FREIGHTER MARKET OUTLOOKMARCH 2018

LET THE GOOD TIMES ROLL

STEPHEN J. FORTUNEFORTUNE AVIATION SERVICES

MARKET OVERVIEW• 1,900 jet freighters in operation

• Fleet average age - 22 years

• Extraordinary growth in 2017

• 41 factory freighters delivered in 2017 ~$15.2B*

• 79 conversions in 2017 ~$644M

• Exceptional E-commerce growth

• New conversion programs rolling out*40% MSRP

GLOBAL AIR FREIGHT YEAR OVER YEAR GROWTH RATE2012-2017

-2%

0%

2%

4%

6%

8%

10%

2012 2013 2014 2015 2016 2017

Source: IATA

Freight Tonne Kilometer Available Tonne KilometerBest Year in Cargo Growth Since 2010

FREIGHT YIELDS HAVE HISTORICALLY DECLINED“Freight yields have declined at an

average rate of 2.1 percent per year. . .

FREIGHT YIELDS IMPROVED IN

CURRENT RECOVERY

LONG TERM DECLINE IS EXPECTED TO

CONTINUE

Yield Decline Forces Productivity Improvement

NARROWBODY FREIGHTER FLEET 2012-17 – STAGNANT?

35%

15%

6%

28%

9%

7%

2012 Narrowbody Fleet - 691 Units*

727F

737F Classic

DC9F

DC8F

757F

737F

(JT8

D)

*Excludes 707F (6 units)

11%

36%4%

41%

6%

MD80, 2%

2017 Narrowbody Fleet - 704 Units*

727F

737F Classic

DC8 & 9F

757F

737F

(JT8

D)

*Excludes 737-700SF (2 units)Source: FlightGlobal

NARROWBODY PAX FLEET 2012-17 - 28% GROWTH

6%

45%39%

10%

2012 Fleet - 12,180 Units

757

737 Family

DC9, MD80/90 &

717

A320 Family

3%

46%

47%

4%

2012 Fleet - 15,644 Units

757

737 Family

DC9, MD80/90 & 717

A320 Family

Source: FlightGlobal

WIDEBODY FREIGHTER FLEET 2012-17 – STAGNANT?

28%

22%

12%

18%

A3303%

17%

2017 Widebody Fleet - 1,173 Units

747F

777F

DC-10/MD11F

A300/310F

767F

Source: FlightGlobal

32%

12%

5%

25%

A3301%

25%

2012 Widebody Fleet - 1,132 Units

747F

777F

DC-10/MD11F

A300/310F767F

WIDEBODY PAX FLEET 2012-17

Source: FlightGlobal

13%

22%

26%6%

22%

9%

A3802%

2012 Widebody Fleet - 3,359 Units

767

777

A330

A300

/A31

0A340

747

*Excludes 787 (3 units)

5%

12%

28%

13%

A300/A3102%

32%

A3503%

5%

2017 Widebody Fleet - 4,694 Units

767

777

A330/A340

747

787

A380

389 CONVERSIONS = $2.5 BILLION CONVERSION REVENUE (2012-2017)

MD80SF

737-300SF

737-400SF

737-700SF

757SF

767SF

747-400SF

A300-600SF

A330-300SF

1239

113

2

128

60

9 251

68

85

68

29767-30

0ERF

747-8F

777F

A330-200

F

250 NEW FREIGHTER DELIVERIES

(2012-2017)

MARKET TRENDS TO WATCH

• China, China, China• 747-8F continues to struggle• A330-200F production ends• Narrowbody retirements continue to be

primary source of demand • New narrowbody P2F programs have

limited success prior to 2020

EVERYBODY’S FAVORITE MARKET TREND

“The world economy is buzzing, airlines are enjoying record profits, backlogs of aircraft are at sky-high levels. What could possibly go wrong” – Adam Pilarski January 2018

Cyclical aircraft market – current nine year upmarket is longest on record

Answer: Just about anything

Opportunities? - plenty

Freighter Programs

NARROWBODY FREIGHTERS

EXISTING TYPES

• 737-300/400

• Large operator base (50+)

• Winding down as feedstock is depleted

• ~50 conversions thru 2022

• 757-200

• Small operator base (80% operated by or for integrators)

• Integrator requirement largely fulfilled

• Winding down with ~40 conversions remaining

NARROWBODY FREIGHTERS

UNDER DEVELOPMENT

737-800• 737-300/400 replacement• Multiple conversion providers• Certification in 2018• Order book – 96 firm & 30 options• Program success & timing dependent

on:• 737 Classic feedstock depletion• Decline in -800 feedstock cost• Selection by an integrator

NARROWBODY FREIGHTERS

UNDER DEVELOPMENT

A320/321• 737 replacement (A320); 757 (A321)• Multiple conversion providers• Same launch customer for both

leading providers• Certification likely in 2019• Being studied by express carriers• Boeing monopoly is an issue

WIDEBODY FREIGHTERSIN PRODUCTION

777F• 18 operators, 138 in service; 30 on order• Replacing MD11F & 747-200/400Fs• FedEx = 24% of fleet• Pax conversion possible, but less capable

747-8F• 12 operators; 78 in service; 25+ on order• UPS kept program alive• Production assured thru 2022• Niche aircraft, challenge to operate

profitably

WIDEBODY FREIGHTERSIN PRODUCTION

• 261 in service; 40% w/ FDX & UPS

• 62 orders (58 FDX, 4 UPS)

• More new orders? Amazon?

• High utilization and/or yield needed

767-300ERF

• Designed for long, thin routes

• 70+ initial orders, 38 delivered and 4

questionable orders remain

• Etihad permanently retiring six units

A330-200F

WIDEBODY FREIGHTERSOUT-OF-PRODUCTION & CONVERSIONS

747F• 100/200/300 fleet - 24 remaining with 8 in

storage• 400 conversions – 60 units, but almost 1/3 in

storage with many likely to be scrapped soon• 400 production freighters – 161 units with over

98% in service• No replacement for production nose loaders

ensures stable market

767-300ERSF• 69 aircraft – all in service• Almost 50% in service with Amazon• Feedstock availability limited & pricing is firm• IAI converted 2x Boeing

WIDEBODY FREIGHTERSOUT-OF-PRODUCTION & CONVERSIONS

A330P2F• Egyptair launched program (-200)• 300 program launch by DHL (1st delivery

Dec 17)• Feedstock limited, but growing• Strong operating economics for the -300• Competitive replacement for older 767-

300ERSFs• Good aircraft for high yield and general

freight

MARKET SUMMARY

Air freight market strong, but for how

long?

E-commerce impact significant & growing

Narrowbody freighter fleet size

unchanged, but highly dynamic

Production widebodies favored by express and flag

carriers

747 conversions ending, A330 & 767

fleets grow to meet e-commerce demand

Technology disruption likely

after 2020 i.e. UAV et al

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