4 th International Repossession Conference Dubai (following Miami and London) Bizjets in China, growth and risks of repossession

Transcription

1 CONFERENCES & AVIATION WORKSHOPS 4 th International Repossession Conference Dubai (following Miami and London) Bizjets in China, growth and risks of repossession December 9th, 2012 Leonard Favre AlixPartners, LLP, 2012

2 Agenda Introduction Historical Market Development in China China Market Characteristics Future Trend and Key Success Factors in China Market Executive Summary 2

3 Large and medium business jet accounts for 70% of total fleet while Gulfstream and Bombardier are the leading OEMs in China market China Business jet fleet structure by 2011 by aircraft size and by OEM 35% 33% 31% 26% 13% 12% 43% 3% 2% 1% 1% Large Medium Small Gulfstream Bombardier Cessna Hawker Airbus Dassault Boeing Embraer The segmentation is structured through a combination of range, cabin volume and price according to Business and Commercial Aircraft Magazine Large Prices between $46M and $68M, offering over 5,000 NM of range and 1,500 ft3 (42.5 m3) to 3,000 ft3 (85.0 m3) Medium - Prices between $18M and $42M, offering 3,100 to 5,000 NM of range and 700 ft3 (19.8 m3) to 1,500 ft3 (42.5 m3) Light - Prices between $7M and $18M, offering 1,700 to 3,100 NM of range and 300 ft3 (8.5 m3) to 700 ft3 (19.8 m3) Large and medium business jet accounts for around 70% of total fleet in China Gulfstream and Bombardier are dominated in China business jet market account for 68% of total fleet Sources: CAAC, Company website, AlixPartners Analysis 3

4 Large business jet has much higher market share in China than other markets and continue gaining market share Business Jet Deliveries China 19% 24% 36% 31% 40% 50% Will the segment structure in China market keep current trend or change in future to be consistent with global structure? 8% 13% 22% Global 56% 36% 46% 41% 46% 32% Large Medium Light Sources: GAMA, CAAC, AlixPartners Analysis 4

5 China has a very low number of business jet fleet relative to it s size of economy China historical fleet development During , China business jet was developed in a very slow pace, the accumulated deliveries for business jet is less than 50 units Since 2008, China market demand jump from a small pool of fleet units base 1.3% Business jet fleet by region 1400 China accounts for only 1% of global business jet fleet in 2010 and 1.3% in However, by 2011, China still only has a very low number of business jet fleet relative to it s size of economy - As the 2 nd large economy in the world, China accounts for only around 1% of global fleet in 2010 and 1.3% in 2011 Sources: CAAC, GAMA, AlixPartners Analysis 5

6 Because of the barrier of underdevelopment of infrastructures and regulatory limitation for general aviation Under development of infrastructures The infrastructure of general aviation industry is under development Shortage of airport Limitation of air traffic control capacity and capability Lack of FBO Limitation of MRO service capacity and capability Regulatory limitation Low altitude aviation is controlled by the Army of China and general aviation is constricted - altitude below 600 meter is still not open to the publics Commercial air traffic has already occupied the limited altitude released by China Army Limited air traffic release for business jet - black out period in some airports (Beijing etc) China Accelerates Opening the sky, a recent very good news! In what is widely seen as a move heralding the long-awaited boom in China s civil aviation market, government officials now say more than a third of the country s airspace below 4,000 meters (13,000 feet) is now open to general aviation. Even this will more ease the helicopter business, including for VIP transport, it path the way for Business Jet general aviation. The opening of China s airspace is now expected to be completed by 2020 years ahead of schedule, according to the deputy secretary of the National Air Traffic Management Committee Sources: NBAA report ( AlixPartners Analysis 6

7 However China business jet demand started increasing sharply in the global demand downturn period Market share 1.1% 1.4% 1.5% 1.9% 4.3% 5.6% 7.1% China Business Jet Delivery (units) China business jet delivery unit including HongKong, Taiwan and Macau 36 CAGR 31% China market deliveries experienced sharply increasing during from a low unit base and already account for 7.1% of global deliveries in Global Business Jet Delivery (units) Global business jet deliveries decline significantly during due to global financial crisis Sources: GAMA; CAAC, OEM s financial report, AlixPartners Analysis 7

8 And is expected to keep sustainable overgrow to other markets in the next 20 years China Business Jet Delivery Forecast 10 year growth rate % % Global Business Jet Delivery Forecast 10 year growth rate % % China Business Jet Fleet Forecast 10 year growth rate % % Global Business Jet Fleet Forecast 10 year growth rate % % Highlights China market demand is expected to keep sustainable overgrow to other market in the next 20 years Around 10% of total business jet demand will come from China in China business jet fleet will account for around 8% of global fleet from a low base of 1.3% in Sources: Ascend, Bombardier forecast, AlixPartners Analysis, excluded very light jet and large corporate airline categories 8

