WINGX. The Last 10 Years Change? Cyclical? Structural? Lost decade? 24th April Actionable Business Intelligence

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Louisa Watts
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1 Actionable Business Intelligence The Last 10 Years Change? Cyclical? Structural? Lost decade? 24th April

2 What s changed, What didn t? Just another cycle? Structural Change? Lost decade? 2018 by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/2018 2

3 What are the benchmarks for evaluation? Changes in OEM competition Industry Brand Fleet Growth Aircraft Performance Supply Chain Geographic Demand Demand drivers Aircraft Types Aircraft Activity Financing options Operating models Aircraft Values Channels to market Industry regulation 2018 by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/2018 3

4 Growth in the worldwide fleet The longest hangover in the industry s history. Did the cycle end? Globalisation driving another strong up-cycle. Then the great recession following the financial crash New business jet deliveries This was the DOT-COM business cycle. 7 years of strong growth, then 2 year crash +160% % % % 763 Dead-calm. Was there a significant change to industry fundamentals? % Source: JetCraft, Nov-17 Bumpy ride. CAGR = 8% Cliff dive, then stagnation 2018 Ever more miserable forecasts! 4/26/2018 4

But it wasn t all flat/downhill Preowned records last year. Global fleet. Preowned Business Aircraft Transactions Wholly owned global business jets 2,500 +1.8% +10.7% 20.000 +54% 2,000 15.

5 But it wasn t all flat/downhill Preowned records last year. Global fleet. Preowned Business Aircraft Transactions Wholly owned global business jets 2, % +10.7% % 2, , , Source: Jetnet Source: Jetnet $23BN record billings, 2014 Source: Citi Research 2018 by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/2018 5

6 Big changes in OEM competition? Not so much Pretty much the same faces...still a crowded market place 2018 by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/2018 6

7 But big changes in market share Underlying success story for Gulfstream in Large Jets. Others playing catch up. New business jet deliveries Leading OEM EBIT By unit deliveries By value $2.9BN -19% $2.4BN 15% 12% 12% 1% 2% 34% 11% 2% 72% 38% % 19% 40% 37% 6% 6% 11% 20% 16% 2% 4% 1% 18% % 27% 32% 21% 13% 10% 7% 22% 40% 12% 3% 4% 1% 8% % Bombardier Cessna Bombardier Hawker Beechcraft Dassault Cessna Embraer Embraer Dassault Airbus Gulfstream Gulfstream Boeing 2018 by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/2018 7

Fleet Size and Aircraft Category Evened out in units, BIG change in share of value 1.100 1.

8 Fleet Size and Aircraft Category Evened out in units, BIG change in share of value In terms of new units, 1/3 each but last year Heavy Metal had 70% of value Heavy Medium Light Average business jet unit price has increased by 56% over the last 10 years 100% 55% 27% 18% % 22% 8% 2017 Heavy Mid Light 2018 by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/2018 8

9 Geographic demand still US-dominant Edging up. North America and Europe home to 86% in 2008, 80% in 2016 Share of active fleet by region By country North America Europe Asia/Pacific South America Africa Unknown 75% 73% 71% 69% 68% 67% 66% 66% 67% 67% 67% 100% Mexico United States 2.7% 2.7% 0.3% 70.0% UK China 24.3% Rest of World % 16% 13% 14% 16% 16% 15% 14% 14% 13% 13% 7% 8% 8% 8% 9% 9% 9% 5% 5% 6% 7% 5% 5% 6% 7% 7% 7% 8% 8% 7% 4% 2% 5% 0% 2% 0% 2% 0% 2% 0% 2% 0% 2% 1% 2% 1% 3% 1% 2% 1% 2% 1% 2% 1% Source: J.P. Morgan, Teal Group, JetNet, GAMA United States Brazil China Mexico 3.9% 3.4% 1.4% 61.1% 30.2% Rest of World by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/2018 9

