Regional Aircraft Markets 7 th December 2017 Rob Morris, Global Head of Consultancy flightglobal.com/consultancy 1
FlightGlobal: Pioneering aviation insight and analytics business Part of a leading data solutions group RELX Group: London, Amsterdam and New York Stock Exchange listed 28,500 employees Market Capital $36.87bn FlightGlobal: 370+ staff 11 offices across the world flightglobal.com/consultancy 2
Flight Ascend s unique Value proposition as an appraiser Independent Global team fully objective We do not invest in aircraft and we are not brokers NO conflicts of interest Global perspective with offices in London, New York and Hong Kong Instant access to vast data for research The only Appraiser with globally recognized Fleets, schedules and values databases used by our clients on a day to day basis Unparalleled Historical values data Historical Market values from 1965 Access to industry Tier 1 participants Clients are Airlines, all the top lessors, the major banks involved in aviation finance, MROs, OEMs, regulatory bodies flightglobal.com/consultancy 3
The Flight Ascend Consultancy Team George Dimitroff Head of Valuations ISTAT Appraiser Rob Morris Global Head of Consultancy Peter Morris Chief Economist Chris Wills Head of Consultancy Ops. ISTAT Sr. Appraiser Joanna Lu Head of Advisory Asia Michael Lapson Senior Analyst ISTAT Appraiser Daniel Hall Senior Analyst ISTAT Appraiser ASA Sr. Appraiser Syed Zaidi Aviation Analyst Chris Seymour Head of Market Analysis Henk Ombelet Senior Analyst Sara Dhariwal Valuations Analyst Richard Evans Senior Analyst Tony Brooks Senior Analyst ISTAT Appraiser Oliver Ford Valuations Analyst Ben Chapman Valuations Manager ISTAT Appraiser Ryan Hammacott Risk Analyst Lionel Olonga Valuations Analyst Thomas Kaplan Valuations Analyst Dennis Lau Aviation Analyst Michael Hui Aviation Analyst David Griffin Senior Analyst ISTAT Appraiser Eva Karagianni Valuations Analyst Luke Smith Valuations Analyst Valerie Bershova Valuations Analyst Vacant Senior Consultant Kevin Ng Aviation Analyst flightglobal.com/consultancy 4
Regional Jet Markets Turboprop Markets flightglobal.com/consultancy 5
Regional Jets flightglobal.com/consultancy 6
Some definition what is a Regional Jet? flightglobal.com/consultancy 7
Average 150 regional jet deliveries annually through current demand cycle Annual Deliveries 400 350 300 250 200 150 100 100-Seat 85-Seat 70-Seat 50-Seat 50 0 Source: Flight Fleets Analyzer, passenger aircraft only flightglobal.com/consultancy 8
Deliveries predicted to decline marginally before pickup again in next decade Annual Deliveries 400 350 300 250 200 150 100 100-Seat 85-Seat 70-Seat 50-Seat 50 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Source: Flight Fleets Analyzer, passenger aircraft only flightglobal.com/consultancy 9
Fleet growth has stagnated but mix is changing Passenger Regional Jet Fleet 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 100-Seat 85-Seat 70-Seat 50-Seat 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Flight Fleets Analyzer, passenger aircraft only flightglobal.com/consultancy 10
Fleet trend is predicted to continue Passenger Regional Jet Fleet 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 100-Seat 85-Seat 70-Seat 50-Seat 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Source: Flight Fleets Analyzer, passenger aircraft only flightglobal.com/consultancy 11
Less than 1,000 aircraft in firm order backlog, with 50% scheduled through 2021 Scheduled Deliveries 180 160 140 120 100 80 60 40 20 0 COMAC Sukhoi Mitsubishi Bombardier Embraer 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 TBC Source: Flight Fleets Analyzer, passenger aircraft only flightglobal.com/consultancy 12
Stored fleet continues to grow but 50-seaters drive volume Stored Fleet at Year End 900 800 700 600 500 400 300 200 100 0 100-Seat 85-Seat 70-Seat 50-Seat % of Fleet 22.5% 20.0% 17.5% 15.0% 12.5% 10.0% 7.5% 5.0% 2.5% 0.0% Source: Flight Fleets Analyzer, passenger aircraft only flightglobal.com/consultancy 13
