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North America Equity Research

15 November 2011

Aerospace and Defense


Business Jet Monthly - November 2011
This report contains our industry delivery projections plus data on market share and the used market. The industry is an important driver for many companies we cover, including Bombardier, Embraer, General Dynamics, Honeywell, Rockwell Collins, Spirit AeroSystems, and Textron. Recovery losing some steam, not surprisingly. Most recent business jet management outlooks have softened on the margin regarding the pace and trajectory of a recovery, particularly for smaller jets. Anecdotally, ERJ became more pessimistic from Q2 to Q3, Hawker indicated 2012 would look like 2011, and UTX does not expect a bizjet recovery until at least 2014. Data points have not been encouraging either, as used inventory has ticked back up, used pricing is flattish, and flight ops were negative in September. Larger jets are still holding up well, however, and China continues to drive much of the demand. The new Honeywell forecast calls for moderately higher deliveries in 2012, but there is little to indicate that a pickup in demand is imminent or that the current dynamic between a stronger large jet market and a weaker small/medium market is set to change. With the weaker macro outlook, some softening in the business jet market is not surprising, and we still see fairly limited downside from the current depressed levels. Used inventory increased for third consecutive month. Used inventory of in-production models increased 20 bps in Oct to 10.8%. Though the changes have been small, used inventories have risen by a combined 50 bps over three months and are now back to the April level. All three categories saw modest increases from Sept, with Heavy up 0.3%, Medium up 0.2% and Light up 0.1%. 14 out of 24 models experienced increases in inventory. Gulfstream (+0.6%), Embraer (+0.4%), Hawker (+0.1%), and Cessna (+0.1%) posted higher inventories, while Dassault fell and Bombardier remained flat. Avg asking price fell 0.1%. Avg price fell to $10.64 mn in Oct and has been hovering in the $10.62-10.65 mn range the past four months. Stabilization is a step toward recovery, though a decisive move upward should be necessary to indicate a material upturn in demand for new aircraft. Heavy jet prices increased 1.1%, while Medium and Light jet prices decreased 0.6% and 2.7%, respectively. 13 of 24 tracked models experienced price increases, 9 experienced declines, and 2 remained flat. Sept flight ops were down 2% y/y. This was the first decline since Nov 09, and flight ops are now up only 4% through 9M. Flight ops data is from the FAA and thus offers insight into the US market, whereas most new demand is now international. The US accounts for the bulk of the global installed base, however, and US participation should be necessary to propel a robust global recovery. Bizjet deliveries rose 22% y/y in Q3 to 166, according to GAMA. Deliveries are still down 13% YTD, however, and we have been anticipating significant 2H growth for the industry to achieve our forecast for a flat 2011.

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

EE/MI C. Stephen Tusa, Jr CFA


(1-212) 622-6623 stephen.tusa@jpmorgan.com J.P. Morgan Securities LLC

Drew Pierson
(1-212) 622-6627 drew.a.pierson@jpmorgan.com J.P. Morgan Securities LLC

Paul Mammola, CFA


(1-212) 622-6382 paul.mammola@jpmorgan.com J.P. Morgan Securities LLC

See page 35 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 15 November 2011

Table of Contents
Business Jet Delivery Forecast...............................................3
Macro Drivers & Market Cycle ...............................................................................4 Industry Financial Data ...........................................................................................7 Quick Reference Specification Table.....................................................................10 Market Share.........................................................................................................12 Used Market .........................................................................................................14 Used Market by Company.....................................................................................15

Heavy Jets...............................................................................18
Market Share Trends .............................................................................................18 Used Market Trends..............................................................................................19 G500/G550/V .......................................................................................................20 Global 5000/Express/Express XRS........................................................................20 Falcon 900/900B/900C/900DX/900EX..................................................................20 G300/G350/G400/G450/IV/IVSP..........................................................................21 Challenger 601-3R/604/605...................................................................................21 Falcon 2000/2000EX/2000DX/2000LX.................................................................21 Legacy 600/650/Shuffle ........................................................................................22 Hawker 4000.........................................................................................................22 Falcon 7X .............................................................................................................22

Medium Jets............................................................................23
Market Share Trends .............................................................................................23 Used Market Trends..............................................................................................24 Citation X .............................................................................................................25 Challenger 300......................................................................................................25 G200/280..............................................................................................................25 Citation Sovereign.................................................................................................26 G100/150..............................................................................................................26 Hawker 800A/800B (215-800)/800XP/800XPI/850XP ..........................................26 Learjet 55/55B/55C/60/60XR................................................................................27

Light Jets ................................................................................28


Market Share Trends .............................................................................................28 Used Market Trends..............................................................................................29 Learjet 40/40XR/45/45XR.....................................................................................30 Citation Excel/XLS/XLS+.....................................................................................30 Citation V/Ultra/Encore/Encore+...........................................................................30 Beechjet 400/400A/Hawker 400XP .......................................................................31 Citation Jet CJ3.....................................................................................................31 Premier I/IA..........................................................................................................31 Citation Jet CJ2/CJ2+............................................................................................32 Citation Jet (Model 525)/CJ1/CJ1+........................................................................32

Fractional Jets ........................................................................33


Provider Fleet Trends ............................................................................................33 Share Sales Trend..................................................................................................34
2

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Business Jet Delivery Forecast


Table 1: Aircraft Deliveries, 1997-2013E
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Bombardier Challenger 600 Challenger 300 Challenger 800 Global Express Global 5000 Learjet 40 Learjet 45 / 45X Learjet 60/60XR Learjet 85 Discontinued Models Total Cessna (Textron) Citation Mustang Citation Jet/CJ1 Citation Jet/CJ2 Citation Jet/CJ3 Citation Jet/CJ4 Citation Encore Citation Excel Citation Sovereign Citation X Discontinued Models Total 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/II* Hawker 400XP Hawker 800 series Hawker 4000 Discontinued Models Total HondaJet Total w/o VLJs % change Total w/ VLJs % change 34 36 42 38 41 31 3 32 35 30 17 7 43 71 63 27 32 32 35 29 17 12 21 22 24 28 17 9 79 100 173 207 180 101 24 29 36 29 1 28 51 55 4 18 14 20 14 22 4 17 18 17 21 26 17 22 30 30 9 18 15 23 2 70 129 188 213 35 51 12 25 23 23 34 23 226 45 34 44 78 23 82 65 17 388 2 10 18 1 33 6 70 35 35 32 27 13 20 46 138 54 41 67 162 44 36 60 33 17 7 27 25 25 26 21 14 27 19 26 13 247 173 101 125 20 14 56 21 88 40 28 5 80 44 77 33 16 7 466 289 1 4 19 3 18 6 21 72 1 17 1 3 23 32 77
2010 2011E 2012E 2013E

JPM Delivery Forecast, 2013E-2015E


Total w/ VLJs 13E 731 866 14E 815 983 15E 894 1,114

38 29 6 24 25 6 10 12 150 73 3 17 20 19 5 22 16 3 178 3 21 30 41 95 100 26 10 8 144 13 11 31 44 99 11 12 34 16 73

34 31 7 24 26 6 10 13 151 45 2 15 25 37 5 25 18 7 179 18 20 27 65 45 35 12 3 95 14 9 39 41 5 108 9 34 11 54

34 35 11 29 29 12 12 14 176 45 18 25 37 5 25 18 7 180 20 23 30 73 50 40 13 4 107 16 15 28 44 20 123 6 38 15 59

40 45 15 30 30 20 20 12 6 218 50 26 26 33 30 21 9 195 21 26 33 80 65 40 17 5 127 25 20 28 42 33 148 10 5 45 18 78 20

1 63 64 59 56 61 30 22 20 18 25 8 41 86 56 27 23 37 6 48 72 6 37 36 21 24 17 14 15 39 79 85 81 48 55 62 73 9 46 57 28 30 36 37 34 31 18 15 14 12 90 91 82 66 48 41 31 25 21 18 181 200 216 252 306 305 196 181 249 309 10 7 16 18 51 6 22 29 57 43 33 2 78 13 5 15 14 47 14 32 29 75 11 8 16 34 69 9 1 39 31 80 18 6 23 26 73 2 2 13 6 21 35 75 5 5 10 4 17 35 66 8 8 9 15 29 32 85 8 3 10 12 16 49 13 13 5 19 8 13 29 74 5 3 15 11 29 63 13 13 9 13 5 19 32 78 5 1 2 16 6 21 51 14 14 5 4 16 6 30 61 27 27

2 97 1 36 18 5 38 121 39 30 12 20 55 156 31 35 88 6 160 11 8 30 45 94 16 11 51 20 98

11 5 6 25 37 36 34 35 88 101 18 25 55 98

12 20 14 22 12 12 14 16 37 43 89 113

43 45 51 48 55 67 91 100 118

29 29 37 30 23 19 24 28 53 53 46 47 50 58 64 94 100 115 141 140

446 513 638 740 765 659 502 579 732 862 974 1,033 628 566 37% 15% 24% 16% 3% -14% -24% 15% 26% 18% 13% 6% -39% -10%

562 627 731 -1% 12% 17%

446 513 638 740 765 659 502 579 732 863 1,019 1,136 846 739 652 722 866 37% 15% 24% 16% 3% -14% -24% 15% 26% 18% 18% 11% -26% -13% -12% 11% 20% 3

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

VLJs include: Cessna Mustang, Embraer Phenom 100, and HondaJet. Source: GAMA, Company reports and J.P. Morgan estimates. Note: * Premier II is now known as Hawker 200.

