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

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Regional Aircraft Markets

7th December 2017 Rob Morris, Global Head of Consultancy

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FlightGlobal: Pioneering aviation insight and analytics business

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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

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The Flight Ascend Consultancy Team

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Rob Morris Global Head of Consultancy Peter Morris Chief Economist Chris Seymour

Head of Market Analysis

Henk Ombelet Senior Analyst Richard Evans Senior Analyst Chris Wills

Head of Consultancy Ops.

ISTAT Sr. Appraiser Tony Brooks Senior Analyst ISTAT Appraiser Ben Chapman Valuations Manager ISTAT Appraiser Lionel Olonga Valuations Analyst Ryan Hammacott Risk Analyst Joanna Lu Head of Advisory Asia Thomas Kaplan Valuations Analyst Dennis Lau Aviation Analyst Michael Hui Aviation Analyst Vacant Senior Consultant Kevin Ng Aviation Analyst Sara Dhariwal Valuations Analyst Eva Karagianni Valuations Analyst Oliver Ford Valuations Analyst Luke Smith Valuations Analyst Valerie Bershova Valuations Analyst George Dimitroff Head of Valuations ISTAT Appraiser Michael Lapson Senior Analyst ISTAT Appraiser Daniel Hall Senior Analyst ISTAT Appraiser ASA Sr. Appraiser Syed Zaidi Aviation Analyst David Griffin Senior Analyst ISTAT Appraiser

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Regional Jet Markets Turboprop Markets

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Regional Jets

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Some definition – what is a Regional Jet?

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Average 150 regional jet deliveries annually through current demand cycle

50 100 150 200 250 300 350 400 Annual Deliveries 100-Seat 85-Seat 70-Seat 50-Seat

Source: Flight Fleets Analyzer, passenger aircraft only

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Deliveries predicted to decline marginally before pick- up again in next decade

50 100 150 200 250 300 350 400 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 Annual Deliveries 100-Seat 85-Seat 70-Seat 50-Seat

Source: Flight Fleets Analyzer, passenger aircraft only

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Fleet growth has stagnated but mix is changing

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 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 Passenger Regional Jet Fleet 100-Seat 85-Seat 70-Seat 50-Seat

Source: Flight Fleets Analyzer, passenger aircraft only

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Fleet trend is predicted to continue

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 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 Passenger Regional Jet Fleet 100-Seat 85-Seat 70-Seat 50-Seat

Source: Flight Fleets Analyzer, passenger aircraft only

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Less than 1,000 aircraft in firm order backlog, with 50% scheduled through 2021

20 40 60 80 100 120 140 160 180 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 TBC Scheduled Deliveries COMAC Sukhoi Mitsubishi Bombardier Embraer

Source: Flight Fleets Analyzer, passenger aircraft only

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Stored fleet continues to grow but 50-seaters drive volume

0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0% 22.5% 100 200 300 400 500 600 700 800 900 Stored Fleet at Year End 100-Seat 85-Seat 70-Seat 50-Seat % of Fleet

Source: Flight Fleets Analyzer, passenger aircraft only

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Current idle inventory is 828 aircraft

20 40 60 80 100 120 140 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 in Store Aircraft Age (Years) 100-Seat 85-Seat 70-Seat 50-Seat

Source: Flight Fleets Analyzer, passenger aircraft only, 5 December 2017 38 aircraft included with future lease identified 43 aircraft included with future sale identified

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50-seat jets driving lower retirement age

5 10 15 20 25 30 20 40 60 80 100 120 Average Age at Retirement Annual Retirements >25 Years Old <25 Years Old Avg Age at Retirement Avg Age at Effective Retirement

Source: Flight Fleets Analyzer

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Marked difference between small & larger RJs, wide spread of curves over history

Source: Flight Fleets Analyzer

0% 20% 40% 60% 80% 100%

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

Aircraft Retired Mean +/- 1SD (all RJs) last 20 yrs End 2010 all RJs End 2015 RJ30-50 End 2015 RJ70-100

50% survivor point has a mean of 20 years, but varies widely by size and type 2016 Flight Fleet Forecast uses 50% survivor assumption of 17/20 years

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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

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Current US Major airlines scope clause

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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

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Relatively fewer RJs managed by operating lessors

0% 5% 10% 15% 20% 25% 30% 35% 200 400 600 800 1000 1200 1400 Operating Lease Portfolio Op Lease Portfolio Share of Fleet

Source: Flight Fleets Analyzer

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Operating leasing portfolio is highly concentrated

Source: Flight Fleets Analyzer, passenger aircraft only

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 Cumulative value of Portfolio Lessor Rank

50% of fleet by value is managed by only four

• perating lessors

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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

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More than 90% of RJ fleet have CMV < BV

Source: Flight Fleets Analyzer, passenger aircraft only

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 50% 60% 70% 80% 90% 100% 110% 120% 130% 140% 150% Cumulative % of Fleet CMV / BV Single-Aisle Twin-Aisle Regional Jet

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RJ value retention presently better that single-aisle or twin-aisle

Source: Flight Values Analyzer, representative 2005 build aircraft

30% 40% 50% 60% 70% 80% 90% 100% 110% 2005 2006 2007 2008 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 CMV / Original CMV 100-Seat RJ 150-Seat SA 300-Seat TA

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RJ values less volatile than other classes….

