The Market for Widebody

Aircraft
21st March 2018
Rob Morris, Global Head of Consultancy

flightglobal.com/consultancy 1
FlightGlobal: Pioneering aviation insight and analytics
business
Part of a leading data
solutions group

RELX Group:
London, Amsterdam and New York
Stock Exchange listed
28,500 employees
Market Capital $36.87bn

FlightGlobal:
370+ staff
11 offices across the world

flightglobal.com/consultancy 2
Flight Ascend’s unique Value proposition as an
appraiser
Independent Global team – fully objective
We do not invest in aircraft and we are not brokers – NO conflicts of interest
Global perspective with offices in London, New York and Hong Kong
Instant access to vast data for research
The only Appraiser with globally recognized Fleets, schedules and values databases used by our
clients on a day to day basis
Unparalleled Historical values data
Historical Market values from 1965
Access to industry Tier 1 participants
Clients are Airlines, all the top lessors, the major banks involved in aviation finance, MROs, OEMs,
regulatory bodies

flightglobal.com/consultancy 3
The Flight Ascend Consultancy Team

George Dimitroff Rob Morris Chris Wills Joanna Lu

Head of Valuations Peter Morris Head of Advisory Asia
Global Head of Chief Economist
Head of Consultancy Ops.
ISTAT Appraiser Consultancy ISTAT Sr. Appraiser
Michael Lapson Chris Seymour Ben Chapman Thomas Kaplan
Senior Analyst Richard Evans Valuations Analyst
Head of Market Valuations Manager
ISTAT Appraiser Analysis Senior Analyst
ISTAT Appraiser
Daniel Hall Dennis Lau
Senior Analyst Henk Ombelet Tony Brooks
Ryan Hammacott Aviation Analyst
ISTAT Appraiser Senior Analyst Senior Analyst
ISTAT Appraiser Risk Analyst
ASA Sr. Appraiser
Michael Hui
Syed Zaidi Sara Dhariwal Aviation Analyst
Vacant Lionel Olonga
Aviation Analyst Valuations Analyst
Valuations Analyst Valuations Analyst

David Griffin Sophie Yu

Senior Analyst Eva Karagianni Luke Smith Valerie Bershova Aviation Analyst
ISTAT Appraiser Valuations Analyst Valuations Analyst Valuations Analyst
Kevin Ng
Aviation Analyst

flightglobal.com/consultancy 4
Demand & Supply Perspective
Twin-Aisle Markets
Twin-Aisle Market Outlook
Widebody Values & Lease Rates

flightglobal.com/consultancy 5
Demand & supply
perspective

flightglobal.com/consultancy 6
Commercial aviation is a long-term growth sector

20% But each 'shock' then followed by

periods of expansion in excess of
15% 6.0% over a 6-8 year period

10%
Year-on-Year Change

5%

0%

-5%
1991, 2001 and 2009 each saw 3% traffic
fall, exacerbated by 'shock' events…..
-10%

F
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16

20 17
18
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Traffic (RPK) Capacity (ASK)

Source: Ascend Analysis of IATA Data

flightglobal.com/consultancy 7
 Aggregate Leasing Industry 5-
Year Rolling Returns

10%
12%
14%
16%

0%
2%
4%
6%
8%
01 Feb 2000
01 Jul 2000
01 Dec 2000
01 May 2001
01 Oct 2001
01 Mar 2002

Source: Ascend Leasing Index Model

01 Aug 2002
01 Jan 2003
01 Jun 2003
01 Nov 2003
01 Apr 2004
01 Sep 2004
aviation investments

01 Feb 2005
01 Jul 2005
01 Dec 2005
01 May 2006
01 Oct 2006
01 Mar 2007
01 Aug 2007
01 Jan 2008
01 Jun 2008
01 Nov 2008
01 Apr 2009
01 Sep 2009
01 Feb 2010
01 Jul 2010
01 Dec 2010
01 May 2011
01 Oct 2011
01 Mar 2012
01 Aug 2012
01 Jan 2013
01 Jun 2013
01 Nov 2013
Attractive returns still available from commercial

01 Apr 2014
01 Sep 2014
01 Feb 2015
01 Jul 2015
01 Dec 2015
01 May 2016
01 Oct 2016
01 Mar 2017
01 Aug 2017
flightglobal.com/consultancy
8
Demand side indicators show no cause for concern
Demand side stable, traffic trends positive, but some cost pressures
Indicator Current level Trend
Passenger traffic