Macro Drivers and Market Cycle


Demand for business jets is largely a function of corporate profits. During the last cycle, deliveries peaked in 2001 after US corporate profits reached a high in 1999, while deliveries bottomed out in 2003 after profits fell to cyclical lows in 2001. The downturn itself lasted for 2 years before positive growth returned in 2004 (see Figure 1). At the same time, global profits peaked in 2000 as the downturn in US profits did not fully affect global profits for a year. Global profits saw substantial growth again in 2003 as deliveries hit their low point (Figure 2).
Figure 1: US Corporate Profits vs. Business Jet Deliveries (# of aircraft), 1995-2013E
US Corporate Profits ($ blns)
Business jet deliveries lag US corporate profits by 2 years on peak-and-trough basis.

US Corporate Profits
1200 1000

Deliveries
2000 1500 1000 500 0

Deliveries

800 600 400 200 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11E 12E 13E

Source: GAMA, BEA, J.P. Morgan estimates. Excludes Very Light Jets as delineated in Table 1.

Figure 2: Global Corporate Profits vs. Business Jet Deliveries (# of aircraft), 1995-2013E
1500 1250 1000 Deliveries 750 500 250 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11E 12E 13E

Global Profits

Deliveries

30 Global Profits (MSCI AC World Index $ EPS) 25 20 15 10 5 0

Source: GAMA, MSCI, J.P. Morgan estimates, excludes Very Light Jets as delineated in Table 1.

US corporate profits peaked in 2006 and business jet deliveries (excluding VLJs) peaked two years later once again, in 2008. Business jet deliveries declined 39% in 2009, steeper than last cycles 14% initial drop-off, with OEMs cutting production rates across all categories of jets. 2010 was down another 10%, and we are forecasting flattish deliveries this year, followed by a pickup in 2012.

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Figure 3: US Corporate Profits vs. Business Jet Deliveries (% chg. y/y), 1995-2013E
Deliveries Trough 40% 30% 20% 10% 0% -10% -20% -30% -40% US Corporate Profits Deliveries

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10 11E 12E 13E

Source: GAMA, BEA, J.P. Morgan estimates.

Figure 4: Impact of VLJs on Total Deliveries, 1995-2012E


Deliveries 1,500 1,200 900 600 300 0 Deliveries w/ VLJs

11E

12E

Source: GAMA, Company reports and J.P. Morgan estimates. Very Light Jets, as delineated in Table 1, include Cessna Mustang, Diamond D-Jet, Embraer Phenom 100, and HondaJet.

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Figure 5: Price ($MM) vs Age (years)


$60 Global Express XRS Lineage 1000 $50 Falcon 7X Legacy 500 Legacy 450 G550 Global 5000 G500 G450 Falcon 900DX $30 Hawker 4000 $20 Learjet 85 Citation Sovereign G150 Hawker 900XP Learjet 60XR Learjet 45XR Hawker 850XP Citation XLS Hawker 750 Citation XLS+ Learjet 40XR Citation CJ4 Citation Encore+ Premier IA Phenom 300 Citation CJ3 Hawker 400XP Citation CJ2+ Citation CJ1+ Phenom 100 Citation Mustang D-Jet -5 -4 -3 -2 -1 0 1 2 3 Eclipse 500 4 5 6 7 8 9 Legacy 600 Falcon 900EX Global Express

$40

Falcon 2000EX EASy G350 Challenger 300 G200 Falcon 2000 Challenger 604 Citation X Falcon 50/EX

Learjet 60

$10

Citation Encore

Learjet 45 Citation Excel Citation CJ1 Citation Bravo Citation CJ2 11 12 13 14 15 16 17

$0

10

Source: JetNet, J.P. Morgan estimates. Note: Bold indicates clean sheet design, non-bold indicates derivative models.

Figure 6: Price ($MM) vs Range (km)


$60 G650

$50 G550 Global Express $40 Lineage 1000 Falcon 7X Falcon 900EX Global 5000 G450 G350 Falcon 2000EX EASy Falcon 2000 Challenger 604 Legacy 600 G200 Falcon 50/EX Citation X Hawker 4000 Challenger 300 Legacy 500 Citation Sovereign Learjet 85 Legacy 450 G150 Citation XLS+ Citation XLS G100 Learjet 45 Learjet 40XR Citation Encore Learjet 60 Haw ker 400XP Citation CJ3 Phenom 300 Citation Brav o Premier IA Citation CJ2+ Citation CJ1+ Citation Mustang Phenom 100 Eclipse 500 D-Jet 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 11000 12000 13000 G500

$30

$20

$10

$0

Source: JetNet, J.P. Morgan estimates. Note: Bold indicates clean sheet design, non-bold indicates derivative models.

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Industry Financial Data


In this section we provide comparative industry data for backlog deliveries, estimated book-to-bill, and profitability.
Figure 7: Industry Backlog by Company, 1999-2010
$ in billions

$100 $80 $60 $40 $20 $0


- 40% + 41% + 46% + 61%

+ 29%

- 41%

- 19%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
BBD Cessna Dassault Embraer Gulfstream Hawker Beechcraft

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

Figure 8: Industry Deliveries by Company, 1999-2010

$100 $80 $60 $40 $20 $0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
BBD Cessna Dassault Embraer Gulfstream Hawker Beechcraft

Source: Company data, GAMA. Note: Excludes VLJs.

Figure 9: Book to Bill Ratio by Company, 2004 2010


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

2005

2006
Cessna

2007
Gulfstream

2008

2009

2010
Dassault

Hawker Beechcraft

Source: Company data, J.P. Morgan estimates. Data as available.

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Figure 10: Industry EBIT by Company, 2003-2010


$ in millions

3500 3000 2500 2000 1500 1000 500 0 -500 2003 BBD 2004 Cessna 2005 Dassault 2006 Embraer 2007 Gulfstream 2008 2009 2010

Hawker Beechcraft

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

Figure 11: Total U.S. Monthly Flight Operations Business Jets, Jan-00-Sep-11
450,000 400,000 350,000 300,000 250,000 200,000 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

Total Operations
Source: FAA.

12 month mov. Avg. (Total Operations)

Figure 12: Change in Total US Monthly Flight Operations (% y/y) Business Jets, Jan-02-Sep-11
30% 20% 10% 0% -10% -20% -30% -40%

May-05

May-10

Feb-04

Jul-04

Mar-06

Feb-09

Jul-09

Mar-11

Source: FAA.

Jan-02

Jun-02

Nov-02

Apr-03

Sep-03

Dec-04

Oct-05

Aug-06

Jan-07

Jun-07

Nov-07

Apr-08

Sep-08

Dec-09

Oct-10

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Table 2: Historical Fleet Size


Total 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: JetNet.

