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Michael B. Cox, Vice Chairman Seabury Group
Africa: Aviation’s Next Frontier
March 2016
1
Agenda
African Economic Outlook
Airlines in Africa
Aviation financing in Africa
Opportunities and challenges
2
Economic trendsAfrica’s gross domestic product (GDP) has been growing consistently for the last twenty years,outperforming the global economy
Source: World Bank and Seabury Analysis
2,3232,3922,296
1,934
1,735
1,464
1,562
982844
700574571585561549561539506458
5%6%6%5%6%
5%3%3%4%3%3%3%
5%4%4%4%
5%
2%2%2%
4%4%4%
3%3%4%
3%
0
500
1,000
1,500
2,000
2,500
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
3%3%
19951994
3%3%
Growth Rate %
20142012 20132011
7%
3%
2010
4%
2009
-2%
3%
2008
1%
2007
1,3354%
2006
1,142
2005200420032002
2%
2001
2%
2000
4%
19991998
3%
19971996
Africa GDP growth (annual %)Global GDP growth (annual %)Africa GDP (current US$)
GDP in USD billion
3
Economic trendsAfrica is one of the world’s top economic growth performers and is expected to remain strong in thecoming years
Source: World Bank Global Economic Prospects- January 2016
6.56.56.7
7.97.97.87.3
1.5
-2.5
-3.7
1.42.22.42.72.5
1.71.5
4.74.74.2
3.4
-2
6
8
0
4
2
-42018f
1.6
6.9
2017f
1.7
2015e 2016f
India
China
Africa
United StatesEuro zone
Brazil
GDP growth rate (%)
4
Economic trendsWith a young population and a growing urban middle class, a potential 2 trillion (USD) marketopportunity is expected
Source: United States Census, African Union Commission; the World Bank; the IMF and the AFDB
Urban population (% of total)
Africa population by income groupUS$ millions
37.2%
32.4%
54.4%
41.1%
32.9% 32.4%
20%
30%
40%
50%
60%
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
28.9%27.0%29.7%
194 243 272 318 322 312 293 267 230 181
264291
340379
456545
654775
91143
46
63
85
105
129
152
185
2000199519901985
35
1980
35
2005 2025 (f)
1,051
2020 (f)20152010
Below poverty line
Above poverty line and below 5K GDP per capita
Above 5K GDP per capita
Population above 5k GBP per capita
185
152129
105
634335
+43%
2015 2025 (f)2020 (f)2010200019901980
Above 5K GDP per capita
Africa
China
India
Approx. 65% of the population is less than 35 years old
5
African total trade weight in 2000Metric tons (M)
African total trade weight in 2014Metric tons (M)
African total trade (by weight) trendsBetween 2000 and 2014, African trade flows have increased significantly with Asia Pacific to nearly the European levels; with significant North American reductions
Notes: Trade commodities include amongst others raw materials, industrial consumables, foods, chemicals and products and temperature or climate control; (1) Intra- African flows are partial, the missing flows are inside and between North Africa and West Africa; (2) Inflow trade weight from China jumped from accounting for 20% of the Asian Pacific inflow in 2000 to 50% in 2014; (3) Outflow trade weight to China jumped from accounting for 33% of the Asian Pacific outflow in 2000 to 70% in 2014;Source: Seabury Global Trade Database
Latin America
Asia Pacific
46
34
31
32
250
Europe
86
108
2593
932
Middle-East&
South Asia
North America 153
Latin America
Asia Pacific
113
28
20
15
261
Europe
43
31
883
262
Middle-East&
South Asia
North America 62
Intra-Africa
151
Intra-Africa
351
Outflow trade Inflow trade Internal trade
6
Intra Africa trade trends and regional integration (by weight) Approx.13% of African trade is intra-Africa with limited regional integration
Source: Intra-African Trade’ – A Renewed Urgency for Further Regional Integration by the AU
Intra Africa trade by regional blocs & within Africa in 2015
Member States: 11Pop.: 124 millionGDP: $175 Billion
Member States: 15Pop.: 340 millionGDP: $1,322 Billion
Member States: 20Pop.: 406 millionGDP: $735 Billion
Member States: 15Pop.: 277 millionGDP: $1,193 Billion
7
