Aerospace Industry Outlook
- 2. Mise en garde concernant les énoncés prospectifs • La présentation qui suit contient des énoncés prospectifs. Les énoncés prospectifs se reconnaissent habituellement à l’emploi de termes comme « pouvoir », « prévoir », « avoir l’intention de », « estimer », « planifier », « entrevoir », « croire », « continuer », la forme négative de ces termes ou de leurs variations ou une terminologie semblable. En raison de leur nature même, les énoncés prospectifs sont assujettis à d’importants risques et incertitudes, connus et inconnus. • Bien que nous jugions les prévisions raisonnables selon l’information dont nous disposons à la date du rapport, la possibilité existe qu’elles ne soient pas exactes. Ce rapport se fonde sur plusieurs sources externes. • Parmi les facteurs qui pourraient faire en sorte que les prévisions diffèrent de manière importante de la réalité, notons les risques liés à la conjoncture économique, la situation financière de l’industrie aérienne, etc. Le lecteur est prévenu que la présente liste de facteurs n’est pas exhaustive et qu’il ne faudrait pas s’y fier indûment. Cautionary Notice Regarding Forward-Looking Statements • The following presentation includes forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “plan,” “foresee,” “believe,” “forecast” or “continue” or the negatives of these terms or variations of them or similar terminology. By their nature, forward-looking statements are subject to important known and unknown risks and uncertainties. • While we consider these forecasts to be reasonable based on current information available, there is a risk that they may not be accurate. This report is based on many external sources. • Certain factors that could cause actual results to differ materially from those anticipated in the forward-looking statements include risks associated with general economic conditions, risks associated with the business environment (such as the financial condition of the airline industry), etc. Readers are cautioned that the foregoing list of factors is not exhaustive and undue reliance should not be placed on forward-looking statements. 2
- 3. 1. Market Drivers 2. Aerospace Markets - Large Jetliners - Regional Aircraft - Business Jets - Helicopters SUMMARY 2
- 4. • 2012 global passenger traffic growth (RPK)=5.3%. Despite the long-term traffic growth, airlines increased capacity (ASK) by less than the increase in traffic – boosting load factors. 2012 performance in line with long term traffic growth of 5%/year. Traffic should double over the next 15 years as it did in the past 15 years. • Cargo (FTK) a concern -1.5% Y/Y MARKET DRIVERS 4
- 5. • 2012 traffic growth shows contrast between mature & emerging markets. MARKET DRIVERS 5
- 6. • Global GDP forecast. Expected growth of 3.3% on an annual average basis in 2013, about the same as the 3.2% growth seen in 2012. Growth expected to rise to 4.0% in 2014, assuming recovery takes place in the euro zone economy. MARKET DRIVERS 6
- 7. MARKET DRIVERS 7 • Private demand in the United States has been showing strength as credit and housing markets show positive signs. But larger-than-expected fiscal adjustment is projected to keep real GDP growth to about 2 percent in 2013. Canada dependent on US and commodities. • In the euro area, real GDP is projected to contract by about ¼ percent this year before growing again in 2014. Credit channels are broken: better financial conditions are not yet passing through to companies and households because banks are still halted by poor profitability and low capital. • Growth in emerging markets and developing economies is expected to remain robust, strengthening from about 5 percent in 2012 to 5.3 percent in 2013 and 5.7 percent in 2014. Emerging economies taking over half of future aircraft deliveries.