10 New business jet deliveries, by geography Was a blip or sign of what s to come? In , 70% to North America whereas : 54% 100% North America 58% 54% 49% 42% 50% 50% 54% 53% 61% 61% 61% 61% Europe Asia Pac LatAM ME & Africa 25% 4% 8% 5% % 26% 20% 18% 15% 16% 26% 12% 18% 18% 18% 18% 11% 15% 14% 14% 5% 9% 14% 9% 9% 9% 9% 9% 9% 11% 12% 11% 11% 7% 7% 7% 7% 9% 6% 6% 7% 5% 6% 6% 5% 5% 5% 5% Source: J.P. Morgan, Teal Group, JetNet, GAMA 2018 by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/

11 Overall impression is of ageing fleet Back in 2008, 48% <10Y. By 2016, down to 38%. Fleet is clearly ageing 0-5Y 6-10Y 11-15Y 16-20Y 21-25Y 26-30Y >30Y 24% 24% 27% 27% 25% 22% 19% 17% 16% 16% 28% 22% 23% 21% 20% 19% 19% 10% 10% 11% 13% 15% 17% 18% 17% 17% 16% 16% 8% 8% 8% 7% 7% 7% 8% 9% 11% 12% 14% 11% 8% 7% 7% 6% 6% 6% 6% 6% 6% 6% 13% 14% 13% 12% 10% 8% 6% 6% 6% 5% 5% 12% 13% 13% 14% 16% 17% 19% 19% 19% 20% 19% 20% 23% 24% 24% 22% 100% Source: J.P. Morgan, Teal Group, JetNet, GAMA 2016 Older aircraft may be holding up the recovery in pricing Environmental and Navigation Mandates (ADSB) to the rescue? 2018 by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/

12 What s happened with Flight activity? 35% decline in the US, then gradual recovery. 25% fall in Europe, then long stagnation Sectors flown, 3 month rolling average, and YOY change: United States Sectors flown, 3 month rolling average, and YOY change: Europe 2018 by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/

13 There has been some recovery Zoom-in on Europe: relatively strong recovery in Small Jets Departures per month Rolling 12 months Trend [in%] MAX 0 % Jan 2007 March 2018 Departures (Business Jets) Rolling 12m trend: Jets (all) Rolling 12m trend: Large Jets Rolling 12m trend: Medium Jets Rolling 12m trend: Small Jets Small Jets 52,2% Large Jets 30,4% 17,4% Medium Jets 2018 by ADVANCE GMBH 4/26/

14 But utilisation per aircraft has gone backwards Utilisation hasn t yet recovered averaging under 200 hours per year Flight Activity -2% Installed Jets as of +34% 2007: 515,609 sectors 2007: 1, : 514,540 sectors 2017: 2,600 Utilisation/year -25% 2008: : by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/

15 Some aircraft are flying less, some much more ULR new owners; SMJ fractional fleet renovation; VLJ enter the Air Taxi 700, , , ,000 50, , ,596 96,146 70,865 70,551 50,571 42,190 39,274 25,347 Total: % of total (based on 2017) Turboprop Light Jet Heavy Jet Super Light Jet Ultra Long Range Jet Super Midsize Jet Very Light Jet Midsize Jet Entry Level Jet Departures % 80.0% 60.0% 40.0% 20.0% 0.0% 44.4% 55.6% 73.8% 26.2% 61.3% 38.7% 83.8% 16.2% 43.5% 56.5% 73.8% 69.8% 26.2% 30.2% 85.1% 14.9% 65.9% 62.8% 34.1% 37.2% 100% Charter Private Charter: CAGR % 33.5% % -1.1% -0.4% -0.4% 7.4% -5.4% -3.9% 0.6% Private: CAGR % 19.0% % -4.3% -4.6% -3.1% -3.7% -13.7% -8.1% -1.6% 2018 by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/

