Macro Economic Outlook 18 th October 2017 Rob Morris, Global Head of Consultancy flightglobal.com/consultancy 1
FlightGlobal: Pioneering aviation insight and analytics business Part of a leading data solutions group RELX Group: London, Amsterdam and New York Stock Exchange listed 28,500 employees Market Capital $36.87bn FlightGlobal: 370+ staff 11 offices across the world flightglobal.com/consultancy 2
Flight Ascend’s unique Value proposition as an appraiser Independent Global team – fully objective We do not invest in aircraft and we are not brokers – NO conflicts of interest Global perspective with offices in London, New York and Hong Kong Instant access to vast data for research The only Appraiser with globally recognized Fleets, schedules and values databases used by our clients on a day to day basis Unparalleled Historical values data Historical Market values from 1965 Access to industry Tier 1 participants Clients are Airlines, all the top lessors, the major banks involved in aviation finance, MROs, OEMs, regulatory bodies flightglobal.com/consultancy 3
The Flight Ascend Consultancy Team George Dimitroff Joanna Lu Rob Morris Chris Wills Peter Morris Head of Valuations Head of Advisory Asia Global Head of Head of Consultancy Ops. Chief Economist ISTAT Appraiser ISTAT Sr. Appraiser Consultancy Thomas Kaplan Michael Lapson Chris Seymour Ben Chapman Richard Evans Valuations Analyst Senior Analyst Head of Market Valuations Manager Senior Analyst ISTAT Appraiser Analysis ISTAT Appraiser Dennis Lau Daniel Hall Tony Brooks Henk Ombelet Aviation Analyst Ryan Hammacott Senior Analyst Senior Analyst Senior Analyst ASA Sr. Appraiser Risk Analyst ISTAT Appraiser Michael Hui Syed Zaidi Sara Dhariwal Aviation Analyst Oliver Ford Lionel Olonga Aviation Analyst Valuations Analyst Valuations Analyst Valuations Analyst Vacant David Griffin Eva Karagianni Senior Consultant Luke Smith Senior Analyst Valerie Bershova Valuations Analyst Valuations Analyst ISTAT Appraiser Valuations Analyst Kevin Ng Aviation Analyst flightglobal.com/consultancy 4
GDP Growth and Trade Commercial Aviation Outlook A final comment on OEM supply outlook flightglobal.com/consultancy 5
GDP Growth & Trade flightglobal.com/consultancy 6
Air travel has created a transport revolution flightglobal.com/consultancy 7
Global economic cycle Steady performance with improvement seen since late 2016 Indicator Current level Trend GDP EIU estimate for 2016 was 2.2%. 2017 forecast Forecasts for global GDP for 2017 show an currently higher at 2.9%. Asia-Pacific leads at 4.4%, improvement over 2016 for North and Latin America, as US 2.2%, W Europe 2.1%, Latin America 1.1%. well as Middle East and Africa. Russia also emerging from recession. OECD Leading Indicators OECD members fairly stable at ~100 index. Within Inflexion point in many countries (e.g. China by Q4 this, Euro Area above 100; US and major 5 Asian 2016). Overall, most major economies showed an countries (including China) are below 100, as are many improving trend. PMIs also showing improving trend developing nations World trade drivers continue to show momentum in to World Trade Q3 2017. WTO Outlook indicator showing 3 Green, 3 Amber and 1 Red in August 2017 flightglobal.com/consultancy 8
5 year economic growth forecasts improved 8.0% 7.0% 6.0% Year-on-year change in GDP 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F N America W Europe Asia Pac China L America World Source: EIU, World is calculated at Market Exchange Rates flightglobal.com/consultancy 9
2017 forecast marginally up, 2018 forecast to be lower in Asia & China 8.0% 7.0% 6.0% Year-on-year change in GDP 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% USA W Europe Asia Pac China Lat America World Source: EIU, World is calculated at Market Exchange Rates flightglobal.com/consultancy 10
Economic recovery forecast in 2017 for Africa & Americas, but slowdown in China & W Europe 8% 7% 6% Year on Year GDP Growth 5% 4% 3% 2% 1% 0% APAC E Europe L America ME & N N America S Africa W Europe China -1% Africa -2% 2015 2016 2017 Source: EIU (PPP within regions) flightglobal.com/consultancy 11
Source: OECD CLI OECD leading indicators show stability OECD Composite Leading Indicators 100 101 102 103 94 95 96 97 98 99 Mar-08 Jun-08 Sep-08 USA Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Eurozone Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Major Five Asian Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 flightglobal.com/consultancy Mar-15 Jun-15 OECD Total Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 12
Source: Markit generally positive Manufacturing PMIs improving, overall indications PMI Index (Positive less negative answers) 30 35 40 45 50 55 60 65 US Manufacturing Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Eurozone Composite Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 China Manufacturing Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 economic expansion Values > 50 indicate Apr-15 flightglobal.com/consultancy Jul-15 Oct-15 Jan-16 Global Composite Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 13
Oil prices stabilised after falls that commenced in July 2014 IATA’s 2017 base case fuel scenario is now $64.0 per barrel Jet Fuel 140 (=$1.52 per USG) 350 Crude oil price trajectory 120 300 stabilised and averaging Crude Oil $ per Barrel $51 per barrel 2017 YTD Jet Fuel Cents per US Gallon 100 250 80 200 60 150 40 100 20 50 0 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F Oil Price Jet Fuel Source: US EIA / IATA flightglobal.com/consultancy 14
Source: US EIA / IATA Jet fuel price up 20% in 2017YTD Jet Fuel Cents per US Gallon 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jet Fuel $ per USG Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Year-on-Year Change Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 flightglobal.com/consultancy Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 -60% -40% -20% 0% 20% 40% 60% 80% Year-on-Year Change 15
Cycle risk factors Interest rates China slowdown Middle East slowdown Policy errors flightglobal.com/consultancy 16
Commercial aviation outlook flightglobal.com/consultancy 17
Global passenger traffic growth stronger than expected through 2017 to date 20% 2017YTD Capacity = 6.5%, Traffic = 7.9% 15% 10% Year-on-Year Change 5% 0% -5% IATA predicting 7.4% traffic growth for 2017 -10% -15% Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Traffic (RPK) Capacity (ASK) Source: Ascend Analysis of IATA Data flightglobal.com/consultancy 18
Historical strong correlation between GDP & traffic growth 8% 16% 1991 and 2001 saw 3% Actual GDP growth 7% 14% traffic fall, exacerbated by in 2009 was –2.1%, 6% 'shock' events worst since 1945 12% 5% 10% GDP Growth 4% 8% Traffic Growth 3% 6% 2% 4% 1% 2% 0% 0% -1% 1982 had worst global -2% GDP since 1945, but still -2% -4% 2% traffic growth -3% -6% World GDP growth (LHS) Traffic growth (RHS) Source: ICAO, IATA, World Bank flightglobal.com/consultancy 19
IATA now expects demand to marginally lead supply in most regions in 2017 12% 10% 2017 Predicted Growth 8% 6% 4% 2% 0% Africa Asia-Pacific Middle East Latin America North Europe Global America Predicted Traffic Growth Predicted Capacity Growth Year to Date Traffic Year to Date Capacity Source: IATA, year to date to end August 2017 flightglobal.com/consultancy 20
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