Regional Aircraft Markets 7 th December 2017 Rob Morris, Global - PowerPoint PPT Presentation

Regional Aircraft Markets 7 th December 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 Daniel Hall Dennis Lau Tony Brooks Senior Analyst Henk Ombelet Aviation Analyst Ryan Hammacott Senior Analyst ISTAT Appraiser Senior Analyst Risk Analyst ISTAT Appraiser ASA Sr. 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

Regional Jet Markets Turboprop Markets flightglobal.com/consultancy 5

Regional Jets flightglobal.com/consultancy 6

Some definition – what is a Regional Jet? flightglobal.com/consultancy 7

Average 150 regional jet deliveries annually through current demand cycle 400 100-Seat 350 85-Seat 300 70-Seat Annual Deliveries 50-Seat 250 200 150 100 50 0 Source: Flight Fleets Analyzer, passenger aircraft only flightglobal.com/consultancy 8

Deliveries predicted to decline marginally before pick- up again in next decade 400 100-Seat 350 85-Seat 300 70-Seat Annual Deliveries 50-Seat 250 200 150 100 50 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 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Source: Flight Fleets Analyzer, passenger aircraft only flightglobal.com/consultancy 9

Fleet growth has stagnated but mix is changing 4,000 100-Seat 3,500 Passenger Regional Jet Fleet 85-Seat 3,000 70-Seat 50-Seat 2,500 2,000 1,500 1,000 500 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 2017 Source: Flight Fleets Analyzer, passenger aircraft only flightglobal.com/consultancy 10

Fleet trend is predicted to continue 4,000 100-Seat 3,500 Passenger Regional Jet Fleet 85-Seat 3,000 70-Seat 50-Seat 2,500 2,000 1,500 1,000 500 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 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Source: Flight Fleets Analyzer, passenger aircraft only flightglobal.com/consultancy 11

Less than 1,000 aircraft in firm order backlog, with 50% scheduled through 2021 180 COMAC 160 Sukhoi 140 Scheduled Deliveries Mitsubishi 120 Bombardier 100 Embraer 80 60 40 20 0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 TBC Source: Flight Fleets Analyzer, passenger aircraft only flightglobal.com/consultancy 12

Stored fleet continues to grow but 50-seaters drive volume 900 22.5% 100-Seat 800 20.0% 85-Seat Stored Fleet at Year End 700 17.5% 70-Seat 600 15.0% 50-Seat 500 12.5% % of Fleet 400 10.0% 300 7.5% 200 5.0% 100 2.5% 0 0.0% Source: Flight Fleets Analyzer, passenger aircraft only flightglobal.com/consultancy 13

Current idle inventory is 828 aircraft 140 100-Seat 38 aircraft included with future lease identified 120 43 aircraft included with future sale identified 85-Seat 70-Seat 100 Aircraft in Store 50-Seat 80 60 40 20 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 30+ Aircraft Age (Years) Source: Flight Fleets Analyzer, passenger aircraft only, 5 December 2017 flightglobal.com/consultancy 14

50-seat jets driving lower retirement age 120 30 >25 Years Old Average Age at Retirement 100 25 <25 Years Old Annual Retirements Avg Age at Retirement 80 20 Avg Age at Effective Retirement 60 15 40 10 20 5 0 0 Source: Flight Fleets Analyzer flightglobal.com/consultancy 15

Marked difference between small & larger RJs, wide spread of curves over history 100% 80% 50% survivor point has a mean of 20 years, but varies widely by size and type Aircraft Retired 60% 40% 20% 2016 Flight Fleet Forecast uses 50% survivor assumption of 17/20 years 0% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 Mean +/- 1SD (all RJs) last 20 yrs End 2010 all RJs End 2015 RJ30-50 End 2015 RJ70-100 Source: Flight Fleets Analyzer flightglobal.com/consultancy 16

Scope Clause Scope clause is a pilot contract issue Typically restricts the amount of capacity that a mainline airline can pass down to its regional partner Intent is to protect pilot jobs and wage structures in mainline carrier Each airline’s scope clause is different but typically restrictions apply around Number of aircraft Seat capacity of aircraft Maximum take-off weight of aircraft Scope can change by negotiation but pilots need a lot of convincing to accept change as they zealously protect contract conditions in airlines which are typically highly unionised flightglobal.com/consultancy 17

Current US Major airlines scope clause flightglobal.com/consultancy 18

Scope clause consequence in US Neither MRJ90 nor E175E2 are current scope clause compliant E175, CRJ900 and MRJ70 are current scope clause compliant 81% of current E175 fleet (and 92% of backlog) operates in US; 67% of current CRJ900 fleet operates in US Currently all three Majors (American, Delta and United) are saturated for 76- seaters so no further growth potential No changes are expected to scope clause in next contract round (at least) Only opportunity for more 76-seaters will be for replacement of existing aircraft flightglobal.com/consultancy 19

Relatively fewer RJs managed by operating lessors 1400 35% Op Lease Portfolio 1200 30% Operating Lease Portfolio Share of Fleet 1000 25% 800 20% 600 15% 400 10% 200 5% 0 0% Source: Flight Fleets Analyzer flightglobal.com/consultancy 20

Operating leasing portfolio is highly concentrated 100% 90% 80% Cumulative value of Portfolio 70% 60% 50% 40% 30% 50% of fleet by value is 20% managed by only four operating lessors 10% 0% 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 Lessor Rank Source: Flight Fleets Analyzer, passenger aircraft only flightglobal.com/consultancy 21

Top 20 lessors manage 85% of the global portfolio Manager In Service Storage Order Current Portfolio Portfolio CMV ($mn) Nordic Aviation Capital 126 23 18 149 2,409.6 GECAS 208 131 5 339 1,760.8 Avolon 44 5 49 808.5 Falko 51 8 59 521.1 GTLK - State Transport Leasing Company 21 5 9 26 452.4 CDB Aviation Lease Finance 20 20 20 378.9 Sberbank Leasing 23 2 25 376.2 ICBC Leasing 19 40 19 372.6 AVIC International Leasing 18 18 284.5 ALM - Aircraft Leasing & Management 11 11 236.9 BoCom Leasing 10 10 236.7 TAT Leasing Services 14 14 199.5 Regional One Inc 20 22 42 198.9 VEB-Leasing 11 3 14 188.1 Chorus Aviation Capital 8 2 10 177.4 GOAL German Operating Aircraft Leasing 10 10 167.4 JetFleet Management Corp 16 16 134.1 TrueNoord 7 7 130.6 Castlelake 14 14 127.4 Aircastle Limited 6 25 6 125.0 Source: Flight Fleets Analyzer, passenger aircraft only flightglobal.com/consultancy 22

More than 90% of RJ fleet have CMV < BV 100% 90% 80% Cumulative % of Fleet 70% 60% 50% 40% 30% Single-Aisle 20% Twin-Aisle 10% Regional Jet 0% 50% 60% 70% 80% 90% 100% 110% 120% 130% 140% 150% CMV / BV Source: Flight Fleets Analyzer, passenger aircraft only flightglobal.com/consultancy 23

RJ value retention presently better that single-aisle or twin-aisle 110% 100% 100-Seat RJ CMV / Original CMV 150-Seat SA 90% 300-Seat TA 80% 70% 60% 50% 40% 30% 2005 2006 2007 2008 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Flight Values Analyzer, representative 2005 build aircraft flightglobal.com/consultancy 24