business jets in china, growth & risks

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4th International Repossession Conference – Dubai Sofitel Dubai Jumeirah Beach, UAE 0 © 2012 1BlueHorizon Group - www.1bluehorizon.com All rights reserved 1BHG | Aeropodium Conference Aircraft Repossession 09.12.12 ‘JOIN THE DEBATE’ BIZJETS IN CHINA CHINESE ARE BANKING ON THAT BUSINESS: GROWTH AND RISKS… December 2012 4th International Repossession Conference – Dubai Sofitel Dubai Jumeirah Beach, UAE 1B HG, the ‘ idea factory ’ thinking ahead strategies www.1bluehorizon.com

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Leonard Favre Speech at the 4th International Repossession Conference - Dubai (Aeropodium conference - www.aeropodium.com)

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Page 1: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

0© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

‘JOIN THE DEBATE’

BIZJETS IN CHINACHINESE ARE BANKING ON THAT BUSINESS: GROWTH AND RISKS…

December 2012

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

1 BHG, the ‘ idea factory ’ th ink ing ahead st rategies www.1bluehorizon.com

Page 2: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

1© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

AGENDA1 Introduction2 Historical Market Development in China3 China Market Characteristics4 Future Trend and Key Success Factors in China Market5 Executive Summary

© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

11BHG | Aeropodium Conference Aircraft Repossession 09.12.12

Page 3: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

2© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

Large and medium business jet accounts for 70% of total fleet while Gulfstream and Bombardier are the leading OEMs in China market

Note: China Business jet fleet structure by 2011 – by aircraft size and by OEMSource: CAAC, Company website, 1BlueHorizon Group Research & Analysis

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 ChinaGulfstream and Bombardier are dominated in China business jet market – 68% of total fleet

Page 4: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

3© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

Large business jet has much higher market share in China than other markets and continue gaining market share

Source: GAMA, CAAC, 1BlueHorizon Group Analysis

Large Medium Light

Business Jet Deliveries

Will the segment structure in China market keep current trend or change in future to be consistent with global structure?

China

Global

2005 - 2010 2010 2011 - 2030

Page 5: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

4© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

China has a very low number of business jet fleet relative to it’s size of economy

China historical fleet development

2010 Business jet fleet by region However, by 2011,

China still only has a very low number of business jet fleet relative to it’s size of economy - As the 2nd

large economy in the world, China accounts for only around 1% of global fleet in 2010 and 1.3% in 2011

During 2000-2007, 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

China accounts for only 1% of global business jet fleet in 2010

and 1.3% in 2011

1.3%

Source: GAMA, CAAC, 1BlueHorizon Group Analysis

Page 6: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

5© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

Because of the barrier of underdevelopment of infrastructures and regulatory limitation for general aviation

Source: NBAA report (http://www.nbaa.org/ops/intl/mid/20121126-china-accelerates-opening-of-low-level-airspace.php), 1BlueHorizon Group Analysis

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

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 publicsCommercial air traffic has already occupied the

limited altitude released by China ArmyLimited air traffic release for business jet - black

out period in some airports (Beijing etc)

Regulatory limitation Under development of infrastructures

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…

Page 7: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

6© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

However China business jet demand started increasing sharply in the global demand downturn period

Source: GAMA; CAAC, OEM’s financial report, 1BlueHorizon Group Research

China Business Jet Delivery (units)

Global Business Jet Delivery (units)

1.5% 1.9% 4.3% 5.6% 7.1%1.4%1.1%Market share

Note : China business jet delivery unit including HongKong, Taiwan and Macau

Global business jet deliveries decline significantly during 2008-2011 due to global financial crisis

China market deliveries experienced sharply increasing during 2008-2011 from a low unit base and already account for 7.1% of global deliveries in 2011

CAGR 31%

Page 8: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

7© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

And is expected to keep sustainable overgrow to other markets in the next 20 years

Source: Ascend, Bombardier forecast, excluded very light jet and large corporate airline categories, 1BlueHorizon Group Research & Analysis

127%698%10 year growth rate

China Business Jet Delivery Forecast

46%738%10 year growth rate

40%28%10 year growth rate

Global Business Jet Delivery Forecast

43%47%10 year growth rate

China Business Jet Fleet Forecast

Global Business Jet Fleet Forecast

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 2011-2030

China business jet fleet will account for around 8% of global fleet from a low base of 1.3% in 2011

