Nadol

North America Equity Research
07 March 2011
Aerospace and Defense

Business Jet Monthly - March 2011
This report contains our industry delivery projections plus data on market share and the used market. The industry is an important driver for many companies we cover, including Bombardier, Embraer, General Dynamics, Honeywell, Rockwell Collins, Spirit AeroSystems, and Textron. 2011 off to a good start. We are gaining confidence that a recovery is taking hold following good news in recent weeks, including most notably the 74 net orders Bombardier booked in Q4. Orders for the recently launched Global 7000/8000 boosted the number, but we believe demand is at least starting to improve more broadly. Bombardier will keep the order momentum going in Q1 with NetJets recent order for 50 Globals, and this takes place in the context of an improving economic outlook and rising corporate profits, which bode well for demand. Were not popping the champagne just yet, however, mainly because 11.0% of used in-production aircraft are for sale at prices not seen since the late 1990s. The 15-year average is ~8%. Nevertheless, used inventory is down 330 bps from the 2009 peak, including 30 bps in Feb, and prices are up 3% YTD. Wed like to see used inventory continue falling and prices rise along with further evidence of backlog stabilization to move beyond our current state of cautious optimism. Used inventory declined 30 bps. The used jet inventory of in-production models declined by 30 bps to 11.0% in Feb. By category, Medium and Light jet inventories both declined by 40 bps, while Heavy jet inventories decreased by 10 bps. All six OEMsEmbraer (-110 bps), Cessna (-40 bps), Hawker Beechcraft (-40 bps), Dassault (-30 bps), Bombardier (-20 bps), and Gulfstream (-10 bps)saw inventories decline. Average asking price increased 0.9%. Average price increased 0.9% to $11.15 mln in Feb, recovering 3.1% from the low of $10.8 mln in Dec. By category, Heavy (+1.2%) and Medium jets (+1.1%) witnessed price expansion, while Light jet (-1.1%) prices declined. Flight ops still growing, but not robustly. Flight ops increased only 4% in Jan after rising 13% in 2010. On a seasonally adjusted basis, flight ops decreased 8% sequentially. Despite rising ~20% off the 2009 low, they remain ~20% below the 2007 peak. Q4 deliveries up 7.5% y/y. The six major OEMs plus Boeing and Airbus delivered 272 business jets in 4Q10, the first y/y increase since 4Q08. By manufacturer, Bombardier, Cessna, Dassault, Hawker, and Boeing deliveries increased, while Embraer and Airbus delivered fewer aircraft and Gulfstream was flat. For full year 2010, deliveries fell 12% to 763. By volume Cessna (-1,000 bps), Hawker (-170 bps), and Bombardier (-30 bps) lost share in 2010, while Embraer (+500 bps), Dassault (+360 bps), Gulfstream (220 bps), Boeing (80 bps), and Airbus (+40 bps) gained. By value, Cessna, Bombardier, and Hawker lost market share at the expense of other OEMs.
Aerospace/Defense Joseph B. Nadol III

AC
(1-212) 622-6548 joseph.b.nadol@jpmorgan.com
Seth M. Seifman, CFA

(1-212) 622-5597 seth.m.seifman@jpmorgan.com
Rica D Mendoza
(1-212) 622-8113 rica.d.mendoza@jpmorgan.com
Electrical Equipment & MultiIndustry C. Stephen Tusa, Jr CFA

(1-212) 622-6623 stephen.tusa@jpmorgan.com
Drew Pierson
(1-212) 622-6627 drew.a.pierson@jpmorgan.com
Paul Mammola, CFA

(1-212) 622-6382 paul.mammola@jpmorgan.com J.P. Morgan Securities LLC
See page 35 for analyst certification and important disclosures.

J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com C. Stephen Tusa, Jr CFA (1-212) 622-6623 stephen.tusa@jpmorgan.com
North America Equity Research 07 March 2011
Table of Contents
Business Jet Delivery Forecast ..............................................3
Macro Drivers & Market Cycle ...................................................................................4 Industry Financial Data................................................................................................7 Quick Reference Specification Table.........................................................................10
Overall Market Trends............................................................11

Market Share..............................................................................................................11 Used Market...............................................................................................................13
Heavy Jets...............................................................................14
Market Share Trends..................................................................................................17 Used Market Trends...................................................................................................18 G500/G550/V.............................................................................................................19 Global 5000/Express/Express XRS ...........................................................................19 Falcon 900/900B/900C/900DX/900EX .....................................................................19 G300/G350/G400/G450/IV/SP..................................................................................20 Challenger 601-3R/604/605.......................................................................................20 Falcon 2000/2000EX .................................................................................................20 Legacy 600.................................................................................................................21
Medium Jets............................................................................22
Market Share Trends..................................................................................................22 Used Market Trends...................................................................................................23 Citation X...................................................................................................................24 Challenger 300...........................................................................................................24 G200 ..........................................................................................................................24 Citation Sovereign .....................................................................................................25 G100/150 ...................................................................................................................25 Hawker 800A/800B (215-800)/800XP/800XPI/850XP.............................................25 Learjet 55/55B/55C/60/60XR ....................................................................................26
Light Jets ................................................................................27

Market Share Trends..................................................................................................27 Used Market Trends...................................................................................................28 Learjet 40/40XR/45/45XR.........................................................................................29 Citation Excel/XLS....................................................................................................29 Citation V/Ultra/Encore/Encore+ ..............................................................................29 Beechjet 400/400A/Hawker 400XP...........................................................................30 CitationJet CJ3...........................................................................................................30 Premier I/IA ...............................................................................................................30 CitationJet CJ2/CJ2+ .................................................................................................31 CitationJet (Model 525)/CJ1/CJ1+ ............................................................................31
Fractional Jets ........................................................................32

Provider Fleet Trends.................................................................................................32 Share Sales Trend ......................................................................................................33
Business Jet Delivery Forecast

Table 1: Aircraft Deliveries, 1995-2012E
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E Bombardier Challenger 601-3R,604 Challenger 300 Challenger 800 Global Express Global 5000 Learjet 40 Learjet 45 / 45X Learjet 60/60XR Learjet 85 Discontinued Models Total Cessna (Textron) Citation Mustang Citation Jet/CJ1 Citation Jet/CJ2 Citation Jet/CJ3 Citation Jet/CJ4 Citation Encore Citation Excel Citation Sovereign Citation X Discontinued Models Total Dassault Falcon 50/EX Falcon 900/B/C Falcon 900DX Falcon 900EX Falcon 2000 Falcon 2000EX Falcon 2000LX Falcon 7X Total Embraer Phenom 100 Phenom 300 Legacy 500 Legacy 600/shuffle Lineage 1000 Discontinued Models Total Gulfstream G100 / G150 G200 / 250 G300 / 350 G400 / 450 / G IV / IVSP G500 G550 / G V / VSP G650 Total Hawker Beechcraft Premier I Hawker 400XP Hawker 800//850/900XP Hawker 4000 Discontinued Models Total Other Very Light Jets Diamond D-Jet HondaJet Total Grand Total w/o VLJs % change Grand Total w/ VLJs % change 24 23 19 67 32 24 13 68 34 36 42 38 41 31 3 32 35 30 17 7 43 71 63 27 32 32 35 29 17 12 21 22 24 28 17 9 79 100 173 207 180 101 24 29 36 29 1 28 51 55 4 18 14 20 14 22 4 17 18 17 21 26 17 22 30 30 9 18 15 23 2 70 129 188 213 35 51 12 25 23 23 34 23 226 45 34 44 78 23 82 65 17 388 2 10 18 1 33 6 70 35 35 32 27 13 20 46 138 54 41 67 162 44 60 17 27 25 21 27 26 247 101 20 56 88 28 80 77 16 466 1 4 19 3 18 6 21 72 2 36 38 39 30 12 20 55 156 31 35 88 6 160 36 38 33 29 7 6 25 24 26 25 14 6 19 10 13 12 173 150 125 73 14 3 21 17 40 20 19 5 5 44 22 33 16 7 3 289 178 1 17 1 3 23 32 77 3 21 30 41 95 32 30 7 26 26 11 15 13 160 45 6 28 22 25 12 20 20 7 185 18 20 32 70 125 35 12 4 176 12 9 32 44 12 109 10 35 16 61 35 35 10 29 29 15 18 15 186 75 11 37 28 31 16 25 25 7 255 20 23 32 75 155 40 3 20 4 222 20 15 20 44 22 121 6 44 20 70 10 8 18
JPM Delivery Forecast, 2012E-2014E

