World Aircraft OverviewRichard Aboulafia

Vice President, AnalysisTeal Group Corporation

www.tealgroup.comwww.richardaboulafia.com

January 2021

World Aero Markets: Looking Up, From The Bottom of a Pit

http://www.tealgroup.com/http://www.richardaboulafia.com/

Aviation Segments By Damage

Most to LeastAnnotated, Ten Months In

International traffic hit hardest and longest.Already an overcapacity situation.Secular shift towards single aisles already underway.It’s just that bad.

Twin aisle jetliners

Fuel prices a big problem.

China comeback uncertain.

Some relief due to deferred Airbus ramp, and MAX stop.

Same.

Single aisle jetliners

Large cabin strongly correlated with oil prices.

Small/medium strongly correlated with corporate profits, equities indices.

Might recover quickly; still a 2020/21 downturn

Business Jets

Oil and gas segment (large) hit again, before recovery even began.

About right…wait and see.

Civil Rotorcraft

Emphasis on “shovel-ready.”

Advance development programs at greater risk.

Pure-play contractors in best shape; suppliers with most defense in best shape.

All good. In fact, better.

Military Programs

Aircraft Markets, In Good And Bad Years(last year was not good)

World New Deliveries CAGR CAGR CAGR Change

In 2020 (2021 $) ’03-‘08 ’08-‘14 ’14-'19 ’19-‘20

Jetliners-SA ($27 b) 9.7% 6.9% -2.0% -55.2%

Jetliners-TA ($27.8 b) 5.0% 13.5% 2.1% -49.1%

Regionals ($3.4 b) 3.9% -3.1% -6.3% -36.6%

Business Aircraft ($18.2 b) 16.7% -2.2% -1.2% -18.4%

Civil Rotorcraft ($3.1 b) 18.5% -2.5% -7.2% -13.0%

Military Rotorcraft ($10.7 b) 10.6% 9.7% -7.0% -15.1%

Military Transports ($4.1 b) 3.2% -0.9% 0.0% -30.0%

Fighters ($18.3 b) 1.6% 0.8% 6.1% -21.8%

All Civil ($79.9 b) 9.7% 5.6% -0.5% -40.0%

All Military ($36.9 b) 3.9% 4.1% 0.0% -18.1%

Total ($116.7 b) 8.0% 5.2% -0.4% -34.5%

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Traffic: Like Nothing We've Ever Seen Before66% Decline in 2020?

2019 Totals: RPKs 4.2%, ASKs 3.4%, FTKs -3.3%2018 Totals: RPKs 6.5%, FTKs 5.4%; 2017: RPKs 7.6%, FTKs 9%

RPKs ASKs FTKsSource: IATA

More Unprecedented Numbers• Traffic decline, parked fleet like no previous shock.

• Per Paul Krugman, reflect a world economy in a “medically-induced coma.” • Backlogs holding up (MAX a concern), but meaningless in a downturn.•Many early retirements coming, particularly twin aisles.

• Primarily twin aisles; A380 bloodbath.• Aftermarket catastrophe – ASK decline, plus de-stocking, deferred

maintenance, early retirements, USM, engine swapping, etc.

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World Jet Fleet: Now ~32% Unemployed

Parked Percentage Of Total Fleet

Traffic Peak Recovery By Late 2022. Why?

•Better-than-expected vaccine efficacy.•Better-than-expected economic outlook.•The China domestic comeback.•Business travel resurgence.•Vacation travel resurgence, fueled by record savings rates.

https://www.nytimes.com/2021/01/01/upshot/why-markets-

boomed-2020.html

https://www.nytimes.com/2021/01/01/upshot/why-markets-boomed-2020.html

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Here It Is, The Chart I Was Dreading

'68-'77-11 CAGR; 65% peak-to-trough

'80-'84 -13.9% CAGR;-45% peak-to-trough

'91-'95-12.5% CAGR; 41% peak-to-trough

'01-'03-10.7% CAGR; 28.8% peak-to-troughOr'99-'03-11 CAGR; 65% peak-to-trough

'84-'91

16.1% CAGR

'04-18

8% CAGRA 14-YearSuper Cycle

'95-'9920.8% CAGR

T

Welcome

back to

2006

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Interest Rates And Oil Prices: Less Than 4%, And $50-85/bbl, Ideally; But The Ratio Matters Most

Interest Rates Oil Prices

COVID-19

Pressuring Both

Downward

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

BRIC Deliveries: All About China

China Russia India Brazil

2000: China is

2% of world

market

2018: China

is 23% of

world

market

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Large Jetliner Orders And DeliveriesBook-To-Bill No Longer A Thing

Deliveries Net Orders

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The Air Transport Market By Segment

Regionals Single Aisles Twin Aisles

Return to peak:

2024

Now With Greater Misery

Too much, too sudden (A330s,

777s, 787s, Gulf carriers, etc.)