Page 9: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

8© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

Mainly driven by robust economic growth, wealth creation, increasing corporate profit, strong government support and penetration growth

Robust economic growth

Wealth creation

Corporate profit Increasing

Penetration growth

Strong government

support

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

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

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

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 levelSustainable growth of GDP per capital will also support the future penetration growth

Page 10: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

9© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

China economy experienced rapid growth in the past 10 years and is expected to continue robust growth

Source: China statistic year book; World Bank, 1BlueHorizon Group Research

CAGR 8.4%

CAGR 7.0%

China historical GDP development and forecast

Recession

China GDP experienced rapid growth in the past 10 years, even in the period of global recession in 2008-2010, China GDP is expected to continue robust growing in 2011-2020

Page 11: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

10© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

Continuous wealth creation provide a big pool of potential business jet customers

Source: Hurun Research Institute; Forbes, 1BlueHorizon Group Analysis

Number of wealth people pool and regional distribution in China

CAGR 25%

CAGR 25%

CAGR 6% CAGR 35%

CAGR 35%

Number of wealthy people with > 1 billion USD assets 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 estateAround 13% of super wealthy

people (with >100 million RMB net assets) are interested in buying business jet

Page 12: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

11© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

Increasing number of large corporate and their profit improvement will also support business jet demand growth

Source: J.P.Morgan Aerospace and Defense; Business Jet Monthly – December 2010; Wind Information, 1BlueHorizon Group Analysis

467 407 

524 

728 825 

‐20%

‐10%

0%

10%

20%

30%

40%

50%

‐100 200 300 400 500 600 700 800 900 

2007 2008 2009 2010 2011

Average net profit Growth rate

Global Corporate Profits vs. Business Jet Deliveries (number of aircraft 1995 – 2013E)

Average Net Profit for Companies listed in Mainland China(million RMB)

470

716

9691117

2008 2009 2010 2011

Number of Listed Company (with net profit >100 million RMB)

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

Page 13: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

12© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

Government support will help progressively removal the barrier of infrastructure shortage and regulatory limitation

Source: Chinese government 5 year plan for general aviation industry

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 ZhuhaiNurture 3 to 5 leading companies for general

aviationExpand maritime patrol and country wide

search and rescue

Highlights

Scheduled civil transport airport188 ≥ 230

General Aviation Fleet Hour140K 300K

General Aviation Aircraft1,010 ≥ 2,000

Pilots24,000 40,000

Page 14: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

13© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

Improvements in infrastructures and regulatory limitation and increasing adoption and acceptance will drive the growth of penetration

Source: GAMA

2011 Business Jet Penetration in the G20 and others

Business Jets/ Capita (M)

GDP (K$)/ Capita

CER, 423UK, 419

AUS, 139

INDO, 19CHINA, 62

Market forecastForecasters correlate

business jets numbers and per capita levels

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

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

Page 15: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

14© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

Sustainable growth of GDP per capital will also support the future penetration growth

Source: China statistic year book, 1BlueHorizon Group Analysis

China GDP per capita keep rapid growth in 2001 -2011 and reach to USD4000+ level in 2009 that is the demand start point for general aviation

GDP per capita will keep sustainable growth in this decade that will drive the sustainable demand increase of business jet

Big gap on GDP per capita among different provinces will cause the geographic unbalance of business jet demand

Page 16: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

15© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

As the aviation industry in China is set to take off, Chinese and foreign companies are banking on the business of corporate aircraft

China's business jet market could help propel the aviation industry

Page 17: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

16© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

However realization of growth will really depends on how fast China can remove the barriers to growth

Source: 1BlueHorizon Group Analysis

Air traffic restriction

Under development of infrastructure

Human Resource Shortage

High Operation /maintenance cost

Slow Certification, Registration and approval process

Limited air traffic release for business jet - black out period in some airports (Beijing etc) sincecommercial air traffic has

already occupied the limited altitude released by China Army

Shortage of airportShortage of facilities of air

traffic control, maintenance and fuel distributionLack of FBO (fixed based

operator)Lack of in-country MRO and

training capabilities and capacitiesLimited capacity of air traffic

control management

Shortage of pilotsShortage of well trained and

qualified MRO engineers and other service personnel

Preapproval is required to buy business jetCertification and registration

process is complicated The whole process will take

more than 3 months

High operation cost :USD 80-90K per flightLack of aircraft size

differentiation in landing, handling and navigation feesHigh maintenance fee: USD

per year‒ Small size: 800-1100K‒ Medium/large size: 1.6-2.4

million

Challenges in China Market

Page 18: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

17© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

Under development of infrastructures – airport, air traffic control capacity, FBO, MRO service capacity and capability

