The Great Jetliner HopeThe Great Jetliner HopeIssues In Civil Aviation CompetitivenessIssues In Civil Aviation Competitiveness

Presentation to National AcademiesAeronautics Research and Technology Roundtable Washington, DCRichard AboulafiaVice President, AnalysisTeal Group CorporationTeal Group Corporationwww.tealgroup.comFebruary 2012

Aircraft Markets, Through Good And Bad Years

Worldwide Deliveries By 2012 $ Value

CAGR ’03-‘08

CAGR ’08-‘11

Change ‘08-‘11

Change ’10-‘11

Large Jetliners 7.6% 6.5% 20.8% 8.0%

Business Aircraft 17.5% -13.7% -35.8% -10.7% Regionals 4.1% -10.1% -27.3% -2.0% Civil Rotorcraft 17.1% -7.6% -21.2% 3.8% Military Rotorcraft 8 7% 13 5% 46 2% 12 6%Military Rotorcraft 8.7% 13.5% 46.2% 12.6%

Fighters 1.5% 7.4% 23.9% 4.5%

All Civil 9 8% 0 2% 0 7% 3 7%All Civil 9.8% -0.2% -0.7% 3.7%

Total 8.1% 1.7% 5.2% 3.8%

Our Forgotten Nemesis...CyclicalityLarge Jetliner Deliveries By Valueg y

$70(Value in '12 $Bns)

‘95 ‘99‘03-‘087 6% CAGR

$50

$60

‘84 ‘91

‘95-‘9920.8% CAGR

7.6% CAGR

$40‘01-‘03 -10.7% CAGR; -28.8%

‘84-‘9116.1% CAGR

$20

$30CAGR; 28.8% peak-trough

‘91-‘95 -12.5% CAGR; -41% peak-trough

OR‘99-‘03 -11% CAGR; -37.3%

$10

p g‘80-‘84 -13.9% CAGR; -45% peak-trough

‘68-‘77 -11% CAGR; -65% peak-trough

CAGR; 37.3% peak-trough

'59 '63 '67 '71 '75 '79 '83 '87 '91 '95 '99 '03 '07 '11$0

GDP Year/Year Growth Rates10%

8%

4%

6%

2%

0%

-2%

'92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11f-4%

Source: Morgan StanleyWorld EU US Asia Ex-Japan

Historical Jetliner Orders And DeliveriesFour Great Book-To-Bill Years, Followed By A Cliff Dive;

Good Recovery, But Driven By Long-Term Orders

2800(Number of aircraft)

2000

2400

1200

1600

400

800

'69 '71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '110

400

All Airbus and Boeing aircraft

Deliveries Net orders

What’s Different With This “Cycle”f• High fuel prices.

• Stronger emerging markets.• G t t dit fi• Government export credit finance.

–From 15% to ~35%.• Other government support (sovereign• Other government support (sovereign

funds, government banks and airlines).• Global flight to safe assets (“excessiveGlobal flight to safe assets ( excessive

demand”?).• Need to forestall emerging g g

competition?• The primes really need cash.

–With declining defense, everyone needs a growth story.

Y/Y Traffic: Nice Recovery; Cargo A Concern

2011 Totals: RPKs 6 9% ASKs 8 2% FTKs -0 6%2011 Totals: RPKs 6.9%, ASKs 8.2%, FTKs -0.6%

30%

20%

0%

10%

-10%

-20%

Jul '0

8Se

pNo

v

Jan '

09 Mar

May Ju

lSe

pNo

v

Jan '

10 Mar

May Ju

lSe

pNo

v

Jan '

11 Mar

May Ju

lSe

pNo

vDe

c

20%

Source: IATA

J J JRPKs ASKs FTKs

Do You Believe In Super Cycles?History And OEM Plans For Large Jet Transport Deliveries By Valuey g p y

$100

(Value in '12 $ Bns)

‘03-‘14 9.6% CAGR,

$80

$100

‘95 ‘99

175.1% Growth;‘11-‘14 16.4% CAGR

$60‘84-‘91

95- 9920.8% CAGR112.7% Growth

$4016.1% CAGR184.3% Growth

$

$20

'59 '63 '67 '71 '75 '79 '83 '87 '91 '95 '99 '03 '07 '11 '14f$0

Comparative Order Values(Value in '12 $bns)

116.9

99.5100 0

120.0( $ )

88.5

79.2

72.280.0

100.0

45.1

62.963.6

45.4

62.8

42 3

60.0

23.729.1

14 8

23.3 24.219.0

42.3

20 0

40.0

12.9 13.2

4.4

14.8

2.0 1.6 1.7

2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.0

20.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Boeing Airbus Bombardier

Comparative Delivery Values(Value in '12 $bns)

35.2

31.733.6 32.9

30 833.1

35.0

40.0(Value in 12 $bns)

27.1 27.0

31.7

26.2

29.9

23.3

26.4 26.8

30.1 30.830.0

20.118.7 19.219.4 18.4 19.0

20.720.0

10.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Boeing Airbus

Comparative Backlog Values(Value in '12 $Bns)

281.2

300.4

271.1 270.0

300.1

246 4

279.0 265.4

274.5

306.6 320.0(Value in 12 $Bns)