16 TOP 10 EUROPE TOP 10 USA Some travel pattern change, much is the same European domestic traffic flat. EM connections well up. Some shift at top airports Traffic flows from Europe Top airports, US & Europe Departures 2017 CAGR: ARRIVAL REGION: Flights from Europe in 2017 CAGR KTEB-Teterboro Airport KHPN-Westchester County Airport KDAL-Dallas Love Field ,9% 0,2% 0,3% Europe Domestic ,3% KIAD-Washington Dulles International Airport KHOU-William P Hobby Airport ,7% -0,5% Middle East ,3% KPDK-DeKalb Peachtree Airport KBOS-General Edward Lawrence Logan International Airport ,0% 1,6% North America ,3% KLAS-McCarran International Airport KVNY-Van Nuys Airport ,4% 1,5% Africa ,8% KPBI-Palm Beach International Airport ,7% LFPB-Paris-Le Bourget Airport ,3% Asia/Pacific ,2% LFMN-Nice-Côte d Azur Airport ,2% Latin America ,9% LSGG-Geneva Cointrin International Airport EGGW-London Luton Airport ,7% 0,2% LSZH-Zürich Airport ,0% EGLF-Farnborough Airport ,2% LIML-Linate Airport ,5% UUWW-Vnukovo International Airport ,2% LIRA-Ciampino G. B. Pastine International Airport ,0% EGKB-London Biggin Hill Airport ,4% Eurocontrol and FAA 2018 by ADVANCE GMBH 4/26/

17 What about the demand drivers Overestimated impact of profits and markets. Underestimated uncertainty and drop in oil. US Corporate Profits Stock Markets Source: Credit Suisse, Jetnet, 2017 Oil Price Source: Credit Suisse, May, 2017 Uncertainty of investment climate 2018 by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION JPM Aerospace & Defense, July /26/

18 But economy is still broadly the main driver The industry s biggest problem has been to work off excess production in 2000s Business jet unit deliveries As indexed against Global Growth (red) versus Actual deliveries (blue) Jetcraft 10 Year Market Forecast, Oct by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/

Image problem won t go away Regulatory treatment has softened

Investor Survey March 2018 Only 9% of professionals believe the

19 Image problem won t go away Regulatory treatment has softened but public opinion hasn t Oxfam, Statistica Corporate Jet Investor Survey March 2018 Only 9% of professionals believe the industry is good at selling its benefits 44% believe toxic industry brand hampers the promotion of individual companies 2018 by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/

20 Aircraft values recession has reset expectations Pre-recession depreciation 3%-5% /Y. Last 10Y has re-set expectations towards 10% A long downhill story 2018 by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/

21 Every cycle has a turning point prices now recovering QE, Tax Cuts, Fiscal expansion, Global Trade = Business confidence, corporate CAPEX Back to 2005 Stabilising at last Stronger than in 2007 Barclay Business Jet Survey April by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/

22 Consolidation there has been some Emergence of mega-groups: Fractional, Management, FBO 2018 by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/

23 But still a highly fragmented industry 21% of the European fleet generate 43% of activity but 80% still 1-2 tails Flight hours Q % of total Europe Quarterly Trend (# flights) Active Aircraft in Operator category more than ,1% 20,5% to ,9% 18,8% to ,0% -13,2% 320 = 80% 1 aircraft only ,1% 0,4% Total ,0% 5,9% by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/

24 Products: (mis)matching supply and demand after 2008 Recession squeezed the pyramid, from ownership downwards. Charter market fell out Back in the commercial airline queue Credit Suisse, Jun by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/

25 More recently? Whole ownership hasn t recovered. Nor has Frax. But Charter is back in vogue European business jet departures Global Fractional Fleet Charter/AOC 700-2% Private Jan- 17 5,6% Feb- 17 YOY: Charter 4,8% Mar- 17 9,5% Apr- 17 2,6% May- 17 Jun- 17 4,9% 4,9% Jul-17 4,8% Aug- 17 6,4% Sep- 17 7,4% Oct- 17 9,0% Nov- 17 7,6% Dec- 17 3,2% Jan- 18 7,1% Feb- 18 6,8% Mar- 18 1,6% YOY: Private ,1% 6,7% -4,6% -4,5% 2,5% 0,5% -0,2% 4,6% -3,1% 5,5% 1,6% -8,5% 5,9% 1,3% -10,4% 2018 by ADVANCE GMBH 4/26/

