CEO 360 Degree Perspective

Aerospace & Defense-2009

We Accelerate Growth

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Take Aways for Participants

Top 3 Take-Aways:

1. This is an A&D trough not a valley

2. There are no market segments that are immune to the

economic conditions, but there are sectors and regions

that are having fewer effects

3. Some very basic changes in market philosophy requires changes in market strategy

53 North Park Avenue � Rockville Centre, NY 11570 � Tel. (877) GO–FROST � email: executivemindxchange@frost.com

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Aerospace & Defense MarketsComprehensive Industry Coverage

Military AviationMilitary Aviation

CommercialAviation

CommercialAviationIndustry

Participants & Competitors

Industry Participants & Competitors

Federal Budgets& Programs

Federal Budgets& Programs

Homeland Security

Homeland Security

C4ISRC4ISR

Aerospace &

Defense

Aerospace &

Defense

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The CEO’s Perspective of the Complex Business Universe

5

Economic Perspective:The Complex Business Universe

High, but not Historically High, Fuel Prices

Credit Markets are in Shambles

Shift in Military Procurement

Continued Robust Defense Spending in the U.S

Aerospace & Defense Industry

Economic Environment

Aerospace & Defense Industry

Economic Environment

Source: Frost & Sullivan

Airline Travel off Significantly

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Economic Perspective:Primary Economic Challenges Impacting A&D Industry Growth

Competing National Budget Priorities

Competing National Budget Priorities

Primary Primary

Challenges Challenges

Impacting A&D Impacting A&D

Industry GrowthIndustry Growth

U.S. market imbalanceU.S. market imbalance

Dominance of a few large firms

Dominance of a few large firms

Reduced government R&DReduced government R&D

Market Maturity

Market Maturity

Current Spending Restricts

Development

Current Spending Restricts

Development

Source: Frost & Sullivan

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Global Perspective:The Complex Business Universe

Demand for Engineering Skills

ITAR Restrictions

Offset Schemes

Restricted Spending

Aerospace & Defense Industry Global Environment

Aerospace & Defense Industry Global Environment

Source: Frost & Sullivan

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Global Perspective:Technology and Services Continues to be a Challenge

Firms bear costs of technology/ product

development

Limits flexibility and markets

Projects delayed, cancelled and costs increase

IT investments helps mitigate

effects

International Traffic in Arms Regulations

R&D Spending Limited

Science & Engineering Funds Restricted

Global Production is Challenging Project Coordination

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Integrated Industry Perspective:The Complex Business Universe

Unrealistic Estimates and Immature Technologies

Increased Use of COTS

Need for Multiple Technologies

IDIQ Contracting

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Integrated Industry Perspective:Aerospace & Defense Industry Cross Pollination

Source: Frost & Sullivan

BASIC RESEARCHVENDORS

COTS AND COMMERCIALPROVIDERS

• Materials• Alternative Fuels• Electronic Components

• Communications• Optics

• FPGAs• Engine Parts• Strategic Materials• Language & Culture• Explosives• Oils and Lubricants• Ship Building

• SDR• Embedded computers and cryptography

• Robotics• Multi-Spectral Imaging

• Super Computers• Self Healing Networks

• Vehicles• Communications Systems

• IT Architectures• Training & Simulation

• Health Care• Construction• Logistics

Testing & Measurement

Health Care

• Trauma• Medical Evacuation• Blood Clotting• CBRN Protection• Wound Care

MATURE PRIMECONTRACTORS

INNOVATORS AND MANUFACTURERS

• Engines• Electronics• Materials• Fuels• On Board Diagnostics

• Hybrid Power • Stronger, Lighter Materials

• Stealth• Avionics and Displays

Aircraft and Automotive

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Competitive Perspective:The Complex Business Universe

More European Firms in the U.S.

