Global Air Freight Forecast

1
Global Air Freight Forecast
Presented To
ITDU Spring 2006 Conference
June 21, 2006
2
Agenda

• Introduction to BACK Aviation Solutions
• Methodology and Data Source Review
• BACKs 2006 Air Freight Forecast
• Key Drivers Overview
• Freighter Fleet Forecast
• New Freighter Aircraft Programs Overview

3
BACK Aviation Solutions Corporate OverviewBACK
Aviation Solutions (BACK) is a Commonwealth
Business Media (CBM) company

• CBM is the premier international trade and
  transportation information services company
• CBM information products include directories,
  databases, magazines and analytical services in
  the transportation, international trade, and
  commercial credit markets
• CBM is headquartered in East Windsor, New Jersey
  with offices in Newark, San Francisco, New Haven,
  Long Beach, Atlanta, Montreal, Washington, DC,
  Miami, Ft. Lauderdale, Tampa, Hong Kong, and
  London

4
BACK Aviation Solutions Aviation Industry
FocusBACK is a consulting and information
services business unit within CBM specializing in
aviation and air transportation
Information and analytical services
Management consulting services
Asset management appraisal services
CRM research services

• Maintains the largest and most prestigious
  collection of aviation databases in the world
• The product line includes a complete range of
  aviation information services including
• Financial
• Traffic
• Schedule
• Fleet

• Capabilities
• Strategy
• Operations
• Restructuring
• Process re-engineering
• Forecasting Modeling
• Marketing
• Organization

• Appraisals for aircraft, engines, components,
  equipment, real estate lease holds, slots and
  route authorities, and other aviation assets
• Aircraft comparative analysis and selection
• Aircraft acquisition, sales and leasing
• Aircraft technical services - inspections and
  fleet monitoring
• Maintenance repair and overhaul management
• Aircraft portfolio administration
• Aircraft values website publication

• CRM outsource services including
• Call center data collection
• Data verifications, confirmation and validation
  programs
• Targeting telemarketing and e-marketing programs
• Customer relationship management campaigns and
  promotions

5
Methodology and Data Sources
6
BACK has developed a rigorous methodology to
forecast global air freight volumes and future
freighter fleet requirements
7
BACK relies on several sources of data to arrive
at its forecast

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

• Freighter Fleet Forecast
• BACK Fleet iNet Fleet Database
• Used to analyze historical retirements by
  Aircraft Type
• Worldwide Fleet by Aircraft Type and world region
• BACK Schedules iNet
• Worldwide Schedules by Carrier and Type
• Used to analyze aircraft utilized by distance
  flown per segment by world region
• Form 41
• Utilized to analyze aircraft utilization
  assumptions by aircraft type

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Air Freight Forecast
9
Global Air Freight Traffic is expected to nearly
quadruple over the next 20 years
Bi-Directional CAGR
6.8
Source BACK Aviation Solutions Fleet Forecast
10
Transpacific trade will drive future air freight
growth Japan and Emerging markets make non-China
outlook bright
Bi-Directional CAGR
5.2
Source BACK Aviation Solutions Fleet Forecast
11
However, China is expected to be the key driver
of global air freight traffic Trade between
China and the North America is vital for growth
Bi-Directional CAGR
10.4
Source BACK Aviation Solutions Fleet Forecast
12
Key Drivers Overview
13
When forecasting traffic growth, BACK accounts
for economic, political, and industry factors
that impact Air Freight Traffic

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

Worldwide Air Freight Traffic Growth Outlook
14
There is a positive correlation between GDP and
air freight growth
Source BACK Aviation Solutions Analysis
15
Forecasted GDP shows why China expected to be so
important to global air freight volume
growthYet, several Emerging Markets show
potential on a smaller scale
Source UNCTAD
16
FDI is a leading indicator of manufacturing
capacity development, a precursor to air freight
growth
9.0

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

CAGR
13.4
1.6
2.5
5.3
Source UNCTAD
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Worldwide Aircraft Fleet
18
Worldwide fleet Expected to grow at a 4.4 CAGR
through 2016Regional Jet and Widebody aircraft
fastest growing segments

• Regional Jet aircraft are expected to
  experience fastest growth over the next 10 years
  as airlines take advantage of unit cost benefits
  of RJ equipment
• Demand for Widebody aircraft is forecasted to
  be strong as capacity is required for the growing
  long-haul market segment
• Freighters, mostly large widebody aircraft,
  will have positive growth over the next decade as
  global air freight volumes continue to expand
  driven by Chinese air freight volumes

