Market Outlook and Aircraft Demand Forecast

1. Market Outlook andAircraft Demand Forecast 30 to 110 Seat Regional Airliners March 2000

2. Market Trends and Developments Historic delivery and order patterns Dynamic market drivers Consolidation of airlines and implications Market fragmentation and Airline Alliances Forecast Detail North America Europe Latin America Far East and Australasia Africa/Middle East Forecast Appendix Table of Contents

3. Market Trendsand Developments

5. Seat Category Growth Patterns of Aircraft Deliveries 30-110 Seats (cumulative growth in each seat class with base year of 1990) • Indexed to 1990, historic worldwide deliveries of regional aircraft show marked increase toward larger aircraft • This trend is driven by passenger and market demands: • - seamless passenger service; • - better aircraft operating economics with lower unit costs

6. Aircraft Deliveries for 30-110 Seat Categories Jets vs. Turboprops • Balanced delivery pattern between turboprops and jets for most of 1990s • With initial deliveries of CRJs and later with ERJ-145s, complete reversal in only three years • Given current order activity, future deliveries in regional sector will likely be 85-90% regional jets

7. Aircraft Deliveries 30-110 Seat Category (jets and turboprops) • Delivery history between 1990 and 1999 indicates strong influence of North America and Europe • Europe and North American had almost 80% of new aircraft deliveries over the last decade • Deliveries trend downward as a result of both the normal delivery cycle and increased productivity of jets versus turboprops

8. Worldwide Regional Aircraft Orders (1990-1999) Note: does not include B737-500/600s, DC9s, or A318s; figures are net of cancellations and are for aircraft in commercial airline service

9. Cumulative Worldwide Regional Aircraft Orders (1990-1999) Note: does not include B737-500/600s, DC9s, or A318s; figures are net of cancellations and are for aircraft in commercial airline service

10. Regional Aircraft Order Backlog - 30 to 110 Seats as of 12/31/99 Number of Aircraft 92% Jets 8% Turboprops Seat Category

11. Passenger Yield Trends • Yield declines play a significant role in both air transport and aircraft manufacturing • Lower yields help stimulate traffic and assist in overall growth rate in passengers carried • Airlines must lower costs to offset yield decreases which in turn puts pressure on air-framers to lower acquisition costs of aircraft and increase operating efficiencies

12. Dynamic Market Drivers in the Regional Airline Industry U.S. Market European Market • Market fragmentation across the U.S. domestic market • Allows for growth in frequencies • Captures higher yield business traffic • Artificial scope constraints currently cap aircraft size at about 70-seats • Regional aircraft have been used to extend hub spokes and augment majors in narrow body markets • Limited scope clause restrictions • Connection hubs are more limited in Europe • Congestion and slot limits will continue to mitigate hub growth • Hub bypass and point to point service patterns will continue to increase • Strategic use of aircraft • Long-range less significant than other regions • Lower aircraft weights critical Define Strategic Opportunities

13. Dynamic Market Drivers in the Regional Airline Industry Asia/Pacific Latin America • Intra-country markets compete on frequencies • Structure fits smaller aircraft profile (Australasia) • geographically diverse • scattered population centers • China has infrastructure constraints • But, growing recognition by Chinese government to develop regional airline sector • Regional airline development influenced by privatization • US majors taking equity positions in domiciled airlines • Current older fleet of narrow body aircraft will give way to increased frequencies of smaller regional jet aircraft • Both linear and hub flying will increase • However, credit issues may impede growth Define Strategic Opportunities

14. Market fragmentation will be one of the largest growth areas for regional jet deployment Markets fragment as a result of: congestion of air traffic control system and infra-structure hub relief leading to hub bypass and hub balancing growth in secondary cities competition Fragmentation leads to increased overall frequencies with smaller aircraft With onset of regional jet equipment and their capability, fragmentation of markets will accelerate Market Fragmentation

15. Market Fragmentation Hub Bypass and Relief Feed from numerous points to ATL creates high load factors to NYC airports all points West feed to ATL Atlanta Birmingham feeds into ATL but can also be flown non-stop with regional jets to NYC. This provides better service through bypassing the hub. At the same time, it relieves ATL of Birmingham flow traffic Birmingham all points South feed to ATL

16. Market Fragmentation Secondary Cities 200 weekly frequencies with 35,000 seats Chicago 1752 Miles LAX • Current frequencies on the (ORD-LAX) route create congestion. Any additional growth on the route would further cause congestion problems. • A regional jet service pattern between ORD and Long Beach (20 miles from LAX) would relieve LAX and improve service through secondary city capability. • Secondary cities exist throughout US and Europe, and the Far East

