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Cloudy, With Bluer Skies Ahead ��Economic Outlook for the ��

Part 135 Air Carrier Industry

Rolland Vincent President Rolland Vincent Associates, LLC

© 2010 Rolland Vincent Associates, LLC

NATA 2010 - Air Charter Summit Chantilly, VA June 7-9, 2010

Outline

1.  Economic environment and outlook 2.  Industry and market dynamics 3.  Opportunities for growth

© 2010 Rolland Vincent Associates, LLC 2

1. Economic Environment and Outlook


World economy

 Wide performance divergence between developed and developing economies

  Sovereign debt crisis has revealed that expansive fiscal policies are unsustainable •  180° turn at G20 since April 2010

  Stock market rallies are now stalled   Investor confidence is again being shaken


Diverging regional economic performances

U.S. economy: on the path to recovery


Source: U.S. BEA

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After almost a 20-year run, the deepest, longest recession since 1929

U.S. economy: on the path to recovery


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Rebound fueled by inventory re-stocking, fiscal stimulus; now slowing

Officially, U.S. recession still not over


June 7-9, 2010

Peak TroughDuration (months)

Aug-29 Mar-33 43May-37 Jun-38 13Feb-45 Oct-45 8Nov-48 Oct-49 11Jul-53 May-54 10Aug-57 Apr-58 8Apr-60 Feb-61 10Dec-69 Nov-70 11Nov-73 Mar-75 16Jan-80 Jul-80 6Jul-81 Nov-82 16Jul-90 Mar-91 8Mar-01 Nov-01 6Dec-07 ???

1810

U.S. economic recessions

Average Recession Duration1919-1945 (6 cycles)1945-2001 (10 cycles)Source: U.S. BEA

….until the NBER says it is

Corporate profits have rebounded


June 7-9, 2010

Source: U.S. BEA; profits after tax with inventory valuation and capital consumption adjustments

Businesses are adjusting: Profits in Q1 2010 were up 24% YOY

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Federal deficits have become the norm


March 9-10, 2010

Source: U.S. Congressional Budget Office

Annual deficit in 2010 may reach $1.3 trillion; total = $8.8 trillion

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Stock markets grew strongly in 2009


Region IndexJan. 2009

OpenDec. 2009

Close%

ChangeAmericas DJIA 8,772 10,428 18.9%Americas Bovespa 37,550 68,588 82.7%Europe FTSE 100 4,434 5,413 22.1%Europe DAX 4,857 5,957 22.7%Europe CAC 40 3,241 3,936 21.5%Asia Pacific Hang Seng 14,448 21,873 51.4%Asia Pacific Nikkei 225 8,991 10,546 17.3%

Key Stock Market Indices in 2009

Developing economies are at the forefront of global growth

The DJIA roller coaster


June 7-9, 2010 Markets abhor uncertainty, and there is lots of it right now

53% fall 50% rise

U.S. consumer confidence  Official unemployment hovering near 10%   8 million+ jobs have been lost   6.5 million are chronically unemployed

•  More than 27 weeks off the job; 2X one year ago   Personal incomes are declining   Stubbornly high levels of debt, defaults


Consumers: discouraged, hard hit in a ‘jobless’ recovery

Economic outlook – key markets


Recovery: stronger in 2010, then tempering somewhat in 2011

2000-2008 2009 2010F 2011FUnited States 2.4% -2.4% 3.4% 2.7%Canada 2.6% -2.5% 3.6% 2.7%Mexico 2.8% -6.5% 4.8% 3.5%Euro zone 1.9% -4.1% 0.8% 1.0%China 10.1% 8.7% 10.0% 9.0%India 7.3% 6.7% 8.0% 7.0%Brazil 3.3% 0.5% 6.5% 5.0%World 3.3% -2.0% 3.4% 3.1%

2000-2008 2009 2010F 2011FUnited States 5.3% -3.8% 25.0% 13.0%Canada 7.8% -32.3% 27.5% 14.0%

2000-2008 2009 2010F 2011FUnited States 5.1% 9.3% 9.6% 9.0%Canada 6.9% 8.3% 8.1% 7.9%

Real GDP Growth (annualized)

Pre-Tax Corporate Profit Growth

Unemployment Rate %

Source: Scotiabank Group, June 1, 2010

Regional economic outlook   Europe

•  Eurozone debt crisis = accelerated fiscal restraint in south •  Diverging fiscal policies; more cautious lending •  Widening credit spreads; higher interbank lending rates •  Sharp depreciation in the Euro – will help German exports

  Developing economies (esp. Asia, Latin America) •  Fast-track growth •  Solid domestic demand and strong inter-regional trade