Total w/ VLJs 12E 699 947 13E 807 1,112 14E 903 1,233
Source: J.P. Morgan estimates.
1 42 44 63 64 59 56 61 30 22 20 18 25 8 41 86 56 27 23 37 6 48 72 6 37 36 21 24 17 14 15 39 79 85 81 48 55 62 73 9 46 57 7 28 30 36 37 34 31 18 15 14 12 73 78 90 91 82 66 48 41 31 25 21 18 115 127 181 200 216 252 306 305 196 181 249 309 8 10 10 28 6 26 32 30 26 8 64 1 8 3 21 33 11 24 3 38 29 26 3 58 10 7 16 18 51 6 22 29 57 43 33 2 78 13 5 15 14 47 14 32 29 75 11 8 16 34 69 9 1 39 31 80 18 6 23 26 73 2 2 13 6 21 35 75 5 5 10 4 17 35 66 8 8 9 15 29 32 85 8 3 10 12 16 49 13 13 5 19 8 13 1 28 74 5 3 15 11 29 63 13 13 9 13 5 19 32 78 5 1 2 16 6 21 51 14 14 5 4 16 6 30 61 27 27
97 100 1 26 18 10 5 8 121 144 11 8 30 45 94 16 11 51 20 98 13 11 31 44 99 11 12 34 16 73
11 5 6 25 37 36 34 35 88 101 18 25 55 98
12 20 14 22 12 12 14 16 37 43 89 113
43 45 51 48 55 67 91 100 118
29 29 37 30 23 19 24 28 53 53 46 47 50 58 64 94 100 115 141 140
306 324 446 513 638 740 765 659 502 579 732 862 974 1,033 630 566 14% 6% 37% 15% 24% 16% 3% -14% -24% 15% 26% 18% 13% 6% -39% -10% 306 324 446 513 638 740 765 659 502 579 732 863 1,019 1,136 852 739 14% 6% 37% 15% 24% 16% 3% -14% -24% 15% 26% 18% 18% 11% -26% -13%
591 699 4% 18% 761 947 3% 24%
VLJs include: Cessna Mustang, Diamond D-Jet, Embraer Phenom 100, and HondaJet. Source: GAMA, Company reports, and J.P. Morgan estimates. 3
Macro Drivers & Market Cycle

Demand for business jets is largely a function of corporate profits. During the last cycle, deliveries peaked in 2001 after US corporate profits reached a high in 1999, while deliveries bottomed out in 2003 after profits fell to cyclical lows in 2001. The downturn itself lasted for 2 years before positive growth returned in 2004 (see Figure 1). At the same time, global profits peaked in 2000 as the downturn in US profits did not fully affect global profits for a year. Global profits resumed minimal growth again in 2002, with more substantial growth following in 2003 as deliveries hit their low point (Figure 2).
Figure 1: US Corporate Profits vs. Business Jet Deliveries (# of aircraft), 1995-2013E
US Corporate Profits ($ blns)
(MSCI World Index $ EPS) Global Profits
Business jet deliveries lag US corporate profits by 2 years on peak-and-trough basis.
US Corporate Profits 1500 1250 Deliveries 1000 750 500 250 0
Deliv eries 8000 7000 6000 5000 4000 3000 2000 1000
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10E11E12E13E
Source: GAMA, BEA, J.P. Morgan estimates. Excludes Very Light Jets as delineated in Table 1.
Figure 2: Global Corporate Profits vs. Business Jet Deliveries (# of aircraft), 1995-2014E
Global Profits 1500 1250 Deliveries 1000 750 500 250 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10E 11E 12E 13E 14E
Source: GAMA, BEA, MSCI, J.P. Morgan estimates. Excludes Very Light Jets as delineated in Table 1.
Deliv eries 120 100 80 60 40 20 0
US corporate profits peaked in 2006 and business jet deliveries (excluding VLJs) peaked two years later once again, in 2008. Business jet deliveries declined 39% in 2009, steeper than last cycles 14% initial drop-off, with OEMs cutting production rates across all categories of jets. 2010 was down another 10%, and we are forecasting a modest increase in deliveries this year, followed by a pickup in 2012.
Figure 3: US Corporate Profits vs. Business Jet Deliveries (% chg. y/y), 1995-2013E
Deliv eries Trough 40% 20% 0% -20% -40% 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10E 11E 12E 13E
Source: GAMA, BEA, J.P. Morgan estimates.
US Corporate Profits
Deliv eries
Figure 4: Impact of VLJs on Total Deliveries

1,200 900 600 300 0
Deliveries Deliveries w/ VLJs
2011E
2012E
2013E
Source: GAMA, Company reports, J.P. Morgan estimates. Very Light Jets, as delineated in Table 1, include Cessna Mustang, Diamond D-Jet, Embraer Phenom 100, and HondaJet.
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Figure 5: Price ($MM) vs. Age (years)

$60 G650 $50
Global Ex press XRS Lineage 1000
G550 Global Express
$40
Falcon 7X Global 5000 G450 Falcon 900DX G350 Falcon 2000EX EASy Legacy 600
G500
Falcon 900EX
$30
Falcon 2000 Challenger 604 G200 Falcon 50/EX Citation X
$20 Learjet 85 $10
Hawker 4000 Legacy 500 Legacy 450
Challenger 300
$0 -5 -4 -3 -2
Citation Sovereign G150 Haw ker 900XP Haw ker 850XP Learjet 60XR Haw ker 750 Citation XLS Learjet 45XR Citation XLS+ Learjet 45 Citation Encore Citation CJ4 Learjet 40XR Premier IA Citation Encore+ Citation Excel Haw ker 400XP Citation CJ3 Phenom 300 Citation Brav o Citation CJ1 Citation CJ2+ Citation CJ1+ Citation CJ2 Phenom 100 Citation Mustang D-Jet Eclipse 500 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Learjet 60
16
17
Source: JetNet, J.P. Morgan estimates. Note: Bold indicates clean sheet design, non-bold indicates derivative models.
Figure 6: Price ($MM) vs. Range (km)

$60 G650
$50 G550 Global Express $40 Lineage 1000 Falcon 7X Falcon 900EX Global 5000 G450 G350 Falcon 2000EX EASy Falcon 2000 Challenger 604 Legacy 600 G200 Falcon 50/EX Citation X Hawker 4000 Challenger 300 Legacy 500 Citation Sovereign Learjet 85 Legacy 450 G150 Citation XLS+ Citation XLS G100 Learjet 45 Learjet 40XR Citation Encore Learjet 60 Haw ker 400XP Citation CJ3 Phenom 300 Citation Brav o Premier IA Citation CJ2+ Citation CJ1+ Citation Mustang Phenom 100 Eclipse 500 D-Jet 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 11000 12000 13000 G500
$30
$20
$10
$0
Source: JetNet, J.P. Morgan estimates. Note: Bold indicates clean sheet design, non-bold indicates derivative models. 6
Industry Financial Data

In this section we provide comparative industry data for backlog deliveries, estimated book-to-bill, and profitability.
Figure 7: Industry Backlog by Company, 1999-3Q10
$ in billions
$100 $80 $60 $40 $20 $0

- 40% + 41% + 46% + 61%
+ 29%
- 41%
- 19%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E
BBD Cessna Dassault Embraer Gulfstream Hawker Beechcraft
Source: Company reports, J.P. Morgan estimates.
Figure 8: Industry Deliveries by Company, 1999-2012E
$100 $80 $60 $40 $20 $0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E
BBD Cessna Dassault Embraer Gulfstream Hawker Beechcraft
Source: Company reports, GAMA. Note: Excludes VLJs.
Figure 9: Book-to-Bill Ratio by Company, 2004-2009

