LP AV Market Review January 2009. LP AV – Market Intelligence – JP Grand2 February 19, 2009 Key...

LP AV

Market Review

January 2009

LP AV – Market Intelligence – JP Grand 2February 19, 2009

Key topics• Indicators:

– Downtrend confirmed for Oil and Natural rubber …. but with an inflexion in January

– Oil: consensus for a long term price at 80$/barrel (60$ in 2009?)…. to be confirmed

• IATA forecast:– “Deep recession and the most challenging revenue environment for fifty years will lead to larger losses during

2009 in all regions except the US”.

• OEM– AIRBUS backlog is shrinking

– BOEING bears the after effect of the strike in terms of deliveries and lay-off

– Embraer has delivered the first EMBRAER 195 jet to Air Dolomiti

• Client info: – AIR FRANCE takes share in the new ALITALIA– Qantas has made what it describes as "decisive reductions in capacity to mitigate traffic decline".– After their merge completed in 4Q08, DELTA AIR LINES & NORTHWEST create the world’s largest airline.

They expect the merger to generate ~$500m in synergies in 2009 and ~$2b in “annual run-rate synergies” by 2012. In 2009, the company plans to remove 40-50 mainline aircraft from the fleet, and has already offered its second voluntary workforce reduction program in 12 months.

Information sources:• Speednews – Main source used when no reference mentioned• Bulletin hebdomadaire d’informations Michelin and Bibznews - Collection of articles published in different newspapers/magazines – Information will be reported with accurate reference (mainly in french)• Weekly reports from Zones – Quoted as “Internal info”

Periodicity• LP AV Market review will be issued 1st week every month


Indicators

Source: Banque de France

Source: SGA

Source: IATA

Source: Pricing Dept

Parité Euro-USD(2/01/08-31/01/09

1,21,31,41,51,61,7

02/0

1/20

08

02/0

2/20

08

02/0

3/20

08

02/0

4/20

08

02/0

5/20

08

02/0

6/20

08

02/0

7/20

08

02/0

8/20

08

02/0

9/20

08

02/1

0/20

08

02/1

1/20

08

02/1

2/20

08

02/0

1/20

09Natural rubber

Moyenne RSS3 & TSR20

120145170195220245270295320

janv-

07

mar

s-07

mai-

07

juil-0

7

sept

-07

nov-0

7

janv-

08

mar

s-08

mai-

08

juil-0

8

sept

-08

nov-0

8

janv-

09

US

D c

ents

/kg

Monthly Evolution EMA & NAM CPI

0,00%2,00%4,00%6,00%8,00%

10,00%12,00%

07 Ju

ne

07 A

ugust

07 O

ctobe

r

07 D

ecember

08 F

ebru

ary

08 A

pr

08 Ju

n

08 A

ug

08 O

ct

EMA CPI

NAM-FEO CPI


Latest news from IATA – December outlook

• “Spot oil prices have more than halved to around $50 a barrel but, following the near collapse of the banking system, the deepest recession since the early-1980s is now expected in 2009”

• “Passenger traffic is forecast to fall 3%, cargo to fall 5% and revenues to fall by over 6% in 2009”

• “The first half spike in oil and jet fuel prices was the principle cause of the $5 billion industry net losses we forecast for 2008, with the bulk of these occurring in the US

where hedging protection was least.” • “Forecast for oil prices in 2009 from $110/b to $60/b.”

• “Deep recession and the most challenging revenue environment for fifty years will lead to larger losses during 2009 in all regions except the US.”

• “Economic growth is the principle driver of the industry’s passenger and freight markets.”

• “Traffic volumes follow GDP up and down … GDP or income elasticity is high. As a

result recession is particularly bad news for market prospects.”


Market evolution (cont’d)• “Just three months ago mainstream economists were forecasting that the US

economy would be growing by about 0.5% and both Europe and Japan by 1.5% in 2009. All three major economies are now expected to shrink in their worst recession since the early 1980s. Moreover, a much more substantial slowdown is expected in the previously robust emerging markets, including China and India. Overall, the forecast for global economic growth has been cut from 2.6% to 0.9% which is the lowest growth rate since the 1981 recession. In the 1991 recession global growth was 1.5% and during the 2001 downturn it was 2.2%.”