Source: CAAC, 1BlueHorizon Group Analysis

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

Limitations of air traffic control capacity

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

Lack of FBO

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 MRO

Shortage of Airport

Page 19: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

18© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

Shortage of human resources - especially pilots and MRO engineers

Source: CAAC, Boeing forecast, 1BlueHorizon Group Analysis

Shortage of Pilots in China Market

Shortage of MRO Engineers in China Market

560

24

US China

73 

24 

30 

19 

Total pilotrequired

Current pilot base New pilot to beprovided

Gap

Number of Pilot by 2010 (‘000) Pilot Gap forecast for China Market by 2030 (‘000) China market required total

73,000 pilot by 2030 for both commercial and business jet

China has 24,000 pilots by 2010

China can only train 1500 new pilots per year based on current capacity due to lack of pilot training school, coach and high training cost (double to triple on US cost)

300

60

240

Total MRO engineerrequired

Current MROengineer base

Gap

MRO engineer Gap forecast for China Market by

2030 (‘000)

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

Page 20: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

19© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

High operation cost – account for 5-8% on top of total business jet purchase price per year

1% 

3% 

3%  7% 

Insurance fee Fixed operation cost Variable operation cost Total operation cost

Foreign registry Chinese registry

US$ US$

Ground Handling Fees 6,750.00 4,500.00

Airline countervailing fee 4,400.00 0.00

Navigation Fee 1,400.11 175.01

Total Fees 12550.11 4,675.01

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

Example: Hong Kong – Shanghai return

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

Business jet annual operation cost in China – Challenge 850 example

Source: 1BlueHorizon Group Research & Analysis

Page 21: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

20© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

As Chinese customer prefer well recognized brands and large business jet regardless of trip length

Chinese Customer demand characteristicsProduct Feature Service

Requirement Price Sensitivity

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

Airlines Real Estate Casinos and gaming Chemicals Oil and Gas Coal mining Electronics Flight trainingWhite

good manufactures IT Energy Bank Advertising Entertainment

Customer Structure

Source: 1BlueHorizon Group Analysis

Page 22: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

21© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

Key success factors in China market

Chinese customers are very keen on well recognized brand

Increasing brand awareness and establish great brand reputation in China market

Recognized brand

Deep understanding on customer ‘s demand characteristics by segmentation in China market

Introduce right products to the market with high flexible configuration

Right products

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 go to market model

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

Excellent service

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

Local manufac-

turingfootprint and engineering capability

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

Right partnership

Adapting to Chinese customers: most of the time Chinese people will usean idiom 入乡随俗 , meaning when in Rome, do as the Romans do…

Page 23: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

22© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

Executive Summary - Growth and risks of repossession in China

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

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

Attractive opportunities in all aspects of business

aviation but also risks associated

Focus on six key success factors in China

market

However China business jet demand started increasing sharply in the global demand downturn period (2008-2011)

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

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 marketDevelop 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 capabilityDevelop right partnership strategy – JV with Chinese companies might be the right approach

Page 24: Business Jets in China, Growth & Risks

23© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

SHOUKRAN - THANK YOU

LEONARD FAVREPartner, Group Managing Director

1BlueHorizon GroupP.O. Box 34154 M +971 50 6164007 (U.A.E.)Abu Dhabi M +41 79 2080256 (Switzerland)United Arab Emirates leof007

[email protected]

Abu Dhabi | Bern | Madrid | Montreal | Paris

Any clarifications or questions regarding this document should be addressed to:

We are used to generate 1BlueHorizon® out of the Rough...

