North America Equity Research

26 March 2013

Aerospace and Defense

The Intelligence Briefing March 2013
The Intelligence Briefing is our monthly data handbook for
aerospace/defense. It contains stock performance and valuation data,
fundamental information on commercial aero and defense, and historical and
projected financial data for our universe.
We see downside risk to our estimates as a result of sequestration.
Sequestration took effect on March 1st, imposing a ~$46 bn cut to the FY13
budget. Our forecast for 4-5% average organic revenue declines over the next
three years reflects a $20 bn cut, and therefore we see an average of ~300 bps of
incremental pressure in each of those years due to the sequester. The sequester
is designed to cut each account, excluding military personnel, by the same
percentage, but we expect that DoD will ultimately have greater discretion over
how the cuts are allocated. Congress has passed a full-year FY13 defense
appropriations bill that just awaits the signature of the president, and this will
also give DoD some added flexibility to cope with the cuts this year. (pg. 39)
Investment account outlays declined sharply in February. For the month,
investment account outlays declined 32% y/y, driven by a 38% y/y decline in
procurement spending and a 19% y/y decline in RDT&E outlays. LTM
investment account outlays, which are generally a good proxy for industry
average organic revenues, declined 5% y/y for the period ending in February.
O&M outlays declined 12% y/y in the month, while total DoD outlays
decreased 16% y/y in the period. On an LTM basis, both O&M and total DoD
outlays declined 4% y/y in February. (pg. 39)

Aerospace & Defense

Joseph B. Nadol III

AC

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com
J.P. Morgan Securities LLC

Seth M. Seifman, CFA

(1-212) 622-5597
seth.m.seifman@jpmorgan.com
J.P. Morgan Securities LLC

Christopher Sands
(1-212) 622-9224
christopher.sands@jpmorgan.com
J.P. Morgan Securities LLC

Shailendra K Jain
(91-22) 6157-3325
shailendra.k.jain@jpmorgan.com
J.P. Morgan India Private Limited

Boeing and Airbus are still building backlogs. Narrowbody orders have been
the source of strength for both OEMs. At Boeing, American and Ryanair have
placed an estimated 372 net orders YTD vs 2013 delivery guidance for ~640 and
Ryanair may order the 737 MAX as well. Similarly, American, Lufthansa,
Turkish, and LionAir account for the bulk of the ~600 gross orders/
commitments Airbus has announced, nearly reaching the companys 2013 target
of ~700 gross orders. Widebody activity has been more muted, though Boeing
expects a 777 book-to-bill of ~1.0x this year, implying nearly 100 orders. Recent
order activity reinforces our confidence in the cycle and in planned Boeing and
Airbus production rates, though some segments of the market particularly
Southeast Asia may be ordering too aggressively. (pg. 20)
Global traffic growth should improve in Feb. The timing of Chinese New
Year should drive a bounce in Feb global traffic growth off of Jans 2.7%,
though the adverse leap year comp should dampen the improvement. Our traffic
model suggests 5.5-6.0% growth, though this does not account fully for the leap
year. Through Feb, YTD growth is running below our 2013 forecast of 4.55.0%; however, comps are tougher early in the year, and IATA last week raised
its 2013 RPK growth forecast to 5.4% from 4.5%. Chinese New Year timing
should mean substantial Feb growth in Asia/Pac, while US carriers reported
modest declines in Feb, in part due to the leap year. Weekly AEA data shows
low- to mid-single-digit growth for Europe. (pg. 7)

See page 51 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the
firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in
making their investment decision.
www.morganmarkets.com

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

North America Equity Research

26 March 2013

Table of Contents
Performance and Valuation .....................................................3
Performance............................................................................................................3
Comp Sheet ............................................................................................................4
Historical Valuation ................................................................................................5

Commercial Aerospace............................................................6
Delivery Forecast and Supply/Demand Outlook.......................................................6
Air Traffic Trends and Distribution .........................................................................7
Airline Profitability ...............................................................................................19
Large Commercial Aircraft Orders, Deliveries and Backlog...................................20
Aftermarket...........................................................................................................28
Regional Jets.........................................................................................................29
Business Jets/General Aviation..............................................................................31

Defense ...................................................................................37
Historical and Projected Budget and Outlays .........................................................37
Other Defense Data ...............................................................................................40

Company Financials...............................................................42
Sales .....................................................................................................................42
Operating Margin..................................................................................................44
Earnings & Cash Flow ..........................................................................................46
Pension Data .........................................................................................................47
Defense Company Backlog and Book-to-Bill.........................................................47
Share Repurchases and Capital Deployment ..........................................................49
JPM vs. Consensus Estimates ................................................................................50

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Performance and Valuation

Performance
Table 1: Company Average Annual Total Return Comparison
As of Mar 25, 2013
Company

Symbol

2005

2006

2007

2008

2009

2010

2011

2012

YTD

1 Year

3 Year

Alliant Techsy stems

ATK

17%

3%

45%

-25%

3%

-16%

-22%

10%

15%

41%

-4%

-6%

4%

10%

B/E Aerospace

BEAV

89%

17%

106%

-85%

206%

58%

5%

28%

20%

26%

25%

12%

44%

5%

BA

38%

28%

0%

-50%

32%

24%

15%

5%

13%

18%

8%

5%

15%

5%

BBD/B

17%

43%

51%

-25%

11%

6%

-17%

-4%

6%

-5%

-10%

-5%

4%

-4%

CACI

CACI

-16%

-2%

-21%

1%

8%

9%

5%

-2%

2%

-10%

4%

4%

5%

12%

Comtech

CMTL

22%

25%

42%

-15%

-24%

-20%

7%

-7%

-3%

-23%

-5%

-7%

18%

18%

Embraer

ERJ

21%

8%

12%

-63%

40%

37%

-12%

15%

20%

11%

15%

-1%

15%

Ex elis

XLS

29%

-4%

-9%

General Dy namics

GD

11%

32%

21%

-34%

22%

7%

-4%

8%

0%

-2%

0%

-2%

12%

10%

Huntington Ingalls Industries

HII

39%

21%

41%
7%

Boeing
Bombardier

5 Year 10 Year 15 Year

Harris Corporation

HRS

40%

8%

38%

-38%

35%

-3%

-18%

40%

-8%

5%

1%

2%

15%

L-3 Communications

LLL

2%

11%

31%

-29%

20%

-17%

-3%

23%

5%

23%

-1%

-3%

9%

Lockheed Martin

LMT

16%

47%

16%

-19%

-8%

-4%

21%

20%

1%

8%

8%

2%

10%

Northrop Grumman

NOC

13%

15%

18%

-41%

28%

20%

3%

20%

1%

16%

8%

2%

9%

5%

Precision Castparts

PCP

58%

51%

77%

-57%

86%

26%

18%

15%

0%

10%

16%

14%

32%

19%

Ray theon

RTN

6%

34%

17%

-14%

4%

-8%

9%

23%

-1%

13%

3%

1%

10%

2%

Rockw ell Collins

COL

19%

38%

15%

-45%

45%

7%

-3%

7%

8%

11%

2%

4%

14%

-6%

SAIC

SAI

13%

-3%

-3%

-16%

-23%

-5%

15%

1%

-11%

Spirit AeroSy stems

SPR

3%

-71%

95%

5%

0%

-18%

8%

-26%

-7%

-4%

Tex tron

TXT

54%

-80%

37%

26%

-21%

34%

20%

10%

10%

-10%

TransDigm

TDG

70%

-26%

66%

52%

33%

56%

9%

41%

46%

39%

24%

-28%

33%

16%

-5%

15%

14%

16%

11%

-6%

10%

-7%

United Technologies

UTX

Wesco Aircraft Holdngs

WAIR

Average
S&P 500

SPX

6%
10%

24%
14%

6%

10%

0%

8%

14%

12%

22%

23%

32%

-37%

37%

10%

-1%

15%

7%

9%

6%

2%

14%

8%

5%

16%

5%

-37%

26%

15%

2%

16%

9%

14%

12%

5%

8%

4%

Source: Bloomberg.

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Comp Sheet
Table 2: Coverage Universe Valuation (as of Mar 25, 2013)
Valuation Metrics
Company
ab

Alliant Techsystems
B/E Aerospace
Boeing
Bombardierd
b
CACI
Comtechc
Embraer
Exelis a
General Dynamics
Harris Corporationb
Huntington Ingallsa
L-3 Communications
a
Lockheed Martin
Northrop Grumman a
Precision Castpartsb
Raytheona
b
Rockwell Collins
SAICc
Spirit AeroSystems
Textron
b
TransDigm
United Technologies
Wesco Aircraft Holdingsc
Average/Total:
S&P 500 (Consensus)
A & D discount/(premium)

Market
Cap (bln)

2012E

P/E
2013E

2014E

9.0x
20.9x
16.6x
11.6x
9.0x
20.9x
16.9x
5.8x
NM
8.5x
18.0x
10.0x
11.0x
8.7x
20.5x
10.0x
14.8x
8.3x
NM
15.1x
27.0x
17.4x
15.9x
14.1x
14.0x
0%

10.0x
16.9x
15.3x
13.2x
8.8x
27.5x
12.2x
7.3x
10.4x
9.1x
13.3x
9.8x
10.5x
9.8x
16.2x
10.8x
13.0x
10.8x
8.3x
13.2x
21.4x
15.0x
12.2x
12.8x
12.6x
-2%

10.3x
13.4x
14.3x
9.5x
8.8x
14.9x
12.4x
7.0x
10.5x
9.9x
9.2x
10.0x
10.4x
9.2x
14.2x
10.6x
11.9x
10.4x
6.4x
11.4x
18.2x
13.0x
10.4x
11.2x
11.4x
2%

Price

Symbol

Rating

$71.22
$59.12
$84.85
$3.87
$55.94
$24.50
$34.19
$10.77
$69.53
$44.63
$52.36
$79.82
$92.31
$67.91
$189.62
$56.76
$62.53
$12.89
$18.25
$29.69
$148.28
$92.80
$14.50

ATK
BEAV
BA
BBD/B CT
CACI
CMTL
ERJ
XLS
GD
HRS
HII
LLL
LMT
NOC
PCP
RTN
COL
SAI
SPR
TXT
TDG
UTX
WAIR

OW
OW
OW
N
N
OW
UW
N
OW
UW
N
N
N
UW
OW
N
OW
N
N
N
N
OW
OW

$1,551.69

SPX

2012E

EPS
2013E

2014E

PAEPS
2013E
2014E

FCF (per share)

2013E
2014E

$7.96
2.83
5.11
0.33
6.22
1.17
2.03
1.85
(0.93)
5.23
2.91
8.00
8.36
7.81
9.26
5.65
4.23
1.56
0.24
1.97
5.48
5.33
0.91

$7.11
3.50
5.53
0.29
6.37
0.89
2.80
1.47
6.70
4.90
3.95
8.15
8.80
6.95
11.69
5.25
4.82
1.19
2.20
2.25
6.94
6.20
1.19

$6.89
4.40
5.94
0.40
6.38
1.64
2.75
1.53
6.60
4.50
5.70
8.00
8.85
7.35
13.32
5.35
5.25
1.24
2.85
2.60
8.14
7.15
1.39

$7.91
3.50
6.65
0.29
6.37
0.89
2.80
1.47
6.70
4.90
5.06
8.15
9.88
6.62
11.69
5.82
4.82
1.19
2.20
2.25
6.94
6.20
1.19

$6.37
2.50
6.41
(0.43)
8.85
1.33
1.12
1.22
6.68
5.26
3.05
11.26
10.77
5.89
10.16
6.43
3.02
1.83
(0.36)
1.17
9.02
7.08
1.18

110.51

123.34

136.49

2.3
6.1
64.8
6.7
1.4
0.4
6.2
2.0
24.7
5.0
2.6
7.8
30.3
17.2
27.8
19.0
9.0
4.3
2.6
8.7
8.0
84.1
1.4
$342.6

P/PAE
2013E
2014E

EV/EBITDA
2013E
2014E
5.7x
10.4x
7.3x
8.1x
5.8x
5.1x
6.6x
4.0x
5.9x
5.4x
5.6x
7.0x
6.4x
5.2x
11.6x
6.2x
8.7x
5.7x
5.7x
7.8x
13.1x
9.0x
9.1x
7.2x

5.5x
8.4x
6.5x
6.5x
5.5x
3.9x
6.5x
3.6x
5.8x
5.6x
4.3x
6.9x
6.1x
5.1x
9.9x
5.9x
7.5x
5.3x
4.8x
6.6x
11.6x
7.7x
8.0x
6.4x

EV/EBITDAP
2013E
2014E

9.0x
16.9x
12.8x
13.2x
8.8x
NM
12.2x
7.3x
10.4x
9.1x
10.3x
9.8x
9.3x
10.3x
16.2x
9.7x
13.0x
10.8x
8.3x
13.2x
NM
15.0x
12.2x
11.3x

9.3x
13.4x
11.7x
9.5x
8.8x
14.9x
12.4x
7.9x
10.5x
9.9x
8.9x
10.0x
10.1x
10.7x
14.2x
10.0x
11.9x
10.4x
6.4x
11.4x
18.2x
13.0x
10.4x
11.0x

5.3x
10.4x
7.3x
8.1x
5.8x
5.1x
6.6x
4.0x
5.9x
5.4x
4.9x
7.0x
5.8x
5.4x
11.6x
5.6x
8.7x
5.7x
5.7x
7.8x
13.1x
9.0x
9.1x
7.1x

5.2x
8.4x
6.5x
6.5x
5.5x
3.9x
6.5x
3.9x
5.8x
5.6x
4.2x
6.9x
6.0x
5.7x
9.9x
5.6x
7.5x
5.3x
4.8x
6.6x
11.6x
7.7x
8.0x
6.4x

2012E

Sales (bln)
2013E

2014E

Operating Margin
2012E
2013E
2014E

4.5
3.1
81.7
16.8
3.7
0.4
6.2
5.5
31.5
5.4
6.7
13.1
47.2
25.2
7.9
24.4
4.7
11.2
5.4
12.2
1.8
57.7
0.8
377.2

4.1
3.4
85.3
18.2
3.7
0.3
6.3
4.9
31.9
5.2
6.7
12.6
44.7
23.8
10.1
23.6
4.7
10.7
6.0
12.6
1.9
65.1
0.9
387.0

3.9
3.9
92.7
20.8
3.6
0.3
6.6
4.6
30.5
5.0
6.8
12.2
43.6
22.8
10.9
22.9
4.9
10.1
6.9
13.4
2.0
69.1
1.0
398.6

10.2%
17.5%
7.7%
4.1%
7.6%
11.7%
10.1%
10.2%
2.6%
17.4%
5.3%
10.3%
9.3%
12.4%
25.8%
12.2%
18.7%
6.7%
-1.0%
8.0%
40.9%
13.3%
19.3%
12.2%

EV/Sales
2013E
2014E
0.7x
2.2x
0.7x
0.6x
0.5x
0.8x
1.0x
0.5x
0.8x
1.2x
0.5x
0.8x
0.8x
0.7x
3.0x
0.8x
2.0x
0.5x
0.7x
0.9x
6.1x
1.6x
2.1x
1.3x

0.7x
1.8x
0.6x
0.5x
0.5x
0.8x
0.9x
0.5x
0.8x
1.2x
0.5x
0.8x
0.8x
0.7x
2.7x
0.8x
1.9x
0.4x
0.6x
0.8x
5.5x
1.4x
1.9x
1.2x

P/FCF
2013E
2014E

Price
Target

Implied
Upside

11.2x
NM
13.2x
NM
6.3x
18.5x
NM
8.8x
10.4x
8.5x
17.1x
7.1x
8.6x
11.5x
18.7x
8.8x
NM
7.0x
NM
NM
16.4x
13.1x
12.3x
11.6x

9.0x
15.1x
8.3x
NM
7.2x
10.9x
NM
7.7x
10.6x
8.7x
6.9x
7.4x
10.1x
8.4x
16.6x
9.8x
12.7x
7.3x
12.7x
14.0x
16.3x
11.4x
14.7x
10.8x

$76.00
$57.00
$94.00
NA
$60.00
$29.00
$32.00
$11.00
$73.00
$45.00
$50.00
$80.00
$92.00
$64.00
$195.00
$57.00
$66.00
$12.00
$22.00
$30.00
$130.00
$98.00
$17.00

7%
-4%
11%
NA
7%
18%
-6%
2%
5%
1%
-5%
0%
0%
-6%
3%
0%
6%
-7%
21%
1%
-12%
6%
17%

Market
Cap

Net Debt

EV

Net Debt /
'13 EBITDAP

2.3
6.1
64.8
6.7
1.4
0.4
6.2
2.0
24.7
5.0
2.6
7.8
30.3
17.2
27.8
19.0
9.0
4.3
2.6
8.7
8.0
84.1
1.4

0.7
1.6
(3.1)
2.5
0.7
(0.2)
(0.1)
0.4
0.6
1.6
0.8
3.3
4.4
0.1
3.3
0.7
0.8
0.8
1.6
2.6
3.3
18.4
0.6

3.1
7.6
61.7
9.2
2.1
0.3
6.1
2.4
25.3
6.6
3.4
11.1
34.7
17.3
31.1
19.7
9.8
5.1
4.2
11.3
11.3
102.5
2.0

Other Financial Metrics

Company
ab

Alliant Techsystems
B/E Aerospace
Boeing
Bombardierd
b
CACI
Comtechc
Embraer
Exelis a
General Dynamics
Harris Corporationb
Huntington Ingallsa
L-3 Communications
a
Lockheed Martin
Northrop Grumman a
Precision Castpartsb
a
Raytheon
Rockwell Collinsb
c
SAIC
Spirit AeroSystems
Textron
TransDigmb
United Technologies
Wesco Aircraft Holdingsc
Average/Total:
S&P 500

$7.64
4.40
7.25
0.40
6.38
1.64
2.75
1.37
6.60
4.50
5.86
8.00
9.15
6.37
13.32
5.68
5.25
1.24
2.85
2.60
8.14
7.15
1.39

$7.92
3.91
10.23
(0.16)
7.75
2.24
1.46
1.40
6.58
5.13
7.62
10.78
9.15
8.09
11.40
5.81
4.92
1.76
1.44
2.12
9.10
8.14
0.99

9.8%
18.4%
7.5%
5.1%
7.7%
10.6%
10.5%
9.3%
11.2%
17.4%
6.2%
10.0%
9.6%
11.2%
26.0%
11.3%
19.5%
6.8%
9.6%
8.0%
43.1%
14.4%
21.3%
13.2%

9.7%
19.5%
7.3%
5.6%
7.7%
13.7%
9.7%
10.4%
11.4%
16.4%
8.2%
9.9%
10.0%
11.7%
27.3%
11.6%
20.1%
7.1%
9.7%
8.5%
44.4%
15.4%
21.8%
13.8%

Dividend Dividend /
Yield
'13 PAEPS
1.5%
0.0%
2.3%
2.5%
0.0%
4.5%
2.3%
3.8%
3.2%
3.3%
0.8%
2.5%
5.0%
3.2%
0.1%
3.9%
1.9%
3.7%
0.0%
0.3%
0.0%
2.3%
0.0%
2.0%

13.1%
0.0%
29.2%
34.2%
0.0%
123.3%
28.6%
28.1%
33.4%
30.2%
7.9%
24.5%
46.5%
33.2%
1.0%
37.8%
24.9%
40.2%
0.0%
3.5%
0.0%
34.5%
0.0%
25.0%

Note: J.P. Morgan ratings: OW = Overweight; N = Neutral; UW = Underweight; NR = Not rated. Price targets are for Dec 31 '13. a. PAEPSexcludes net pension expense for BA (estimated) LMT, NOC, RT N, ATK, XLS and HII.
b. AT K, CACI, COL, HRS, PCP, TDG, and WAIR estimates are calendar year; c. CMTL and SAI years are from Feb. to Jan. Estimates are in U.S. Dollars; d. BBD stock price converted from Canadian Dollars for multiple calculations based on current exchange rates.
Source: Bloomberg, Company reports, and J.P. Morgan estimates.