4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 2004 BBD
2005 Cessna (Gross)
2006 Gulfstream
2007
2008 Hawker Beechcraft
2009 Dassault
Source: Company reports, J.P. Morgan estimates. Data as available.
Figure 10: Industry EBIT by Company, 2003-2009

$ in millions
3500 3000 2500 2000 1500 1000 500 0 -500 2003 BBD 2004 Cessna 2005 Dassault 2006 Embraer 2007 Gulfstream 2008 Haw ker Beechcraft 2009
Source: Company reports, J.P. Morgan estimates.
Figure 11: Monthly Flight Operations Business Jets

Takeoffs and landings
450,000 400,000 350,000 300,000 250,000
Source: FAA, J.P. Morgan estimates.
Figure 12: Change in Monthly Flight Operations Business Jets

% change, y/y
Jan-00
Jan-01
Jan-02
Total Operations
Jan-03
Jan-04
Jan-05
12 per. Mov. Avg. (Total Operations)
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
30% 20% 10% 0% -10% -20% -30% -40%
Source: FAA, J.P. Morgan estimates.
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Table 2: Historical Fleet Size

Total 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: JetNet.
Heavy Jets 497 588 649 706 761 815 868 960 1,043 1,151 1,284 1,482 1,722 1,956 2,154 2,337 2,511 2,714 2,957 3,212 3,476 3,773 4,078
Medium Jets 1,414 1,480 1,550 1,599 1,666 1,738 1,809 1,887 1,962 2,074 2,190 2,335 2,496 2,663 2,799 2,913 3,055 3,259 3,488 3,803 4,260 4,426 4,560
Light Jets 3,420 3,523 3,652 3,790 3,920 4,053 4,179 4,329 4,470 4,676 4,923 5,212 5,562 5,953 6,336 6,590 6,874 7,170 7,552 8,057 8,606 9,000 9,324
5,331 5,591 5,851 6,095 6,347 6,606 6,856 7,176 7,475 7,901 8,397 9,029 9,780 10,572 11,289 11,840 12,440 13,143 13,997 15,072 16,342 17,199 17,962
Quick Reference Specification Table

Table 3: Business Jets Quick Reference Guide
Model
SF50* D-Jet* Eclipse 500* PiperJet* Mustang Phenom 100 HondaJet* Citation CJ1+ Citation CJ2+ Citation Bravo Premier I Phenom 300 Citation CJ3 Beechjet 400XP Citation Encore+ Learjet 40 Learjet 45 Citation XLS+ Learjet 60 Hawker 800 G150 Legacy 450* Citation Sovereign Learjet 85* Legacy 500* Challenger 300 Hawker 4000 Citation X Falcon 50/EX G200 G250* Legacy 600 Challenger 605 Challenger 800 Series Falcon 2000DX/EX G350 G450 Global 5000 Falcon 900DX/EX G500 Falcon 7X Lineage 1000 Global Express G550 G650* BBJ1 A318 Elite BBJ2 ACJ
Make
Cirrus Design Diamond Eclipse Piper Aircraft Cessna (Textron) Embraer Honda Cessna (Textron) Cessna (Textron) Cessna (Textron) Hawker Beechcraft Embraer Cessna (Textron) Hawker Beechcraft Cessna (Textron) Bombardier Bombardier Cessna (Textron) Bombardier Hawker Beechcraft Gulfstream (GD) Embraer Cessna (Textron) Bombardier Embraer Bombardier Hawker Beechcraft Cessna (Textron) Dassault Gulfstream (GD) Gulfstream (GD) Embraer Bombardier Bombardier Dassault Gulfstream (GD) Gulfstream (GD) Bombardier Dassault Gulfstream (GD) Dassault Embraer Bombardier Gulfstream (GD) Gulfstream (GD) Boeing Airbus Boeing Airbus
Engine
Williams Williams P&W Canada Williams P&W Canada P&W Canada GE-Honda Williams / Rolls-Royce Williams / Rolls-Royce P&W Canada Williams P&W Canada Williams / Rolls-Royce P&W Canada P&W Canada Honeywell Honeywell (Garrett) P&W Canada P&W Canada Honeywell Honeywell Honeywell P&W Canada TBD Honeywell Honeywell Pratt & Whitney Rolls-Royce (Allison) Honeywell P&W Canada Honeywell Rolls-Royce GE GE P&W Canada Rolls-Royce Rolls-Royce Rolls-Royce Honeywell Rolls-Royce P&W Canada GE Rolls-Royce Rolls-Royce Rolls Royce CFM CFM / IAE CFM CFM / IAE
Avionics
Garmin Garmin Garmin/Honeywell/IS&S Garmin Garmin Garmin Garmin Rockwell Collins Rockwell Collins Honeywell Rockwell Collins Garmin Rockwell Collins Rockwell Collins Rockwell Collins Honeywell Honeywell Rockwell Collins Rockwell Collins Rockwell Collins Rockwell Collins Rockwell Collins Honeywell TBD Rockwell Collins Rockwell Collins Honeywell Honeywell Rockwell Collins Rockwell Collins Rockwell Collins Honeywell Rockwell Collins Rockwell Collins Honeywell Honeywell Honeywell Honeywell/Rockwell Collins Honeywell Honeywell Honeywell Honeywell Honeywell/Rockwell Collins Honeywell Honeywell Rockwell Collins/Honeywell BFE Rockwell Collins/Honeywell BFE
Range (km)
1,900 2,500 2,084 2,400 2,130 2,148 2,185 2,696 2,989 3,685 2,590 3,333 4,001 3,519 2,696 3,378 3,704 3,805 4,461 5,560 5,000 4260 5,222 5556 5560 5,741 5,753 7,040 6,083 6,667 6,300 6,504 7,491 4,683-6,546 6,019-7,037 7,038 8,055 8,889 7,593-8,333 10,740 10,500 7,778 12,038 12,500 12,964 11,293 7,900 10,334 11,100
Seating
5-7 2-5 2-4 6 4 4-6 6-7 6 6 7 6-7 6-7 6 7-9 4-6 6-7 8 8 6-10 6-14 6-8 2-8 8-12 8 2-10 8-9 8-14 10 9-12 8-10 8-10 13 12 15-90 8-12 11-14 11-14 8-16 8-19 14-19 8-19 19 10-24 14-19 11-18 19-149 14-18 19-189 19-50
Price ($M)
1.72 1.9 2.15 2.2 2.5 2.9 3.9 4.6 5.2 6.1 6.2 6.7 7.1 7.2 8.1 9.0 10.3 11.6 8.3 13.8 14.0 15.3 16.2 ~16.0 18.5 20.0 20.0 20.1 21.2 22.1 24.0 24.7 26.2 28.0 29.0 31.0 34.9 36.8 37.0 39.6 40.6 41.0 45.3 47.6 58.0 58.0 48.0 69.5 80.0
Source: Company reports, Teal Group, Business & Commercial Aviation. Note: * represents in development aircraft.
Figure 13: Product Pricing Span by Company

$ in millions
Bombardier Cessna Dassault Embraer Gulfstream HawkerBeechcraft Boeing Airbus <$5 5 10 15 20 25 30 Price ($ in millions) 35 40 45 $50+
Source: Company data, Business & Commercial Aviation, J.P. Morgan estimates.
10
Overall Market Trends