Heavy Jets 497 588 649 706 761 815 868 960 1,043 1,151 1,284 1,482 1,722 1,956 2,154 2,337 2,511 2,714 2,957 3,212 3,476 3,773 4,078

Medium Jets 1,414 1,480 1,550 1,599 1,666 1,738 1,809 1,887 1,962 2,074 2,190 2,335 2,496 2,663 2,799 2,913 3,055 3,259 3,488 3,803 4,260 4,426 4,560

Light Jets 3,420 3,523 3,652 3,790 3,920 4,053 4,179 4,329 4,470 4,676 4,923 5,212 5,562 5,953 6,336 6,590 6,874 7,170 7,552 8,057 8,606 9,000 9,324

5,331 5,591 5,851 6,095 6,347 6,606 6,856 7,176 7,475 7,901 8,397 9,029 9,780 10,572 11,289 11,840 12,440 13,143 13,997 15,072 16,342 17,199 17,962

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Quick Reference Specification Table


Table 3: Business Jets Quick Reference Guide
Model D-Jet Mustang Honda Jet* Phenom 100 Citation M2* Citation CJ1+ Beechjet 400XP Citation CJ2+ Premier IA Phenom 300 Citation CJ3 Hawker 200* Citation CJ4 Citation Encore+ Learjet 40XR Hawker 750 Citation XLS+ Learjet 45XR Hawker 850XP Learjet 60XR Hawker 900XP Citation Latitude* G150 Legacy 450* Learjet 85* Citation Sovereign Falcon 50/EX Legacy 500* G200 Citation X Hawker 4000 G280 Challenger 300 Falcon 2000DX Falcon 2000S* Legacy 600 Citation Columbus Challenger 605 Legacy 650 Challenger 850 Falcon 2000LX Falcon 900DX/EX G450 Falcon 900LX ACJ/A318 Elite Global 5000 Lineage 1000* Falcon 7X A319 ACJ G550 Global 6000/Express/XRS G650 BBJ1 Global 7000* Global 8000* A320 Prestige ACJ BBJ2 BBJ3 Make Diamond Cessna (Textron) Honda Corp. Embraer Cessna (Textron) Cessna (Textron) HawkerBeechcraft Cessna (Textron) HawkerBeechcraft Embraer Cessna (Textron) HawkerBeechcraft Cessna (Textron) Cessna (Textron) Bombardier HawkerBeechcraft Cessna (Textron) Bombardier HawkerBeechcraft Bombardier HawkerBeechcraft Cessna (Textron) Gulfstream (GD) Embraer Bombardier Cessna (Textron) Dassault Embraer Gulfstream (GD) Cessna (Textron) HawkerBeechcraft Gulfstream (GD) Bombardier Dassault Dassault Embraer Cessna Bombardier Embraer Bombardier Dassault Dassault Gulfstream (GD) Dassault Airbus Bombardier Embraer Dassault Airbus Gulfstream (GD) Bombardier Gulfstream (GD) Boeing Bombardier Bombardier Airbus Boeing Boeing Engine Williams P&W Canada GE-Honda P&W Canada Williams Williams / Rolls-Royce P&W Canada Williams / Rolls-Royce Williams P&W Canada Williams / Rolls-Royce Williams Williams P&W Canada Honeywell Honeywell P&W Canada Honeywell (Garrett) Honeywell P&W Canada Honeywell P&W Canada Honeywell Honeywell P&W Canada P&W Canada Honeywell Honeywell P&W Canada Rolls-Royce (Allison) Pratt & Whitney Honeywell Honeywell P&W Canada P&W Canada Rolls-Royce P&W Canada GE Rolls Royce GE Honeywell Honeywell Rolls-Royce Honeywell CFM Rolls-Royce GE P&W Canada IAE Rolls-Royce Rolls-Royce Rolls-Royce CFM General Electric General Electric IAE CFM CFM Avionics Garmin Garmin Garmin Garmin Garmin Rockwell Collins Rockwell Collins Rockwell Collins Rockwell Collins Garmin Rockwell Collins Rockwell Collins Rockwell Collins Rockwell Collins Honeywell Rockwll Collins Rockwell Collins Honeywell Rockwell Collins Rockwell Collins Rockwll Collins Garmin Rockwell Collins Rockwell Collins Rockwell Collins Honeywell Rockwell Collins Rockwell Collins Rockwell Collins Honeywell Honeywell Rockwell Collins Rockwell Collins Honeywell Honeywell Honeywell Rockwell Collins Rockwell Collins Honeywell Rockwell Collins Honeywell Honeywell Honeywell Honeywell Thales Honeywell Honeywell Honeywell Thales Honeywell Honeywell Honeywell/Rockwell Collins Rockwell Collins/Honeywell Rockwell Collins Rockwell Collins Thales Rockwell Collins/Honeywell Rockwell Collins/Honeywell Range (km) 2,500 2,130 2,593 2,148 2,408 2,408 2,898 2,987 2,519 3,334 3,473 2,863 3,380 3,313 3,348 4,074 3,441 3,795 4,893 4,380 5,463 3,704 5,471 4,260 5,556 4,934 5,695 5,556 6,297 5,686 5,941 6,297 5,741 6,019 6,204 6,019 7,408 7,491 7,223 5,130 7,408 7,399 8,056 8,890 7,408 9,630 7,778 11,019 12,038 12,501 11,390 12,964 7,223 13,520 14,631 5,700 5,667 5,926 Seating 2-4 5 6 4 6 5 7 5 6 7 6 4 6 8 6 8 8 9 8 9 8 8 8 8 9 8 10 10 10 12 10 12 13 19 6 13 10 12 13 15 19 19 16 19 8-18 8-16 19 12 39 8 10-19 8 19-189 10 8 39 8-63 8-63 Price ($M) 1.4 3.1 3.7 3.7 4.2 5.1 6.7 6.9 6.9 8.0 8.2 8.3 9.0 9.2 10.6 11.9 12.5 13.2 13.7 14.1 14.5 14.9 15.1 15.3 17.1 17.6 18.0 18.4 20.5 21.7 22.9 24.0 24.8 25.0 25.0 25.0 27.0 28.1 29.5 31.2 33.0 36.0 38.9 39.0 47.0 49.1 50.0 50.1 51.0 53.5 57.5 58.5 65.0 65.0 65.0 75.0 75.0 90.0

Source: Company reports, Business & Commercial Aviation. Aircraft compare. Note: * represents in development aircraft.

10

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Figure 13: Product Pricing Span by Company


$ in millions
Bombardier Cessna Dassault Embraer Gulfstream HawkerBeechcraft Boeing Airbus <$5 5 10 15 20 25 30 Price ($ in millions) 35 40 45 $50+

Source: Company data, Business & Commercial Aviation, J.P. Morgan estimates.

11

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Overall Market Trends

Market Share
Deliveries up 22% y/y in Q3 The six major business jet OEMs plus Boeing and Airbus delivered 166 business jets in Q3, up ~22% from the year-ago level of 136 units. 3Q10 deliveries were exceptionally low with only ~18% contribution to total 2010 deliveries compared to an average of ~23% contribution from 2006 to 2010. Bombardier and Cessna each had 21 more deliveries than last year and gained market share of 210 bps and 190 bps, respectively, while Embraer and Dassault deliveries were down by 6 units from last year and they lost 160 bps and 130 bps of market share, respectively. Hawker Beechcraft delivered 1 fewer bizjet this quarter and lost 60 bps of market share, while Gulfstream lost 30 bps of market share despite deliveries being up by 2 units. Airbus and Boeing lost 20 bps and 10 bps of market share, respectively, with 2 and 3 deliveries in this quarter. Market size by value increased 18% y/y Revenues from shipments increased 18% in 3Q11 from the year ago level and 40% vs. 2Q11. On a TTM basis, Bombardier and Cessna gained 300 bps and 80 bps of market share, respectively, at the expense of all other OEMsDassault, Embraer, Airbus, Gulfstream, Hawker Beechcraft, and Boeingwho lost 210 bps, 80 bps, 40 bps, 30 bps, 10 bps, and 10 bps, respectively.
Figure 14: Market Share by Volume, 1995-2010
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Market Size - by Volume


2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

Figure 15: LTM


100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

200 400 600 800 1000 1200

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

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

3Q10 4Q10 1Q11 2Q11 3Q11

Market Size - by Value


2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

Bottom to Top : Bombardier, Cessna, Dassault, Gulfstream, Hawker Beechcraft, Embraer, Airbus, Boeing
Source: Teal Group, J.P. Morgan estimates.

Source: Teal Group, J.P. Morgan est.