1.3x
2.2x
(0.4x)
1.9x
2.0x
(3.1x)
(0.1x)
0.6x
0.1x
1.4x
1.1x
2.2x
0.8x
0.0x
1.3x
0.2x
0.7x
0.9x
2.2x
1.9x
3.7x
1.6x
2.7x
1.0x

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Historical Valuation
Figure 1: J.P. Morgan Aerospace/Defense Universe 2 Year Forward
P/E vs. S&P 500, 1990 2013 YTD

Figure 2: J.P. Morgan Aerospace/Defense Universe Multiple Points

Disc/Prem. to S&P 500, 1990 2013 YTD

35.0x

5.0

30.0x

0.0

25.0x
20.0x

(5.0)

15.0x

(10.0)

10.0x
5.0x

(15.0)

0.0x

Jan-12

Jan-10

Jan-08

Jan-06

Jan-04

Jan-02

Jan-00

Jan-98

Jan-96

Jan-94

SPX Index

Jan-92

Jan-90

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

Jan-03

Jan-02

Jan-01

Jan-00

Jan-99

Jan-98

Jan-97

Jan-96

Jan-95

Jan-94

Jan-93

Jan-92

Jan-91

Jan-90

JPM A&D Coverage

(20.0)

Disc/Prem

Source: Bloomberg. Note: SPX multiple reflects Bloomberg generated earnings data.

Source: Bloomberg. Note: SPX multiple reflects Bloomberg generated earnings data.

Figure 3: Aerospace Forward P/E vs. Historical Average, 2001 2013YTD

Figure 4: Defense Forward P/E vs. Historical Average, 2001 2013YTD

25.0x

20.0x

20.0x

15.0x

15.0x

10.0x

10.0x

5.0x

5.0x
0.0x
Sep-12

Feb-12

Jul-11

Dec-10

May-10

Oct-09

Aug-08

Mar-09

Defense Multiple

Jan-08

Jun-07

Nov-06

Apr-06

Sep-05

Feb-05

Jul-04

Dec-03

May-03

Oct-02

Aug-01

Mar-02

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

Jan-03

Jan-02

Jan-01

Jan-00

Aero Multiple

Jan-01

0.0x

Avg.

Avg

Source: Bloomberg. Note: Includes GD, LLL, LMT, NOC, and RTN.
Source: Bloomberg. Note: Includes BA, BBD/B, BEAV, COL, ERJ, GR, PCP, SPR, TDG, and
WAIR. GR was acquired in July 2012, hence removed from the Aero Index since then.

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Commercial Aerospace
Delivery Forecast and Supply/Demand Outlook
Table 3: J.P. Morgan Large Commercial Aircraft Delivery Forecast
2005

2006

2007

2008

2009

2010

2011

2012

2013E

2014E

2015E

2016E

Boeing
717
737
747
757
767
777
787
Subtotal

13
212
13
2
10
40
0
290

5
302
14
0
12
65
0
398

0
330
16
0
12
83
0
441

0
290
14
0
10
61
0
375

0
372
8
0
13
88
0
481

0
376
0
0
12
74
0
462

0
372
9
0
20
73
3
477

0
415
31
0
26
83
46
601

0
439
24
0
24
98
65
650

0
492
18
0
24
100
125
759

0
504
18
0
24
100
128
774

0
504
18
0
24
100
120
766

Airbus
300/310
A320 Family
330/340
350
380
Subtotal

9
289
80
0
0
378

9
339
86
0
0
434

6
367
79
0
1
453

0
386
85
0
12
483

0
402
86
0
10
498

0
401
91
0
18
510

0
421
87
0
26
534

0
455
103
0
30
588

0
480
110
0
25
615

0
480
110
1
35
626

0
480
90
20
30
620

0
480
75
40
30
625

Other
E190/5
CSeries
Subtotal

12
0
12

43
0
43

78
0
78

92
0
92

82
0
82

75
0
75

92
0
92

85
0
85

66
0
66

45
20
65

40
50
90

33
100
133

Total

680

875

972

950

1,061

1,047

1,103

1,274

1,331

1,450

1,484

1,524

Source: J.P. Morgan estimates Company data.

Table 4: J.P. Morgan Commercial Aircraft Supply/Demand Model

Initial Seats (th)
Additions (th)
Retirements (th)
Ending Seats (th)
Growth

2013E
3,202
259
(90)
3,371
5.3%

2014E
3,371
279
(94)
3,556
5.5%

2015E
3,556
282
(100)
3,738
5.1%

2016E
3,738
292
(105)
3,926
5.0%

2017E
3,926
303
(110)
4,119
4.9%

Retirement Rate

2.8%

2.8%

2.8%

2.8%

2.8%

Seats CAGR, 2013-2017

Traffic CAGR, 2013-2017

5.2%
5.0%

Source: Ascend, company reports, and J.P. Morgan estimates.

Table 5: Monthly Build Rate Projections

Model
737
A320 family
777
A330/340

2010
31.5
34, 36 (Dec)
6
8

Source: Company reports and J.P. Morgan estimates.

2011
31.5
36, 38 (Aug)
6
8

2012
35
40(1Q), 42 (4Q)
7
9

2013E
38 (2Q)
42
8.3 (1Q13)
10 (2Q)

2014E
42 (1H)
42
8.3
10

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Air Traffic Trends and Distribution

Global
Figure 5: Global Traffic Growth to GDP Growth Multiple, 1980 2012E

Multiple

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0

Avg

Source: ICAO and J.P. Morgan economics. Note: 1982 removed from average because traffic grew while GDP fell.

Figure 6: Global GDP Growth, Traffic Growth, and Multiple, 2001-2012E

15.0
12.0
9.0
6.0

3.9

3.0
0.0

0.2

0.7

2002

2003

2.3

1.5

2.0

2006

2007

1.2

0.6

2008

2009

1.8

2.1

2.3

2010

2011

2012

-1.7

-3.0
-6.0
2001

2004

GDP Growth

2005

Traffic Growth

Multiple

Source: ICAO, and J.P. Morgan economics.

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

North America Equity Research

26 March 2013

Figure 7: Global Air Traffic Distribution (ICAO), 2012E

Africa
2%

North America
27%

Asia/Pacific
30%

Middle East
9%
Latam
5%

Europe
27%

Source: ICAO.

Figure 8: Global Air Traffic Growth Contribution by Region, 2000 2012

North America
12%

Latam
5%

Africa
3%

Asia Pacific
37%
Middle East
15%

Europe
28%

Source: ICAO, Ascend, JAL, ANA, and J.P. Morgan estimates.

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

North America Equity Research

26 March 2013

US
Figure 9: US: Quarterly Traffic Growth to GDP Growth Multiple, 1Q01-4Q12
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
-10.0
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Multiple

1 Year Average Multiple

2 Year Average Mult iple

Source: ATA and J.P. Morgan economics. Note: All Multiples have been capped at -10 to make chart more readable.

Europe
Figure 10: Europe: Quarterly Traffic Growth to GDP Growth Multiple, 1Q01-4Q12
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
-10.0
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Multiple

1 Year Average Multiple

2 Year Average Multiple

Source: AEA and J.P. Morgan economics. Note: All multiples have been capped at 10 and -10 to make chart more readable.
We excluded 4Q11, 1Q12, 2Q12, and 3Q12 from the Multiple line as traffic grew while GDP fell or remained flat.

China
Figure 11: China: Quarterly Traffic Growth to GDP Growth Multiple, 1Q01-4Q12
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Multiple

1 Year Average Multiple

2 Year Average Multiple

Source: CAAC and J.P. Morgan economics. Note: All multiples have been capped at 10 to make chart more readable.

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Figure 12: China Domestic/Regional vs. International Traffic Growth, 2011-2013 YTD

30%
25%
20%
15%
10%
5%

Domestic

International

Source: CAAC. Note: 2013 through Jan.

Figure 13: China Traffic Distribution (Major Airlines and Domestic vs International), 2012
China
Southern
27%

Air China
19%

China Eastern
22%

International
20%

Others
32%

Domestic
80%

Source: CAAC and company traffic reports.

India
Figure 14: India: Quarterly Traffic Growth to GDP Growth Multiple, 1Q01-3Q12
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Multiple

1 Year Average Multiple

2 Year Average Multiple

Source: DGCA and J.P. Morgan economics. Note: All multiples have been capped at 10 to make chart more readable.
We have removed Kingfisher Airlines and Air India Express data from 2Q12, 3Q12, 2Q11, and 3Q11 to make data comparable.

10

Jan-13

Nov-12

Sep-12

Jul-12

May-12

Mar-12

Jan-12

Nov-11

Sep-11

Jul-11

May-11

Mar-11

Jan-11

0%

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Figure 15: India Domestic vs. International Average Monthly Traffic (RPKs), 2000 2012

14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
YTD
Domestic

International

Source: DGCA. Note. 2012 data through November.

11

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

IATA Traffic Monitor

Table 6: International RPK Growth by Region
January
Africa
Asia/Pacific
Europe
Latin America
Middle East
North America
Global
February
Africa
Asia/Pacific
Europe
Latin America
Middle East
North America
Global
March
Africa
Asia/Pacific
Europe
Latin America
Middle East
North America
Global
April
Africa
Asia/Pacific
Europe
Latin America
Middle East
North America
Global
May
Africa
Asia/Pacific
Europe
Latin America
Middle East
North America
Global
June
Africa
Asia/Pacific
Europe
Latin America
Middle East
North America
Global
July
Africa
Asia/Pacific
Europe
Latin America
Middle East
North America
Global
August
Africa
Asia/Pacific
Europe
Latin America
Middle East
North America
12

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

12.0%
13.3%
11.6%
15.4%
24.8%
6.4%
11.0%

7.3%
6.3%
3.8%
3.3%
30.3%
3.3%
5.9%

9.4%
2.5%
9.9%
15.0%
10.7%
11.8%
7.9%

7.4%
6.4%
5.2%
2.8%
18.3%
3.6%
6.2%

8.1%
5.0%
5.5%
-8.7%
19.8%
6.6%
6.1%

2.8%
5.7%
0.3%
16.9%
7.4%
5.0%
4.3%

-2.6%
-8.4%
-5.7%
-1.4%
3.1%
-6.2%
-5.6%

6.3%
6.5%
3.1%
11.0%
23.6%
2.1%
6.4%

14.3%
5.8%
7.9%
11.0%
11.7%
8.7%
8.2%

-3.6%
6.0%
5.3%
7.9%
14.5%
-0.3%
5.5%

9.1%
0.1%
2.1%
12.2%
14.3%
1.5%
3.7%

9.6%
4.6%
7.0%
8.5%
17.6%
-4.4%
5.1%

4.0%
3.8%
9.6%
15.4%
28.7%
10.8%
9.8%

9.3%
7.9%
2.6%
11.7%
11.5%
8.2%
6.6%

9.0%
7.3%
6.4%
3.3%
15.3%
3.6%
6.8%

9.4%
5.7%
7.4%
1.3%
18.0%
6.8%
6.8%

-0.7%
9.0%
5.8%
23.5%
20.3%
8.8%
9.2%

-13.7%
-12.8%
-10.1%
-3.8%
0.4%
-12.0%
-10.1%

9.8%
13.5%
4.3%
8.5%
25.8%
4.4%
9.5%

-1.3%
3.0%
7.4%
11.8%
8.4%
6.7%
6.0%

24.7%
5.9%
7.6%
13.3%
23.4%
4.9%
9.3%

-3.2%
-9.9%
-3.4%
4.0%
-8.2%
-11.5%
-6.7%

2.0%
10.2%
10.8%
5.0%
40.2%
15.0%
13.3%

16.1%
13.4%
7.5%
19.0%
17.3%
14.9%
12.1%

7.4%
6.2%
3.3%
1.3%
18.1%
5.5%
5.7%

11.9%
6.9%
8.2%
0.5%
20.4%
5.0%
7.8%

-4.3%
4.3%
3.7%
19.7%
15.4%
6.3%
5.8%

-15.6%
-14.5%
-11.6%
-5.9%
4.7%
-13.4%
-11.1%

13.6%
12.6%
6.0%
4.6%
25.9%
7.8%
10.3%

-7.1%
-0.6%
5.3%
22.7%
5.3%
3.7%
3.7%

14.3%
8.1%
8.8%
7.7%
20.9%
5.3%
9.6%

-5.3%
-44.8%
-4.8%
5.3%
-9.4%
-23.5%
-18.5%

12.1%
74.8%
20.4%
18.3%
64.2%
36.6%
36.3%

9.2%
8.0%
4.3%
13.2%
10.2%
10.1%
7.5%

12.3%
9.2%
8.4%
7.3%
22.1%
9.5%
9.9%

9.9%
5.7%
3.6%
2.2%
17.8%
3.1%
5.4%

-5.6%
2.6%
1.6%
4.0%
11.0%
3.8%
3.0%

-7.1%
-8.6%
-2.7%
7.5%
11.2%
-4.2%
-3.1%

8.6%
3.5%
-11.7%
1.2%
13.0%
-1.9%
-2.4%

1.2%
5.1%
29.3%
25.9%
12.1%
11.9%
16.5%

7.0%
9.3%
5.9%
9.0%
16.0%
1.6%
7.4%

-0.1%
-50.8%
-5.5%
2.0%
-1.6%
-20.6%
-21.0%

8.3%
107.9%
19.1%
11.5%
43.9%
32.8%
38.1%

8.8%
7.3%
6.6%
13.3%
17.9%
11.5%
8.8%

9.8%
7.5%
6.3%
3.2%
15.6%
4.9%
7.0%

11.2%
5.1%
3.2%
4.2%
19.6%
4.2%
5.5%

-2.2%
4.5%
4.1%
13.6%
12.8%
8.2%
6.0%

-6.0%
-14.3%
-9.4%
-9.2%
9.5%
-10.9%
-9.3%

16.9%
13.2%
8.3%
23.6%
17.5%
10.9%
11.7%

1.1%
4.7%
10.9%
21.3%
7.8%
4.5%
8.0%

9.7%
5.5%
4.1%
7.4%
15.8%
1.5%
5.6%

1.1%
-35.8%
-0.8%
4.4%
4.0%
-12.4%
-11.8%

8.2%
69.9%
12.5%
4.0%
36.7%
21.2%
25.5%

0.0%
0.0%
0.0%
0.0%
17.9%
0.0%
8.3%

7.6%
6.2%
6.0%
1.9%
17.3%
5.7%
6.5%

7.6%
5.0%
2.7%
7.6%
16.2%
5.8%
5.3%

-1.5%
3.2%
2.1%
12.5%
9.6%
4.4%
3.8%

-5.9%
-14.5%
-7.1%
-4.7%
12.9%
-6.7%
-7.2%

21.3%
15.5%
7.8%
14.7%
18.0%
10.8%
11.9%

-2.9%
3.3%
8.9%
14.3%
6.4%
2.4%
5.9%

10.1%
6.0%
7.3%
11.2%
18.2%
1.6%
7.4%

1.3%
-14.0%
2.4%
5.3%
17.5%
-7.8%
-3.6%

12.4%
27.7%
11.5%
13.0%
21.8%
16.2%
18.0%

5.4%
7.9%
7.1%
12.9%
12.3%
10.0%
8.5%

13.1%
4.4%
3.3%
-4.9%
12.9%
8.0%
5.2%

5.9%
5.5%
4.5%
6.7%
18.8%
3.7%
5.9%

0.7%
-0.5%
1.3%
8.1%
5.3%
4.2%
1.9%

-5.5%
-7.6%
-3.1%
-3.5%
13.2%
-3.2%
-2.9%

13.0%
10.9%
6.2%
14.2%
16.8%
7.9%
9.2%

6.6%
4.9%
9.3%
10.3%
9.7%
3.9%
7.3%

5.2%
0.9%
4.8%
5.7%
11.2%
-2.1%
3.5%

1.6%
-4.6%
4.4%
8.2%
18.7%
-6.5%

2.4%
14.8%
7.1%
7.9%
17.7%
10.9%

8.5%
5.8%
5.0%
8.4%
8.7%
7.1%

8.9%
5.3%
3.5%
-8.5%
11.9%
5.8%

4.7%
9.5%
6.4%
14.4%
19.8%
6.3%

-5.0%
-3.1%
1.6%
11.9%
4.3%
5.2%

-4.9%
-1.6%
-2.8%
-2.3%
10.8%
-2.5%

10.8%
6.2%
5.0%
8.7%
12.3%
5.3%

5.2%
5.3%
7.9%
5.6%
6.7%
2.9%

3.2%
2.9%
5.6%
7.3%
16.7%
0.5%

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Global
September
Africa
Asia/Pacific
Europe
Latin America
Middle East
North America
Global
October
Africa
Asia/Pacific
Europe
Latin America
Middle East
North America
Global
November
Africa
Asia/Pacific
Europe
Latin America
Middle East
North America
Global
December
Africa
Asia/Pacific
Europe
Latin America
Middle East
North America
Global