Market Share
Deliveries up by 7.5% in 4Q The six major business jet OEMs plus Boeing and Airbus delivered 272 business jets in 4Q10, 7.5% more than 4Q09 and nearly twice the previous quarter. Bombardier (+10) delivered 43 jets and gained 80 bps of market share by volume as it witnessed increased deliveries for Challenger and Global, while Cessna (+10) delivered 78 jets and gained 80 bps, primarily due to increases in deliveries of Mustang, Sovereign, and the CJ-Series. Boeing delivered 3 more business jets in 4Q10 and gained 40 bps. Embraer (-4) and Airbus (-4) delivered 61 and 2 jets in 4Q10 and lost 100 bps and 80 bps, respectively. Gulfstream lost 30 bps, while Hawker Beechcraft and Dassault remained essentially flat. Market size by value increased 6.5% y/y Revenues from shipments increased 6.5% in 4Q10 as compared to a year ago and 50% vs. the previous quarter. On a TTM basis, Bombardier, Boeing, and Embraer gained 150 bps, 120 bps, and 40 bps of market share, respectively, at the expense of Airbus, Gulfstream, Hawker Beechcraft, Cessna, and Dassault which lost 180 bps, 60 bps, 50 bps, 20 bps, and 10 bps, respectively.
Figure 14: Market Share by Volume, 1995-2009
100% 90% 80% 70%
Market Size by Volume

2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995
Figure 15: LTM

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
200 400 600 800 1000 120
60% 50% 40% 30% 20% 10% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Teal Group, J.P. Morgan estimates.
4Q09 1Q10 2Q10 3Q10 4Q10
Market Size by Value

2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995
Bottom to Top : Bombardier, Cessna, Dassault, Gulfstream, Hawker Beechcraft, Embraer, Airbus, Boeing
Figure 16: Market Share by Value, 1995-2009

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Figure 17: LTM

100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
$B 0 4 8 12 16 20 24
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
0%
4Q09
1Q10
2Q10
3Q10
4Q10
Bottom to Top : Bombardier, Cessna, Dassault, Gulfstream, Hawker Beechcraft, Embraer, Airbus, Boeing
11
2010 Deliveries down by 12% y/y, net 34% down from 2008 peak of 1,154. Cessna contributed most to this decline as it delivered only 178 jets in 2010 compared to 289 in 2009. As a result, Cessna lost 1,000 bps of market share by volume and 600 bps by value. All Cessna models witnessed significant decreases in deliveries except Encore+. Cessna also delivered 19 CJ4s in 2010, its first year in service. Embraer gained 500 bps of market share by volume but only 50 bps by value as it delivered 145 jets in 2010, 126 of which were lower-price Phenoms. Dassault gained 360 bps of market share by volume and 470 bps by value as deliveries increased from 77 in 2009 to 95 this past year. Hawker Beechcraft delivered 25 fewer jets compared to 98 last year and lost 170 bps of market share by volume and 200 bps by value. Bombardier (-23) delivered 150 jets and lost 30 bps of market share by volume and 170 bps by value. Gulfstream (+5) delivered 99 jets and gained 220 bps of market share by volume and 100 bps by value. Boeing delivered 13 jets this year and gained 80 bps by volume and 260 bps by value, while Airbus delivered 13 jets this year and gained 40 bps of market share by volume and 90 bps by value. By Category, for full year 2010, Heavy jets gained a substantial 990 bps of market share by volume, resulting in 54% total market share, while Light (22%) and Medium (24%) jets lost 640 bps and 350 bps of share by volume, respectively. Similarly, by value, Heavy jets gained 820 bps at the expense of Medium (-390 bps) and Light (-430 bps). Heavy jets now have more than three quarters of the market by value (79%), while Medium jets have 15% and Light jets have only 6%.
Figure 18: Category by Volume, 1995-2009

100% 80% 60% 40% 20% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Figure 19: LTM

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
4Q09 1Q10 2Q10 3Q10 4Q10
Bottom to Top : Light, Medium, Heavy

Source: Teal Group., J.P. Morgan estimates.
Figure 20: Category by Value, 1995-2009

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Figure 21: LTM

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
4Q09 1Q10 2Q10 3Q10 4Q10
Bottom to Top : Light, Medium, Heavy

12
Used Market
Active Fleet in Operation Breakdown by Class
Light 40%
Heavy 31%
Used jet inventories decreased 0.3%, asking prices increased 0.9% Used jet inventory, measured by aircraft for sale as % of active fleet, decreased by 30 bps to 11.0% in February. Inventories are 330 bps off the peak of 14.3%, 120 bps of which occurred last year. Medium and Light jet inventories both decreased by 40 bps to 12.7% and 11.7%, respectively, while Heavy jet inventories decreased by 10 bps to 8.8%. 13 of 24 tracked models witnessed decreases in inventories, 10 saw increases, while Citation V/Ultra/Encore inventories remained flat. Average asking price increased 0.9% to ~$11.15 mln in February, recovering 3.1% from the low of ~$10.8 mln in December. Prices are 6.2% down from the year-ago level and 31.8% off the Feb-08 peak of $16.3 mln. Heavy and Medium jets saw increases of 1.2% and 1.1%, respectively, while Light jets saw a decline of 1.1%. 13 of 24 tracked models saw prices rise, 9 saw decreases, and Hawker 4000 saw flat prices. Also 1 Falcon 7 X is available for sale at $4.89 mln. Inventories are declining at a mild pace and touched the lowest level in February since Oct-08 but they remain above historical levels. The moderate decline in inventories and improvement in average prices are good signs for the market and if these trends continue they should help support a recovery in demand for new jets.
Figure 22: Average Asking Price and % of Active Fleet for Sale
Medii um 29%
Source: JetNet.
Active Fleet in Operation Breakdown by Manufacturer

Hawker Beechcr aft Embraer Gulfstre am 13%
16%
1%
Falcon 11% Airbus 1% Boeing 1%
Cessna 38%
Bombar dier 19%
$MM 17 15 13 11 9 7 5 3
Avg. asking price
Jets for Sale as % of Active Fleet
16% 14% 12% 10% 8% 6% 4% 2%
Dec-95
Dec-96
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Source: JetNet.
Source: JetNet, J.P. Morgan estimates.
Note: We only consider active platforms in this section (major OEMs) either clean sheet designs or platforms currently out of production but that have in-production derivatives.
Figure 23: % Change in Average Asking Price

% Y/Y Change in Price 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% Dec-96 Mar-98 Jun-99 Sep-00 Dec-01 Mar-03 Jun-04 Sep-05 Dec-06 Mar-08 Jun-09 Sep-10
13
Used Market by Company

Inventories down for all; prices strong for all except Embraer and Hawker Used jet inventories for all major OEMs declined in February. Embraer Legacy 600 inventories decreased 110 bps, following a 70 bps decline the previous month. Cessna inventories decreased 40 bps, primarily from the decline in Citation CJ inventories. Dasault inventories fell 40 bps, as both Falcon 900 and Falcon 2000 witnessed decreased inventories. Hawker Beechcraft inventories were down by 40 bps, while Gulfstream and Bombardier inventories decreased by 10bps and 20 bps, respectively. Gulfstream continues to have the lowest inventory at 7.1% of the active fleet, followed by Dassault (9.7%). Hawker (13.8%) held its position as the OEM with the highest inventory, while Bombardier and Cessna inventories were at 11.5% and 11.2%, respectively. Embraer moved below Cessna to 10.9%. Average asking prices increased 0.9% in February compared to a 2.1% increase in January. OEMs with Heavy and Medium jet exposure witnessed increases, while OEMs with Light jet exposure saw a decline in pricing. Dassault had an increase of 2.2% driven by price expansion for Falcon 900s. Gulfstream prices were up by 1.8%, building on a 6% increase the previous month. Embraer Legacy 600 prices decreased by 1.2%, while Hawker witnessed price contraction of 0.6%. Cessna and Bombardier reported 0.8% and 0.6% increases in prices, respectively.
Figure 24: Bombardier
$MM 30 26 22 18 14
average asking price Jets for Sale as % of Active Fleet
16% 14% 12% 10% 8% 6% 4% 2%
10 0% Feb-98 Feb-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11
Source: Jetnet, J.P. Morgan estimates.
Figure 25: Cessna

$MM average asking price Jets for Sale as % of Active Fleet 10.0 14% 9.5 12% 9.0 8.5 10% 8.0 8% 7.5 6% 7.0 6.5 4% 6.0 2% 5.5 0% 5.0 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11
14
Figure 26: Dassault

