Review & outlook for 2017 Dublin, January 17 th 2017 Slide 1 - - PowerPoint PPT Presentation

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Review & outlook for 2017 Dublin, January 17 th 2017 Slide 1 - - PowerPoint PPT Presentation

Air transport and equipment market Review & outlook for 2017 Dublin, January 17 th 2017 Slide 1 Disclaimer This presentation was prepared by DVB Bank SE (DVB) exclusively for the benefit and internal use of the addressee mentioned on


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SLIDE 1

Slide 1

Dublin, January 17th 2017

Air transport and equipment market

Review & outlook for 2017

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SLIDE 2

Slide 2

Disclaimer

This presentation was prepared by DVB Bank SE (“DVB”) exclusively for the benefit and internal use of the addressee mentioned on the cover page. Neither this presentation nor any of its contents may be used by any other party or for any other purpose without the prior written consent of DVB. The oral commentary from DVB accompanying this presentation is an integral part of the presentation and the presentation is not complete without such commentary. This material is for distribution only under such circumstances as may be permitted by applicable law. It has no regard to the specific investment objectives, financial situation or particular needs of any recipient. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The contents of this presentation should not be treated as advice relating to legal, tax or investment matters. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the presentation. Any opinions expressed in this presentation are subject to change without notice and DVB is not under any obligation to update or keep current the information contained herein or communicate any updates to the addressee mentioned on the cover page. In particular, the information in this presentation reflects prevailing conditions and our views as of this date, all of which are subject to change. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of information available to us from public sources. Furthermore, neither DVB nor any of its affiliates, directors, employees or agents accept any liability for any loss or damage arising out of the use of all or any part of this presentation. In the UK, DVB is regulated in the conduct of its investment business by the Financial Conduct Authority. In the United States of America, DVB acts through DVB Capital Markets LLC, which is a broker dealer registered with the U.S. Securities and Exchange Commission and admitted by the Financial Industry Regulatory Authority to conduct securities business in the U.S. Forward looking statements: Statements made in this presentation, other than statements of historical fact, are forward-looking statements that involve risks and uncertainties. These statements relate to future aircraft deliveries, growths of the air transportation market and the aircraft leasing market. In some cases, forward-looking statements can be identified by terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “intend”, “plan”, “believe”, “estimate”, “potential”, “continue”, “outlook”, “could”, “target”, “project”, “seek”, “may”, “assume”, the negative of these terms or other comparable terminology. Actual results, and actual events that occur, may differ materially from those projected in any forward-looking statement as a result of certain risks and uncertainties. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this presentation and are based on information currently and reasonably known to us. Except as required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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SLIDE 3

Slide 3

Four-cycle model – Background

The “Industry Cycle” determines the demand for seat (RPK) and cargo (FTK)

  • capacity. This “demand” can

be compared to the “supply” side (ASK and AFTK) to determine/project shortage

  • r surplus situations

The “Technology Cycle” determines how competitive an aircraft is. A more competitive design (same payload/range category) can severely undermine value and remarket ability (A340

  • vs. 777). A successor may

also impact the value curve (“last of the line” effect) Increasingly aircraft transactions take place between “financially driven” parties (lessors, investors)

  • vs. the traditional “airline-to-

airline” model. The state of the finance market conse- quently is very important For investors/financiers the end-of-lease conditions are increasingly important. Is the aircraft under a FHA, Return Conditions or does the lessor have access to Maintenance Reserves?

Aviation industry Cycle Type Technology Cycle A/c Maintenance Cycle Financing Cycle

increasingly important for "mid live investors“ very high peaked new generation gaining momentum

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SLIDE 4

Slide 4

The global economic environment – Improving slightly

3.4 3.2 3.1 3.4 1.9 2.1 1.6 1.8 4.6 4.0 4.2 4.6 3.9 2.6 2.3 3.8

2014 2015 2016 2017

World output Output advanced economies Output emerging markets World trade volume

IMF – Macro-economic projections (Y-o-Y growth)

Source: IMF – World Economic Outlook October 2016

[%] 5 4 3 2 1

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SLIDE 5

Slide 5

Towards an era of de-globalisation/protectionism?

Global trade vs. global production

Source: CPB World Trade Monitor

20 15 10 5

  • 5
  • 10
  • 15
  • 20
  • 25

Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16

World industrial production volume (excl. construction) World merchandise world trade

[%]

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SLIDE 6

Slide 6

0.3 0.5 1.0 1.3 0% 1% 1% 2% 2014 2015 2016 2017 1.5 1.0 0.5

Airline fuel and interest cost moving up

Crude oil & jet fuel – price development [US$ and €]

Source: eia – Short-term energy outlook, December 2016

IMF US$ libor (mnth.) projection West Texas Intermediate (WTI) crude oil price IMF oil price projection

50 100 150 200 250 300 350 50 100 150 200 250 300 350 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 [€]

[US$]

US Gulf Coast jet fuel spot (cUS$ per barrel) WTI Spot (cUS$ per barrel) US Gulf Coast jet fuel spot (c€ per barrel) WTI Spot (c€ per barrel)

