EFTA01177252.pdf

UBS Global Equity Research Americas UBS Investment Research Aerospace UBS Business Jet Update Sector Comment Business jet inventory slightly lower 15 May 2012 ■ Available inventories slightly lower in April mviv.ubs.cominvestmentnasearcii Available for sale business jet inventories moved I% lower in April and are now 18% below the peak from May 2009. We estimate available inventories represent 13% of the installed base of business jets, in-line with the historical average and below recent peak at 18%. Young available aircraft inventories (0.10 years old) David E. Strauss moved I% lower this month leaving them 32% below the peak, but at 9% of the Analyst installed base are still above the 5.6% level seen during the last upcycle. [email protected] +1-212.7136185 ■ Embraer, Europe most for sale; North America relatively low Darryl Genovesi Of the major manufacturers, Embraer has 15% of its in-service fleet available for Analyst sale, followed by Bombardier/Cessna at (4%, Dassault/Hawker at 13% and [email protected] Gulfstream at 11%. At the end of April, Europe had the largest percentage of its +1-212-713 4016 installed base available for sale at 17%, followed by North America at (4%, Matthew Akers LatAm/Middle East both at 11% and Asia/Pacific at 9%. However, when Associate Analyst considering only young aircraft (0-10 years old), North America has only 7% of its [email protected] installed base available for sale as compared to Europe at 13%. +1.212.7134881 ■ See positive risk-rewards for stocks We believe North America bizjet is improving, driven by replacement demand postponed during the downturn. While the bizjet stocks have moved higher, we still see positive risk-rewards as we don't think stocks incorporate much for bizjets at current levels including Buy rated TXT/COUGD. Chart 1: Available Aircraft Listings - Total and Young (0.10 years in-age) 3.600 18% 3,200 16% 2.800 14% % of Installed Base 2400 12% 2000 10% 1.600 8% a 1.200 6% 800 4% 400 2% 0 0% 78 8 8 & 8 0 8 8 4 8 4 4 4 8 2 0-10 Years 11111 10. Years —% of Fleet Available for Sale Source: JETNET and UBS estimates This report has been prepared by UBS Securities LLC ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 13. UBS 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. EFTA01177252 UBS Business Jet Update 15 May 2012 Investment Summary We believe the used business jet market serves as a leading indicator of the new business jet market. We closely monitor several key indicators of activity in the secondary market, including: 1) inventory of available for sale aircraft including new delivery positions listed for sale, 2) age distribution of available aircraft and 3) pricing of available for sale aircraft. Available for sale business jet inventories were 1% lower sequentially in April and remain roughly 18% below the peak from May 2009. We estimate available inventories represent 13% of the installed base of business jets, in-line with the historical average and below recent peak at 18%. Chart 2: Sequential Change in Available Aircraft Listings Chart 3: yly Change in Available Aircraft Listings 10% 75% 50% 5% 25% Cri Iiislp lit ill wino Siif( III! II .5% 25% 01 e O.) el et IS) CO N. CO Of IN- CO 01 OJ .3. CO 15'C0 I.-- CO Of e 0 1 0) 0) 01 0 0 0 0 0 0 0 0 0 01 01 01 O O I? *2 C<C<CCCCCCCCCC Source: JETNET and UBS estimates Source: JETNET and UBS estimates Young available aircraft inventories (0-10 years old) moved 1% lower this month leaving them 32% below peak, but at 9% of the installed base are still above the 5-6% level seen during the last upcycle. Chart 4: Sequential Change in Young Aircraft Listings Chart 5: yly Change in Young Aircraft Listings 150% - 125% - 100% - 75% - 5% 50% - 25% - 0% 0% I~,lllil 1 it III .5% -25% - le% - •50% $ “?