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World Aircraft OverviewRichard Aboulafia
Vice President, AnalysisTeal Group Corporation
www.tealgroup.comwww.richardaboulafia.com
January 2021
World Aero Markets: Looking Up, From The Bottom of a Pit
http://www.tealgroup.com/http://www.richardaboulafia.com/
Aviation Segments By Damage
Most to LeastAnnotated, Ten Months In
International traffic hit hardest and longest.Already an overcapacity situation.Secular shift towards single aisles already underway.It’s just that bad.
Twin aisle jetliners
Fuel prices a big problem.
China comeback uncertain.
Some relief due to deferred Airbus ramp, and MAX stop.
Same.
Single aisle jetliners
Large cabin strongly correlated with oil prices.
Small/medium strongly correlated with corporate profits, equities indices.
Might recover quickly; still a 2020/21 downturn
Business Jets
Oil and gas segment (large) hit again, before recovery even began.
About right…wait and see.
Civil Rotorcraft
Emphasis on “shovel-ready.”
Advance development programs at greater risk.
Pure-play contractors in best shape; suppliers with most defense in best shape.
All good. In fact, better.
Military Programs
Aircraft Markets, In Good And Bad Years(last year was not good)
World New Deliveries CAGR CAGR CAGR Change
In 2020 (2021 $) ’03-‘08 ’08-‘14 ’14-'19 ’19-‘20
Jetliners-SA ($27 b) 9.7% 6.9% -2.0% -55.2%
Jetliners-TA ($27.8 b) 5.0% 13.5% 2.1% -49.1%
Regionals ($3.4 b) 3.9% -3.1% -6.3% -36.6%
Business Aircraft ($18.2 b) 16.7% -2.2% -1.2% -18.4%
Civil Rotorcraft ($3.1 b) 18.5% -2.5% -7.2% -13.0%
Military Rotorcraft ($10.7 b) 10.6% 9.7% -7.0% -15.1%
Military Transports ($4.1 b) 3.2% -0.9% 0.0% -30.0%
Fighters ($18.3 b) 1.6% 0.8% 6.1% -21.8%
All Civil ($79.9 b) 9.7% 5.6% -0.5% -40.0%
All Military ($36.9 b) 3.9% 4.1% 0.0% -18.1%
Total ($116.7 b) 8.0% 5.2% -0.4% -34.5%
-100
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-40
-20
0
20
40
Y/T
Tra
ffic
Ch
nag
e (
%)
Traffic: Like Nothing We've Ever Seen Before66% Decline in 2020?
2019 Totals: RPKs 4.2%, ASKs 3.4%, FTKs -3.3%2018 Totals: RPKs 6.5%, FTKs 5.4%; 2017: RPKs 7.6%, FTKs 9%
RPKs ASKs FTKsSource: IATA
More Unprecedented Numbers• Traffic decline, parked fleet like no previous shock.
• Per Paul Krugman, reflect a world economy in a “medically-induced coma.” • Backlogs holding up (MAX a concern), but meaningless in a downturn.•Many early retirements coming, particularly twin aisles.
• Primarily twin aisles; A380 bloodbath.• Aftermarket catastrophe – ASK decline, plus de-stocking, deferred
maintenance, early retirements, USM, engine swapping, etc.
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World Air Traffic (RPM Bns)
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b
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No
v
Park
ed
Jets
Perc
en
t P
ark
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World Jet Fleet: Now ~32% Unemployed
Parked Percentage Of Total Fleet
Traffic Peak Recovery By Late 2022. Why?
