EXPERT INSIGHTS AND RELIABLE INFORMATION FOR THE AVIATION INDUSTRY

28th Annual Commercial Aviation Industry Suppliers Conference

March 3-5, 2014

INDUSTRY OUTLOOK

PRESENTED BY:

DR. ADAM M. PILARSKI

SENIOR VP

Proceedings Sponsored by:

Industry Outlook
Presented to 28th Annual SpeedNews Conference
5th March, 2014
Beverly Hills, CA
Adam M. Pilarski,
AVITAS, Inc.
Topics Covered

ƒ History
ƒ Future/Horoscope
ƒ Are we in a bubble environment?
ƒ Timing of next downturn
History
1/1/1914 - Centennial of First Commercial Flight

“The Airboat Line to Tampa will be only a forerunner of great activity along these lines in the near future…
what was impossible yesterday is an accomplishment of today—while tomorrow heralds the unbelievable.”
Percy Fansler, St. Petersburg - Tampa Airboat Line, 1914
Future/Horoscope
Happy New Year of the Green Horse

马年快乐！
Happy New Year of the Green Horse

ƒ The Wood Horse year is a time of fast victories, unexpected

adventure, and surprising romance. It is an excellent year for travel.
ƒ Under Horse’s strong influence there is no middle ground. (The time
for middle ground diplomacy and planning was last year in Water
Snake 2013). Anticipate extremes in stock markets, fluctuation of
prices and general chaos in all things financial. There will be wars,
battles and skirmishes all over the world.
ƒ Middle class economies are developing with emerging markets in
many places including Egypt, Turkey, Brazil and India. But there will
also be protests for fair development, even wars. Peace can be
restored in Wood Sheep year 2015 but Wood Horse 2014 will be a
wild ride as the world changes, and changes fast.
 Birth Rate of Japan and Trend of GDP Growth, 1950 ‐ 2012
number of births per 1000 Percent
30 10%

25
9%

20 ...
8%
4%
15

3%
10

2%
5
1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010
Source:  Ministry of Health, Labour and Welfare of Japan.
Are we in a bubble environment?
ƒ Approach
ƒ Quantitative – as seen in conference
– AVITAS has plenty of numbers
ƒ Strategic/scenario rationale
Things are wonderful

ƒ Airlines finally profitable

ƒ Low interest rates Æ Money looks for investment opportunities
ƒ Fuel prices stable

Hence

ƒ Huge orders
ƒ Huge deliveries
ƒ Huge backlog

Hence

ƒ Talk of serious production ramp-up by both Airbus and Boeing

AND WHY NOT?

“Nobody goes there any more, it’s too crowded”

Yogi Berra
Famous American Philosopher

FACT

Given existing orders a production ramp-up is justified

BIG QUESTION

Are the orders justified by existing demand?

High oil prices and more stringent environmental rules cloud issue

If not enough demand we may be facing double counting of orders

 If not enough demand in the world
and
not enough retirements
could have
Bubble

ƒ Example of bubble
ƒ Double counting in 1980’s
ƒ Leasing companies and airlines
Manifestation of bubble could be

FRICTIONS
Middle East
 Annual Passenger Movements, Dubai International Airport
Millions 1986 - 2013
70

60

50

40

30

20

10

0
1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
Source: ACI
EEQ Traffic

Percent of World

2003 1.4%
2013 5.1%

2023 8.9%*

*Based on orders
Adam’s Excellent Adventure With Football
 Total Enplanement and Local O&D Share
(Cincinnati/Northern Kentucky International Airport)
Percent
14,000 Thousands of enplanement 70%

12,000 60%

10,000 50%

8,000 40%

6,000 30%

4,000 20%

Total Enplanement
2,000 10%
Local O&D Share

0 0%
1991 1994 1997 2000 2003 2006 2009 2012
Source: Enplanements - T100
market
LCC vs Legacies
ƒ Asia
ƒ AirAsia
ƒ Lion Air
ƒ Nok Air
ƒ Vietjet Air
ƒ Tiger

.
.
.

47 LCC Airlines
Asia / Aircraft

LCC Legacy
In Service 1,000 4,800
Orders 1,500+ 1,500+
ƒ Europe
ƒ Ryanair
ƒ easyJet
ƒ Norwegian
ƒ Air Berlin
ƒ Wizz Air

.
.
.
Europe / Aircraft

LCC Legacy
In Service 1,000 4,000
Orders 700 1,200
With Turkey 1,000
North America / Aircraft

In Service 6,700
Orders 2,000
EEQ / Aircraft

In Service 400
Orders 600
Frictions

ƒ EEQ – Europe, Canada, India

ƒ LCC – Legacy
ƒ LH-THY
ƒ Norwegian
Timing of next downturn?

BEATS ME!
Timing of next downturn
0
2
4
6
8
10
12
7/1/1990
5/1/1991

3/91
3/1/1992
1/1/1993
11/1/1993
9/1/1994
7/1/1995
5/1/1996

120 mo.
3/1/1997
1/1/1998
11/1/1998
9/1/1999
7/1/2000

3/01
5/1/2001

8 
mo.
3/1/2002
Timing of next downturn

11/01
1/1/2003
11/1/2003
9/1/2004
73 mo.

7/1/2005
5/1/2006
1990 ‐ 2020

3/1/2007
1/1/2008

12/07
11/1/2008
18 mo.

9/1/2009
6/09
7/1/2010
5/1/2011
53 
mo.

3/1/2012
58 
mo.

1/1/2013
The U.S. Business Cycle, A Stylized Illustration

95 mo.

11/1/2013
3/14

9/1/2014
8/14

7/1/2015
5/1/2016
3/1/2017
6/17

1/1/2018
11/1/2018
23 mo.

6/19

9/1/2019
Summary

ƒ Numbers important, meaning maybe even more so

ƒ Chance of bubble in orders exists
ƒ Uncertainties continue, including timing of next downturn
AVITAS, Inc. - World Headquarters
14520 Avion Parkway
Suite 300
Chantilly, VA 20151
USA
Phone: +1 703 476 2300
Fax: +1 703 860 5855

AVITAS Europe
PO Box 38
Betchworth
Surrey RH3 7Y2
UK
Phone/Fax: +44 1737 843 756

www.AVITAS.com