the outlook for aircraft leasing - general electric outlook for aircraft leasing henry hubschman ......

The Outlook forAircraft Leasing

Henry HubschmanPresident and CEOGE Commercial Aviation Services (GECAS)February 8, 2006

“This document contains "forward-looking statements" - that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," or "will." Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties which could adversely or positively affect our future results include: the behavior of financial markets, including fluctuations in interest rates and commodity prices; strategic actions, including dispositions; future integration of acquired businesses; future financial performance of major industries which we serve, including, without limitation, the air and rail transportation, energy generation, media, real estate and healthcare industries; unanticipated loss development in our insurance businesses; and numerous other matters of national, regional and global scale, including those of a political, economic, business, competitive and regulatory nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements.”

Pitch Title 09-01-04/2

GECAS at a glance

• 1,400+ owned and 300 managed aircraft in fleet• Longstanding customer relationships with more than 225

airline customers in 60 countries• Local presence with 20 offices worldwide• Deep experience and domain knowledge• Broad array of products – a lessor and a financier• Best-in-class technical department• Global distribution capability and scale• Structured finance and capital markets skills for large,

value-added transactions• Pricing and risk discipline with proactive portfolio focus• Backed by the GE brand


Where we are today…

• Despite the U.S. restructurings, world demand is strong• Traffic has grown steadily for the past 2 years• Demand for aircraft is very strong with record orders• Steady period of growth in 2004/2005 – but risks exist:

– Geopolitical instability/negative effects on economies – Fuel costs remain at record highs– Terrorism/event risks– Overproduction by manufacturers


-30%

-20%

-10%

0%

10%

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30%

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01

Jul-0

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Despite recent events and a robust 2005 (+6%), world traffic growth is forecasted to remain strong at 4.5% per year

Source: Company press releases, The Airline Monitor, ATA, AEA, AAPA, IATA

~4.5%

Perc

ent T

raffi

c G

row

th

2001 2002 2003 2004 2005

9/11

SARs


1,626 1,575 1,505 1,454 1,5002,177

1,612 1,357 1,152 1,110 1,097

1,809

577629

423308 280

601542

432426 400

367107

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2000 2001 2002 2003 2004 2005

EmbraerBombardier

Boeing

Airbus

Orders and backlog have climbed dramatically

Source: Manufacturer Data, Speednews

29% 26% 21% 19% 18% 24% Backlog as a % of World Fleet


Seats parked

Source: AirClaims Case Database, YE 2005

4.3%

15.1%

19.5%

0.5%

1.2%

2.9%

10.3%

0% 5% 10% 15% 20% 25%

50-seat RJs

Out of Production NBs

Out of Production WBs

>50-Seat RJs

In Production NBs

In Production WBs

World Average

Shortage

Normal “Unemployment”

Surplus


Seat growth

Source: AirClaims CASE database, GECAS estimates

16,562 =Passenger

Aircraft

= 2,632,334Seats

1,887Freighters

- 317,594Seats Parked

2,314,740ActiveSeats(88%)

-392,381Seats

Likely to Retire + 52,500

Parked Seats

Likely to Return

+ 852,955

Current Seat

Backlog/ Deliveries

+191,245

Potential Additional Deliveries

YE 2005 YE ~2010

2.3mActive Seats

~3.0mActive Seats

+0.7mGrowth in Seats

(5.5% per year)


Where is the upside coming from?

=+Economic growthExpansion of low-cost

carriers

Affordable travel for millions of new

travelers


Look at the potential for air travel worldwide…

Source: CIA World Factbook, AirClaims CASE Database

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) The United States has a population of 296 million people and a total of 6,537

commercial aircraft giving it one of the highest aircraft per capita ratios of 22.3

Mature and developed air transport markets will tend to have elevated aircraft

to population ratios (based on geography & disposable income).

The United States has a population of 296 million people and a total of 6,537

commercial aircraft giving it one of the highest aircraft per capita ratios of 22.3

Mature and developed air transport markets will tend to have elevated aircraft

to population ratios (based on geography & disposable income).


