lp av market review september 2008. lp av – market intelligence – jp grand/david li2 october 13,...

LP AV

Market Review

September 2008

LP AV – Market Intelligence – JP Grand/David Li 2October 13, 2008

Key topics• Indicators: Down trend

• OE– Strike in Boeing– The next US administration will make the decision in the Fuel – tanker contest– AIRBUS officially opened its A320 Final Assembly Line in Tianjin, China.

• Industry Slow down – After the oil price…. the credit crisis. What will be the future of ILFC (almost 1,000 planes

on its books), AIG’s subsidiary.

Information sources:• Speednews – Main source used when no reference mentioned• Bulletin hebdomadaire d’informations Michelin and Bibznews - Collection of articles published in different newspapers/magazines – Information will be reported with accurate reference (mainly in french)• Weekly reports from Zones – Quoted as “Internal info”Periodicity• LP AV Market review will be issued 1st week every month

Synthesis 31/07/2008 30/09/2008 DeltaParity €/$ 1,5611 1,4303 -8%Crude oil price $140,00 $90,00 -36%Natural rubber 320 282 -12%


IndicatorsParité Euro-USD

1,31,351,4

1,451,5

1,551,6

1,65

02/0

5/20

07

02/0

6/20

07

02/0

7/20

07

02/0

8/20

07

02/0

9/20

07

02/1

0/20

07

02/1

1/20

07

02/1

2/20

07

02/0

1/20

08

02/0

2/20

08

02/0

3/20

08

02/0

4/20

08

02/0

5/20

08

02/0

6/20

08

02/0

7/20

08

02/0

8/20

08

02/0

9/20

08

02/1

0/20

08

Monthly Evolution EMA & NAM CPI

0,00%2,00%4,00%6,00%8,00%

10,00%12,00%

07 Ju

ly

07 S

epte

mbe

r

07 N

ovember

08 Ja

nuary

08 M

arch

08 M

ay

08 ju

ly

08 S

epte

mbe

r

EMA CPI

NAM-FEO CPI

Source: Banque de France

Source: SGA

Source: IATA

Source: Pricing Dept

Natural rubberMoyenne RSS3 & TSR20

200

225

250

275

300

325

janv-

07

mar

s-07

mai-

07

juil-0

7

sept

-07

nov-0

7

janv-

08

mar

s-08

mai-

08

juil-0

8

sept

-08

US

D c

ents

/kg


Indicators (cont’d)

• There was a further slowdown in the growth of international passenger traffic, to 1.3%, in August reflecting the deteriorating economic environment in most regions of the world. This slowdown follows the sharp fall in growth to 1.9% in July, after a reasonably robust first half of the year with growth of 5.4%.

• Air freight volumes started falling in the second quarter, well before passenger markets, and that decline continued in August with a -2.7% fall in the volume of air freight compared with the same month last year. Unlike passenger markets there was a consistent deterioration in air freight across major regions, suggesting that world trade is weakening significantly as economic growth slows.

• Finally, the sharp 1.8% point fall in load factors to 79.2% during August suggests travel demand is falling much faster than expected, particularly in Asia where load factors fell 3.7% points. Lower utilisation reduces unit revenues adding to the pressure on profitability from high fuel costs.


OEM infoMilitary• BOEING767 could not be made by January '09 deadline. It will let the next Administration (Obama or McCain) make

the decision. • BOEING gets reprieve in Fuel-Tanker contest. ( The wall street journal).• Pentagon aims to sell Israel fighter jets

BOEING • BOEING and IAM were unable to work out a final contract agreement by Sept 5 deadline, and 27,000 IAM-represented

workers, mainly in Washington, Oregon and Kansas, went on strike at 12:01 am on Sept 6. Boeing says operations will remain open to support its customers, and it plans to deliver aircraft that were completed pre-strike; but will not assemble any aircraft during strike.

• BOEING delivered 36 airliners (29 737s; 747; 767; five 777s) in August vs. 42 (31 737s; two 747s; 767; eight 777s) in August 2007.

• BOEING completed “high blow” test on 787 static test airframe, reaching internal pressure of 14.9 lb per sq inch, or 150% of max levels expected in airline service. It is one of three static tests required before first flight; others are on leading and trailing edges.

• BOEING and UOP (Honeywell) have teamed with Air France, Cargolux, ANA, Air New Zealand, Gulf Air, JAL, KLM, SAS and Virgin Atlantic to accelerate development of sustainable bio fuels for aviation; World Wildlife Fund and Natural Resources Defense Council will provide support/advice. Collectively, the airlines involved in project account for 15% of global commercial jet fuel use.