Customers with specialized needs often choose us for our unique custom turnkey solutions to propel their business further…

Page 25: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

24© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

APPENDIX1 Introduction2 Historical Market Development in China3 China Market Characteristics4 Future Trend and Key Success Factors in China Market5 Executive Summary

© 2012 1BlueHorizon Group - www.1bluehorizon.com

APPENDIX 1 - 3

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

All r ights reserved24

1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

Page 26: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

25© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

Appendix 1: Major business jet dealers in China market

Source: Company website, 1BlueHorizon Group Research & Analysis

Dealer Name Ownership structure 

OEM product Major customer

SOE/Private /WOE/JV

Bom‐bardier

Gulf‐stream

Cess‐na

Embraer‐

Dass‐aulat

Hawker

Govern‐ment

SOE PrivateCom.

ForeignCom.

Indi‐vidual

Avion Pacific Limited

WOE √ √ √ √

Sino Private Aviation

WOE √ √ √ √ √

CBAJET Private √ √ √ √ √ √

CPAC Private √ √

PTE WOE √ √ √ √

Lily Jet  Private √

Chinaga Private √ √

Jinggong Private

Asia Pacific WOE √ √

ACASS WOE

Westjet Aircraft 

WOE  √

Zhuhai Xirui GA JV √ √

AVIATION SUPPLIES

WOE √ √ √

Page 27: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

26© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

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

Govern‐ment

SOE PrivateCompany

ForeignCompany

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 SOE √ √ 5 √ √ √

Yasheng Medevac √ 3 √

Sichuan Xingyao Private √ √ 2

Big White Bear Private √ √ 2

Zhongfei SOE √ √ 2 √ √

Source: Company website, 1BlueHorizon Group Research & Analysis

Page 28: Business Jets in China, Growth & Risks

4th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach, UAE

27© 2012 1BlueHorizon Group - www.1bluehorizon.com Al l r ights reserved1BHG | Aeropodium Conference Aircraft Repossession 09.12.12

Appendix 3: Major business jet MRO suppliers in China market

MRO supplier Ownership structure 

MRO service OEMs/Models MRO service  type

SOE/Private/ WOE/JV

Bom‐bardier Gulf‐stream

Cess‐na Embraer‐

Dass‐aulat 

Haw‐ker Modification

Air frame

Com‐ponent 

Line  Engine

TAMECO (Xiangyu) JV √

CIRRUS GA JV

ZhongFei  JV √

Shanghai Hawker Pacific JV CE‐680 √

Falcon 7X, 900LX, 2000LX

√ √ √

Tianjin Execujet JV

Sichuan Haite High Public listed √

Tianjin Air SOE √

Metrojet WOE √ √

STAECO JV

CRJCL604/605CL850XRS

G450 √ √

Hawker Haikou RA3901A800XP

Source: Company website, 1BlueHorizon Group Research & Analysis

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SOLUTIONS PACK

1BLUEHORIZON GROUPGENERATING THRUST TO PROPEL YOUR BUSINESS FURTHER...

March 2012

We generate 1B l u eHo r i z on ® out of the Rough... www.1bluehorizon.com

P R O P R I E T A R Y I N F O R M AT I O N

A b u D h a b i | B e r n | L o n d o n | M o n t r e a l | M o s c o w | P a r i s

A s s e t M a n a g e m e n t | M a n a g e m e n t C o n s u l t i n g | I n t e r i m M a n a g e m e n t

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Source: © 1BlueHorizon Group | Corporate profile

1BlueHorizon Group® value proposition is simple — Going the Extra Mile by generating trust to propel your business further

O 1BlueHorizon Group® (Asset Management | Management Consulting | Interim Management) was established in 2007 as a network of International aviation professionals, providing objective, independent, evidence-based analysis, advice and implementation support. We build on the experience of our team to help clients realize real and measurable results , quickly. Start-ups, restructuring, cost cutting, project management office, due-diligence or exploiting growth opportunities, we have experts who have faced these challenges.

O Our highly competent seasoned senior professional have experience from leading companies in both management roles within their disciplines and as senior level professional advisors throughout diverse and complex locations in the Middle East, Europe, Africa, Asia Pacific and North America.

O Privately owned, 1BlueHorizon Group® is independent of any financial institution, manufacturer, operator, insurance company or maintenance provider assuring our clients the benefit of truly unbiased, comprehensive and flexible provision of service.

O 1BlueHorizon Group® believes in working closely with client staff to transferour knowledge and experience, which means 1BlueHorizon Group® continuesto deliver value long after the project is complete.