9 Mainly driven by robust economic growth, wealth creation, increasing corporate profit, strong government support and penetration growth Robust economic growth China economy experienced rapid growth in the past 10 years to become the global top 2 high GDP country, future growth will be slow down to adjust the economy structure, but will still keep robust Wealth creation A increasing big pool of super wealthy people have set their sights on private jets as the next must-have accessory, like exotic cars, yachts and luxury real estate Corporate profit Increasing Fast economic growth in the last decade generated many large and profitable state owned and private companies who will be the potential buyers of business jet Strong government support Penetration growth China government promised to release more traffic rights of altitude between 600 to 1500 step by step to promote the development of general aviation industry China government encourage the investment in general aviation infrastructure airport and operational infrastructure, FBO, FSS, facilities of air traffic control, maintenance and fuel distributions Improvements in infrastructure and regulatory limitation and increasing adoption and acceptance of business jet will drive the growth of penetration which is much lower than other countries with similar GDP per capita level Sustainable growth of GDP per capital will also support the future penetration growth 9

10 China economy experienced rapid growth in the past 10 years and is expected to continue robust growth China historical GDP development and forecast GDP per capita (RMB Trillion) Growth rate CAGR 8.4% CAGR 7.0% % 14.0% 12.0% 10.0% Recession % 6.0% 4.0% 2.0% E 2020E 0.0% China GDP experienced rapid growth in the past 10 years, even in the period of global recession in , China GDP is expected to continue robust growing in Sources: China statistic year book; World Bank, AlixPartners Analysis 10 Use annual average RMB/USD exchange rate for GDP per capital convert

11 Continuous wealth creation provide a big pool of potential business jet customers Number of wealthy people with > 1 billion USD assets North America Europe China Russia and CIS Asia ex.china Middle East 49 India Latin America Africa A increasing big pool of super wealthy people have set their sights on private jets as the next must-have accessory, like exotic cars, yachts and luxury real estate Around 13% of super wealthy people (with >100 million RMB net assets) are interested in buying business jet Number of wealth people pool and regional distribution in China CAGR 25% CAGR 6% % Others Jiangsu 3% Zhejiang 7% Shanghai 13% Guangdong CAGR 35% 2M 2.7 M 35% 3% 7% 14% Others Jiangsu Zhejiang Shanghai Guangdong % Beijing 17% Beijing >Billion RMB >100million RMB 17% >1 million USD 17% Sources: Hurun Research Institute; Forbes magazine; AlixPartners Analysis 11

12 Increasing number of large corporate and their profit improvement will also support business jet demand growth Global Corporate Profits vs. Business Jet Deliveries (number of aircraft E) Net profit for China listed companies decreased by 13% in 2008 comparing to 2007 due to global financial crisis However it recovered quickly in 2009 and hit to the peak of YoY growth rate (39%) in 2010 Profit growth in 2011 slowed down, but still robust The potential pool of company that can afford business jet keep growing in the past several years Average Net Profit for Companies listed in Mainland China (million RMB) Average net profit 524 Growth rate Number of Listed Company (with net profit >100 million RMB) Sources: J.P.Morgan Aerospace and Defense; Business Jet Monthly December 2010; Wind Information; AlixPartners Analysis 12

13 Government support will help progressively removal the barrier of infrastructure shortage and regulatory limitation Highlights Encourage general aviation enterprises and private sector to take part in: Construction of general aviation airports and operational infrastructure facilities Building up and perfecting the facilities of air traffic control, maintenance and fuel distribution Forming a group of flight service stations (FSS) Introducing fixed base operations (FBO) Establishing new fuel distribution centers in Harbin, Hohhot, Urumuchi and Zhuhai Nurture 3 to 5 leading companies for general aviation Expand maritime patrol and country wide search and rescue Scheduled civil transport airport General Aviation Fleet Hour 140K 300K General Aviation Aircraft 1,010 2,000 Pilots 24,000 40,000 Sources: Chinese government 5 year plan for general aviation industry 13

14 Improvements in infrastructures and regulatory limitation and increasing adoption and acceptance will drive the growth of penetration 2011 Business Jet Penetration in the G20 and others Business Jets/ Capita (M) Market forecast Forecasters correlate business jets numbers and per capita levels CER, 423 UK, 419 AUS, 139 Business jet penetration in China is much lower than other G20 countries with similar level of GDP per capital due to the barrier of shortage of infrastructure and regulatory limitation INDO, 19 CHINA, 62 GDP (K$)/ Capita Under the assumption that business jets as a function of capita and GDP is constant throughout the world, China is expected to experience a step change in business jets ownership if can removal the barrier Source: GAMA 14