Figure 16: Market Share by Value, 1995-2010


100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Figure 17: LTM


100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

$B 0 4 8 12 16 20 24

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0%

3Q10

4Q10

1Q11

2Q11

3Q11

Bottom to Top : Bombardier, Cessna, Dassault, Gulfstream, Hawker Beechcraft, Embraer, Airbus, Boeing
Source: Teal Group, J.P. Morgan estimates.

Source: Teal Group, J.P. Morgan est.

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

12

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

2010 deliveries down by 12% y/y and by 34% from 2008 peak of 1,154. Cessna contributed most to this decline as it delivered only 178 jets in 2010 compared to 289 in 2009. As a result, Cessna lost 1,000 bps of market share by volume and 600 bps by value. All Cessna models witnessed significant decreases in deliveries except Encore+. Cessna also delivered 19 CJ4s in 2010, its first year in service. Embraer gained 500 bps of market share by volume but only 50 bps by value as it delivered 145 jets in 2010, 126 of which were lower price Phenoms. Dassault gained 360 bps of market share by volume and 470 bps by value as deliveries increased from 77 in 2009 to 95 this past year. Hawker Beechcraft delivered 25 fewer jets compared to 98 last year and lost 170 bps of market share by volume and 200 bps by value. Bombardier (-23) delivered 150 jets and lost 30 bps of market share by volume and 170 bps by value. Gulfstream (+5) delivered 99 jets and gained 220 bps of market share by volume and 100 bps by value. Boeing delivered 13 jets this year and gained 80 bps by volume and 260 bps by value, while Airbus delivered 13 jets this year and gained 40 bps of market share by volume and 90 bps by value. By Category, for full year 2010, Heavy jets gained a substantial 990 bps of market share by volume, resulting in 54% total market share, while Light (22%) and Medium (24%) jets lost 640 bps and 350 bps of share by volume, respectively. Similarly, by value, Heavy jets gained 820 bps at the expense of Medium (-390 bps) and Light (-430 bps). Heavy jets now have more than three quarters of the market by value (79%), while Medium jets have 15% and Light jets have only 6%.

Figure 18: Category by Volume, 1995-2010


100% 80% 60% 40% 20% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Figure 19: LTM


100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

3Q10 4Q10 1Q11 2Q11 3Q11

Bottom to Top : Light, Medium, Heavy


Source: Teal Group, J.P. Morgan estimates. Source: Teal Group., J.P. Morgan est.

Figure 20: Category by Value, 1995-2010


100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Figure 21: LTM


100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

3Q10 4Q10 1Q11 2Q11 3Q11

Bottom to Top : Light, Medium, Heavy


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

Source: Teal Group, J.P. Morgan est.

13

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Used Market
Active Fleet in Operation Breakdown by Class

Heavy 31%

Light 40%

Used jet inventories increased 0.2%, asking prices down 0.1% Used jet inventory, measured by aircraft for sale as % of active fleet, increased 20 bps to 10.8% in October, following a sequential increase of 30 bps in August and September. Inventory levels decreased 90 bps in the first half of the year, with about half given back thus far in 2H. Inventories are now 350 bps off the peak of 14.3%. Inventories increased for all three bizjet categories Heavy (+30 bps), Medium (+20 bps), and Light (+10 bps) jets to 9.6%, 11.2%, and 11.5%, respectively. 14 out of 24 models witnessed increases in inventories while 10 had lower inventories. Avg asking price decreased 0.1% to $10.64 mn in October, after a price recovery of 0.2% in each of the prior two months. Prices are now 0.2% above from the low of $10.62 mn in July. Prices increased by 0.9% for Medium jets, while Light and Heavy jet prices decreased by 2.0% and 0.3%, respectively. 13 of 24 tracked models saw increases and 9 saw decreases in avg. asking prices, while Hawker 4000 and Falcon 7X prices remained flat. Used inventories have now increased 50 bps the past three months, a reversal of the 400 bp decline from July 09 through July 11. Rising inventories are not a positive sign for new demand but the same three months of 2010 saw an identical increase, so reversals are possible on the path to lower inventories.
Figure 22: Average Asking Price and % of Active Fleet for Sale
$MM 17 15 13 11 9 7 5 3 Dec-95 Jun-97 Dec-98 Jun-00 Dec-01 Jun-03 Dec-04 Jun-06 Dec-07 Jun-09 Dec-10
Avg. Asking Price (mm $) Jets for Sale as % of Active Fleet

Mediium 29%

Source: JetNet.

Active Fleet in Operation Breakdown by Manufacturer


Hawker Beechcr aft 16% Embraer 2% Gulfstre am 13%

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

Falcon 11% Airbus 1% Boeing 1%

Cessna 37%

Bombar dier 19%

Source: JetNet.

Source: JetNet, J.P. Morgan estimates.

Note: We only consider active platforms in this section (major OEMs) either clean sheet designs or platforms currently out of production but that have in-production derivatives.

Figure 23: % Change in Average Asking Price


50% 40% 30% 20% 10% 0% -10% -20% -30% -40% Dec-96
% Y/Y Change in Price

Dec-98

Dec-00

Dec-02

Dec-04

Dec-06

Dec-08

Dec-10

Source: JetNet, J.P. Morgan estimates.

14

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Used Market by Company


All OEMs had higher inventories except Embraer and Bombardier

Dassault (+110 bps), Hawker Beechcraft (+50 bps), Cessna (+10 bps), and Gulfstream (+10 bps) had higher inventories in October, while Embraer (-160 bps) and Bombardier (-10 bps) inventories were down. Despite an improvement of 160 bps in inventories, Embraer had the highest inventory among all six OEMs at 14.6%, while Hawker Beechcraft had the second highest inventory at 13.7%. Gulfstream inventory of 8.0% remained at the bottom, while Bombardier, Dassault, and Cessna inventories were at 11.3%, 10.4%, and 9.9%, respectively. Average asking price decreased 0.1% in October, after a price recovery of 0.2% each of the prior two months. Prices declined for 6 out of 10 months this year. In October, decreases in prices for Gulfstream (-4.3%) and Hawker Beechcraft (1.4%) were partially offset by higher prices at Embraer (+3.5%), Cessna (+2.0%), Dassault (+1.3%), and Bombardier (+0.9%) models.
Figure 24: Bombardier
$MM 30 26 22 18 14 10 Feb-98 Aug-99 Feb-01 Aug-02 Feb-04 Aug-05 Feb-07 Aug-08 Feb-10 Aug-11 Average Asking Price Jets for Sale as % of Active Fleet 16% 14% 12% 10% 8% 6% 4% 2% 0%

Source: Jetnet and J.P. Morgan estimates.

Figure 25: Cessna


Average Asking Price Jets for Sale as % of Active Fleet $MM 10.0 9.5 9.0 8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.0 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11

14% 12% 10% 8% 6% 4% 2% 0%

Source: Jetnet and J.P. Morgan estimates.

15

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Figure 26: Dassault


$MM 26 24 22 20 18 16 14 12 Feb-98 Aug-99 Feb-01 Aug-02 Feb-04 Aug-05 Feb-07 Aug-08 Feb-10 Aug-11
Average Asking Prices Jets for Sale as % of Active Fleet

16% 14% 12% 10% 8% 6% 4% 2% 0%

Source: Jetnet and J.P. Morgan estimates.

Figure 27: Embraer


$MM 25 20 15 10 5 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 10% 5% 0%
Avg. Asking Price Jets for Sale as % of Active Fleet

20% 15%

Source: Jetnet and J.P. Morgan estimates.

Figure 28: Gulfstream


$MM 40 35 30 25 20 15 Feb-98 Aug-99 Feb-01 Aug-02 Feb-04 Aug-05 Feb-07 Aug-08 Feb-10 Aug-11
Avg. Asking Price Jets for Sale as % of Active Fleet

14% 12% 10% 8% 6% 4% 2% 0%

Source: Jetnet and J.P. Morgan estimates.

16

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Figure 29: Hawker Beechcraft


$MM 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 Feb-98
Average Asking Price Jets for Sale as % of Active Fleet

Aug-99

Feb-01

Aug-02

Feb-04

Aug-05

Feb-07

Aug-08

Feb-10

Aug-11

18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

Source: Jetnet and J.P. Morgan estimates. Note: The sudden increase in prices from Sep-09 is due to inclusion of Hawker 4000.

