commercial aviation update seymour, head of market analysis • long term view of supply and demand...

Commercial Aviation Update

Ascend Flightglobal Consultancy Webinar

8th September 2015

On the Menu….

Chris Seymour, Head of Market Analysis

• Long term view of supply and demand in the commercial market – a

review of the 2015 Flightglobal Fleet Forecast

Rob Morris, Head of Consultancy

• The global aviation cycle – where are we today?

George Dimitroff, Head of Valuations

• Commercial Aircraft values and lease rate developments – the latest

comments from Ascend’s aircraft values review board

Your Questions

2


• Long term view of supply and demand in the commercial market

– a review of the 2015 Flightglobal Fleet Forecast






Your Questions

3

Historical & Forecast Passenger Capacity

5Source: 2015 Flightglobal Fleet Forecast

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

19

90

19

91

19

92

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93

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94

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95

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96

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97

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98

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99

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00

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01

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31

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32

20

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ASK

(b

n)

Historical Forecast

End-2014 Passenger Jet Survivor Curve

Source: Ascend Fleets from Flightglobal. Usage = Pax/Combi/QC

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50

% o

f O

rigi

nal

De

live

rie

s R

em

ain

ing

in S

erv

ice

Aircraft Age (Years)

Turboprop

Regional Jet

Single-Aisle

Twin-Aisle

20-year passenger jet replacement & growth


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2014 Fleet 2034 Fleet

No

of

air

cra

ft

Residual Fleet Replacement Growth

82% replaced

20-year forecast deliveries by value


Turboprop, $60b

Regional Jet, $135b

Single-Aisle, $1293b

Twin-Aisle, $1220b

Freighter, $122b

20-year forecast for single-aisle jet deliveries


110-seats1%

125-seats6%

150-seats63%

180+ seats30%

20-year forecast for twin-aisle jet deliveries


0

500

1,000

1,500

2,000

2,500

3,000

3,500

200-seats 250-seats 300-seats 350-seats Large 450+ seats

No

of

air

cra

ft

20-year fleet forecast by region


0 2,000 4,000 6,000 8,000 10,000 12,000

Middle East

Africa

Russia &CIS

LatinAmerica

China

Asia-Pacific

Europe

NorthAmerica

No of aircraft

2014 Fleet 2034 Fleet

Benchmark with OEM Published Forecasts

Flightglobal Fleet Forecast 2015-34

Boeing CMO 2015-2034

Airbus GMF 2015–2034 (excludes RJ)

Passenger Traffic 5.0% 4.9% 4.6%

Cargo Traffic 4.3% 4.7% 4.8%

Passenger Jet Fleet in 2034 40,940 40,630 35,750

Freighter Jet Fleet in 2034 2,880 2,930 2,690

Passenger Jet Deliveries 37,220 37,130 31,780

RJ Deliveries 4,365 2,490 No forecast

Single-Aisle Deliveries 25,350 26,730 (inc Large RJ) 22,930

Twin-Aisle Deliveries 7,510 7,910 8,870

New Freighter Deliveries 830 920 800

Passenger Jet Retirements 16,760 16,380 13,400

Forecast Delivery Value ($bn) 2,830* 5,570** 4,900**

* Based on Base Value ** Based on List Price









Your Questions

13

Global economic cycle

14

Indicator Current level Trend

GDP EIU forecast for 2015 is 2.4%, slightly down on 2014; 2016 forecast to be higher at 2.8%. Asia-Pacific leads at 4.3%, US 2.5%, W Europe 1.6% (best for several years), Latin America sees many countries in recession

Forecasts for global GDP for 2015 have declined since the start of the year, from 2.8% to 2.4%; US and Latin America primarily driving downgrade

OECD Leading Indicators OECD members fairly stable at ~100 index. Within this, N America ~100, but Euro Area above 100; major 5 Asian countries (including China) are below 100, as are many developing nations

Downward trend for Canada and China, as well as Latin America and some other major Asian economies; worst declines are China, Russia and Brazil; upward trend for Eurozoneand India

Purchasing ManagersIndices (PMI)

Global Composite PMI = 53.4, consistent with steady economic growth, manufacturing slowdown in Asia, but services still strong

Strengthening in Eurozone, stable in US, China manufacturing and Brazil in general the worst declines, Asian services stable