Latest IATA Forecast


Financial results


Economic growth is the principle driver of the industry’s passenger and freight

markets.


• “US airlines had earlier announced plans to cut domestic capacity by around 10% in 2009, but published plans now show cuts on international markets too. This is expected to allow US airlines to actually raise load factors through the recession”

• “In other regions capacity has proved harder to cut quickly. In Europe there is a danger of losing slots at congested airports if they are not used, while in Asia and the Middle East there are substantial numbers of new aircraft being delivered. As a result traffic is forecast to fall faster than capacity in all regions outside the US, leading to a fall in load factors and downward pressure on yields and profitability.”


OEM infoBOEING

• Boeing this week bumped up its previously announced plan to cut 4,500 jobs, and will lay off a total of 10,000 workers. That's about 6 percent of the company's total work force. Boeing blamed last year's strike and the global recession for its losses.

• The company delivered only 50 aircraft in the last quarter of 2008, but plans had called for 120. Interest in the 787 Dreamliner remains strong, the company said, with 895 orders on the books, although one customer has cancelled an order for 15 aircraft. First deliveries of the 787 are now expected in early 2010, with first flight in the second quarter of 2009.

• Production of Boeing 787 Dreamliners has resumed with the join of the fifth airplane designated for the flight test program. This airplane, designated ZA005, is the first to be powered with General Electric GEnx engines. The major assemblies were loaded in final body join over the past several days. The fuselage and wing joins occur simultaneously.

• Five of the six airplanes designated for flight testing are now in varying stages of production. Power was restored earlier this week to the first flight-test airplane, ZA001, and production testing has resumed as the airplane prepares for first flight in the second quarter. Rolls-Royce engines are hung on ZA002, in the fourth and final production position in the factory. The third and fourth flight-test airplanes, ZA003 and ZA004, are in the third and second production positions, respectively. Fastener rework has been completed on ZA001, is nearly complete on ZA002 and is progressing well on the third and fourth airplanes.

EMBRAER– Embraer has delivered the first EMBRAER 195 jet to Air Dolomiti, the Lufthansa-owned Northern Italy regional carrier. The

deal with Lufthansa was announced in June 2007, covering 30 firm orders for the EMBRAER 190 jet, with the option to take any aircraft of the E-Jets family.

– The EMBRAER 195 is the biggest and newest of the four members of the EMBRAER 170/190 EJets family, and began commercial operation in September 2006. On December 31, 2008, the EJets family had logged 876 firm orders and 810 options.


OEM info (cont’d)AIRBUS• Backlog:

– As of December 31, 2008, the order backlog for Airbus totaled 3,715• 20 for the A318, 396 for the A319,1,919 for the A320, 263 for the A321, 425 for the A330, 24 for the A340, 483 for the A350, 185

for the A380. – The backlog at the end of December 2008 represents a decrease compared to the backlog at the end of November 2008, which

had totaled 3,740. Both figures are increases over the company's yearend-2007 order backlog of 3,421. • Orders:

– Airbus recorded orders for 22 aircraft during the month of December• Nile Air ordered 9 A321• Aeroflot ordered 6 A321• Uzbekistan Airways ordered 4 A320. • Iberia ordered 2 A340-600 • A private customer ordered 1 A340-500. – In 2008, Airbus garnered 900 orders. The company delivered 483 aircraft.

• AIRBUS : is establishing an A320/A350 composite parts manufacturing facility in Harbin, China under joint venture with a group of Chinese industrial partners to begin operations in late 2010.

• EADS and AIRBUS MILITARY delayed A400M deliveries to at least three years after first flight (not yet scheduled). It has 192 orders from Germany (60), France (50), Spain (27), UK (25), Turkey (10), Belgium (7), Luxembourg (1), South Africa (8) and Malaysia (4). (Michelin is not developing a tyre for this aircraft)

OTHERS• DASSAULT AVIATION is reportedly planning to cut Falcon production by 25% from 12 to eight aircraft per month. (sp 23/01/09)


EMA Top 40• AIR FRANCE-KLM:

– Has agreed to inject €323m into ALITALIA for 25% stake in airline, which has merged with AIR ONE under the management of CAI. (Sp 13/01/09). Annual synergies by year two/three are to be €90m for AF-KLM and €280m for Alitalia. (Sp 16/01/09)

