lp av market review may 2009. 2 key topics indicators: rebound of € vs $ : 1€=1.42$ (… aiming...

LP AV

Market Review

May 2009

2

Key topics• Indicators: Rebound of € Vs $ : 1€=1.42$ (… aiming at 1.50$?) & oil 60$

• IATA – Passenger traffic dropped by 3.1% in April following a drop of 11,1% in March, 10,1% in February & 5,6% in January showing a

significant improvement but: Traffic gains at the expense of yields ; Early data of May for European Airlines suggests a renewed decline in traffic at a double figure rate

– Situation different by zone: Asia Pacific continue to suffer the largest declines in passenger traffic; Europe and North America not far behind; Exceptions: Middle East and Latin America … increase … but in the most part at the expense of substantially lower load factors and yields

– Passenger capacity cutbacks slowed in April: -2.5% following -4.4% in March, -5,9% in Feb & -2% in Jan– Load factor in April at 74.4%. Adjusting for distortions, load factor still seem declining at a rate of 3 % points a year on average

across international markets– Freight: stable at -21.7% following -21,4% in March after -22,1% in Feb and -23,2% in January

• OEM– AIRBUS & BOEING reduce their backlog … which remains at a very high level (3,607 & 3,589 aircrafts)– B787 ready for its first flight– PIPER sold to a Thai company– GA aircraft shipments fell 41.1% in 1Q09 vs 1Q08; business jet deliveries dropped 35.7%

• Client info: – EMA: Middle East emerges with positive results (EMIRATES & AIR ARABIA) and low cost start-up– FEO:

• KINGFISHER revise its plan of expansion and limit it to the Region• Asian Airlines get some relief packages from authorities in Asia

– NAM• AIR CANADA is seeking to avoid a bankruptcy filing … and FRONTIER in difficulty• DSCC notified us that they will NOT be exercising the option period. Our contract will expire on 22 Jan 2012;

LP AV – Market Intelligence – JP GrandJune 3, 2009

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Indicators

Source: Banque de France

Source: IATA

Source: IATA

Source: Pricing Dept

LP AV – Market Intelligence – JP GrandMarch 19, 2009

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Traffic analysis – April 2009 – Source: IATA economics – 27/05/09KEY POINTS • Passenger traffic improved sharply in April, though it may be too soon to conclude that this marks a solid floor to the

recent steep decline in air travel volumes. The decline in revenue passenger kilometers (RPK) flown on international markets slowed to a fall of 3.1% in April, following the large deterioration to -11.1% in March. The timing of Easter has distorted these figures with more leisure passengers flying in April this year, but even after adjusting for this there was still a significant improvement in air travel during April.

• There are two reasons for caution in interpreting this improvement. The first is that traffic gains were at the expense of yields in some, if not all, regions. Data on US airlines shows an improvement in traffic volumes but revenues on international markets continued to decline at a 20% rate in April, as yields fell faster. Second, early data on the first half of May suggests a renewed decline in traffic at a double figure rate, at least for European airlines .

• Air freight volumes do seem to have found a reasonably solid floor. In April freight tonne kilometers (FTK) flown on international markets were down 21.7% on a year earlier. This was a slightly larger fall than the 21.4% seen in March, but this was entirely due to the timing of Easter. The level of FTKs has been virtually unchanged throughout this year since reaching a low point in December 2008.

• Passenger capacity cutbacks also slowed in April to a reduction of 2.5%, following a 4.4% cut in March. In fact the load factor of 74.4% achieved in April was not far below the level seen a year ago, but that favourable view is due to low utilisation last year. Adjusting for distortions, load factors still seem to be declining at an underlying rate of around 3% points a year on average across international markets.

• Airlines in Asia-Pacific continue to suffer the largest declines in passenger traffic , though the air freight they carry declined at a slightly less severe rate in April. Airlines in Europe and North America are not far behind this region in passenger travel and have seen a very similar development in air freight so far this year. The exceptions have been for airlines in the Middle East and Latin America which have increased the passenger traffic they carry, but in the most part at the expense of substantially lower load factors and yields.

• Looking ahead there are encouraging signs of improving business and consumer confidence, and air freight does seem to have found a floor. However, high business inventories and household debt represent severe headwinds to any recovery in traffic volumes. Even if the April improvement in passenger travel does prove more durable than we expect this is not the case for yields and revenues which were still just as weak as previous months. We have still not reached the point where a significant recovery in traffic volumes, let alone revenues, can be seen ahead.


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Traffic analysis – April 2009

Impact of Easter and +10% in capacity in 2008 to transatlantic capacity as a result of EU-US Open Skies deregulation


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INTERNATIONAL PASSENGER TRAFFIC IMPROVES BUT IS IT THE BOTTOM? • The was a sharp change in the headline figures for revenue passenger kilometers flown on international markets in April; the

large decline of 11.1% in March slowing to a much more moderate fall of 3.1% in April. These comparisons are distorted by the late Easter this year which gave a boost of at least 2% points to April year-on-year growth rates. Of course this does not come near to explaining the 8% point improvement in the growth rates from March to April but early data for the first half of May suggests a renewed decline at much higher rates, at least in some regions. It is too soon to be confident that a bottom has been reached to the decline in passenger travel.