$MM 26 24 22 20 18 16 14 12 Feb-98 May-99 Aug-00 Nov-01 Feb-03 May-04 Aug-05 Nov-06 Feb-08 May-09 Aug-10
Average Asking Prices Jets for Sale as % of Active Fleet
16% 14% 12% 10% 8% 6% 4% 2% 0%
Figure 27: Hawker Beechcraft

Average Asking Price Jets for Sale as % of Active Fleet $MM 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 Feb-98 May-99 Aug-00 Nov-01 Feb-03 May-04 Aug-05 Nov-06 Feb-08 May-09 Aug-10
18% 16% 14% 12% 10% 8% 6% 4% 2% 0%
Source: Jetnet, J.P. Morgan estimates. Note: The sudden increase in prices from Sep-09 is due to inclusion of Hawker 4000.
Figure 28: Gulfstream

$MM 40 35 30 25 20 15 Feb-98 May-99 Aug-00 Nov-01 Feb-03 May-04 Aug-05 Nov-06 Feb-08 May-09 Aug-10
Avg. asking price Jets for Sale as % of Active Fleet
14% 12% 10% 8% 6% 4% 2% 0%
15
Figure 29: Embraer

$MM 25 20 15 10 5 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 10% 5% 0% Feb-11
20% 15%
16
Heavy Jets
Market Share Trends
4Q10 Heavy jet deliveries increased 12.5% to 90 aircraft, compared to 80 in 4Q09, and were up 45% from the previous quarter. Bombardier, Dassault, Boeing, and Embraer saw increases in deliveries, while Gulfstream and Airbus saw declines. Bombardier deliveries increased by 7 units to total 25 in 4Q10 and Dassault delivered 2 more jets to 28, while Embraer delivered 3 more jets to 13 (11 Legacy 600s (+4) and 2 Linage 1000s (-1)). Gulfstream delivered 18 jets, including 8 G400/IV (+1) and 10 G550/V (-2) in 4Q10. Boeing (+3) deliveries increased to 4, while Airbus (-2) deliveries fell to 2. By volume, on a TTM basis, Bombardier (+130 bps), Boeing (+90 bps), and Embraer (+80 bps) gained market share at the expense of Airbus (-150 bps), Gulfstream (-120 bps), and Dassault (-40 bps). Dassault gained 410 bps and Bombardier lost 250 bps this past year. Cessna and Hawker Beechcraft do not participate in the Heavy jet market. Similarly, by value, Bombardier (+160 bps), Boeing (+160 bps), and Embraer (+40 bps) gained, while Airbus (-240 bps), Gulfstream (-100 bps), and Dassault (-20 bps) lost market share.
100% 90% 80%

2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995
Figure 31: LTM

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
100
150
200
250
300
350

2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995
0 2 4 6 8 10 12 14
50
70% 60% 50% 40% 30% 20% 10% 0% 1995 1997 1999 2001 2003 2005 2007 2009 2Q10 4Q10
4Q09 1Q10 2Q10 3Q10 4Q10
Bottom to Top : Bombardier, Dassault, Embraer, Gulfstream, Airbus, Boeing

Source: Teal Group, J.P. Morgan est.

100% 90% 80% 70% 60% 50%
Figure 33: LTM

100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
$B
40% 30% 20% 10% 0% 1995 1997 1999 2001 2003 2005 2007 2009 2Q10 4Q10
0%
4Q09 1Q10 2Q10 3Q10 4Q10
Bottom to Top : Bombardier, Dassault, Embraer, Gulfstream, Airbus, Boeing

17
Used Market Trends

Gulfstre am 36%
Used jet inventories decreased 0.1%, while asking prices increased 1.2% Used jet inventory, measured by aircraft for sale as % of active fleet, decreased 0.1% to 8.8% in February, remaining below 9.0% for the third straight month. Heavy jet inventories have decreased 390 bps from the Jul-09 peak of 12.7%, 200 bps of which occurred in 2010. Inventories decline for Legacy 600 (-110 bps), Falcon 900 (-60 bps), G500/550/V (-40 bps), Global 5000/Express (-30 bps), Hawker 4000 (-20 bps), and Falcon 2000 (-20 bps) was mostly offset by Challenger 601-3R/604/605 (+80 bps) and G300/350/400 (+10 bps).
Falcon 29%
Bombar dier 29%
Embraer 6%
Source: JetNet.
Average asking prices increased 1.2% to $20.6 mln in February, recovering 5.5% from the low of $19.52 mln in December. Heavy jet prices remained below the $20 mln level for 6 of the last 9 months. The only Heavy jets to see a price decline in February were G300/350/400 (-1.5%) and Embraer Legacy 600 (-1.2%). Prices increased for Falcon 900 (+4.2%), G500/550/V (+2.8%), Global Series (+2.7%), Falcon 2000 (+0.3%), and Challenger 601-3R/604/605 (+0.1%). Hawker 4000 prices remained flat, with one Falcon 7X available for $4.89 mln. Favorable: G500/550/V, Falcon 900, Falcon 2000, and Global Series. Mixed: Challenger 601-3R/604/605 had increased prices and higher inventories, Legacy 600 saw both price and inventory decrease, while Hawker 4000 had decreased inventories and flat prices. Unfavorable: G300/350/400.
Product Price Points

BBJ/BBJ2 ACJ/A318 Elite G550 Global Express XRS Global Express Lineage 1000 Falcon 7X G500 Average Global 5000 Falcon 900EX G450 Challenger 800 G350 Challenger 604 F 2000EX EASy Legacy 600 $17 $63.8 $54.3 $47.6 $49.0 $45.3 $41.0 $40.6 $39.6 $39.6 $36.8 $38.7 $34.9 $31.4 $31.0 $26.2 $29.0 $24.7 $29 $41 $53 $65
$MM 34 31 28 25 22 19
Avg. asking price
14% 12% 10% 8% 6% 4% 2%
16 0% Dec-95 Jun-97 Dec-98 Jun-00 Dec-01 Jun-03 Dec-04 Jun-06 Dec-07 Jun-09 Dec-10
Source: Company reports, Teal Group, Textron Fact book, Business & Commercial Aviation.

50% 40% 30% 20%
% Y/Y Change in Price
Note: We only consider active platforms in this section (major OEMs) either clean sheet designs, or platforms currently out of production but that have in-production derivatives.
10% 0% -10% -20% -30% Dec-96 Mar-98 Jun-99 Sep-00 Dec-01 Mar-03 Jun-04 Sep-05 Dec-06 Mar-08 Jun-09 Sep-10
18
G500/G550/V
Model Specs & Product History Figure 36
$MM
Model G500/ G550 Manufacturer Gulfstream (GD) Engine Avionics Range Passengers List price Rolls-Royce Honeywell 10740/ 12500 km 14-19 $38 M/ $47.8 M
68 60 52 44 36 28
96-'99 00 GV
500/550/V
01-'02
03-'09
20 Jun-98 Sep-99 Dec-00 Mar-02

Jun-03 Sep-04 Dec-05 Mar-07
Jun-08 Sep-09 Dec-10
18% 16% 14% 12% 10% 8% 6% 4% 2% 0%
G500
Global 5000/Express/Express XRS