– Has Kingfisher contract to provide full maintenance support for 20 A330-200s. (Sp 19/01/09)– Expects to post operating loss for its fiscal year third quarter ended Dec 31 due to declining revenues. (sp 23/01/09)– KLM : announced a decrease of 3% in its activity (JMN weekly report)

• SR TECHNICS was notified by Gulf Air that it intends in June 2009 to terminate contract for technical management of 10 A320s, six A330s, nine A340s and nine 767s; the 5-year deal began in 2006. SR Technics says it is investigating the legality of cancellation. (Sp 16/01/09)

• EASYJET:– Carried 3.11m pax in December, up 7.3% from 2.9m in December 2007; load factor was 82.3% vs 78.9%.It also carried

44.58m pax in all of 2008, up 16.6% from 38.23m in 2007; load factor for year was 84.6% vs 83.5% for 2007. (Sp 09/01/2009)– Had £550m revenues in first quarter ended Dec 31 vs £418m a year ago; revenue per seat rose 14% at constant currency.

(sp 23/01/09)

• IBERIA estimates it had €32m net income on €5.45b revenues in 2008, down 90.3% and 1.3% respectively vs 2007. (sp 23/01/09)• BRITISH AIRWAYS warned that non-fuel costs are now expected to rise 8% year-over-year vs previous guidance of 5%, and now

expects operating losses of £50m for third quarter ended Dec 31 and £150m for year ending March 31; revenue guidance is unchanged. (sp 23/01/09)

• LUFTHANSA ITALIA plans startup on February 2 with two 138-pax A319s out of Milan-Malpensa. (sp 30/01/09)


EMA-Other market info customer/prospect• CLICKAIR will be absorbed into VUELING to form single LCC in Spain. Vueling will be the name of the merged entity. The new Vueling will become Spain's second-largest carrier: with an average of 16 aircraft for Vueling & 26 A320s for Clickair at year end (NB: Clickair is part of Iberia & MI is their tyre supplier) (ATWonline 09/01 & Speednews 12/01)

• FLYLAL, Lithuania suspended operations and was placed in receivership after acquisition by SCH SWISS CAPITAL HOLDING fell through (SPNWS, January 16); it was flying nine 737 Classics, two 757s and two Saab 2000s. (sp 23/01/09)

• AUSTRIAN fights for survival, faces huge revenue shortfall – Group facing massive challenges to liquidity "Demand is collapsing and the outlook offers very little reason to be optimistic." Capacity this year now will fall 10%. Frequencies will be cut on a variety of routes. AAG said the capacity reduction will produce cost savings of approximately €115 million. (ATW online.com–Feb 2)

• AEROFLOT is expected to make bid to acquire up to 92% of CZECH AIRLINES under privatization plan; CSA is valued at $800m. (sp 23/01/09)

• EMIRATES : A330/340 RFP received (for 67 AC). Answer due for Feb the 20th 2009. Tyre manufacturer selection planned in June 2009. Contract to begin on Jan 2010.(JMN weekly report)


EMA Miscellaneous

Airport Traffic:

AMSTERDAM AIRPORT SCHIPHOL handled 47.4m pax in 2008, down 0.8% vs 2007; cargo dropped 1.4% to 1.59m tonnes and air transport movements declined 1.8% to 428,350. It is projecting "sharp drop" in pax/cargo traffic in 2009, plus 6-10% fall in movements. (Sp 09/01/2009)

HEATHROW (LHR) handled 5.25m pax in December, down 2.3% vs December 2007, and 66.91m pax in 2008, down 1.4% vs 2007.GATWICK (LGW) handled 2.09m pax in December, down 13.8% vs December 2007, and 34.18m pax in 2008, down 2.8% vs 2007.STANSTED (STN) handled 1.4m pax in December, down 13% vs December 2007, and 22.34m pax in 2008, down 6% vs 2007 (Sp 16/01/09)

CREDIT CRUNCH ON AIRPLANE DELIVERIES (sp 23/01/09)DVB Bank has predicted that at least 10% of aircraft deliveries scheduled in 2009, totaling ~$73b may be deferred or canceled. They cite a funding gap caused by the current economic downturn and the credit crunch. Grabowski estimates that Class A airlines, Chinese carriers and the three main Middle East carriers will have no issue accessing funds in 2009. However, that will account for only~$30b, ~$15b of which is expected to be contributed from ECAs, leaving ~$15b to be financed by banks.