Congress mayLimit Acquisitions

Asian/Middle Eastern Airlines

HLSMarket

Off-shores

12

Partnering for Success

Continued large Systems Integrators, but challenged by Sec. Gates

Logistics, integration, maintenance, and training all growing

Local firms overcome labor, tax, security, and use restrictions

Governments want teams, including local investment/labor for major contracts

Competitive Perspective:Cooperation in the Market

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Technology Perspective:The Complex Business Universe

Dependence on Small Innovative Firms

Data Fusion, IPv6 and SDR driving improvements

Legacy standards still required

Few clear electronic standards

Electronic Heat Generation Problems

“Green” Initiatives

Aerospace & Defense Industry: Increasing adoption of Commercial

Technology Standards

Aerospace & Defense Industry: Increasing adoption of Commercial

Technology Standards

Source: Frost & Sullivan

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Technology Perspective:A&D Challenges

Industry Wide

• Alternative Fuels

• Increased Competition

• Legislative Scrutiny

• Political Change

• Training and Simulation

Advances

• Immature Technologies

Aerospace C4ISR

• Regional Carrier

Expansion

• Asian Competitors

• Hazmat

• Parts Shortages

• Supplier Alliances

• Navigation Technology

Upgrades

• Cap and Trade Programs

• New Procedural Solutions

• Unmanned Vehicles

• COTM

• Commercial SATCOM

• Increasing Budgets but

Fewer Programs

• LSI Changes

• Expanded TEs

• Multi-level Access

• Embedded Crypto

Homeland Security

• Communications

Interoperability

• Lack of Central

Leadership

• Unclear Budgets and

Programs

• Poor Actual Spending

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Customer Perspective:The Complex Business Universe

NCO key to

fighting

terrorists

Airline

recovery will

need

improved

operating

efficiencies

Acquisition

shifts from

“cost-plus” to

“fixed-price

incentive” will

restrain

margins

Contracts will be Contracts will be

fewer, but more fewer, but more

involved!involved!

U.S. Ground Forces U.S. Ground Forces

Reset is Priority 1Reset is Priority 1

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Gro

wth

Op

po

rtu

nit

ies

Will provide industry participants with

opportunity

Continued Demand for New Aircraft in Asia and Middle East

Large investments by airline companies to

support passenger traffic growth, eventually

High Age of the U.S. Aircraft Fleet in Operation

Need for investments in modernization of

production facilities and efficiency improvement

Growing Production of Aircraft in China

Stable MRO market and increasing competition

forces search for cost efficient solutions

Stable Growth of MRO Market

Defence Market Commercial Aerospace Market

U.S., Eastern Europe, Mid East

Tactical Communications, Intelligence, S&R

COTS, Unmanned Systems, Embedded Crypto,

Signal Processing

Engineering, Integration, Project Management,

Maintenance, Training

Focus on the Key Growth Markets

Growth of the Key Markets Segments

Major Technology Trends

Demand for Services

Customer Perspective:Growth Opportunities

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Best Practices Perspective

Source: Frost & Sullivan

Apply mature technology to new problems

Apply new technology to old problems

Partner with established integrators

Seek out small innovative firms

Pool “services” skills for specific projects

Expand “services” portion of your business

Focus on regional demand

Forward deploy with customers

Take advantage of DoD interoperability certification

Apply mature technology to new problems

Apply new technology to old problems

Partner with established integrators

Seek out small innovative firms

Pool “services” skills for specific projects

Expand “services” portion of your business

Focus on regional demand

Forward deploy with customers

Take advantage of DoD interoperability certification

Best Practices in A&D

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Future Scenarios

From Proprietary Systems to Open Architectures

Integration, Training, and Operational Services

Providing End Users Practical Solutions

From Program Competition to Program Team

BuildingA&D

Industries:Effective Growth Strategies

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Future Scenarios

Aerospace deliveries down, but rebound in 2-3 years Aerospace deliveries down, but rebound in 2-3 years

Poor Credit Market affects Aerospace, but signs of looseningPoor Credit Market affects Aerospace, but signs of loosening

Defense firms limiting commercial forays, but future brightDefense firms limiting commercial forays, but future bright

Focus on low-intensity warfare drives spending changesFocus on low-intensity warfare drives spending changes

Ground forces funding share will increase the next few yearsGround forces funding share will increase the next few years

Stable funding for basic equipment and servicesStable funding for basic equipment and services

Sustainable Growth

Sustainable Growth

Questions and Answers