199.1

171.2

246.4

240.0

130.0

107.8

148.1

112.6 114.1

153.6 160.0

79.5

48.6

80.0

2.0 3.5 5.2

Mid '

97

Mid '

01

End '

04

End '

05

End '

06

End '

07

End '

08

End '

09

End '

10

End '

11 0.0

M M En En En En En En En En

Boeing Airbus Bombardier

Jetliner Segment DeliveriesSingle Aisles--Two Families--Were 54% Of 2011 Deliveries, 53% Of

2002 2011 D li i2002-2011 Deliveries

70(Deliveries By Value In '12 $bns)

50

60

30

40

10

20

'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '110

Mainline only

Single Aisle 200/300 300/400 400+

Boeing Commercial Aircraft IR&D: Hitting New HeightsNew Heights

14

16(% of Sales)

6(IR&D in then-year $ Bns)

12

14

4

5

8

10

3

4

4

62

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '100

2

0

1

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10As % of BCA Sales BCA IR&D

Airbus Commercial IR&D...Just Getting StartedWith A350XWB, A320neoWith A350XWB, A320neo

1112

(% of Sales)3000

(IR&D in then-year euro mns)

89

1011

2000

2500

5678

1500

2000

345

1000

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10012

0

500

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10eAs % of Airbus Sales Airbus IR&D

Market Share Outlook By Deliveries ValueAssumes A350 XWB EIS 2Q2015

100

(Value in '12 $Bns)

80

100

60

20

40

'77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '210

20

77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21

Boeing Airbus Douglas/Lockheed Bombardier/COMAC

US Jetliner Industrial Policy Today• The former approach: no direct aid, but

some cash for advanced, high-risk R&D.• The new approach: lots of direct aid, less

cash for advanced R&D.• Manifestation: Ex-im bank jetliner

transaction funding, now augmented by g, g ysupplier aid program.–Transaction funding goal is level playing fieldTransaction funding goal is level playing field.

That’s valid, but nobody seems to want to disarm.disarm.

Regional Market Entrances Possible; Exits More Common

$10(Value of deliveries in '12$ Bns)

$6

$8

$4

$6

$2

'93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21$0

Bombardier Embraer Other ATR Saab BAEFokker MRJ SuperJet ARJ21

Business Jet Manufacturer Market SharesBy Deliveries Value 2012-2021 Vs 2002-2011By Deliveries Value, 2012 2021 Vs 2002 2011

29.9%

32.8%

29.7%30%

35%

26%

25%

30%

16.4%18%

13.9%15%

20%

8.4%6.2%

10.5%

6.4%

5%

10%

1% 0.4% 0.6%

Bombardier Hawker Dassault Cessna Gulfstream Embraer Other0%

5%

Excludes jetliners, RJs, turboprops'02-11 '12-21

Civil Helicopter Deliveries By ManufacturerManufacturer

6

7(2012 $ Bns)

5

6

3

4

1

2

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '210

Bell Eurocopter SikorskyAgustaWestland Other

The Big Aircraft Builders200

(Deliv eries in '12 $ bns)

160

SikorskyOther

120

TextronFinmeccanicaDassault

y

80

BombardierEmbraerGulfstream

40

BoeingEADSLockheed Martin

2012 20210

Aerospace Trade: Strong US Surplus($ billions)

100($ billions)

60

80 ‘97-11 CAGR: Exports 4.4%, Im ports 5.3%

40

60 p

20

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '110

Source: US ITCUS Aerospace Imports US Aerospace Exports

US Aircraft Industry: Global SourcesAircraft Parts Imports To US By Origin

2000

(Value in Then-Year $ Mns)

1500

1000

500

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '100

Japan Canada United Kingdom France Italy

Source: ITC NAIC 336413; top 10 countries (in order, as of 2010)Korea Germany Mexico China Israel

Growth Rates By Supplier NationSource (To US); Excludes

Engine Primes (UK, France, Canada); Largest to Smallest

Engines/Parts’00-‘10

AC Parts’00-‘10

Germany 2 7% 8 5%Germany 2.7% 8.5%Japan 9.7% 5.8% Mexico 23.7% 17.1% I l 14 1% 7 4%Italy 14.1% 7.4%Israel 10.4% 12.1% Poland 38.5% 27.2% China 22.0% 23.3% Singapore 18.5% 5.9% Sweden 4 5% 11 5%Sweden 4.5% 11.5%Belgium 8.4% 10.0% Korea 8.2% 10.0% T l US I 3 7% 8 5%Total US Imports 3.7% 8.5%

Supplier Dynamics• China Mexico growth strong (from low base);• China, Mexico growth strong (from low base);

otherwise all high skill/high wage countries.• If anything, balance shifting back towards

hi h kill/hi h t ihigh skill/high wage countries.– Skilled wage inflation in developing economies.– Higher freight costs.Higher freight costs.– Trend towards advanced materials.– Greater manufacturing automation/capital

intensivenessintensiveness.– But, OEMs increasingly able to disaggregate

manufacturing.• WTO ATCA k bl ff ti• WTO-ATCA remarkably effective

(http://www.wto.org/english/docs_e/legal_e/air-79.pdf ).– But greater military export importance means more

civil offset work for military contracts.