FEO• THAI AIRWAYS says it is formulating a Business Improvement Plan 2009-2011 to improve efficiency, prepare for

changing business environment and to shore up liquidity.(Speed News)

• SINGAPORE AIRLINES took delivery of its first of 19 new leased A330-300s (first of six to be leased from AWAS) to serve as interim capacity until delivery of A350s and 787s.

• CHINA: Surpassed Germany as the world’s third largest economy behind the USA and Japan. CAAC reports that Chinese Airlines are expected to carry 11% more passengers than in 2008 (192 million). 2008 realized a gain in passenger growth of 3.3% over 2007 adversely affected by the 2008 CNY winter storms and the May 2008 earthquake. 241 aircraft are scheduled for delivery to China representing 19% of the total fleet at YE 2008 representing a growth in fleet of 16%

• AIR INDIA : commits to massive fleet growth, despite domestic and international woes .Air India confirmed plans to take delivery of the final three of eight B777-200LRs between Jun-09 and Aug-09 and commence non-stop service to San Francisco in 2H09, despite signs the US and global economy have dramatically weakened. In total, Air India is scheduled to take delivery of 20 new aircraft in 2009 and 21 in 2010

• KOREAN AIR : wrapped up a shocking second half of 2008 with a USD474.4 million net loss in the fourth quarter (to 31-Dec-08) almost three times worse than median analyst projections. As ever, the company remained optimistic about the outlook, projecting a healthy operating profit in 2009 and signing up for two more A380s, for a total of ten.

• All Nippon Airways (ANA) has disclosed it will take delivery of the world's first Boeing 787 in February 2010, and speed up the rate of introduction of the new aircraft type into its fleet, with around 20 expected to be in service by the end of its fiscal year 2011 (ending 30-Mar-2011). That rate will see deliveries average 1.4 aircraft per month.

• CHINA : the National Tourism Administration has released the statistic , the country recorded 109 million visits during the holiday, up 24.7% from the previous New Year period. Tourism revenue hit CNY50.9 billion (US$7.5 billion), up 23% year-on-year. Air transport made CNY3.8 billion and railway transport made CNY2.3 billion.


Passenger number growth and passenger load factor(including Jetstar) and Jetstar separately.• Qantas Group passenger number growth and passenger load factor: 2005 to 1H2009 (Financial year ended 30-Jun)

• Jetstar passenger number growth and passenger load factor: 2006 to 1H2009 (Financial year ended 30-Jun)

QANTAS Capacity reductions - Qantas has made what it describes as "decisive reductions in capacity to mitigate traffic decline". However, as global conditions deteriorate, these reductions in fact will probably need to be more "decisive" in the near future. - The reductions include retiring four B747-300s, whose impact will be felt most domestically. - Total capacity in 2H09 is to be reduced by 4% compared with 2H08 and the planned growth for the 2009/10 financial year will be cut from 10% to 2%. This implies some acceleration of withdrawal from service of older equipment, as there is no mention of deferrals of aircraft purchases (here the delays in deliveries of the B787 are proving to be a blessing).


NAM Top 40• Continental had a net loss of $266m for 4Q08 versus $32m loss in 4Q07, and suffered losses in its full year result, with a

$585m loss for 2008, versus a $459m profit in 2007. Results for 2008 included volatile jet fuel prices that totaled $5.9b in consolidated fuel cost for 2008, a $1.9b increase over 2007. On a positive note for the airline, total revenue increased by $1b to $15.2b for the year, up 7.1%, year-over-year. They also reported record full year passenger revenue, with increases in all mainline geographic regions as well as regional operations

• US Airways reported net losses of $541m in their 4Q08, versus a much smaller $79m loss in 4Q07. It had $2.2b losses for full year ’08, versus a $427m profit in 2007. Special charges in the 4Q08 included $234m of unrealized losses resulting from mark-to-market adjustments on fuel hedging instruments. “As we begin the new year, US Airways is well prepared for a difficult global macroeconomic environment. We are running a great operation, have restructured our business model through the introduction of new fees, reduced capacity and increased our liquidity,” said Parker.