15 Sustainable growth of GDP per capital will also support the future penetration growth GDP per capita (KUSD) Growth rate CAGR 8.4% CAGR 7.0% % 14% 12% 10% 8% 6% 4% 2% 0% China GDP per capita keep rapid growth in and reach to USD4000+ level in 2009 that is the demand start point for general aviation GDP per capital will keep sustainable growth in this decade that will drive the sustainable demand increase of business jet Big gap on GDP per capital among different provinces will cause the geographic unbalance of business jet demand GDP per capita by province (KUSD) Sources: China statistic year book; AlixPartners Analysis 15 Use annual average RMB/USD exchange rate for GDP per capital convert

16 Challenges Ahead 16

17 However realization of growth will really depends on how fast China can remove the barriers to growth Preapproval is required to buy business jet Certification and registration process is complicated The whole process will take more than 3 months Slow Certification, Registration and approval process Air traffic restriction Limited air traffic release for business jet - black out period in some airports (Beijing etc) since commercial air traffic has already occupied the limited altitude released by China Army High operation cost :USD 80-90K per flight Lack of aircraft size differentiation in landing, handling and navigation fees High maintenance fee: USD per year Small size: K Medium/large size: million High Operation /maintenance cost Challenges in China Market Human Resource Shortage Under development of infrastructure Shortage of pilots Shortage of well trained and qualified MRO engineers and other service personnel Shortage of airport Shortage of facilities of air traffic control, maintenance and fuel distribution Lack of FBO (fixed based operator) Lack of in-country MRO and training capabilities and capacities Limited capacity of air traffic control management Source: AlixPartners Analysis 17

18 Under development of infrastuctures airport, air traffic control capacity, FBO, MRO service capacity and capability Shortage of Airport Limitations of air traffic control capacity USA Airport 14,951 Paved 5,000 Scheduled service airport 376 China Airport 398 Military based and airfield 190 Scheduled service airport 188 Current air traffic control system is difficult to meet diversified air traffic requirements especially rapid growth of general aviation, cargo and branch line air traffics Weak air traffic management in medium to small airports in tier 2/3 cities IT system is not well integrated Lack of qualified air traffic control personnel Only 3 FBO (Fixed Based Operation) in China Shanghai, Beijing and Shenzhen Shanghai Hawker Pacific FBO in Shanghai Hongqiao Airport Beijing Capital Jet FBO in Beijing airport Shenzhen Jinlu FBO in Shenzhen airport In-country maintenance, overhaul and training capabilities and capacities is unlikely to keep pace with fleet growth Lack of MRO suppliers for business jet in mainland China Lack of FBO Lack of MRO Sources: CAAC, AlixPartners Analysis 18

19 Shortage of human resources - especially pilots and MRO engineers Number of Pilot by 2010 ( 000) US China Total pilot required Shortage of Pilots in China Market Pilot Gap forecast for China Market by 2030 ( 000) China market required total 73,000 pilot by 2030 for both commercial and 24 business jet China has 24,000 pilots by 2010 China can only train new pilots per year based on current capacity due to lack of pilot training school, 19 coach and high training cost (double to triple on US Current pilot base New pilot to be provided Gap Shortage of MRO Engineers in China Market cost) MRO engineer Gap forecast for China Market by 2030 ( 000) 300 Total MRO engineer required 60 Current MRO engineer base 240 Gap China market required 300,000 qualified MRO engineers by 2015 based on fleet growth forecast But China only has 60,000 MRO engineer (including MRO management personnel) by 2010 Most of MRO engineers are lack of knowledge/experience in MRO for business jet models Sources: CAAC, Boeing forecast, AlixPartners Analysis 19

20 High operation cost account for 5-8% on top of total business jet purchase price per year Business jet annual operation cost in China Challenge 850 example 1% 3% Insurance fee Fixed operation cost Variable operation cost Example: Hong Kong Shanghai return 3% 7% Total operation cost Variable cost calculation is based on 300 fleet hour per year Operation cost percentage is based on total purchasing cost including import tax, VAT, logistic cost and agency cost Fix operation cost includes airport parking fee, safety checking fee, training fee, maintenance fee and etc Variable operation cost includes all flight operation fee salary of pilot, cleaning and other related fee, fuel cost, flight insurance fee and etc Foreign registry Chinese registry US$ US$ Ground Handling Fees 6, , Airline countervailing fee 4, Navigation Fee 1, Flight operation fee in China differs between foreign registry jet and Chinese registry jet Flight operation fee for foreign registry jet is much higher than that for Chinese registry jet Total Fees , Sources: CAAC, AlixPartners research and analysis 20