17

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Heavy Jets
Market Share Trends
Deliveries up 14% y/y. 3Q11 Heavy jet deliveries increased 14% to 71 aircraft compared to 62 in 3Q10, and were 19 more than the prior quarter. Bombardier and Gulfstream saw an increase of 14 and 3 deliveries, respectively, while Dassault deliveries were down by 6 units. Embraer delivered 1 Legacy 600 in Q3 compared to 2 Linage 1000 over the same period last year, while Airbus deliveries were down by 1 and Boeing deliveries remained flat. By volume, on a TTM basis, Bombardier and Gulfstream gained market share of 420 bps and 10 bps, respectively, at the expense of Dassault, Embraer, Airbus, and Boeing who lost 310 bps, 60 bps, 50 bps, and 10 bps of market share, respectively. Bombardier now accounts for 34% market share, while Gulfstream, Dassault, and Embraer account for 29%, 24%, and 7% of the market share, respectively. Airbus and Boeing market share remained at 3% each. Cessna and Hawker Beechcraft do not participate in the Heavy jet market. Similarly, by value, Bombardier (+380 bps) and Gulfstream (+20 bps) gained, while Dassault (-260 bps), Embraer (-80 bps), Hawker Beechcraft (-50 bps), and Boeing (-10 bps) lost market share.
Figure 30: Market Share by Volume, 1995-2010
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Market Size by Volume


2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

Figure 31: LTM


100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

50

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

Market Size - by Value


2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

0 2 4 6 8 10 12 14

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

0
18

100

150

200

250

300

350 $B

1995

1997

1999

2001

2003

2005

2007

2009

3Q10 4Q10 1Q11 2Q11 3Q11

Bottom to Top : Bombardier, Dassault, Embraer, Gulfstream, Airbus, Boeing


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

Source: Teal grp., J.P. Morgan est.

Figure 32: Market Share by Value, 1995-2010


100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Figure 33: LTM


100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

1995

1997

1999

2001

2003

2005

2007

2009

3Q10 4Q10 1Q11 2Q11 3Q11

Bottom to Top : Bombardier, Dassault, Embraer, Gulfstream, Airbus, Boeing


Source: Teal Group, J.P. Morgan estimates. Source: Teal grp., J.P. Morgan est.

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Used Market Trends


Active Fleet in Operation Breakdown by Manufacturer
Gulfstre am 36%

Used jet inventories increased 0.3%, with asking prices down 0.3% Used jet inventory, measured by aircraft for sale as % of active fleet, increased 0.3% to 9.6% in October, the fifth consecutive increase. Heavy jet inventories are now 310 bps below the Jul-09 peak of 12.7% but 20 bps above last year. Increases at Falcon 2000/EX (+1.4%), Falcon 900 (+0.9%), G500/550/V (+0.7%), and G300/350/400 (+0.2%) were partially offset by fewer inventories for Legacy 600 (-1.6%), Challenger 600 (-0.4%), and Hawker 4000 (-0.2%). Global 5000/Express inventories remained flat, while there were 2 Falcon 7Xs available for sale. Average asking prices decreased 0.3% to $19.73 mn in October and has now declined in 6 of 7 months. YTD, prices for Heavy jets were up 1.1% after rising 6.0% in Q1. Prices declines for G500/550/V (-5.1%) and G300/350/400 (-2.4%) were partially offset by higher prices for the Legacy 600 (+3.5%), Falcon 900 (+1.9%), Challenger 600 (+1.3%), Global 5000/Express (+1.0%), and Falcon 2000/EX (+0.6%). Hawker 400 and Falcon 7X prices remained flat. Favorable: Challenger 600 and Legacy 600. Mixed: Falcon 900 and Falcon 2000/EX had higher inventories at increasing prices, while Global 5000/Express prices increased at flat inventories. Falcon 7X inventories increased at flat prices, while Hawker 4000 inventories were down at constant prices. Unfavorable: Gulfstream G500/550/V and G300/350/400.
Figure 34: Average Asking Price and % of Active Fleet for Sale
$MM 34
Avg. Asking Price Jets for Sale as % of Active Fleet

Bombar dier 29%

Falcon 29%

Embraer 6%

Source: JetNet

Product Price Points


BBJ/BBJ2 ACJ/A318 Elite G550 Global Express XRS Global Express Lineage 1000 Falcon 7X G500 Average Global 5000 Falcon 900EX G450 Challenger 800 G350 Challenger 604 F 2000EX EASy Legacy 600 $17

14% 12% 10% 8% 6% 4% 2% Jul-97 Jan-99 Jul-00 Jan-02 Jul-03 Jan-05 Jul-06 Jan-08 Jul-09 Jan-11 0%

$57.0 $57.5 $57.5 $50.0 $50.0 $43.0 $39.6 $36.8 $36.0 $38.9 $32.1 $27.5 $26.2 $29.0 $30.0
$29 $41 $53 $65

$47.0

$62.5

31 28 25 22 19 16 Jan-96

Source: JetNet, J.P. Morgan estimates.

Source: Company reports, Teal Group, Textron Fact book, Business & Commercial Aviation

Figure 35: % Change in Average Asking Price


50% 40% 30% 20% 10% 0% -10% -20% -30% Dec-96
% Y/Y Change in Price

Note: We only consider active platforms in this section (major OEMs) either clean sheet designs, or platforms currently out of production but that have in-production derivatives.

Dec-98

Dec-00

Dec-02

Dec-04

Dec-06

Dec-08

Dec-10

Source: JetNet, J.P. Morgan estimates.

19

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

G500/G550/V
Model Specs & Product History Figure 36
$MM
Model Manufacturer Engine Avionics Range Passengers List price G500/ G550 Gulfstream (GD) Rolls-Royce Honeyw ell 10740/ 12501 km 14-19 $43 M / $53.5 M
Avg. Asking Price Jets for Sale as % of Active Fleet

68 60 52 44 36 28

96-'99 00 GV
500/550/V

01-'02

03-'09

20 Jun-98 Sep-99 Dec-00 Mar-02 Jun-03 Sep-04 Dec-05 Mar-07 Jun-08 Sep-09 Dec-10
Source: JetNet, J.P. Morgan estimates.

18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

G500

Global 5000/Express/Express XRS


Figure 37
$MM 60 55 50 45 40 35 30 25
98 99-'03 04 06 08 09 Express 5000 XRS

Avg. Asking Price

Jets for Sale as % of Active Fleet

Model Manufacturer Engine Avionics Range Passengers List price

Global 5000/ 6000 (E xpress) Bombardier Rolls-Royce Honeyw ell 9630/ 11390 km 8-16/ 10-19 $49.1 M / $57.5 M

14% 12% 10% 8% 6% 4% 2% 0%

20 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11
Source: JetNet, J.P. Morgan estimates.

Falcon 900/900B/900C/900DX/900EX
Figure 38
Model Manufacturer Engine Avionics Range Passengers List price
900/ B 900C DX EX EX EASy

Falcon 900DX/EX Dassault Honeyw ell Honeyw ell 7399 km 8-19 $42.4 M

$MM 36 32 28 24 20 16 12

Avg. Asking Price

Jets for Sale as % of Active Fleet

86-'95 96-'99 00-'02 03 04 05 06 07-09

8 Dec-95 Jun-97 Dec-98 Jun-00 Dec-01 Jun-03 Dec-04 Jun-06 Dec-07 Jun-09 Dec-10

16% 14% 12% 10% 8% 6% 4% 2% 0%

Source: JetNet, J.P. Morgan estimates.

20

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

G300/G350/G400/G450/IV/IVSP
Model Specs & Product History
Model Manufacturer Engine Avionics Range Passengers List price G350/ G450 Gulfstream (GD) Rolls-Royce Honeyw ell 7038/ 8055 km 12-16 $27.5 M / $38.9 M

Figure 39
$MM 30 26 22 18 14
Avg. Asking Price Jets for Sale as % of Active Fleet

16% 14% 12% 10% 8% 6% 4% 2% Jul-98 Jan-00 Jul-01 Jan-03 Jul-04 Jan-06 Jul-07 Jan-09 Jul-10 0%

86-'99 00 GIV ALL G400

01-'02

03-'09

10 Jan-97

Source: JetNet, J.P. Morgan estimates.