March 9-10, 2010 Analysts expect a stronger $US ‘safe haven’

2. Industry and Market Dynamics


U.S. business jet operations


3826564 4198012 4285420

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2001 2002 2003 2004 2005 2006 2007 2008 2009

FAA Business Jet Arrivals and Departures

Total Domestic International

Source: FAA

Domestic flying fell 30% from 2007 peak

U.S. business jet operations


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FAA Business Jet Arrivals and Departures Year-Over-Year Change – 2009/2010

Total

Domestic

International

Source: FAA

Growth is returning, but from a lower base and ‘easy comparables’

Avinode Demand Index


On-line charter bookings are up YOY with flat U.S. pricing

Index (Jan 1 2009) = 100 = $13.7M in daily order value for flights requested in next 30 days

NetJets rebounding from trough   Pre-tax $711 M loss in 2009 (vs. $213M)

•  Mark-to-market asset write downs and downsizing charges of $676M (vs. $54M)

•  77% reduction in aircraft sales •  19% decline in live hours

  Q1 2010 •  Pre-tax earnings of $57M (vs. -$96M YOY) •  Worldwide live hours up 7% YOY

  Debt peaked at $1.9B in April 2009   Headquarters, NJI consolidation   Fleet downsizing continuing

© 2010 Rolland Vincent Associates, LLC 19 June 7-9, 2010

Program Holder - Jets Fleet SizeNetJets, Inc. 448NetJets Europe 157Flight Options 83Flexjet 78CitationAir 59Aerolineas Ejecutivas 12Executive AirShare 10Total 847

Program Holder - Turboprops Fleet SizeAvantair 55Alpha Flying, Inc. - PlaneSense 34Total 89

Excess capacity has severely curtailed charter sell-off

Pre-owned market   Used aircraft inventories continue gradual decline

•  2,689 business jets on the market available at May 31, 2010 •  Represents 15% of worldwide fleet

  1,000 aircraft 10 years old or newer •  0-5 years old = 594 aircraft (22% of fleet), including 111 whitetails •  6-10 years old = 407 aircraft (15% of fleet)

  Older aircraft are particularly hard to sell, finance •  10+ years old = 1,688 aircraft (63% of fleet) •  Retirement wave looming – 60-year old airframes?


Available jet inventory has declined 12% from May 2009 peak

Source: JETNET and UBS

For sale: Pre-owned business jet fleet


Source: Jetnet, March 2010

Supply well ahead of demand; larger aircraft performing better

Pre-owned prices still seeking a floor


June 7-9, 2010

Source: JETNET and UBS

Manufacturer ModelPrice

($US million)Change

YOYChange since recent peak

Gulfstream G-550 38.0$ -7% -37%Bombardier Global Express 28.0$ -21% -43%Gulfstream G-V 23.7$ -22% -47%Dassault Falcon 2000EX 17.8$ -30% -50%Bombardier Challenger 604/605 16.3$ -23% -39%Bombardier Challenger 300 14.5$ -20% -41%Gulfstream G-IVSP 14.3$ -22% -54%Cessna Citation X 10.3$ -5% -45%Cessna Citation XLS 7.9$ -26% -33%Hawker Beechcraft Hawker 800XP 5.3$ -21% -45%Cessna Citation Encore 5.1$ -21% -37%Bombardier Learjet 45XR 4.3$ -43% -54%

Average Asking Prices - May 2010

Asking prices for most models are 40-50% below recent peaks

Business jet Bluebook values


Older in-production models (esp. light and mid-size) are hardest hit

Manufacturer Model

Bluebook asking price (Jan. 2010)

Original list price - New (May 2000$)

Real original list price

(Jan. 2010)

Bluebook value as % of original

listDassault Falcon 900C $16.86 $27.81 $35.02 48.1%Cessna Citation CJ2 $2.73 $4.53 $5.70 47.8%Dassault Falcon 2000 $11.98 $20.60 $25.94 46.2%Gulfstream G-V $22.19 $40.50 $51.01 43.5%Bombardier Global Express $22.19 $40.66 $51.21 43.3%Cessna Citation CJ1 $2.01 $3.72 $4.68 43.0%Cessna Citation X $8.88 $17.37 $21.88 40.6%Cessna Citation Excel $4.44 $8.80 $11.08 40.1%Gulfstream G-IV SP $15.09 $30.50 $38.41 39.3%Bombardier Challenger 604 $11.09 $22.50 $28.34 39.1%Cessna Citation Encore $3.45 $7.16 $9.02 38.3%Bombardier Learjet 45 $3.91 $8.99 $11.32 34.5%Cessna Citation Bravo $2.01 $5.18 $6.53 30.8%Hawker Beechcraft Hawker 800XP $4.35 $11.90 $14.98 29.0%Bombardier Learjet 60 $4.08 $11.58 $14.59 28.0%Hawker Beechcraft Beechjet 400A $1.75 $6.33 $7.98 21.9%Sources: Aircraft Bluebook (wholesale prices), B&CA Magazine (original equipped list prices)