[US$ per barrel]

20 40 60 80 100 120

Jan-2015 Jul-2015 Jan-2016 Jul-2016 Jan-2017 Jul-2017

projections STEO price forecast NYMEX futures price Historical spot price 95% NYMEX futures lower confidence interval 95% NYMEX futures upper confidence interval Source: IMF – World economic outlook October 2016

2016

2014 2015 2016 2017

Oil (US$/BBL) Δ Oil price (US$ in %)

  • 8%
  • 47%

$50.8

  • 15%

$43.0 18% $50.6 40 42 44 46 48 50 52 38

  • 60
  • 50
  • 40
  • 30
  • 20
  • 10

10 20 30

[US$] [%]

Source: IMF – World economic outlook October 2016

[€]

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SLIDE 7

Slide 7 14.9 8.9 6.9 7.9 2.4

  • 1.2

8.0 6.3 5.3 5.2 5.7 7.4 5.9 5.1 2.8 1.0 6.6 1.7 8.3

  • 13.7

9.5 7.5

  • 1.4
  • 3.9
  • 5.5
  • 10.7
  • 8.0

0.0 73.5 75.0 76.2 78.5 79.4 79.7 79.9 80.4 80.2 79.8 70 72 74 76 78 80 82

  • 20
  • 15
  • 10
  • 5

5 10 15 20 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017F

RPK growth

  • Pax. yield

PLF

2010–2016 passenger traffic robust, but yields down

Source: IATA

IATA passenger market data

[%] RPK growth & pax yield [%] PLF

RPK = Revenue passenger-km PLF = Passenger load factor

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SLIDE 8

Slide 8 11.6 2.3 6.3 4.7

  • 0.7
  • 8.8

19.4 0.4

  • 0.9

0.6 5.0 2.3 3.4 3.5 3.9 0.5 4.4 5.6 7.0

  • 15.2

14.4 0.8

  • 4.2
  • 4.9
  • 2.0
  • 17.4
  • 12.5

0.0

  • 20
  • 15
  • 10
  • 5

5 10 15 20 25 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017F

FTK growth Cargo yield

2011–2016 stagnant freight traffic – 2016 turn-around?

Source: IATA

IATA cargo market data

[%]

FTK = Freight tonne km

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SLIDE 9

Slide 9

2016 YtD – Passenger traffic solid, freight recovering

Source: IATA Air passenger and freight analysis

10 8 6 4 2

  • 2
  • 4
  • 6
  • 8

Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16

Intra 2016 freight trend YtD: 6.1% YtD: 3.2% RPK FTK

[%]

Traffic volumes

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SLIDE 10

Slide 10

2016 – Peak in the profit cycle?

800 700 600 500 400 300 200 100

  • 100

2000

Source: Airline Monitor; ICAO; for 2014/15/16 IATA

  • Op. income

Net income Airline revenue Airline expenses

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E

701 718 35.3 35.6

[US$ mn]

World airline financial results

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SLIDE 11

Slide 11

  • 0.8

0.3 0.9 7.3 7.50 20.3 35.5

  • 9.6

1.1 4.4 5.5 7.84 22.4 9.4

  • 15
  • 10
  • 5

5 10 15 20 25 30 35 40 Africa Latin America Middle East Asia/Pacific Europe North America Global

Net profit 2016F Net profit per passenger 2016F

2016 – Profitability mainly for North American Airlines

Source: IATA (Ec. performance December 2016)

[US$ bn]

IATA – Net airline profit – (post tax) per region

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SLIDE 12

Slide 12

  • 5,6
  • 4.1
  • 5.0

14.7

  • 26.1
  • 4.6

17.3 8.3 9.2 10.7 13.7 35.3 35.6 29.8 840 1,873 2,033 2,421 1,420 652 1,354 2,561 2,331 3,534 3,551 2,364 2,175

500 1000 1500 2000 2500 3000 3500 4000

  • 30
  • 20
  • 10

10 20 30 40 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017F

Net airline profit* Western built jet orders (civil operators)**

Airline profits driven by low fuel – Orders down 2015/16

Source: * IATA "Economic performance of the airline industry (December 2016), ** Ascend fleets (January 2017)

[US$ mn]

Net airline profits vs. commercial jet orders

[Number]

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Slide 13

Lessor‘s share remains stagnant at high level (39%)

Source: Flightglobal/Ascend; West.B.Jets, all civil opserators

Lessor % in global jet fleet Lessor % in jets on order

45 40 35 30 25 20 15 10 5 1970 1975 1980 1985 1990 1995 2005 2010 2015 2000 39.1% 18.3% [%]

Lessor share in global commercial jet fleet/orders

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SLIDE 14

Slide 14

Generation change now gaining momentum

Source: Ascend flightglobal

90 80 70 60 50 40 30 20 10 1975 75% – Order+Lol+Option 59% – Narrowbodies 57% – All 47% – Widebodies 9% – Stored/fleet 1980 1985 1990 1995 2000 2005 2010 2015