Trade trends- Foreign direct investment Foreign direct investment (FDI) inflows to Africa as a whole remained stable at $54 billion in 2014
Source: unctad.org/en/PublicationsLibrary/wir2015_en.pdf, UNCTAD World Investment Report 20151
5685
209178
401401
54100
301
186
326
428
5448
146159
289
465
0
100
200
300
400
500
600
North AmericaLatin America and the
Caribbean
EuropeDevelopping Asia
AfricaTransition Economies
201420132012
FDI inflows, by regions, 2012-2014USD Billions
8
Agenda
African Economic Outlook
Airlines in Africa
Aviation financing in Africa
Opportunities and challenges
9
Growth in Real GDP and ASKs by Region
Source: Diio and Seabury Analysis
2.9%
0.3%
7.3%
2.8%2.0%
1.0%
2.2%1.6%
5.5%6.2%
3.3%4.0%
5.2%
3.6%
6.8% 6.5%
North America
2004-08 2008-14 2004-08 2008-14 2004-08 2008-14 2004-08 2008-14
Europe Asia
GDP growth
ASK growth
Commercial traffic in Africa is expected to grow at 5.2% annually between 2011 and 2030
Africa
GDP & ASK growth per yearCAGR %
10
0
100
200
300
400
500+5%
2015
43%
26%
19%
6%4%1%
20142013201220112010200920082007
55%
16%
18%6%3%1%
ASKs to / from Africa and other continentsASKs both ways (Billions)
ASK distributionSince 2007, the distribution of ASKs to / from Africa has shifted from being European oriented to a more global orientation
Source: Innovata schedule data, Seabury analysis
EuropeMiddle East & South AsiaAfricaAsia PacificNorth AmericaLatin America
11
ASKs top 10 carriersASKs both ways (Billions)
International ASKsSince 2007, the 5.4% YoY growth of international ASKs to / from Africa has been primarily driven by Emirates, Ethiopian and other African carriers
Source: Innovata schedule data, Seabury analysis
+5.4%
2012
383
2011
372
2010
369
2009
336
2008
327
2007
283
2015
430
2014
418
2013
397
IAG xxxxxxxxLH Group xxxTUI Travel xxx
Kenya AirwaysOthers
RA Maroc xxxx Egypt Air xxxxxSouth African Ethiopian Airlin Air France KLM
Emirates xxxxx
12
Africa - EuropeASKs both ways (Billions)
Africa – Middle-EastASKs both ways (Billions)
Africa - AsiaASKs both ways (Billions)
African air traffic growthLow-growth European market represents a large part of the African air traffic but it has been quickly equalled in capacity since 2007 with the Middle-Eastern markets
Notes: S.A.A = South African Airways, R.A.M = Royal Air MarocSource: Innovata schedule data, Seabury analysis
Africa – North AmericaAfrica – Latin AmericaASKs both ways (Billions)
Africa: Dom. vs. Int.ASKs both ways (Billions) ASKs both ways (Billions)
+2.0%
2015
198
2014
195
2013
190
2012
194
2011
197
2010
201
2009
188
2008
192
2007
168
Fran-KLM
IAG xxxxx
LH Group
TUI Trave
R.A.Mxxx
Others
+12.1%
2015
121
2014
109
2013
100
2012
89
2011
79
2010
74
2009
66
2008
58
2007
49
Emiratesx
THY Grou
Qatar Airx
Egypt Airx
Saudiaxxx
Others
+5.3%
2015
29
2014
31
2013
29
2012
27
2011
26
2010
25
2009
21
2008
21
2007
19
Ethiopian
S.A.Axxxx
Egypt Air
Qantas Gr
Air Mauriti
Others
+6.6%
2015
5
2014
5
2013
5
2012
4
2011
5
2010
5
2009
4
2008
3
2007
3
S.A.Axxxx
TAAG Ang
Ethiopian
R.A.Mxxx
TACVxxxx
Others
+7.4%
2015
19
2014
19
2013
19
2012
19
2011
18
2010
17
2009
14
2008
13
2007
11
Deltaxxxx
S.A.Axxxx
Egypt Airx
R.A.Mxxx
Ethiopian
Others
+5.9%
2015
88
2014
87
2013
83
2012
76
2011
76
2010
74
2009
69
2008
66
2007
56
InternationalDomestic
13
Intra-Africa capacity
Source: Diio and Seabury Analysis
The intra-African markets are underserved and represents a huge opportunity for airlines
2014 Inter-regions capacity as a % of total capacity ( ASMs)
Too often, the best option for intra-African routes is to connect through Europe of the Middle East
32%
51%
66%68%
0%
20%
40%
60%
80%
100%
Asia North America Europe Africa
14
Existing Fleet Fleet Orders Total FleetProp RJ Narrow Wide Prop RJ Narrow Wide Exist. Order
12 - 20 30 2 - 20 18 62 40
- - 26 23 - - - 5 49 5
- - 34 18 - - 8 1 52 9
- 4 36 7 - - - 3 47 3
- 15 11 9 - - - - 35 -
15 - 26 11 - - 6 - 52 6
- - 13 - - - 10 - 13 10
- - 28 2 - - 4 1 30 5
- - 5 6 - - - 2 11 2