• Nonetheless, the April data were much better than expected and represent a significant improvement on air travel compared with March. Adjusted for seasonal fluctuations international air travel RPKs improved by more than 3% in April over the previous month, having fallen by around 4% during February and March (see chart below).


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Traffic analysis – April 2009INTERNATIONAL PASSENGER TRAFFIC IMPROVES BUT IS IT THE BOTTOM? (cont’d)• Improvements in air travel were experienced by airlines in all regions, to a broadly similar degree. All saw a 2-7% monthly rise

in seasonally adjusted RPKs. The weakest region was Asia-Pacific where passenger travel volumes were 8.6% lower than a year ago in April. The strongest was the Middle East, where airlines boosted the traffic they carried by 11.2%. Latin American airlines also saw a significant increase with RPKs on international markets up 7.5%. The comparisons for N American and European airlines from this April to April 2008 are complicated not just by the impact of the timing of Easter but also by the 10% addition to transatlantic capacity last April as a result of the EU-US Open Skies deregulation. But even adjusting for all of this suggests April was better than March for air travel volumes.

• The economic data in April was mixed. Leisure travellers will have been faced with labour markets that were still deteriorating. Non-farm payrolls in the US fell a further half a million in April and unemployment continued to rise in Europe and Asia. However, surveys suggest that consumer confidence in both the US and Europe reached a low point in February, moved sideways in March and then improved during April. Business confidence has been improving for several months but business travel volumes were still falling in March. Usually leisure travel would also lag at least several months behind any improvement in consumer confidence before picking up.

• An acceleration in fare discounting during April may explain at least part of the improvement in travel volumes. The ATA report that US airlines saw their passenger yields plummet in April by 21% on N. Atlantic markets (vs. a 10% Q1 decline) and by 17% across the Pacific (vs. a 3% Q1 decline). Of course yields will have been weakened during April this year relative to April 2008 by the late Easter causing a much greater proportion of lower yielding leisure passengers in the mix. Nonetheless, coupled with falling fuel surcharges, there does seem to have been a faster fall in the cost of travel which may have attracted some additional traffic.

• The ATA data on US airlines show that stronger April traffic came at the expense of lower yields. In fact revenues on international markets for US airlines continued to fall at a rate of 20% in April. The decline was slightly more in March but that can be entirely accounted for by the timing of Easter.

• One reason for being cautious about thinking April has marked the bottom of the air travel decline is that, despite improving consumer confidence and falling fares, the AEA report that European airlines have experienced a renewed decline at double figure rates in the first half of May on all their major markets.


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Traffic analysis – April 2009AIR FREIGHT VOLUMES SEEM TO HAVE FOUND A WELL DEFINED FLOOR • Air freight volumes have always been a very timely indicator of turning points in world trade and broader economic activity.

Freight tonne kilometres flown on international markets hit their lowest point in December and in the four subsequent months have moved sideways once adjusted for seasonal fluctuations. In April air freight volumes were 21.7% lower than a year earlier, following the 21.4% decline in March. The slightly larger decline in April was entirely explained by the late Easter this year. As the chart below shows air freight does seem to have established a well defined floor so far this year.

• This does point to a turning point for world trade and the widespread economic recession. The worst of the economic downturn may now have occurred. However, as the chart shows we are bouncing along the bottom of the economic downturn, at very low levels of air transport activity.

• An upturn is not yet seen in the data. But surveys of purchasing managers in manufacturing industries in the major industrial economies show that confidence has been edging up from the low point it reached in November last year. Because around half of air freighted products are components or capital goods this survey is usually a good lead indicator, suggesting we may see a moderate improvement in air freight volumes in the months ahead


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LOAD FACTORS BOUNCE UP BUT UNDERLYING 3% POINT FALL REMAINS • Load factors improved sharply during April to 74.4% as airlines found their resized capacity better matched to lower air travel demand.

This marks a sharp reversal of the downward trend in load factors seen since early last year. In particular it is a sharp rebound from the very low levels seen in March. A portion of this load factor swing is due to the distortion caused by the timing of Easter, with extra leisure traffic in April this year filling up the available capacity to a greater extent than last year, when Easter was in March.

• However, it may be too early to conclude that the capacity resizing cuts by airlines in many regions have finally caught up with the slump in air travel demand. Better loads in April were due to the apparent rebound in air travel volumes, rather than a larger cut in capacity. In fact, adjusted for seasonality, capacity (ASKs) was increased in April. The global fleet increased by over 100 aircraft. However the seasonally-adjusted rise from March to April of 0.7% was much less than the 3%+ estimated rise in air travel volumes.

• Projecting traffic and capacity forward into next month points to a resumption of the 3% point year-over-year decline in load factors once more from May. In fact the published schedules data suggests that by late summer capacity globally will be coming back in line with levels available at the same time during the previous year. April traffic was encouraging but, given the headwinds of household debt and continued labour market uncertainty, it is highly unlikely that passenger traffic will be back to year ago levels by late summer. As a result low utilisation rates – and poor profitability - are likely to continue for some time.