17. Allegheny Piedmont PSA USAirways 100% 100% 100% 70% of total US regional enplanements controlled by major carriers through direct ownership, Horizon Alaska in part or total 100% Express Mesaba Northwest 100% 40% Continental Express Continental 100% American Eagle BusExp American 100% 100% Comair SkyWest ASA Delta 100% 15% 100% 0 2 4 6 8 10 12 14 16 passenger enplanements in millions Ownership Control by US Majors • Control of regionals by US majors is dominant • While majors don’t rely exclusively on ownership for regional feed, their positions are far-reaching • Decisions on fleet and market planning for most large regionals will be made by US majors • With ‘de-facto’ ownership by majors, regional aircraft orders will be large, raising strategic stakes and increasing competitive intensity on manufacturers

18. Equity Positions on the part of Europe’s Largest Carriers

19. Airline Alliances • Major airlines seek to extend their market reach through alliances and code-shares • Most of the world’s largest carriers are part of the four major alliances • Alliances provide passengers better coordinated service patterns and more convenience • Regional airline partners, by extension, contribute to alliance efforts • Implications of the alliances on aircraft acquisitions are still unclear • A business alliance of Latin American airlines--TACA, Lan Chile, and TAM--was the first group buy of aircraft, A319s and A320s, in March 1998 • Although some past alliances have been weak and transitional, current groupings are expanding, potentially providing more stability • More coordination between partners, likely leading to group purchases, is inevitable • But, size and scope of such activity is difficult to project Plus, all of the respective regional airlines

20. Regional Aircraft Manufacturer Consolidation 1988 19981999 2000+ ATR ATR ATR BAe BAe BAe De Havilland Bombardier Bombardier Fokker Embraer Embraer Embraer Casa Dornier Fairchild/Dornier Fairchild/Dornier Beech Beech Beech Fairchild Saab Shorts • 3 Jet Players • Fairchild • Bombardier • Embraer • Jet ‘Niche’ • BAe • Turboprops • ATR • Beech • Bombardier AI(R) 11 Manuf. 5-6 Manuf. Still 6….But Better Balance

21. Forecast Details

22. World broken out into six major regions: North America, Europe, Latin America, Far East, Australasia, and Africa/Middle East Forecast of 30 to 110 seat categories for commercial airline service 25-44 seats 50-65 seats 66-85 seats 86-110 seats Covers all traditional regional aircraft plus larger narrow body jets: replacement and growth market for 737-100/200s, DC9s, F100s, 146-200/300s, and F28s Forecast based on economic activity which produces traffic growth rates Capacity requirements driven by traffic forecast and historical and future aircraft productivity “Top-down” forecast methodology produces long term aircraft requirement trends Forecasting Approach

23. Growth in regional airline world traffic is forecast to remain robust over the next decade averaging 8% or higher Traffic demand is driven by growth in economic activity, growing as a rate multiple of gross domestic product US and Europe will continue to lead all world regions in traffic and capacity growth with 70% or more of total aircraft demand More than 9,000 aircraft are required over the next 20 years to fill capacity needs between 30 and 110 seats Aircraft removals are projected to be significant as airlines re-tool their aircraft fleets Regional aircraft are becoming larger as a result of increased traffic growth and alignment with major airlines Forecast Summary and Conclusions

24. Market forces are driving airlines into regional jets allowing jet demand to dominate capacity requirements US demand for regional jets is constrained by pilot scope agreements; competition may remove or mitigate scope limitation but timing is uncertain Consolidation is occurring at both the airline and airframe manufacturer level which in turn will intensify competition airline consolidation through mergers and code share manufacturer consolidation through rationalization and attrition Forecast Summary and Conclusions (cont’d)

25. Major Operating Regions Far East - Philippines - Malaysia - Japan - Korea - Pakistan - China - Borneo - Vietnam - India Europe - Western Europe North America - US - Canada Africa Middle East Latin America - South Am - Mexico - Caribbean - Central Am Australasia - Australia - New Zealand - Indonesia

26. Regional Gross Domestic Product Growth • The growing industrialized countries are forecast to have the highest economic growth rates • Political stability and the reduction in economic borders are key drivers in the growth of GDP

