REGIONAL AIRLINE, BUSINESS AVIATION AND GA INDUSTRY REVIEWS

Prepared for:Regional Airport Planning Committee

Oakland, CAJanuary 26, 2007

Prepared by:Gerald Bernstein

PartnerThe Velocity Group

Washington Orlando San Francisco Tokyo

22

A Couple Measures of Magnitude

Mainline Airline Widebody Aircraft 560 Mainline Narrowbody Aircraft 3380 Regional Jets 1120 Regional Turboprops and Piston 1760 Rotorcraft (Turbine and Piston) 7600 Business Jets and Turboprops 16,660 GA Piston 162,000

Air Carriers (Mainline and LCCs) 13.5 M Commuters and Air Taxis 12.6 M General Aviation (Turbine and Piston) 34.1 M Military 2.9 M

Source: FAA Forecast, 2006

Operations at Airports with Control Towers

Fleets

33

General Aviation

Three Topics will be Addressed

Business Aviation

Regional Aviation

44

Regionals Have Grown from 10% to 22% of Domestic Enplanements in 15 Years

0

100

200

300

400

500

600

700

EN

PL

AN

EM

EN

TS

(M

ILL

)

1990 1995 2000 2005

DOMESTIC REGIONAL AND MAINLINE EMPLANEMENT GROWTH (MILLIONS)

Regional

Mainline

Sources: RAA, ATA, FAA

55

Why All This Success?

Lower Cost Ability to match aircraft with traffic

(new routes, turboprop upgrades, mainline downsize (frequency), off-peak service)

Competitive Tool (raiding competitors territory)

66

Airlines use these Aircraft as a Competitive Tool (DL Connection Routes, Jan 05)

77

Local Perspective on Regional Service

American Eagle (#1 Nationwide, American) Skywest (#4 Nationwide, United, Delta) Mesa (#5 Nationwide, America West/US Air) Horizon (#11 Nationwide, Alaska)

Oakland (5 Routes) San Francisco (30 Routes) San Jose (10 Routes)

Regional Airlines Serving the Bay Area

Airports Served

88

Traditional Regional Aircraft have been 35-, 50- and 70-Seat Jets (and Turboprops)

99

We Expect the New Embraer Aircraft to be a “Game Changer”

70- to 105-seats 6’5” headroom, bins capable of fitting wheelies Watch Air Canada, JetBlue and USAir

1010

General Aviation

Regional Aviation

Business Aviation

1111

Business Aircraft Fleets Have Been Growing Steadily Since the 1960s

GROWTH OF TURBINE POWERED BUSINESS AIRCRAFT FLEET (USA)APPROXIMATELY 12,000 OPERATORS

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

1990 1995 2000 2005

AIR

CR

AF

T

TURBOPROPS

JETS

1212

We are in the Midst of an Historic Boom in Sales (Jets)

WORLD BUSINESS JET DELIVERIES

0

100

200

300

400

500

600

700

800

900

1000

1965 1970 1975 1980 1985 1990 1995 2000 2005

AN

NU

AL

DE

LIV

ER

IES

(U

NIT

S)

JETLINERS

LARGE

MEDIUM

SMALL

1313

A New Class of “Very Light Jets” is Expected to Expand Production

HondaJetEmbraer Phenom 100

Eclipse 500 Cessna Mustang

1414

A Number of Favorable Influences Has Supported Business Aviation Growth

Interest and Ability to Purchase

- Strong Corporate Profits the past few years

- ESPECIALLY in the oil industry which is a major buyer

Government Policies (Taxes and Access)

- No major tax changes (this is changing…)

- Can also include fees and charges

Competitive Alternatives

- New Aircraft introductions with improved economics and customer appeal

- Lousy airline service

- New Ownership models and options, including:

-- Fractional Ownership

-- “Card” programs (eg, 25 hours use)

-- Air Taxis ?????

1515

Over 5000 Owners Participate in Fractional Programs

FRACTIONAL PROGRAM SHARES AND SHAREHOLDERS(WORLDWIDE)

0

1000

2000

3000

4000

5000

6000

7000

1985 1990 1995 2000

NU

MB

ER

Shareholders

Shares

1616

Some Local Business Jet Operators

Bank of America Bechtel Charles Schwab Chevron-Texaco eBay First Republic HP Oracle (Ellison) PG&E QUALCOMM Sun Williams-Sonoma World Savings

Asset Management Co Marmalade Skies Matador Management

Investments Medical Air Transport Stage III Technologies XO Jet

TAG Aviation Kaiser Air San Jose Jet Center

1717

Regional Aviation

Business Aviation

General Aviation

1818

GA Piston Aircraft Have Many Uses

GA PISTON AIRCRAFT HOURS BY USE, 2004

119,350

169,251

316,226

450,497

770,479

860,378

1,036,556

2,337,904

3,609,847

8,471,765

Sight Seeing

Other/Work

Corporate

Other

Aerial App.

Aerial Obs.& Other

Part 135 Taxi/Tours/Med

Business

Instruction

Personal

HOURS

Hours (2004)

1919

Sales of these Aircraft Have Grown Recently-- But Nowhere Near Historic Levels

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

YEAR

AIR

CR

AFT

Twin-Engine

Single Engine

2020

The FAA Forecasts the GA Piston Fleet to Remain More-or-Less Stable

ACTIVE SINGLE-ENGINE PISTON AIRCRAFT(THOUSANDS)

0.0

50.0

100.0

150.0

200.0

1980 1985 1990 1995 2000 2005 2010 2015

YEAR

NU

MB

ER

AIR

CR

AF

T (

000

)

FORECASTHISTORICAL

2121

The Decline in Pilots is the Major Challenge for the Industry

US ACTIVE PILOT CERTIFICATES HELD

STUDENT

PRIVATE

COMMERCIAL

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Source: FAA; excludes Transport and Helicopter pilots

2222

At Least 60,000 New Students are Needed Annually to Maintain the Pilot Pool

NEW STUDENT PILOT CERTIFICATES

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

YEAR

AN

NU

AL

CE

RT

IFIC

AT

ES

IS

SU

ED

Source: FAA; 1960 - 1964 estimated

2323

Closing Thoughts

All segments of the aviation industry contribute to the productive movement of persons and goods, for pleasure or for profit

Each segment is characterized by its own driving forces Each segment meets the needs of a particular user group As demand grows, the growth in (and funding for) system capacity

expansion becomes increasingly politicized-- between aviation and other users, as well as between the various aviation segments themselves

2424

The Velocity GroupThe Velocity Group236 W. Portal Ave., #359236 W. Portal Ave., #359San Francisco, CA 94127San Francisco, CA 94127

(415) 242-9296(415) 242-9296www.velocity-group.comwww.velocity-group.com