Steady performance – developed world still in recovery

Global passenger traffic growth remains robust

15Source: IATA

-15%

-10%

-5%

0%

5%

10%

15%

20%

Jul-0

8

Sep-0

8

No

v-0

8

Jan-0

9

Ma

r-0

9

Ma

y-0

9

Jul-0

9

Sep-0

9

No

v-0

9

Jan-1

0

Ma

r-1

0

Ma

y-1

0

Jul-1

0

Sep-1

0

No

v-1

0

Jan-1

1

Ma

r-1

1

Ma

y-1

1

Jul-1

1

Sep-1

1

No

v-1

1

Jan-1

2

Ma

r-1

2

Ma

y-1

2

Jul-1

2

Sep-1

2

No

v-1

2

Jan-1

3

Ma

r-1

3

Ma

y-1

3

Jul-1

3

Sep-1

3

No

v-1

3

Jan-1

4

Ma

r-1

4

Ma

y-1

4

Jul-1

4

Sep-1

4

No

v-1

4

Jan-1

5

Ma

r-1

5

Ma

y-1

5

Jul-1

5

Ye

ar-

on

-Ye

ar

Ch

an

ge

Traffic (RPK) Capacity (ASK)

IATA predicting 6.7% traffic

growth for 2015 (YTD =

6.5%)

Order volumes continue to be high

16Source: Ascend Fleets from Flightglobal

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015YTD

Co

mm

erc

ial je

t o

rde

rs

Jet Gross Orders Jet Net Orders

$71bn

$209bn

Order cancellations declining following increase

through late 2014


0

10

20

30

40

50

0

30

60

90

120

150

Ja

n-0

8

Apr-

08

Ju

l-0

8

Oct-

08

Ja

n-0

9

Apr-

09

Ju

l-0

9

Oct-

09

Ja

n-1

0

Apr-

10

Ju

l-1

0

Oct-

10

Ja

n-1

1

Apr-

11

Ju

l-1

1

Oct-

11

Ja

n-1

2

Apr-

12

Ju

l-1

2

Oct-

12

Ja

n-1

3

Apr-

13

Ju

l-1

3

Oct-

13

Ja

n-1

4

Apr-

14

Ju

l-1

4

Oct-

14

Ja

n-1

5

Apr-

15

Ju

l-1

5

Rolli

ng 1

2-M

on

th C

an

ce

llatio

ns

Mo

nth

ly C

an

ce

llatio

ns

Cancellations 12-Month Rolling Average

Delivery deferrals ticked up in June as result of

American A321neo deferrals


0

10

20

30

40

50

60

70

80

90

0

50

100

150

200

250

300

350

400

450

500

Ja

n-0

8

Apr-

08

Ju

l-0

8

Oct-

08

Ja

n-0

9

Apr-

09

Ju

l-0

9

Oct-

09

Ja

n-1

0

Apr-

10

Ju

l-1

0

Oct-

10

Ja

n-1

1

Apr-

11

Ju

l-1

1

Oct-

11

Ja

n-1

2

Apr-

12

Ju

l-1

2

Oct-

12

Ja

n-1

3

Apr-

13

Ju

l-1

3

Oct-

13

Ja

n-1

4

Apr-

14

Ju

l-1

4

Oct-

14

Ja

n-1

5

Apr-

15

Ju

l-1

5

Rolli

ng 1

2-M

on

th A

ve

rage

of D

efe

rra

ls

To

tal Y

ea

rs o

f D

eliv

ery

Defe

rra

l R

eco

rde

d

Years Deferred 12-Month Rolling Average

Aviation demand cycle

19


Passenger traffic Above trend growth for sixth year running; N America & W Europe seeing strong growth; only weak area is Africa

Year-on-year growth rate has been above 6% for most of 2015; 7% in past two months

Freight traffic Traffic reached consistent 5% year-on-year growth in H1 2015 for first time since 2010, past few months has been around 2-3%

Growth recovery has slowed since Q1 2015;capacity exceeding demand; consistent with weak manufacturing data from China

Yields US yields are the only readily available monthly data point; these remain at historically high levels of >10c/RPK

Yields have been falling since December 2014; June down 6.6%; however, this is not a major concern yet, as costs are down by >10% as a result of falling oil prices

Load Factors Generally very high, exceeding 2008 levels. Asia much lower – emerging evidence of overcapacity in some areas?

Mixed picture; US stable, European airlines continuing to increase, Asian airlines falling in some cases

New aircraft orders Orders continue to be placed in high numbers; first half 2015 saw around 800 net orders for commercial jets driving book-to-bill to remain >1

Order intake has fallen sharply from the levels of 2011-2014. New programmes are sold out for several years, with limited slots now available, driving downward trend

Deferrals & cancellations Deferrals are at a low absolute level compared to ten year average, and cancellations around average – however, this is lower if taken as % of a growing fleet

Declining, after a large number of cancellations (~500 aircraft) in 2014

Most measures of demand are good, though some clouds forming?