Bluebook values of business jets built in Year 2000 ($U.S. in millions)

Bluebook values – select models


Source: Bluebook, Business & Commercial Aviation Purchase Planning Handbook 2000-2009, Bureau of Labor Statistics (CPI-U)

Unprecedented affordability of some popular models

Jet Fuel Price Monitor


Lower fuel prices likely in short-term; longer term: $80-100/barrel

Source: IATA

Delivery performance by OEM


Mid-size and light jet production has been scaled back sharply in 2010

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Other market indicators – Q1 2010


YOY ChangeBusiness jets (units) -14.1%Business turboprops (units) -47.0%Total billings ($US) 7.0%

GAMA shipments - Q1 2010

Net orders are swinging back to positive; backlog concerns remain

Manufacturer Net Orders Deliveries Book-to-Bill RatioDassault Falcon -4 17 -0.24Bombardier Business Aircraft* 6 36 0.17

* = Fiscal quarter ending April 30, 2010

OEM firm order backlogs


Backlogs for higher-end products are strongest

Jan. 31, 2010 15.90$ $US billionJan. 31, 2009 22.70$ $US billionYear-over-Year Change -30.0%April 30, 2010 17.30$ $US billion

Dec. 31, 2009 4.89$ $US billionDec. 31, 2008 14.53$ $US billionYear-over-Year Change -66.3%March 31, 2010 4.10$ $US billion

Dec. 31, 2009 ! 7.64 Euro billionDec. 31, 2008 ! 13.99 Euro billionYear-over-Year Change -45.4%

Dec. 31, 2009 18.89$ $US billionDec. 31, 2008 21.86$ $US billionYear-over-Year Change -13.6%March 31, 2010 18.12$ $US billion

BOMBARDIER - Business and Commercial Aircraft

CESSNA

GULFSTREAM

BACKLOG VALUES

DASSAULT - Falcon

3. Opportunities for growth


March 9-10, 2010

Great Recession = Great Opportunity

“History shows that structural shifts in the pecking orders of industries occur more often in difficult times

– and these shifts endure….. ”


David Rhodes and Daniel Stelter, The Boston Consulting Group, 2010

Times of change….times to consider change

The money value of time

 Reduced airline service  Airline consolidation   2-hour check-in for 1-hour flight   Increased security procedures   Poor on-time performance


Charter: an attractive alternative when “66% on-time” won’t do

Value era in American wealth

© 2010 Rolland Vincent Associates, LLC 33 June 7-9, 2010

  2010 Survey of Affluence and Wealth in America   1,910 U.S. households   Average income $520,000   94% feel that the U.S. is still in recession   60% believe recession will last at least one more year

  Affluent American families   Have become hyper-sensitive to risk   Have turned inward; more in control of their finances   Proud of their resourcefulness; committed to finding value

Affluent have become more value-minded business aviation consumers

World wealth distribution


2,700

2,600

2,400

400 400

100

High Net Worth Individuals (thousands)

North America Europe Asia Pacific Latin America Middle East Africa

30.6

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Ultra High Net Worth Individuals (thousands)

Source: Capgemini Merrill Lynch 2009 World Wealth Report High Net Worth Individuals control at least $US 1 million in investable assets, excluding collectibles, consumables, consumer durables, and primary residences; Ultra High Net Worth Individuals hold at least $30 million in investable assets

HNWIs: a global customer for business aircraft charter providers

Business jet penetration


11,052

2,388 274

USA EU JTICK

Business Jet Fleet

274 1,298

8,164

USA EU JTICK

High Net Worth Individuals per Business Jet

JTICK = Japan Taiwan India China Korea

Source: Capgemini Merrill Lynch 2009 World Wealth Report, Jetnet

The rest of the world is just beginning to experience business aviation

Outlook: Cloudy, with bluer skies ahead  U.S. market

•  Corporate profits have rebounded •  Investment still deferred •  More time needed to return to growth

 Developing markets •  Economies and wealth are growing rapidly •  Business aviation still largely unknown •  Opportunities are distant but abundant


Charter: cost-effective solution for challenging times, new markets

Rolland Vincent President Rolland Vincent Associates, LLC 7000 Independence Parkway, Suite 160-3 Plano, Texas 75025 Tel: 972-439-2069 [email protected]


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