Current idle inventory is 828 aircraft Aircraft in Store 140 120 100 80 60 40 20 100-Seat 85-Seat 70-Seat 50-Seat 38 aircraft included with future lease identified 43 aircraft included with future sale identified 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 30+ Source: Flight Fleets Analyzer, passenger aircraft only, 5 December 2017 Aircraft Age (Years) flightglobal.com/consultancy 14
50-seat jets driving lower retirement age Annual Retirements 120 100 80 60 40 20 0 >25 Years Old <25 Years Old Avg Age at Retirement Avg Age at Effective Retirement 30 25 20 15 10 5 0 Average Age at Retirement Source: Flight Fleets Analyzer flightglobal.com/consultancy 15
Marked difference between small & larger RJs, wide spread of curves over history 100% Aircraft Retired 80% 60% 40% 20% 0% 2016 Flight Fleet Forecast uses 50% survivor assumption of 17/20 years 50% survivor point has a mean of 20 years, but varies widely by size and type 0 1 2 3 4 5 6 7 8 9 10111213141516171819202122232425262728293031323334353637383940 Mean +/- 1SD (all RJs) last 20 yrs End 2010 all RJs End 2015 RJ30-50 End 2015 RJ70-100 Source: Flight Fleets Analyzer flightglobal.com/consultancy 16
Scope Clause Scope clause is a pilot contract issue Typically restricts the amount of capacity that a mainline airline can pass down to its regional partner Intent is to protect pilot jobs and wage structures in mainline carrier Each airline s scope clause is different but typically restrictions apply around Number of aircraft Seat capacity of aircraft Maximum take-off weight of aircraft Scope can change by negotiation but pilots need a lot of convincing to accept change as they zealously protect contract conditions in airlines which are typically highly unionised flightglobal.com/consultancy 17
Current US Major airlines scope clause flightglobal.com/consultancy 18
Scope clause consequence in US Neither MRJ90 nor E175E2 are current scope clause compliant E175, CRJ900 and MRJ70 are current scope clause compliant 81% of current E175 fleet (and 92% of backlog) operates in US; 67% of current CRJ900 fleet operates in US Currently all three Majors (American, Delta and United) are saturated for 76- seaters so no further growth potential No changes are expected to scope clause in next contract round (at least) Only opportunity for more 76-seaters will be for replacement of existing aircraft flightglobal.com/consultancy 19
Relatively fewer RJs managed by operating lessors Operating Lease Portfolio 1400 1200 1000 800 600 400 200 0 Op Lease Portfolio Share of Fleet 35% 30% 25% 20% 15% 10% 5% 0% Source: Flight Fleets Analyzer flightglobal.com/consultancy 20
Operating leasing portfolio is highly concentrated Cumulative value of Portfolio 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 Lessor Rank Source: Flight Fleets Analyzer, passenger aircraft only 50% of fleet by value is managed by only four operating lessors flightglobal.com/consultancy 21
Top 20 lessors manage 85% of the global portfolio Manager In Service Storage Order Current Portfolio Portfolio CMV ($mn) Nordic Aviation Capital 126 23 18 149 2,409.6 GECAS 208 131 5 339 1,760.8 Avolon 44 5 49 808.5 Falko 51 8 59 521.1 GTLK - State Transport Leasing Company 21 5 9 26 452.4 CDB Aviation Lease Finance 20 20 20 378.9 Sberbank Leasing 23 2 25 376.2 ICBC Leasing 19 40 19 372.6 AVIC International Leasing 18 18 284.5 ALM - Aircraft Leasing & Management 11 11 236.9 BoCom Leasing 10 10 236.7 TAT Leasing Services 14 14 199.5 Regional One Inc 20 22 42 198.9 VEB-Leasing 11 3 14 188.1 Chorus Aviation Capital 8 2 10 177.4 GOAL German Operating Aircraft Leasing 10 10 167.4 JetFleet Management Corp 16 16 134.1 TrueNoord 7 7 130.6 Castlelake 14 14 127.4 Aircastle Limited 6 25 6 125.0 Source: Flight Fleets Analyzer, passenger aircraft only flightglobal.com/consultancy 22
More than 90% of RJ fleet have CMV < BV Cumulative % of Fleet 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 50% 60% 70% 80% 90% 100% 110% 120% 130% 140% 150% CMV / BV Source: Flight Fleets Analyzer, passenger aircraft only Single-Aisle Twin-Aisle Regional Jet flightglobal.com/consultancy 23
RJ value retention presently better that single-aisle or twin-aisle CMV / Original CMV 110% 100% 90% 80% 70% 60% 50% 100-Seat RJ 150-Seat SA 300-Seat TA 40% 30% 2005 2006 2007 2008 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Flight Values Analyzer, representative 2005 build aircraft flightglobal.com/consultancy 24