50% of last 5 years deliveries have been for

replacement

20Source: Ascend Fleets from Flightglobal - deliveries into passenger airline service only

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

200

400

600

800

1000

1200

1400

1600

% o

f D

eliv

erie

s E

stim

ate

d fo

r R

ep

lace

me

nt

Pa

sse

nge

r A

irlin

er

De

live

rie

s

Deliveries % of Deliveries for Replacement

Risk of supply exceeding demand in single-aisle

market increasing towards end of decade

21Source: Ascend Fleets from Flightglobal, 2015 Flightglobal Fleet Forecast

0

200

400

600

800

1000

1200

1400

1600

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Aircra

ft D

eliv

erie

s

Airbus Backlog Boeing Backlog Others Backlog Forecast Deliveries Planned Production

Some element of production “surplus” has driven

increased retirements at reduced age in this cycle


0

5

10

15

20

25

30

35

40

0

100

200

300

400

500

600

700

800

Ave

rage

Age

at A

ircra

ft R

etire

me

nt

Aircra

ft R

etire

d

<15 Years Old at Retirement >15 Years Old at Retirement

Average Age at Retirement Average Age at Economic Retirement

Average annual utilisations recovered through 2011

and have been stable since

23Source: Ascend Online Fleets, all Airbus/Boeing/Douglas aircraft with data, all usages

2,500

2,700

2,900

3,100

3,300

3,500

3,700

3,900

4,100

4,300

200

7 Q

1

200

7 Q

2

200

7 Q

3

200

7 Q

4

200

8 Q

1

200

8 Q

2

200

8 Q

3

200

8 Q

4

200

9 Q

1

200

9 Q

2

200

9 Q

3

200

9 Q

4

201

0 Q

1

201

0 Q

2

201

0 Q

3

201

0 Q

4

201

1 Q

1

201

1 Q

2

201

1 Q

3

201

1 Q

4

201

2 Q

1

201

2 Q

2

201

2 Q

3

201

2 Q

4

201

3 Q

1

201

3 Q

2

201

3 Q

3

201

3 Q

4

201

4 Q

1

201

4 Q

2

201

4 Q

3

201

4 Q

4

201

5 Q

1

201

5 Q

2

201

5 Q

3

201

5 Q

4

Ave

rag

e a

nn

ual u

tili

sa

tio

n (

rollin

g 4

qu

art

ers

)

Narrowbody Widebody Total

Aviation supply cycle

24


Aircraft deliveries 2014 had record commercial jet deliveries, 2015 expected to exceed; both SA and TA at record levels, RJs & TP rates stable

Production rates set to increase for A320, 737, 787 & A350, plus CSeries ramp-up; A330 reducing and 777 also to see cuts

Deliveries for replacement/growth

Past 5 years, deliveries for replacement made up around 50% of the total

Consistent decline since 2008; 2015 has seen share for replacement falling significantly, towards numbers consistent with peak years of cycles

Deliveries as percentage of fleet

7.3% in 2014, forecast of 7.2% in 2015. The average over the past 25 years has been 7%

Trend is to a higher percentage, with above 8% in 2016 – 2019; such levels could indicate global overcapacity based on past history

Stored aircraft Absolute level of stored commercial jets remains at historic high, though declining since the recession in terms of % of fleet

Single-aisle declining, small increase in twin-aisle, RJs increasing rapidly, driven by 50 seat jets ex-US market

Used aircraft availability Commercial aircraft offered for sale / lease currently at lowest point since 2010

Falling numbers of available twin-aisles, RJs stable - many stored 50 seat jets not actively being marketed

Aircraft economic life Average age at retirement is now <25 years, despite fall in fuel prices

Few very young aircraft continue to parted out, average continues to decline in 2015

Aircraft utilisation Single-aisle & twin-aisle utilisations are at or near historic highs

Fairly flat trend since recovering post-recession in 2010/11, twin-aisle ticked up in Q1, possibly as result of increase for freighters

Despite strong demand, several indicators amber or red

50% of today’s jet fleet has CMV > BV

25Source – Ascend Values

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

50% 60% 70% 80% 90% 100% 110% 120% 130% 140% 150%

Cu

mu

lati

ve %

of

Air

craf

t Ty

pe

/ V

aria

nts

/ V

inta

ges

CMV / BV

Today

Jul-08

Jul-10

The aircraft value cycle

26


Current Market Value/Base Value

Continued improvement in market values since 2010, with 50% of fleet having CMV > BV and another 30% of fleet with CMV <5% below BV

Most recent adjustments to market values have typically been marginally downwards, reflecting some weakness for specific assets