27. Worldwide Aircraft Delivery Forecast 30-110 Seats • Seating categories between 30 to 110 seats all show strong balanced growth • Replacement market for 25-44 seat aircraft grows significantly beginning 2004; strong in US • 50-65 seat sector slows after 2002 as growth moves to higher density aircraft • Europe provides initial opportunities for 70 seat aircraft • 86-110 seat market will be strong in US Actual Forecast Note: includes currently scheduled deliveries between 2000 and 2005

28. 20 Year Market for 30-110 Aircraft Estimated Revenues (number of aircraft x list prices; 2000 year dollars) $203 Billion Total

29. Regional Distribution of Aircraft Deliveries (2000-2020) 25-44 and 50-65 Seat Classes 25-44 Seat Aircraft 50-65 Seat Aircraft

30. Regional Distribution of Aircraft Deliveries (2000-2020) 66-85 and 86-110 Seat Classes 86-110 Seat Aircraft 66-85 Seat Aircraft

31. Forecast Aircraft Deliveries by Major World Region 2000-2020

32. Forecast of Worldwide Aircraft Deliveries 30-110 Seats (2000-2020)

33. Aircraft Delivery Forecast

34. Age Profile of 30-110 Seat Aircraft Number of Aircraft 450 400 86-110 Seats 66-85 Seats 350 50-65 Seats 25-44 Seats 15-19 Seats 300 250 200 150 100 50 0 3 1 9 7 5 41 39 29 27 25 15 13 11 37 35 33 31 23 21 19 17 Age of Aircraft

35. Regional Aircraft Removals by Seat Class

36. Aircraft Removal Profile by Major World Region • Removals are a key driver in forecasting aircraft demand • North America and Europe lead removals with 70% of total • Large number of turboprops from the US expected to be replaced over the next 10 years (1200+ aircraft) • Removal cycle hits peak between 2005-2010 as many turboprops in US come off lease and approach 13-17 years of age

37. North America

38. North America is the largest of all the major world regions with 50-55% of all capacity deployment between 30-110 seats US regional airlines have the largest and most integrated route systems and as a result dominate traffic with 90% of total North American capacity The US regional airline industry is characterized by hub deployment patterns that are structured with high frequencies; this will likely continue but fragmentation of markets will be an expanding trend over the medium term Steady growth in traffic is assumed over the long term 2000-2010: 9.3% 2010-2020: 7.0% Large composition of turboprop aircraft are currently in service: 1682 Total; 835 25-44 seaters 604 15-19 seaters These turboprop aircraft are relatively young averaging 10 years of age but still provide fertile ground for fleet replacement Some of the forecast demand could be met by inexpensive conventional turboprops particularly for replacement of 19-seat aircraft; this could lower demand for small regional jets North America Summary

39. Regional jet aircraft have grown quickly in the US as compressed order cycle at 50-seats has created large order backlogs (65% of current 50-seat regional jet backlog is in the US) US scope clauses are pervasive and limit the number and size of jet aircraft delivered Canadian carriers have been consolidating and that activity will increase with buyout of Canadian Airlines by Air Canada Growth rate for Canadian regionals will approximate US figures North America Summary (cont’d)

40. Cumulative Aircraft Deliveries for North America 30-110 Seats

41. US Regional Airline Traffic Growth Rates Actual and Forecast

42. Relationship between GDP and Regional Airline Passenger Traffic US RPMs and Real Gross Domestic Product Note: Data from 1982 to 1998; Derived from RAA and US Bureau of Economic Analysis

43. US Traffic - Forecast vs Actual

44. US Regional Airline Traffic Actual and Forecast RPMs RPMs in billions 120 Actual US Regional RPMs Forecast RPMs 100 Actual Forecast 80 60 40 20 0 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

45. North America Forecast Delivery Summary (2000-2020) 30-110 Seat Aircraft

46. Europe

47. European regional traffic now rivals US in both scope and volume Continued economic growth and European liberalization will provide strong airline traffic growth over the long term Air traffic congestion and high user fees are driving European regional airlines to larger aircraft Regional jets will grow significantly as European carriers provide more point to point service and away from hub concentration Traffic will grow between 7-8% over the forecast period 2500 aircraft are projected to be delivered between 2000-2020 Strong growth for both 50 and 70 seat regional jets is expected; initially with 50 seat aircraft in the near term with strong movement to 70 seat aircraft in the medium and long term European Summary

48. Cumulative Aircraft Deliveries for Europe 30-110 Seats

49. European Regional Airline Traffic Growth Rates Actual and Forecast

50. European Regional Traffic Development Actual and Forecast of Revenue Passenger Miles RPMs (millions)