All stored % total fleet WB on order % of in service fleet All on order % of in service fleet All on order + option/LoI % of in service NB on order % of in service fleet

[%]

Backlog as % of in service fleet

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Slide 15

The 2016 Numbers – Published net orders

Source: Press releases

A320CEO 46 A320NEO 561 NB: 607 A330CEO 41 A330NEO 42 A350 41 A380 WB: 124 731 Deliveries 688 Book/Bill 1,06 Cancellations 2016 218 Backlog 31/12 6874 Cancellation as % backlog 3.17% 737NG 16 737MAX 534 NB: 550 767 26 787 58 777CG 17 777X 747 17 WB: 118 668 Deliveries 748 Book/Bill 0,89 Cancellations 2016 180 Backlog 31/12 5715 Cancellation as % backlog 3.15%

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SLIDE 16

Slide 16 231 785 136 540 40 5 80 51 64 32 23 129 21 10 7 2 18 1 500 1000 1500 2000 2500 3000 3500 4000 4500

2012 2013 2014 2015 2016

Recent order intake per aircraft family

Source: Ascend (data incl. "type swaps")

Gross Orders (incl. type swaps) 2012 2013 2014 2015 2016 Backlog 31/12/16 A320CEOFam 278 435 496 146 231 653 A320NEOFam 407 830 1050 941 785 4992 737NG 217 469 265 234 136 837 737MAX 908 699 900 412 540 3605 E-Jets E1 69 203 69 126 40 185 E-Jets E2 150 60 57 5 272 787 36 181 49 99 80 700 A350 40 239 57 16 51 754 A330CEO 68 54 48 103 64 145 A330NEO 120 52 32 204 777 Current 75 55 54 38 23 134 777X 66 220 20 306 CSeries 15 25 61 129 353 CRJ 67 36 47 27 21 61 MRJ 100 26 32 10 233 767 22 2 4 49 7 70 A380 8 50 20 3 2 112 747 7 17 2 6 18 28 Others 14 23 3 3 1 15 2331 3534 3551 2364 2175 13659

Order intake 2012–2016 (western jet, all civil operators)

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Slide 17

2016 – Equipment highlights & concerns

  • A320 family selling well and gaining market share vs. 737NEO. A319 marginalised and A321 taking increasing share of
  • rders. Significant number of A320CEO cancellations/type swaps.
  • 737MAX selling well but slowly falling behind A320 family. Main difference seems the lack of a 737MAX10X (so far) to

compete against the A321NEO. Dilemma: a simple stretch or a more radical redesign (commonality?). 737MAX 7+ still at risk of being marginalised. Cancellations/type swaps for 737NG.

  • E-Jets E2 still outsold by the E1, in particular by the 175-E1. Concerns about 175-E2 not meeting MTOW limits under US

Scope Clauses. E175-E1 the “fall-back” that MRJ may be missing, facing similar issues.

  • 787 and A350 selling well by Twin Aisle standards with focus on 787-9 and A350-900. A350-800 “exit” and 787-8 heading in

same direction. 787-10 and A350-1000 not yet too convincing. Will a A350-”2000” be convincing as Airbus’ largest twin aisle (apart from the struggling A380)?

  • A330CEO still doing well after having been given more range. A-300 still a credible aircraft. A330-800 seems to follow the

A350-800, -900 not a very convincing order-book yet.

  • 777X order intake stalling but still time to bounce back. 777-300ER had to face the inevitable production cut. 777F the

leading long haul plane in this niche market.

  • CSeries had excellent 2016 in terms of – much needed – orders. Has to maintain momentum/profitability.
  • Will the MRJ be inspired by the recovery of the Cseries? Advanced plane but needs some credible orders.
  • 747-8F got some crucial orders. 747-8I nearing the end. Program profitability impacted by Airforce One discounting?
  • A380 further in the danger-zone.
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SLIDE 18

Slide 18

Outlook 2017 – Softening but no “doom & gloom“

  • According to IMF global economy heading for fragile continuation of the recovery. Event risk omni-present.
  • CPB data suggest de-globalisation (production growth > trade growth). Production technology (robotisation) and

protectionism? Long term risk!

  • Fuel slowly moving up, rising interest rates, labor cost increasing – airline profitability under pressure.
  • Ticket prices to increase, potentially reducing passenger traffic growth. Cargo recovering, beyond the Hanjin effect.
  • More order deferrals/cancellations in selected regions. Order slump to continue in 2017.
  • Programs that have not built strong backlog in 2013/14 may struggle to gain momentum.
  • Money remains plentiful, even without EXIM/ECA
  • Investors may be disappointed by residual value of selected twin aisle. No major impact expected yet of the last-of-the-line

effect, but… Big difference remarketability aircraft on lease or naked.

  • Will we see in 2017 :

‒ MAX 10 (yes) ‒ A350-2000 (no) ‒ CS500 (no) ‒ 777-10X (no) ‒ C919 making first flight (yes)

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SLIDE 19

Slide 19

THANK YOU