$$ 1. ?3$4g;$ :“+' '&3888 a 88888ra 8 .= Source: JETNET and UN estimates Source: JETNET and UBS OSIAMOS UBS 2 EFTA01177253 UBS Business Jet Update 15 May 2912 Average asking prices for the 39 newer used models we track continue to bounce along bottom, roughly unchanged in April and still 30-40% below peak levels. Average asking prices moved higher for large cabin this month with midsize lower and small cabin pricing roughly unchanged. Chart 6: Sequential Change in Average "Newer" Used Jet Asking Prices .5% Of Of Of 0 0 0 0 • N 8 O 11* 8 O e S. Small Cabin Midsize Cabin Large Cabin —Total Source: JETNET and UBS estimates We believe North America bizjet demand is improving, driven by replacements postponed during the downturn. While the bizjet stocks have moved higher, we still see positive risk-rewards as we don't think stocks incorporate much for bizjets at current levels including Buy rated TXT/COL/GD. Chart 7: GD and TXT Forward PIE Multiples 35x- 30x- Forward PE Multiple/ 20x - 15x 10x 5x Ox 5 sssssssssssssssssss —GD — TXT Source: UBS estimates UBS 3 EFTA01177254 UBS Business Jet Update 15 May 2012 Available Inventory Levels We count 2,512 business jets available for sale at the end of April (2,464 used aircraft and 48 new delivery positions), 1% lower from the prior month. We estimate available inventories represent 13% of the installed base of business jets, in-line with the historical average and below recent peak at 18%. Chart 8: Business Jets Available for Sale and as a Percentage of the Installed Base Available business jet inventories are coming off record highs 3.600 - 18% 3.200 - 16% 2.800 - 14% 0 4 to 2,400 - 12% a a- 2,000 10% 1.600 - I{IAlr 1~1rm,.. -8% -g 8 1.200 - 6% -1 800 - fifTPI111 - 4% am 400 - - 2% 0 0% 6: 4'3 4 '43 !• , Source: JETNET and UBS estimates We have grouped available-for-sale business jets into 5-year age classes. We estimate the 0-5 and 6-10 year classes now have 8% (479) and 10% (329) of their respective fleets available for sale compared with the 7-8% historical average. Meanwhile, business jets 20-30 years old have roughly 21% of their fleets available for sale, roughly in line with average historical levels. Chart 9: Available Inventory by Age Class and as % of Fleet in Age Class 600 531 33% 479 I of Available Inventory 500 25% N N 400 300- co 200- aE too - 0 0.5 6-10 11.15 16-20 21.25 26-30 304. Age Class (Yrs.) Available Aircraft —% of Age Class Source: JETNET and UBS estimates Young aircraft (0-10 years) constitute 32% of total available inventory, above the historical average at 20-25%, but lower than the in-service fleet at 49%. UBS 4 EFTA01177255 UBS Business Jet Update 15 May 2012 Chart 10: Available for Sale Inventory by Age Class (in years) Chart 11: Installed Fleet by Age Class (in years) 30+ 30+ 0-5 14% 26.30 9% 21.25 6% 16-20 7% 11-15 18% 14% Source: JETNET and UBS estimates Source: JETNET and UBS estimates We estimate young available aircraft inventories (0-10 years old) moved 1% lower this month leaving them 32% below peak levels, but at 9% of the installed base are still above the 5-6% level seen during the last upcycle. Chart 12: Young Aircraft Available for Sale (0-10 years) and % of Total Available 1.400 - - 45% 1.200 - - 40% 1.000 - - 35% 800 - 30% o p 600 - 25% 400 - 20% -a 200 - 15%e 0 10% 2r, '41 .1;i1 S 0-5 Years 6-10 Years — % at Total Available Source: JETNET and UBS estimates Of 479 0-5 year old aircraft available for sale, 48 are new delivery slots, 8% Table 1: New Delivery Positions Listed lower from the prior month, and 74% below the 2009 peak (ex Eclipse). By for Sale at Apr 30 and Mar 30 manufacturer, we count 26 Embraer delivery slots