Demand is growing steadily in Russia


22.3

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GDP growth forecasted to continue at 5-7%Russian Institute of Aviation Economics study forecasts passenger growth of ~7% per year

GDP growth forecasted to continue at 5-7%Russian Institute of Aviation Economics study forecasts passenger growth of ~7% per year


But, the Russian fleet is in need of renewal…

~650 aircraft in service today (50+ seats)~300 face certain retirement within 2-5 years (avg. age = 32 years)~300 face gradual retirement (avg. age = 20 years)Estimated loss of 14 million seats/year

Fleet growth/replacement hindered by:1. Low rate of Russian aircraft production 2. Import tax on Western aircraft

Very old and largely inefficientNeed for 1,500 aircraft over the next 20 yearsA requirement of 70-100 aircraft per year

Driven by replacement and growthCompounded by high fuel prices

Source: GECAS estimates


Growth in new EU countries lies ahead

22.3

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Ireland’s accession to the EU and its subsequent development demonstrates the potential that

the new EU members face…

Ireland’s accession to the EU and its subsequent development demonstrates the potential that

the new EU members face…



Opportunity for growth in Brazil

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China’s growth continues

22.3

4.52.9

1.4 0.640

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China orders 150 Airbus NarrowbodiesDecember 5, 2005

China orders 150 Airbus NarrowbodiesDecember 5, 2005

China orders 70 Boeing 737-700/800sNovember 20, 2005

China orders 70 Boeing 737-700/800sNovember 20, 2005



Growth in India accelerating

22.3

4.52.9

1.4 0.64 0.190

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urope

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Domestic passenger loads growing 20%

24 million passengers forecasted in 2006

50 million forecasted by 2010

Domestic passenger loads growing 20%

24 million passengers forecasted in 2006

50 million forecasted by 2010

Source: CIA World Factbook, AirClaims CASE Database, Wall St. Journal


Huge potential for capturing sharefrom rail travel

MUMBAI - DELHI by Railroad

• Trip time: 23 hours

First class fare: USD $78

Second class fare : USD $41

Seats per day: 20,500

MUMBAI - DELHI by Air

• Trip time: < 90 minutes

2005 LCC fare: USD $67

2004 Network fare: USD $208

Seats per day: (all carriers) 5,500

Source: GECAS research


Emerging country demand adds up

22.3

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1.3 0.54 0.150

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• Russia 3,189 ac• E.Europe 1,650 ac• Brazil 4,147 ac• China 29,123 ac• India 24,084 ac

For a total of: 62,193 ac

At a similar ratio of aircraft to population, these countries would

need:

Only 10% of this figure would represent an

increase in the world fleet of ~37%



Low-cost carriers continuing rapid growth

$27B fleet value(55 operators/1618 aircraft)

Est. $67B+ fleet value( Est. 77+ operators,Est. 2800+ aircraft)

2003

2008 Est.

Source: AirClaims CASE Database, GECAS estimates

3x-4x growth rate of other carriers


In the U.S., there appears to be a light at the end of the tunnel…• Capacity rationalizations

– Seats down 5% since 2005• Ch 11 used successfully

– $15 billion in non-fuel costs cut since 2000

• Is consolidation ahead?

Source: USA Today, Air Transport Association


220

274

80

413

343

92

New Routes MainlineCompliment

MainlineReplacement

2003 2005

Contrary to popular opinion, there is demand worldwide for the current fleet of 50-Seat RJs

• International redeployment• Continued operations here in

the US– Expansion into new routes– Increase in point-to-point

flying – Replacement of 35-seaters

• Use as a viable freighter • Use as Exec / VIP Service

Source: Back Aviation Solutions

Change Since the Year 2000 in Nonstop 50-Seat RJ Routes


Massive freighter refleeting will be required

Current / Retained Fleet

Source: Boeing, GECAS estimates

0

500

1000

1500

2000

2500

3000

3500

'04 '07 '10 '13 '16 '19 '22 '24

Existing Fleet + Replacement + Growth

Current / Retained Fleet

Frei

ghte

rs in

Ser

vice

Incremental

0

200

400

600

800

1000

>25 <25

Existing Fleet Age

35+

25-34

• Replacement of older, inefficient models with high fuel, labor, maintenance costs

• Growth in global trade, global sourcing and just-in-time inventory management


Anticipating new aircraft models

Very LargeWB

WideBodies

Narrow Bodies

RegionalJets

B747-400 B747-800A380

B767B777-200

A330A340

B737 FamilyA320 Family

757 / 717MD-80 / DC-9

CRJ-1/2/400ERJ-135/40/45

B787B777A350

Boeing Next-GenAirbus Next-Gen

CRJ-700/900ERJ-170/190

Lessor Focus:

Large Operator Base

Strong Bridge Lift

Low Value Volatility

Remarket Ability

Constant Demand


Outlook for the leasing sector

• Global growth, LCC growth is good for lessors• Lease rates generally above pre-9/11 levels• Near-term aircraft supply is tight• Liquidity very strong

Positive outlook for 2006 and beyond

The Outlook forAircraft Leasing

Henry HubschmanPresident and CEOGE Commercial Aviation Services (GECAS)February 8, 2006

the outlook for aircraft leasing - general electric outlook for aircraft leasing henry hubschman ......

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