O A unique blend of languages, age groups, cultural backgrounds and skills qualifies 1BlueHorizon Group® to provide turnkey solutions for any and all of your aviation requirements - worldwide.

O 1BlueHorizon Group® range of services is continuously tailored and adaptedto suit the geographical scope and needs of our customers.

P R O P R I E T A R Y I N F O R M AT I O N

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Wataniya Airways - Chairman Mr. Abdulsalam Al Bahar with Mrs Ghaida Abdul Latif, vice chairman –

director general & CEO of Syrian Arab Airlines.

Flydubai - CEO Mr. Ghaith Al Ghaith

Gulf Air - Ex CEO Samer MajaliH.E. Mohamed Hamad bin Azzan Al

Mazrouei, WRDC's Director General and Acting Under Secretary of the Court of the Ruler's Representative in the Western Region (al Gharbia)

of Abu Dhabi Emirate

Democratic Republic in Congo (Transport)AerospaceOne Company in India

Jet Green in PakistanAbabeel Air in Libya

His Highness Sheikh Ahmed Bin Saeed Al Maktoum, President of the Dubai Civil Aviation

Authority, Chairman of Dubai Airports, Chairman & Chief Executive of Emirates Airline & Group

Note: Detailed references upon request

For the last ten years we have been actively involved with our Senior personnel in major airlines, start-ups or Economic development ventures

P R O P R I E T A R Y I N F O R M AT I O N

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Family conglomerates (Governance, Portfolio analysis and investment Strategy)

Economic development (Business review / Cluster / Project Management office)

Air Transportation (Airline / Airport / General Aviation / Aerospace & Defense)

Management ConsultingOperational Improvement

Our understanding of operational improvement is quite simple:

Whereas restructuring is about stabilizing a company and fixing how it does things, operational improvement is about seeing a

company through the transformation of becoming more

competitive – going the Extra Mile.

Asset ManagementFleet Strategy & Planning

With our Fleet Solutions, we can help you expand your fleet,

transition from older models to newer aircraft types, or provide interim capacity. We back our support with a global team of technical experts and industry

specialists who will provide you with the fleet solution and

support that meets your specific needs.

Interim ManagementKnowledge transfer

Finding talent is difficult even at the best of time. Finding

resources to assist for a short-term assignment of a proven

heavyweight interim executive manager to manage a period of transition, crisis or change within

an organization or to take on critical projects or senior

positions for a limited time is even more difficult.

Ahead of StrategiesThree Practices

Shareholders and management of companies with specialized

needs often choose 1BHG for our unique custom turnkey solutions. If you want a business plan or a feasibility study to assess the case, or your are burning cash

and running into trouble, or seek help to assess the case for

entering immunized joint venture or looking for an interim management solution…

1BlueHorizon Group® highly competent seasoned professional

will assist you to propel your business further… Going the

extra mile ahead of strategies …

1BHG® Business model dedicated to particular Sectors is built around three Practices providing clients with turnkey solutions to maximize Value Creation

Source: © 1BlueHorizon Group | Business model with Sectors (Horizontals) & Practices (Verticals)

P R O P R I E T A R Y I N F O R M AT I O N

… no matter how complex the issues are!

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InterimManage-

mentManagingConsulting

Asset Management

The Management Consulting (MC) Practice is our ability to strike a rapport working side by side with you and quickly understanding what you need when the margin of error is thin… Providing a highly targeted surgical strike (to-the-point) to improve de performance and going the extra mile…

The Interim Management (IM) Practice help you by giving comfort and control with relevant seasoned advisors whenever and wherever they are needed… Whereas a management consultant provides an advisory role, Interim managers with performance improvement focus are directly responsible in delivering quick results, visible and measurable...

The Asset Management (AM) Practice works individually with each of our clients to develop creative strategies and solutions for all types of aviation equipment, with innovative financing models.…

Source: © 1BlueHorizon Group | Practices

Performance improvementQuick results / Hands-on

Turnkey solutionsKnowledge transfer

Ahead of Strategies…

The 1BlueHorizon® difference

1BlueHorizon Group® three dedicated Practices are built to propel clients business further with a comprehensive approach ahead of strategies

P R O P R I E T A R Y I N F O R M AT I O N

GENERATING THRUST TO PROPEL YOUR BUSINESS FURTHER...