2003
-0.3%

2004
10.8%

2005
6.1%

2006
4.8%

2007
8.6%

2008
1.3%

2009
-1.1%

2010
6.4%

2011
6.2%

2012
5.3%

1.3%
-1.6%
3.6%
4.3%
19.4%
-3.6%
1.0%

6.4%
12.8%
8.2%
7.6%
19.5%
11.0%
10.9%

12.2%
6.2%
7.4%
11.4%
15.3%
9.1%
8.2%

11.4%
3.2%
4.8%
-8.6%
13.1%
5.4%
4.7%

3.2%
9.7%
5.1%
24.8%
15.3%
6.6%
8.2%

-7.8%
-6.8%
-0.5%
1.7%
-2.8%
-0.9%
-2.9%

-4.2%
2.1%
-4.2%
3.4%
18.2%
-2.4%
0.3%

16.0%
8.6%
8.4%
6.6%
23.9%
11.1%
10.5%

5.0%
4.3%
9.2%
10.6%
9.1%
1.2%
6.6%

4.7%
1.7%
5.4%
7.5%
13.3%
2.1%
4.9%

6.4%
-0.1%
4.0%
14.8%
20.6%
-3.7%
2.5%

10.8%
12.4%
7.7%
14.3%
13.7%
12.1%
10.8%

6.7%
4.1%
5.9%
8.7%
15.1%
5.5%
6.0%

7.4%
7.4%
4.7%
-10.3%
12.9%
6.7%
5.3%

10.8%
6.4%
5.3%
19.0%
20.9%
6.4%
7.7%

-12.9%
-6.1%
1.8%
4.5%
3.5%
-0.8%
-1.3%

-2.6%
0.9%
-3.0%
9.0%
14.3%
-2.6%
0.5%

13.3%
7.3%
9.6%
4.9%
18.0%
12.4%
10.1%

4.2%
3.8%
6.4%
6.7%
7.7%
-1.9%
4.6%

2.8%
1.4%
2.6%
6.8%
12.4%
0.2%
3.2%

3.9%
3.9%
8.0%
10.9%
22.9%
2.7%
5.9%

6.2%
8.5%
5.4%
6.1%
16.4%
7.6%
7.7%

9.1%
3.6%
7.1%
3.9%
16.4%
5.1%
6.1%

7.5%
5.6%
6.1%
-2.4%
18.3%
7.0%
6.7%

5.8%
8.8%
7.6%
20.1%
18.3%
7.6%
9.3%

-1.6%
-9.7%
-3.4%
3.3%
5.6%
-4.8%
-4.6%

-2.1%
5.1%
-3.0%
8.2%
16.5%
-3.0%
2.1%

16.4%
5.8%
7.3%
0.0%
16.7%
9.5%
8.2%

2.6%
2.4%
4.9%
8.8%
9.8%
-1.2%
4.0%

5.0%
6.2%
4.0%
11.0%
10.5%
2.6%
5.6%

7.4%
4.5%
4.7%
0.7%
27.7%
2.3%
5.2%

10.1%
5.6%
6.9%
10.4%
14.7%
8.3%
7.6%

10.1%
2.9%
6.9%
2.2%
19.2%
6.0%
6.1%

9.9%
6.5%
5.8%
-3.2%
18.1%
6.6%
6.9%

3.0%
6.2%
5.5%
14.4%
12.9%
6.0%
6.7%

-4.6%
-9.7%
-2.7%
1.1%
3.9%
-4.3%
-4.6%

3.1%
8.0%
-1.2%
7.1%
19.1%
-0.4%
4.5%

11.7%
2.9%
3.3%
-1.1%
14.1%
6.7%
4.9%

-0.7%
3.7%
9.8%
8.8%
11.7%
1.0%
6.4%

5.7%
5.9%
2.2%
9.9%
13.3%
1.5%
5.0%

2013

Source: IATA.

13

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Table 7: International ASK Growth & Load Factor

January
ASK
Load Factor
February
ASK
Load Factor
March
ASK
Load Factor
April
ASK
Load Factor
May
ASK
Load Factor
June
ASK
Load Factor
July
ASK
Load Factor
August
ASK
Load Factor
September
ASK
Load Factor
October
ASK
Load Factor
November
ASK
Load Factor
December
ASK
Load Factor

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

10.2%
71.6%

3.7%
73.3%

7.8%
73.5%

4.6%
74.6%

5.6%
74.9%

4.2%
76.0%

-2.0%
72.8%

1.2%
75.9%

9.1%
75.7%

4.2%
76.6%

2.7%
77.6%

9.3%
70.4%

8.1%
71.3%

5.4%
72.0%

5.1%
73.3%

6.1%
73.3%

10.1%
75.1%

-5.9%
69.9%

1.9%
75.5%

9.3%
73.0%

7.3%
74.4%

5.6%
68.8%

5.5%
73.4%

9.7%
75.0%

5.2%
75.5%

5.8%
76.4%

6.0%
73.3%

-4.4%
72.1%

2.0%
78.0%

8.6%
74.6%

5.0%
77.7%

-6.2%
63.5%

17.2%
73.4%

7.6%
73.4%

5.5%
76.5%

5.6%
76.3%

5.0%
77.7%

-2.5%
74.4%

-5.0%
76.9%

16.8%
76.7%

4.3%
79.1%

-12.6%
65.0%

26.2%
71.0%

7.3%
71.9%

4.9%
73.6%

5.2%
73.7%

5.4%
75.4%

-5.0%
71.2%

4.8%
76.0%

8.1%
75.8%

4.1%
77.0%

-9.6%
73.0%

21.7%
75.6%

7.0%
76.6%

4.4%
78.3%

5.0%
78.4%

5.5%
74.3%

-4.3%
75.3%

5.9%
79.8%

7.2%
79.0%

5.0%
81.0%

-4.1%
77.5%

16.4%
78.4%

7.0%
79.6%

3.9%
80.8%

5.5%
81.0%

3.8%
77.6%

-2.8%
80.3%

6.1%
82.9%

7.2%
83.1%

3.5%
83.3%

-1.4%
79.5%

12.4%
78.3%

5.3%
78.9%

4.3%
79.4%

7.5%
80.3%

3.7%
79.9%

-2.5%
80.9%

5.5%
81.6%

6.6%
81.2%

4.1%
82.1%

0.7%
75.8%

10.4%
75.5%

6.3%
76.6%

4.4%
76.9%

7.5%
77.4%

1.1%
79.2%

-2.4%
77.1%

7.3%
80.0%

7.5%
79.5%

3.1%
80.9%

0.7%
74.6%

10.3%
74.5%

5.4%
74.8%

4.8%
74.9%

6.1%
76.5%

0.9%
74.8%

-3.3%
78.0%

8.2%
79.6%

7.1%
77.6%

2.2%
78.3%

2.0%
72.6%

8.1%
71.8%

4.6%
73.0%

5.5%
73.9%

7.6%
75.4%

-1.0%
75.0%

-1.4%
75.4%

7.8%
75.6%

5.2%
74.6%

3.1%
76.3%

1.8%
74.0%

8.9%
72.9%

4.3%
74.2%

5.5%
75.0%

6.1%
76.0%

-1.5%
72.7%

-0.7%
77.6%

5.8%
77.2%

7.4%
76.2%

2.8%
77.9%

Source: IATA.

Figure 16: Global RPK and ASK Growth, Apr 11 - Jan 13

12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
Apr-11

Jul-11

Oct-11

Jan-12
RPKs

Source: IATA. Note: Feb 2012 adjusted for estimated leap year impact.

14

Apr-12
ASKs

Jul-12

Oct-12

Jan-13

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Figure 17: Difference between RPK Growth and ASK Growth

5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
Africa

Asia/Pacific

Europe
2011

Latin
America
2012

ME

North Am

Total

2013 YTD

Source: IATA. Note: 2013 YTD through Jan.

Figure 18: Global RPK Growth for Last Twelve Months (Monthly)
7.6%
8.0%

7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%

5.7%

6.2%

6.1%
4.9%

5.3%

4.5%
3.4%

4.7%

4.6% 4.2%

4.1%
2.8%

2.7%

LTM

Jan-13

Dec-12

Nov-12

Oct-12

Sep-12

Aug-12

Jul-12

Jun-12

May-12

Apr-12

Mar-12

Feb-12

Jan-12

Source: IATA. Note: February and 2012 growth rates are adjusted to reflect the estimated impact of the leap year.

Figure 19: 2012 and 2013 YTD RPK Growth by Region

16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%

14.9%
13.2%
9.7%
7.0%

9.3%
5.8%

6.3%

4.8%

5.0%

1.5%

Africa

-0.1%
Asia/Pacific

Europe
2012

1.0%

Latin America

ME

2.6%

North America

2.7%

Total

2013 YTD

Source: IATA. Note: 2013 through Jan and 2012 adjusted for the leap year effect.

15

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Figure 20: 2012 and 2013 YTD Domestic RPK Growth

10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%

9.2%

8.3%
5.0% 4.8%

3.3%

Australia

Brazil

-2.4%
China
2012

3.7%
1.1%

0.5%

0.1%

-3.7%

3.2%

-4.9%
India

-3.0%
Japan

US

Domestic

2013 YTD

Source: IATA. Note: 2012 growth rates are adjusted for the estimated impact of the leap year; 2013 through Jan.

Figure 21: 2012 and 2013 YTD International RPK Growth

16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%

15.1%
14.3%
12.2%
9.4%

8.4%

7.3%

5.8%

5.0%

4.9%

3.7%

2.1%

1.6% 1.5%

0.1%
Africa

Asia/Pacific

Europe
2012

Latin America

ME

North America

2013 YTD

Source: IATA. Note: Growth rates are adjusted for the estimated impact of the leap year; 2013 through Jan.

16

Total

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Table 8: International FTK and AFTK Growth

January
FTK
AFTK
February
FTK
AFTK
March
FTK
AFTK
April
FTK
AFTK
May
FTK
AFTK
June
FTK
AFTK
July
FTK
AFTK
August
FTK
AFTK
September
FTK
AFTK
October
FTK
AFTK
November
FTK
AFTK
December
FTK
AFTK

2007

2008

2009

2010

2011

2012

2013

3.0%
5.7%

4.5%
1.1%

-23.2%
-4.9%

28.3%
3.7%

9.1%
10.9%

-8.1%
-0.6%

4.5%
2.3%

2.4%
5.6%

5.9%
6.6%

-22.1%
-7.9%

26.5%
4.0%

2.3%
7.9%

5.1%
7.7%

2.3%
4.3%

3.3%
4.2%

-21.4%
-7.8%

28.1%
5.3%

3.7%
9.1%

0.1%
1.7%

2.8%
4.9%

3.7%
5.2%

-21.7%
-6.8%

25.2%
3.2%

5.4%
12.3%

-4.5%
0.2%

5.0%
5.8%

1.3%
4.2%

-17.4%
-9.7%

34.3%
12.3%

-4.3%
3.6%

-2.2%
1.2%

4.9%
4.5%

-0.8%
3.3%

-16.5%
-9.8%

26.5%
12.2%

-3.0%
3.0%

1.1%
2.5%

5.5%
5.3%

-1.9%
2.0%

-11.3%
-8.1%

22.7%
11.9%

-0.4%
4.6%

-3.3%
-0.1%

6.0%
5.6%

-2.7%
1.1%

-9.6%
-8.2%

19.6%
11.9%

-3.5%
2.4%

-1.3%
0.7%

5.0%
6.4%

-7.7%
-0.9%

-5.4%
-8.5%

14.8%
11.9%

-3.0%
2.5%

0.5%
-0.4%

3.6%
4.2%

-7.9%
-1.3%

-0.5%
-7.4%

14.4%
11.1%

-4.8%
1.8%

-3.8%
-2.0%

3.5%
6.4%

-13.5%
-3.7%

9.5%
-3.5%

5.4%
7.5%

-3.8%
1.9%

1.4%
0.1%

4.7%
5.7%

-22.6%
-5.4%

24.4%
0.6%

6.7%
6.7%

-0.8%
4.5%

-0.5%
-2.0%

Source: IATA.

Figure 22: Seasonally Adjusted International Cargo Traffic Index, Jan 02 - Jan 13
160
150
140
130
120
110
100
90
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Source: IATA and J.P. Morgan estimates.

17

North America Equity Research

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Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Figure 23: Global Premium Traffic Growth, May 2006 Jan 2013
20.0%
10.0%
0.0%
-10.0%
-20.0%
-30.0%

Nov-12
Aug-12
May-12
Feb-12
Nov-11
Aug-11
May-11
Feb-11
Nov-10
Aug-10
May-10
Feb-10
Nov-09
Aug-09
May-09
Feb-09
Nov-08
Aug-08
May-08
Feb-08
Nov-07
Aug-07
May-07
Feb-07
Nov-06
Aug-06
May-06
Source: IATA.

ICAO Annual Traffic

Figure 24: Global Airline Revenue Passenger Kilometers (in bn), 1970 2012E
5,500
4,500
3,500
2,500
1,500

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

-500

2012E

500

Source: ICAO.

Source: ICAO.

18

2012E

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

7,000
6,500
6,000
5,500
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0

1970

Figure 25: Global Airline Available Seat Kilometers (in bn), 1970 2012E

North America Equity Research

26 March 2013

Joseph B. Nadol III

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Figure 26: Global Airline Load Factor (%), 1970-2012E

80%
75%
70%
65%
60%
55%

2012E

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

50%

Source: ICAO.

Airline Profitability
Figure 27: World Scheduled Airline Operating Profit (Loss), 1970 - 2013E
Operating Profit ($ in billions)

$25.0
$20.0
$15.0
$10.0
$5.0
$0.0
-$5.0
-$10.0

2012E

2009

2006

2003

2000

1997

1994

1991

1988

1985

1982

1979

1976

1973

1970

-$15.0

Source: ICAO and IATA. 2012E and 2013E data are based on IATA's March 2013 Financial Forecast.

Figure 28: US Major Airline Quarterly RASM (in cents), 2001 - 2012

14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Q1
Q2
Q3
Q4
Source: Company reports.

19

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Large Commercial Aircraft Orders, Deliveries and Backlog

Figure 29: Large Commercial Aircraft Total World Orders and Deliveries, 1965 -2012
3,500
3,000
2,500
2,000
1,500
1,000
500
0

1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010

Total Orders

Total Deliveries

Source: Ascend and company reports.

Figure 30: Large Commercial Aircraft Orders, 1984 - 2012

3,000
2,500
2,000
1,500
1,000

1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

500

Widebodies
Source: Ascend and company reports.

20

Narrowbodies

Joseph B. Nadol III

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North America Equity Research

26 March 2013

Table 9: Large Aircraft Order Market Share by Manufacturer, 1991 - 2012

Year

Boeing + McDonnell Douglas

Airbus

Other

1991

71%

25%

4%

1992

67%

29%

4%

1993

75%

11%

15%

1994

48%

42%

10%

1995

76%

17%

8%

1996

70%

30%

1%

1997

57%

45%

0%

1998

58%

46%

0%

1999

45%

55%

0%

2000

54%

46%

0%

2001

47%

53%

0%

2002

46%

54%

0%

2003

47%

53%

0%

2004

43%

57%

0%

2005

48%

52%

0%

2006

56%

44%

0%

2007

49%

51%

0%

2008

43%

57%

0%

2009

46%

54%

0%

2010

49%

51%

0%

2011

36%

64%

0%

2012

59%

41%

0%

Source: Ascend and company reports. Note: Boeing bought McDonnell Douglas in 1997. Other includes Fokker (F28, F10, and F70).