- 8. • IATA 2013 commercial airlines net profit forecast: $10.6 billion, up from $7.6 billion in 2012. $12 billion improvement in revenue and $9 billion increase in costs – most of which related to fuel. • Asia-Pacific airlines will generate the highest profits in margins and absolute dollars this year. North American airlines are expected to be the second most profitable region, due to consolidation and efficiency gains. Europe continues to lag, largely as a result of the ongoing recession in home markets. MARKET DRIVERS 8 IATA, March 2013
- 9. • High load factors and aircraft utilization will be critical if the airline industry is to improve profits this year in the face of a continuing high cost environment. Jet fuel prices forecast = $130/b. • Fuel bill is estimated to rise to $216B in 2013 or 33% of opex (2005=22%). Higher fuel cost is a major driver for new technology and new plane demand. MARKET DRIVERS 9
- 10. • Low interest rates have made it easier for airlines to purchase new aircraft by lowering ownership costs, another key component of airlines’ costs, along with fuel, labor, and maintenance. MARKET DRIVERS 10
- 11. • Global airline load factor is historically high. Supports the addition of new aircraft to meet rising demand. MARKET DRIVERS 11
- 12. • Replacement is a key source of aircraft demand. Around 28% of the world’s fleet, or approximately 5,350 aircraft, is over 20 years of age. Another 12% of the fleet (2,200 aircraft) is aged between 15 and 20 years old. These 7,550 aircraft aged over 15 years will support replacement demand over the next 5-10 years. MARKET DRIVERS 12
- 13. • In summary, conditions should remain favorable for aircraft demand over the next few years. - Traffic growth remains in the historical range of ~5% annually - airline profitability is improving - oil prices is in a similar range as the past two years - interest rates remain low - favorable replacement demand conditions considering the age of the fleet. • Of course, a macro shock could change these underlying dynamics dramatically. A severe recession would lower traffic growth to a point where current production plans are no longer viable. A terrorist attack involving aircraft or the outbreak of an epidemic, such as SARS, could quickly depress aircraft demand. Ultimately, we expect the aircraft industry to remain a cyclical one and for changes in the demand environment to result in a downturn one day. MARKET DRIVERS 13
- 14. • Performance of market segments varies widely over time. Large jetliners demand remains strong over all periods. AIRCRAFT MARKETS 7.40% 12.00% 29.40% 17.10% -6.30% 5.70% 4.40% -9.60% -12.60% 17.20% -5.40% 7.60% 9.70% 5.20% 20.40% -30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 2003-2008 2008-2012 2011-2012 Large Jetliners ($88.1 b) Business Aircraft ($19.9 b) Regionals ($6.2 b) Civil Helicopters ($4.9 b) All Civil ($119 b) Worldwide Deliveries, CAGR, 2013 $ Value 14 Source: Teal Group, 2013
- 15. • Large jetliners demand remains strong: High fuel prices make newer jets more competitive, strong emerging markets, low interest rates. 2,252 orders and 1,189 deliveries in 2012. 2,529 orders and 1,011 deliveries in 2011. • Backlogs at Boeing and Airbus support plans to increase rates. Airbus backlog=4,883. Boeing=4,302. About eight years worth of production. LARGE JETLINERS > 100 SEATS 15
- 16. LARGE JETLINERS 16 • 53% of backlog coming from emerging countries in 2012 (19% in 2000).
- 17. LARGE JETLINERS 17 • Delivery forecast 2012-2016 (units). 20% growth. Source: J.P. Morgan 2013
- 18. • Regional aircraft was the one segment of the aviation business that grew the least during the 2003-2008 boom market. In 1989, regional aircraft deliveries were 15% of the total world transport market by value. In 2011, they were 9.5%. • 208 regional jets delivered in 2008 vs 97 in 2012. • The only part of this market that has enjoyed growth in the past decade is turboprops, because of high fuel prices. • Teal Group forecasts production of 2,993 regional aircraft between 2012 and 2021. This includes 1,843 regional jets and 1,150 turboprops. Production during the 2002-2011 period totaled 3,240 aircraft comprising 2,460 regional jets and 780 turboprops. REGIONAL AIRCRAFT < 100 SEATS 18 Source: Teal Group, 2012
- 19. REGIONAL AIRCRAFT < 100 SEATS 19 • Orders activity coming from US carriers. Age a catalyst. US carriers to take advantage of pilot scope clause relief to refleet – replacing 50-seater planes with more fuel-efficient 76+ seater planes. Delta placed order for 40 CRJ900s in early December with option for 30 more. United order (30 E-175). Republic order (47 E- 175). Mitsubishi wins SkyWest order (100). • American Airlines’ and USAir’s merger could open door for additional 70+ seaters.