• BOEING invest to keep C-17 line running. ( Reuters)• BOEING wins $650M NASA contract extension. ( Reuters)

• BOEING’s Mcnerney sees financing demand, backlog risk. ( Bloomberg)

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boeingnasa

boeingstrike

boeing02

Pentagon


OEM info (cont’d) AIRBUS

• Airbus is reportedly experiencing further production delays with its A380 program and will deliver ten aircraft this year, instead of the 12 previously announced (Le Journal du Dimanche, 14-Sep-08). Only 15 aircraft will be delivered in 2009, instead of the planned 21, according to the report.

• AIRBUS sells UK plant to GKN. ( Financial times)

• AIRBUS to announce Major China order. ( Aviation week)

• AIRBUS officially opened its A320 Final Assembly Line in Tianjin, China as part of joint venture with TIANJIN FREE TRADE ZONE and AVIC; first aircraft is to be delivered to Sichuan Airlines in mid-2009 and production is to ramp up to four per month by 2011.

• AIRBUS delivered 29 aircraft (22 A320 Family; seven A330s) in August vs 25 (21 A320s; three A330s; A340) in August 2007.

• AIRBUS presented Power8+ (Airbus’ contribution to EADS Power8 cost cutting initiative) to its European Work Council; program is designed to deliver cost savings of €650m in 2012 (on top of €2.1b under Power8) through further internationalization of engineering and manufacturing without additional workforce reductions. Under plan, it plans to establish a parts manufacturing facility in Tunisia.

• AIRBUS is expected to invest €180m to build new manufacturing plant in Augsburg for A350 fuselage components from 2011.

• AIRBUS and CAAC signed MOU covering 5-year safety cooperation program in the areas of rules/regulations training for Chinese aviation authorities, maintenance operation support for airlines, ATM technologies and concepts, and "train the trainer" programs.

BOEING & AIRBUS

• Wall Street ruffles Boeing, Airbus ( Reuters)

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airbusuk

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economic

Airbus China


OEM info (cont’d)• ATR says it has now delivered 788 aircraft (401 ATR 42s and 387 ATR 72s) and has backlog of 170 (18 ATR 42s and 152 ATR

72s).

• EMBRAER opened 47,700 sq ft Executive Jets Service Centre at Phoenix-Mesa Gateway Airport, AZ; it is adding similar facilities in Ft. Lauderdale, FL and Windsor, CT, and by end 2008 will have seven wholly-owned and 38 authorized services centers worldwide.

BOMBARDIER• BOMBARDIER AEROSPACE made first flight of the CRJ1000NG prototype at Mirabel. It has orders/commitments for 63

aircraft from four customers: Brit Air, France (16), Myair.com, Italy (15), Adria Airways, Slovenia (2), and an undisclosed customer (30).

• BOMBARDIER AEROSPACE earned US$238m on $2.5b revenues in second quarter ended July 31 ($26.1b backlog) vs $133m on $2.2b a year ago ($18.2b backlog). It delivered 23 regional aircraft and 66 business jets during quarter vs 29/49 a year ago.

• BOMBARDIER Bizjet sales counter regional Dip. ( Aviation Week)

• CAIC GROUP (China Aviation Industry Corp. Group) is expected to be formed in October via merger of AVIC I and AVIC II to create state-owned company to oversee aircraft manufacturing in China; CAIC would have 14 departments and own 10 subsidiaries.

• ECLIPSE: Russian officials have given their OK to allow the construction of a factory in Ulyanovsk, Russia, where copies of the Eclipse 500 jet will be assembled. Components of the jet will be manufactured elsewhere and shipped to Russia for assembly. The factory will be built in Ulyanovsk, and is expected to be ready to start production in 2010. Workers will build up to 800 jets a year. The factory in Albuquerque will continue to work at full capacity, the company said. ( NAM weekly report)

bombardier


ForecastINDUSTRY• Airlines shore up cash positions as fuel falls. ( Bibnews)

• Industry Up Date -Analysts see industry turnaround for 2009-2010 - Airline efforts to ground planes, trim payrolls and refocus on profitable customers are beginning to pay off, increasing the likelihood that several big carriers could return to profitability next year, according to some analysts. UBS Securities cited a 23% drop in fuel prices as the main reason for expected improvement at American Airlines, Continental Airlines, Delta Air Lines and United Airlines, while an equities analyst at Standard & Poor's praised the industry's moves to raise prices and cut costs. "They're firing their worst customers," said S&P's Jim Corridore. "It's a brilliant move. They shouldn't be flying those people to begin with." ( NAM weekly report)

airlinescash


Industry slowdownFEO

Japan Airlines cuts cargo flights. ( The wall street journal)

NAM

ALASKA AIRLINES is reducing year-over-year capacity by 8% for Winter schedule starting Nov 9, resulting in workforce reduction of 9-10%.