Challenger 601-3R/604/605
Figure 40 $MM
Model Manufacturer Engine Avionics Range Passengers List price Challenger 605 Bombardier GE Rockw ell Collins 7491 km 9-18 $30.8 M
Avg. Asking Price Jets for Sale as % of Active Fleet

95 96 97 601-3R 604 605

98-'05

06-09

26 24 22 20 18 16 14 12 10 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11
Source: JetNet, J.P. Morgan estimates.

20% 15% 10% 5% 0%

Falcon 2000/2000EX/2000DX/2000LX
Figure 41
Model Manufacturer Engine Avionics Range Passengers List price Falcon 2000DX/EX Dassault P&W Canada Honeyw ell 7037 km 8-19 $32.1 M

$MM
30 25 20 15 10 Apr-96

Avg. Asking Price

Jets for Sale as % of Active Fleet

12% 10% 8% 6% 4% 2% Oct-97 Apr-99 Oct-00 Apr-02 Oct-03 Apr-05 Oct-06 Apr-08 Oct-09 Apr-11 0%

95-'01 02 03 04 2000 EX EX EASy

05-09

Source: JetNet, J.P. Morgan estimates.

21

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Legacy 600/650/Shuffle
Model Manufacturer Engine Avionics Range Passengers List price Legacy 600 Embraer Rolls-Royce Honeyw ell 6504 km 13 $30 M

Figure 42
$MM 25 20 15 10% 5% 0%
Avg. Asking Price Jets for Sale as % of Active Fleet

20% 15%

01
Legacy 600

02-08

09

10 5 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11

Source: JetNet, J.P. Morgan estimates.

Model Manufacturer Engine Avionics Range Passengers List price

Haw ker 4000 Haw kerBeechcraft Pratt & Whitney Honeyw ell 5941 km 8-10 $22.9 M

Hawker 4000
Figure 43
$MM 20 19 18
Avg. Asking Price Jets for Sale as % of Active Fleet

05
Hawker 4000

06-08

09

17 16 15 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11

16% 14% 12% 10% 8% 6% 4% 2% 0%

Source: Jetnet, J.P.Morgan estimates.

Model Manufacturer Engine Avionics Range Passengers List price

Falcon 7X Dassault P&W Canada Honeyw ell 11019 km 12-19 $50.1 M

Falcon 7X
Figure 44:
18% Jets for Sale as % of Active Fleet 16% 14% 12% 10% 8% 6% 4% 2% 0% Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11

05
Falcon 7X

06-08

09

Source: Jetnet, J.P.Morgan estimates.

22

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Medium Jets
Market Share Trends
Deliveries up 46% y/y. Medium jet deliveries increased 46% to 35 in 3Q11 compared to the year-ago level and were 50% higher than the prior quarter. Deliveries increased at Bombardier (+6), Cessna (+4), and Hawker Beechcraft (+2), and decreased at Gulfstream (-1). Most of the models including Citation Sovereign (+5), Challenger 300 (+4), Learjet 60XR (+2), Hawker 4000 (+2), and Gulfstream G100/150 (+2) saw increases in deliveries, while Gulfstream 200 (-3) and Citation X (-1) saw decreases. On a trailing four quarter basis, by volume, Bombardier (+180 bps) and Cessna (+150 bps) gained share at the expense of Gulfstream (-180 bps) and Hawker (150 bps). By value, Bombardier and Cessna gained 210 bps and 120 bps of market share, while Gulfstream and Hawker lost 260 bps and 70 bps, respectively.
Market Size - by Volume
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

Figure 45: Market share by Volume, 1995-2010


100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Figure 46: LTM


100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

1995

1998

2001

2004

2007

2010

Bottom to Top : Bombardier, Cessna, Dassault, Gulfstream, Hawker Beechcraft


50 100 150 200 250 300 350
Source: Teal Group, J.P. Morgan estimates.

3Q10 4Q10 1Q11 2Q11 3Q11

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

Market Size - by Value


2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

Source: Teal Group, J.P. Morgan est.

Figure 47: Market share by Value, 1995-2010


100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Figure 48: LTM


100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

1995

1997

1999

2001

2003

2005

2007

2009

Bottom to Top : Bombardier, Cessna, Dassault, Gulfstream, Hawker Beechcraft


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

3Q10 4Q10 1Q11 2Q11 3Q11

$B 0 1 2 3 4 5 6

Source: Teal Group, J.P. Morgan est.

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

23

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Used Market Trends


Active Fleet In Operation Breakdown by Manufacturer
Cessna 19% Hawker Beechcr aft 33%

Bombar dier 26%

Inventories increased 20 bps, average asking price increased 0.9% Used jet inventory, measured by aircraft for sale as % of active fleet, increased 20 bps to 11.2% in October, the third consecutive increase after 9 months of declines. Inventories are now 210 bps down YTD, following 150 bps of improvement last year. Relative to the Jun-09 peak, inventories are off 500 bps. Inventories increased for Challenger 300 (+1.2%), Gulfstream G100/150 (+0.9%), Hawker 800 series (+0.4%), and Learjet 55/60 (+0.2%), while Gulfstream G200 (-1.7%) and Citation X (-0.3%) saw decreases. Citation Sovereign inventories remained flat. Average asking price for Medium jets increased 0.9% to $8.73 mn in October, ~35% off the peak of $13.4 mn in Nov 08. Prices decreased 8.6% in the first half of the year to $8.61 mn, the lowest level since Sept-98, and remained nearly flat in Q3. Increases in prices for Citation X (+12.9%), Learjet 55/60 (+2.4%), Challenger 300 (+1.5%), and Citation Sovereign (+1.4%) were partially offset by declines in prices for Gulfstream G200 (-6.0%), Hawker 800 (-5.8%), and G100/150 (-2.6%). Favorable: Citation X. Mixed: Learjet 55/60 and Challenger 300 had increasing inventories at higher prices, while Gulfstream G200 had fewer inventories at decreasing prices. Citation Sovereign inventories remained flat at increasing prices. Unfavorable: Hawker 800 and Gulfstream G100/150.
Figure 49: Average Asking Price and % of Active Fleet for Sale
$MM
Avg. Asking Price Jets for Sale as % of Active Fleet

Falcon 11%

Gulfstre am 11%

Source: JetNet

Product Price Points


G200 Falcon 50/EX Hawker 4000 Citation X Challenger 300 Average Citation Sovereign G150 Hawker 850XP Learjet 60XR $5 $10 $23.3 $18.0 $22.9 $21.7 $24.8 $17.8 $17.6 $15.1 $13.7 $14.1 $15 $20 $25

15 14 13 12 11 10 9 8 7 6 5 Dec-95 Jun-97 Dec-98 Jun-00 Dec-01 Jun-03 Dec-04 Jun-06 Dec-07 Jun-09 Dec-10

17% 15% 13% 11% 9% 7% 5% 3%

Source: JetNet, J.P. Morgan estimates.

Source: Teal Group, Textron Factbook, Business & Commercial Aviation

Figure 50: % Change in Average Asking Price


40% 30% 20% 10%
% Y/Y Change in Price

Note: We only consider active platforms in this section (major OEMs) either clean sheet designs, or platforms currently out of production but that have in-production derivatives.

0% -10% -20% -30% Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10

Source: JetNet, J.P. Morgan estimates. 24

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Model Specs & Product History

Citation X
Figure 51
$MM Avg. asking price Jets for Sale as % of Active Fleet 18% 15% 12% 9% 6% 3% Jan-02 Apr-03 Jul-04 Oct-05 Jan-07 Apr-08 Jul-09 Oct-10 0%

Model Manufacturer Engine Avionics Range Passengers List price

Citation X Cessna (Textron) Rolls-Royce (Allison) Honeyw ell 5686 km 8-12 $21.7 M

19 17 15 13 11

96 97 98 - '06 07 08 09 X

9 7 Oct-00

Source: JetNet, J.P. Morgan estimates.

Challenger 300
Figure 52 $MM
Model Manufacturer Engine Avionics Range Passengers List price Challenger 300 Bombardier Honeyw ell Rockw ell Collins 5741 km 8-10 $24.8 M
Avg. Asking Price Jets for Sale as % of Active Fleet

26 24 22 20 18 16

20% 15% 10% 5% Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 0%

03 300

04-'08

09

14 Aug-05

Source: JetNet, J.P. Morgan estimates.