•Better-than-expected vaccine efficacy.•Better-than-expected economic outlook.•The China domestic comeback.•Business travel resurgence.•Vacation travel resurgence, fueled by record savings rates.
https://www.nytimes.com/2021/01/01/upshot/why-markets-
boomed-2020.html
https://www.nytimes.com/2021/01/01/upshot/why-markets-boomed-2020.html
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Here It Is, The Chart I Was Dreading
'68-'77-11 CAGR; 65% peak-to-trough
'80-'84 -13.9% CAGR;-45% peak-to-trough
'91-'95-12.5% CAGR; 41% peak-to-trough
'01-'03-10.7% CAGR; 28.8% peak-to-troughOr'99-'03-11 CAGR; 65% peak-to-trough
'84-'91
16.1% CAGR
'04-18
8% CAGRA 14-YearSuper Cycle
'95-'9920.8% CAGR
T
Welcome
back to
2006
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120
0
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4
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'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
WT
I O
il P
ric
e in
20
16
$/B
Bl
Inte
rest
Rate
s (
Fed
era
l F
un
d E
ffecti
ve,
%)
Interest Rates And Oil Prices: Less Than 4%, And $50-85/bbl, Ideally; But The Ratio Matters Most
Interest Rates Oil Prices
COVID-19
Pressuring Both
Downward
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500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
BRIC Deliveries: All About China
China Russia India Brazil
2000: China is
2% of world
market
2018: China
is 23% of
world
market
-1000
-500
0
500
1000
1500
2000
2500
3000
3500
Large Jetliner Orders And DeliveriesBook-To-Bill No Longer A Thing
Deliveries Net Orders
-
10
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60
70
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90
Deliv
eri
es I
n 2
021 $
Billio
ns
The Air Transport Market By Segment
Regionals Single Aisles Twin Aisles
Return to peak:
2024
Now With Greater Misery
Too much, too sudden (A330s,
777s, 787s, Gulf carriers, etc.)
Hit Hardest and Longest; Capacity
hangover, international traffic
problems, and shift towards single
aisles
737MAX
Problem, and
flood;
includes
delivery of
~450 already-
built jets
Return to peak: after
2030... probably
1h1997
1h2001
End2004
End2006
End2008
End2009
End2010
End2011
End2012
End2013
End2014
End2015
End2016
End2017
End2018
End2019
End2020
Boeing 130.0 107.8 79.5 199.1 300.4 271.1 270.0 300.1 317.0 365.3 421.2 412.9 398.9 402.1 408.0 378.8 297.1
Without ASC 606 341.8
Airbus 48.6 112.9 115.5 173.0 281.8 268.2 277.6 309.5 321.6 399.9 439.9 461.2 468.1 441.8 481.6 463.6 438.9
Bombardier — — — — — 1.9 3.3 4.9 5.5 6.7 9.0 9.0 8.7 8.5 — — —
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illi
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sFirm Order Backlog Values: Boeing Taking A Hit
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300 Twin aisle
Airbus, Boeing Backlogs (November, w/ ASC 606)
Boeing Airbus
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140
Deliv
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es i
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021 $
Billio
ns
Jetliner Market Shares By DeliveriesAirbus Seizes The Middle Market and First Place; Covid-19 Accelerates shift to Middle
Market
Boeing Airbus ex 321neo A321neo COMAC/Irkut
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'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 '26 '27 '28 '29
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Regional Deliveries By OEM (Value)
Bombardier CRJ Dash 8Q Embraer (pre-E-2) E-2 ATR SuperJet ARJ21
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Un
its
Business Aircraft Market History(w/jetliners, RJs, turboprops)
Value Units
The Great
Expansion;
strong
economic
growth, new
models,
fractionals,
etc.
The 2003-
08 Boom. The Great
Bifurcation,
followed by
unwelcome
convergence
The great
stagnation
Post-
tech/comms
and 9/11
bust
Market
creation;
initial
demand
sated
Smaller plane boom;
some military Learjet
distortion
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sBottom Half Bizjet Segment vs. Top Half
Bottom Half (
Eight Contradictory Bizav Indicators
•Three Mixed Leading Market Indicators:•Corporate profits (bad).•Equities markets (good).•Oil prices (bad).
•Five Mixed Immediate MarketHealth Indicators:
•Deliveries (bad)•Aircraft available for sale (just
modestly up…very good news).
•Aircraft prices (down somewhat).•Company layoffs (GD, BBD, TXT).•Utilization (down, but recovering much faster than airline
travel, with charter and fractionals looking great).