American Airlines - A top official at American Airlines says capacity cuts are permanent, despite a recent drop in fuel prices. CFO Tom Horton told the Associated Press that American has grounded older planes that consume about 35% more fuel per seat than newer models. "It would be very difficult to bring them back, not just in operations cost but also in maintenance infrastructure," he explained. Horton also predicted the "entire global airline industry has more consolidation in its future." ( NAM weekly report)

JETBLUE has agreed to sell four new E190s, scheduled for delivery in 1Q09.

CONTINENTAL is evaluating options for 30 ERJ 135s being returned from ExpressJet; it does not intend to fly the aircraft.

SOUTHWEST AIRLINES deferred four 737s from 2009 to 2016, leaving 10 due in 2009, resulting in basically no capacity growth.

EMA

XL Airways UK has stopped trading as of the 12th September and all their fleet is grounded. This will put even more bias capacity from GY and Dunlop on the market.

japancargo


Industry slowdown (cont’d)INDUSTRY• IATA called for urgent action, including reducing costs, improving infrastructure and adopting global

standards, for Indian airlines to weather the perfect storm of high costs and falling demand. It expects Indian carriers to post losses of US$1.5b for 2008.

• US DOT reports that six largest US network carriers had operating loss margin of 6.3% for 2Q08 vs 9.2% profit margin in 2Q07.

• Industry Up Date -U.S. airline fleets to shrink by more than 500 planes - According to a count by JP Morgan; U.S. airlines are taking 512 aircraft out of service this fall -- the equivalent of grounding Northwest Airlines' entire fleet. The number of mainline jets will shrink by 7%, while more than 11% of regional jets will be taken out of service. Among the big carriers, United Airlines is making the deepest cuts, grounding 94 737s and six 747s. ( The wall street journal)

GENERAL AVIATIONNAM "We're dealing with some straight-forward realities," said Cirrus President and Chief Operating Officer Brent Wouters to the

Duluth News Tribune. "We're in a difficult economic environment that has impacted the aviation business. We're not selling as many airplanes as we'd hoped to this year."


Clients info – Strategic EMA

• TURKISH AIRLINES reports (10-Sep-08) the following traffic highlights for the eight months ended 31-Aug-08: Passenger numbers: 14.9 million, +15.4% year-on-year; Passenger load factor: 74.9%, +2.4 pts.

• TURKISH AIRLINES had $208m net income on $2.13b revenues in 1H08 vs $95m on $1.55m in 1H07• AIR FRANCE leased (ACMI) an MD-11F from World Airways for freighter operations to North Africa and Brazil.• EASYJET expects to post £110m-120m pretax profit (before GB Airways one-off costs of about £12m) for year ended

Sept 30, has cut growth for winter '08/09 to low single digit percentage, and also has 48% of its fuel hedged at $1,225/tonne for next fiscal year.

• EASYJET carried 4.59m pax in August 2008, up 23.7% from 3.71m in August 2007; PLF was 91.3% vs 87.4%.• EMIRATES is reducing planned daily service to LAX (starts Oct 26) and SFO (starts Dec 15) to three-times-weekly after

being advised by Boeing that delivery of new 777-200LRs (said to be three) will be delayed due to strike; start dates remain unchanged.

• EMIRATES says delivery of its second A380 will be a few weeks late (new date TBA);AIRBUS, which has total backlog of 186 A380s, still expects to deliver 12 A380s in 2008 (five to date: four to Singapore Airlines and one to Emirates), then 21 in 2009.

• TAP AIR PORTUGAL earned (EBITDA) €35m on €1.4b revenues in January-August, down from €61m on €1.2b a year ago.