G200/280
Figure 53
$MM 21
Model Manufacturer Engine Avionics Range Passengers List price G200/G280 Gulfstream (GD) P&W Canada Rockw ell Collins 6297 km 8-12 $23.3 M/ $24 M
Avg. Asking Price Jets for Sale as % of Active Fleet

20% 15% 10% 5% 0%

18 15 12
09

99 G200*

00-'08

9 Jul-01

Jul-02

Jul-03

Jul-04

Jul-05

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

*from IAI Galaxy

Source: JetNet, J.P. Morgan estimates.

25

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Citation Sovereign
Model Specs & Product History
Model Manufacturer Engine Avionics Range Passengers List price Citation Sovereign Cessna (Textron) P&W Canada Honeyw ell 4934 km 6-8 $17.6 M

Figure 54
$MM 20.0 19.0 18.0 17.0 16.0 15.0 14.0 13.0 12.0 11.0 10.0 Jan-05
Avg. Asking Price Jets for Sale as % of Active Fleet

25% 20% 15% 10% 5% Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 0%

04
Sovereign

05-08

09

Source: JetNet, J.P. Morgan estimates. Note: Due to the inconsistent availability of data, dotted line represents last known asking price.

G100/150
Figure 55
Model Manufacturer Engine Avionics Range Passengers List price G100/ G150 Gulfstream (GD) Honeyw ell Rockw ell Collins 5000 km 6-7/ 6-8 $11.9 M / $15.1 M

$MM 14.0 13.0 12.0 11.0 10.0 9.0

Avg. Asking Price

Jets for Sale as % of Active Fleet

30% 25% 20% 15% 10% 5% Aug-06 May-07 Feb-08 Nov-08 Aug-09 May-10 Feb-11 0%

85-'05 G100* G150 *from IAI Astra

06-09

8.0 Nov-05

Source: JetNet, J.P. Morgan estimates.

Hawker 800A/800B (215-800)/800XP/800XPI/850XP


Figure 56
Model Manufacturer Engine Avionics Range Passengers List price Haw ker 800XP Haw kerBeechcraft Honeyw ell Rockw ell Collins 4893 km 6-8 $13.7 M

$MM 10.0 9.0 8.0 7.0 6.0

Avg. Asking Price

Jets for Sale as % of Active Fleet

5.0 Dec-95 Jun-97 Dec-98 Jun-00 Dec-01 Jun-03 Dec-04 Jun-06 Dec-07 Jun-08 Dec-10
84-'95 800 800XP 800XPI 850XP
Source: JetNet, J.P. Morgan estimates.

16% 14% 12% 10% 8% 6% 4% 2% 0%

96-'04 05

06-09

26

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North America Equity Research 15 November 2011

Learjet 55/55B/55C/60/60XR
Figure 57 $MM
Model Manufacturer Engine Avionics Range Passengers List price Learjet 60XR Bombardier P&W Canada Rockw ell Collins 4380 km 6-9 $14.1 M

Avg. Asking Price

Jets for Sale as % of Active Fleet 28% 24% 20% 16% 12% 8% 4% 0%

9 8 7 6 5 4

81-'91 92 55 60

93-'05

06-09

3 Dec-00

Jun-02

Dec-03

Jun-05

Dec-06

Jun-08

Dec-09

Jun-11

Source: JetNet, J.P. Morgan estimates.

27

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Light Jets
Market Share Trends
Market Size - by Volume
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

Deliveries up 62% y/y. Light jet deliveries increased 62% from 21 in 3Q10 to 34 in 3Q11, 6 higher than the prior quarter, while Q3 deliveries were ~50% of the 69 on average for the 5 Q3s between 2006 and 2010. Cessna delivered 31 Light jets, including 1 CJ1+, 4 CJ2+, 6 CJ3, 4 Encore+, 5 XLS, and 11 CJ4, 15 units more than last year. Bombardier delivered two Learjet 40s and one Learjet 45 in Q3 compared to one Learjet 40 and one Learjet 45 in 3Q10. Hawker had no light jet deliveries in 3Q11 compared to two Premier I/IA and one Hawker 400XP last year. Cessna started delivering CJ4s in 2Q10 and has delivered total 46 jets since then. 3Q CJ4 deliveries of 11 units were up by 7 units from last year and by 3 units from the previous quarter. On a TTM basis by volume, Cessna gained 400 bps at the expense of Hawker Beechcraft and Bombardier, who lost 340 bps and 60 bps of market share, respectively. Similarly, by value, Bombardier and Cessna lost 160 bps and 90 bps of market share to the benefit of Hawker Beechcraft who gained 250 bps of market share due to an exceptionally strong 4Q10.
Figure 58: Market share by Volume, 1995-2010 Figure 59: LTM
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 3Q10 4Q10 1Q11 2Q11 3Q11
Source: Teal Group, J.P. Morgan est.
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

50 1

100

150

200

250

300

350

Source: Teal Group, J.P. Morgan estimates., Business & Commercial Aviation.

Market Size - by Value


2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

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

0
28

1995

1997

1999

2001

2003

2005

2007

2009

Bottom to Top : Bombardier, Cessna, HawkerBeechcraft


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

Figure 60: Market share by Value, 1995-2010


$B 2 3 4 5 6

Figure 61: LTM


100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

100% 80% 60% 40% 20% 0% 1995 1997 1999 2001 2003 2005 2007 2009

3Q10

4Q10

1Q11

2Q11

3Q11

Source: Teal Group, J.P. Morgan est.

Bottom to Top : Bombardier, Cessna, HawkerBeechcraft


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

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Used Market Trends


Active Fleet In Operation Breakdown by Manufacturer
HawkerB eechcraft 21%

Inventories increased 0.1%, avg. asking prices fell 2.0% Used jet inventory, measured by aircraft for sale as % of active fleet, increased 10 bps in October to 11.5%. Inventories have decreased 50 bps this year and are now 320 bps off the Apr-09 peak of 14.7%. Beechjet 400/Hawker 400 (+1.2%), Citation CJ3 (+0.8%), Cit. CJ2/CJ2+ (+0.4%), Cit. Excel/XLS (+0.2%), and Cit. CJ1/CJ1+ (+0.2%) had higher inventories, while inventories declined for Premier I/IA (-0.8%), Learjet 40/45 (-0.5%), and Cit. V/Ultra/Encore/Encore+ (-0.5%). Light jet average asking price decreased 2.0% to $3.80 mn in October, following a price decrease of 2.7% last month. Prices have declined y/y for 33 of the past 41 months and are 35% off the Feb-08 peak of $5.86 mn. Decreases for Citation Excel/XLS (-7.3%), Beechjet 400/Hawker 400 (-5.6%), Citation CJ3 (-1.6%) and Premier I/IA (-1.5%) were partially offset by price increases at Cit. V/Ultra/Encore/Encore+ (+2.0%), Cit. CJ1/CJ1+ (+2.0%), Cit. CJ2/CJ2+ (+0.4%), and Learjet 40/45 (+0.2%). Favorable: Learjet 40/45 and Cit. V/Ultra/Encore/Encore+. Mixed: Cit. CJ2/CJ2+ and Cit. CJ1/CJ1+ had both inventories and price increasing while Premier I/IA inventories decreased at lower prices. Unfavorable: Beechjet 400/Hawker 400, Cit. Excel/XLS, and Cit. CJ3.
Figure 62: Average Asking Price and % of Active Fleet for Sale

Cessna 67%

Bombard ier 12%

Source: JetNet

Product Price Points


Learje t 45XR Citation XLS Learje t 40XR Citation Encore+ Hawker 400XP Average Citation CJ3 Citation Bravo Premier IA Citation CJ2+ Citation CJ1+ Citation Mustang $0 $3 $3.1 $6 $9 $12 $15 $6.7 $8.0 $8.2 $6.0 $6.9 $6.9 $5.1 $9.2 $13.2 $12.5 $10.6

$MM

Avg. Asking Price

Jets for Sale as % of Active Fleet

6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 Dec-95 Jun-97 Dec-98 Jun-00 Dec-01 Jun-03 Dec-04 Jun-06 Dec-07 Jun-09 Dec-10

18% 15% 12% 9% 6% 3% 0%

Source: JetNet, J.P. Morgan estimates.

