coping with a time of extremes aviation industry overview and forecast presentation to the wichita...
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Coping With A Time Of
ExtremesAviation Industry Overview And Forecast
Presentation To The Wichita Aero Club Luncheon MeetingWichita, KSBy Richard AboulafiaVice President, AnalysisTeal Group Corporationwww.tealgroup.comMay 2013
Jetliners Are A Serious AnomalyAircraft Markets, Through Good And Bad YearsWorldwide Deliveries By ‘13 $
Value (in 2012) CAGR ’03-‘08
CAGR ’08-‘12
Change ‘08-‘12
Change ’11-‘12
Large Jetliners ($88.1 b) 7.4% 12.0% 57.4% 29.4%
Business Aircraft ($19.9 b) 17.1% -6.3% -29.2% 5.7%
Regionals ($6.2 b) 4.4% -9.6% -33.2% -12.6%
Civil Rotorcraft ($4.9 b) 17.2% -5.4% -15.2% 7.6%
Military Rotorcraft($14.7 b) 8.9% 13.0% 62.9% 6.6%
Military Transports ($6.2b) 3.1% -2.0% -7.7% -12.5%
Fighters ($14.3 b) 1.9% 0.5% 2.1% -13.8%
All Civil ($118.9 b) 9.7% 5.2% 22.6% 20.4%
All Military ($36.7 b) 3.7% 3.8% 16.2% -7.6%
Total ($155.6 b) 8.0% 4.9% 21.1% 12.4%
GDP Year/Year Growth Rates
Source: Morgan Stanley, IMF W orld Economic Outlook January 2013
'92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 13f'14f
0%
2%
4%
6%
8%
10%
-2%
-4%
World EU US Asia Ex-Japan
Y/Y Traffic: Recovery Stalls; Cargo A Concern2012 Totals; RPKs 5.3%, ASKs 3.9%, FTKs -1.5%;
2011: RPKs 6.9%, ASKs 8.2%, FTKs -0.6%
Source: IATA
0%
10%
20%
30%
-10%
-20%
RPKs ASKs FTKs
Historical Jetliner Orders And Deliveries
All Airbus and Boeing aircraft
'69 '71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13f0
500
1000
1500
2000
2500
3000(Number of aircraft)
Deliveries Net orders
Our Forgotten Nemesis...CyclicalityLarge Jetliner Deliveries By Value
'59 '63 '67 '71 '75 '79 '83 '87 '91 '95 '99 '03 '07 '11 '12$0
$20
$40
$60
$80
(Value in '13 $Bns)
‘01-‘03 -10.7% CAGR; -28.8% peak-trough‘91-‘95 -12.5%
CAGR; -41% peak-trough
‘80-‘84 -13.9% CAGR; -45% peak-trough
‘68-‘77 -11% CAGR; -65% peak-trough
‘84-‘9116.1% CAGR
‘95-‘9920.8% CAGR
‘03-‘129.5% CAGR
OR‘99-‘03 -11% CAGR; -37.3% peak-trough
Interest Rates And Large Jetliner Deliveries
Federal Reserve (Federal Funds Effective Rate); Teal Group research
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '120%
5%
10%
15%
(Interest Rates)
0
20
40
60
80
(Value of Deliveries in '13$ Bns)
Interest Rates Value
Oil Prices And Interest Rates
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12f0
20
40
60
80
100
120(Oil Prices/bbl in '12$)
0%
5%
10%
15%
20%(Interest Rates)
Oil Prices Interest Rates
0%10%20%30%40%50%60%70%80%90%
100%Q
4 20
00Q
2 20
01Q
4 20
01Q
2 20
02Q
4 20
02Q
2 20
03Q
4 20
03Q
2 20
04Q
4 20
04Q
2 20
05Q
4 20
05Q
2 20
06Q
4 20
06Q
2 20
07Q
4 20
07Q
2 20
08Q
4 20
08Q
2 20
09Q
4 20
09Q
2 20
10Q
4 20
10Q
2 20
11Q
4 20
11Q
2 20
12Q
4 20
12
FINANCED
CASH*50%
Start of Economic Melt-down
Data based on the 4 quarter total moving average
*FAA registries without debt instruments or lease presumed to be cash
Source: JETNET; Presentation and Analysis by Chase & Associates
77%
23%
60%
US Business Jet Sale Transactions: Financed Vs. Cash
Bottom Half Bizjet Segment V. Top Half
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120
2
4
6
8
10
12
14(Market Value in 2013 $ Bns)
Bottom Half (<$26M) Top Half (>$26M)
‘03-‘08 CAGR: 19.7% Bottom, 15.3% Top
‘08-‘12: -55.9% Bottom, 0.3% Top
‘08-‘11: -55.7% Bottom, 2.8% Top
Business Aircraft Deliveries And Corporate Profits
Source: US BEA, Teal Group Research
'64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '120
500
1,000
1,500
2,000
(Corp. Profits in $ Bns)
0
5
10
15
20
25
30(Deliveries -'13 $Bns)
Corporate Prof its Value of Deliveries
Business Jet Leading Indicators Strong, But Market Growth Slow
• Strong profits recovery, and strong cash buildup (record 7.1% of assets in cash).– Equities markets, Case-Shiller index also turning up.
