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Private and Confidential

Opportunities in US Aerospace and Defence

Building Your US Aerospace and Defence Business

30th April 2015

Prepared For

© 2015 – Private and Confidential

US commercial aerospace market has provided complimentary revenue for defence companies, but is now forecast to outstrip the military sector

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US Defense Procurement & R&D Spending Commercial Jet Production Value

Counter cyclical Complementary

Market Overview

Commercial Jet Production Value vs. US Defence Investment Spending (1958 – 2019) (Current Dollars)

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US Aerospace Market Structure

Aircraft OEMs serve the requirements of operators by leveraging a well-defined supply chain

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Aircraft Operators

Subsystem Providers

Assembly & Component Providers

Motivation • Lower operating costs • Differentiate on passenger

experience

Aircraft OEMS

Motivation • Seek reliable suppliers • Pass some development cost risk

to suppliers

Tier 1 Systems Integrators

Motivation • Seek niche capability to deliver

cost / efficiency savings • Establish credentials for reliability

• Prefer to reduce contracting complexity

• Work with Tier 1 integrators to provide comprehensive systems

• Consolidate supply chain to reduce exposure to delivery failure and integrate innovative capabilities

• Drive scale business to absorb customer desire for risk sharing

• Innovate to differentiate • Drive technology that enables savings in

operational costs: weight, power, performance etc.

• Meet stringent performance and delivery targets

• Innovate in niches where R&D funding allows

Selected niche applications

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Perspectives on Global Aerospace

Beyond aircraft development, the systems and support market has become an increasingly value part of the global aerospace market

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Products Services Legend Segments are shown to scale relative to est. total market size (measured in sales)

Owner / Operators

Business / Industrial

Scheduled Air Carriers Customers

Brokers &

Outsourced Operators

New Build Aircraft: >$120B Aftermarket: >$75B

Airframe MRO

Propulsion MRO

Component MRO

Line MRO

Mods & Upgrades

Support Infrastructure: >$60B in 2014

Ground Systems &

Services

Aircraft Sub-Tier: >$100B

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1

Integration Aerostructures Propulsion Subsystems

Inte

riors

Avionics

Training & Simulation

IFE & Connectivity

Commercial

Regional

Business Aviation Digital Infrastructure

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Jumbo Wide Narrow Regional Regional

Turboprop

Airbus

Boeing

Embraer

Bombardier

ATR

Superjet

Comac

Mitsubishi

Boeing will continue to match Airbus across the wide- and narrow-body market while the regional segment will fragment among a diverse groups

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Note: Values based on ‘14 weighted average price estimates/list price discounts of 25-50% and price escalation ranging from 1-2%; Xian MA-60 regional turboprop not shown

Future Commercial Aircraft Market

Five Year Commercial Aircraft Market Share by Segment (Value of new aircraft deliveries, 2015-2019)

Total Value = $633B

$48B $270B $283B $20B $12B

A320 ceo /neo (A319 / A320 / A321)

737 / MAX

A380

747 (-8)

777 (-200F / 300ER) & 787 (-8/-9) 767 (-300F) (negligible share)

ARJ

E-Je

t /

E-2

A330 ceo / neo A350 (-900 / 1000)

CRJ

SSJ-

95

CSeries MRJ

Das

h 8

A

TR 4

2/7

2-6

00

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Key Aircraft Profiles:

Civil Aircraft

The selected civil fixed-wing and rotorcraft platforms have a very strong backlog and delivery outlook

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Aircraft Class OEM Platform Current Backlog

Current Program Status

5-year Growth Outlook

5-Year Delivery Forecast

Commercial aircraft Boeing 787 811 Early production 783

Commercial aircraft Boeing 777 272 In production 471

Commercial aircraft Boeing 747 50 Late production 85

Commercial aircraft Boeing 737 / MAX 3,921 In production 2,973

Commercial aircraft Bombardier CRJ Series 107 Late production 147

Commercial aircraft Bombardier CSeries 203 In development 221

Large-cabin business jets Boeing BBJ 4 In production 64

Large-cabin business jets Gulfstream G450 64 In production ~ 153

Large-cabin business jets Gulfstream G550 97 In production ~ 240

Large-cabin business jets Gulfstream G650 / ER 86 Early production ~ 293

Large-cabin business jets Bombardier Global 5000 / 6000 165 In production 318

Large-cabin business jets Bombardier Global 7000 / 8000 46 Early production 65

Civil rotorcraft Bell Bell 206 / 407 203 In production ~ 715

Civil rotorcraft Bell Bell 412 51 In production ~ 286

Civil rotorcraft Bell Bell 429 106 In production ~ 259

Civil rotorcraft Bell Bell 505 32 In development 128

Civil rotorcraft Bell Bell 525 10 New design 45

Civil rotorcraft Sikorsky S-76 51 In production 217

Civil rotorcraft Sikorsky S-92 82 In production 170

Civil Subtotal 6,361 7,633

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New Commercial Aircraft Programs

US Civil Aircraft Programmes by OEM

US and other OEMs are reinvesting in their core aircraft; clean sheet designs are unlikely for another decade

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Note: EIS (Entry into service); *A350-800 timeline may slip to beyond 2017, -1000 may move up to 2016; A350-900 regional variant is also being offered

Legacy Commercial

OEMs

A320neo Neo (Reengine) A320 A319 & A321 New Single Aisle

A330 A330 Regional Neo (Reengine)

A350XWB* A350 (Relaunch) -900 -800 -1000

A380 -800 -900?

