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Regional Aircraft 2002 media brief “a winter’s tale” (in three acts)

Regional Aircraft 2002 media brief “a winter’s tale” (in three acts). Lead actor: Paul Stirling - SVP Asset Management and the usual ‘company of players’ The bard: David Dorman Globe Theatre - London 13th December 2002. Today’s stage performance. Act I - the prologue

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Regional Aircraft 2002 media brief “a winter’s tale” (in three acts)

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  1. Regional Aircraft 2002 media brief “a winter’s tale” (in three acts) Lead actor: Paul Stirling - SVP Asset Management and the usual ‘company of players’ The bard: David Dorman Globe Theatre - London 13th December 2002

  2. Today’s stage performance • Act I - the prologue • Regional aircraft market update • Regional market funding and economics • Act II • Freighter programmes • Product development • Trading & Services • Act III • Inside Regional Aircraft • The Epilogue

  3. 2002 - Events so far • RIP Fairchild Dornier • Rapid growth of low cost airline model • FlyBE, Swiss, SN Brussels stay with 146 / Avro RJ • USAir and United go Chapter 11 • USAir and American F100’s to be retired • Scope clauses under pressure but remain • The first large of RJ paper plane finally arrives, but late and overweight? • European majors react, early but fragile signs of recovery • New regional jet order drought continues to worsen

  4. New small/regional aircraft status in 2002 The overall backlog in this sector has been reduced by over 25% in 2002

  5. Financing in today’s market • Concerns in the financing community about aircraft assets • “blue chip” majors can still close financings, but options for regionals are less clear • In many cases, the regional operators have a relatively poor credit rating • Today’s money is going to those who have best chance of long term success • As a result, the manufacturers/export credit agencies will need to finance deliveries over the next few years • How much more can the manufacturers’ balance sheets absorb, as well as the export agencies’ appetite given their already sizeable burdens

  6. Airline Industry - Credit rating history BBB+ Baa1 BBB Baa2 BBB- Baa3 BB+ Ba1 BB Ba2 BB- Ba3 Peer group includes Lufthansa, ANA, Am West, AMR, BA, Air Canada Delta, JAL, Qantas, Southwest, UAL B+ B1 “Even in the last good time, the average rating of the industry was just one notch above speculative grade - in difficult times, like the current period, the average rating has sunk to Ba3” Moody’s investor report - July 2002 Source: Moody’s investor report (July 02)

  7. Regionals Cumulative value of future deliveries - regionals Value of Deliveries (US$bn) Year By 2020 over US$100bn of new regional aircraft deliveries will need to be funded... Source: Airline Monitor Forecast (July 2002)/BAE Analysis

  8. Programme/Aircraft Value Relationship Yield or Cost per Seat Today ? Yield Time • Increasing competition in the market has put pressure on yields Source: Lufthansa

  9. Programme/Aircraft Value Relationship Yield or Cost per Seat Today ? Capacity Cost Yield DOC per Seat Time • Over time, improvements in technology have enabled a reduction in DOCs…but capacity cost has risen over the same period Source: Lufthansa

  10. Programme/Aircraft Value Relationship Yield or Cost per Seat Today ? Capacity Cost Yield DOC per Seat Time • Diminishing advantage from new product DOCs forces the product cost into the foreground of the competitive assessment Source: Lufthansa

  11. CRJ700 CRJ900 B737-500 B717 A318 BAe146-200 BAe146-300 Regional jet operating cost comparison ERJ170-100 ERJ190-200 500nm sector 2001 economic conditions Equivalent seat layout (max capacity) ISA+10°C en-route JAR reserves Source: BAE analysis

  12. Lease aircraft performance Lease aircraft in the past 12 months in the 70-110 seat sector 160 aircraft lease transactions in past 12 months Source: Airclaims CASE database

  13. Small Jet Idle Fleet breakdown Newer Stage 3 58 a/c 19% of total Junk Stage 2 136 a/c 44% of total Older Stage 3 116 a/c 37% of total Oct 2002 - 310 regional jets parked Vs 1203 narrowbody jets parked Source: Airclaims CASE database

  14. The attraction of the pre-owned lease market • Economic improvements offered by new types are limited • Capital cost now has the biggest influence on DOCs in this sector • Operating leased aircraft alleviates the current airline credit crunch • Pre-owned aircraft offer the low cost/low risk solution • Airlines lease to retain flexibility to match today’s uncertain environment • Availability of types covering all seating capacities to best match market needs and respond to changing requirements of their major partners • Aircraft tried and tested in service for several years “The BAe146-200 still represents a great aircraft, not least because BAE SYSTEMS worked hard to contain operating costs. Thus far the competition to the -200 remains limited and the type continues to be held in relative high regard by a myriad of large and small operators…” Aircraft Value News - 18th November 2002

  15. 2003 Outlook • The market is nervous - political risk - uncertainty • The market is restructuring - lower costs - certainty • More casualties in 2003 - airlines / aircraft programmes? • Short termism will prevail - low risk solutions • Scope clauses will come under renewed attack • US F100 Auction - the Litmus Test • Lease rates will continue to be under pressure as long as over • supply continues • Freight conversion programmes will accelerate

  16. 2002 Regional Aircraft - what is happening • Lease extensions - THY RJ fleet • - NJS 146 • - 17 Jetstreams • Fleet Growth - CityJet 146 • - CAT 146 • - Westair ATPF • Aircraft Sales - 18 Jetstreams • Spares and Support - FlyBE Jetspares • Product Development - Freighters • - VIP / Shuttle • - Special Missions

  17. Payload Tonnes 8 - 11 8 2 146QT 146F (Small door) 146F (Bulk loading) ATPF (Large door) ATPF (Bulk loading) Jetstream 31 Cargo Freighter programmes

  18. Developments BAe748 Water bomber VIP Aircraft Atmospheric Research Aircraft

  19. Trading and Services • Airbus A320 family placed with CCM and SN Brussels • HSBC/BAE SYSTEMS RJ fleet sale and lease back with Air Malta • US turboprop trading • Consultancy Services • Growing lease management business • Expanded technical 3rd party re-deliveries / repossessions In-house full service lease manager capability from a major operating lessor - BAE SYSTEMS

  20. Inside Regional Aircraft • New facilities at Prestwick opened • Key staff in position • Co-located Engineering & Support • First Prestwick support conference held for RJ/146 • Asset Management remains based in Hatfield & Washington

  21. The epilogue... • Political uncertainty continues • Cost down and lower yields are a certainty • Credit worthiness of the whole industry in the spotlight • All sectors under pressure • But ……. • The pre-owned 70-110 seat jets market is moving and in better shape than that for new large regional jets • Pre-owned leased aircraft offer the flexibility and low costs airlines need to survive the downturn • Regional Aircraft is continuing to develop its products and support services to meet our changing markets

  22. Questions?

  23. As the immortal bard would say……Stuff this, where’s the merriment and feasting?

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