21

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Table 10: Large Gross Commercial Aircraft Orders, 1975 - 2012

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987
Airbus
A300
A310
A318
A319
A320
A321
A330
A340
A350
A380
Total
Market Share
Boeing
707
717
727
737
747
757
767
777
787
Total
Market Share
w/MD
McDonnell Douglas
MD-8
MD-9
MD-10
MD-11
MD-80
MD-90
Total
Market Share

1988

1989

1990 1991 1992 1993 1994

1995

1996

1997

1998 1999

2000 2001 2002 2003 2004

2005

2006

2007

2008 2009

2010

2011

2012 Through 2012

8
0
0
0
0
0
0
0
0
0
8
3%

25
0
0
0
0
0
0
0
0
0
25
7%

70
0
0
0
0
0
0
0
0
0
70
10%

71
61
0
0
0
0
0
0
0
0
132
22%

19
13
0
0
0
0
0
0
0
0
32
7%

45
19
0
0
0
0
0
0
0
0
64
18%

5
11
0
0
0
0
0
0
0
0
16
5%

0
6
0
0
0
0
0
0
0
0
6
3%

20
22
0
0
51
0
0
0
0
0
93
22%

24
29
0
0
39
0
0
0
0
0
92
14%

7
29
17
27
0
0
0
0
147
58
0
0
0
0
0
0
0
0
0
0
171 114
24% 19%

21
23
0
0
111
4
0
1
0
0
160
14%

54
32
0
1
130
80
112
79
0
0
488
28%

31
40
18
6
0
40
16
14
3
0
0
0
0
0
0
3
0
6
0
41
131
16
65
13
33
51
3
9
0
21
25
5
1
2
2
8
27
22
14
28
0
0
0
0
0
0
0
0
0
0
289 107 135
38 125
27% 25% 29% 11% 42%

2
4
0
30
39
12
9
10
0
0
106
17%

15
0
0
57
128
50
42
34
0
0
326
30%

6
1
0
240
74
50
64
25
0
0
460
45%

32
0
0
0
0 120
190
65
195 183
52
40
24
32
63
36
0
0
0
0
556 476
46% 55%

2
61
0
6
2
7
0
0
0
0
0
0
41
0
0
0
4
41
120
46 148
44
80
206
158
98
78 104 183
568
69
31
9
7
12
103
110
52
24
54
51
64
20
2
31
35
28
15
0
0
0
0
0
87
0
85
10
34
10
20
520 375 300 284 370 1,111
46% 53% 54% 53% 57% 52%

0
0
0
0
4
13
253
185
312
676
104
40
104
198
15
23
15
290
17
33
824 1,458
44% 51%

0
0
0
0
5
1
54
36
446 167
54
24
140
50
6
1
186
27
9
4
900 310
57% 54%

0
0
0
0
0
2
44
31
357 1327
51
110
88
99
2
0
70
10
32
29
644 1,608
51% 64%

10
4
0
0
50 113
35
39
22
14
0
0
0
0
0
0
0
0
117 170
62% 65%

14
0
134
38
42
0
0
0
0
228
64%

6
0
131
146
83
40
84
0
0
490
68%

1
0
112
76
79
0
51
0
0
319
54%

21
0
93
111
49
72
31
0
0
377
79%

0
0
38
129
23
27
7
0
0
224
64%

5
0
11
72
14
4
4
0
0
110
36%

15
0
1
69
24
26
16
0
0
151
66%

0
0
0
140
22
2
10
0
0
174
41%

0
0
0
286
42
45
21
0
0
394
59%

6
11
0
0
0
0
219 181
83
68
13
46
23
57
0
0
0
0
344 363
48% 61%

0
0
0
330
50
192
82
0
0
654
58%

0
0
0
471
68
231
127
0
0
897
52%

11
0
0
0
0
0
0
0
0
0
0
0
0
0
0
169
71 115 112
70
173
38
26
2
16
97
51
39
40
12
57
74
22
66
24
49
27
42
29
0
0
0
0
0
0
556 261 244 249 122
51% 62% 53% 70% 41%

0
50
0
177
39
13
26
90
0
395
62%

0
0
0
449
75
59
44
92
0
719
66%

0
0
0
320
37
45
98
51
0
551
54%
55%

0
0
65
15
0
0
373 263
14
35
50
18
42
37
71
23
0
0
615 391
51% 45%
54% 45%

0
0
0
0
0
0
0
0
21
6
32
8
8
0
0
0
0
0
0
0
0
0
0
0
391 188 162 205 152
574
733
850
32
16
17
4
10
48
72
25
43
44
0
7
0
0
0
0
12
51
8
11
9
19
8
36
119
30
32
13
42
153
77
143
0
0
0
0
56
235
160
369
618 335 251 248 277 1,029 1,050 1,423
54% 47% 46% 47% 43% 48% 56% 49%
54% 47% 46% 47% 43% 48% 56% 49%

0
0
0
0
0
0
488 197
4
5
0
0
29
7
54
30
94
24
669 263
43% 46%
43% 46%

0
0
0
508
1
0
3
76
37
625
49%
49%

0
0
21
37
9
17
0
0
0
0
0
0
30
54
16% 21%

0
22
36
0
30
0
88
25%

0
45
45
0
29
0
119
17%

0
33
45
0
16
0
94
16%

0
6
13
0
23
0
42
9%

0
2
8
0
30
0
40
11%

0
0
84
0
94
0
178
58%

0
0
2
0
45
0
47
21%

0
0
7
0
128
0
135
32%

0
0
3
0
130
0
133
20%

0
0
0
0
5
2
14
22
130
90
0
0
149 114
21% 19%

0
0
2
53
255
0
310
27%

0
0
0
37
191
0
228
13%

0
0
0
57
59
76
192
18%

0
0
0
4
9
9
22
7%

0
0
0
9
14
62
85
13%

0
0
0
10
17
18
45
4%

0
0
0
11
2
4
17
2%

0
0
0
13
24
4
41
3%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0

0
166
278
254
1,384
199
2,281
7%

Other
Fokker (F28, F10, F70) 23
14
Other
0
0
Lockheed (L-1011)
2
15
Total
25
29
Market Share
13% 11%

12
0
5
17
5%

13
0
26
39
5%

11
1
37
49
8%

13
3
12
28
6%

19
0
5
24
7%

3
0
0
3
1%

24
1
0
25
11%

19
0
6
25
6%

46
0
0
46
7%

50
0
0
50
7%

8
0
0
8
1%

119
0
0
119
7%

44
0
0
44
4%

19
52
29
0
0
0
0
0
0
19
52
29
4% 15% 10%

48
0
0
48
8%

6
0
0
6
1%

1
0
0
1
0%

0
0
0
0
0%

0
0
0
0
0%

0
0
0
0
0%

0
0
0
0
0%

0
0
0
0
0%

0
0
0
0
0%

0
0
0
0
0%

0
0
0
0
0%

0
0
0
0
0%

0
0
0
0
0%

0
0
0
0
0%

0
0
0
0
0%

0
0
0
0
0%

0
0
0
0
0%

0
0
0
0
0%

589
5
108
702
2%

358

718

594

479

352

307

229

427

665

714

TOTAL ORDERS

17
0
0
0
0
0
0
0
0
0
17
9%

189

261

Source: Ascend, company reports, and J.P. Morgan estimates.

22

0
0
0
0
0%

591 1,132 1,732 1,081

0
0
0
0
0
0
10
8
28
30
0
26
38
64
9% 14%

16
0
0
16
4%
422

462

0
0
0
6
10
0
16
5%

355

298

634 1,096 1,029

1,212

867

1,138

710

551

532

647 2,140 1,874 2,881 1,569

0
0
20
713
50
82
0
40
9
914
41%

643
338
231
1,900
6,600
1,036
1,434
525
725
292
13,724
39%

0
0
0
0
0
0
625 1184
7
7
0
0
42
22
202
75
45
50
921 1,338
36% 59%
36% 59%

104
205
683
10,718
1,386
1,216
1,260
1,520
1,070
18,162
52%
59%

573 1,269 2,529 2,252

34,869

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

1,800
1,600
1,400
1,200
1,000
800
600
400
200
0

1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012E
2013E
2014E
2015E
2016E

Figure 31: Large Commercial Aircraft Deliveries, 1984 - 2016E

Widebodies

Narrowbodies

Source: Ascend, company reports, and J.P. Morgan estimates.

Table 11: Large Aircraft Delivery Market Share by Manufacturer, 2005 - 2016E
2005

2006

2007

2008

2009

2010

2011

2012

2013E

2014E

2015E

2016E

Narrowbody
Boeing
Share
Airbus
Share
Embraer (E190/5)
Share
Bombardier (Cseries)
Share
Total

227
43%
289
55%
12
2%
0
0%
528

307
45%
339
49%
43
6%
0
0%
689

330
43%
367
47%
78
10%
0
0%
775

290
38%
386
50%
92
12%
0
0%
768

372
43%
402
47%
82
10%
0
0%
856

376
44%
401
47%
75
9%
0
0%
852

372
42%
421
48%
92
10%
0
0%
885

415
43%
455
48%
85
9%
0
0%
955

439
45%
480
49%
66
7%
0
0%
985

492
47%
480
46%
45
4%
20
2%
1,037

504
47%
480
45%
40
4%
50
5%
1,074

504
45%
480
43%
33
3%
100
9%
1,117

Widebody
Boeing
Share
Airbus
Share
Total

63
41%
89
59%
152

91
49%
95
51%
186

111
56%
86
44%
197

85
47%
97
53%
182

109
53%
96
47%
205

86
44%
109
56%
195

105
48%
113
52%
218

186
58%
133
42%
319

211
61%
135
39%
346

267
65%
146
35%
413

270
66%
140
34%
410

262
64%
145
36%
407

Total

680

875

972

950

1,061

1,047

1,103

1,274

1,331

1,450

1,484

1,524

Source: Ascend, company reports, and J.P. Morgan estimates.

23

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Table 12: Large Commercial Aircraft Deliveries, 1965-2012

<1965 1965 1966 1967 1968 1969 1970 1971 1972
Airbus
A300
A310
A318
A319
A320
A321
A330
A340
A380
Total
Market Share

0
0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
0
0

Boeing
707
717
727
737
747
757
767
777
787
Total
Market Share

396 61 83 118
0
0
0
0
101 111 135 155
0
0
0
4
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
497 172 218 277
44% 69% 61% 55%

111
0
160
105
0
0
0
0
0
376
53%

McDonnell Douglas
MD-8
MD-9
MD-10
MD-11
MD-80
MD-90
Total
Market Share

215 31 32 41
0
5 69 152
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
215 36 101 193
19% 14% 28% 38%

102 85 33 13
4
203 121 53 45 32
0
0
0 13 52
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
305 206 86 71 88
43% 39% 28% 30% 38%

Other
Fokker (F28, F10, F70)
Other
Lockheed (L-1011)
Total

0
411
0
411

0
43
0
43

0
0
0
0
0
0
0
0
0

0
36
0
36

0
32
0
32

0
35
0
35

0
0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
0
0

59 19 10
4
0
0
0
0
115 54 33 41
114 37 29 22
4 92 69 30
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
292 202 141 97
55% 65% 59% 42%

10
22
0
32

11
12
0
23

10
17
0
27

13
16
17
46

Source: Ascend, company reports, and J.P. Morgan estimates.

24

1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0
0
0
0
0
0
0
0
0

4
0
0
0
0
0
0
0
0
4
1%

9
0
0
0
0
0
0
0
0
9
3%

13
0
0
0
0
0
0
0
0
13
5%

16
0
0
0
0
0
0
0
0
16
8%

15
0
0
0
0
0
0
0
0
15
5%

24
0
0
0
0
0
0
0
0
24
6%

39
0
0
0
0
0
0
0
0
39
9%

38 46 19 19 16
0
0 17 29 26
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
38 46 36 48 42
9% 15% 11% 18% 12%

10
19
0
0
0
0
0
0
0
29
8%

11 17 24 19 25 22 22 23 17 14
6 13
8
21 28 23 18 19 24 22
2
2
2
2
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0 18 47 53 88
0 16 58 58 119 111 72 48 33 38 58 80 101
0
0
0
0
0
0
0 16 22 16 22 35 33
0
0
0
0
0
0
1
9 30 10 14 23 44
0
0
0
0
0
0 22 25 19 28 33 24 20
0
0
0
0
0
0
0
0
0
0
0
0
0
32 61 105 95 163 157 139 123 123 126 182 229 294
8% 12% 20% 15% 20% 20% 23% 26% 29% 30% 32% 29% 32%

6
0
0
0
0
0
0
0
0
0
17 13
6
2
2
105 98
88 51 47
194 209 221 297 306
51 66
87 51 66
68 72
76 87 87
11 13
10
4
0
1 12
10 18 26
453 483 498 510 534
51% 56% 51% 52% 53%

0
0
2
50
338
65
103
0
30
588
49%

556
255
76
1,374
3,208
751
931
378
97
7,626
33%

11 21
7
9
8 13
6
3
2
8
8
8
3
4
9
0
5
4 14
5
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0 12 32 49 20 12 12 13
5
0
0
0
0
0
92 91 91 61 67 118 136 131 94 26 11
8
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
23 55 51 41 25 40 77 92 108 95 82 67 115 141 161 165 146 174 215 218 152 121 89 76 135 281 324 282 300 223 173 202 212 302 330 290 372 376 372
30 22 21 27 20 32 67 73 53 25 23 16 24 35 23 24 45 70 64 61 56 40 25 26 39 53 44 25 31 27 19 15 13 14 16 14
8
0
9
0
0
0
0
0
0
0
0
0
2 25 18 36 35 40 48 51 77 80 99 71 69 43 42 46 54 67 45 45 29 14 11
2
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0 20 55 29 25 27 37 53 37 60 62 63 51 40 36 44 42 48 44 44 40 35 24
9 10 12 12 10
13 12 20
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0 13 32 59 74 83 55 61 47 39 36 40 65 83 61
88 74 73
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
3
156 189 170 138 120 203 286 299 257 176 204 146 203 242 270 290 284 385 435 446 330 271 206 220 321 510 574 483 526 381 281 285 290 398 441 375 481 462 477
50% 54% 53% 51% 59% 72% 69% 68% 59% 59% 63% 54% 60% 63% 66% 59% 53% 59% 53% 57% 54% 58% 49% 53% 57% 64% 63% 60% 62% 56% 48% 47% 43% 48% 49% 44% 49% 48% 47%

0
0
0
415
31
0
26
83
46
601
51%

117
155
743
7,040
1,208
1,049
1,040
1,066
49
12,467
55%

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
29 48 42 50 22 22 39 18 16 10
0
0
0
0
0
0
0
0
0
0
0
57 47 43 19 14 18 36 40 25 11 12 10 11 17 10 10
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
3 31 42 36
0
0
0
0
0
0
0
5 62 33 51 44 71 85 94 120 117 139 139 85 43
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
86 95 85 69 36 40 75 63 103 54 63 54 82 102 104 130 118 142 170 127 79
28% 27% 27% 25% 18% 14% 18% 14% 24% 18% 19% 20% 24% 27% 25% 26% 22% 22% 21% 16% 13%

19
10
39
68

9
10
41
60

20
11
25
56

19
16
16
51

13
9
11
33

11
4
8
23

13
0
14
27

13
4
24
41

12
0
28
40

10
0
14
24

16
0
6
22

17
0
4
21

12
0
2
14

11
0
0
11

2
0
0
2

11
0
0
11

24
0
0
24

28
0
0
28

50
0
0
50

46
0
0
46

67
0
0
67

0
0
0
0
0
0
0
0
0
0
0
0
17 18 15 12
23 18 12 16
0 14 24 26
40 50 51 54
9% 12% 12% 10%

34
0
0
34

41
0
0
41

17
0
0
17

7
0
0
7

8 11
9
8 11
9
9
0
0
0
0
0
0
0
0
0
0
9
8
9
8
112 89 85 72 92 142 137
101 119 116 119 111 121 164
28 49 35 33 29 17 30
43 35 42 31 38 56 62
19 22 16 33 31 24 24
0
0
0
0
0
0
0
311 325 303 305 320 378 434
39% 38% 44% 52% 53% 57% 52%

2012 Through 2012

0
0
0
12
8
34
54
7%

0
0
0
8
28
10
46
5%

0
0
0
4
0
5
9
1%

0
0
0
2
0
0
2
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
0
0
0
0
0
0
0%

0
219
277
200
1,193
113
2,002
449%

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

494
44
152
690

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Table 13: Large Commercial Aircraft Backlog (by Model)

2013

2014

2015

2016

2017

2018

2018+

Total

354
0
4
8
70
69
505

385
0
14
2
62
132
595

406
0
8
0
66
134
614

307
0
0
0
39
136
482

187
45
0
0
8
124
364

107
193
0
0
4
122
426

219
947
0
0
58
116
1,340

1,965
1,185
26
10
307
833
4,326

371
0
81
21
473

437
0
84
7
40
568

514
11
33
36
32
626

226
131
12
55
26
450

84
305
12
109
28
538

10
405
6
132
3
556

209
1,146
18
276
14
1,663

1,851
1,998
246
615
164
4,874

Bombardier
CS100
CS300
CSeries

10
1
9

29
32
59

27
40
66

21
21

4
4

16
16

66
114
180

Embraer
E190/195

51

26

23

129

1,029

1,200

1,324

1,007

928

993

3,028

9,509

Boeing
737NG
737 MAX
747
767
777
787
Total
Airbus
A320ceo
A320neo
A330
A350
A380
Total

Total

Source: Ascend. As of Mar 19, 2013. Note: Passenger only aircraft.

Figure 32: Year End Backlog: Boeing vs. Airbus, 1965-2012

5,000
4,000
3,000
2,000
1,000

Boeing

2010

2007

2004

2001

1998

1995

1992

1989

1986

1983

1980

1977

1974

1971

1968

1965

0
Airbus

Source: Company reports and Ascend.

25

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Installed Base and Backlog Regional Distribution

Figure 33: Commercial Aircraft Installed Base Share (Emerging Market vs. Developed Market)
2000

2012

Emerging
37%

Emerging
46%

Developed
54%

Developed
63%

Source: Ascend. Note: Aircraft ordered by leasing companies that have been placed with airlines are categorized by the location of the carrier leasing the aircraft; aircraft ordered by leasing
companies that have not been placed with airlines are categorized by the location of the leasing company.

Figure 34: Commercial Aircraft Backlog Share (Emerging Market vs. Developed Market)
2012

2000
Emerging
19%
Developed
47%
Developed
81%

Emerging
53%

Source: Ascend. Note: Aircraft ordered by leasing companies that have been placed with airlines are categorized by the location of the carrier leasing the aircraft; aircraft ordered by leasing
companies that have not been placed with airlines are categorized by the location of the leasing company.

Figure 35: Boeing (Left) and Airbus (Right) Large Aircraft Backlog Distribution (by Region)
Unknown area
6%

Unknown area Africa

2%
1%

Africa
1%

North America
20%
Asia Pacific
28%
Asia Pacific
37%

North America
36%

Middle East
10%

Europe
15%
Middle East
7%

Latin America and

Caribbean
7%

Latin America and

Caribbean
7%
Europe
23%

Source: Ascend. Note: Aircraft ordered by leasing companies that have been placed with airlines are categorized by the location of the carrier leasing the aircraft; aircraft ordered by leasing
companies that have not been placed with airlines are categorized by the location of the leasing company.