Figure 37
$MM 60
Model Manufacturer Engine Avionics Range Passengers List price Global 5000/ Express Bombardier Rolls-Royce Honeywell 8889/ 12038 km 8-16/ 10-24 $35 M/ $45.3 M
14% 12% 10% 8% 6% 4% 2% Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 0%
55 50 45 40 35 30 25
98 99-'03 04 06 08 09 Express 5000 XRS
20 Apr-01
Falcon 900/900B/900C/900DX/900EX
Figure 38
Model Manufacturer Engine Avionics Range Passengers List price Falcon 900EX Dassault Honeywell Honeywell 8333 km 8-19 $35 M
$MM 36
32 28 24 20 16 12 8
Dec-95 Dec-96 Dec-97 Dec-98 Dec-99
Avg. asking price
86-'95 96-'99 00-'02 03 04 05 06 07-09 900/ B 900C DX EX EX EASy
16% 14% 12% 10% 8% 6% 4% 2% 0%
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
19
G300/G350/G400/G450/IV/IVSP
Model Specs & Product History
Model Manufacturer Engine Avionics Range Passengers List price G350/ G450 Gulfstream (GD) Rolls-Royce Honeywell 7038/ 8055 km 11-14 $27.5 M/ $33.5 M
Figure 39
$MM 30
26 22 18 14
16% 14% 12% 10% 8% 6% 4% 2%
86-'99 00 GIV ALL G400
01-'02
03-'09
0% 10 Jan-97 Apr-98 Jul-99 Oct-00 Jan-02 Apr-03 Jul-04 Oct-05 Jan-07 Apr-08 Jul-09 Oct-10
Challenger 601-3R/604/605
Figure 40 $MM
Model Manufacturer Engine Avionics Range Passengers List price Challenger 604 Bombardier GE Rockwell Collins 7551 km 9-18 $26.2 M
95 96 97 601-3R 604 605
98-'05
06-09
26 24 22 20 18 16 14 12 10 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10
20% 15% 10% 5% 0%
Falcon 2000/2000EX
Figure 41
Model Manufacturer Engine Avionics Range Passengers List price Falcon 2000EX Dassault P&W Canada Honeywell 7037 km 8-12 $26.2 M
$MM
30 25 20
05-09
Avg. asking price
12% 10% 8% 6% 4% 2% 0%
95-'01 02 03 04 2000 EX EX EASy
15 10 Apr-96Apr-97Apr-98Apr-99Apr-00Apr-01Apr-02Apr-03Apr-04Apr-05Apr-06Apr-07Apr-08Apr-09Apr-10
20
Legacy 600
Figure 42
Model Manufacturer Engine Avionics Range Passengers List price Legacy 600 Embraer Rolls-Royce Honeywell 6504 km 13 $23.6 M
$MM
25 20 15
Avg. asking price
20% 15% 10% 5% 0% Feb-11
01
Legacy 600
02-08
09
10 5 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10
Model Manufacturer Engine Avionics Range Passengers List Price
Hawker 4000 HawkerBeechcra Pratt & Whitney Honeywell 6075 Km 8-12 $21 mln
Hawker 4000
Figure 43
$MM
20 19 18
05
Hawker 4000
06-08
09
17 16 15 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10
16% 14% 12% 10% 8% 6% 4% 2% 0%
Model Manufacturer Engine Avionics Range Passengers List Price
Falcon 7X Dassault Pratt & Whitney Honeywell 11,019 Km 12-14 $50 mln
Falcon 7X
Figure 44
30 25 20
$MM
Deliveries
05
Falcon 7X
06-08
09
15 10
Jun-07
Oct-07 Feb-08
Jun-08
Oct-08 Feb-09
Jun-09
Oct-09 Feb-10
Jun-10
18% 16% 14% 12% 10% 8% 6% 4% 2% 0%
21
Medium Jets
Market Share Trends
Medium jet deliveries remained flat at 49 in 4Q10 compared to the year-ago level, but were nearly double the previous quarter. Increases in deliveries at Bombardier (+3), Cessna (+1), and Gulfstream (+1) were offset by Hawker Beechcraft (-5). Bombardier delivered 9 Challenger 300s and 4 Learjet 60XRs. Cessna delivered 10 Sovereigns and 2 Citation Xs, while Hawker Beechcraft delivered 15 Hawker 800s and 7 Hawker 4000s in 4Q10. Gulfstream delivered 1 G100/150 and 1 G200. On a trailing four-quarter basis, by volume, Bombardier (+230 bps), Cessna (+70 bps), and Gulfstream (+70 bps) gained share at the expense of Hawker Beechcraft (-370 bps). By value, Bombardier, Gulfstream, and Cessna gained 270 bps, 100 bps, and 80 bps of share, respectively, while Hawker Beechcraft lost 440 bps.
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Figure 46: LTM

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
1995
1998
2001
2004
2007
2010
Bottom to Top : Bombardier, Cessna, Dassault, Gulfstream, Hawker Beechcraft

50 100 150 200 250 300 350
4Q09 1Q10 2Q10 3Q10 4Q10

2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Figure 48: LTM

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
1995
1997
1999
2001
2003
2005
2007
2009
Bottom to Top : Bombardier, Cessna, Dassault, Gulfstream, Hawker Beechcraft

4Q09 1Q10 2Q10 3Q10 4Q10
$B
22
Used Market Trends

Cessna 19% Hawker Beechcr aft 33%
Inventories 40 bps down; average asking price increased 1.1% Used jet inventory, measured by aircraft for sale as % of active fleet, decreased 40 bps to 12.7% in February, after remaining in the 13.0%-13.6% range for the past eight months. Inventories had declined 150 bps in 2010. G100/150 (-180 bps), Learjet 55/60 (-140 bps), Hawker 800 (-50 bps), and Citation Sovereign (-40 bps) had fewer inventories, while G200 (+80 bps), Challenger 300 (+30 bps), and Citation X (+30 bps) inventories increased. Average asking price for Medium jets increased 1.1% to $9.3 mln in February, after decreasing 1.9% in January. Average medium jet prices had contracted 12.3% in 2010, and are now ~30% off the peak of $13.4 mln in Nov-08. Citation X (+3.9%), G100/150 (+3.5%), G200 (+1.8%), Learjet 55/60 (+0.9%), Sovereign (+0.6%), and Hawker 800 (+0.1%) saw increases in prices, while Challenger 300 (-1.7%) witnessed a decline. Favorable: G100/150, Learjet 55/60, Sovereign, and Hawker 800. Mixed: G200 and Citation X both had increased prices and higher inventories. Unfavorable: Challenger 300.
Bombar dier 26%
Falcon 11%
Gulfstre am 11%
Source: JetNet.

G200 Falcon 50/EX Hawker 4000 Citation X Challenger 300 Average Citation Sovereign G150 Hawker 850XP Learjet 60XR $5 $10 $22.1 $21.2 $20.0 $20.1 $20.0 $17.8 $16.2 $14.0 $13.8 $13.3 $15 $20 $25
$MM
15 14 13 12 11 10 9 8 7 6 5
17% 15% 13% 11% 9% 7% 5% 3%
Dec-95
Dec-96
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Source: Teal Group, Textron Factbook, Business & Commercial Aviation.

40% 30% 20% 10%
0% -10% -20% -30%
Dec-96
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
23
Citation X
Figure 51
$MM
Model Engine Avionics Range Passengers List price
Citation X
Manufacturer Cessna (Textron) Rolls-Royce (Allison) Honeywell 7040 km 10 $19.6 M
19 17 15 13 11 9
18% 15% 12% 9% 6% 3% Jan-02 Apr-03 Jul-04 Oct-05 Jan-07 Apr-08 Jul-09 Oct-10 0%
96 97 98 - '06 07 08 09 X
7 Oct-00
Challenger 300
Figure 52 $MM
Model Engine Avionics Range Passengers List price Challenger 300 Honeywell Rockwell Collins 5741 km 8 $18.3 M
26 24 22 20 18 16 14 Aug-05
20% 15% 10% 5% Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 0%
Manufacturer Bombardier
03 300
04-'08
09
G200
Figure 53 $MM
Model Engine Avionics Range Passengers List price G200 P&W Canada Rockwell Collins 6667 km 8-10 $21.4 M
26 24 22 20 18 16 14 Aug-05
20% 15% 10% 5% Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 0%
Manufacturer Gulfstream (GD)
99 G200*
00-'08
09
*from IAI Galaxy

24
Citation Sovereign
Model Engine Avionics Range Passengers List price Citation Sovereign P&W Canada Honeywell 5222 km 8-12 $15 M
Figure 54
$MM 20.0 19.0 25% 18.0 20% 17.0 16.0 15% 15.0 14.0 10% 13.0 12.0 5% 11.0 10.0 0% Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11
Source: JetNet, J.P. Morgan estimates. Note: Due to the inconsistent availability of data, dotted line represents last known asking price.
Manufacturer Cessna (Textron)
04
Sovereign
05-08
09
G100/150
Figure 55
Model Engine Avionics Range Passengers List price G100/ G150 Honeywell Rockwell Collins 5000 km 6-7/ 6-8 $11.9 M/ $13.5 M Manufacturer Gulfstream (GD)
$MM 14.0 13.0 12.0 11.0 10.0 9.0 8.0
Avg. asking price
30% 25% 20% 15% 10% 5% 0%
85-'05 G100* G150 *from IAI Astra
06-09
Nov-06
Nov-07
Nov-08
Nov-09
Nov-10
Hawker 800A/800B (215-800)/800XP/800XPI/850XP

