Aircraft market developments

11th July 2012 Chris Seymour, Head of Market Analysis

Agenda

What is the traffic & capacity situation today Overview of turboprop market Regional Jet developments Narrowbody & Widebody market Cargo overcapacity

Six months ago there were industry concernswhat has changed since?
END 2011

JULY 2012

Freight growth stalled Eurozone problems, US debt, stock markets down China slowed 2012 capacity being reviewed Financing costs concerns Used a/c market slow AMR Filing Record backlog

Freight growth still stalled Eurozone problems worse, knockon effect globally China taking some action 2012 capacity up 4% Financing costs going up Used a/c market still slow Airline failures esp in Europe Still there but more deferrals

International and domestic passenger traffic & capacity trends

10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
Traffic Year to Date +6.5% Capacity is +4.7%

Year-0n-year growth

Traffic - RPKs

Capacity - ASKs
Source - IATA

IATA forecast of airline profits/losses for 2011 & 2012

2012 a tougher year but still +$3bn
Latin America Middle East Europe North America Asia/Pacific (1) 0 1 2 3 US $ Billions 2012 Forecast 2011 Estimate 4
Source IATA

Turboprop market factors

19-seater market is localised; limited new production of Viking Twin Otter 400s and RUAG Dornier 228s 30-seat sector under cost pressure and no new replacement; still an active used market 40-50-seater new production limited to ATR42 & MA60 Most focus on 70-seat ATR72 & Q400 Horses for courses difference in capacity and speed suitable for differing markets Next evolution is the 90-seater turboprop with even better seat-mile costs ATR looking to decide soon new engines are the key (GE or PWAC?) Will Bombardier stretch the Q400 too? Other players? China MA700? Higher fuel price and good short sector economics driving demand

Firm orders placed for commercial turboprops

200

150 No of aircraft

100

50

0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 TD ATR BOMBARDIER OTHERS
Source Ascend Online Fleets

Regional Jet market factors

50-seater regional jet market has been undermined by higher fuel costs and changing US major strategy major fleet reductions underway expect many part-outs 70-seaters are also under pressure and backlog is small US Scope clauses limit demand to 70/85-seaters but expected uplift in near-term orders from American restructuring and Delta 50-seater replacement Main focus is on 90- to 100-seater RJs global orders to replace older RJs (e.g. 146, F100) and NBs (e.g. 737-500) and complement larger NBs on offpeak services. Embraer EJet is market leader and re-engining planned for late 2010s Bombardier CRJ1000 gaining more traction with Garuda orders/leases

Firm orders placed for Bombardier & Embraer RJs

300 250 200 No of aircraft 150 100 50 0 -50 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 TD Bombardier Embraer
Source Ascend Online Fleets

A regional jet market getting more crowded Comac ARJ21

78- to 90-seater; CF34 powered Orderbook predominantly Chinese carriers Delivery now delayed into 2013

Mitsubishi MRJ
70- to 90-seater aircraft, with PurePower PW1200G engine, currently the only next gen regional jet Recent delivery delay into 2015 Facing challenge of capturing near-term target markets and customers

Sukhoi Superjet
92 seater aircraft, with PowerJet SaM 146 engines Slow build-up in production rate Significant orders to date are from Russia, Indonesia and Mexico can it be more than Russian-focused?

The single-aisle market getting more crowded too !

A320neo 737 MAX CSeries C919 MS-21

Widebody firm orders backlog

747-8, 85 A380, 180 787, 845 A330, 315 767-300, 63

777, 347 A350, 548

Source Ascend Online Fleets

International and domestic cargo traffic & capacity trends

8% 6% 4%
Year-0n-year growth

2% 0% May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 -2% -4% -6% -8% -10% Traffic - FTKs
Traffic Year to Date -1.6% Capacity is +1.3%

Capacity - AFTKs

Source - IATA

Freighter capacity new & converted

Firm backlog of 200+ widebodies
100 90 80 70 60 50 40 30 20 10 0

No of aircraft

New Deliveries / On Order

Conversions & Committed

Source Ascend Online Fleets & Research

Parked widebody freighter capacity

747-8F MD-11F 747-400F A300F DC-10F A310F 747 Classic F 0 10 20 30 40 50 60 70

No of aircraft

Source Ascend Online Fleets

16

Commercial aircraft supply & demand scorecard

11th July 2012 Rob Morris, Senior Aviation Analyst

17

Delivery volumes barely declined in the last cycle

Source: Ascend Online Fleets + Ascend Forecast

18

The question on everybodys lips - are the OEMs building more aircraft than justified by demand?

19

At the bottom of the cycle all deliveries are for replacement

Early indications in 2012 that share of deliveries for replacement is growing

Source: Ascend Online Fleets, deliveries into passenger airline service only

20

Few delivery slots available before 2016

Source: Ascend Online Fleets

21

Order volumes starting to decline

Source: Ascend Online Fleets, Western Build Passenger Jets Only

22

Load factor changes indicate supply / demand balance

2011 decline indicates surplus of supply over demand, but promising early signs in 2012

Source: IATA

23

Airline yields increased in 2011..

..but reducing yield growth may be a sign of airlines losing pricing power

Source: IATA

24

Idle jet inventory blighted by white noise

Inventory of younger idle jet aircraft relatively static

Source: Ascend Online Fleets

25

Commercial jet availability starting to increase

July 2012 Availability Widebody 156 Single-Aisle 301 Regional Jet 139 Total 596

Source: Airfax, 12-month rolling average of aircraft available for lease or sale (excludes wet-lease / ACMI)

26

Retirements of younger aircraft are increasing

Source: Ascend Online Fleets

27

Single-Aisle aircraft utilisation 2.5% below peak levels

Source: Ascend Online Fleets

28

Lease rates remain weaker than expected

Source: Ascend V1 Values

29

Delivery deferrals on watch

Source: Ascend Online Fleets

30

Are the OEMs building more aircraft than justified by demand?

Negative Indicators (YES) Share of deliveries for replacement appear to be increasing Retirements of younger aircraft are increasing Used aircraft availability for sale / lease starting to increase Lease rates remain weaker than expected Single-aisle aircraft utilisation remains 2.5% below 2007 levels Airline yield growth reducing Positive Indicators (NO) All aircraft manufactured in 2010 / 2011 were financed and delivered into service Passenger load factors ticked up in 2012 to date Passenger and cargo yields increased in 2011 Single-aisle aircraft backlogs remain strong with limited / no near-term delivery availability Idle jet inventory marginally reduced Airline requests for delivery deferrals were declining

The definitive answer is neither yes nor no! All aircraft manufactured recently have been financed and delivered There appears to be some impact on the secondary market though.. ..more aircraft retirements and earlier ..reduced utilisation of in-service assets

For now this issue is on watch with potential negative implications for aircraft values and rentals if the balance of positive and negative indicators shifts towards the latter
31

The information contained in our databases and used in this publication has been assembled from many sources, and whilst reasonable care has been taken to ensure accuracy, the information is supplied on the understanding that no legal liability whatsoever shall attach to Ascend A Flightglobal Advisory Service, part of Reed Business Information Limited, its offices, or employees in respect of any error or omission that may have occurred 32