• JetBlue reported pretax losses of $49m in 4Q08 versus a $3m loss in 4Q07 and $76m in 2008 vs $41m profit in 2007. JetBlue is only reporting its pre-tax results, as it is still evaluating the tax deductibility of a special charge, and has not yet finalized the amount, given the issues’ “technical nature.” JetBlue will report its net results in its Annual Report in mid-February. Operating revenue for 4Q08 showed a year-over-year growth of 9.8%, totaling $811m, versus $739m in 4Q07. Full year operating revenues increased 19.2% to $3.39b in 2008.

• Frontier Airlines is confident that its reduced fleet and network, as well as its strong focus on its Denver base, will enable it emerge from Chapter 11 court protection this spring. The launch of Lynx at the end of 2007 is a turboprop operation which operates (10) Q400s has allowed frontier to remove paying other carriers to fly for it on shorter hauls. Frontier is also seeking to broaden a co-operative pack with AirTran. The carrier was able to post a November operating profit of $2.5m and chief executive Sean Menke says he is confident it will emerge from bankruptcy this year.


NAM Top 40 con’t.• United Airlines said on Tuesday that its January traffic fell 10.9 percent across its system as capacity fell 10.5 percent. The

nation's third-largest airline said its mainline operation flew 10 billion revenue passenger miles, or one paying passenger one mile. That was a 12 percent decrease from the 11.4 billion revenue passenger miles flown in January 2008. Regional traffic rose 3.4 percent to almost 931.8 million revenue passenger miles. Mainline capacity fell 12 percent to about 10.1 billion available seat miles. That included a 15.4 percent drop in Pacific capacity, United's largest overseas component. Regional capacity rose 1.9 percent to almost 1.4 billion available seat miles. Mainline load factor, or the percentage of seats filled, fell 0.4 percentage point to 76 percent. Regional load factor rose 1 percentage point to 68.8 percent. Mainline cargo ton miles fell 27.5 percent to 106.9 million. The number of passengers boarded fell 8.9 percent to 6 million.

• UPS Airlines cites a reduction in flights caused by the economic downturn for its decision to cut about 60 mechanics from its U.S. payroll. Union officials expect the bulk of the layoffs to take place at UPS's main facility in Louisville, Ky.


NAM Other • DELTA AIR LINES: net losses of $1.4b in 4Q08 versus $70m loss in 4Q07, due to merger costs and fuel hedge losses, and

included an over $900m charge related to broad-based employee equity awards, and a $91m loss on fuel hedges. $8.9b net losses for the full year 2008 versus $1.6b profit in 2007. DELTA AIR LINES completed its merger with NORTHWEST in 4Q08, creating the world’s largest airline. It expects the merger to generate ~$500m in synergies in 2009 and ~$2b in “annual run-rate synergies” by 2012. In 2009, the company plans to remove 40-50 mainline aircraft from the fleet, and has already offered its second voluntary workforce reduction program in 12 months.

• AIRTRAN HOLDINGS recorded a net loss of $273.8m for 2008 versus $52.7m profit in 2007, on 10.5% higher revenues. It reported a net loss of $118.4m for its 4Q08, including non-operating losses related to fuel hedge contracts of $147.7m. It ended the 4Q08 with $340.5m in unrestricted cash and investments, its highest year-end balance since 2005. In 2Q08, AirTran enhanced its liquidity and reduced capacity and capital expenditures through the disposition of aircraft and the deferral of 737 deliveries. These actions, combined with the recent decline in fuel prices, resulted in a record operating income for 4Q08 of $54.9m, on 4Q08 revenues of $589.4m, another record.

• Fed Ex orders more 777s, but delays deliveries. Despite company-wide salary cuts and other money-saving moves, FedEx on Monday said it was exercising its option for 15 additional 777 freighters worth $3.75 billion at Boeing Co. list prices. With 30 of the planes now on order, FedEx also requested a deferred delivery schedule, starting with four jets in fiscal 2010.

LP AV Market Review January 2009. LP AV – Market Intelligence – JP Grand2 February 19, 2009 Key...

Documents

Transcript of LP AV Market Review January 2009. LP AV – Market Intelligence – JP Grand2 February 19, 2009 Key...