Figure 56
Model Manufacturer Engine Avionics Range Passengers List price Hawker 800 HawkerBeechcraft Honeywell Rockwell Collins 5560 km 6-14 $10 M
$MM 10.0
84-'95 800 800XP 800XPI 850XP
96-'04 05 06-09
16% 14% 9.0 12% 8.0 10% 8% 7.0 6% 4% 6.0 2% 0% 5.0 Dec-95 Mar-97 Jun-98 Sep-99 Dec-00 Mar-02 Jun-03 Sep-04 Dec-05 Mar-07 Jun-08 Sep-09 Dec-10
Nov-05
May-07
May-08
May-09
May-10
May-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-06
Aug-06
Aug-07
Aug-08
Aug-10
Aug-09
Avg. asking price
25
Learjet 55/55B/55C/60/60XR
Figure 57 $MM
Model Engine Avionics Range Passengers List price Learjet 60 P&W Canada Rockwell Collins 4461 km 6-10 $8.3 M
9 8 7 6 5 4
28% 24% 20% 16% 12% 8% 4%
81-'91 92 55 60
93-'05
06-09
3 0% Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10
26
Light Jets
Market Share Trends
4Q10 Light jet deliveries increased 58% from 38 in 4Q09 to 60 in 4Q10 and increased three times from 21 in 3Q10. Cessna (+15) and Hawker Beechcraft (+7) deliveries saw increases, while Bombardier remained essentially flat. Cessna delivered 41 jets in 4Q10 compared to 26 in 4Q09, with CJ4, a jet that entered service during 2010, providing most of the y/y increase. Hawker Beechcraft delivered 8 Hawker 400XPs and 6 Premier Is, while Bombardier delivered 2 Learjet 40s and 3 Learjet 45s. On a TTM basis by volume, Hawker Beechcraft gained 290 bps at the expense of Bombardier, which lost 280 bps of market share, while Cessna lost 10 bps despite increased deliveries. Similarly, by value, Hawker Beechcraft gained 480 bps, while Cessna and Bombardier lost 390 bps and 90 bps, respectively.
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Figure 59: LTM

100% 80% 60% 40% 20%
1995
1997
1999
2001
2003
2005
2007
2009
0% 3Q09 4Q09 1Q10 2Q10 3Q10
Bottom to Top : Bombardier, Cessna, HawkerBeechcraft

50
100
150
200
250
300
350
Source: Teal Group, J.P. Morgan estimates, Business & Commercial Aviation.

2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

100% 80% 60% 40% 20% 0%
$B
Figure 61: LTM

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
1995 1997 1999 2001 2003 2005 2007 2009
4Q09 1Q10 2Q10 3Q10 4Q10
Bottom to Top : Bombardier, Cessna, HawkerBeechcraft

27
Used Market Trends

Hawker Beechcr aft 21%
Inventories down 40 bps and average asking price decreased 1.1% Used jet inventory, measured by aircraft for sale as % of active fleet, declined 40 bps to 11.7% in February, the lowest level since Sep-08. Inventory levels had moved within the 12.0%-12.6% range for the last 14 months. Citation CJ3 (-120 bps), Citation CJ1/CJ+ (-60 bps), Citation CJ2/CJ2+ (-50 bps), Beechcraft 400/Hawker 400 (-50 bps), Citation Excel/XLS (-40 bps), and Learjet 40/45 (-10 bps) saw declines in inventories, while only Premier I/IA (+30 bps) saw an increase. Citation V/Ultra/Encore inventories remained flat. Light jet average asking price decreased 1.1% to $3.87 mln in February, the lowest price since Nov-98. Prices are down about 35% from the peak of $5.9 mln in Feb-08 and decreased 6.3% in 2010. Citation CJ3 (+2.3%) and Citation Excel/XLS (+0.1%) witnessed increases in prices, while all others, including Premier I/IA (-4.8%), Learjet 40/45 (-2.6%), Citation V/Ultra/Encore/Encore+ (-2.2%), Citation CJ2/CJ2+ (-2.2%), Citation CJ1/CJ1+ (-1.9%), and Beechjet 400/Hawker 400 (-0.8%), experienced declines in prices. Favorable: Citation CJ3 and Citation Excel/XLS. Mixed: Learjet 40/45, Beechcraft 400/Hawker 400, Citation CJ2/CJ2+, and Citation CJ1/CJ1+ saw both prices and inventories fall, while Citation V/Ultra/Encore/Encore+ had flat inventories and decreased prices. Unfavorable: Premier I/IA.
Cessna 67%
Bombar dier 12%
Source: JetNet.

Learjet 45XR Citation XLS Learjet 40XR Citation Encore+ Hawker 400XP Average Citation CJ3 Citation Bravo Premier IA Citation CJ2+ Citation CJ1+ Citation Mustang $0 $3 $2.5 $6 $9 $12 $15 $9.0 $8.1 $7.2 $7.3 $7.1 $6.1 $6.2 $6.1 $4.6 $11.5 $11.6
$MM 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0
Avg. asking price
18% 15% 12% 9% 6% 3% 0%

Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10
Source: Teal Group, Textron Factbook.

80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% -30%
Source: JetNet, J.P. Morgan estimates. 28
Dec-96
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10

Model Engine Avionics Range Passengers List price Learjet 45 Honeywell (Garrett) Honeywell 3704 km 8 $10.3 M
Learjet 40/40XR/45/45XR
Figure 64
$MM 10 9 8 7 6
14% 12% 10% 8% 6% 4% 2%
98 99-'03 04 05 06-09 45 40 40XR 45XR
0% 4 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10
Citation Excel/XLS
Figure 65
Model Engine Avionics Range Passengers List price Citation XLS P&W Canada Honeywell 3805 km 8 $10.5 M
$MM 12 11 10 9 8 7 6
Avg. asking price
18% 15% 12% 9% ` 6% 3% 0%
98 99 Excel XLS
00-03
04-08
09
Citation V/Ultra/Encore/Encore+
Figure 66
Model Engine Avionics Range Passengers List price Citation Encore P&W Canada Honeywell 2696 km 4-6 $8.1 M Manufacturer Cessna (Textron)
$MM 7 6 5 4
Nov-98
Nov-99
Nov-00
Nov-01
Nov-02
Avg. asking price
Nov-03
Nov-04
Nov-05
Nov-06
Nov-07
Nov-08
Nov-09
Nov-10
18% 15% 12% 9% 6% 3%
89-'95 96-'99 00-'05 06 07-09 V Ultra Encore Encore+
2 0% Dec-95 Mar-97 Jun-98 Sep-99 Dec-00 Mar-02 Jun-03 Sep-04 Dec-05 Mar-07 Jun-08 Sep-09 Dec-10
29
Beechjet 400/400A/Hawker 400XP