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OEM info (cont’d)AIRBUS• AIRBUS dropped projected A380 deliveries in 2009 from 18 to 14, then >20 in 2010. It confirmed plan to deliver same amount of aircraft in

2009 as in 2008 (483) - SpeedNews

• As of April 30, the order backlog for Airbus totaled 3,564. Unfilled orders broken down by aircraft type were as follows: 15 for the A318; 355 for the A319; 1,857 for the A320; 235 for the A321; 412 for the A330; 21 for the A340; 483 for the A350; and 186 for the A380. The backlog at the end of April 2009 represents a decrease compared to the backlog at the end of March 2009, which totaled 3,607. Both figures are decreases compared to the company's yearend-2008 order backlog of 3,715- ForecastInternational

• AIRBUS delivered 46 aircraft (35 A320 Fam, nine A330s, on A340-500 and one A380) and booked eight orders (five A350-800s for KINGFISHER, two A330-200s for METCO and one A330-200 for ILFC) in April 2009 - SpeedNews

• Airbus announced on May 6 that it is cutting delivery plans for its A380 airliner for 2009 and 2010. According to the new plan, Airbus expects to deliver 14 A380s in 2009 and "more than" 20 aircraft in 2010. The company cites the effects of the global economic recession as a reason for cutting its production plans, including customer requests for deferral of delivery. Airbus said that production from 2011 onward will depend on demand from customers and airline demand, and availability of customer financing - SpeedNews

• EADS reported net income of €170m for 1Q09 (vs €285m in 1Q08) on 14% lower revenues, reflecting under-proportional Airbus deliveries (116 aircraft vs 123 in 1Q08), less other favorable phasing effects, negative foreign exchange impacts, and lower revenue recognition in the A400M program. However, revenues improved at ASTRIUM (+20%) and EUROCOPTER (+4%) - SpeedNews

• AIRBUS earned €89m in 1Q09 (vs €635m in 1Q08) on 21% lower revenues, but still expects to capture up to 300 new gross orders in 2009, "even if it is becoming more challenging in the current market environment - SpeedNews

• AIRBUS made first flight of first A320 assembled in Tianjin, China; aircraft will be delivered to Sichuan Airlines (via Dragon Aviation Leasing) in June - SpeedNews

• AIRBUS celebrates 40th anniversary of its first aircraft program (A300) launched with signed agreement May 29, 1969, during the Paris Air Show at Le Bourget - SpeedNews

LP AV – Reiner OttJune 3, 2009

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OEM info (cont’d)BOEING • EVERETT, Wash. - Boeing announced on May 3 that the first Boeing 787 test aircraft scheduled to fly has been moved to the flight line.

The aircraft will soon begin fuel testing - the first in the next phase of extensive checks the airplane must undergo before making its maiden flight. In recent weeks, the 787 (designated ZA001) completed a rigorous series of tests, including build verification tests, structures and systems integration tests, and landing gear swings and factory gauntlet, which is the full simulation of the first flight using the actual airplane. Boeing said that all structural tests required on the static airframe prior to first flight also are complete. ZA001 will undergo additional airplane power and systems tests, as well as engine runs. After completing final systems checks and high-speed taxi tests, the airplane will be ready for first flight, which is on schedule for later this quarter - ForecastInternational

• As of April 30, the order backlog for Boeing Commercial Airplanes totaled 3,541. Unfilled orders broken down by aircraft type were as follows: 2,176 for the 737; 108 for the 747 (including three 747-400ERF/Fs and 105 747-8/8Fs); 66 for the 767; 330 for the 777; and 861 for the 787. The backlog at the end of April 2009 represents a decrease compared to the backlog at the end of the previous month (March), which totaled 3,589. Both figures are decreases compared to the company's yearend-2008 order backlog of 3,714 - ForecastInternational

• BOEING would not confirm nor deny media speculation that RBS AVIATION CAPITAL was customer that canceled order for 25 787s last week - SpeedNews

• BOEING booked orders for five 787s and had orders for five 767s canceled during week ended May 26 from undisclosed customer(s) – SpeedNews

EMBRAER• SAO JOSE DOS CAMPOS, Brazil - Harbin Embraer Aircraft Industry Company Ltd (HEAI) has reached an agreement with Hainan Airline

Company Ltd (HNA) to adjust the latter's firm order for 50 ERJ 145 regional jets to a new figure of 25 aircraft. As of April 30, HEAI had delivered 12 of the ERJ 145s to HNA. According to the new agreement, deliveries have been rescheduled for completion by the first half of 2011, instead of the original plan calling for deliveries to be completed by the end of 2010 - ForecastInternational


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OEM info (cont’d)General Aviation• HAWKER BEECHCRAFT :HBClaunched tender to purchase a portion of its outstanding debt for up to $100m - SpeedNews

• CESSNA: Cessna delivered its 200th Citation Mustang. - SpeedNews

• HONDA AIRCRAFT Honda Aircraft Co. Inc has revised the program schedule for its HondaJet business jet program, including new first flight and delivery timetables. The firm said that ongoing global aerospace industry business challenges have resulted in a delay in receiving critical components for conforming aircraft production. Honda said that these delays have required a revision in the first flight target for conforming aircraft to January 2010. The previous target was the third quarter of 2009. In addition, first customer delivery, originally scheduled for late 2010, is now projected in the fourth quarter of 2011, following completion of FAA flight-testing certification- ForecastInternational

