Higher (And

Scarier)Strongest Aircraft Market Outlook In Ten

Years

Presentation To The National Aeronautic AssociationWashington, DCRichard Aboulafia

Vice President, Analysis

Teal Group Corporation

www.tealgroup.com

January 2018

http://www.tealgroup.com/

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World Aircraft Deliveries By Value, 1989-2017

Military Civil

2008-2017 CAGR: 3.7%

2008-2017 CAGR: 2%

Aircraft Markets, Through Good And Bad Years

World New Deliveries CAGR CAGR Change Change

In 2017 (2018 $) ’03-‘08 ’08-‘14 ’14-16 ’16-‘17

Large Jetliners ($102.2 b) 7.5% 9.9% 6.9% 1.3%

Business Aircraft ($20.3 b) 17.2% -2.2% -15.9% -2.0%

Regionals ($7.1 b) 4.6% -3.2% 0.4% -7.6%

Civil Rotorcraft ($4.1 b) 19.8% -1.3% -36.1% 10.4%

Military Rotorcraft($12.9 b) 9.7% 9.0% -16.3% -11.8%

Military Transports ($6.1b) 3.2% -0.7% 7.3% -3.8%

Fighters ($18.6 b) 1.9% 1.1% -0.8% 9.1%

All Civil ($133.8 b) 10.1% 5.0% 0.6% 0.5%

All Military ($41.1 b) 3.8% 3.4% -5.2% -1.6%

Total ($175 b) 8.2% 5.1% -0.8% 0.0%

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sUS Aircraft Industry Output

Total US Deliveries By Value US Output % of World

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Cyclicality, Our Long-Forgotten Nemesis

'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-trough

Or

'99-'03

-11 CAGR; 65% peak-to-

trough

'84-'91

16.1% CAGR

'04-17

8% CAGR

A 13-Year

Super Cycle

'95-'99

20.8% CAGR

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'69 '71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17

Large Jetliner Orders And Deliveries

Deliveries Net Orders

Y/Y Traffic: Well Above Trend2017 1H Totals: RPKs 7.9% (12-year high), FTKs 10.4% (3x 5-year average) 2016 Totals: RPKs 6.3%, ASKs 6.2%, FTKs 3.8%2015 Totals: RPKs 6.5%, ASKs 5.6%,

FTKs 2.2%

Source: IATA

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RPKs ASKs FTKs

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Global Economic Growth Outpaced By Travel Demand

RPMs (Bns) GDP (PPP, constant 2011$ Bns)

CAGRs:

2011-2016:

RPMs 6.5%

GDP 3.3%

2007-2016:

RPMs 5.3%

GDP 3.1%

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

BRIC Deliveries: Peaked, Except For China

China Russia India Brazil

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sThe Air Transport Market By Class

Regionals Single Aisles Twin Aisles

1h1997

1h2001

End2004

End2006

End2008

End2009

End2010

End2011

End2012

End2013

End2014

End2015

End2016

End2017

Boeing 130.0 107.8 79.5 199.1 300.4 271.1 270.0 300.1 316.8 365.3 421.9 413.8 399.7 403.1

Airbus 48.6 112.9 115.5 173.0 281.8 268.2 277.6 309.5 321.6 397.4 436.3 456.7 463.0 436.8

Bombardier — — — — — 2.0 3.5 5.2 5.8 7.1 9.5 9.5 9.2 13.1

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sFirm Order Backlog Values

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A321neo 737MAX9/10 A321ceo 787-8 737-900 A330-200 A330-800

Mid-Market Backlogs: Airbus's Strong Position

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sJetliner Market Shares By Deliveries

Boeing Airbus COMAC/Irkut

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s"It Was Different That Time," We Hope To One Day Say

Value Units

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'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 ‘26

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Business Aircraft Market by ClassA Gradual Shift Towards Larger Aircraft

Very Light Entry Level Mid-Sized

Super Mid-Sized Large Very Large

Ultra Jetliners+RJs Turboprops

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DoD Investment, O+M: Booming Again, In Theory

Procurement RDT&E O&M

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DoD Tactical Aircraft Procurement FY86-FY18A Return to the Peak, But Fundamental Problems Remain

Funding Units

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'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 '26 '27

(Value of Deliveries in '18 Billions)

World Fighter Production Shares

F-35 US F-35 International Undetermined Europe Russia RoW Non-F-35 US

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sUS Military Fixed Wing Aircraft Deliveries

C-17 AV-8B F/A-18 F-15 F-16 F-22 T-45 T-6 C-130 F-35 T-X B-21

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sMissiles, Munitions, UAVs: Strong Growth

AAM ASM ADM ATM Anti-Ship SSM Smart munitions UAVs

Global Aircraft Market Outlook In One Page

Market 2018 Risk Elevator Comment

Large Jetliners 4.7%SA ramp dealing w/ production snafus. TA over-

capacity an issue. Watch China, fuel, interest rates

Business Aircraft 4.1%Some signs of hope, but many false starts over

a disappointing decade.

Regionals -13.7%Waiting for E-2; Scope clause is only big risk,

but no growth.

Civil Rotorcraft -1.3%Still tough. Too many new models aimed at a

weak Segment (oil).

Military Rotorcraft 8.9%Trending down as programs of record

end/slow; no risk of accelerated downturn.

Military Transports 7.8%Long-term flat. Only risk is A400M execution;

C130J benefits if it’s a problem.

Fighters 10.0% I like this market. F-35, plus strong Gen 4.5

All Civil 3.5%Jetliner growth compensating for weakness in other

segments; more risk from emerging markets, oil.

All Military 11.0%Global insecurity, Tension, Malice. Special

mission also boosts topline.

Total Industry 5.2% Overall outlook best in ten years.