26

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Table 14: A320neo Engine Market Share

Airline
Cebu Pacific
GoAir
IndiGo
JetBlue
Lufthansa
Norwegian
Qatar
Transasia
ALAFCO
CIT
ILFC
Total
Share

GTF
30
72
150
40
30
50
50
12
50
30
60
574
45%

Airline
AirAsia
AvianceTaca
Aviation Capital Group
Garuda Citilink
Qantas
Republic
SAS
Virgin America
ALAFCO
CIT
GECAS
ILFC
Total
Share

LEAP
264
33
18
10
78
80
30
30
35
15
60
40
693
55%

Airline
Arkia Israel
American Airlines
Garuda Citilink
Gulf Air
Interjet
LAN
Lion Air
Lufthansa
Middle East Airlines
Norwegian
Pegasus
Philippine Airlines
Spirit Airlines
Turkish Airlines
TAM
Transaero
Volaris
ACG
ALC
Avolon
BOC Aviation
CIT
ICBC Leasing
Total

Undecided
4
130
25
10
40
20
174
70
10
50
75
10
45
57
15
8
30
12
50
20
25
5
20
905

Source: Airbus, Ascend and Company news.

Figure 36: Parked Fleet, 2001-2013 YTD

3,000

2,000

% of World Fleet

# of Parked Aircraft

2,500

1,500
1,000
500
0

13.0%
12.0%
11.0%
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%

Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan01 02 03 04 05 06 07 08 09 10 11 12 13
Total

% of Fleet

Source: Ascend.

27

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Aftermarket
Figure 37: Average Aftermarket Sales Growth vs. ASM Growth

20%
15%
10%
5%
0%
-5%
-10%
-15%

1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12
Avg AM Sales Growth

ASM Growth

Source: Company reports, OAG, and J.P. Morgan estimates. Note: Aftermarket includes COL, UTX (UTAS & Pratt), TDG (pro forma), HON, HEI, GR, Safran (Propulsion and Aircraft Equipment),
MTU Aero Engines, and Meggitt.

Figure 38: Average YoY Organic Aftermarket Sales Growth (US only)
25%

20%

20%

15%

15%

10%

10%
5%

5%

0%

0%

-5%

-5%

-10%

-10%

-15%

-15%

-20%
-25%

-20%
2008
COL

2009
UTAS

TDG

2010
UTX (Pratt)

2011
HON

2012

GR

HEI

Average

Source: J.P. Morgan estimates and company data. Note: Aftermarket growth reflects average of four quarters for 2008-2012. GR data ends after Q1 due to acquisition by UTX.

Figure 39: 2012 Organic Aftermarket Sales Growth by Company (US only)

20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
COL

UTAS

TDG

1Q12

2Q12

Source: Company reports and J.P. Morgan estimates.

28

UTX
(Pratt)
3Q12

HON
4Q12

HEI

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Regional Jets
Table 15: J.P. Morgan Regional Jet Delivery Forecast
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013E

2014E

2015E

2016E

Bombardier
CRJ 100/200
CRJ 700
CRJ 900
CRJ 1000
Subtotal:

100
64
14
0
178

44
63
14
0
121

1
14
50
0
65

0
7
55
0
62

0
4
52
0
56

0
27
33
0
60

0
18
14
9
41

0
10
12
11
33

0
1
5
8
14

0
6
9
15
30

0
4
8
18
30

0
4
6
25
35

0
4
6
25
35

Embraer
ERJ 135
ERJ 140
ERJ 145
ERJ 170/175
Subtotal:

1
0
87
46
134

2
0
46
60
108

0
0
12
43
55

0
0
7
45
52

0
0
6
65
71

0
0
7
33
40

0
0
6
19
25

0
0
2
11
13

0
0
0
21
21

0
0
0
29
29

0
0
0
40
40

0
0
0
35
35

0
0
0
32
32

Other
328 Jet
Superjet 100
ARJ21-700
MRJ
Subtotal

8
0
0
0
8

4
0
0
0
4

1
0
0
0
1

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

0
5
0
0
5

0
8
0
0
8

0
35
0
0
35

0
50
5
0
55

0
35
15
8
73

0
50
30
30
110

320
5%

233
(27.2%)

121
(48.1%)

114
(5.8%)

127
11%

100
(21.3%)

66
(34.0%)

51
(22.7%)

43
-16.0%

94
119%

145
54%

128
(11.7)%

162
27%

Total
Growth

Source: Ascend, company reports, and J.P. Morgan estimates.

Table 16: 20-125 Seat Aircraft Backlog, 1997 - 2012

Aircraft Model
20-50 Seat
ERJ 135
ERJ 140
ERJ 145
CRJ 100/200
Subtotal
70-125 Seat
Embraer 170
Embraer 175
Embraer 190
Embraer 195
CRJ 700
CRJ 900
CRJ 1000
ARJ-21
Superjet
BBD CS100
BBD CS300
MRJ
Subtotal
Total

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

154

124

124
103
235

140
165
459

134
249
507

87
139
260
302
788

34
152
181
365
732

31
116
109
264
520

17
20
146
163
346

17
20
66
91
194

15
20
10
19
64

53

47

40

53

47

40

30

80

82

88

120

30
99

30
174
10

30
173
30

30
133
35

111
15
96
15

112
15
156
15
83
20

106
8
180
29
64
20

29
74
271
41
5
73

35

35

35
30

35
61

31
70
276
47
32
93
39
85
73

45
20
238
83
46
61
45
90
98

29

96

159

294

315

286

392

436

472

589

746

15
741

17
15
185
40
45
21
49
92
122
33
17
15
651

264

555

666

1,082

1,047

806

738

630

536

642

793

781

659

29

96

2011

2012

10
40
157
41
26
22
46
122
152
33
57
65
771

6
45
162
35
9
10
29
132
163
61
72
65
789

10
35
109
31
15
53
39
132
165
66
82
165
902

773

789

902

Source: Ascend, Company Data.

29

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Table 17: 20-125 Seater Aircraft Orders, 1997 2012

Aircraft Model
20-50 Seat
ERJ 135
ERJ 140
ERJ 145
CRJ 100/200
Subtotal
70-125 Seat
Embraer 170
Embraer 175
Embraer 190
Embraer 195
BBD CRJ 700
BBD CRJ 900
BBD CRJ 1000
Comac ARJ-21
Sukhoi Superjet
BBD CS100
BBD CS300
Mitsubishi MRJ
Subtotal
Total

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

146

-14

122
125
255

76
135
357

74
165
225

8
139
238
152
537

-26
35
25
187
221

0
0
10
35
45

0
-80
92
56
68

1
0
9
34
44

0
0
-10
-25
-35

-15
-20
55
-15
5

0
0
0
0
0

0
0
0
0
0

0
0
-25
0
-25

0
0
0
0
0

0
0
0
0
0

0
0
0
0
0

30

50

32

38

30
3

0
75
10

0
21
20

0
-3
5

110
-15
29
-10

45
0
39
20

40
7
36
14
45
14

-45
77
125
17
-29
95

35

0
30

0
31

13
30
86
14
22
73
39
50
12

23
6
33
51
24
25
6
5
25

4
33
30
18
0
14
0
30
33
0
40
50
252

-3
16
73
18
-5
4
0
10
10
28
15
0
166

5
14
32
19
7
48
18
0
11
10
30
100
294

252

166

294

29

67

63

135

43

181

142

186

271

339

15
213

-6
6
10
-24
22
-4
4
2
24
33
17
0
84

284

424

288

672

264

53

249

186

151

276

339

213

59

29

67

Source: Ascend, Company Data.

Table 18: Regional Jet Backlog Analysis

OEM
Bombardier
COMAC
Embraer
Mitsubishi
Sukhoi
Total

2013
21
27

2014
47
16
38

26
74

53
154

2015
9
41
12
8
46
116

2016
6
34
6
31
17
94

Source: Ascend, company data, and J.P. Morgan estimates. Note: ERJ backlog does not include 190/195s. Note: As of 19 March 2013.

30

2017
29
49
12
90

2017+
15
12
8
77
9
121

Total
98
132
91
165
163
649

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Business Jets/General Aviation

Table 19: J.P. Morgan Business Jet Delivery Forecast
1997

1998

1999

2000

2001

2002

2003

2004

Bombardier
Challenger 600
Challenger 300
Challenger 800
Global Express
Global 5000
Learjet 40
Learjet 45 / 45X
Learjet 60/60XR
Learjet 85
Discontinued Models
Total

34

32

21
79

36

7
32

22
100

42

32

43
35

24
173

38

35

71
29

28
207

41

30

63
17

17
180

31

17

27
12

9
101

24
1

14

17
9

2
70

29
28

20
4
17
22
18

129

36
51
4
14
17
21
30
15

188

29
55
18
22
18
26
30
23

213

35
51
12
25
23
23
34
23

226

44
60
17
27
25
21
27
26

247

Cessna (Textron)
Citation Mustang
Citation M2
Citation Jet/CJ1
Citation Jet/CJ2
Citation Jet/CJ3
Citation Jet/CJ4
Citation Encore
Citation Excel
Citation Ten
Citation Sovereign
Citation X
Discontinued Models
Total

63

28
90
181

64

15

30
91
200

59

39

36
82
216

56
8

6
79

37
66
252

61
41

37
85

34
48
306

30
86

36
81

31
41
305

22
56

21
48

18
31
196

20
27
6

24
55

9
15
25
181

18
23
48

17
62

46
14
21
249

25
37
72

14
73

57
12
18
309

45

34
44
78

23
82

65
17

388

10
7

16
18

51

13
5

15
14

47

11
8

16
34

69

18
6

23
26

73

13
6

21
35

75

10
4

17
35

66

8
3

10
12
16

49

5
3

15
11
29

63

5
1
2
16
6
21

51

4
16
6
30

61

2
2

5
5

13

13

13

13

14

14

22
29

57

14

32
29

75

9
1

39
31

80

11
6

37
34

88

5
25

36
35

101

9
15

29
32

85

5
19
8
13
29

74

9
13
5
19
32

78

43
33

2
78

446
37%
446
37%

43
48

91

513
15%
513
15%

45
55

100

638
24%
638
24%

51
67

118

740
16%
740
16%

18
25
55

98

765
3%
765
3%

29
19
46

94

659
-14%
659
-14%

29
24
47

100

502
-24%
502
-24%

37
28
50

115

579
15%
579
15%

Dassault
Falcon 50/EX
Falcon 900/B/C
Falcon 900DX
Falcon 900EX
Falcon 2000
Falcon 2000EX
Falcon 2000LX
Falcon 7X
Total
Embraer
Phenom 100
Phenom 300
Legacy 450/500
Legacy 600/shuffle
Lineage 1000
Discontinued Models
Total
Gulfstream
G100/ G150
G200/ 280
G300/ 350
G400/ 450/ IV/ IVSP
G500/ 550/ V/ VSP
G650
Total
Hawker Beechcraft
Premier IA/Hwkr 200
Hawker 400XP
Hawker 800 series
Hawker 4000
Discontinued Models
Total
HondaJet
Total w/o VLJs
% change
Total w/ VLJs
% change

2005 2006

2007

2008

2009

2010

2011

2012

2013E

2014E

36
33
7
25
26
14
19
13

173

38
29
6
24
25
6
10
12

150

43
37
6
25
28
14
10
19

182

34
48
4
25
29
13
14
12

179

35
45
5
34
31
13
15
5

183

40
52
6
38
37
12
16

10

211

101

20
56
88

28
80

77
16

466

125

14
21
40

5
44

33
7

289

73

3
17
20
19
5
22

16
3

178

45

2
15
22
48
4
27

19
3

183

38

19
21
44
31

22
6

181

28
20
22
22
44
34
8
20
2

200

12
44
26
26
60
36
15
24
243

10
18
1
33

6
70

4
19
3
18
6
21
72

1
17
1
3
23
32
77

3
21

30
41
95

12

20
31
63

22
37
66

13
5

20
32
70

15
8

22
30
75

27

27

35

35

36

38

97
1

18
5

121

100
26

10
8

144

47
36

13
3

99

29
48

19
3

99

32
50

24
3

109

40
60
10
27
5

141

12
14
12
14
37

89

20
22
12
16
43

113

32
27
13
20
46

138

39
30
12
20
55

156

11
8

30
45

94

13
11

31
44

99

7
10

35
43
12
107

7
10

31
49
24
121

8
18

32
44
36
138

16
24

26
40
44
150

30
53
58

141

732
26%
732
26%

23
53
64

140

862
18%
863
18%

54
41
67

162

974
13%
1,019
18%

31
35
88
6

160

1,033
6%
1,136
11%

16
11
51
20

98

628
-39%
846
-26%

11
12
34
16

73

566
-10%
739
-13%

11
1
30
10

52

596
5%
686
-7%

18
5

27

611
3%
678
-1%

5
640
5%
705
4%

40
768
20%
860
22%

Source: Company reports, GAMA, and J.P. Morgan estimates. Note: Gulfstream data reflects green deliveries. VLJs includes Citation Mustang, Phenom 100, and HondaJet.

31

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Figure 40: Business Jet Deliveries by Quarter

350
300
250
200
150
100
50
0
2001

2002

2003

2004

2005

Q1

2006

2007

Q2

2008

2009

Q3

2010

2011

2012

Q4

Source: GAMA.

Figure 41: Estimated Business Jet Billings by Quarter ($ in mn)

$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
2005

2006

1Q

2007

2008

2Q

2009

3Q

2010

2011

2012

4Q

Source: GAMA and J.P. Morgan estimates.

Figure 42: Historical and Projected Market Share by Value, 2000 - 2012
100%

80%

60%

40%

20%

0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Bombardier

Cessna

Dassault

Source: GAMA, Teal Group and J.P. Morgan estimates.

32

Embraer

Gulfstream

Hawker Beechcraft

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Figure 43: Bizjet Book to Bill by OEM, 2004 - 2012

4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
2004

2005

2006

2007

2008

2009

2010

2011

BBD

Cessna

Gulfstream

Hawker Beechcraft

Dassault

Embraer

2012

Figure 44: Bizjet EBIT by OEM, 2003 - 2012

3500
3000
2500
2000
1500
1000
500
0
-500
-1000

2003

2004
BBD

2005
Cessna

2006

2007

Dassault

Embraer

2008

2009

Gulfstream

2010

2011

2012E

Hawker Beechcraft

Source: Company data and J.P. Morgan estimates.

Figure 45: Used Jet Pricing and Inventory Trend, Dec-95 Feb-13
$MM

Avg. Asking Price

Jets for Sale as % of Active Fleet

17
15
13
11
9
7
5
3
Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11

16%
14%
12%
10%
8%
6%
4%
2%

Source: Jetnet. Note: Includes in-service models only.

33

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Table 20: Global Used Jet Inventory Distribution (by Age)

Active Fleet
4,225
3,762
3,372
1,547
1,216
1,223
3,554
18,899

0-5 Years
6-10 Years
11-15 Years
16-20 Years
21-25 Years
26-30 Years
> 30 Years
Total

For Sale
327
374
412
241
204
261
720
2,539

Source: Jetnet as of 2012. Note: The data include all business jets available in the market.

Figure 46: Current Used Business Jet Market Share (by Category)

Heavy
31%
Light
45%

Medium
24%
Source: Jetnet. Note: Market share based on Embraer, Cessna, Bombardier, Hawker Beechcraft, Dassault, and Gulfstream in production models.

Figure 47: Business Jet Deliveries vs. Used Jet Inventories

Deliveries

16%
14%
12%
10%
8%
6%
4%

Source: Jetnet and GAMA.

34

Used Jet Inventories

3Q12
1Q12
3Q11
1Q11
3Q10
1Q10
3Q09
1Q09
3Q08
1Q08
3Q07
1Q07
3Q06
1Q06
3Q05
1Q05
3Q04
1Q04
3Q03
1Q03
3Q02
1Q02
3Q01
1Q01

400
350
300
250
200
150
100
50
0

2%

%
7.7%
9.9%
12.2%
15.6%
16.8%
21.3%
20.3%
13.4%

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Figure 48: Business Jet Deliveries vs. Avg. Asking Price (mm$)
Deliveries

400

Avg. Asking Price

$20

350

$18

300
250

$16

200
$14

150
100

$12

50
3Q12
1Q12
3Q11
1Q11
3Q10
1Q10
3Q09
1Q09
3Q08
1Q08
3Q07
1Q07
3Q06
1Q06
3Q05
1Q05
3Q04
1Q04
3Q03
1Q03
3Q02
1Q02
3Q01
1Q01

$10

Source: Jetnet and GAMA.

Figure 49: Current In Service Business Jet Age and Geographical Distribution

5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0

North America

4,214
3,178

Europe

3,013

1,503

Latin America and

Caribbean
Asia Pacific

1,748

Africa

1,202 1,367
725

1-5

401

6-10 11-15 16-20 21-25 26-30 31-35 36-40 >40

Middle East
Others

AircraftAge Group
Source: Ascend (as of 2012). Note: Geographical data is available only for wholly owned aircraft; thus, the global fleet in Figure 49 is smaller than in Table 20, which includes fractionally owned
aircraft as well.

Figure 50: US Business Jet Flight Operations Growth (y/y), Jan 02 Jan 13

30%
20%
10%
0%
-10%
-20%
-30%
-40%

Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
Jul-03
Jan-03
Jul-02
Jan-02
Source: FAA. Note: Includes flight ops into, out of, and with-in the US.
35

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

North America Equity Research

26 March 2013

Figure 51: European Business Jet Flight Operations Growth (y/y), Jan 05 Jan 13

20%
10%
0%
-10%
-20%
-30%
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Source: Eurocontrol. Note: Includes flight ops into, out of, and within the ESRA08 reference region (ESRA: Eurocontrol Statistical Reference Area).

36

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Defense
Historical and Projected Budget and Outlays
Figure 52: Total US Defense Budget Authority by Title (Current $ in bn), FY48-FY13
$800
$700
$600
$500
$400
$300
$200
$100
$0

Personnel

O&M

Procurement

RDT&E

Others

Source: DoD.

Figure 53: Supplemental Defense Budget Authority by Account (Current $ in bn), FY01 FY13
$200

$150

$100

$50

$0

Military Personnel

O&M

Procurement

RDT&E

Others

Source: DoD.