Constant age values Pressure in many assets from last off line impact, inflated supply in some cases (A321)

Single-aisle still seeing increases but current generation twin-aisles seeing some pressure

Constant age lease rates A320 & 737-800 lease rates have been improving but are facing pressure from competition plus some recent supply issuesdrove recent marginal negative adjustments, also seeing some issues with ‘commodity’ twin-aisles – A330-300 / 777-300ER

Trend has been upwards in recent years but may be close to peak (or have already peaked) for current generation types; also slight reductions in first examples of next generation single-aisles, driven by market observation

Some concerns around specific assets, despite strong macro

demand

Summary

Mixed messages from the global economic cycle

• Asia-Pacific & China remain ones to watch

• Developing economies still recovering slowly

Aviation demand cycle remains strong for now

• Fuel prices are helping a lot on the cost / yield side

• Watching closely for signs of evolving capacity surplus in Asia-Pacific

Some amber / red indicators in aviation supply cycle

• Deliveries trending towards higher % of installed fleet

• Average age of retirement continues to decline

• Utilisations flattened since recovering post-2008

Aircraft value cycle appears close to balance but this may also be the

peak for this cycle?

27







• Commercial Aircraft values and lease rate developments – the

latest comments from Ascend’s aircraft values review board

Q & A

28

Market Overview

Smaller single-aisles such as A319, 717-200 and 737-700 have enjoyed

resurgence in demand, albeit from handful of operators

Supply of popular commodity types such as A321-200, A330-300HGW

and 737-800 has increased significantly in 2015, due to slowdowns in

several key markets. Softening expected

A330-200s remain popular – at the right price – whereas 777-200ER

secondary market is stalling

Mid-life assets such as 767-300ER enjoying a(nother) lease of life in

lower oil price environment. Less urgency to replace 747-400s, too

Notable Value changes in 2015

A330-200 / 300HGW

717-200

737-800

747-400 / 400 Freighters

757-200

777-300ER

Dash 8-Q400

ERJ-135 / 145

GE90-94B series

PW4000 – 94” fan

Notable Lease Rate changes in 2015

A320neo – Down 3-4% based on more speculative order placements

A330-200 / 300HGW

737-800 / 900ER

747-400 / 400 Freighters

777-300ER

ERJ-135 / 145

A330 CMV changes

$0.00m

$20.00m

$40.00m

$60.00m

$80.00m

$100.00m

$120.00m

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Year of Build

A330-200 OLD A330-200 NEW A330-300HGW OLD A330-300HGW NEW

Source: Ascend Values from Flightglobal

A330 MLR changes

$0.000m

$0.100m

$0.200m

$0.300m

$0.400m

$0.500m

$0.600m

$0.700m

$0.800m

$0.900m

$1.000m

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Year of Build

A330-200 OLD A330-200 NEW A330-300HGW OLD A330-300HGW NEW


737-800 / 900ER MLR changes

$0.000m

$0.050m

$0.100m

$0.150m

$0.200m

$0.250m

$0.300m

$0.350m

$0.400m

$0.450m

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Year of Build

737-800 OLD 737-800 NEW 737-900ER OLD 737-900ER NEW


777-300ER CMV changes

$0.00m

$20.00m

$40.00m

$60.00m

$80.00m

$100.00m

$120.00m

$140.00m

$160.00m

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Year of Build

OLD NEW


777-300ER MLR changes

$0.000m

$0.200m

$0.400m

$0.600m

$0.800m

$1.000m

$1.200m

$1.400m

$1.600m

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Year of Build

OLD NEW


Considerations for remainder of 2015 / 2016

Values and lease rate decreases outnumbering increases in

recent months; has the market peaked?

Are lease rate reductions an early warning of further value

reductions to come?

Are production rate increases going to put pressure on

values and lease rates, especially if there is a global

slowdown?









Your Questions

38

The information contained in our databases and used in this presentation has been assembled from many sources, and whilst reasonable care has been taken to ensure accuracy, the information issupplied on the understanding that no legal liability whatsoever shall attach to Ascend Flighglobal Consultancy, its offices, or employees in respect of any error or omission that may have occurred.

Ascend – Aviation 100 Appraiser of the Year 2011, 2013,

2014, 2015

Chris SeymourHead of Market Analysis

+44 (0)20 8564 6702+44 (0) 7545 716 [email protected]

George DimitroffHead of Valuations

+1 646 746 6846+1 917 628 [email protected]

39

Rob MorrisHead of Consultancy

+44 (0)20 8564 6735+44 (0)7730 213 [email protected]

commercial aviation update seymour, head of market analysis • long term view of supply and demand...

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