- - 6 - - - - - 6 -
- - 11 - - - - - 11 -
- - 4 - - - - - 4 -
3 1 3 - - - - - 7 -
- - 3 1 - - - - 4 -
4 - 1 2 3 - - - 7 3
2 2 4 - - - - 2 8 2
- 2 2 - - - - 3 4 3
3 - 2 - - - - - 5 -
- - 3 - - - - - 3 -
3 - 13 - - - - - 16 -
All Others (42 carriers)
African carriers5 African carriers offer more than 65% of the total capacity; largely from Ethiopia, South Africa, Egypt, Morocco and Kenya in a continent of 54 countries
Source: ASM are LTM December 2015 from Diio.net; fleet data from Ascend (March 2016) and CAPA (March 2016)
3,413
2,194
781
869
1,136
1,087
1,392
833
1,264
746
727
3,457
8,043
19,784
9,067
3,832
5,804
11,955
4,040
17,002
21,750ASMs (millions, LTM Dec 2015)
15
Actual and forecasted fleet in AfricaAll major manufacturers share the view that Africa’s fleet will more than double until 2035
170 189 200 283 324 303 303
117 122
119145 142
142
261 331 351
566
4322
90
401
+132%
6766
+158%
2034
58
1,179
55
2016
800
1995 2000
2,146
489
2015
582
43
20101990
38
359
32
925
48 8642
894
49 57
446
83
56
58
2005
Airbus NBWB (2034) Boeing WBBoeing NB
NB (2034) Airbus WBRegional
Notes: Airbus forecasts 1,117 deliveries and 100 retirements of NB and WB aircraft for the 2015-2014 period; Boeing predicts 1,170 deliveries for the same period. Embraer forecasts deliveries of 240 70-130 seat regional aircraft and 140 turboprop regional aircraft for the 2015-2034 period. Regional fleet includes the following manufacturers: ATR, BAE Systems, Bombardier, Embraer and FokkerSource: Ascend, Airbus forecast, Embraer forecast, Seabury analysis
Passenger aircraft in service (actual and forecasted)# of aircraft
16
Africa’s fleet average ageThe average age has been steadily dropping since 2000
1413
19
131415
16
14
1112
13
9
20101990 20152000
Regional (Western) Narrow Body Wide Body
Notes: Core regional fleet includes the following manufacturers: ATR, BAE Systems, Bombardier, Embraer and FokkerSource: Ascend, Seabury analysis
Aircraft average age# of years
17
Expected NB and WB deliveries to airlinesAirbus and Boeing expect over 1,100 WB and NB deliveries until 2035 with only 137 firm orders today
26%
20%Other 14%
13%
9%
9%9%
15%
12%
Other
12%
9%29%
15%
9%
1712
6
24
5 5
22
3
4
10
139
25
20202019 20222021
18
2022+
34
14
2016
NB
WB
20182017
39
15
10
Source: Ascend, Seabury analysis
Current orders in Africa# of aircraft
NB orders
WB orders
18
African airlines; joint ventures and international allianceWith only 4 airlines participating in global alliances; joint ventures have become more prominent
Commercial agreement
Investment (and commercial agreement)
Global alliance
19
Agenda
African Economic Outlook
Airlines in Africa
Aviation financing in Africa
Opportunities and challenges
20
Aircraft lessors increasing Africa exposureIn Africa, Lessors are increasing their market shares; in a region with relative limited access to capital their role is essential to the industry’s growth
Source: Boeing Capital, Ascend 2014 data, Seabury analysis
Lessor fleet share% of total fleet
21 21
Aircraft financing environment
Capital Providers 2009 2010 2011 2012 2013 2014 2015 2016F 2016 Africa Seabury Outlook
Leasing Companies
With appetite for higher risk, major source of capital
Capital Markets Very limited opportunities, potentially through Exim-Bond
Commercial Banks Some appetite, increased “regional” risk make the banks cautious
Export Credit Agencies
Available to support, some creative solutions, but expensive
Private Equity and Hedge Funds Some availability, looking for yield
Tax efficient leasing** Unlikely
New Sources of Funding*
Public banks and insurance companies
Airframe and Engine Manufacturers
Limited support available
Satisfactory Cautionary Major ConcernCautionary / Satisfactory
Note: *Includes regional banks, pension funds, Islamic finance and other new exotic solutions; **Includes JOLCOs, French Operating Leases, US & Spanish Operating LeasesSource: Boeing Capital, Seabury analysis