available for sale, along with Model Mar-12 six Cessna slots, ten Bombardier slots and six Boeing/Airbus bizliner slots. hence, 3t0 13 16 Legacy 500 4 Chart 13: Historical New Aircraft Delivery Positions Listed for Sale hence, MO 5 5 Altus AGJ3I9 4 4 Global 5000 3 4 240 Delivery Slots for Sale Eclipse Ch. 7 Liquidation Comm Mustang 3 3 200 - Comm CH 2 160 - Been° BEM 2 2 Global Express %AS 2 2 120 Chace, G.G. 80 Global 6000 2 40 Lineage 1000 0 milpillfilliffill111111, Chaim XLS. <0 CO CO II, n t••• IN• CO CO CO CO OI Of co Of c..,i c..4 Legacy 450 99 0 999 0 999 0 999 49 V ass 4 .M t; a S V a 42.M 15 sT, 4'5.M V a‘m Challenger COS Glynn C.J2 • Global 7000 ETobl Ex Eclipse Eclipse 500 Challenger 300 Tots 48 47 Source: JETNET and UBS estimates Source: JETNET and UBS estimates UBS S EFTA01177256 UBS Business Jet Update 15 May 2012 Of the major manufacturers, Embraer has 15% of its in-service fleet available for sale, followed by Bombardier/Cessna at 14%, Dassault/Hawker at 13% and Gulfstream at 11%. Chart 14: Available Inventory by Manufacturer 18% Used Inventory as %of Fleet 16% 14% 12% 10% 8% 16% 6% 13% 4% 2% 0% Bombardier Cessna Dassault Embraer Gulfsteam Hawker Other Beechcrall Inventory by Manufacturer — — Industy Average Source: JETNET and UBS estimates When considering only young available aircraft inventories (0-10 years old), Embraer had the largest percentage of its installed base available for sale at 15%, followed by Bombardier at 11%, Hawker at 9%, and Cessna/Dassault at 8%. Chart 15: Available young (0-10) inventory by manufacturer 18% 16% LL 14% - z 12% 10% 8% - 6% 4% 8% 05f - r- Bombardier Cessna Dassault Embraer Gultsteam Hawker Otter Beechcrat kw entry by Manulackser — — Indust, Average Source: JETNET and UBS estimates UBS 6 EFTA01177257 UBS Business Jet Update 15 May 2012 By Geography At end of April, Europe had the largest percentage of its installed base available for sale at 17%, followed by North America at 14%, LatAm/Middle East both at 11% and Asia/Pacific at 9%. Chart 16: Total Inventory as % of Installed Base 17% 14% Europe Nadi America Mille East Lain America Asia/Paciic Mica Source: JETNET and UBS emanates When considering only young available aircraft inventories (0-10 years old), Europe again had the largest percentage of its installed base available for sale at 13%, followed by the Middle East and Latin America at 10%, North America at 7% and Asia/Pacific at 6%. Chart 17: Young (0.10) Inventory as % of Young Installed Base Europe Not America Mitle East Lain America Asia/Paciic Mica Source: JETNET and UBS estimates By Range Class At the end of April, the short and mid-range classes both had 14% of their respective fleets available for sale, followed by long-range at 10%. During April, we estimate available-for-sale long-range aircraft inventories moved 3% higher, while available mid-range aircraft moved 4% lower and available short- range inventories were roughly unchanged. UBS 7 EFTA01177258 UBS Business Jet Update IS May 2012 Young short-range aircraft represent 31% of total short-range available aircraft. Chart 18: Age Distribution of Available Short-Range Aircraft Chart 19: Available Short Range Aircraft Listings • Total and Young (0-10 years in age) 1,600 20% % of Installed Base Inventory Level 1,200 15% 800 10% 400 5% 0 `73 O `73 O O O 01 al 1 8 A 2 C 18 A' 2 Source: JETNET and UBS estimates 0.10 Years 10+ Years — of Installed Base Note: Includes available aircraft with range below 2.000 nmi. Source: JETNET and UBS estimates Young mid-range aircraft represent 29% of total mid -range available aircraft. Chart 20: Age Distribution of Available Medium-Range Aircraft Chart 21: Available Medium Range Aircraft Listings • Total and Young (0.10 years in age) 0.5 30+ 17% - cy, 19% 610 % of Installed Base 15° 12% 900 - 109 2630 600 21% 300 - - S% 21-25 rat. 10% Oj Q c. cr. O 0 0 • O4 eig. ;272.11am ,1 ," .