Table 21: US Defense Budget and Outlays, FY06 - FY15E

Total Base BA
Growth
Total Supplemental BA
Growth
Total BA
Growth
Total Outlays
Growth

FY06
$413
$124
$536
$499

FY07
$433
5%
$169
37%
$602
12%
$529
6%

FY08
$487
12%
$187
10%
$673
12%
$595
12%

FY09
$511
5%
$153
-18%
$665
-1%
$636
7%

FY10
$533
4%
$163
6%
$696
5%
$667
5%

FY11
$532
0%
$159
-3%
$691
-1%
$681
2%

FY12
$535
1%
$115
-28%
$651
-6%
$652
-4%

FY13E
$512
-4%
$88
-23%
$600
-8%
$621
-5%

FY14E
$506
-1%
$40
-55%
$546
-9%
$563
-9%

FY15E
$500
-1%
$10
-75%
$510
-7%
$521
-7%

Source: DoD, J.P. Morgan estimates.

37

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Table 22: Investment Account Budget and Outlays, FY06 FY15E

Base Investment Account BA
Growth
Supplemental Investment Account BA
Growth
Total Investment Account BA
Growth
Total Investment Account Outlays
Growth

FY06
$150
$29
$178
$158

FY07
$160
7%
$51
80%
$211
19%
$173
9%

FY08
$177
11%
$67
32%
$245
16%
$193
11%

FY09
$180
2%
$35
-48%
$215
-12%
$209
9%

FY10
$182
1%
$34
-4%
$216
0%
$211
1%

FY11
$177
-3%
$31
-7%
$209
-3%
$203
-4%

FY12
$176
-1%
$17
-47%
$192
-8%
$195
-4%

Source: DoD, J.P. Morgan estimates.

Figure 54: Quarterly Defense Investment Account Outlays ($ in mn). GFY 1Q99 1Q13
$60,000

40%

$50,000

30%

$40,000

20%

$30,000

10%

$20,000

0%

$10,000

-10%

$0

-20%

Outlays

% y/y change

TTM % y/y change

Source: Treasury.

Figure 55: Large Cap Organic Growth vs. LTM Investment Account Growth. 1Q09-4Q12
20.0%

10.0%

0.0%

-10.0%

-20.0%

Average Large Cap Defense Organic Growth

LTM Investment Account Outlay Growth

Investment Account Outlay Growth

Total DoD Outlay Growth

Source: Treasury, Company reports, J.P. Morgan estimates.

38

FY13E
$158
-10%
$10
-40%
$168
-13%
$183
-6%

FY14E
$155
-2%
$7
-30%
$162
-4%
$169
-7%

FY15E
$152
-2%
$2
-71%
$154
-5%
$159
-6%

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Table 23: Total Addressable Market, FY09 - FY15E

FY09
$209

Total Investment Account Outlays

Growth
Foreign Deliveries
Growth
Total Addressable Market
Growth

FY10
$211
1%
$17
-12%
$228
0%

$19
$229

FY11
$203
-4%
$23
31%
$225
-1%

FY12
$195
-4%
$25
10%
$220
-2%

FY13E
$183
-6%
$27
10%
$210
-4%

FY14E
$169
-7%
$30
10%
$199
-5%

FY15E
$159
-6%
$33
10%
$192
-4%

Source: DoD, Congress, J.P. Morgan estimates.

Table 24: O&M Budget and Outlays, FY06 - FY15E

FY06
$140

Base O&M BA
Growth
Supplemental O&M BA
Growth
Total O&M BA
Growth
Total O&M Outlays
Growth

FY07
$147
5%
$93
27%
$240
13%
$217
6%

$73
$214
$204

FY08
$163
11%
$93
0%
$256
7%
$245
13%

FY09
$180
11%
$92
-2%
$272
6%
$259
6%

FY10
$185
3%
$109
19%
$294
8%
$276
6%

FY11
$195
6%
$110
1%
$305
4%
$291
5%

FY12
$198
2%
$87
-21%
$285
-7%
$282
-3%

FY13E
$200
1%
$64
-26%
$264
-7%
$266
-6%

FY14E
$197
-2%
$28
-56%
$225
-15%
$231
-13%

FY15E
$194
-2%
$7
-75%
$201
-11%
$205
-11%

Source: DoD, J.P. Morgan estimates.

Figure 56: Defense Outlays Relative to GDP and Federal Spending, 1950-2012
% of Federal
Spending

% of GDP
14.0%

70.0%

12.0%

60.0%

10.0%

50.0%

8.0%

40.0%

6.0%

30.0%

4.0%

20.0%

2.0%

10.0%

0.0%

0.0%
1950

1960

1970

1980

1990

2000

2010

DoD as % of GDP
DoD as % of Total Federal
Source: DoD.

Table 25: Monthly DoD Outlays ($ mn)

Procurement
RDT&E
O&M
MILPERS
Other
Total
y/y growth
Investment Accounts
y/y growth
LTM growth

Feb-13
$6,905
4,196
20,707
11,463
444
$43,715
-16.2%

Jan-13
$12,736
6,397
23,444
6,392
1,508
$50,477
6.8%

Dec-12
$9,212
6,548
21,686
11,060
1,829
$50,335
-18.7%

Nov-12
$8,990
4,883
22,152
15,773
2,384
$54,182
1.9%

Oct-12
$8,998
4,695
20,925
26,106
2,224
$62,948
9.0%

Sep-12
$10,899
5,663
24,982
7,804
(153)
$49,195
-22.9%

Aug-12
$9,322
6,782
26,477
16,665
2,984
$62,230
10.0%

Jul-12
$10,003
5,434
23,114
7,107
3,024
$48,682
-7.5%

Jun-12
$10,636
5,256
22,569
16,661
1,885
$57,007
0.3%

May-12
$10,233
6,772
24,770
11,388
2,042
$55,205
12.4%

Apr-12
$7,849
5,827
21,561
6,882
1,476
$43,595
-25.3%

Mar-12
$12,237
7,904
20,141
16,228
7,547
$64,057
4.4%

$11,101
-32.1%
-5.2%

$19,133
10.2%
-2.2%

$15,760
-12.9%
-1.1%

$13,873
-12.1%
-1.4%

$13,693
7.8%
-2.6%

$16,562
2.1%
-3.8%

$16,104
-4.8%
-5.9%

$15,437
-9.1%
-5.1%

$15,892
-6.7%
-4.2%

$17,005
7.3%
-4.2%

$13,676
-10.4%
-5.0%

$20,141
-0.4%
-5.9%

Source: DoD.

39

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Other Defense Data

Table 26: Planned US Military Aircraft Procurement, FY11-FY17E
FY11

FY12E

FY13E

FY14E

FY15E

FY16E

FY17E

AH-64 Apache

16

19

50

48

48

48

48

CH-47 Helicopter

49

48

44

28

30

39

27

Black Hawk

141

114

96

94

95

103

53

V-22

36

35

21

21

19

19

18

UH-1Y/AH-1Z

31

25

28

26

27

26

31

EA-18G/F/A-18E/F

43

40

38

13

F-35 (CV+STOVL+Navy)

35

31

29

29

44

66

76

C-130

17

12

29

16

18

Source: DoD.
Note: Apache includes remanufactured aircraft and new builds. Black Hawk includes both Army and Navy variants of the aircraft. V-22 includes Air Force and Marine variants of the aircraft and C130 includes HC-130, MC-130 and AC-130 recaps.

Figure 57: US Troop Deployment and Supplemental Budget Data (May-03 Dec-14E)
(th)

($ bn)

250

$200

200

$160

150

$120

100

$80

50

$40

0
May-03

Apr-05

Mar-07
Iraq

Feb-09
Afghanistan

Source: Brookings Institute (Iraq and Afghanistan Index), J.P. Morgan estimates.
Note: FY14 and FY15 supplemental budget data represents JPM estimates.

40

Jan-11

Dec-12

Supplemental Budget

$0
Nov-14

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

North America Equity Research

26 March 2013

Table 27: Select Upcoming Competitions and Awards

Program
Turkish missile defense

Est. Value
~$4 bn

Est. Contract Timing

Early-2013

~$4-7 bn
~$200 mn annually
$20+ bn

Early-2013
Early-2013
Early-2013

TBD

Early-2013

~$7 bn
TBD
TBD

Early / mid-13
Early / mid-13
Early / mid-13

~$85 mn annually
~$6.8 bn
~$1.9 bn
TBD

Mid-13
Mid / late-13
Mid / late-13
2013

~$300 mn annually
~$7 bn
~$14 bn
TBD

2013
2013
2013
2013

General Dynamics, Harris, Rockwell Collins

TBD

2013

US Presidential Helicopter Program

Northrop Grumman / AgustaWestland, Bell /

Boeing, Sikorsky / Lockheed Martin, Boeing

~$2.5 bn

2014 (est)

Joint Light Tactical Vehicle

Classified intelligence support
Three-Dimensional Expeditionary LongRange Radar (3DELRR)
US Coast Guard Offshore Patrol Cutter

Lockheed Martin, AM General, Oshkosh

L-3
Raytheon, Northrop Grumman, Lockheed
Martin
Huntington Ingalls, General Dynamics,
Bollinger Shipyards / Damen Shipyards
Group / Gibbs & Cox, VT Halter Marine /
DCNS, Vigor Shipyards

~$15 bn
~$200 mn annually
~1.3 bn

2014 (est)
Mid-14
2014

~$8 bn

2015, with preliminary

desgin contracts
awarded to a few firms
in mid-2013

Brazil fighter jet

TAC-SWACAA
Ground Combat Vehicle

Next Generation Jammer

South Korea fighter jet
SRW Appliqu
JTRS MNVR
Mega 3
Combat Rescue Helicopter
Space Fence
Air and Missile Defense Radar
LISC
9 DDG-51 destr oyers
Virginia-class Block IV (9 submarines)
Next Generation Enterprise Network
(NGEN)
JTRS Manpack

Expected Competitors
Raytheon / Lockheed Martin, Eurosam,
Rosoboronexport, China Precision
Machinery Import and Export Corp.
Boeing, Dassault, Saab
Exelis
General Dynamics / Lockheed Martin /
Raytheon, BAE Systems / Northrop
Grumman
Northrop Grumman / Exelis, Raytheon, BAE
Systems
Lockheed Martin, Boeing, Eurofighter
Exelis, Harris
Exelis / Northrop Grumman, Harris, General
Dynamics, Raytheon
CACI
Sikorsky / Lockheed Martin
Raytheon, Lockheed Martin
Lockheed Martin, Northrop Grumman,
Raytheon
Exelis / L-3 / BAE
Huntington Ingalls, General Dynamics
Huntington Ingalls / General Dynamics
Harris

Source: J.P. Morgan estimates, Company data.

41

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Company Financials
Sales
Table 28: Revenue by Company ($ in mn), Calendar Year
Company
Alliant Techsys.
B/E Aerospace
Boeing
Bombardier
CACI
Comtech
Embraer
Exelis
General Dynamics
Goodrich
Huntington Ingalls
Harris Corporation
L-3 Communications
Lockheed Martin
Northrop Grumman
Precision Castparts
Raytheon
Rockwell Collins
SAIC
Spirit AeroSys.
Textron Inc.
TransDigm
United Tech.
Wesco Aircraft
Total

Symbol
ATK
BEAV
BA
BBD/B
CACI
CMTL
ERJ
XLS
GD
GR
HII
HRS
LLL
LMT
NOC
PCP
RTN
COL
SAI
SPR
TXT
TDG
UTX
WAIR

2008
$4,455
$2,110
60,925
19,721
2,616
600
6,335
6,072
29,300
7,062
6,189
5,269
14,901
42,731
33,887
7,014
23,174
4,715
10,073
3,772
14,010
732
58,681
606

2009
$4,816
$1,938
68,281
19,366
2,919
556
5,466
6,061
31,981
6,686
6,292
4,920
15,627
43,995
34,928
5,659
24,881
4,439
10,846
4,079
10,500
765
52,920
606

2010
$4,790
$1,984
64,306
17,712
3,334
814
5,354
5,891
32,466
6,967
6,723
5,629
15,680
45,803
34,757
5,986
25,183
4,748
11,117
4,172
10,525
883
54,372
683

2011
$4,604
$2,500
68,735
18,347
3,774
484
5,803
5,839
32,677
8,075
6,575
5,727
15,169
46,514
26,412
6,957
24,857
4,803
10,587
4,864
11,275
1,332
58,190
730

2012**
$4,524
3,085
81,698
16,768
3,740
378
6,178
5,522
31,513
4,315
6,708
5,353
13,147
47,182
25,218
7,892
24,414
4,694
11,222
5,398
12,237
1,778
57,716
795

4Q12**
$1,056
803
22,302
4,755
932
75
1,900
1,361
8,078
n/a*
1,823
1,287
3,560
12,099
6,476
2,043
6,439
1,062
2,722
1,426
3,362
430
16,443
211

1Q13E
$1,108
825
18,840
4,139
942
69
1,372
1,206
7,757
n/a*
1,647
1,310
3,017
10,310
5,940
2,479
5,728
1,114
2,663
1,400
3,002
467
14,862
220

2Q13E
$972
837
21,226
4,322
950
77
1,503
1,261
8,120
n/a*
1,700
1,358
2,987
11,375
5,947
2,497
5,813
1,214
2,712
1,480
3,080
491
16,448
229

3Q13E
$1,019
857
22,124
4,672
911
79
1,621
1,240
7,921
n/a*
1,688
1,273
3,191
11,392
5,859
2,548
5,853
1,289
2,682
1,538
3,152
501
16,345
240

4Q13E
$988
916
23,126
5,062
907
79
1,790
1,240
8,144
n/a*
1,693
1,252
3,451
11,665
6,014
2,593
6,233
1,102
2,594
1,609
3,590
460
17,454
232

2013E
$4,087
3,435
85,315
18,194
3,711
304
6,286
4,948
31,942
n/a*
6,728
5,193
12,646
44,742
23,760
10,118
23,627
4,719
10,651
6,026
12,824
1,918
65,108
921

$364,950

$368,526

$369,880

$374,829

$381,476

$100,646

$90,417

$96,597

$97,996

$102,193

$387,203

Source: Company reports and J.P. Morgan estimates. Note: * GR became part of UTX in 3Q12. GR 2Q12 estimated.** All companies have reported 4QCY12 sales except SAI, which is scheduled
to announce its earnings on 26th Mar.

42

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Table 29: Organic Growth by Company, 2007-2013E

2007E

2008E

2009E

2010E

2011E

2012E

2013E

Commercial Aerospace
Boeing Commercial Airplanes
B/E Aerospace
Bombardier (Aerospace)
Embraer
Goodrich
Gulfstream (GD)
Hamilton (UTX)
Pratt & Whitney (UTX)
Precision Castparts
Rockwell Collins (Aerospace)
Spirit AeroSystems
Textron (Cessna)
TransDigm
Wesco Aircraft Holdings Inc.
Average

15%
39%
18%
38%
9%
17%
11%
9%
18%
19%
20%
20%
14%
24%
19%

-15%
12%
3%
21%
10%
10%
10%
7%
22%
10%
-2%
13%
9%
23%
9%

20%
-24%
-6%
-14%
-6%
-25%
-10%
-3%
-2%
-21%
8%
-41%
-2%
-9%
-10%

-7%
0%
-8%
-2%
1%
2%
1%
4%
-23%
-5%
2%
-23%
-1%
7%
-4%

14%
15%
0%
8%
13%
13%
9%
3%
11%
11%
9%
17%
12%
8%
10%

36%
15%
0%
6%
n/a*
15%
7%
1%
10%
6%
19%
4%
11%
7%
11%

9%
9%
6%
2%
n/a*
15%
8%
2%
2%
8%
12%
9%
7%
10%
7%

Large Cap Defense

Boeing BDS
GD (ex Gulfstream)
L-3 Communications
Lockheed Martin
Northrop Grumman
Raytheon
Average

1%
8%
10%
6%
5%
8%
6%

0%
6%
5%
2%
7%
9%
5%

5%
10%
4%
2%
5%
7%
6%

-6%
0%
-1%
4%
2%
2%
0%

-1%
-2%
-4%
2%
-4%
-3%
-2%

2%
-14%
-2%
1%
-4%
-2%
-3%

-4%
-3%
-5%
-5%
-6%
-3%
-4%

SMID Cap Defense

ATK
CACI
Comtech
Exelis
Huntington Ingalls
Harris
Rockwell Collins (Defense)
SAIC
Textron (Bell)
Textron (Systems)
Sikorsky (UTX)
Average

14%
10%
26%
13%
9%
12%
3%
7%
10%
26%
48%
16%

8%
14%
7%
8%
8%
5%
1%
11%
10%
41%
12%
11%

7%
10%
-22%
0%
5%
-14%
7%
7%
1%
1%
18%
2%

-2%
12%
47%
-3%
5%
9%
3%
0%
14%
4%
6%
9%

-4%
11%
-41%
-1%
-4%
0%
-2%
-1%
9%
-5%
10%
-3%

-2%
-4%
-22%
-5%
2%
-2%
-8%
1%
21%
-7%
-8%
-3%

-10%
-3%
-20%
-10%
0%
-3%
-8%
-6%
4%
8%
3%
-4%

Total Average

16%

9%

-3%

2%

3%

3%

1%

Source: Company reports and J.P. Morgan estimates.

Table 30: Large Cap Organic Growth by Quarter (y/y)

Boeing BDS
GD (ex Gulfstream)
L-3 Communications
Lockheed Martin
Northrop Grumman
Raytheon
Average

1Q11E
-1%
1%
-3%
3%
0%
0%

2Q11E
-5%
-3%
-6%
2%
-7%
-2%

3Q11E
0%
-4%
-2%
7%
-4%
-3%

4Q11E
4%
-2%
-6%
-5%
-4%
-7%

1Q12E
8%
-13%
2%
6%
-8%
-2%

2Q12E
7%
-8%
-4%
3%
-4%
-4%

3Q12E
-4%
-13%
-2%
-2%
-5%
-1%

4Q12E
-2%
-19%
-1%
-1%
0%
0%

1Q13E
-13%
-4%
-6%
-9%
-4%
-4%

2Q13E
-5%
-4%
-6%
-5%
-5%
-3%

3Q13E
1%
-3%
-3%
-4%
-7%
-3%

4Q13E
3%
-1%
-3%
-4%
-7%
-3%

0%

-3%

-1%

-3%

-1%

-2%

-5%

-4%

-6%

-5%

-3%

-3%

Source: Company reports and J.P. Morgan estimates.