PIPER• Piper Aircraft, Inc. announced on May 5 that its owner, American Capital Ltd. , has sold its 100 percent stake in the 72 year-old general

aviation manufacturer to Imprimis. Imprimis is a corporate finance and investment management firm that operates from its offices in Bangkok, Singapore and Brunei Darussalam. Imprimis intends to invest significant capital in Piper's current operations to strengthen its position in its traditional markets and support the development of key new products such as the PiperJet. According to Piper's management, Imprimis wanted to acquire Piper because of the significant potential that it sees for Piper to expand its activities into new markets in Asia Pacific, which is expected to experience steady growth for two- to six-seat aircraft over the next five years, in part due to shifting demographics and increasing demand for pilot training from training schools and flying clubs (commercial and private). Outside of long-term plans for growing market share in Asia, the new shareholders are committed to keeping Piper's headquarters, production and product development facilities in Vero Beach, Fla Forecast International

• In this market it might be assumed that American Capital, the company that owned Piper Aircraft until last Friday, was bailing on a troubled industry. In fact, the company made a healthy $31 million profit on the sale and the premium paid by Imprimis is indicative of the strength of the company. "We are extremely delighted with the impressive results of our sale of Piper. The sale of Piper during such challenging economic times demonstrates that the market is still receptive to the acquisition of strong assets," American Capital spokesman Steve Price said in a news release. "We are excited for Piper as it moves forward with new ownership under Imprimis and expands in new geographic markets, especially Asia, with its comprehensive product lineJ Hiltabidle from Internet

• GAMA reports general aviation aircraft shipments fell 41.1% to 462 units worth $4.34b in 1Q09 vs 785 worth $5.3b in 1Q08; business jet deliveries dropped 35.7% - SpeedNews

• PILATUS Pilatus delivered its 900th PC-12.


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EMA Top 40EASYJET• Lost £85.9m for six months ended March 31 (vs £43.3m loss a year ago) on 16% higher revenues, and is planning net

increase of 21 aircraft by end of September 2011.(Sp 07/05/09)• Deferred delivery of six A319s/A320s from Airbus; fleet plan calls for delivery of another 17 in FY09, 27 in FY10 and 24 in

FY11 (coupled with lease returns of 37 aircraft and sale of 10 ex-GB Airways A319s/A320s) for total fleet of 194 at start of FY12. (Sp 08/05/09)

• Carried 3.78m pax in April, up 6.3% from 3.55m in April 2008; load factor was 84.2% vs 80%.(Sp 08/05/09)

IBERIA• Loss widens on fuel costs: The Spanish carrier said its net loss widened, hit by high fuel costs and waning demand for air

travel as a recession takes hold in Spain.(WSJ 14/05/09)• Iberia signals delay in plan for BA tie-up : Market volatility complicates calculations on the quity weight of both airlines in any

merged group, as well as the value of the British Airline’s pension deficit (FT 12/05/09)

• Plans to withdraw five Airbus A320s from service this month as part of its new action plan announced on the 10th May 2009. The airline also plans to terminate the wet-lease agreements on at least five aircraft which are currently flown for Iberia by Gestair (Spain). Gestair currently operates six Airbus A340-300s and a single A321-200 for Iberia.(ACAS News 13/05/09)

• Unveiled a broad cost-cutting plan intended to save more than €200 million this year as first-quarter loss rises (…). Citing a large decline in overall demand and business class traffic in particular, IB said operating revenues plunged 15.6%. Operating loss ballooned to €147.3 million from €28.3 million (…) The capacity cuts will be "selective and temporary, and will not entail withdrawal from any markets." Delivery of new aircraft will be postponed. (…) Return to profitability from 2010 with the impact of contingency plan if the fuel price remains at current levels. IB trimmed first-quarter capacity by 6.1% (…) but traffic declined 9.5% pushing down passenger load factor 2.9 points to 76.5%. Passenger yield narrowed 9% to €6.42 cents. (ATW online 13/05/09)

EMIRATES• Emirates Group made profits for the 21st consecutive year (Sp 22/05/09) although they plunged 72% (ATW online)• Will add 22 weekly flights bringing existing service (163 flights/week) to 185 over summer/winter periods. (Sp 29/05/09)

LP AV/EMA Zone Marketing – Eve SchiroJune 3, 2009

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BRITISH AIRWAYS• Has been hit by a 17.7 per cent fall year on year in premium passenger traffic in April, a performance worsened by the

timing of Easter. (FT 06/05/09) Launched sale of up to 40% off business class fares through June 30; London-JFK is now £1099 roundtrip. (Sp22/05/09)

• reported net loss of GBP220m on GBP8.99b revenues year ended March 31 vs GBP878m profits on GBP8.76b revenues year-over-year. (Sp22/05/09)

LUFTHANSA• Plans to cut passenger capacity by 6%, exclude the expansion of its new hub and Milan’s Malpensa. It is to trim long-

haul capacity by 1.1% but this could rise to 8% more.• Hopes to get a ruling from EU competition watchdogs about buying Brussels Airlines by 1 July, and antitrust approval to

take over Austrian by month’s end. A decision about BMI could be made on May 11. (FT 30/04/09) • Received EU approval to acquire UK-based BMI.(Sp 18/05/09)• Says it could walk away from BMI acquisition if current shareholders do not inject additional capital into airline. .(Sp

22/05/09)

AUSTRIAN• The Group lost €88.1m on €439m revenues in 1Q09 vs €60.4m loss on €525.3m in 1Q08.(Sp 08/05/09)

AIR FRANCE-KLM• Posted net loss of €814m for year ended March 31 (vs €756m profit a year ago) on 0.6% lower revenues after a

negative currency impact of 1.9%. It says even though it has experienced some signs of stabilization in both pax and cargo operations, it is too early to tell whether they indicate the start of an economic recovery, and thus is further reducing capacity.(Sp 20/05/09)

• Are forming transatlantic joint venture to coordinate operations and share costs and revenues on all flights between North America and Europe, Amsterdam and India, and North America and Tahiti; deal is valued at $12b annually. (Sp 22/05/09)

EMA Top 40 (cont.)