• BRITISH AIRWAYS premium passenger traffic dropsBA


Clients info – Strategic FEO• ANA reached agreement with Boeing on new 787 delivery schedule and will now get first of 50 on order in August '09 (vs May '08) at

rate of six aircraft per year (vs seven). It will acquire nine 767-300ERs in 2010-2011 and delay retirements as interim capacity. • ANA to use lightweight new Bridgestone tires on 777s• KINGFISHER AIRLINES, India is planning US$400m equity offering to help fund expansion; it says it plans to be profitable by 2010.• CHINA EASTERN AIRLINES in merger review with Shanghai airlines. ( Financial Times)

NAM• FRONTIER (Chapter 11) reports it had $3.3m operating profit and $5.6m net loss in August; it had $77.8m cash on August 31.• LAN AIRLINES is adopting Intl. Financial Reporting Standards (IFRS) on January 1, 2009 to align Chilean accounting principles with

international standards. It estimates impact will result in 4.3% decline in shareholder equity from US$988m to $946m.• DELTA and NORTHWEST shareholders overwhelmingly approved pending merger; Delta will issue 1.25 shares of common stock for

each outstanding Northwest share upon closing of the merger, which is expected in 4Q08. Delta also received FAA approval for its plan (methodology, processes, tools and timing) for interim operations and transition to Single Operating Certificate.

• NORTHWEST AIRLINES reports that it took in $493,000 in checked bag fees on September 14, compared to $420,000 on September 7 and $370,000 on August 31; it expects revenues from its checked bag fees to reach $150m-$200m per year.

• UNITED sale, refinancing to raise $275 for UAL.

• PINNACLE has agreement with Delta to temporarily operate seven additional CRJ900s on lease from Delta (taking its total Delta Connection fleet to 18) until its five new CRJ900s are delivered (through May '09) for operation under current agreement for 16.

CES

northwest

ANA

UAL


Clients info – High PotentialEMA• AIR BERLIN carried 2.85m pax in August 2008, down 2.4% from 2.92m in August 2007; PLF was 82.9% vs 83.5%. • FLYBE, UK had £34.9m net profit on £536m revenues in year ended March 31 vs £19.9m loss on£367.5m a year ago. It had

£12.2m pretax profit for first quarter ended June 30, up 14% from a year ago; pax traffic rose 18%.• RYANAIR says Boeing strike delaying delivery of new aircraft is adversely affecting new service at Düsseldorf and

Birmingham.• RYANAIR carried 5.78m pax in August 2008, up 19.4% from 4.84m in August 2007; PLF was 90% vs 91%.

FEO• GARUDA leased five ex-Ryanair 737-800Ws from CIT Aerospace for delivery from Jan 2009, and leased ex-Adam Air 737-

300 and ex-Adam Air 737-400 from Aviation Capital Group.• HAINAN AIRLINES had CNY311m net profit on CNY6.34b in 1H08 vs CNY189.7m on CNY6.25b in 1H07; it contributed gain

to appreciating yuan; it expects 2H08 to be challenging due to fuel costs.• SINGAPORE AIRLINES took delivery of its sixth A380, and will use aircraft to launch second daily Singapore-London flight.• VIRGIN BLUE announced that the Boeing strike, which began September 6, is forcing a delay in the launch of V AUSTRALIA

from December 15 to at least Feb 28 as three of its 777-300ERs (it has six total on order) are stalled in various stages of production.

NAM

• AIR CANADA says, due to Boeing strike that began Sept 6, it is unsure when it will get two 777s due in 4Q08 and one in 1Q09.

• CONTINENTAL plans starting October 7 to begin charging economy class pax $15 for first checked bag on its domestic services; it estimates plan to generate $100m in revenue/cost savings. It says its bookings for next six months are up 2% vs a year ago.

• CONTINENTAL AIRLINES estimates total net adverse impact from Hurricane Ike of about $50m on its 3Q08 operating results.• GOL received ANAC approval to merge GOL TRANSPORTES AEREOS and VRG LINHAS AEREAS into single company to

improve operational structure/realize synergies of its subsidiaries; it plans to maintain its two airline brands, GOL and Varig.• GO! (Mesa), HI flew 10.9m RPMs in August, up 17% vs 9.3m in August 2007; capacity rose 18% from 13m ASMs to 15.4m.


Miscellaneous

• EU presses US over ‘ open skies’. ( The wall street journal)

• Lower oil helps U.S. airlines ride out credit crisis. ( Reuters)

• Business Jets feel the pinch from credit crunch

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Bizjets

lp av market review september 2008. lp av – market intelligence – jp grand/david li2 october 13,...

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