RJ values less volatile than other classes. 100-seat RJ 150-seat SA 300-seat TA Source: Flight Ascend Ratings flightglobal.com/consultancy 25
.which is reflected in our Asset Ratings 100-seat RJ 300-seat TA 150-seat SA Source: Flight Ascend Ratings flightglobal.com/consultancy 26
Turboprops flightglobal.com/consultancy 27
Turboprops retain their own market niche Cumulative % of Scheduled Frequencies 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: Flight Schedules Turboprop Regional Jet 0 500 1,000 1,500 2,000 2,500 Sector Length (km) flightglobal.com/consultancy 28
Shape of global turboprop fleet is changing 4,500 Passenger Turboprop Fleet 4,000 3,500 3,000 2,500 2,000 1,500 70-Seat 50-Seat 1,000 30-Seat 500 19-Seat 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Flight Fleets Analyzer, passenger airline Western built turboprops only flightglobal.com/consultancy 29
Orderbook reflects shift to larger aircraft Annual Deliveries 350 300 250 200 150 100 50 0 2017 excludes 30 ATR72 Freighters for FedEx 70-Seat 50-Seat 30-Seat 19-Seat Source: Flight Fleets Analyzer, passenger airline Western built turboprops only flightglobal.com/consultancy 30
as does delivery profile Annual Deliveries 450 400 350 300 250 200 150 100 50 0 70-Seat 50-Seat 30-Seat 19-Seat Source: Flight Fleets Analyzer, passenger airline Western built turboprops only flightglobal.com/consultancy 31
ATR dominates the (relatively small) firm order backlog Scheduled Deliveries 120 100 80 60 40 20 Others Bombardier ATR 0 2018 2019 2020 2021 2022 TBC Source: Flight Fleets Analyzer, passenger airline Western built turboprops only flightglobal.com/consultancy 32
Even fewer turboprops managed by operating lessors but preference is for larger aircraft Operating Lease Portfolio 1400 1200 1000 800 600 400 200 0 Op Lease Portfolio Share of Fleet Share of ATR72/Q400 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Source: Flight Fleets Analyzer flightglobal.com/consultancy 33
Operating leasing portfolio is even more concentrated Cumulative value of Portfolio 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1 6 11 16 21 26 31 36 41 46 51 Lessor Rank Source: Flight Fleets Analyzer, passenger aircraft only 70% of fleet by value is managed by only six operating lessors flightglobal.com/consultancy 34
Top 20 lessors manage 93% of the global portfolio Manager In Service Storage Order Current Portfolio Portfolio CMV ($mn) Nordic Aviation Capital 208 46 35 289 3,025.2 Chorus Aviation Capital 41 2 43 685.6 DAE Capital 39 1 9 49 658.4 Elix Aviation Capital 61 21 82 593.2 Transportation Partners 32 32 495.4 GECAS 25 1 10 36 363.4 Avation PLC 15 5 5 25 306.8 Avmax Aircraft Leasing 38 46 84 291.0 GOAL 17 17 215.8 Aergo Capital 16 16 192.1 ACIA Aero 21 1 22 114.0 Montrose Global 25 2 27 113.2 Showa Leasing Co Ltd 10 10 103.7 Skytech-AIC 9 9 99.1 Erik Thun AB 16 9 25 92.6 Castlelake 15 4 19 81.6 Doric 6 6 67.7 JetFleet Management Corp 10 9 19 65.8 Rockton AB 17 2 19 62.9 Jetstream Aviation Capital 26 10 36 61.9 Source: Flight Fleets Analyzer, passenger aircraft only flightglobal.com/consultancy 35
TP value retention is best of any asset at present CMV / Original CMV 110% 100% 90% 80% 70% 60% 50% 40% 100-Seat RJ 150-Seat SA 300-Seat TA 70-seat TP 30% 2005 2006 2007 2008 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Flight Values Analyzer, representative 2005 build aircraft flightglobal.com/consultancy 36
Asset Ratings also reflect better value outlook Source: Flight Ascend Ratings flightglobal.com/consultancy 37
Summary & conclusions Regional jet and turboprop markets are smaller / more specialised than singleaisle commodities There are several specific market categories within these markets Some assets display better residual value retention and lower volatility Operating leasing is relatively lower penetrated Reflects lower volume market More specialised market knowledge / asset management skills required Opportunity knocks? flightglobal.com/consultancy 38
Rob Morris Head of Consultancy +44 (0)20 8564 6735 +44 (0)7730 213189 rob.morris@flightascendconsultancy.com flightglobal.com/consultancy 39