737MAX MAX (Reengine) -8 -9 -7 New Single Aisle

787 -8 -9 -10

777X 777X (Reengine) -9X -8X

747-8 747 -8

Legacy Regional

OEMs

Q400X Q700/Q400X?

CRJ CRJ (Refresh) 1000

CSeries CSeries (Relaunch) CS100 CS300 CS500?

E Series 195 E2 (Reengine) -190 -195 -175

ATR 72 Refresh -600 -700?

2005 2010 2015 2020

Legend: Program Launch EIS Speculative Program Clean sheet designs won’t re-emerge until after 2023: • Airbus and Boeing New Single Aisle (NSA)? • Boeing 757 replacement? • Airbus new widebody?

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Future Military Aircraft Market

While the US will retain a dominant position in the fixed-wing combat sector, Europe is forecast to overtake on transport aircraft

$45.9

$16.3

$15.3

$0.8

$7.5

$6.9

$17.9

$23.6

$2.1

US

Europe

Rest of World

Fixed Wing Combat Trainer Transport

$77B $15B $44B Total = $136.3B

Five Year Military Aircraft Market Share by Segment (Value of new aircraft deliveries, 2015-2019)

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© 2015 – Private and Confidential

Key Aircraft Profiles:

Military Aircraft

Military fixed-wing and rotorcraft platforms have a sustained, but lower-growth delivery outlook, driven by declining defence budgets

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Aircraft Class OEM Platform Current Backlog

Current Program Status 5-year

Growth Outlook

5-Year Delivery Forecast

Military transports/tankers Boeing P-8A 35 Full rate production ~ 85

Military transports/tankers Boeing KC-46A 4 In development 57

Military transports/tankers Boeing C-17 16 Deliveries complete 2015 20

Military transports/tankers Lockheed Martin C-130 31 Variants in full rate production 173

Military rotorcraft Boeing CH-47 133 Variants in full rate production 297

Military rotorcraft Boeing AH-64 171 Fleet refresh and export orders 400

Military rotorcraft Bell V-22 134 Additional orders required 124

Military rotorcraft Bell UH-1Y / AH-1Z 100 Approaching end of life 84

Military rotorcraft Sikorsky UH-60M / MH-60R 301 Variants in full rate production 962

Military rotorcraft Sikorsky CH-53K 79 K variant in development 8

Military Subtotal 1004 2,210

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Select US Military Aircraft Programmes

US Military Aircraft Programmes by OEM

By comparison with the civil programmes outlined above, the US military has a far longer and less frequent development cycle

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The number of aircraft in production will fall after 2030: • Most primes will collaborate on several projects • Fighter aircraft fleets will become F-35-dominated • New UCAVs will enter service relatively slowly

F-35

C-130

F/A-18

2010 2040 2020 2030

P-8

KC-46

E-2D

RQ-4

UH-60

CH-53K

SB-1

AH-64E

EIS End of Production? New Programme / Replacement

Major Upgrade?

6th Generation Fighter

UCLASS

LRS-B

T-X

New

Pro

gra

mm

es

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Potential Programme Entry Points

There exist well-defined entry points within the lifecycle of an aircraft for the provision of systems

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New Aircraft Design

At the clean-sheet stage, suppliers can offer products that fit and

shape the design concept

• The typical route to market for a supplier is at the clean-sheet aircraft design stage

• The aircraft OEM will define an aircraft concept and tender amongst tier 1 suppliers for major systems

• Tier 1 suppliers shape their offerings accordingly, seeking new suppliers of subsystems and components with the capabilities required to deliver the aircraft concept as defined

• Selected tier 1 providers are typically awarded long-term contracts

At the mid-life upgrade point, suppliers can offer the latest

generation of technology to refresh platform performance

• Updates to the latest generation of avionics and cabin systems are typically performed at the mid-point of airframe service life

• For particular commercial and military aircraft, major upgrades may be scheduled

• In other segments, such as civil rotorcraft and bizjets, the timing of upgrades can differ to coincide with change of ownership or role

Occasional changes in requirements (regulatory or operational) allow for suppliers to compete for fleet-

wide activity

• Examples can include federally-mandated programmes dealing with a change in the regulatory environment or methods of aircraft operations

• Examples include ADSB and the Future Airborne Capability Environment programme for US military aircraft avionics to provide compatibility with NextGen / SESAR standards

• Military aircraft, including transport, special mission aircraft derived from commercial airframes and rotorcraft, are all subject to ad-hoc upgrades

• These upgrades may involve generational change of avionics, or the addition of discrete systems which will require HMI / control systems

Mid-Life Upgrade Unscheduled Capability Improvement

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Geographic Considerations

Whilst there may be some advantages in serving US-based OEMs from Europe, a US footprint is largely preferable for sustainable growth

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US-based supplier UK-based supplier

• On the margin, US-based aircraft OEMs prefer to use a domestic supply chain

— Known and trusted players and existing relationships with a long history through several rounds of consolidation

• Given trust-based relationships around reliability, suppliers need the ability to support the customer via sales and support

— International support my prove an unnecessary risk if there are comparable US-sourced products

• Boeing’s recent experience of international supply chain challenges on the Dreamliner programme has left the company reluctant to engage in additional international sourcing

— Preference for a viable US-based alternative where one exists and there is no strong commercial reason against doing so

• The supply chain of most of the US-sourced avionics is international

— No real objection to the location of manufacture, rather the ability to support and meet stringent contractual delivery stipulations

• OEMs with international supply chain may be able to propose a commercial ‘offset’ when addressing export opportunities

‒ Utilising local content may provide competitive advantage in some civil and military programmes

• No apparent aversion to working with suppliers who have close relationships with rival aircraft OEMs

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