26 Change in user attitudes risk-aversion or next-gen? Traditional users are more risk-averse. Next-Gen are more charter-minded. Amenable to sharing luxury assets Digital platform Empty Legs Shuttles Seats-sharing Low barrier to sharing High barrier to sharing YouGov Affluent Perspective Q by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/

landscape Before digital disruption and after Which industrial landscape will

27 BizAv Mobility Travel Media Music Digital disruption may be on the horizon In other industries, digitisation has seen major disruption in the competitive landscape Before digital disruption and after Which industrial landscape will emerge? 2018 by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/

structural change of all Roland Berger,, 2016 2018

28 New era of personal aviation? Quiet revolution in last 10Y may be the biggest structural change of all Roland Berger,, by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/

29 Change since 2008? Slower growth structural change Just another cycle Pro-growth structural change Fleet Growth OEM Competition Aircraft Types Aircraft Performance Geographic Demand Flight Activity Demand drivers Aircraft Values Industry Brand Consolidation Operating Models Supply Chain digitalisation 2018 by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/

PRODUCT PORTFOLIO MARKET REPORTS The key trends in each month s flight activity, highlighting the most productive aircraft types, airports, city pairs and operators.

ONLINE DASHBOARDS Online interactive dashboards providing instant, interactive analysis of market and customer activity and trends, hosted on software platform.

30 PRODUCT PORTFOLIO MARKET REPORTS The key trends in each month s flight activity, highlighting the most productive aircraft types, airports, city pairs and operators. CUSTOMISED MARKET RESEARCH Tailored data feeds, trends and insights to provide the most relevant perspective for each customer within the business aviation supply chain. ONLINE DASHBOARDS Online interactive dashboards providing instant, interactive analysis of market and customer activity and trends, hosted on software platform. FORECASTS Researching and modelling forecasts of market activity and value, from one daily and monthly snapshots to multi-year projections. DATA STREAMS AND ANALYSIS Raw data inputs, packaged as analytics to suit the customer s preferred platform for further evaluation. SURVEYS Design, content development and implementation of surveys, including online questionnaires, focus groups, workshops and interviews. STRATEGIC ADVISORY Leveraging our extensive track-records in aircraft operations, maintenance and business development to provide sound strategic advice by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/

31 CUSTOMERS AIRCRAFT SALES, MARKETING, COMPETITIVE ANALYSIS AIRCRAFT SALES, REGISTRATION; FINANCING, MANAGEMENT FLIGHT OPERATIONS; CHARTER AND AIRCRAFT MANAGEMENT GROUND HANDLING; FBOs, AIRPORTS, CATERING, FUEL AIRCRAFT MAINTENANCE; LINE/UNSCHED, REFURB, MODS INVESTMENT, M&A: COMPETITIVE ANALYSIS & VALUATIONS MARKET REGULATION & PROMOTION; CASE STUDIES AIRCRAFT MANUFACTURERS ENGINE AND AVIONICS SUPPLIERS AIRPORTS MRO BUSINESSES AIRCRAFT OPERATORS BROKERS FUEL SUPPLIERS FBOs INSURANCE COMPANIES BANKS REGULATORS LEGAL ADVISORS LEASING COMPANIES INVESTORS OWNERS OF BUSINESS AVIATION AIRCRAFT 2016 by ADVANCE GMBH ACTIONABLE INTELLIGENCE FOR BUSINESS AVIATION 4/26/

32 ADVANCE GMBH CONVENTSTR BUILDING A HAMBURG GERMANY PHONE OFFICE@-ADVANCE.COM FOLLOW US ON

BUSINESS AVIATION MARKET OUTLOOK

BUSINESS AVIATION MARKET OUTLOOK Presented by: Michael Holland Manager mholland@icfi.com Aerospace Raw Materials Conference April 24, 2012 Pittsburgh, PA 0 Agenda Trends Driving Business Aviation Production