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Global Air Freight Forecast Presented To: ITDU Spring 2006 Conference June 21, 2006 Agenda Introduction to BACK Aviation Solutions Methodology and Data Source Review BACK’s 2006 Air Freight Forecast Key Drivers Overview Freighter Fleet Forecast New Freighter Aircraft Programs Overview

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slide1

Global Air Freight Forecast

Presented To:

ITDU Spring 2006 Conference

June 21, 2006

slide2

Agenda

  • Introduction to BACK Aviation Solutions
  • Methodology and Data Source Review
  • BACK’s 2006 Air Freight Forecast
  • Key Drivers Overview
  • Freighter Fleet Forecast
  • New Freighter Aircraft Programs Overview
slide3
BACK Aviation Solutions: Corporate OverviewBACK Aviation Solutions (BACK) is a Commonwealth Business Media (CBM) company
  • CBM is the premier international trade and transportation information services company
    • CBM information products include directories, databases, magazines and analytical services in the transportation, international trade, and commercial credit markets
    • CBM is headquartered in East Windsor, New Jersey with offices in Newark, San Francisco, New Haven, Long Beach, Atlanta, Montreal, Washington, DC, Miami, Ft. Lauderdale, Tampa, Hong Kong, and London
slide4
Maintains the largest and most prestigious collection of aviation databases in the world

The product line includes a complete range of aviation information services including:

Financial

Traffic

Schedule

Fleet

BACK Aviation Solutions: Aviation Industry FocusBACK is a consulting and information services business unit within CBM specializing in aviation and air transportation

Information and analytical services

Management consulting services

Asset management & appraisal services

CRM & research services

  • Capabilities
    • Strategy
    • Operations
    • Restructuring
    • Process re-engineering
    • Forecasting & Modeling
    • Marketing
    • Organization
  • Appraisals for aircraft, engines, components, equipment, real estate & lease holds, slots and route authorities, and other aviation assets
  • Aircraft comparative analysis and selection
  • Aircraft acquisition, sales and leasing
  • Aircraft technical services - inspections and fleet monitoring
  • Maintenance repair and overhaul management
  • Aircraft portfolio administration
  • Aircraft values website & publication
  • CRM outsource services including:
    • Call center data collection
    • Data verifications, confirmation and validation programs
    • Targeting telemarketing and e-marketing programs
    • Customer relationship management campaigns and promotions
slide6

1) Econometric modeling is used to forecast global air freight demand

GDP and Economic Indicator

Forecast

Trade Forecast

by World Region

Air Freight Forecast

by World Region

Unconstrained Demand

By World Region

2) Passenger aircraft cargo capacity is assumed to be utilized first before freighter capacity is required

minus

Passenger Belly

Accommodated Freight Demand

Historical share of air freight

captured by passenger aircraft

Passenger Capacity

Growth Forecast

equals

Freight Demand

For Freighter Capacity

3) Allocation of expected demand by freight volume capacity and distance flown is derived through a thorough analysis of operated schedule data

Global freighter network

Schedule analysis

Regional analysis of aircraft

Operated by size category

Demand forecast by Region

and Aircraft Category

Freight Demand Assignment

by Aircraft Type

4) Required airframe growth by volume capacity (for freighters) is calculated using utilization and aircraft capacity assumptions as well as accounting for fleet additions to replace retiring aircraft

Fleet Analysis

Retirement Analysis

Range/Payload/Productivity

Assumptions

Required Freighter Aircraft

By Size Category

BACK has developed a rigorous methodology to forecast global air freight volumes and future freighter fleet requirements

slide7

BACK relies on several sources of data to arrive at its forecast

Traffic Forecast

  • Historical and Current Traffic (FTKs)
    • U.S. Census Bureau and U.S. Customs
    • European Union Trade Statistics
    • Japan Commerce Statistics
    • China Trade Statistics
    • United Nations Trade Statistics
    • IATA
    • T-100
    • BACK Schedules iNet
    • ICAO
  • Growth Outlook by Trade Lane
    • GDP forecasts by Country
    • Exchange Rate Outlooks
    • High-Tech Commodities Production Forecasts

Freighter Fleet Forecast

  • BACK Fleet iNet Fleet Database
    • Used to analyze historical retirements by Aircraft Type
    • Worldwide Fleet by Aircraft Type and world region
  • BACK Schedules iNet
    • Worldwide Schedules by Carrier and Type
    • Used to analyze aircraft utilized by distance flown per segment by world region
  • Form 41
    • Utilized to analyze aircraft utilization assumptions by aircraft type
global air freight traffic is expected to nearly quadruple over the next 20 years
Global Air Freight Traffic is expected to nearly quadruple over the next 20 years

