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Trends & Developments in the Global Airfreight Industry
William J. Flynn
President & CEO
Atlas Air Worldwide, Inc.
Aircraft committed to the CRAF program can be activated during a wartime or emergency scenario
In exchange for participation in the CRAF, carriers are eligible to fly peacetime airlift missions
The National Airlift Policy notes that military and commercial resources are equally important and interdependent in fulfillment of the Airlift Objective
(Source: National Airlift Policy, June 24, 1987)
Civilian Reserve Air Fleet – CRAF
THE NATIONAL DEFENSE
AIRLIFT OBJECTIVE
Ensure that military and civil
aircraft resources will be able
to meet defense mobilization
and deployment requirements.
3
US Transportation Command (USTRANSCOM)
* Source: A3 & A5/8 data PAA: Primary Authorized Aircraft
** Source: HQ AMC/A3BC CRAF Capability Summary as of 1 Oct 2017
MCRS – 16/CRAF
Military Sealift Command
(MSC)
Military Surface Deployment
and Distribution Command
(SDDC)
Air Mobility Command
(AMC)
Joint Enabling Capabilities
Command (JECC)
4
Strategic Airlift PAAs*
Aircraft PAA
C17 188
C5 40
Long-Range International CRAF Assets**
B747 B757 B767 B777
A330 DC10 MD11 Stage I Stage II Stage III
Aircraft Cargo 13 66 127
PAX 19 110 141
Wide-body
equivalents
Cargo 15 75 140
PAX 16 87 104
MTM/d Cargo 2.7 13.0 24,1
MPM/d PAX 11.1 62,3 78.4
CRAF Commitment by Carrier
Passenger
Carriers
Stage Commitment (Aircraft)
I II III
American 3 27 38
Atlas 2 6 6
Delta 3 27 37
Hawaiian 2 12 12
National 2 2 2
Omni 3 8 8
United 3 28 38
TOTAL 18 110 141
Large Cat-1: 747 aircraft
Large Cat-2: MD-11, 767-300
Source: AMC Form 312 1 July 2017
5
Teaming Team Entitlement
Cargo Lg. Pax Med. Pax
FedEx 53.22% 54.4% 52.63%
Patriot 43.49% 44.45% 43.01%
National 3.29% 0 3.25%
Delta 0 1.15% 1.11%
TOTAL 100% 100% 100%
Cargo
Carriers
Stage Commitment (Large Cat-2 Aircraft)
I II III
ABX 0 2 2
FedEx 2 9 27
UPS 2 9 29
Western Global 0 7 10
TOTAL 4 27 68
Cargo
Carriers
Stage Commitment (Large Cat-1 Aircraft)
I II III
Atlas/Polar 3 18 20
Kalitta 2 9 17
National 1 2 2
Western Global 1 2 2
TOTAL 7 31 41
Command and control with DOD Dispatchers / Controllers
Navigate unfamiliar airports
Coordination with 3rd Countries—overfly and permits
Handling Dangerous Goods / Hazmat
Load complexity and ground operations
Cyber security and operations assurance
Specialized Staff—load masters, air navigators, planners
Integration at major bases—access, offices, personnel
Train military ground crews
CRAF Readiness and Interoperability: More than Aircraft, Pilots and Cabin Crew
6
8
Megatrends Will Drive Opportunity in Airfreight
Megatrends Increases in urban consumption by the
growing consuming class – increase by 1.8B by 2025
Global consumption to surpass $30 trillion – increase from $22 trillion today
e-Commerce Demographic trends suggest significant
growth in Asia, Africa and South America
Trends will require efficient air networks to serve effectively
Freighters will play a more important role in the future
General Air Cargo Global flows increasing – trade,
finance, people and data
Tourism and general travel increasing, adding jobs
Manufacturing moving away from traditional passenger hubs
Express Technological breakthroughs at an
increasing pace
Adoption of new technologies
Change in buying behaviors. e-Commerce related airfreight demand growing significantly
Middle class defined as households with yearly income between $20,000 and $150,000 at PPP in constant 2016 prices.
Source: Oxford Economics, Airbus
9
Long Term Macro Trends Middle class share of global population is increasing
0
1,000
2,000
3,000
4,000
5,000
6,000
2006 2016 2026 2036
AdvancedEconomies
DevelopingEconomies
1,950 2,900 3,900 4,950 Total Middle Class (Mil)
6,600 7,430 8,200 8,900 World Population (Mil)
30% 39% 48% 56% % Middle Class
Middle class* population,
driver of consumption,
to move from 2.9 Billion
to 4.9 Billion in 20 years.
