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 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”, “c ont inue”, “outlook”, “could”, “target”, “project”, “seek”, “may”, “assume”, the negative of these terms or other comparable terminology. Actual results, and actual events that occur, m ay 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. Slide 2

Four-cycle model – Background The “Technology Cycle” Type Technology Cycle The “Industry Cycle” Aviation industry Cycle determines how competitive determines the demand for an aircraft is. A more seat (RPK) and cargo (FTK) competitive design (same capacity. This “demand” can payload/range category) can be compared to the “supply” severely undermine value side (ASK and AFTK) to and remarket ability (A340 determine/project shortage vs. 777). A successor may or surplus situations also impact the value curve (“last of the line” effect) peaked new generation gaining momentum For investors/financiers the Increasingly aircraft A/c Maintenance Cycle end-of-lease conditions are transactions take place increasingly important. Is the between “financially driven” Financing Cycle aircraft under a FHA, Return parties (lessors, investors) Conditions or does the lessor vs. the traditional “airline -to- have access to Maintenance airline” model. The state of Reserves? the finance market conse- quently is very important increasingly important for "mid live investors “ very high Slide 3

The global economic environment – Improving slightly IMF – Macro-economic projections (Y-o-Y growth) [%] 5 4.6 4.6 4.2 4.0 3.8 3.9 4 3.4 3.4 3.2 3.1 3 2.6 2.3 2.1 1.9 2 1.8 1.6 1 0 2014 2015 2016 2017 World output Output advanced economies Output emerging markets World trade volume Source: IMF – World Economic Outlook October 2016 Slide 4

Towards an era of de-globalisation/protectionism? Global trade vs. global production [%] 20 15 10 5 0 -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 Source: CPB World Trade Monitor Slide 5

Airline fuel and interest cost moving up Crude oil & jet fuel – price development [US$ and € ] IMF US$ libor (mnth.) projection [US$] [ € ] [%] 350 350 2% 1.5 300 300 1.3 2016 250 250 1.0 1% 1.0 200 200 150 150 0.5 1% US Gulf Coast jet fuel spot (cUS$ per barrel) 0.5 0.3 100 100 WTI Spot (cUS$ per barrel) US Gulf Coast jet fuel spot (c € per barrel) 50 50 WTI Spot (c € per barrel) 0% 0 0 2014 2015 2016 2017 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Source: IMF – World economic outlook October 2016 West Texas Intermediate (WTI) crude oil price IMF oil price projection [US$] [ € ] [US$ per barrel] 120 52 30 $50.8 $50.6 projections 20 100 50 18% 10 80 48 0 60 46 -10 -15% -8% 40 -20 44 $43.0 20 -30 42 0 -40 Jan-2015 Jul-2015 Jan-2016 Jul-2016 Jan-2017 Jul-2017 40 -50 -47% 38 -60 Historical spot price STEO price forecast NYMEX futures price 2014 2015 2016 2017 95% NYMEX futures upper confidence interval 95% NYMEX futures lower confidence interval Δ Oil price (US$ in %) Oil (US$/BBL) Source: eia – Short-term energy outlook, December 2016 Source: IMF – World economic outlook October 2016 Slide 6

2010 – 2016 passenger traffic robust, but yields down IATA passenger market data RPK growth & pax yield PLF [%] [%] 20 82 80.4 14.9 80.2 79.9 15 79.7 79.8 79.4 80 8.9 9.5 78.5 10 7.9 8.3 7.4 8.0 6.9 6.6 7.5 5.9 5.7 6.3 5.3 5.2 5.1 78 5 2.8 1.7 2.4 1.0 76.2 0.0 0 76 75.0 -1.2 -1.4 -5 73.5 -3.9 74 -5.5 -8.0 -10 -10.7 72 -15 -13.7 -20 70 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017F RPK growth Pax. yield PLF RPK = Revenue passenger-km PLF = Passenger load factor Source: IATA Slide 7

2011 – 2016 stagnant freight traffic – 2016 turn-around? IATA cargo market data [%] 25 19.4 20 14.4 15 11.6 10 7.0 6.3 5.6 5.0 4.4 3.5 3.9 4.7 5 3.4 2.3 2.3 0.8 0.6 0.5 0.4 0.0 0 -0.7 -0.9 -2.0 -5 -4.2 -4.9 -10 -8.8 -12.5 -15 -15.2 -17.4 -20 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017F FTK growth Cargo yield FTK = Freight tonne km Source: IATA Slide 8

2016 YtD – Passenger traffic solid, freight recovering Traffic volumes [%] 10 8 Intra 2016 freight trend 6 YtD: 6.1% 4 YtD: 3.2% 2 0 -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 RPK FTK Source: IATA Air passenger and freight analysis Slide 9

2016 – Peak in the profit cycle? World airline financial results [US$ mn] 718 701 800 700 600 500 400 300 35.3 200 35.6 100 0 -100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E Op. income Net income Airline revenue Airline expenses Source: Airline Monitor; ICAO; for 2014/15/16 IATA Slide 10

2016 – Profitability mainly for North American Airlines IATA – Net airline profit – (post tax) per region [US$ bn] 40 35.5 35 30 25 22.4 20.3 20 15 9.4 10 7.3 7.50 7.84 5.5 4.4 5 1.1 0.9 0.3 0 -0.8 -5 -10 -9.6 -15 Africa Latin America Middle East Asia/Pacific Europe North America Global Net profit 2016F Net profit per passenger 2016F Source: IATA (Ec. performance December 2016) Slide 11