21 As Chinese customer prefer well recognized brands and large business jet regardless of trip length Chinese Customer demand characteristics Customer Structure Product Feature Service Requirement Price Sensitivity Airlines Real Estate Casinos and gaming Chemicals Oil and Gas Coal mining Electronics Flight trainingwhite good manufactures IT Energy Bank Advertising Entertainment Well recognized brands Super medium to large cabin aircraft regardless of trip length New or nearly new aircraft Luxury decoration with specific requirements Full seats loading - business and political leaders travel with entourages Couch for head person to lie down on Full service package since most of them are the first time buyers, including Business jet model selection Consulting Price negotiation Financing Import and logistic License application Operation management Used aircraft disposition in future Relatively low price sensitivity Source: AlixPartners Analysis 21

22 Key success factors in China market Recognized brand Chinese customers are very keen on well recognized brand Increasing brand awareness and establish great brand reputation in China market Excellent service Offering full service package are important since Chinese customers are lack of experience Providing super quality service is also key to build up long term relationship with Chinese customers Right products Deep understanding on customer s demand characteristics by segmentation in China market Introduce right products to the market with high flexible configuration Local manufacturing footprint and engineering capability Critical to long term success since it can not only improve the reaction speed to market needs but also provide significant total cost advantage to customers Obtain other benefits from Chinese government since it is encouraged Right go to market model Developing right go to market model fit for China market is a must It can be tailored with successful experience from other markets, not just copy - paste Right partnership Develop right partnership strategy set up JV with Chinese companies can accelerate the pace of market entry and mitigate the risks Build up partnership with right partner SOE can help acquire more resources from Chinese government 22

23 Executive Summary - Growth and risks of repossession in China China business jet industry has not grown substantially in the past But it is expected to boom and keep sustainable growth in the next 20 years China account for a very low number of business jet fleet relative to it s size of economy And business jet penetration is also much lower than other G20 countries with similar level of GDP per capital Because of the barrier of underdevelopment of infrastructures and regulatory limitation for general aviation in the past However China business jet demand started increasing sharply in the global demand downturn period ( ) And is expected to keep sustainable overgrow to other markets in the next 20 years Mainly driven by robust economic growth, wealth creation, increasing corporate profit, strong government support and penetration growth Attractive opportunities in all aspects of business aviation but also risks associated Focus on six key success factors in China market Market growth provide attractive opportunities in all aspects of the whole industry chain However realization of growth will really depends on how fast China can remove the barrier to growth air traffic restriction, underdevelopment of infrastructures, human resource shortage, high operation cost and slow certification, registration and approval process Increase brand awareness and build up great brand reputation Introduce right products fit customer s demand characteristics to the market Develop right go to market model-can be tailored with successful experience, not copy-paste Provide full service package and super service to build up long term customer relationship Establish local manufacturing footprint and build up local engineering capability Develop right partnership strategy JV with Chinese companies might be the right approach 23

24 Notes 24

25 Appendix 1: Major business jet dealers in China market Dealer Name Avion Pacific Limited Sino Private Aviation Ownership structure SOE/Private / WOE/JV Bombardie r OEM product Gulfstream Cessna Hawk er SOE Major customer Private Com. WOE Foreign Com. WOE CBAJET Private CPAC Private PTE WOE Lily Jet Private Chinaga Private Embra er- Dassaulat Government Individual Jinggong Private Asia Pacific WOE ACASS Westjet Aircraft WOE WOE Zhuhai Xirui GA AVIATION SUPPLIES JV WOE Sources: Company website, AlixPartners Research and Analysis 25

26 Appendix 2: Major operation company in China market Key operator Ownership structure Service provided or business model Fleet 2011 Major customer SOE/Private / WOE/JV Friction Charter Operation mandate Government SOE Private Company Foreign Company Individual Deer Jet ( Beijing Capital Airlines) HNA Group:70% Beijing Tourism Group:30% 44 BAA Private 32 Beijing Airlines (Air China) SOE 10 Lily Jet Private 10 Shanxi Sanjin SOE 8 Mingsheng Private 7 Donghai Jet SOE 7 China Eastern Executive Yasheng Medevac Sichuan Xingyao SOE 5 Private 2 3 Big White Bear Private 2 Zhongfei SOE 2 Sources: Company website, AlixPartners Research and Analysis 26

27 Appendix 3: Major business jet MRO suppliers in China market MRO supplier Ownership structure MRO service OEMs/Models MRO service type SOE/Privat e / WOE/JV Bombardier Gulfstream Cessna Haw-ker Modifi cation Air frame Embra er- Dassaulat Component Line Engin e TAMECO (Xiangyu) JV CIRRUS GA JV ZhongFei JV Shanghai Hawker Pacific Tianjin Execujet Sichuan Haite High JV JV Public listed CE- 680 Tianjin Air SOE Falcon 7X, 900LX, 2000LX Metrojet WOE STAECO JV CRJ CL604/605 CL850 XRS G450 Hawker Haikou RA3901A 800XP Sources: Company website, AlixPartners Research and Analysis 27

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