43

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Operating Margin
Table 31: Operating Margin by Company, (Calendar Year) 2007 2013E
2007

2008

2009

2010

2011

2012

2013E

8.9%
14.7%
5.8%
8.7%
13.8%
16.8%
16.5%
15.9%
21.1%
21.0%
10.9%
17.3%
39.4%

3.7%
16.8%
9.2%
8.5%
15.6%
18.5%
17.0%
15.7%
22.8%
21.0%
10.8%
16.0%
41.9%

12.4%

11.9%

-2.6%
15.3%
5.1%
6.1%
13.9%
13.7%
14.6%
13.9%
25.8%
16.2%
7.4%
6.0%
44.0%
21.2%
7.3%

8.3%
15.9%
5.2%
7.3%
14.3%
16.2%
15.6%
14.6%
24.4%
15.0%
8.6%
-1.1%
43.9%
24.3%
11.6%

8.2%
17.1%
5.8%
5.5%
16.7%
12.2%
16.9%
14.2%
24.0%
17.4%
7.3%
2.0%
34.0%
22.7%
10.9%

7.7%
17.5%
4.7%
10.1%
n/a*
12.4%
10.6%
10.6%
25.8%
18.4%
1.7%
2.6%
41.2%
19.3%
10.2%

7.8%
18.4%
4.6%
10.5%
n/a*
15.5%
15.0%
11.5%
26.0%
21.7%
8.6%
4.4%
42.4%
21.3%
11.7%

Large Cap Defense

Boeing BDS
GD (ex Gulfstream)
L-3 Communications
Lockheed Martin
Northrop Grumman
Raytheon
Weighted Avg

9.8%
10.3%
10.4%
11.0%
9.0%
12.1%
10.4%

9.9%
11.1%
10.5%
11.7%
9.5%
11.8%
10.8%

8.8%
11.1%
10.6%
11.1%
9.1%
12.1%
10.4%

7.8%
11.4%
11.2%
10.4%
10.0%
12.6%
10.4%

8.8%
11.6%
10.8%
10.8%
10.9%
13.2%
10.9%

8.5%
10.6%
10.3%
11.0%
11.9%
13.3%
10.9%

9.0%
9.8%
10.0%
10.7%
10.7%
12.5%
10.4%

SMID Cap Defense

ATK
CACI
Comtech
Exelis
Huntingon Ingalls
Harris
Rockwell Collins (Defense)
SAIC
Bell (Textron)
Systems (Textron)
Sikorsky (UTX)
Weighted Avg

6.8%
6.8%
20.0%
12.0%
9.3%
12.4%
18.4%
7.5%
3.5%
12.3%
7.1%
9.3%

9.9%
6.7%
17.9%
10.7%
2.6%
14.0%
19.9%
7.7%
8.6%
12.1%
8.2%
9.3%

10.3%
6.5%
11.6%
11.6%
4.8%
16.0%
21.1%
8.0%
9.1%
11.1%
9.0%
10.0%

10.3%
6.4%
15.6%
11.7%
4.4%
18.2%
19.1%
8.6%
11.9%
10.3%
10.0%
10.6%

11.4%
7.7%
14.8%
9.8%
6.3%
15.9%
19.0%
7.7%
13.8%
9.7%
10.7%
10.5%

11.1%
7.6%
12.4%
9.0%
6.3%
17.4%
19.3%
7.1%
13.7%
7.2%
9.7%
10.1%

10.8%
7.7%
10.6%
9.3%
7.5%
17.4%
18.5%
6.8%
12.8%
8.0%
8.8%
10.0%

Total Weighted Avg

10.9%

10.9%

9.4%

10.8%

10.8%

10.5%

10.8%

Commercial Aerospace
Boeing Commercial Aerospace
B/E Aerospace
Bombardier (Aerospace)
Embraer
Goodrich
Gulfstream (GD)
Hamilton/UTC Aerospace (UTX)
Pratt & Whitney (UTX)
Precision Castparts
Rockwell Collins (Aerospace)
Spirit AeroSystems
Cessna (Textron)
TransDigm
Wesco Aircraft Holdings Inc.
Weighted Avg

Source: Company reports and J.P. Morgan estimates. Note: Defense margins exclude FAS/CAS adjustments. *UTX acquired GR in 3Q12 in its Hamilton segment, which is now known as UTC
Aerospace Systems.

44

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Table 32: Impact of EAC Adjustments on Defense Margins

2009

2010

2011

2012

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

Underlying Margin

6.9%

6.8%

6.9%

6.5%

6.6%

7.0%

7.1%

6.7%

6.1%

6.7%

6.4%

6.9%

Space JV Equity Inc.

0.5%

0.6%

0.5%

0.5%

0.5%

0.7%

0.3%

0.5%

0.4%

0.1%

1.0%

0.5%

Adjustments

3.6%

3.1%

3.4%

4.0%

3.1%

3.7%

3.4%

3.6%

4.3%

5.0%

3.6%

3.2%

Reported Margin

11.1%

10.4%

10.8%

11.0%

10.2%

11.3%

10.8%

10.7%

10.8%

11.8%

11.0%

10.5%

Underlying Margin

10.3%

10.5%

10.6%

10.8%

10.5%

10.5%

11.1%

10.4%

10.7%

10.6%

11.2%

10.6%

Adjustments

1.8%

2.2%

2.5%

2.5%

2.1%

1.9%

2.3%

3.8%

2.4%

2.9%

2.6%

2.2%

Reported Margin

12.1%

12.6%

13.2%

13.3%

12.5%

12.4%

13.4%

14.2%

13.1%

13.6%

13.8%

12.8%

Underlying Margin

7.6%

7.6%

8.1%

8.0%

8.4%

8.2%

8.0%

7.7%

8.1%

8.2%

7.8%

7.9%

Adjustments

1.5%

2.4%

2.8%

3.9%

2.1%

3.1%

3.0%

3.0%

4.3%

3.5%

3.4%

4.4%

Reported Margin

9.1%

10.0%

10.9%

11.9%

10.5%

11.3%

11.0%

10.8%

12.3%

11.8%

11.2%

12.2%

Underlying Margin

8.2%

6.8%

7.5%

6.8%

6.8%

7.4%

7.9%

7.8%

6.5%

6.5%

7.5%

6.8%

Space JV Equity Inc.

0.5%

0.6%

0.6%

0.6%

0.5%

0.9%

0.4%

0.6%

0.4%

0.3%

1.3%

0.3%

Adjustments

0.1%

0.4%

0.7%

1.2%

0.7%

1.3%

0.3%

0.6%

1.4%

1.5%

0.9%

0.9%

Reported Margin

8.8%

7.8%

8.8%

8.5%

8.0%

9.6%

8.6%

9.0%

8.2%

8.2%

9.7%

8.0%

Underlying Margin

NA

10.1%

9.8%

9.8%

9.5%

9.9%

10.4%

9.4%

9.9%

9.8%

10.2%

9.4%

Adjustments

NA

1.3%

1.8%

0.7%

1.3%

1.5%

1.8%

2.6%

1.1%

1.4%

0.7%

-0.4%

11.1%

11.4%

11.6%

10.6%

10.8%

11.4%

12.1%

12.0%

11.0%

11.3%

11.0%

9.0%

10.1%

10.9%

10.3%

9.7%

10.1%

10.4%

10.0%

10.1%

9.7%

9.3%

9.6%

10.1%

LMT

RTN

NOC

BA (BDS)

GD (ex Gulfstream)

Reported Margin
LLL
Underlying Margin
Adjustments

0.5%

0.3%

0.5%

0.6%

0.7%

0.3%

0.7%

0.2%

0.7%

1.2%

0.5%

0.1%

Reported Margin

10.6%

11.2%

10.8%

10.3%

10.8%

10.7%

10.7%

10.3%

10.3%

10.6%

10.1%

10.2%

Underlying Margin

8.6%

8.7%

8.4%

8.5%

8.9%

8.9%

8.6%

8.2%

8.2%

8.9%

8.4%

Adjustments

1.8%

2.2%

2.5%

1.9%

2.3%

2.1%

2.5%

2.7%

3.0%

2.3%

2.0%

10.4%

10.9%

10.9%

10.3%

11.1%

11.0%

11.1%

10.8%

11.2%

11.1%

10.4%

Weighted Average

Reported Margin

10.4%

Source: Company reports, J.P. Morgan estimates. Note: Reported margins exclude FAS/CAS adjustments.

45

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Earnings & Cash Flow

Table 33: Earnings by Company ($ in mn)
Company
Alliant Techsystems
B/E Aerospace
Boeing
Bombardier
CACI
Comtech
Embraer
Exelis
General Dynamics
Goodrich
Huntington Ingalls
Harris Corporation
L-3 Communications
Lockheed Martin
Northrop Grumman
Precision Castparts
Raytheon
Rockwell Collins
SAIC
Spirit AeroSystems
Textron Inc.
TransDigm
United Technologies
Wesco Aircraft

Symbol
ATK
BEAV
BA
BBD/B
CACI
CMTL
ERJ
XLS
GD
GR
HII
HRS
LLL
LMT
NOC
PCP
RTN
COL
SAI
SPR
TXT
TDG
UTX
WAIR

Total

2008
$248
354***
2,684
1,026
89
71
389
414
2,478
674
(2,420)
490
949
3,217
(1,280)
1,041
1,702
675
445
265
486
146
4,689
59

2009
$188
296
1,335
707
102
40
248
459
2,407
563
124
224
902
2,999
1,683
950
1,985
564
500
192
(31)
124
3,829
62

2010
$300
316
3,311
769
119
77
347
448
2,627
577
135
631
954
2,645
2,038
984
1,843
591
569
220
86
123
4,373
74

2011
$272
428
4,011
837
166
45
112
326
2,552
822
(94)
528
956
2,653
2,086
1,161
1,897
596
(8)
194
242
221
4,979
77

2012**
$260
234
3,903
590
160
24
305
330
(332)
434
146
(261)
781
2,745
1,978
1,348
1,901
611
529
36
589
296
5,947
87

4Q12**
$63
75
978
14
40
2
123
86
(2,130)
n/a*
50
49
212
569
533
338
468
132
190
61
149
36
2,057
18

1Q13E
$66
85
977
78
40
1
106
40
584
n/a*
47
142
181
684
422
413
429
160
102
70
138
90
1,184
25

2Q13E
$53
88
990
108
41
4
118
67
600
n/a*
49
140
169
714
406
424
416
160
104
80
148
99
1,464
28

3Q13E
$57
93
1,084
149
37
6
131
86
585
n/a*
49
130
183
721
401
434
422
185
103
84
158
106
1,507
31

4Q13E
$54
97
1,154
189
37
6
156
85
604
n/a*
53
125
203
721
413
453
456
145
99
82
191
85
1,479
29

2013E
$229
363
4,205
524
155
16
511
278
2,373
n/a*
198
537
736
2,841
1,642
1,723
1,723
650
408
315
634
380
5,634
114

$18,536

$20,452

$24,157

$25,059

$22,642

$4,113

$6,064

$6,469

$6,741

$6,916

$26,190

Source: Company reports and J.P. Morgan estimates. Note: * UTX acquired GR in 3Q12. GR 2Q12 estimated. ** All companies have reported 4QCY12 earnings except SAI, which is scheduled to
announce Q4 results on Mar 26. *** BEAV adjusted for Goodwill impairment charges.

Table 34: Free Cash Flow by Company

Company
Alliant Techsystems
B/E Aerospace
Boeing
Bombardier
CACI
Comtech
Embraer
Exelis
General Dynamics
Goodrich
Huntington Ingalls
Harris Corporation
L-3 Communications
Lockheed Martin
Northrop Grumman
Precision Castparts
Raytheon
Rockwell Collins
SAIC
Spirit AeroSystems
Textron Inc.
TransDigm
United Technologies
Wesco Aircraft
Total

Symbol
ATK
BEAV
BA
BBD/B
CACI
CMTL
ERJ
XLS
GD
GR
HII
HRS
LLL
LMT
NOC
PCP
RTN
COL
SAI
SPR
TXT
TDG
UTX
WAIR

2008
$226
84
(2,041)
342
148
88
524
464
2,620
502
121
406
1,175
3,495
2,420
888
1,637
436
522
(31)
219
185
4,945
13

2009
$953
54
4,444
(215)
180
83
31
625
2,455
488
(269)
701
1,225
2,321
1,411
753
2,378
562
562
(242)
794
176
4,527
22

2010
$63
227
1,890
605
199
133
297
533
2,614
292
168
614
1,295
2,727
1,677
889
1,552
569
663
(163)
723
187
5,041
87

2011
$264
241
2,404
(1,257)
226
58
1
239
2,753
875
331
375
1,300
3,439
1,627
828
1,719
372
707
(297)
645
246
5,607
124

2012**
$280
230
5,805
(792)
252
47
(82)
266
2,235
398
170
660
1,026
619
2,309
1,377
1,542
504
145
295
455
415
5,127
32

4Q12**
$130
110
3,672
841
20
(2)
205
255
614
n/a*
303
120
452
(1,743)
922
193
837
0
54
223
368
89
1,313
3

1Q13E
$139
(132)
225
(819)
62
3
(159)
28
214
n/a*
(363)
157
100
1,143
104
360
27
52
145
(71)
(101)
91
1,358
31

2Q13E
($239)
65
1,253
(780)
62
7
(36)
55
405
n/a*
104
215
243
898
314
365
(59)
100
90
(50)
84
110
1,668
13

3Q13E
$140
134
1,662
186
46
9
(24)
74
765
n/a*
104
105
246
630
259
376
700
270
189
5
68
129
1,711
4

4Q13E
$162
193
1,737
661
45
9
312
73
984
n/a*
308
95
427
805
715
396
1,425
(16)
185
162
276
165
1,695
64

2013E
$201
260
4,877
(752)
215
28
93
231
2,368
n/a*
153
572
1,016
3,476
1,392
1,498
2,093
407
609
47
327
495
6,432
113

$19,388

$24,018

$22,884

$22,827

$23,316

$8,981

$2,596

$4,887

$7,789

$10,880

$26,152

Source: Company reports and J.P. Morgan estimates. Note: * UTX acquired GR in 3Q12. GR 2Q12 estimated. . ** All companies have reported 4QCY12 earnings except SAI, which is scheduled to
announce Q4 results on Mar 26.

46

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Figure 58: Total Coverage Universe FCF and Net Income ($ in bn)
$30

118%
105%

$25

117%

95%

103%

91%

100%

140%
120%
100%

$20

80%

$15

60%

$10

40%

$5

20%

$0

0%
2007

2008

2009

2010

FCF

NI

2011

2012

2013E

Ratio

Source: Company reports and J.P. Morgan estimates.

Pension Data
Table 35: Select Pension Data

Net Liability

% Funded

Current Year
FAS/CAS
Cash Contribution

Large Cap
BA
LMT
RTN
UTX
GD
NOC
LLL

$19,717
$15,093
$7,207
$5,780
$4,887
$4,784
$1,196

74%
67%
71%
84%
60%
83%
63%

NA
$485
$286
NA
NA
($120)
$67

SMID Cap
XLS
ATK
HII

$1,977
$886
$1,316

68%
71%
74%

$0
$50
$85

Sensitivities
25 bp in Discount Rate
Liability
Expense

$1,500
$1,500
$794
$200
$600
$575
$165

$2,778
$1,500
$645
$1,092
NA
$930
$121

$281
$145
$60
$87
$32
$78
$15

$153
$140
$300

$139
NA
$194

$2
$8
$20

Source: Company reports, J.P. Morgan estimates.

Note: ATK's fiscal year ends 3/31.

Defense Company Backlog and Book-to-Bill

Table 36: Summary of Annual Changes in Backlog, (% y/y)
Company
Alliant Techsystems
Boeing Defense
CACI
Comtech Telecommunications
Exelis
General Dynamics Defense
Huntington Ingalls
L-3 Communications
Lockheed Martin
Northrop Grumman
Raytheon
SAIC
Textron (Bell + Systems)
Weighted Average

Backlog
Funded
Funded
Funded
Funded
Funded
Funded
Funded
Funded
Total
Funded
Funded
Funded
Total

Mar-11
-5.6%
2.7%
2.3%
-52.3%
-18.0%
-10.0%
-13.7%
1.1%
6.7%
-7.7%
-7.3%
-10.5%
8.4%
-8.0%

Jun-11
-7.5%
4.6%
-5.3%
-57.1%
-7.3%
-7.6%
7.1%
-1.3%
6.0%
-6.1%
-6.8%
-8.7%
-2.5%
-7.1%

Sep-11
-1.5%
0.6%
0.8%
-52.5%
-7.0%
-2.9%
19.4%
6.8%
3.5%
1.3%
-3.8%
-0.3%
7.3%
-2.2%

Dec-11
-7.6%
-4.1%
0.5%
-36.8%
-12.2%
4.4%
13.3%
-3.6%
2.9%
-6.3%
-0.8%
-0.1%
7.6%
-3.3%

Mar-12
-6.0%
7.0%
4.9%
-30.0%
-19.5%
12.0%
13.1%
4.2%
-4.3%
5.2%
5.6%
13.9%
5.2%
0.9%

Jun-12
-1.6%
12.7%
9.4%
6.1%
-15.8%
5.9%
6.3%
7.1%
-2.2%
11.0%
10.3%
4.5%
21.6%
5.8%

Sep-12
-1.5%
12.2%
-2.8%
5.0%
-20.0%
-0.7%
9.2%
-5.1%
3.6%
2.9%
5.3%
-8.6%
16.8%
1.3%

Dec-12
9.8%
18.8%
-4.1%
0.1%
-19.4%
7.3%
17.7%
1.8%
2.0%
10.8%
7.1%
n/a*
20.0%
6.0%

Backlog
$6,164
55,100
2,100
126
2,900
29,067
12,757
10,884
82,300
25,700
24,047
5,721
10,421
267,287

Source: Company reports, J.P. Morgan estimates. Note: Includes acquisitions and divestitures. Note: * 4Q12 results are not out yet.