- 20. • Bombardier deliveries – jets and props. 60% drop between 2008 and 2012. Slight growth planned for 2012: 55 units (+10%). • BBD doing better in terms of orders in 2012 with 123 net orders (73 CRJ and 50 Q400). Compared to only 11 orders in 2011. Embraer only 23 net orders in 2012 (86 in 2011). ATR 62 net orders (119 in 2011). REGIONAL AIRCRAFT < 100 SEATS 0 20 40 60 80 100 120 140 66 54 61 56 45 36 55 62 56 60 41 33 14 CRJ Q-Series Units 20
- 21. • CRJ backlog in 2012=107 units (39 CRJ1000, 15 CRJ700, 53 CRJ900). Challenge for BBD: filling the skyline for Q400. BBD backlog not achieving production targets for Q400. 13 months of production vs 18-21 months goal. • Q400 more expensive than ATR. Good for developed market where speed, size, comfort and range are important. Hard times winning orders in emerging markets (price driven). BBD may come up with less expensive product to compete. REGIONAL AIRCRAFT 48 214 290 65 24 224 107 154 305 170 38 221 0 50 100 150 200 250 300 350 BBD CRJ Embraer ARJ21 MRJ BBD Q400 ATR 2011 2012 Regional Aircraft Backlog, December 31 21
- 22. REGIONAL AIRCRAFT • Many new entrants in a small market. Sukhoi Superjet 100, Comac ARJ 21, Mitsubishi MRJ. Pricing pressure. • BBD focused on the small end of the narrowbody market to compensate (CSeries). 22 Source: Embraer, 2013
- 23. • 2012 deliveries down 1% y/y and 33% from 2008 peak of 1,136. OEMs delivered 678 jets in 2012, down 8 units y/y. By value, however, shipments were slightly up because of a higher contribution from Heavy jets. Light jets and Medium jets lost share by volume, dropping to 38% and 19% of the market, respectively, while Heavy jets gained market share, increasing to 43% of the market. BUSINESS JETS 23
- 24. • Business jet demand has not recovered with corporate profits this time. 2013 US corporate profits will be up ~50% from 2008, whereas bizjet deliveries have yet to turn up much. The stigma attached to bizjets during the recent recession and a focus on cost-cutting among corporate customers are two reasons why demand is lagging corporate profit growth. • Will probably need to wait at least until 2016 before coming back to 2008 delivery levels. 2013 forecast: +5%. Higher growth expected in 2014. BUSINESS JETS 24 Source: J.P Morgan, 2013
- 25. • Overall industry backlog not growing. BUSINESS JETS 25
- 26. • Bombardier still maintains no.1 position in the market. BUSINESS JETS 26
- 27. • Bombardier deliveries. 3rd year of growth. +10% in 2012. 179 jets: Learjet 39 units (33 in 2011), Challenger 86 units (79), Global 54 units (51). Bizjet is 53% of total aerospace revenues. • +6% expected in 2013. BUSINESS JETS 0 50 100 150 200 250 FY07-08 FY08-09 FY09-10 FY10-11 2011 2012 2013 Budget 232 235 176 154 163 179 190 27
- 28. • Bombardier net orders: +80% in 2012. Good momentum. NetJets=100 Challenger jets, VistaJet=56 Global, AVWest=5 Global 6000, 32 Global 6000-8000 from 5 undisclosed clients. Global family boasts 3 years of backlog . BUSINESS JETS -100 0 100 200 300 400 500 FY07-08 FY08-09 FY09-10 FY10-11 2011 2012 452 251 -85 108 190 343 28
- 29. • Bombardier backlog has surpassed competitors’ backlog over the last 3 years. BUSINESS JETS 29 Source: Bombardier, 2013
- 30. HELICOPTERS • Deliveries of new civilian-use helicopters should increase from 4,900 to 5,600 over the next five-year, 2013 to 2017. 4,300 deliveries from 2008-2012. The forecast shows improved purchase plans for new helicopters in every region of the world. North American buying plans increased for the first time in half a decade. 30 Source: Honeywell Survey, 2013
- 31. In Summary • Large Jetliners: Strong demand. Solid backlog. • Regional Aircraft: Good demand for turboprops. Jet demand soft. Pricing pressure. More orders to come from US carriers. • Bizjet: Recovery not happening as fast as expected. Will probably need to wait at least until 2016 before coming back to 2008 delivery levels. BBD doing well. • Civilian Helicopter: Positive trend 2013-2017. 31
- 32. SOURCES • J.P. Morgan • PWC • National Bank Financial • Desjardins • Teal Group • McKinsey • Bombardier • Pratt & Whitney • GE Aviation • Embraer • Boeing • Airbus • Honewell • Aviation Week • Flight • Capital IQ • Speednews • Etc. 32