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EMA-Other market info customer/prospectAIRBUSDropped projected A380 deliveries in 2009 from 18 to 14, then >20 in 2010. It confirmed plan to deliver same amount of aircraft in 2009 as in 2008 (483). (Sp 06/05/09)

Airline Start-UpsComments made by Qatar Airways’ (Qatar) CEO Akbar Al Baker last week have given rise to speculation on the prospects that Qatar Airways and Etihad Airways (United Arab Emirates) might follow Emirates (United Arab Emirates) lead into the low cost arena. Al Baker said that his airline would be able to launch its own low cost carrier "within ninety days", should it start to lose market share to "any low-cost carrier". This is an obvious reference to Emirates’ recently created LCC, FlyDubai (United Arab Emirates). Given the cash rich UAE-based carriers’ expansive strategies during the current global recession, further low cost subsidiaries in UAE must be a possibility. (ACAS News 13/05/09)

Air Arabia, the world’s most profitable carrierAir Arabia has converted a 21% increase in first quarter revenue into a 32% increase in net profit, producing an industry leading net margin of 22% - an outstanding achievement given the global economic environment. Superb fleet utilization rates, low fuel prices, a simple operating model and a dominant position within the growing Sharjah economy are the hallmarks of Air Arabia’s success. However, the arrival in a couple of months of FlyDubai could mark the start of the erosion of Air Arabia’s stunning run of profit growth..(centreforaviation.com 11/05/09)

FLYDUBAI • Plans June startup of Dubai-Beirut/-Damascus/-Amman/-Alexandria (737-800). (Sp 15/05/09) • Took delivery of its first of 50 737-800Ws on order from Boeing for mid-'09 startup; it is also leasing 4 from BBAM.(Sp22/05/09)


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EMA-Other market info customer/prospectSUKHOI The Russian type SSJ100 certificate is scheduled to be issued in November, and EASA approval would follow in May 2010 (Aviation Week 09/03/09). It is taking a hard look at its original plan to build a 75-seat regional jet and likely will go for an aircraft in the 100/115-seat range to complement the existing 95-passenger SSJ 100 platform (atwonline 20/05/09)

AIR ASTANA (Kazakhstan)Has announced plans to make the Embraer E-190 the basis of its future short-haul fleet, as it implements a major expansion of its Central Asian network. Although Airbus A320s will be used on the new routes as an interim measure, these routes will be taken over by E-190s from 2011. The carrier initially plans to lease two E-190s but expects to acquire further examples of the type. The airline’s current total fleet stands at twenty-one aircraft of all types but it expects to have twenty-eight aircraft in service by 2013.(ACAS News Bulletin 29/05/09)


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EMA Miscellaneous

AEROPORTS DE PARIS had EUR608.5m consolidated revenues in 1Q09 vs EUR580.4m in 1Q08. Traffic fell 8.6% (to 18m pax), falling in all regions except for Africa which grew 1.2%.(Sp 14/05/09)

EUROPEAN AIRLINES PREPARE TO SLASH CAPACITYAnother major round of capacity cuts is imminent in Europe, as markets remain depressed and airlines take advantage of a major reprieve on slot rules. Revenues are decreasing at a faster pace than traffic, meaning they have no option but to cut capacity to restore load factors and regain some semblance of control over pricing. (…)Relief has come in the form of an easing in slot rules, which will allow airlines to cut routes that make no economic sense but are flown to retain crucial slot times. The AEA applauded the EU’s decision to waive the ‘use it or lose it’ slot rule for the Summer season, stating the economic downturn has “created a temporary excess in capacity over demand which the airlines are constrained from addressing by rules designed for a growth market”. (centreforaviation.com 12/05/09)

Key facts and figures on the AIR FRANCE KLM-DELTA joint venture• More than 200 daily transatlantic flights (100 roundtrips) • The joint venture represents approximately 25 percent of total trans-Atlantic capacity. • Over 400 destinations in Europe and in North America • Annual revenues estimated at more than US$12 billion (approximately 9.3 billion euros, reference year 2008/09). • Over 100,000 employees at Air France KLM • 70,000 employees at Delta • The venture is a long-term, evergreen arrangement that can only be cancelled with a three year notice, after an initial term of 10 years. (Sp 22/05/09)


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Air China (China)

• Air China has applied to the CAAC to establish a new branch company in the city of Wuhan, the provincial capital of Hubei. The move follows the failure of attempts by parent company CNAC to seal a deal with the now bankrupt East Star Airlines (China), after that carrier suspended operations in March 2009. Air China plans to acquire East Star’s route network and airport slots and to hire many former East Star staff. Initial plans call for fifteen aircraft to be based at Wuhan and for the launch of services to Paris, Singapore and Tokyo by 2010. Air China plans to have thirty aircraft based in Wuhan by 2015, and for new routes to Berlin, London and Los Angeles.