African carriers should be well positioned to access traditional and new sources of funding
Concern
22
Potential sources of funds for other Aviation projectsAlthough Africa presents a challenging environment, alternative sources of financing are available
Source: Baker & McKenzie, Thomson One, Overseas Development Institute, The Commonwealth, World Bank, Reuters
Increased interest of private equity for Africa (c$12b/y)
A steady increase of companies launching IPOs
Sovereign funds exposure:
- Norway’s sovereign fund held African securities >$5.6bn
- Chinese African FDIs rose to $3.5bn in 2013
- Africa’s sovereign funds could invest an additional $29bn
Complicated legal & political framework
Limited market liquidity (growing market but lacking depth)
“Overhang” of unused capital due to limited suitable investment opportunities
High economic volatility linked to high dependency on commodity prices0
1
2
3
4
5
0
5
10
15
20
25
2011 2016p2012 20132010 2014 2015
$B# of IPOs
Banks International Institutions
Sovereign Funds
Private Equity
Partnerships
Sources
IPOs in Africa
Opportunities
Challenges
# of IPOs$B raised
23
Agenda
African Economic Outlook
Airlines in Africa
Aviation financing in Africa
Opportunities and challenges
24
Airline success factors: Key elements
Commercial Strategy
Capital Structure
Operational Improvement
and Lean Cost Structure
LaborLiquidity
Fleet
FleetCommercial Strategy
Sound long-term strategy Rationalized and optimized
network and schedule Effective revenue
management Match aircraft to network
plan and growth strategy
Well negotiated customer & vendor contracts Optimized supply chain Monitored lean cost structure Constantly implement best
operational practices
Appropriate liquidity level to deal with seasonality & chocks
Monitoring procedure
No uneconomic aircraft Market aircraft financings Future fleet secured to
deliver commercial strategy
High labor productivity
Streamlined organization
Sustainable labor costs
Appropriate capital to finance business plan Secured aircraft financing Strong balance sheet
Labor
Capital Structure
Best practice operations and lean cost structure
Liquidity
AIRLINE
Airline success revolves around 6 key interrelated elements supported by a comprehensive strategy and business plan
Strategic Direction
Cost Structure
Catalysts
25
Airline success factors and challenges in Africa
Success factors Challenges
Strong local market Strong networkLow cost base
Managementstability Modern fleetAccess to capital
Government support
Alliances/ partnerships
Cape Town convention
Lack of open skies intra-Africa
Political instability & terrorism
Limited access to capital
LCC/Middle East competition
Weak infrastructure
Management instability
26
Airline failuresThe continent has had a number of failures in recent years
(2003)(2004) (2002)(2006)
(2011)(2012) (2010)(2012)
(2012)(2014) (2012)(2015)
(2008)(2009) (2007)(2009)
(1995)
27
Some African Airlines success stories
Success factors
Royal Air Maroc
TAAG Angola
Ethiopian Airlines
Air Côted’Ivoire
Kenya Airways
Air Mauritius
Fast Jet
Challenges
South African Airways
Government support
Modern fleet
Low cost base
Political instability
& terrorism
Strong network
Strong local market
Managementstability
Alliances/ partnership
Access to capital
Cape Town convention
Lack of open skies intra-
Africa*
Note: *There are no real open skies in Africa but airlines focusing on intra-Africa traffic are significantly affected
Weak infrastructure
Limited access to capital
LCC / Middle East competition
Management instability
Michael B. CoxVice Chairman, Seabury Groupmcox@seaburygroup.comTel: +1 212 284 1136
Alexis FeketeExecutive Directorafekete@seaburygroup.comTel: +44 786 742 6030
Albert Konan-N’daSr. Associateakonannda@seaburygroup.comTel: +1 571 730 9667
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