Still The Strongest

Industry On The

Planet…For Now

Aviation’s State Of The Union

Presentation To The National Aeronautic Association

Arlington, VA

By Richard Aboulafia

Vice President, Analysis

Teal Group Corporation

www.tealgroup.com

January 2016

Civil And Military Aircraft DeliveriesAggregate 2006-2015: 53% Growth (4.8% CAGR)

'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '150

20

40

60

80

100

120

140

(Market Value in 2016 $ Bns)

Civil Mil i tary

‘06-‘15: 25.1% Growth

(2.5% CAGR)

‘06-‘15: 63.9% Growth

(5.6% CAGR)

Aircraft Markets, Through Good And Bad

YearsWorldwide New Deliveries In

2015 (2016 $) CAGR ’03-‘08

CAGR ’08-‘13

Change ’13-14

Change ’14-‘15

Large Jetliners ($103.4 b) 7.5% 10.3% 7.9% 4.7%

Business Aircraft ($24 b) 17.1% -3.7% 5.0% -2.1%

Regionals ($7.7 b) 4.3% -6.6% 15.3% -0.8%

Civil Rotorcraft ($5.6 b) 18.2% -1.5% -2.6% -5.3%

Military Rotorcraft($14.1 b) 10.3% 8.9% 15.0% -14.2%

Military Transports ($6.2b) 3.2% -1.2% -4.9% 13.1%

Fighters ($18.2 b) 1.8% 1.1% 1.8% 6.4%

All Civil ($140.9 b) 10.0% 5.0% 7.2% 2.7%

All Military ($42 b) 3.9% 3.2% 7.1% -0.3%

Total ($182.9 b) 8.2% 4.6% 7.2% 2.0%

US Aircraft Industry Output

'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '150%

10%

20%

30%

40%

50%

60%

70%(% of World)

$0

$20

$40

$60

$80

$100(Value of Deliveries in '16 $ Bns)

US Output As % of World Total Value of Deliveries

2015: $96.9 b/53% of

World Total

DoD Investment, O&M Funding

Then-year dollars

115

140

173

190179

214

239 237

271

293285 284

256 260247 250

240 235 235 240245

424657

65 6973 78 77

80 80 8172

64 63 6470 72 70 70 6869

5461

78 8397

105

134

165

135 138 134121

104 101 103111 112 115

118 119122

FY01 FY03 FY05 FY07 FY09 FY11 FY13 FY15 FY17 FY19 FY210

50

100

150

200

250

300($ bns)

Procurement RDT&E O&M

DoD Tactical Aircraft Procurement, FY1986-2016

A Sudden Return To The Peak, But Still A Fundamental Problem

FY86

FY88

FY90

FY92

FY94

FY96

FY98

FY00

FY02

FY04

FY06

FY08

FY10

FY12

FY14

FY16

0

100

200

300

400(Units Procured)

0

2

4

6

8

10

12

(Funding in '16 $Bns)

Units Funding

World Fighter Production Shares

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '250

5

10

15

20

25

30(Deliveries in '16 $bns Value)

F-35 US F-35 International Undetermined Europe

Russia RoW Non-F-35 US

USAF Aircraft Investment Funding

FY2016-2020

Source: CRS

FY2016 FY2017 FY2018 FY2019 FY20200

4

8

12

16

(Funding in then-year $ Bns)

F-35A

KC-46

LRS-B

C/MC/HC-130

RPA (MQ-9, MQ-4)

PAR

CRH

JSTARS recap

T-X

The US Military Fixed Wing WaterfallMuch Riding On The F-35...But There’s A New Wave Coming

Excludes jetliner deriv ativ es

'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

0

5

10

15

20

25(Value in '16$ Bns)

C-17 AV-8B F/A-18 F-15 F-16 F-22

T-45 T-6 C-130 F-35 T-X LRS-B

Boeing Military Fixed Wing Deliveries

'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

0

2

4

6

8

10

(Value in '16$ Bns)

C-17 AV-8B F/A-18 F-15 P-8 KC-46

World Military UAV Market 2002-2024

Includes UCAVs; excludes R&D.