Freight traffic
Yields

Load Factors

New aircraft orders

Deferrals &
cancellations

flightglobal.com/consultancy 9
Supply side indicators also causing no concerns
Increased supply presently being absorbed by the market
Indicator Current level Trend
Aircraft deliveries
Deliveries for
replacement/growth
Deliveries as percentage
of fleet
Stored aircraft
Used aircraft availability
Aircraft economic life
Aircraft utilisation

flightglobal.com/consultancy 10
Oil price concerns may be overstated?
IATA’s 2018 base case
fuel scenario is $73.8 per
barrel Jet Fuel
140 (=$1.75 per USG) 350

120 Crude oil price trajectory 300

moving upwards, but
Crude Oil $ per Barrel

slowly & marginally

Jet Fuel Cents per US Gallon

100 250

80 200

60 150

40 100

20 50

0 0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018F
Oil Price Jet Fuel
Source: US EIA / IATA

flightglobal.com/consultancy 11
 Global Airline Net Profit ($bn)

10
20
30
40
50

-30
-20
-10
0
19

Source: IATA
93
19
94
19
this cycle

95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
Cumulative airline profits set to exceed $200 billion in

20
16
20
17
E
20
18
F
flightglobal.com/consultancy 12
 Airline profits are not proportional to growth
Passenger Traffic Growth Airline Net Profits ($bn)

Africa Africa

Middle East Middle East

Latin America Latin America

Asia-Pacific Asia-Pacific

Europe Europe

North America North America

0% 2% 4% 6% 8% 10% 12% 0$ 5$ 10 $ 15 $ 20 $
2018 2017 2016 2018 2017 2016
Source: IATA

flightglobal.com/consultancy 13
 Low cost carriers becoming increasingly significant

8000

7000
Passenger Jets in Service

6000

5000

4000

3000

2000

1000

0
Africa Asia Pacific Europe Latin America Middle East North America
LCC Mainline Other
Source: Flight Fleets Analyzer, passenger single-aisle and twin-aisle aircraft in airline service, 6th March 2018

flightglobal.com/consultancy 14
 LCC growth significantly outpacing mainline

600% 567%

500%
Fleet Growth 2008 to 2018

400%
323%
300%

189%
200%
104% 116%
100% 80%
33% 16% 39% 23%
4% 3%
0%
Africa Asia Pacific Europe Latin America Middle East North America
LCC Mainline
Source: Flight Fleets Analyzer, passenger single-aisle and twin-aisle aircraft in airline service, 6th March 2008 & 2018

flightglobal.com/consultancy 15
 LCC dominance less evident in backlog

4000

3500 ~4,100 aircraft with no

operator defined excluded
Passenger Jets on Order

3000 from analysis

2500

2000

1500

1000

500

0
Africa Asia Pacific Europe Latin America Middle East North America
LCC Mainline
Source: Flight Fleets Analyzer, passenger single-aisle and twin-aisle aircraft in firm order backlog, 6th March 2018

flightglobal.com/consultancy 16
So where are we in the cycle?

Aviation demand cycle remains strong; trends suggest we are at the peak but no
signs of fundamental slowing of growth
Fuel prices previously helped on the cost / yield side but now expecting cost headwinds from
increasing fuel and labour costs
Watching closely for signs of evolving capacity surplus
Expect to see retirement volumes tick up and potentially utilisation tick down
Similar lack of concerns in aviation supply cycle but need to recognise length
and amplitude of cycle and manage further capacity increases prudently
Deliveries trending towards higher % of installed fleet
Average age of retirement stabilised but significant reduction over pre-2008 average economic life
Still some concerns over OEMs increasing production rates, particularly in single-aisle where Rate
57 / 60 appears justified for now but higher rates could be concerning

flightglobal.com/consultancy 17
Twin-Aisle Markets

flightglobal.com/consultancy 18
 Twin-aisle orders have been cyclical

900
800
Twin-aisle Aircraft Orders

700
600
500
400
300
200
100
0
19 0
19 1
19 2
19 3
19 4
19 5
19 6
19 7
19 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
20 6
17
9
9
9
9
9
9
9
9
9
9
0
0
0
0
0
0
0
0
0
0
1
1
1
1
1
1
1
19

747 767 777 787 A300 A310 A330 A340 A350 A380 MD-11
Source: Flight Fleets Analyzer, commercial aircraft for passenger / cargo use only

flightglobal.com/consultancy 19
 Twin-aisle deliveries increased significantly over past
few years but peaked in 2015
450
400
Twin-aisle Aircraft Deliveries