Kingfisher(India)

• Kingfisher Airlines Ltd, will rent out at least two of its five long-haul A330-223 aircraft to Nigerian carrier Arik Air Ltd for two years from the third quarter of 2009.This indicates that Kingfisher’s expansion plans into Europe and the US remain uncertain. It sold two A340s to Arik Air late last year when it was scheduled to take deliveries of 10 other aircraft to start international operations.

• Kingfisher Airlines, launched only a few international flights with five of the A330s deliveries . “Kingfisher will not expand in the long-haul sector for at least two years,” a London-based analyst said on condition of anonymity. The analyst added that the leases were an indication that Kingfisher may expand regionally unless there are drastic changes in the international market.

• This year, Kingfisher has started flights to Colombo and Dhaka using its domestic fleet of ATR planes. It also has government approval to fly to Chittagong, Hong Kong, Singapore, Bangkok and plans to start an all-economy service between Bangalore and Dubai from 25 June using an Airbus A320.

Thai Airways

• Thai Airways has achieved a net profit of THB7.87 billion (US$230 million) for the first quarter of the year, surging 255% from the THB2.2 billion in the same period in 2008 partially attributable to foreign exchange gains. Thai Airways saw revenues dip 26.1% to THB41.27 billion from the THB55.85 billion achieved year earlier in the January to March period. Due to the decrease in number of inbound and outbound travelers to Thailand. The company need to reduce flight frequencies to suit the market situation. The massive jump in profit has been largely due to large gains on foreign exchange earnings, which were helped along by falling operating expenses. Expenses dropped 28% down to THB36.37 billion for the quarter

• The demand for air transport between Thailand and Norway will now be served by Thai Airways, the carrier announcing a new Bangkok-Oslo route on Thursday.Flights will be operated by an Airbus A340-500 aircraft and are scheduled to commence from 15 June 2009. Direct flights will operate five days per week.

FEO Top 40

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FEO Top 40Air Asia

• AirAsia Bhd reported a bumper 26% increase in net profit to USD58 million in the typically slow first quarter ended 31-Mar-09 –

the carrier’s best quarterly result since the final three months of 2007. The result was achieved on the back of solid increases in revenues,

driven by rising passenger numbers, yields and ancillary revenues. Operating margins above 20% in the past two quarters are an

outstanding achievement. But, the virtuous cycle could be broken in the second quarter as oil prices surge.

Jet Star

• Jetstar has announced that it will introduce the A321 on two of its short haul international services which operate through

Darwin.

• Jetstar has made a priority of growing its short haul international flying a priority since growth of its long haul network has been stalled by

the lack of widebody capacity available due to the delay in receiving its 787s. (Weekly report May 5,09)

Qantas

• CUTS FIRST CLASS ON SOME ROUTES: Qantas has announced that it is temporarily cutting first class sales on selected routes

due to the fall in premium bookings.

• The airlines says that it will stop selling first seats on routes from Sydney to Buenos Aires and San Francisco as well as its Melbourne-

Hong Kong-London Heathrow services between July 6 and October 31. While the airline will not be reconfiguring aircraft to remove first

class, business passengers can be seated in the seats but will receive otherwise regular business class service levels.

• Qantas has been particularly hard hit by the slowdown in premium traffic, which is one of the reasons the carrier expects to post a loss for

the second half of the 2008/09 financial year. CEO Alan Joyce has also hinted that the carrier may look at reducing the number of premium

seats on its international fleet following a fleet review, saying that the airline had focused too much on the premium market.

• The airline has said that that plans to sell up to 10 aircraft as part of its capacity reduction measures, which some sources believe could

include some of its oldest Boeing 747-400s.

LP AV/FEO Zone Marketing – June 3, 2009Artika Tanapongpipat

20

FEO-Other market info customer/prospect• Uni-top Airlines (China) is a new start-up cargo airline based in Wuhan, which has been founded by the air/sea freight forwarding

group of the same name. The airline is expecting to take delivery of a former Air China Cargo (China) Boeing 747-200(F) on the 15th June 2009. The aircraft is the first of three to be used on domestic and international routes to Africa, Asia and Europe. (Tr : Fleet & Orders Gossip Shop, Issue 347)

• Deccan Cargo (India), the new cargo airline venture established by Captain G R Gopinath, is planning to launch services on 18th May 2009 with the first of an initial fleet of three Airbus A-310(F) freighters. The first route will link Hong Kong with Delhi, Mumbai and Chennai. Gopinath is a well known aviation entrepreneur who retains his interest in Deccan Aviation, a primarily helicopter charter business, although he disposed of his interest in the former Air Deccan (India) to Vijay Mallya’s Kingfisher Airlines (India) in 2007. Plans call for the operation of eleven aircraft within two years of launch. (Tr : Fleet & Orders Gossip Shop, May 6,09)

• Paramount Chennai-based Paramount Airways is set to hire over 1,000 new staff over the next 15 months, as it expands its operations, the Hindustan Times reported. Personnel to be hired include cabin crew, technicians, pilots and ground staff, and will more than double the airline's current staff of 800.(May 18,09)

• Cebu Pacific Cebu Pacific (CEB) forecasts it will handle 9 million passengers in 2009, as the LCC’s expansion plans enter full swing amid the economic downturn. The carrier reported a 23% increase in passenger traffic in 2008, handling 6.7 million passengers, making it the fastest growing airline in Asia. According to the carrier, it is presently the third largest LCC in Asia and the 22nd largest in the world. (May 20,09)

• REX (Australia) Regional Express has recorded a 6.3% fall in profit before tax for the three months ending March 31, and has foreshadowed job cuts as passenger numbers fall. In its outlook, the company said that it expects the final quarter of the financial year to be even more difficult than the third, and is reducing passenger capacity by 11 per cent. It is also carrying through with plans to remove the last of the Metro freighters from the Pel-Air fleet, and says it expects to retrench up to four per cent of its workforce. On the positive side, the company noted that there had been an increase in Pel-Air's mining charter and medevac business.


