50% below recent peaks
Business jet Bluebook values
© 2010 Rolland Vincent Associates, LLC 23
Older in-production models (esp. light and mid-size) are hardest hit
Manufacturer Model
Bluebook asking price (Jan. 2010)
Original list price - New (May 2000$)
Real original list price
(Jan. 2010)
Bluebook value as % of original
listDassault Falcon 900C $16.86 $27.81 $35.02 48.1%Cessna Citation CJ2 $2.73 $4.53 $5.70 47.8%Dassault Falcon 2000 $11.98 $20.60 $25.94 46.2%Gulfstream G-V $22.19 $40.50 $51.01 43.5%Bombardier Global Express $22.19 $40.66 $51.21 43.3%Cessna Citation CJ1 $2.01 $3.72 $4.68 43.0%Cessna Citation X $8.88 $17.37 $21.88 40.6%Cessna Citation Excel $4.44 $8.80 $11.08 40.1%Gulfstream G-IV SP $15.09 $30.50 $38.41 39.3%Bombardier Challenger 604 $11.09 $22.50 $28.34 39.1%Cessna Citation Encore $3.45 $7.16 $9.02 38.3%Bombardier Learjet 45 $3.91 $8.99 $11.32 34.5%Cessna Citation Bravo $2.01 $5.18 $6.53 30.8%Hawker Beechcraft Hawker 800XP $4.35 $11.90 $14.98 29.0%Bombardier Learjet 60 $4.08 $11.58 $14.59 28.0%Hawker Beechcraft Beechjet 400A $1.75 $6.33 $7.98 21.9%Sources: Aircraft Bluebook (wholesale prices), B&CA Magazine (original equipped list prices)
Bluebook values of business jets built in Year 2000 ($U.S. in millions)
Bluebook values – select models
© 2010 Rolland Vincent Associates, LLC 24
Source: Bluebook, Business & Commercial Aviation Purchase Planning Handbook 2000-2009, Bureau of Labor Statistics (CPI-U)
Unprecedented affordability of some popular models
Jet Fuel Price Monitor
© 2010 Rolland Vincent Associates, LLC 25
Lower fuel prices likely in short-term; longer term: $80-100/barrel
Source: IATA
Delivery performance by OEM
© 2010 Rolland Vincent Associates, LLC 26
Mid-size and light jet production has been scaled back sharply in 2010
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Demand shift to international markets
© 2010 Rolland Vincent Associates, LLC 27
67% 65% 68% 67% 56% 50% 52% 46% 41% 46%
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Long Range Business Jet Delivery Units North America vs. ROW
Rest of World
North America
Source: Jetnet
Strengthening $US likely to slow/reverse this trend
Other market indicators – Q1 2010
© 2010 Rolland Vincent Associates, LLC 28
YOY ChangeBusiness jets (units) -14.1%Business turboprops (units) -47.0%Total billings ($US) 7.0%
GAMA shipments - Q1 2010
Net orders are swinging back to positive; backlog concerns remain
Manufacturer Net Orders Deliveries Book-to-Bill RatioDassault Falcon -4 17 -0.24Bombardier Business Aircraft* 6 36 0.17
* = Fiscal quarter ending April 30, 2010
OEM firm order backlogs
© 2010 Rolland Vincent Associates, LLC 29
Backlogs for higher-end products are strongest
Jan. 31, 2010 15.90$ $US billionJan. 31, 2009 22.70$ $US billionYear-over-Year Change -30.0%April 30, 2010 17.30$ $US billion
Dec. 31, 2009 4.89$ $US billionDec. 31, 2008 14.53$ $US billionYear-over-Year Change -66.3%March 31, 2010 4.10$ $US billion
Dec. 31, 2009 ! 7.64 Euro billionDec. 31, 2008 ! 13.99 Euro billionYear-over-Year Change -45.4%
Dec. 31, 2009 18.89$ $US billionDec. 31, 2008 21.86$ $US billionYear-over-Year Change -13.6%March 31, 2010 18.12$ $US billion
BOMBARDIER - Business and Commercial Aircraft
CESSNA
GULFSTREAM
BACKLOG VALUES
DASSAULT - Falcon
3. Opportunities for growth
© 2010 Rolland Vincent Associates, LLC 30
March 9-10, 2010
Great Recession = Great Opportunity
“History shows that structural shifts in the pecking orders of industries occur more often in difficult times
– and these shifts endure….. ”
© 2010 Rolland Vincent Associates, LLC 31
David Rhodes and Daniel Stelter, The Boston Consulting Group, 2010
Times of change….times to consider change
The money value of time
Reduced airline service Airline consolidation 2-hour check-in for 1-hour flight Increased security procedures Poor on-time performance
© 2010 Rolland Vincent Associates, LLC 32
Charter: an attractive alternative when “66% on-time” won’t do
Value era in American wealth
© 2010 Rolland Vincent Associates, LLC 33 June 7-9, 2010
2010 Survey of Affluence and Wealth in America 1,910 U.S. households Average income $520,000 94% feel that the U.S. is still in recession 60% believe recession will last at least one more year
Affluent American families Have become hyper-sensitive to risk Have turned inward; more in control of their finances Proud of their resourcefulness; committed to finding value
Affluent have become more value-minded business aviation consumers
World wealth distribution
© 2010 Rolland Vincent Associates, LLC 34
2,700
2,600
2,400
400 400
100
High Net Worth Individuals (thousands)
North America Europe Asia Pacific Latin America Middle East Africa
30.6
18.0
14.3
9.8
3.5
1.8
Ultra High Net Worth Individuals (thousands)
Source: Capgemini Merrill Lynch 2009 World Wealth Report High Net Worth Individuals control at least $US 1 million in investable assets, excluding collectibles, consumables, consumer durables, and primary residences; Ultra High Net Worth Individuals hold at least $30 million in investable assets
HNWIs: a global customer for business aircraft charter providers
Business jet penetration
© 2010 Rolland Vincent Associates, LLC 35
11,052
2,388 274
USA EU JTICK
Business Jet Fleet
274 1,298
8,164
USA EU JTICK
High Net Worth Individuals per Business Jet
JTICK = Japan Taiwan India China Korea
Source: Capgemini Merrill Lynch 2009 World Wealth Report, Jetnet
The rest of the world is just beginning to experience business aviation
Outlook: Cloudy, with bluer skies ahead U.S. market
• Corporate profits have rebounded • Investment still deferred • More time needed to return to growth
Developing markets • Economies and wealth are growing rapidly • Business aviation still largely unknown • Opportunities are distant but abundant
© 2010 Rolland Vincent Associates, LLC 36
Charter: cost-effective solution for challenging times, new markets
Rolland Vincent President Rolland Vincent Associates, LLC 7000 Independence Parkway, Suite 160-3 Plano, Texas 75025 Tel: 972-439-2069 [email protected]
© 2010 Rolland Vincent Associates, LLC 37