Bi-Directional CAGR

6.8%

Source: BACK Aviation Solutions Fleet Forecast

slide10
Transpacific trade will drive future air freight growth Japan and Emerging markets make non-China outlook bright

Bi-Directional CAGR

5.2%

Source: BACK Aviation Solutions Fleet Forecast

slide11

However, China is expected to be the key driver of global air freight traffic Trade between China and the North America is vital for growth

Bi-Directional CAGR

10.4%

Source: BACK Aviation Solutions Fleet Forecast

slide13

When forecasting traffic growth, BACK accounts for economic, political, and industry factors that impact Air Freight Traffic

  • Key Drivers of Air Freight Growth
    • Gross-Domestic Product Country Outlook
    • Hi-Tech Manufacturing Capabilities and Outlook
    • Inward Foreign Direct Investment
    • Monetary Policy
    • Governmental Policy and Regulatory Environment
    • Domestic Consumption – The ability of domestic consumers to afford imported goods

Worldwide Air Freight Traffic Growth Outlook

there is a positive correlation between gdp and air freight growth
There is a positive correlation between GDP and air freight growth

Source: BACK Aviation Solutions Analysis

slide15

Forecasted GDP shows why China expected to be so important to global air freight volume growthYet, several Emerging Markets show potential on a smaller scale

Source: UNCTAD

fdi is a leading indicator of manufacturing capacity development a precursor to air freight growth
FDI is a leading indicator of manufacturing capacity development, a precursor to air freight growth

9.0%

  • The explosion in Chinese air freight exports was positively influenced by the large inflow of foreign direct investment into China as foreign companies started establishing Chinese manufacturing capabilities
  • Foreign Direct Investment (FDI) is a good variable to utilize when analyzing what Emerging markets may be posed for growth in air freight traffic

CAGR

13.4%

1.6%

2.5%

5.3%

Source: UNCTAD

slide18
Worldwide fleet: Expected to grow at a 4.4% CAGR through 2016Regional Jet and Widebody aircraft fastest growing segments
  • Regional Jet aircraft are expected to experience fastest growth over the next 10 years as airlines take advantage of unit cost benefits of RJ equipment
  • Demand for Widebody aircraft is forecasted to be strong as capacity is required for the growing long-haul market segment
  • Freighters, mostly large widebody aircraft, will have positive growth over the next decade as global air freight volumes continue to expand driven by Chinese air freight volumes

CAGR:

3.6%

5.3%

4.9%

4.2%

Source: BACK Aviation Solutions Fleet Forecast

slide19
Worldwide fleet: Emerging markets drive demand for capacityChina, Russia, India, Asia, and Africa expected to grow rapidly
  • China’s aviation industry is expected to grow rapidly over next ten years as continued development of Open Skies Agreements and the domestic Chinese market fuel growth
  • Other Emerging markets will demand additional capacity as traffic expands as economic regions such as Russia and India develop
  • The two largest regions, North America and W. Europe, will experience growth, albeit at a slower pace

CAGR

3.1%

3.7%

4.6%

8.7%

6.2%

5.7%

5.9%

6.0%

6.4%

7.4%

Source: BACK Aviation Solutions Fleet Forecast

slide20
Freighters: Expected to grow 3.6% CAGR through 2016 Widebody aircraft will be required to satisfy long-haul capacity requirement
  • Approximately 70% of all freighter additions will be passenger conversion aircraft
  • Large Widebody additions are expected to be converted 747-400 aircraft as well as new A380 and 747-8F
  • Medium Widebody freighter additions will likely be converted MD-11, 767, and A330 aircraft
  • Converted 737 and A320 aircraft will help fill the capacity requirement of the slower growing small narrowbody sector
  • Asian, particularly Japan and China, air freight trade with North America and W. Europe drive capacity needs

CAGR

3.7%

1.9%

4.8%

4.5%

Source: BACK Aviation Solutions Fleet Forecast

slide22

Boeing and Airbus have several new freighter aircraft programs that will be delivered to meet the freighter capacity requirement

  • A380-800F: Replaces the Boeing 747-400 as the largest aircraft ever manufactured
  • 747-8F:The next generation replacement for the 747-400
  • 747-400BCF: Recently announced 747-400 passenger-to-freighter conversion program
  • 777F: Boeing recently announced 777 factory freighter program aimed at being a replacement aircraft for aging DC-10 and MD-11 freighter aircraft
  • 767-300BCF: Recently announced passenger-to-freighter conversion program
slide23