CAGR 3.6 5.3 4.9 4.2
Source BACK Aviation Solutions Fleet Forecast
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Worldwide fleet Emerging markets drive demand
for capacityChina, Russia, India, Asia, and
Africa expected to grow rapidly

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

3.1
CAGR
3.7
4.6
8.7
6.2
5.7
5.9
6.0
6.4
7.4
Source BACK Aviation Solutions Fleet Forecast
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Freighters Expected to grow 3.6 CAGR through
2016 Widebody aircraft will be required to
satisfy long-haul capacity requirement

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

CAGR
3.7
1.9
4.8
4.5
Source BACK Aviation Solutions Fleet Forecast
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New Freighter Aircraft Program Overview
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Boeing and Airbus have several new freighter
aircraft programs that will be delivered to meet
the freighter capacity requirement

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

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The A380 provides improved range capability at
higher payloadsUnlike the 747, it can operate
full payload U.S. to Asia without fuel stops
Range ex PVG JAR reserves, 200 nm diversion 5
contingency 3 airways allowance 85 annual
probability winds ISA
Source Airbus
24
The A380 can carry more cargo, longer distances
versus the 747F A380F payload / range /
density flexibility matches all requirements
747-400F
A380F 17 / 29
747-8F
747-400 SF
A380F 25 / 29
JAR 5 typical International profile ISA
temperature 200nm diversion Long range cruise
PVG LAX / NRT ORD 85 annual ESAD ca. 5300
nm
Range ex PVG JAR reserves, 200 nm diversion 5
contingency 3 airways allowance 85 annual
probability winds ISA
Source Airbus
25
However, Boeing is well established in the
freighter marketBoeing offers market a deeper
and broader product line than Airbus
Range ex PVG JAR reserves, 200 nm diversion 5
contingency 3 airways allowance 85 annual
probability winds ISA
Over 90 of all freighter cargo flies on Boeing
aircraft
Source Boeing
26
Furthermore, Boeing has a well-established
carrier customer base in Asia
(Mar 06, Cargo Facts)
Current
Firm Orders
Air China ANA Asiana Cathay Pacific China
Airlines China (Eastern) Cargo China
Southern Dragonair EVA Air Jade
Cargo Japan Korean MAS Nippon Cargo Shanghai Singa
pore Transmile
2 SFs
1
6
3
1
3 BCFs
(SFs)
1
6
3
(BCFs)
14
5
18
3
6
2
2
4
5
(BCFs)
3
(SFs)
8
11
6
12
(BCFs)
8
4
20
5 BCFs
1
2
2
13
6
8 -8Fs
1
(BCFs)
16
3
4
Source Boeing
27
Lastly, the 747-8F is a natural 747-400F
replacement given its improved technology and
fuel efficiency
960,000 lb MTOW 700,000 lb MZFW 740,000 lb MLW
EIS 2009

• Improved wing
• Raked wing tip
• Outboard wing modifications
• New double slotted inboard outboard flaps
• New flap mechanism and fairings

• Improved flight deck
• ATC Datalink
• Electronic checklist
• Integrated Approach Nav
• GLS Autoland
• Nav Performance Scales
• New FMC

Increased Payload 4 main deck pallets 3 lower
deck pallets
60-in aft stretch
Repositioned aft cargo door
Application of new stronger advanced aluminum
160-in forward stretch

• Landing gear
• Revised truck beam length
• Strengthened main gear struts
• 52 wheels and tires
• Strengthened nose gear

• Systems revised to accommodate new engine,
  improved wing and body stretch
• New ram air turbine

• Optimized 7E7 engines
• Engines derated to 66.5K lb
• Modified fan diameter
• Modified to provide bleed air

Source Boeing
28
Based on confirm orders, Boeing has established
an early leadBoeing offers market a better
product line than Airbus

• A380F has 45 firm orders versus only 24 orders
  for 747-8F
• However, Airbus has only 3 customers (UPS,
  FedEx, and ILFC) for A380 and recently lost
  Emirates A380F option
• Boeing has found strong interest in the
  747-400BCF and 747-8F product since introduction
• Boeing expects 777F to be a home-run given that
  doesnt have a really competing product currently
  in its portfolio
• 767-200F expected to compete with A330 and A310
  for orders

Note Includes only manufactured freighters,
does not include conversion freighters on-order
or option
Source BACK Fleet iNet
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Contact information

• Marty Graham
• Manager, Analytical Services
• Commonwealth Business Media
• BACK Aviation Solutions
• 1270 National Press Building
• Washington, DC 20045
• 202 355 1166
• EmailMgraham_at_BackAviation.com