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '240

1

2

3

4Thousands

0

1

2

3

4

5

(Market value In '15 $bns)

Units Value

Missile/Munition/UAV Forecast

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23

0

2

4

6

8

10

12

14

16

18

20(Market value in '15 $Bns)

AAM ASM ADM ATM Anti-Ship

SSM Smart munitions UAVs

Our Forgotten Nemesis...CyclicalityLarge Jetliner Deliveries By Value

'58

'60

'62

'64

'66

'68

'70

'72

'74

'76

'78

'80

'82

'84

'86

'88

'90

'92

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

'14'15

$0

$20

$40

$60

$80

$100

(Value in '16 $Bns)

‘01-‘03 -10.7%

CAGR; -28.8%

peak-trough‘91-‘95 -12.5%

CAGR; -41%

peak-trough‘80-‘84 -13.9%

CAGR; -45%

peak-trough

‘68-‘77 -11%

CAGR; -65%

peak-trough

‘84-‘91

16.1% CAGR

‘95-‘99

20.8% CAGR

‘04-‘15

9.2% CAGR;

A 12-Year

Supercycle

OR

‘99-‘03 -11%

CAGR; -37.3%

peak-trough

Single And Twin Aisle DeliveriesPowered By...Hubris

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

0

20

40

60

80

(Market Value in '15 $ Bns)

Single Aisles Twin Aisles

‘05-‘14 CAGR:

8.1% Single,

11.6% Twin

‘09-‘14 CAGR:

6.5% Single,

17.8% Twin

‘15-‘19 Plan:

13.1% Single,

9.4% Twin

BRIC Market Large Jet Deliveries

31 25 28 4058

94 106 107 104

151 156 167200

248268

301

98

7 9 6

25 718

20

18

24

5

2 4 43

1519

70

24

42

2117

30

4032 4

5 9 20

5

32

34

24

21

2217

19

2923

18

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

0

50

100

150

200

250

300

350Number of Aircraft Delivered

China Russia India Brazil

Brazil, Russia, India Large Jet Deliveries V. GDP

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

e

0%

2%

4%

6%

8%

10%

12%

-2%

-4%

(GDP % Change YoY)

0

20

40

60

80

100

120(Deliveries)

BRI GDP Change YoY Deliveries

China Large Jet Deliveries V. GDP

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

e

0%

2%

4%

6%

8%

10%

12%

14%

16%(GDP % Change YoY)

0

50

100

150

200

250

300

350(Deliveries)

BRI GDP Change YoY Deliveries

Comparative Backlog Values

130.03

107.75

79.53

199.11

300.42

271.06 269.97

300.11 316.81

365.33

421.92 413.8

48.55

112.93 115.48

173.03

281.81 268.21

277.58

309.53 321.6

397.42

436.27

456.7

1.95 3.51 5.19 5.8 7.1 9.5 9.5

Mid

'97

Mid

'01

End

'04

End

'06

End

'08

End

'09

End

'10

End

'11

End

'12

End

'13

End

'14

End

'15

0

50

100

150

200

250

300

350

400

450

500(Value in '15 $Bns)

Boeing Airbus Bombardier

Bottom Half Bizjet Segment V. Top Half

'89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15

0

4

8

12

16

(Market Value in '16 $ Bns)

Bottom Half ($26M)

‘03-‘08 CAGR:

19.7% Bottom,

15.3% Top ‘10-‘15:

3.5%

Bottom,

3% Top

‘08-‘10: -56.8%

Bottom, 3.5% Top

Global Aircraft Market Outlook In One Page

Market 2016 Risk Elevator Comment

Large Jetliners 2.2% Tough to de-rail the ramp, but fuel prices and China are big concerns.

Business Aircraft 0.3% Weak emerging markets and resource-extraction country/company demand.

Regionals -4.9% Scope clause is only big risk.

Civil Rotorcraft -4.5% Could get ugly. Too many new models aimed at a weak Segment (oil).

Military Rotorcraft

6.8% Trending down as programs of record end/slow; no risk of accelerated downturn.

Military Transports

24.9% Last of C-17s/A400M ramp; Only risk is A400M execution; C130J would benefit if that’s a problem.

Fighters 0.3% I like this market.

All Civil 1.2% Jetliner growth not compensating for weakness in other segments; more risk from emerging markets, oil.

All Military 6.3% Global insecurity, Tension, Malice.

Total Industry 2.4% Downshifting, with more risk

Aircraft Production 2006-2025Still Growing, For Now....

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '250

30

60

90

120

150

180

210

(Market Value in '16 $ Bns)

Fighters Business Aircraft Rotorcraft

Mil i taryTransports/Trainers/Other Jetl iners/Regional AC