$' O AI U.ct Source: JETNET and WS estimates 010 Years 10+ Years — °I of fristaled Base Note: Includes available aircraft with range below 2.000 nmi. Source: JETNET and UBS estimates Young long-range aircraft represent 46% of total long-range available aircraft. Chart 22: Age Distribution of Available Long-Range Aircraft Chart 23: Available Long Range Aircraft Listings • Total and Young (0.10 years in age) 30+ 26-30 500 16% 11% 0.5 % of Installed Base 400 28% 12% 21.25 300 15% 8% 200 16-20 6-10 100 4% 11.15 18% 0 0% 19% 0 0 04 0 2_ Source: JETNET and MS estimates 0-10 Years im 10+ Years — N of fristaled Base Note: Includes availab!e aircraft with range below 2.000 nmi. Source: JETNET and UBS estimates UBS 8 EFTA01177259 MIS Business Jet Update 15 May 2012 A Look at the Newer Models Of the 39 newer models that we track individually, 17 have at least 10% of their installed fleets available for sale. Of these 39 models, 13 showed sequential inventory increases in April, while nine were flat and 17 declined. Compared with the prior year, 24 models had higher levels of available inventory, one model was unchanged and 14 declined. Table 2: Available Aircraft Listings and Average Asking Price for Newer Models Installed Avanable Base in Airaaft% Model hst. Base Availthle Ingmar Average Used Askrig PrimIV.1) Arcrah Model Manulaceser Apr-12 Apr-12 lAar.12 Charge Apr-11 plvge Apr-12 Apr-11 Change Max Clarlge Long Range Global Express %RS Borrbarder 161 7% 11 10 10% 6 8196 $ 42.1 S 47.7 -12% $ 580 -27% Global Express BD-700 Bombardier 148 12% 18 18 0% 17 6% $ 27.7 S 26.0 7% $ 48.9 -43% Gugstream 6-550 Gullstream 340 4% 15 15 0% 14 7% $ 34.9 $ 38.1 -8% $ 59.9 -42% Falcon 7x Dassault 136 6% 8 8 0% 6 33% $ 43.5 $ 48.9 -11% 48.9 -11% Super Large Guestream G-V Gullstream 192 7% 13 12 8% 6 117% $ 24.4 $ 25.0 -2% 460 -46% Guestream G-450 Gugstream 226 4% 9 9 0% 6 50% $ 26.2 $ 27.8 -6% $ 422 -38% Guestream G.1VSP Gullstream 286 7% 20 23 -13% 12 67% $ 11.3 $ 15.0 44% $ 31.5 64% Gkba15000 Bortbarder 114 10% 11 7 67% 10 10% $ 331 $ 31.5 7% 614 -34% Lineage 1000 Emttaer 14 29% 4 4 0% 300% nh na da na nra L Falan 900E% Bass/kit 236 8% 20 19 5% 15 33% $ 22.8 $ 26.1 -1M S 39.5 -42% Large Falcon 2000 EX 1LX Dassault 233 9% 20 23 -13% 16 25% $ 21.2 $ 22.4 -5% S 33.0 -36% CteIcoger 8001 850 Borrbarder 76 14% 11 11 0% 8 38% $ 18.0 $ 15.3 18% S 18.0 0% Chalenger 605 Bombardier 177 6% 11 11 0% 10 10% $ 18.2 Na da S 31.0 41% CteIcoger 604 Bombardier 363 IS% 54 53 2% 45 20% $ 10.2 3 11.4 -10% $ 22.3 -54% Legacy 600 Emtraer 174 16% 26 31 016 25 4% $ 15.4 $ 17.3 11% $ 24.5 -37% IfeoVern Large Gugstream 6.200 Gullstream 245 9% 23 24 .4% 21 10% $ 8.5 $ 9.8 -13% $ 183 -53% Falcon 2000 Dassault 235 11% 26 28 .7% 27 .4% $ 9.7 $ 15.8 49% S 220 -56% Hawker 4000 Hawker Beechaaft 56 13% 7 40% 2 250% $ 14.2 $ 18.8 -24% S 188 -24% Ctelenger 300 Bombardier 343 7% 24 25 .4% 21 14% $ 14.2 3 152 -7% S 24 8 -43% Cheep X Cessna 307 6% 16 17 6% 24 -33% $ 8.1 3 8.8 S 188 -57% Medium Cgancn Sovereign Cessna 324 6% 19 20 .5% 29 -34% $ 11.0 $ 113 $ 166 -33% I.4% GA'Proem G-150 Guttman, 94 3% 3 5 -40% 40% Wa $ 102 $ 138 nra GAtream 6-100 Gutlneam aa 13% 10 9 11% 10 0% $ 3.3 $ 4.5 46% $ 104 -68% Learrel 60 f 60XR Barbarder 406 16% 64 66 .3% 61 6% $ 5.9 $ 6.0 3% $ 110 -47% Hawker 800XP Hawker Beechaaft 423 11% 47 61 .8% 66 -29% $ 3.7 $ 4.6 40% $ 107 -66% Hawker 750/850/900 Hawker Beechaaft 364 8% 30 27 11% 32 $ 8.0 $ 7.7 I 4% $ 121 -34% supertight Chaco XLS1XLS, Cessna 430 6% 26 29 -10% 23 4% 8.3 $ 7.9 $ 11 8 49% Citabal Ertel Cessna 369 8% 28 27 4% 30 .7% $ 4.2 $ 