Hit Hardest and Longest; Capacity

hangover, international traffic

problems, and shift towards single

aisles

737MAX

Problem, and

flood;

includes

delivery of

~450 already-

built jets

Return to peak: after

2030... probably

1h1997

1h2001

End2004

End2006

End2008

End2009

End2010

End2011

End2012

End2013

End2014

End2015

End2016

End2017

End2018

End2019

End2020

Boeing 130.0 107.8 79.5 199.1 300.4 271.1 270.0 300.1 317.0 365.3 421.2 412.9 398.9 402.1 408.0 378.8 297.1

Without ASC 606 341.8

Airbus 48.6 112.9 115.5 173.0 281.8 268.2 277.6 309.5 321.6 399.9 439.9 461.2 468.1 441.8 481.6 463.6 438.9

Bombardier — — — — — 1.9 3.3 4.9 5.5 6.7 9.0 9.0 8.7 8.5 — — —

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sFirm Order Backlog Values: Boeing Taking A Hit

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Airbus, Boeing Backlogs (November, w/ ASC 606)

Boeing Airbus

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Jetliner Market Shares By DeliveriesAirbus Seizes The Middle Market and First Place; Covid-19 Accelerates shift to Middle

Market

Boeing Airbus ex 321neo A321neo COMAC/Irkut

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Regional Deliveries By OEM (Value)

Bombardier CRJ Dash 8Q Embraer (pre-E-2) E-2 ATR SuperJet ARJ21

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Business Aircraft Market History(w/jetliners, RJs, turboprops)

Value Units

The Great

Expansion;

strong

economic

growth, new

models,

fractionals,

etc.

The 2003-

08 Boom. The Great

Bifurcation,

followed by

unwelcome

convergence

The great

stagnation

Post-

tech/comms

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bust

Market

creation;

initial

demand

sated

Smaller plane boom;

some military Learjet

distortion

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sBottom Half Bizjet Segment vs. Top Half

Bottom Half (

Eight Contradictory Bizav Indicators

•Three Mixed Leading Market Indicators:•Corporate profits (bad).•Equities markets (good).•Oil prices (bad).

•Five Mixed Immediate MarketHealth Indicators:

•Deliveries (bad)•Aircraft available for sale (just

modestly up…very good news).

•Aircraft prices (down somewhat).•Company layoffs (GD, BBD, TXT).•Utilization (down, but recovering much faster than airline

travel, with charter and fractionals looking great).

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sBottom Half Bizjet Segment vs. Top Half

Pre- and Post-Covid Forecasts

Bottom Half ($26M) Jan 2020 Bottom Now Top Now

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E-Jets E-2 ERJ Series EMB120 Tucano AMX KC-390 Gripen Phenom 100/300 Legacy 450/500

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US Military Rotorcraft Market Falling; International Military and Civil Stable

Civil Military (US) Military (International)

21.0%

13.9%

25.3%

13.2%

22.7%

3.3%

18.6%

8.0%

22.6%

16.7%

22.1%

6.4% 6.0%

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10%

15%

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25%

30%

Airbus Bell Boeing Leonardo Sikorsky Other Undetermined

Rotorcraft Manufacturer Market Shares2021-2030 vs 2011-2020

2011-2020 2021-2030

Global Aircraft Market Outlook In One Page(Deliveries, not Production)

Segment 2021 ’21-‘22 Risk Elevator Comment

Jetliners-SA 65.3% 10.8%Includes some already-built MAXs. Watch

China, fuel, traffic.

Jetliners-TA -4.1% 7.1%Overcapacity, slow international recovery,

secular shift to SAs

Regionals 6.7% 8.9%No Boeing supply chain effect on E-2; Scope

clause de-risked, but little growth.

Business Aircraft -1.8% 4.2%Another hit after many false starts over a

disappointing decade.

Civil Rotorcraft 1.2% 15.8%Large civil hit again. Too many new models

aimed at a weak segment (oil/gas).

Military Rotorcraft 17.7% -9.3%Programs end/slow; no risk of accelerated

downturn; FVL beyond forecast, exc FARA.

Military Transports 5.5% -5.0% A seriously underperforming market.

Fighters 35.9% 16.5%I like this market. F-35 (after COVID disruption),

plus strong Gen 4.5

All Civil 20.5% 8.7%SAJetliner snapback due to MAX, weakness in

other segments; more overcapacity risk.

All Military 23.7% 7.7%Global insecurity, Tension, Malice. Special

mission (ISR, B-21) also boosts topline.

Total Industry 21.5% 8.4% Back to peak in late 2024

Covid-19 Impact: Nothing New; Just An Acceleration of Pre-existing Trends

•Societal: growing inequality, growth of e-commerce over stores, movie theaters decline, normalization of formerly fringe beliefs, rising ill-liberal “democracies.”

•Macroeconomic: lower interest rates, excess savings, few investment opportunities, cheaper fuel, China de-coupling.

• Industry:• More point-to-point international routes (fragmentation); related

demand for smaller, mid-range jets.

• End of quadjets, marginalization of all larger jets.• Growing reliance on third party jetliner finance.• Jetliner price deflation.• Supplier rationalization, particularly 3/4th tier.• New product funding drought.• China indigenous substitute product development• Boeing single aisle breadth concerns; Airbus mid-market dominance.• Rolls-Royce under pressure.• OEMs and airlines: strong get stronger, weak get weaker.• Uncertain search for various alternative propulsion/fuel concepts.

Concluding Observations, and A Few Consolations

•The jetliner market might get worse.• This is a synthetic market, not an organic one.• Deliveries driven by exogenous factors: government aid, third-, first

party finance. These may not hold (particularly government aid).• But…a very steep decline will lead to record growth numbers in the

recovery, with attendant exuberance.

•Boeing faces a very serious mid market challenge.•Defense companies can grow their civil side. Will they?•There is some good news:• An airline paradise, except for the traffic.

• Fuel, Jet costs, Crew costs, interest rates, government support (for most, and for now); Stimulate traffic, or restore profit?

• Defense: budgets, export demand, industrial support.• Less business jet frothiness.• Financial sector stronger this time (“2008 was worse; you couldn’t

print money.”).

•A relatively isolated (severe) jetliner-only downturn?

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sWorld Aircraft Deliveries By Value, 1989-2030

Military Civil (January 2020) Civil (January 2021)