156 tonnes

153 tonnes

150 tonnes

A380-800F:

5600 NM @ 150 t

3000 nm @ 158 t

The A380 provides improved range capability at higher payloadsUnlike the 747, it can operate full payload U.S. to Asia without fuel stops

Range ex PVG

JAR reserves, 200 nm diversion

5% contingency

3% airways allowance

85% annual probability winds

ISA

Source: Airbus

slide24
The A380 can carry more cargo, longer distances versus the 747FA380F payload / range / density flexibility matches all requirements

747-400F

A380F – 17 / 29

747-8F

747-400 SF

A380F – 25 / 29

JAR 5% typical International profile

ISA temperature

200nm diversion

Long range cruise

PVG – LAX / NRT – ORD

85% annual ESAD

ca. 5300 nm

Range ex PVG

JAR reserves, 200 nm diversion

5% contingency

3% airways allowance

85% annual probability winds

ISA

Source: Airbus

slide25

Revenue Payload

Tonnes

Boeing

Airbus

150

A380F

747-8F

16%increase

747-400F/-ERF

747-400BCF

~90 tonne

product line gap

777 Freighter

100

MD-11SF

767-300F

767-300BCF

50

A300-600F

767-200SF

A300SF

A310SF

757-200SF

737-700C/QC

0

However, Boeing is well established in the freighter marketBoeing offers market a deeper and broader product line than Airbus

Range ex PVG

JAR reserves, 200 nm diversion

5% contingency

3% airways allowance

85% annual probability winds

ISA

Over 90% of all freighter cargo flies on Boeing aircraft

Source: Boeing

furthermore boeing has a well established carrier customer base in asia
Furthermore, Boeing has a well-established carrier customer base in Asia

(Mar 06, “Cargo Facts”)

Current

Firm Orders

Air China

ANA

Asiana

Cathay Pacific

China Airlines

China (Eastern) Cargo

China Southern

Dragonair

EVA Air

Jade Cargo

Japan

Korean

MAS

Nippon Cargo

Shanghai

Singapore

Transmile

+ 2 SFs

1

6

3

1

+ 3 BCFs

(SFs)

1

6

3

(BCFs)

14

5

18

3

6

2

2

4

5

(BCFs)

3

(SFs)

8

11

6

12

(BCFs)

8

4

20

+5 BCFs

1

2

2

13

6

+ 8 -8Fs

1

(BCFs)

16

3

4

Source: Boeing

slide27
Lastly, the 747-8F is a natural 747-400F replacement given its improved technology and fuel efficiency

960,000 lb MTOW

700,000 lb MZFW

740,000 lb MLW

EIS ~ 2009

  • Improved wing
    • Raked wing tip
    • Outboard wing modifications
    • New double slotted inboard & outboard flaps
    • New flap mechanism and fairings
  • Improved flight deck
    • ATC Datalink
    • Electronic checklist
    • Integrated Approach Nav
    • GLS Autoland
    • Nav Performance Scales
    • New FMC

Increased Payload

+ 4 main deck pallets

+ 3 lower deck pallets

60-in aft stretch

Repositioned aft cargo door

Application of new stronger advanced aluminum

160-in forward stretch

  • Landing gear
  • Revised truck beam length
  • Strengthened main gear struts
  • 52” wheels and tires
  • Strengthened nose gear
  • Systems revised to accommodate new engine, improved wing and body stretch
  • New ram air turbine
  • Optimized 7E7 engines
  • Engines derated to 66.5K lb
  • Modified fan diameter
  • Modified to provide bleed air

Source: Boeing

slide28
Based on confirm orders, Boeing has established an early leadBoeing offers market a better product line than Airbus
  • A380F has 45 firm orders versus only 24 orders for 747-8F
  • However, Airbus has only 3 customers (UPS, FedEx, and ILFC) for A380 and recently lost Emirates A380F option
  • Boeing has found strong interest in the 747-400BCF and 747-8F product since introduction
  • Boeing expects 777F to be a home-run given that doesn’t have a really competing product currently in its’ portfolio
  • 767-200F expected to compete with A330 and A310 for orders

Note: Includes only manufactured freighters, does not include conversion freighters on-order or option

Source: BACK Fleet iNet

contact information
Contact information

Marty Graham

Manager, Analytical Services

Commonwealth Business Media

BACK Aviation Solutions

1270 National Press Building

Washington, DC 20045

202 355 1166

Email:Mgraham@BackAviation.com