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“1BlueHorizon Group is the only consulting firm that works successfully on all levels: Board level, middle management, implementation"

“1BHG senior personnel come in with strong views but integrate perfectly in our teams"

“1BHG has convinced us through it's excellent industry- and technology expertise"

"The 1BHG team knows perfectly well how to push the necessary change"

“1BHG guys are implementation -oriented and their cooperationwith my people is very good "

“1BHG Practice has very qualified people who really know a lot about our industry"

Testimonials - What do our Customers think about 1BlueHorizon Group®

"In each project step, we could clearly identify 1BHG's added value and improve the overall bottom line"

P R O P R I E T A R Y I N F O R M AT I O N

THE ONLY WAY TO DO GREAT WORK IS TO LOVE WHAT WE DO…A MILE OF RUNWAY WILL TAKE YOU ANYWHERE

NO ONE HAS EVER COLLIDED WITH THE SKYNote: A list of qualifications is made available separately

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LEGAL DISCLAIMERP R O P R I E T A R Y I N F O R M AT I O N

© 1BlueHorizon Group®. All rights reserved. Without the prior written consent of 1BlueHorizon Group®, it is not permitted to modify this document or create derivative works. High quality global airline industry insight requires investment. Please do not cut & paste the document. Email [email protected] to get / buy additional rights.This presentation has been prepared by 1BlueHorizon Group® (1BHG or the ‘Company’). This presentation does not constitute or form part of any offer to sell or issue, or invitation to purchase or subscribe for, or any solicitation of any offer to purchase or subscribe for, any securities of the Company or in any other entity, nor shall this document or any part of it, or the fact of its presentation, form the basis of, or be relied on in connection with, any contract or investment decision, nor does it constitute a recommendation regarding the securities of the Company or any other company. The information contained in this presentation has not been independently verified. This presentation does not purport to be all-inclusive or to contain all the information that a prospective investor in securities of the Company may desire or require in deciding whether or not to offer to purchase such securities. No representation or warranty, express or implied, is made or given by or on behalf of the Company or any of its affiliates (within the meaning of Rule 405 under the US Securities Act 1933) (‘Affiliates’), members, directors, officers or employees or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this presentation or any other material discussed verbally. None of the Company or any of its Affiliates, members, directors, officers or employees nor any other person accepts any liability whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith. The information in this presentation includes forward-looking statements which are based on the Company's or, as appropriate, the Company's directors' current expectations and projections about future events. These forward-looking statements may be identified by the use of forward-looking terminology, including the terms ‘believes’, ‘estimates’, ‘plans’, ‘projects, ‘anticipates’, ‘expects’, ‘intends’, ‘may’, ‘will’ or ‘should’ or, in each case, their negative or other variations or comparable terminology, or by discussion of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements, as well as those included in any other material discussed at any analyst presentation, are subject to risks, uncertainties and assumptions about the Company and its subsidiaries and investments, including, among other things, the development of its business, trends in its operating industry, and future capital expenditures. In light of these risks, uncertainties and assumptions, the events or circumstances referred to in the forward-looking statements may differ materially from those indicated in these statements. Forward-looking statements may and often do materially differ from actual results. None of the future projections, expectations, estimates or prospects in this presentation should be taken as forecasts or promises nor should they be taken as implying any indication, assurance or guarantee that the assumptions on which such future projections, expectations, estimates or prospects have been prepared are correct or exhaustive or, in the case of the assumptions, fully stated in the presentation. Forward-looking statements speak only as of the date of this presentation. Subject to obligations under the listing rules and disclosure rules made by the Financial Services Authority under Part VI of the Financial Services and Markets Act 2000 (as amended), neither the Company nor any of its affiliates, or individuals acting on its behalf, undertakes to publicly update or revise any such forward-looking statement, whether as a result of new information, future events or otherwise. As a result of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements as a prediction of actual results or otherwise. The information and opinions contained in this presentation and any other are material discussed verbally are provided as at the date of this presentation and are subject to verification, completion and change without notice. In giving this presentation, neither the Company nor its advisers and/or agents undertakes any obligation to provide the recipient with access to any additional information or to update this presentation or any additional information or to correct any inaccuracies in any such information which may become apparent.

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