Model Specs & Product History Figure 67
$MM 5.0
Model Manufacturer Engine Avionics Range Passengers List price Beechjet 400XP HawkerBeechcraft P&W Canada Rockwell Collins 3519 km 7-9 $7 M
20% 15% 10% 5%
4.5 4.0 3.5 3.0 2.5 2.0
86-'89 90-'02 03 400 400A 400XP
04-'09
1.5 0% Dec-95 Jun-97 Dec-98 Jun-00 Dec-01 Jun-03 Dec-04 Jun-06 Dec-07 Jun-08 Dec-10
CitationJet CJ3
Figure 68
$MM 8.5 8.0 7.5 7.0 6.5 6.0 5.5
04 CJ3 06 08 09
Model Engine Avionics Range Passengers List price
Citation CJ3 Williams / Rolls-Royce Rockwell Collins 4001 km 6 $6.4 M
35% 30% 25% 20% 15% 10% 5%
0% 5.0 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11
Premier I/IA
Figure 69
$MM 6.0
Model Manufacturer Engine Avionics Range Passengers List price Premier I HawkerBeechcraft Williams Rockwell Collins 2590 km 6-7 $5.7 M
60% 50% 40% 30% 20% 10% Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 0%
5.5 5.0 4.5 4.0 3.5
01 I IA
02-'04
05 06-09
3.0 Dec-01
30
CitationJet CJ2/CJ2+
Model Engine Avionics Range Passengers List price Citation CJ2+ Williams / Rolls-Royce Rockwell Collins NA 6 $5.4 M
Figure 70
$MM
00 01 02 03-06 CJ2 CJ2+
07-'09
5.8 5.6 5.4 5.2 5.0 4.8 4.6 4.4 4.2 4.0 Jul-00
Jul-01
Jul-02
Jul-03
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
CitationJet (Model 525)/CJ1/CJ1+

Figure 71
$MM
Model Engine Avionics Range Passengers List price Citation CJ1+ Williams / Rolls-Royce Rockwell Collins 2696 km 6 $4.2 M
3.8 3.6
93-99 00 525 CJ1 CJ1+
01-'05 06 07-09
20% 18% 16% 3.4 14% 3.2 12% 3.0 10% 2.8 8% 2.6 6% 2.4 4% 2% 2.2 Dec-95 Jun-97 Dec-98 Jun-00 Dec-01 Jun-03 Dec-04 Jun-06 Dec-07 Jun-09 Dec-10
31
Fractional Jets
Provider Fleet Trends
Fractional fleet continues to decline The total fractional fleet decreased to 841 in January, contracting by 30 from the previous month. The fractional fleet is down by 119 aircraft from the peak of 960 in January 2009, a ~12% decline. The three-month rolling average of gross fleet additions increased to 3.0 in January from 2.7 last month. The average of new jet additions increased to 1.7 from 1.3 last month, while the average of used jet additions remained flat at 1.3.
Fractional Fleet Base Breakdown by Provider
Others 23% CitationAir 7% Flexjet 9%
Figure 72: Fractional Fleet Additions, by Provider

120 100 80 60 40 20 0 -20 -40 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Others CitationShares Flexjet Flight Options Net Jets
Flight Options 11%
NetJets 50%
Source: JetNet.
Fractional Fleet Base

2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 0
871 897 958 910 885 795 690 598 535 440 350 257 179 125 87 72
Figure 73: Fractional Fleet Additions, Used and New 3-Month Rolling Average
15 12 9 6 3 0
Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
Used Jets New jets
250
500
750
1000
Source: JetNet.
32
Share Sales Trend

Share sales decreased on rolling three month basis in January On an absolute basis, January share sales decreased 44.2% year-over-year and 56.6% compared to last month. On a rolling three-month average basis, share sales decreased 8.1% compared to December and were up 15.8% y/y.
Figure 74: Fractional Share Sales, by Providers (# of shares) 3-Month Rolling Avg.
300.0 250.0 200.0 150.0 100.0 50.0 0.0
Feb-96 Feb-97 Feb-98 Feb-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10
Fractional Share Sales
33
34
Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.
Important Disclosures
Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] J.P. Morgan Cazenoves UK Small/Mid-Cap dedicated research analysts use the same rating categories; however, each stocks expected total return is compared to the expected total return of the FTSE All Share Index, not to those analysts coverage universe. A list of these analysts is available on request. The analyst or analysts teams coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe.
Coverage Universe: Joseph B. Nadol III: Alliant Techsystems Inc. (ATK), Boeing Company (BA), Bombardier (BBDb.TO), CACI International Inc (CACI), Comtech Telecommunications (CMTL), Embraer SA (ERJ), General Dynamics Corp. (GD), Goodrich (GR), Harris Corporation (HRS), L-3 Communications (LLL), Lockheed Martin (LMT), Northrop Grumman (NOC), Precision Castparts (PCP), Raytheon (RTN), Rockwell Collins (COL), SAIC (SAI), Spirit AeroSystems (SPR), TransDigm Group Inc (TDG), United Technologies (UTX) C. Stephen Tusa, Jr CFA: 3M (MMM), Danaher (DHR), Dover (DOV), Emerson Electric Co. (EMR), Generac (GNRC), General Electric Co. (GE), Honeywell (HON), Hubbell Inc. (HUBB), ITT Corp. (ITT), Ingersoll Rand (IR), Lennox International (LII), Motorola Solutions (MSI), Rockwell Automation (ROK), Roper Industries (ROP), SPX Corp. (SPW), Sensata (ST), Textron (TXT), Tyco International (TYC), WABCO (WBC), Watsco (WSO), Watts Water Technologies (WTS), Wesco (WCC)
J.P. Morgan Equity Research Ratings Distribution, as of December 31, 2010 Overweight (buy) 46% 53% 43% 71% Neutral (hold) 42% 50% 49% 63% Underweight (sell) 12% 38% 8% 59%
J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients*
*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.
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35
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North America Equity Research

Aerospace and Defense

Aerospace/Defense Joseph B. Nadol III

(1-212) 622-6548 joseph.b.nadol@jpmorgan.com

Seth M. Seifman, CFA

Electrical Equipment & MultiIndustry C. Stephen Tusa, Jr CFA

Paul Mammola, CFA

See page 35 for analyst certification and important disclosures.

North America Equity Research 07 March 2011

Overall Market Trends............................................................11

Light Jets ................................................................................27

Fractional Jets ........................................................................32

North America Equity Research 07 March 2011

Business Jet Delivery Forecast

JPM Delivery Forecast, 2012E-2014E

Source: J.P. Morgan estimates.

97 100 1 26 18 10 5 8 121 144 11 8 30 45 94 16 11 51 20 98 13 11 31 44 99 11 12 34 16 73

29 29 37 30 23 19 24 28 53 53 46 47 50 58 64 94 100 115 141 140

591 699 4% 18% 761 947 3% 24%

North America Equity Research 07 March 2011

Macro Drivers & Market Cycle

Business jet deliveries lag US corporate profits by 2 years on peak-and-trough basis.

US Corporate Profits 1500 1250 Deliveries 1000 750 500 250 0

Deliv eries 120 100 80 60 40 20 0

North America Equity Research 07 March 2011

Figure 4: Impact of VLJs on Total Deliveries

North America Equity Research 07 March 2011

Figure 5: Price ($MM) vs. Age (years)

Global Ex press XRS Lineage 1000

G550 Global Express

Falcon 2000 Challenger 604 G200 Falcon 50/EX Citation X

$20 Learjet 85 $10

Hawker 4000 Legacy 500 Legacy 450

Figure 6: Price ($MM) vs. Range (km)

North America Equity Research 07 March 2011

Industry Financial Data

$100 $80 $60 $40 $20 $0

Source: Company reports, J.P. Morgan estimates.

Figure 8: Industry Deliveries by Company, 1999-2012E

Source: Company reports, GAMA. Note: Excludes VLJs.

Figure 9: Book-to-Bill Ratio by Company, 2004-2009

2005 Cessna (Gross)

2008 Hawker Beechcraft

Source: Company reports, J.P. Morgan estimates. Data as available.

North America Equity Research 07 March 2011

Figure 10: Industry EBIT by Company, 2003-2009

Source: Company reports, J.P. Morgan estimates.

Figure 11: Monthly Flight Operations Business Jets

450,000 400,000 350,000 300,000 250,000

Source: FAA, J.P. Morgan estimates.

Figure 12: Change in Monthly Flight Operations Business Jets

12 per. Mov. Avg. (Total Operations)

30% 20% 10% 0% -10% -20% -30% -40%

Source: FAA, J.P. Morgan estimates.

North America Equity Research 07 March 2011

Table 2: Historical Fleet Size

North America Equity Research 07 March 2011

Quick Reference Specification Table

Figure 13: Product Pricing Span by Company

North America Equity Research 07 March 2011

Overall Market Trends

Market Size by Volume