• Stage was set for 2011 recovery, quashed by Japan, Mideast turmoil, US legislative gridlock, Eurozone fears etc. 2012 was nearly identical. 2013 looks all too familiar (“Spring Swoon?”).
• Available cash, coupled with pent-up demand implies upturn 2013 followed by decent recovery, but...
– Exogenous shocks and risks remain (fiscal cliff, more Eurozone horrors, etc).
• Bottom half hoping for a US re-equipment cycle (like the rest of the economy…)
US Profits ($bns) 2006 2007 2008 2009 2010 11-1Q 11-2Q 11-3Q 11-4Q 12-1Q 12-2Q 12-3Q 12-4QTotal Corporate 1,608 1,511 1,284 1,362 1,778 1,679 1,765 1,799 1,953 1,900 1,922 1,968 2,013 Manufacturing 304.5 271.3 195.5 125.2 233.5 215.5 229.2 248.9 285.9 363.5 372.8 367.6 382.9Financial 448 345.5 122.2 401.8 424.3 417.6 365.6 380.8 441.2 428.9 389.2 457.3 453.8Source: US BEA
Business Jets For Sale As % Of Total Fleet
Source: AMSTAT/MLBOA
9%
11%
13%
15%
17%
Available Business Jets V. Available Workers
0%
4%
8%
12%
16%
(Jets Available For Sale)
0%
2%
4%
6%
8%
10%
(US Unem ploym ent Rate)
Business Aircraft Market By ClassBalance Shifting Towards Larger Aircraft
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22$0
$10
$20
$30
$40('13$ Billions)
Very Light Entry Level Mid-Sized Super Mid-Sized Large
Very Large Ultra Jetliners+RJs Turboprops
DoD Investment, O&M FundingUpsides: Asia Pivot, Iran. Downside: Sequestration
Budget Authority
115
140
173190
179
214
239 237
271
293285 284
210 209
235 230220
42 4657
65 69 73 78 77 80 80 8172 69 68 71 69 72
54 6178 83
97105
134
165
135 138 134121
100 99 100 106110
FY01 FY03 FY05 FY07 FY09 FY11 FY13 FY15 FY170
50
100
150
200
250
300($ bns)
Procurement RDT&E O&M
Pre-OCO; pre-sequestration
Highest Value Fighter Programs: History and Forecast
Cumulative US '13 $Bns Value
F-35
Undetermined
Su-27/30/T-50
Eurofighter
Rafale
F/A/EA-18
F-16
F-15
MiG-29
A/T-50
LCA
Gripen
$0 $15 $30 $45 $60 $75 $90
2013-2022
2003-2012
Military Transport Deliveries By Value
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '220
2
4
6
8
(Value In '13 $Bns)
C-17 C-130J A400M KC-390 Other
Missile/Munition/UAV Forecast
'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '220
4
8
12
16
20(Market value in '13 $Bns)
AAM ASM ADM ATM
Anti-Ship SSM Smart munitions UAVs
Aircraft Production 2003-2022Largely Sheltered From The Storm; Long-Term Growth, Too
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '220
40
80
120
160
200(Market Value in '13 $ Bns)
Fighters Business Aircraft Rotorcraft
Mil i taryTransports/Trainers/Other Jetl iners/Regional AC
Five (6) Wichita-Related Thoughts (Revisited And Revisited Again)
1. There are five great aviation clusters in the world today. Wichita is one of them. Clusters can not be created; only destroyed. (Still True.) (Yes.)
2. Of these clusters, Wichita has the highest exposure to the business jet market, the fastest growth segment, but with very high cyclicality. (What nobody saw coming was the bifurcation between the top and bottom half. I also thought the business aircraft peak would come in 2009, just after my speech; turned out it was in 2008. I’d also point out that Wichita has the most diverse industrial base of any cluster.) (I was partly wrong. It’s diverse in OEMs, but not diverse enough in segment exposure and globalization. It’s also the most exposed to weak OEMs).
Five Wichita-Related Thoughts (2)3. Business jets are well behind the other aviation
segments in outsourcing, a possible threat to manufacturing jobs in Wichita. While it’s also an opportunity (with Spirit), there’s no guarantee that work will be performed here. (Still True.) (Yes.)
4. I’m skeptical about KC-X. But the military overhaul/upgrade market is growing. (Very wrong on the first, right on the second.) (Sadly overtaken by events.)
5. São Jose Dos Campos wants some of your business. (Still True.) (Yes, but they are not unstoppable.)
That Sixth Wichita-Related Thought
6. My biggest concern with Wichita isn’t the market and jobs. It’s engineering and design.