350
300
250
200
150
100
50
0
19 0
19 1
19 2
19 3
19 4
19 5
19 6
19 7
19 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
20 6
17
9
9
9
9
9
9
9
9
9
9
0
0
0
0
0
0
0
0
0
0
1
1
1
1
1
1
1
19

747 767 777 787 A300 A310 A330 A340 A350 A380 MD-11
Source: Flight Fleets Analyzer, commercial aircraft for passenger / cargo use only

flightglobal.com/consultancy 20
 Backlog declining since peak in 2014

3000

2500
Twin-aisle Aircraft Order Backlog

2000

1500

1000

500

0
19 0
19 1
19 2
19 3
19 4
19 5
19 6
19 7
19 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
20 6
17
9
9
9
9
9
9
9
9
9
9
0
0
0
0
0
0
0
0
0
0
1
1
1
1
1
1
1
19

747 767 777 787 A300 A310 A330 A340 A350 A380 MD-11
Source: Flight Fleets Analyzer, commercial aircraft for passenger / cargo use only

flightglobal.com/consultancy 21
 Backlog normalised for fleet declining significantly

3000 60%

Twin-aisle Backlog as Share of Fleet

2500 50%
Twin-aisle Aircraft Backlog

2000 40%

1500 30%

1000 20%

500 10%

0 0%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Backlog As Share of Fleet
Source: Flight Fleets Analyzer, commercial aircraft for passenger / cargo use only

flightglobal.com/consultancy 22
 4,300 passenger and 1,075 cargo twin-aisles in
service today
7,000
Stored
6,000 Cargo
In-Service Twin-aisle Jet Fleet

Passenger
5,000

4,000

3,000

2,000

1,000

0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Source: Flight Fleets Analyzer

flightglobal.com/consultancy 23
 Deliveries normalised for fleet declining

450 9%

Twin-aisle Deliveries as Share of

400 8%
Twin-aisle Aircraft Deliveries

350 7%
300 6%
250 5%

Fleet
200 4%
150 3%
100 2%
50 1%
0 0%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Twin-aisle Deliveries As Share of Fleet
Source: Flight Fleets Analyzer, commercial aircraft for passenger / cargo use only

flightglobal.com/consultancy 24
 560 twin-aisles in store, but 75% of these are more
than 15-years old
410 passenger aircraft (but only 100 < 15 years old), ~10% have
45 known future placements, ~10% scheduled for part-out
40 Other
30% of stored inventory from 2-years A380
35 ago returned to service, further 30%
Stored Twin-aisle Fleet

parted-out, 40% still in store

A350
30 A330
25 787
20 777

15 767
747
10
5
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45
Aircraft Age (Years)
Source: Flight Fleets Analyzer, commercial aircraft for passenger / cargo use only

flightglobal.com/consultancy 25
 Twin-aisle Jet Monthly Availability

0
20
40
60
80
100
120
140
160
180
200
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Source: Airfax, 6-month rolling average of aircraft available for lease or sale (excludes wet-lease / ACMI)

Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Used twin-aisle jet availability declining marginally

Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
flightglobal.com/consultancy 26
 1,410 twin-aisles retired since January 2009 but pace
of retirement slowed in past couple of years
250 30

Average Age at Aircraft

200 25

Retirement
Aircraft Retired

150 20

100 15

50 10

0 5
19 0
19 1
19 2
19 3
19 4
19 5
19 6
19 7
19 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
20 6
17
9
9
9
9
9
9
9
9
9
9
0
0
0
0
0
0
0
0
0
0
1
1
1
1
1
1
1
19

<15 Years Old at Retirement >15 Years Old at Retirement

Average Age at Retirement Average Age at Economic Retirement
Source: Flight Fleets Analyzer

flightglobal.com/consultancy 27
 97 operating lessors managing 1,840 twin-aisle aircraft
worth >$105 billon
400 16,000

Twin-aisle Portfolio Value ($mn)