21

FEO MiscellaneousTraffic

Thailand will lose about 48 flights a week as global carriers continue to cut down on their services. According to a report in The

Nation, international airlines and freighters have cut 1,536 Thailand-bound flights from their schedules for March to October due to the

global economic crisis and the tourism slump. The number of passenger flights for the summer schedule has fallen from 963 per week to

938, while freighter numbers are down from 116 to 93 flights per week, the Nation reported the bureau saying.(CAPA May21,09)

Japan

•Tokyo’s main international gateway, Narita Airport, was showing some tentative signs of recovery (particularly in the all-important

outbound segment) last month, with provisional traffic results for April showing that international passenger traffic was down by (just) 4%

to 2.46 million passengers. Japanese international passenger numbers fell by 3%, or by 37,000 travelers, to 1.24 million (boosted by the

‘Golden Week’ holidays from 28-Apr-09 to 06-May-09), while non-Japanese international passenger traffic was down 10% to 753,089, a

fall of 81,000 travelers. Total volumes had fallen as much as 12% year-on-year in Feb-2009.

•Six weeks ago, Narita Airport officials would have been hopeful of a recovery in volumes, albeit slow, as the year progressed. But swine

flu has added another negative element to a fragile outlook for the Japanese economy and aviation sector. It could be several months

before a clearer picture emerges. (CAPA Jun 06,09)

Indian Election: Implications for aviation sector.

•The return of the Singh Government and Indian Civil Aviation Minister Praful Patel is named to a second term in the post . The India

aviation industry is now hoping to have structural reform and market growth after facing unprecedented financial challanges and a

number of issue require urgent attention. The minister will be confronted by some important and pressing issue. These include:

• The establishment of an airport economic regulator;

• Opening up investment by foreign airlines in Indian carriers;

• Fast tracking the development of Navi Mumbai Airport; and

• Ensuring that Indian carriers are able to effectively compete globally.


22

FEO Miscellaneous (cont.)Asian Airlines get some relief packages from authorities in Asia

China: •In China, the air transport sector lost over US$ 277 million in 2008. On May 13, China Eastern confirmed to have received a government cash injection of US$290 million. Air China asked in March for a cash injection of some US$440 million. China Southern begging the government for some US$330 million. Also , to stimulate air traffic by the opening up of air routes between Taiwan and mainliand China.Started by last year with some 100 services per week and they just recently agree to expand to 270 weekly services. It would help to generate a new flow of three to five million passengers per year across the Taiwan Straits.

Japan:•the government has already indicated its willingness to provide low-interest loans to Air Nippon Airways and Japan Air Lines (JAL), if necessary, through its financing instrument, the Development Bank of Japan (DBJ). JAL is looking for a US$2 billion loan.

Thailand•AoT board of directors reduced landing fees by another 10 percent starting May 1 until the end of the year. From now, airlines will enjoy a 30 percent discount instead of a 20 percent rebate available since February. Parking fees for aircraft will also be waived until year-end. For 2009, AoT expects passengers passing through its airports to fall by about 15 percent.

Vietnam•Vietnam’s Civil Aviation Authorities have decided to react. They recently implemented a series of tax deductions, including deferring income tax payment. In a bid to protect Vietnam carriers – and especially national carrier Vietnam Airlines- the Civil Aviation Authority of Viet Nam (CAAV) will not license any new airlines until 2015 for the official motive of limited airport facilities and a lack of skilled staff. Currently, five airlines are registered in the country. They are Vietnam Airlines, Jetstar Pacific, VietJet Air, Indochina Airlines and Mekong Airlines. (CAPA Jun 1,09)

China expected to order 875 Embraer jets by 2028 (May 14,09)

•Embraer has forecast orders for 875 new jets from China over the next 20 years.The total orders of new jets 90 percent were to support the growth of the aviation market in China and 10 percent for replacement of old aircraft. "The order of 30 to 120 seat jets for China will rise to 875 units by 2028 and just 23 percent of the current fleet will be in service until that date," the document said. "One of the factors that will favour new orders is the current Chinese government programme to develop aviation s an instrument of regional development," said the executive vice president for Embraer's commercial aviation market, Mauro Kern. ( Embraer Market Outlook)


23

NAM Top 40SWINE FLU• On May 1st CONTINENTAL announced that it is temporarily cutting capacity to Mexico by 50% due to outbreak of swine flu• On May 4th UNITED AIRLINES is cutting the number of its weekly roundtrip flights between the U.S. and Mexico from 61 to 24

in May and from 90 to 52 in June, and US AIRWAYS is cutting its service to Mexico by 38%.• Flights to Mexico have now resumed