Implications for
e-Commerce and
global trade trends.
10
Geo-Political Risks / Developments
Marsh
2017
Political
Risk Map
A CRAF activation scenario risk
is currently higher than it has
been in the last several years.
Geo-political risks impact trade – macro forecasts include this risk in their assessment but large shocks could significantly dampen global growth
Implication for AMC demand and overall market demand
Total
$83.4B
Sources: Flight Global, U.S. DOT F41, airline reports, and Boeing estimates (2015 data)
11
Freighters are Critical to Compete in Air Cargo Markets – Especially in Time-Definite Networks
Airlines operating freighters generate 90% of industry revenues
Express Carrier
41%
Combination Carrier
39%
All Cargo 10%
Passenger Belly Only
10%
$33.6B
$32.8B
$8.5B
$8.5B
Global Airfreight Drivers
By Sectors Chart Source: Atlas research
By Region Chart Source: International Air Transport Association – August 2017
Market Size
By Region
38%
26%
15%
16%
Asia Pacific
Europe
North
America
Middle East
Latin America 3%
Africa 2%
Percent of International Freight Tonne Kilometers (FTKs)
By Sectors Industry Sectors Served by AAWW Customers
17%
17%
16% 11%
10%
6%
11% High-Tech
Products
Capital
Goods
Apparel
Pharma-
ceuticals
Intermediate
Materials
Automotive
Other Live, 1%
Perishables
Mail &
Express 6%
5%
Products Strategic Choice Specialty Consideration Airfreight share:
1.5-2.5% global volume, 35% global value
High-value, time-sensitive items; items with short shelf lives
Products/supply chains with just-in-time delivery requirements
Products with significant security considerations
12
Source: Boeing and IHS Global Insight Trade Forecast dated September 2016
13
Air Cargo Market Performance
Sources: IATA, ICAO, Euromonitor, Forrester, eMarketer, BofA Merrill Lynch Global Research estimates, Company Public Reports
14
Global Airfreight Industry Performance Trends
Global Airfreight Market International freight tonne kilometers (FTKs) flown up 3.8% in 2016
Very strong FTK growth anticipated in 2017
PMI Index at 55 for 2017 and semi-conductor sales +18% for 2017
Global Express Market The International Express market is showing robust growth
5.8% CAGR since 2011 vs. nominal CAGR for International FTK’s
The Express segment benefiting from the e-Commerce growth
40.8 43.4
45.4 45.1 41.1
49.1 49.3 48.8 49.5 51.5 52.2
53.9 [VALUE] (F)
25
35
45
55
65
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017F
6% 12%
19% 25%
31%
??%
90%
100%
110%
120%
130%
140%
150%
2011 2012 2013 2014 2015 2016 2017
$590 $741
$943 $1,190
$1,433 $1,774
$2,176
$2,619
$0
$1,000
$2,000
$3,000
2011 2012 2013 2014 2015 2016 2017 2018
Global e-Commerce Market
Total Global Airfreight Tonnage Growing from Record Levels
Freight Tonnes
(Millions)
2.5% 6.4% 4.6% (0.7)% (8.9)% 19.5)% 0.4% (1.0)% 1.4% 4.0% 1.5% 3.3% >7.5% (F)
International Express Market – DHL, FedEx and UPS Change in Demand (Base year 2011 - 100%)
Global e-Commerce Estimates ($ Billion)
Overall e-Commerce market penetration is still low
-10%
-5%
0%
5%
10%
15%
FTK AFTK
FTK and AFTK Growth
Supply vs. Demand
Source: ieconomics.com
15
Current Macro Conditions Year-over-year growth in Global Purchasing Managers Indices (PMI)
Benchmark
The PMI Index across the globe have been climbing year-over-year – signaling an expanding global economy. (Index values greater than 50 signal growth)
There is approximately a 6 month lag between manufacturing growth and the resulting impact on transportation demand.
Germany
US
China
India
16
Current Macro Conditions Strong year-over-year growth in global semi-conductor sales
$0
$2
$4
$6
$8
$10
$12
Americas Europe Japan China Asia Pacific /All Other
July 2016 January 2017 July 2017
Billio
ns
Global semi-conductor sales increased 24% year-over-year in July 2017, with all regions posting strong increases.
Global sales for the month of July 2017 reached $33.7 billion, an uptick of approx. 10% over January. Annual growth of 11.5% projected for 2017.