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sBottom Half Bizjet Segment vs. Top Half
Pre- and Post-Covid Forecasts
Bottom Half ($26M) Jan 2020 Bottom Now Top Now
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sEmbraer: Searching For Growth After The E-Jet Revolution
E-Jets E-2 ERJ Series EMB120 Tucano AMX KC-390 Gripen Phenom 100/300 Legacy 450/500
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et
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ns
US Military Rotorcraft Market Falling; International Military and Civil Stable
Civil Military (US) Military (International)
21.0%
13.9%
25.3%
13.2%
22.7%
3.3%
18.6%
8.0%
22.6%
16.7%
22.1%
6.4% 6.0%
0%
5%
10%
15%
20%
25%
30%
Airbus Bell Boeing Leonardo Sikorsky Other Undetermined
Rotorcraft Manufacturer Market Shares2021-2030 vs 2011-2020
2011-2020 2021-2030
Global Aircraft Market Outlook In One Page(Deliveries, not Production)
Segment 2021 ’21-‘22 Risk Elevator Comment
Jetliners-SA 65.3% 10.8%Includes some already-built MAXs. Watch
China, fuel, traffic.
Jetliners-TA -4.1% 7.1%Overcapacity, slow international recovery,
secular shift to SAs
Regionals 6.7% 8.9%No Boeing supply chain effect on E-2; Scope
clause de-risked, but little growth.
Business Aircraft -1.8% 4.2%Another hit after many false starts over a
disappointing decade.
Civil Rotorcraft 1.2% 15.8%Large civil hit again. Too many new models
aimed at a weak segment (oil/gas).
Military Rotorcraft 17.7% -9.3%Programs end/slow; no risk of accelerated
downturn; FVL beyond forecast, exc FARA.
Military Transports 5.5% -5.0% A seriously underperforming market.
Fighters 35.9% 16.5%I like this market. F-35 (after COVID disruption),
plus strong Gen 4.5
All Civil 20.5% 8.7%SAJetliner snapback due to MAX, weakness in
other segments; more overcapacity risk.
All Military 23.7% 7.7%Global insecurity, Tension, Malice. Special
mission (ISR, B-21) also boosts topline.
Total Industry 21.5% 8.4% Back to peak in late 2024
Covid-19 Impact: Nothing New; Just An Acceleration of Pre-existing Trends
•Societal: growing inequality, growth of e-commerce over stores, movie theaters decline, normalization of formerly fringe beliefs, rising ill-liberal “democracies.”
•Macroeconomic: lower interest rates, excess savings, few investment opportunities, cheaper fuel, China de-coupling.
• Industry:• More point-to-point international routes (fragmentation); related
demand for smaller, mid-range jets.
• End of quadjets, marginalization of all larger jets.• Growing reliance on third party jetliner finance.• Jetliner price deflation.• Supplier rationalization, particularly 3/4th tier.• New product funding drought.• China indigenous substitute product development• Boeing single aisle breadth concerns; Airbus mid-market dominance.• Rolls-Royce under pressure.• OEMs and airlines: strong get stronger, weak get weaker.• Uncertain search for various alternative propulsion/fuel concepts.
Concluding Observations, and A Few Consolations
•The jetliner market might get worse.• This is a synthetic market, not an organic one.• Deliveries driven by exogenous factors: government aid, third-, first
party finance. These may not hold (particularly government aid).• But…a very steep decline will lead to record growth numbers in the
recovery, with attendant exuberance.
•Boeing faces a very serious mid market challenge.•Defense companies can grow their civil side. Will they?•There is some good news:• An airline paradise, except for the traffic.
• Fuel, Jet costs, Crew costs, interest rates, government support (for most, and for now); Stimulate traffic, or restore profit?
• Defense: budgets, export demand, industrial support.• Less business jet frothiness.• Financial sector stronger this time (“2008 was worse; you couldn’t
print money.”).
•A relatively isolated (severe) jetliner-only downturn?
0
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$ B
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sWorld Aircraft Deliveries By Value, 1989-2030
Military Civil (January 2020) Civil (January 2021)