4.9 -14% $ 9 -56% Learjet 45 / 45XR Bombard., 426 12% 61 47 9% 44 16% 5.3 $ 5.8 $ 9.S -44% Light Learjet 40 / 40XR Bombardier 130 12% 16 16 7% 15 7% 5.3 $ 6.1 -14% $ 82 -36% Hawker 400XP Hawker Beechaaft 250 7% 17 16 6% 26 -36% 3.1 $ 32 4% SS -43% Chaco Encore !Encore. Cessna 230 4% 9 9 0% 16 -44% $ 4.1 $ 3.6 12% 8.5 -52% Chaco CJ3 Cessna 378 7% 26 29 -10% 27 -4% $ 5.6 $ 6.0 -7% 80 -33% Entry Level Hawker Premier Hawker Beectaalt 283 11% 31 33 .6% 28 -14% $ 2.7 $ 3.0 52 -48% Chaco Mustang Cessna 394 8% 32 30 7% 28 14% $ 2.2 $ 2.4 28 -20% Cita:Dal CJ2l CJ2. Cessna 433 12% 53 57 .7% 61 4% $ 4.1 $ 42 5.9 -31% Chaco CJ1 /CJI. Cessna 299 13% 33 41 .5% 48 -19% $ 2.9 $ 3A 43 -32% Pherom 100 Emtraer 241 9% 22 23 4% 31 -29% $ 3.2 $ 3.1 3.S -9% Pherom 300 Emtraer 78 24% 19 19 0% 24 -21% $ 8.0 $ 8.7 87 -8% Notes: Available inventory figures Mclode new aircraft deivery positions: geeing figures do not. Max column represents the maximum average mon0ly listed asking pica since 2005. Gullstream G-100 also includes Astra 1125SPX.: Hawker 800XP also includes 800XPi. Source: JETNET and UBS estimates UBS 9 EFTA01177260 UBS Business Jet Update IS May 2012 Pricing Trends in the Secondary Market Rather than look at average pricing for the entire population of available aircraft, which can be distorted by monthly composition changes, we monitor six models that we believe capture pricing trends in their respective categories. Light We estimate the average asking price for a Citation CD moved 2% lower in April, and is 30% below its recent peak, while available inventories are 28% below their recent peak after a 10% decrease this month. Chart 24: Citation CA Rolling Three-Month Average Asking Price 50 $8.0 R3M Avg Asking Price ($M) 40 $7.5 O so $7.0 20 $6.5 10 $6.0 0 $5.5 0.I 8 1. 8 1. 8 1. 8 1. 8 ib 8 1. 8 —Avelab* hv envy — R3M Average Asking Price (RHS) SOUICO JETNET and UBS eurnates Super Light We estimate the average asking price for a Citation Excel moved 2% lower in April, and is 56% below its recent peak, while available inventories are 40% below their recent peak including a 4% increase this month. Chart 25: Citation Excel Rolling Three-Month Average Asking Price R3M Avg Asking Price ($M) Used Inventory Level O Av delia—ehveniory — R31.1 Average Asking Price IRHS) Source: JETNET and UBS estimates UBS 10 EFTA01177261 UBS Business Jet Update 15 May 2012 Medium We estimate the average asking price for a Hawker 800XP moved 2% lower in April, and is 66% below its recent peak, while available inventories are 35% below their recent peak including an 8% decline this month. Chart 26: Hawker 800XP Rolling Three-Month Average Asking Price R3M Avg Asking Price ($M} Used Inventory Level Avaiabb hyena), — R3M Average Asking Price (RHS) Source: JETNET and UBS estimates Medium Large We estimate the average asking price for a Citation X moved 5% lower in April, and is 57% below its recent peak, while available inventories are 57% below their recent peak including a 6% decline this month. Chart 27: Citation X Rolling Three-Month Average Asking Price S' 0" o c" 0 0 0 ^0 8 .=.`" C•J 4 —Avaiade hvenbry — R3M Average Asking Price (RHS) Source: JETNET and UBS estimates UBS 11 EFTA01177262 UBS Business Jet Update 15 May 2012 Large We estimate the average asking price for a G-IVSP moved 3% lower in April, and is 64% below its recent peak, while available inventories are 49% below their recent peak including a 13% decline this month. Chart 28: Gulfstream CrIVSP Rolling Three-Month Average Asking Price so $35 R3M Avg Asking Rice (SM} Used Inventory Level ao $30 30 $25 20 $20 10 $15 0 $10 1 11 4; 2 7. .1- .1- - Available hvenbry — R3M Average Asking Price (RHS) Source: JETNET and UBS estimates Ultra Long Range We