350 14,000

300 12,000

250 10,000
Twin-aisle Portfolio

200 8,000

150 6,000

100 4,000

50 2,000

0 0
ap

Av S

Bo id

B
om

N r
In ic
C

Ai FC

Al le

B
Am AE
eo

us
BC
G M

BC
on

i
va

JS
A

D
VE
C
AL

or

t
A

as

ov
C

ed

tre
D

IA
EC

ol

C
IC
BO

SM
BB

ta
D
r

rc
Ae

Source: Flight Fleets Analyzer

flightglobal.com/consultancy 28
 780 known scheduled lease expiries through 2027

160

140
Twin-aisle Aircraft Scheduled Lease

120

100

80
Returns

60

40

20

0
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
747 767 777 787 A330 A350 A380 Other
Source: Flight Fleets Analyzer

flightglobal.com/consultancy 29
A330 and 777 are transitioning to new operators
New operators in past 24 months
B777 A330

flightglobal.com/consultancy 30
 Return Indexed to January 2008

0.5
1.0
1.5
2.0
Jan-08 2.5
May-08
Sep-08
Jan-09

Source: Ascend Leasing Index Model

May-09
Sep-09
Regional Jets

Twin-Aisle Jets
Single-Aisle Jets

Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
May-16
Twin-aisle returns lowest of any category since 2008

Sep-16
Jan-17
May-17
Sep-17
flightglobal.com/consultancy 31
Twin-aisle market summary

Deliveries increased through 2016 but likely to have peaked for now
Backlog and deliveries normalised for fleet past historical highs and declining at
present
Idle fleet marginally down today; 410 passenger aircraft including 82 777s and
60 A330s (11 and 19 with known placements respectively)
Expect around 30% to return to service and 30% to be parted-out over next two years
Passenger aircraft 50% removed from service at 20-years
~160 retirements annually since 2008 but pace slowed in last couple of years
Only around 30% of fleet in operating lease ownership / management
Potential signs that capacity surplus may be reducing?

flightglobal.com/consultancy 32
Twin-Aisle Market
Outlook

flightglobal.com/consultancy 33
 4,000 commercial twin-aisle deliveries forecast
through 2027
450
400
Twin-aisle Aircraft Forecast

350
Deliveries 2018-2027

300
250
200
150
100
50
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
747 767 777 787 A330 A350 A380
Source: Flight Fleets Analyzer, Flight Fleet Forecast, commercial aircraft for passenger / cargo use only

flightglobal.com/consultancy 34
 2,080 twin-aisles predicted to be retired from service
through 2027
700

600
Twin-aisle Aircraft Forecast
Retirements 2018-2027

500

400

300

200

100

0
747 767 777 787 A300 A310 A330 A340 A350 A380 DC-10 MD-11
Source: Flight Fleet Forecast

flightglobal.com/consultancy 35
 Twin-aisle fleet expected to total around 7,600 aircraft
by 2027
36% of the fleet in 2027
expected to be A350 / 787, 41%
9000
expected to be A330 / 777
8000
Twin-aisle Aircraft Fleet in Service

7000
6000
5000
4000
3000
2000
1000
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
747 767 777 787 A330 A350 A380 Other
Source: Flight Fleets Analyzer, Flight Fleet Forecast, commercial aircraft for passenger / cargo use only

flightglobal.com/consultancy 36
Aviation Asset Value
Risk

flightglobal.com/consultancy 37
 The Herfindahl-Hirschman Index (HHI) is a recognised
measure of liquidity

2,000
1,800
1,600
HHI

1,400
1,200
1,000
800
600
400
200
0
0

0
o

00
9
7

W
20

19

21

80
7-
80

70

40

40
75

71

ne
0E

0E

0E
ax

G
A3

A3

A3

A3

-9
78
7-

7-

7-

7-
20

0H
M
90

30

30

50
73

73

73

74
A3
7

30
7-

7-

7-

A3
73
73

77

76
-
30
A3
Source: Flight Ascend Consultancy analysis

flightglobal.com/consultancy 38
 Ratings use historical volatility to forecast a downside
risk envelope
160
140
120
Value, US$ Mn

100
80
60
40
20
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Downside Volatility BV CMV

Source: Ascend Values & Ratings, 2005 build 777-300ER, 2% future inflation

flightglobal.com/consultancy 39
Summary & conclusions

Commercial aviation remains an attractive investment market today

Low cost carriers are driving market growth in most regions

Widebody aircraft can deliver attractive returns but better opportunities available
in other product segments

Prudent asset selection remains key to investment

flightglobal.com/consultancy 40
Rob Morris
Global Head of Consultancy

+44 (0)20 8564 6735

+44 (0)7730 213189
rob.morris@flightascendconsultancy.com

flightglobal.com/consultancy 41