Source: Flight Ascend Ratings

100-seat RJ 150-seat SA 300-seat TA

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….which is reflected in our Asset Ratings

Source: Flight Ascend Ratings

100-seat RJ 150-seat SA 300-seat TA

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Turboprops

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Turboprops retain their own market niche

Source: Flight Schedules

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 500 1,000 1,500 2,000 2,500 Cumulative % of Scheduled Frequencies Sector Length (km) Turboprop Regional Jet

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Shape of global turboprop fleet is changing

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 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 Passenger Turboprop Fleet 70-Seat 50-Seat 30-Seat 19-Seat

Source: Flight Fleets Analyzer, passenger airline Western built turboprops only

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Orderbook reflects shift to larger aircraft

50 100 150 200 250 300 350 Annual Deliveries 70-Seat 50-Seat 30-Seat 19-Seat

Source: Flight Fleets Analyzer, passenger airline Western built turboprops only 2017 excludes 30 ATR72 Freighters for FedEx

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…as does delivery profile

50 100 150 200 250 300 350 400 450 Annual Deliveries 70-Seat 50-Seat 30-Seat 19-Seat

Source: Flight Fleets Analyzer, passenger airline Western built turboprops only

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ATR dominates the (relatively small) firm order backlog

20 40 60 80 100 120 2018 2019 2020 2021 2022 TBC Scheduled Deliveries Others Bombardier ATR

Source: Flight Fleets Analyzer, passenger airline Western built turboprops only

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Even fewer turboprops managed by operating lessors but preference is for larger aircraft

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 200 400 600 800 1000 1200 1400 Operating Lease Portfolio Op Lease Portfolio Share of Fleet Share of ATR72/Q400

Source: Flight Fleets Analyzer

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Operating leasing portfolio is even more concentrated

Source: Flight Fleets Analyzer, passenger aircraft only

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1 6 11 16 21 26 31 36 41 46 51 Cumulative value of Portfolio Lessor Rank

70% of fleet by value is managed by only six

• perating lessors

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Top 20 lessors manage 93% of the global portfolio

Manager In Service Storage Order Current Portfolio Portfolio CMV ($mn) Nordic Aviation Capital 208 46 35 289 3,025.2 Chorus Aviation Capital 41 2 43 685.6 DAE Capital 39 1 9 49 658.4 Elix Aviation Capital 61 21 82 593.2 Transportation Partners 32 32 495.4 GECAS 25 1 10 36 363.4 Avation PLC 15 5 5 25 306.8 Avmax Aircraft Leasing 38 46 84 291.0 GOAL 17 17 215.8 Aergo Capital 16 16 192.1 ACIA Aero 21 1 22 114.0 Montrose Global 25 2 27 113.2 Showa Leasing Co Ltd 10 10 103.7 Skytech-AIC 9 9 99.1 Erik Thun AB 16 9 25 92.6 Castlelake 15 4 19 81.6 Doric 6 6 67.7 JetFleet Management Corp 10 9 19 65.8 Rockton AB 17 2 19 62.9 Jetstream Aviation Capital 26 10 36 61.9 Source: Flight Fleets Analyzer, passenger aircraft only

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TP value retention is best of any asset at present

Source: Flight Values Analyzer, representative 2005 build aircraft

30% 40% 50% 60% 70% 80% 90% 100% 110% 2005 2006 2007 2008 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 CMV / Original CMV 100-Seat RJ 150-Seat SA 300-Seat TA 70-seat TP

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Asset Ratings also reflect better value outlook

Source: Flight Ascend Ratings

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Summary & conclusions

Regional jet and turboprop markets are smaller / more specialised than single- aisle “commodities” There are several specific market categories within these markets Some assets display better residual value retention and lower volatility Operating leasing is relatively lower penetrated

Reflects lower volume market More specialised market knowledge / asset management skills required

Opportunity knocks?

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Rob Morris Head of Consultancy +44 (0)20 8564 6735 +44 (0)7730 213189 rob.morris@flightascendconsultancy.com