47

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Table 37: Summary of Sequential Changes in Backlog

Company
Alliant Techsystems
Boeing Defense
CACI
Comtech Telecommunications
Exelis
General Dynamics Defense
Huntington Ingalls
L-3 Communications
Lockheed Martin
Northrop Grumman
Raytheon
SAIC
Textron (Bell + Systems)
Weighted Average

Backlog
Funded
Funded
Funded
Funded
Funded
Funded
Funded
Funded
Total
Funded
Funded
Funded
Total

Mar-11
1.5%
2.9%
-10.8%
-1.8%
0.0%
1.6%
9.0%
-1.6%
2.0%
-3.9%
-3.9%
-9.5%
0.9%
-1.0%

Jun-11
-7.5%
-3.4%
-7.4%
-26.1%
-7.3%
-0.2%
13.8%
0.1%
-3.5%
-1.7%
-3.7%
5.2%
-5.2%
-3.6%

Sep-11
4.8%
-3.1%
40.0%
-12.4%
5.3%
4.9%
-0.4%
5.6%
-5.4%
6.5%
3.8%
18.6%
2.2%
5.4%

Dec-11
-6.2%
-0.4%
-13.1%
-0.6%
-10.0%
-1.9%
-8.3%
-7.3%
10.5%
-6.9%
3.3%
-11.5%
10.0%
-3.2%

Mar-12
3.3%
14.9%
-6.8%
8.8%
-8.3%
9.1%
8.7%
6.4%
-5.1%
7.9%
2.3%
3.3%
-1.3%
3.3%

Jun-12
-3.2%
1.7%
-3.4%
12.0%
-3.0%
-5.6%
7.0%
2.9%
-1.4%
3.6%
0.5%
-3.5%
9.6%
1.3%

Sep-12
4.9%
-3.5%
24.4%
-13.4%
0.0%
-1.7%
2.4%
-6.4%
0.1%
-1.2%
-0.9%
3.7%
-1.8%
0.5%

Dec-12
4.7%
5.4%
-14.3%
-5.2%
-9.4%
6.1%
-1.2%
-0.6%
8.9%
0.2%
5.1%
n/a*
13.0%
3.2%

Backlog
$6,164
55,100
2,100
126
2,900
29,067
12,757
10,884
82,300
25,700
24,047
5,721
10,421
267,287

Source: Company reports, J.P. Morgan estimates Note: Include acquisitions and divestitures. Note: * 4Q12 results are not out yet.

Table 38: LTM Book-to-Bills and Organic Growth

Large Cap
Raytheon
LTM book-to-bill
3 period fwd organic growth
Boeing Defense
LTM book-to-bill
4 period fwd organic growth
Northrop Grumman
LTM book-to-bill
1 period fwd organic growth
L-3 Communications
LTM book-to-bill
2 period fwd organic growth
General Dynamics Defense
LTM book-to-bill
1 period fwd organic growth
SMID Cap
Comtech Telecommunications
LTM book-to-bill
3 period fwd organic growth
CACI
LTM book-to-bill
3 period fwd organic growth
Harris Corp.
LTM book-to-bill
2 period fwd organic growth
Alliant Techsystems
LTM book-to-bill
4 period fwd organic growth
Huntington Ingalls
LTM book-to-bill
3 period fwd organic growth
SAIC
LTM book-to-bill
3 period fwd organic growth
Exelis
LTM book-to-bill
1 period fwd organic growth
Textron Defense
LTM book-to-bill
1 period fwd organic growth

R2
55%

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1.01x
0%

1.05x
3%

0.99x
0%

1.02x
-2%

0.97x
-3%

0.91x
-7%

0.96x
-2%

1.00x
-4%

1.07x
-1%

1.08x
0%

1.03x

1.06x

1.09x

1.02x
-6%

0.99x
-1%

0.94x
-5%

1.04x
0%

1.07x
4%

1.04x
8%

1.07x
7%

1.01x
-4%

0.94x
-2%

1.11x

1.18x

1.17x

1.27x

1.01x
5%

1.05x
3%

1.06x
5%

1.06x
-5%

1.08x
0%

0.93x
-7%

0.94x
-4%

1.01x
-4%

0.94x
-8%

1.05x
-4%

1.10x
-5%

1.03x
0%

1.10x

0.94x
0%

0.94x
-2%

0.98x
-2%

0.99x
-3%

1.00x
-6%

0.98x
-2%

0.97x
-6%

1.04x
2%

0.97x
-4%

1.02x
-2%

1.05x
-1%

1.00x

1.05x

0.89x
-8%

1.01x
-1%

1.01x
1%

1.02x
9%

0.96x
1%

0.89x
-3%

0.92x
-4%

0.97x
-2%

1.04x
-13%

1.12x
-8%

1.06x
-13%

0.99x
-19%

1.08x

0.97x
33%

0.72x
-5%

0.73x
-39%

0.67x
-45%

0.70x
-36%

0.71x
-39%

0.68x
-24%

0.74x
-20%

0.85x
-20%

0.87x
-25%

1.02x

1.02x

1.00x

1.08x
11%

1.09x
10%

1.09x
14%

1.18x
12%

1.13x
8%

1.04x
9%

1.00x
-1%

1.02x
-5%

1.01x
-3%

1.02x
-7%

1.04x

0.98x

1.00x

1.07x
7%

1.12x
11%

1.17x
10%

1.09x
-1%

1.04x
5%

1.05x
-3%

0.95x
-4%

1.01x
3%

1.00x
-4%

1.02x
-6%

1.08x
-2%

1.05x

1.09x

1.09x
-3%

1.07x
2%

0.95x
-11%

0.93x
-8%

1.02x
-1%

0.99x
1%

0.95x
1%

1.06x
-4%

0.95x
-5%

0.93x

1.02x

1.00x

1.17x

0.64x
1%

0.90x
4%

0.87x
-2%

0.74x
-3%

0.74x
-4%

0.63x
0%

0.69x
-7%

0.94x
10%

0.85x
0%

0.73x
5%

0.94x

0.88x

0.89x

0.88x
2%

0.93x
1%

0.96x
1%

0.96x
-7%

1.15x
-2%

1.19x
3%

1.17x
2%

1.24x
8%

1.11x
-1%

0.96x

0.93x

1.02x

0.98x
-4%

0.95x
-3%

0.84x
-10%

0.91x
5%

0.83x
-4%

0.87x
0%

0.93x
11%

0.94x
-9%

0.92x
6%

0.86x
-7%

0.89x
-12%

0.85x
-9%

0.88x

0.89x
-7%

0.87x
18%

1.01x
14%

0.98x
15%

1.04x
11%

1.12x
-2%

0.96x
6%

1.10x
1%

1.11x
15%

1.08x
9%

1.29x
9%

1.23x
13%

1.28x

40%

17%

5%

58%

57%

51%

25%

24%

19%

10%

Source: Company reports, J.P. Morgan estimates.

48

4Q09

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

Share Repurchases and Capital Deployment

Table 39: Large Cap Defense Stock Repurchases, FY05-FY13E
LMT
GD
RTN
LLL
NOC

2005
$1,310
$348
$436
$0
$1,210

2006
$2,115
$85
$352
$26
$825

2007
$2,127
$505
$1,642
$500
$1,175

2008
$2,931
$1,522
$1,700
$794
$1,555

2009
$1,851
$209
$1,200
$505
$1,100

2010
$2,420
$1,185
$1,450
$834
$1,177

2011
$2,555
$1,468
$1,250
$958
$2,295

2012
$990
$602
$825
$872
$1,316

2013E
$1,200
$1,000
$1,100
$500
$1,500

2014E
$1,200
$1,000
$1,100
$500
$1,500

Source: Company reports and J.P. Morgan estimates.

Table 40: Capital Deployment Trends, 2003 2012

FCF

2003
9,285

2004
12,055

2005
16,920

2006
17,967

2007
20,709

2008
13,076

2009
17,536

2010
15,501

2011
17,549

2012
17,637

Cumulative
158,235

Cash for ACQ

% FCF
Shares issued for ACQ
Acquired Debt
Total ACQ Value

5,201
56%
0
1,200
6,401

1,855
15%
0
220
2,075

6,262
37%
0
537
6,799

6,316
35%
0
450
6,766

3,572
17%
0
323
3,895

5,818
44%
0
13
5,831

2,955
17%
0
0
2,955

1,465
9%
0
0
1,465

3,036
17%
0
0
3,036

15,010
85%
0
1,900
16,910

51,490
33%
0
4,643
56,133

Dividends
% FCF

2,251
24%

2,662
22%

3,174
19%

3,631
20%

4,180
20%

4,657
36%

5,073
29%

5,416
35%

5,745
33%

6,497
37%

43,286
27%

Shares repurchased
Cash from options
Net Repurchases
% FCF

1,383
774
609
7%

3,302
1,542
1,760
15%

7,274
1,394
5,880
35%

7,143
2,196
4,947
28%

10,225
1,820
8,405
41%

13,805
987
12,818
98%

5,510
616
4,894
28%

8,432
700
7,732
50%

9,743
613
9,130
52%

3,733
940
2,793
16%

70,550
11,581
58,969
37%

Capital Return as % of FCF

31%

37%

54%

48%

61%

134%

57%

85%

85%

53%

65%

Net Debt
Net Debt/Enterprise Value

33,279
18%

23,858
12%

17,969
8%

12,427
5%

5,406
2%

16,584
9%

10,934
5%

12,548
6%

12,332
6%

24,248
10%

Source: J.P. Morgan estimates, company data, Bloomberg. Note: Data represents UTX, BA, LMT, NOC, RTN, and GD. Note: UTX acquired Goodrich in July 2012.

49

North America Equity Research

26 March 2013

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

JPM vs. Consensus Estimates

Table 41: Revenue Estimates: J.P. Morgan vs. Consensus ($ in mn)
Company
Alliant Techsystems
B/E Aerospace
Boeing
Bombardier
CACI Int'l
Comtech
Embraer
Exelis
General Dynamics
Huntington Ingalls
Harris Corporation
L-3 Communications
Lockheed Martin
Northrop Grumman
Precision Castparts
Raytheon
Rockwell Collins
SAIC
Spirit AeroSystems
Textron
TransDigm
United Technologies
Wesco Aircraft Holdings

Symbol
ATK
BEAV
BA
BBD/B
CACI
CMTL
ERJ
XLS
GD
HII
HRS
LLL
LMT
NOC
PCP
RTN
COL
SAI
SPR
TXT
TDG
UTX
WAIR

1FQ
JPM
$1,108
$825
$18,840
$4,139
$942
$69
$1,372
$1,206
$7,757
$1,691
$1,310
$3,017
$10,310
$5,940
$2,479
$5,728
$1,114
$2,722
$1,400
$3,095
$467
$14,862
$220

1FQ
Consensus
$1,093
$806
$19,198
$4,144
$936
$76
$1,225
$1,220
$7,612
$1,602
$1,320
$3,042
$10,314
$5,970
$2,512
$5,702
$1,132
$2,710
$1,410
$2,910
$467
$14,962
$215

% Diff
1.4%
2.4%
-1.9%
-0.1%
0.6%
-8.9%
12.0%
-1.2%
1.9%
5.6%
-0.7%
-0.8%
0.0%
-0.5%
-1.3%
0.5%
-1.6%
0.4%
-0.8%
6.4%
0.0%
-0.7%
2.5%

1FY
JPM
$4,316
$3,435
$85,315
$18,194
$3,756
$311
$6,286
$4,948
$31,942
$6,728
$5,216
$12,646
$44,742
$23,760
$8,423
$23,627
$4,679
$11,222
$6,034
$12,824
$1,889
$65,108
$900

1FY
Consensus
$4,301
$3,387
$84,090
$18,213
$3,754
$321
$6,322
$5,042
$31,649
$6,613
$5,261
$12,659
$45,188
$24,038
$8,462
$23,864
$4,654
$11,202
$5,969
$12,865
$1,878
$65,093
$886

% Diff
0.4%
1.4%
1.5%
-0.1%
0.1%
-3.1%
-0.6%
-1.9%
0.9%
1.7%
-0.8%
-0.1%
-1.0%
-1.2%
-0.5%
-1.0%
0.5%
0.2%
1.1%
-0.3%
0.6%
0.0%
1.6%

2FY
JPM
$4,020
$3,919
$92,696
$20,804
$3,635
$316
$6,588
$4,644
$30,495
$6,782
$5,049
$12,167
$43,605
$22,750
$10,314
$22,924
$4,860
$10,651
$6,901
$13,660
$2,018
$69,063
$990

2FY
Consensus
$4,167
$3,788
$91,513
$19,910
$3,664
$330
$7,063
$4,835
$31,561
$6,626
$5,271
$12,289
$44,319
$23,541
$10,528
$23,518
$4,814
$10,831
$6,558
$13,550
$2,022
$68,802
$965

% Diff
-3.5%
3.5%
1.3%
4.5%
-0.8%
-4.2%
-6.7%
-4.0%
-3.4%
2.4%
-4.2%
-1.0%
-1.6%
-3.4%
-2.0%
-2.5%
0.9%
-1.7%
5.2%
0.8%
-0.2%
0.4%
2.6%

Source: Bloomberg and J.P. Morgan estimates.

Table 42: EPS Estimates: J.P. Morgan vs. Consensus

Company
Alliant Techsystems
BEAV
Boeing
Bombardier
CACI Int'l
Comtech
Embraer
Exelis
General Dynamics
Huntington Ingalls
Harris Corporation
L-3 Communications
Lockheed Martin
Northrop Grumman
Precision Castparts
Raytheon
Rockwell Collins
SAIC
Spirit AeroSystems
Textron
TransDigm
United Technologies
Wesco Aircraft Holdings

Symbol
ATK
BEAV
BA
BBD/B
CACI
CMTL
ERJ
XLS
GD
HII
HRS
LLL
LMT
NOC
PCP
RTN
COL
SAI
SPR
TXT
TDG
UTX
WAIR

Source: J.P. Morgan estimates, and Bloomberg.

50

1FQ
JPM
$2.01
$0.82
$1.55
$0.04
$1.66
$0.03
$0.58
$0.21
$1.64
$0.94
$1.26
$1.99
$2.11
$1.74
$2.80
$1.29
$1.17
$0.56
$0.53
$0.48
$1.77
$1.30
$0.29

1FQ
Consensus
$1.97
$0.80
$1.48
$0.08
$1.65
$0.17
$0.46
$0.28
$1.60
$0.83
$1.27
$1.94
$2.03
$1.74
$2.78
$1.28
$1.18
$0.52
$0.52
$0.46
$1.72
$1.30
$0.27

% Diff
2.0%
2.8%
4.5%
-50.0%
0.9%
-81.9%
26.6%
-24.5%
2.4%
13.5%
-0.4%
2.5%
3.9%
-0.1%
0.8%
1.2%
-0.9%
8.7%
2.7%
3.7%
2.8%
0.2%
7.4%

1FY
JPM
$8.10
$3.50
$6.65
$0.29
$6.50
$0.72
$2.80
$1.47
$6.70
$3.95
$4.90
$8.15
$8.80
$6.95
$9.75
$5.25
$4.65
$1.56
$2.20
$2.25
$7.20
$6.20
$1.20

1FY
Consensus
$8.07
$3.48
$6.34
$0.38
$6.55
$0.85
$2.67
$1.56
$6.77
$3.79
$5.03
$8.24
$8.94
$7.03
$9.75
$5.33
$4.60
$1.52
$2.25
$2.27
$6.98
$6.11
$1.14

% Diff
0.4%
0.7%
4.9%
-24.3%
-0.8%
-14.9%
5.0%
-5.6%
-1.1%
4.2%
-2.5%
-1.1%
-1.6%
-1.2%
0.0%
-1.4%
1.0%
3.0%
-2.0%
-0.8%
3.2%
1.5%
5.0%

2FY
JPM
$6.95
$4.40
$7.25
$0.40
$6.25
$1.32
$2.75
$1.53
$6.60
$5.70
$4.65
$8.00
$8.85
$7.35
$12.10
$5.35
$5.10
$1.19
$2.85
$2.60
$8.40
$7.15
$1.43

2FY
Consensus
$7.31
$4.17
$7.15
$0.50
$6.25
$1.20
$2.90
$1.52
$7.23
$5.01
$5.06
$8.34
$9.07
$7.37
$12.05
$5.55
$4.95
$1.28
$2.56
$2.63
$7.95
$7.00
$1.34

% Diff
-5.0%
5.5%
1.4%
-19.8%
0.0%
9.8%
-5.3%
0.9%
-8.7%
13.7%
-8.1%
-4.0%
-2.4%
-0.3%
0.4%
-3.7%
3.1%
-6.7%
11.5%
-1.1%
5.6%
2.1%
6.4%

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

North America Equity Research

26 March 2013

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J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve
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Coverage Universe: Nadol, Joseph B: Alliant Techsystems Inc. (ATK), B/E Aerospace (BEAV), Boeing Company (BA), Bombardier
(BBDb.TO), CACI International Inc (CACI), Comtech Telecommunications (CMTL), Embraer SA (ERJ), Exelis Inc. (XLS), General
Dynamics Corp. (GD), Harris Corporation (HRS), Huntington Ingalls Industries (HII), L-3 Communications (LLL), Lockheed Martin
(LMT), Northrop Grumman (NOC), Precision Castparts (PCP), Raytheon (RTN), Rockwell Collins (COL), SAIC (SAI), Spirit
AeroSystems (SPR), Textron (TXT), TransDigm Group Inc (TDG), United Technologies (UTX), Wesco Aircraft Holdings, Inc. (WAIR)
J.P. Morgan Equity Research Ratings Distribution, as of January 1, 2013

J.P. Morgan Global Equity Research Coverage

IB clients*
JPMS Equity Research Coverage
IB clients*

Overweight
(buy)
44%
53%
42%
71%

Neutral
(hold)
44%
46%
49%
62%

Underweight
(sell)
12%
34%
9%
51%

*Percentage of investment banking clients in each rating category.

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rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table
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Other Disclosures
51

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

North America Equity Research

26 March 2013

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52

Joseph B. Nadol III

(1-212) 622-6548
joseph.b.nadol@jpmorgan.com

North America Equity Research

26 March 2013

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