Air Canada• AIR CANADA lost C$400m in 1Q09 (vs C$200m loss in 1Q08) on 13% lower revenues.• Air Canada is seeking to avoid a bankruptcy filing. Air Canada has secured an agreement with an unnamed credit card

processor, reducing the airline's minimum required cash balance by about $100 million. CEO Calin Rovinescu called the agreement an "important step in providing financial stability" during a period of declining ticket sales. The Toronto Star (5/26) , The Wall Street Journal/Dow Jones Newswires (5/25)

Continenial• Continental Airlines announced Wednesday it will lay off 500 reservation agents nationwide as more travelers opt for online

booking. A call center in Tampa, Fla, will be closed, with most agents there reassigned or offered the chance to work from home. The job cuts represent nearly 20% of Continental's 2,700 domestic reservation agents. The Seattle Times (5/13) , American City Business Journals/Houston (5/13)

US Airways• US Airways and Alaska Airlines both reported lighter traffic and fuller planes in April, continuing a trend that has Wall Street

investors bullish on an industry turnaround. Capacity cuts appear to have caught up with declining demand, according to MarketWatch, which says that factor could signal a possible end to deep discounting of ticket prices. MarketWatch (5/5) , American City Business Journals/Columbus (5/5) , American City Business Journals/Seattle (5/5)

LP AV/NAM Zone Marketing – Christa WilliamsJune 3, 2009

24

NAM Top 40 con’t.UPS• UPS announced they will cease flying their ten (10) remaining DC -8s May 12, 2009.

Frontier • Frontier Airliens is asking a bankruptcy court for a four-month extension on its deadline for submitting a reorganization plan.

Frontier says it is "moving forward in our restructuring efforts" and expects by late summer to find a plan sponsor willing to invest up to $150 million to allow the carrier to emerge from Chapter 11 bankruptcy protection. The Denver Post (5/12)

• The airline now has until October 9th to propose a plan before creditors would be allowed to propose their own. Frontier has finished much of its reorganization but, is still looking for exit financing. USA Today (5/21)

Midwest• Midwest Airlines has expanded its service agreement with Republic Airways Holdings, adding two Embraer 190AR regional jets

to its Milwaukee base. Republic will fly the 100-seat aircraft under either the Midwest Airlines or the Midwest Connect banner. "Our expanded agreement with Republic allows us to leverage the cost efficiencies of a large regional airline, while providing our customers with service to more destinations," said Midwest CEO Timothy Hoeksema. American City Business Journals/Milwaukee (5/21)

Cessna Cessna is expecting more layoffs this month. Cessna Columbus has been terminated due to lack of cash flow and there is talk

that Citation X block point change is also suspended

DSCC DSCC notified us that they will NOT be exercising the option period. They are going to re-compete both the ground and the air

contracts. Our contract will expire on 22 Jan 12.


25

NAM Other Delta Airlines

Delta Airlines is not talking about whether it will fly Boeing's 787 Dreamliner. Though Delta inherited 18 Dreamliner orders in its merger with Northwest Airlines, those planes were dropped from post-merger financial reports, and the company says it is negotiating with Boeing due to delays in delivery. "We think the 787 is a great platform for the future, and we'd like to see the 787 at some point here at Delta," Delta President Ed Bastian said last week. "But we just can't speculate on any outcome." The Atlanta Journal-Constitution (free registration) (5/4) )

Allegiant• Allegiant Airlines plan rapid growth in Los Angeles. Beginning with two non-stops on May 1, Allegiant Air plans to quickly build

its new Los Angeles service, flying direct to 13 cities by the end of the month. Los Angeles is the latest warm weather destination for Allegiant, which has become the most profitable carrier in the U.S. by flying leisure travelers to sunny destinations at discount prices. Los Angeles Times (5/13


26

General & Forecast Trends

• IATA (Air Transport Association) reports April intl. pax traffic (-3.1%) and cargo traffic (-21.7%) were down vs a year ago; PLF grew from 72.1% in March to 74.4% in April. It says worst of recession may be over, but has not seen any signs that recovery is imminent. (SpeedNews)

• In addition, IATA reported airline net losses for 1Q09 hit $1.1.1 bi vs. $413m loss in 1Q08. This loss is in line with forecast for $4.7b for calendar year. Financial markets started to anticipate recovery in April before fears over Swine Flu in Mexico took 5-10 percentage points off the earlier rise.

• IATA announced an A319 US Airways V2500 engine set a new time on wing record, completing 30,520 flying hours on its first run.

• IATA reports a 21.1% drop in air cargo shipments for the first quarter of 2009, the worst showing ever for U.S. carriers. But there were signs of a turnaround amid the bad news. For the first time since October, ATA saw a month-to-month improvement in cargo numbers, with traffic increasing 11.7% from February to March. The Journal of Commerce (5/5)

• Despite an anticipated 14 million fewer passengers this summer, a 7% decline, planes will remain full as airlines respond by reducing flights and routes and utilizing smaller aircraft. "The main driver behind the anticipated drop in passengers traveling this summer is the ongoing global recession, which continues to crimp demand," said ATA President and CEO James May, who warned delays may be inevitable. USA TODAY (5/18) , Reuters (5/15) , Chicago Tribune (5/15)


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