7.4%
8.7%
10.1%
11.6%
13.1%
14.6%
15.5%
2015 2016 2017* 2018* 2019* 2020* 2021*
e-Commerce only accounts for ~10% of global retail sales
US e-Commerce spend $385B in 2016 – forecasted to grow to $600B by 2020
China: 700M internet users – 50% mobile penetration – 10% e-Commerce penetration
USA: 237M internet users – 73% mobile penetration – 9% e-Commerce penetration
India: 300M internet users – 25% mobile penetration – 2% e-Commerce penetration
Source: Forrester, Statista, eMarketer
17
e-Commerce – A Real Paradigm Shift
e-Commerce Penetration (as percentage of global retail sales)
Source: Various Market Reports
18
Asia Markets Will Continue to Lead Industry Growth
- 30 60 90 120 150
Intra-Europe
CIS
Middle East–Europe
South Asia–Europe
Africa-Europe
Latin America–North America
Europe-Latin America
Domestic China
Europe–North America
North America
Intra-Asia
Europe-Asia
Asia–North America 4.6%
4.6%
5.5%
2.2%
2.4%
6.2%
3.8%
3.9%
4.3%
3.8%
5.0%
2.2%
3.0%
2015 RTKs 2016 – 2035 RTKs
Annual Growth
%
(RTKs in billions)
~80% ~75%
~40%
19
Even with an Increase in Lower Hold Cargo Capacity, Freighters Continue to Play a Dominant Role
Freighters carry more than 50% of the world’s air cargo
Total air cargo traffic carried by freighters between 2010 and 2015
Lower hold capacity
+27%
Large freighters
in service
+8% >50%
*excludes express aircraft: UPS, Fedex, & DHL
20
Wide-body Freighter Supply
Production lines have limited output over the next several years
– Limited backlog
– Limited slots available
Includes current wide-body freighter production forecasts
Only 13 747’s in storage under the age of 20 years
There are 29 active wide-body freighters expected to be retired due to age limitation
Expected fleet growth <1% annually while markets are expected to increase >4% annually over the next decade
Reduced supply due to fleet retirements and limited order backlog
21
Regulatory and Legislative Trends
Open Skies Agreements FAA Reauthorization Tax Reform
Administrative action
Legislative issues
ATC Reform
Pilot Flight Hour Requirement
Pilot Duty Time and Rest Requirements
Lower corporate income tax rates
Accelerated Depreciation
Interest Expensing
23
Atlas Air Worldwide
We manage diverse, complex and time-definite global networks
We deliver superior performance and value-added solutions across our business segments
We manage a world-class fleet to service multiple market segments
We are strategically positioned in a strengthening market and focused on new opportunities to continue to deliver future growth
Ownership
100% Ownership
100% Ownership
51% (49% DHL) Ownership
100%
* Includes to-be-converted aircraft
24
Our Current Fleet Total Fleet: 96 Operating Fleet: 87
11 Boeing 777s 5 CMI 777Fs
6 Titan 777Fs
7 Boeing 737s 5 737-400Fs
1 737-300F Titan
1 737-800 passenger Titan
36 Boeing 767/757s 29 767-200/300Fs*
6 767-200/300 passenger
1 757-200 freighter Titan
…Heading to more than 100 aircraft ...with more than 40 B767s
42 Boeing 747s 10 747-8Fs
24 747-400Fs
4 747-400 passenger
4 Boeing Large Cargo Freighters (LCFs)
25
Global Operating Network
210,444 Total Block Hours Operated in 2016
39,882 Flights
425 Airports in 119 Countries
730 Charters Completed
80+ Unique Customers
Afghanistan
Argentina
Australia
Azerbaijan
Bahrain
Bangladesh
Belgium
Brazil
British Indian
Ocean Territories
Bulgaria
Cape Verde
Cuba
Cyprus
Czech Rep
Djibouti
Estonia
Fiji Islands
Finland
Georgia
Germany
Operated passenger and cargo missions to
26
Atlas DOD Operations – 2016
67 Counties
Ghana
Greece
Guam
Honduras
Hong Kong
Hungary
Iceland
India
Ireland
Israel
Italy
Japan
Jordan
Korea S.(Rep. Of)
Nigeria
Norway
Oman
Peru
Philippines
Poland
Portugal
Qatar
Romania Kuwait
Kyrgyzstan
Latvia
Lithuania
Malaysia
Mexico
Mongolia
Morocco
Netherlands
Saudi Arabia
Senegal
Serbia
Singapore
Slovakia
Slovenia
South Africa
Spain
Sweden
Taiwan
Thailand
Turkey
Ukraine
United Arab Emirates
United Kingdom