Source: Teal Group, Textron Factbook

Figure 63: % Change in Average Asking Price


80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% Dec-96
% Y/Y Change in Price

Note: We only consider active platforms in this section (major OEMs) either clean sheet designs, or platforms currently out of production but that have in-production derivatives.

Dec-98

Dec-00

Dec-02

Dec-04

Dec-06

Dec-08

Dec-10

Source: JetNet, J.P. Morgan estimates.

29

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Model Specs & Product History


Model Manufacturer Engine Avionics Range Passengers List price Learjet 40XR/45XR Bombardier Honeyw ell (Garrett) Honeyw ell 3348-3795 km 6-9 $10.6 M / $13.2 M

Learjet 40/40XR/45/45XR
Figure 64
$MM 10 9 8 7 6 5 4 Dec-00
Avg. Asking Price Jets for Sale as % of Active Fleet

14% 12% 10% 8% 6% 4% 2% Jun-02 Dec-03 Jun-05 Dec-06 Jun-08 Dec-09 Jun-11 0%

98 99-'03 04 05 45 40 40XR 45XR

06-09

Source: JetNet, J.P. Morgan estimates.

Citation Excel/XLS/XLS+
Figure 65
Model Manufacturer Engine Avionics Range Passengers List price Citation XLS+ Cessna (Textron) P&W Canada Honeyw ell 3441 km 8 $12.5 M

$MM 12 11 10 9 8 7 6

Avg. Asking Price

Jets for Sale as % of Active Fleet

18% 15% 12% 9% 6% 3%

98 99 Excel XLS

00-03

04-08

09

5 0% Nov-98 Feb-00 May-01 Aug-02 Nov-03 Feb-05 May-06 Aug-07 Nov-08 Feb-10 May-11

Source: JetNet, J.P. Morgan estimates.

Citation V/Ultra/Encore/Encore+
Figure 66
Model Manufacturer Engine Avionics Range Passengers List price Citation Encore+ Cessna (Textron) P&W Canada Honeyw ell 3313 km 8 $9.2 M

$MM 7 6 5 4

Avg. Asking Price

Jets for Sale as % of Active Fleet

18% 15% 12% 9% 6% 3% 0%

89-'95 96-'99 00-'05 06 07-09 V Ultra Encore Encore+

3 2 Dec-95 Jun-97 Dec-98 Jun-00 Dec-01 Jun-03 Dec-04 Jun-06 Dec-07 Jun-09 Dec-10

Source: JetNet, J.P. Morgan estimates.

30

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Beechjet 400/400A/Hawker 400XP


Model Specs & Product History Figure 67
Avg. Asking Price Jets for Sale as % of Active Fleet $MM 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 Dec-95 Jun-97 Dec-98 Jun-00 Dec-01 Jun-03 Dec-04 Jun-06 Dec-07 Jun-08 Dec-10

Model Manufacturer Engine Avionics Range Passengers List price

Beechjet 400XP Haw kerBeechcraft P&W Canada Rockw ell Collins 2898 km 7 +'Specs Table'!H13

20% 15% 10% 5% 0%

86-'89 90-'02 03 400 400A 400XP

04-'09

Source: JetNet, J.P. Morgan estimates.

Citation Jet CJ3


Figure 68
$MM
Avg. Asking Price Jets for Sale as % of Active Fleet

Model Manufacturer Engine Avionics Range Passengers List price

Citation CJ3 Cessna (Textron) Williams / Rolls-Royce Rockw ell Collins 3473 km 6 $8.2 M

8.5 8.0 7.5 7.0 6.5 6.0 5.5

35% 30% 25% 20% 15% 10% 5% 0%

04 CJ3

06

08

09

5.0 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11
Source: JetNet, J.P. Morgan estimates.

Premier I/IA
Figure 69
$MM 6.0
Model Manufacturer Engine Avionics Range Passengers List price Premier I Haw kerBeechcraft Williams Rockw ell Collins 2519 km 6-7 $6.9 M
Avg. Asking Price Jets for Sale as % of Active Fleet

60% 50% 40% 30% 20% 10% 0%

5.5 5.0 4.5 4.0 3.5 3.0 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10
Source: JetNet, J.P. Morgan estimates.

01 I IA

02-'04

05

06-09

31

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Citation Jet CJ2/CJ2+


Model Specs & Product History
Model Manufacturer Engine Avionics Range Passengers List price Citation CJ2+ Cessna (Textron) Williams / Rolls-Royce Rockw ell Collins 2987 km 5 $6.9 M

Figure 70
$MM 5.5 5.0 4.5 4.0 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11
Source: JetNet, J.P. Morgan estimates.
Avg. Asking Price Jets for Sale as % of Active Fleet

00 01 02 03-06 CJ2 CJ2+

07-'09

45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

Citation Jet (Model 525)/CJ1/CJ1+


Figure 71
Model Manufacturer Engine Avionics Range Passengers List price Citation CJ1+ Cessna (Textron) Williams / Rolls-Royce Rockw ell Collins 2408 km 5 $5.1 M

$MM 3.8 3.6 3.4 3.2 3.0 2.8 2.6 2.4

Avg. Asking Price

Jets for Sale as % of Active Fleet

93-99 00 525 CJ1 CJ1+

01-'05 06 07-09

2.2 Dec-95 Jun-97 Dec-98 Jun-00 Dec-01 Jun-03 Dec-04 Jun-06 Dec-07 Jun-09 Dec-10
Source: JetNet, J.P. Morgan estimates.

20% 18% 16% 14% 12% 10% 8% 6% 4% 2%

32

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Fractional Jets
Provider Fleet Trends
Fractional fleet down by 3 in September; down 10% YTD The total fractional fleet count was 781 in September, contracting by 3 jets from the previous month and is now ~10% down YTD. The fractional fleet has declined in 28 of the 32 months since Jan-09 when it peaked at 960, nearly 23% above the present level. The three-month rolling average of gross fleet additions and the average of new jet additions both decreased by 0.3 in September to 1.0 and 0.7, respectively; hence, the average of used jet additions remained flat at 0.3. The difference between the 3 month rolling average of new jet additions and used jet additions has come down to 0.3 compared to an historical average of 4.9, though the average has been about zero the past two years.
Fractional Fleet Base - Breakdown by Provider
Others 23% Citation Air 7% Flexjet 9%

Figure 72: Fractional Fleet Additions, by Provider, 1995-2010


120 100 80 60 40 20 0 -20 -40 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Others CitationShares Flexjet Flight Options Net Jets

Flight Options 12% NetJets 49%

Source: JetNet

Source: JetNet, J.P. Morgan estimates.

Fractional Fleet base


2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 0
871 897 958 910 885 795 690 598 535 440 350 257 179 125 87 72

Figure 73: Fractional Fleet Additions, Used and New3 Month Rolling Average, Jan-96 - Sep-11
15 12 9 6 3 0
Used Jets New jets

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

250

500

750

1000

Source: JetNet, J.P. Morgan estimates.

Source: JetNet

33

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Figure 74: Difference b/w 3m rolling average of new and used jet additions, Feb-96 - Sep-11
14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 -2.0 Feb-96

Aug-97 Feb-99 Aug-00

Feb-02 Aug-03

Feb-05 Aug-06

Feb-08 Aug-09

Feb-11

Difference b/w new and used jet addtions

Historical Average

Source: Jetnet, J.P. Morgan estimates

Share Sales Trend


Share sales decreased on a rolling three month basis in September On an absolute basis, September share sales increased 14% year over year and were up 14% from the previous month too. On a rolling three-month average basis, share sales decreased to 67, following a sequential decline to 84 in August from 121 in June, which had been the highest level since Aug-08. Sales were 20% below the previous month and 41% below Dec 10.
Figure 75: Fractional Share Sales, by Providers (# of shares) 3m rolling avg., Feb-96 Sep-11
300.0 250.0 200.0 150.0 100.0 50.0 0.0 Feb-96 Feb-97 Feb-98 Feb-99 Feb-00 Feb-01 Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11
Fractional Share Sales

Source: JetNet, J.P. Morgan estimates.

34

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.

Important Disclosures

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*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.

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Other Disclosures

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North America Equity Research 15 November 2011

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36

Joseph B. Nadol III (1-212) 622-6548 joseph.b.nadol@jpmorgan.com

North America Equity Research 15 November 2011

territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA rules. General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise. "Other Disclosures" last revised September 30, 2011.

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