EFTA01177227.pdf

UBS Global Equity Research Americas UBS Investment Research Aerospace UBS Business Jet Update Sector Comment N America Continues to Bounce Off Bottom 9 May 2012 ■ Q1 N America deliveries up 11%, W. Europe up 23% twatubs.cominvestmentresearcii While overall QI bizjet delivery levels were up only marginally from the prior year, our analysis by region reveals that developed markets continue to recover with deliveries up 11% y/y in N America and 23% in Western Europe. N America deliveries are now up 14% over the past year with W. Europe up 10%, although David E. Strauss declines in Eastern Europe, Asia (ex-China) and Middle East have mostly offset. Analyst david.strausupubs.com ■ Ql small cabin deliveries higher, mid/large lower +1-212.7136185 Total QI deliveries grew by 2% with small cabin leading the way up 16% mostly Darryl Genovesi offset by 4% decline for large cabin deliveries and 3% decline for midsize. On a Analyst rolling 12 month basis overall deliveries are up 2% with small up 17%, midsize up darrybaenovoseubs.com 6% while large is off 10%. Small and midsize deliveries are still 50.60% below +l412.7134016 peak levels in 2007-08 while large cabin is only 5% off. Matthew Akers Associate Analyst ■ TXT/COL most levered to N America bizjet recovery [email protected] While up 20% off bottom, deliveries into N America are still 45% below peak +I.212.7134881 levels with small/mid accounting for most of the decline. Of the manufacturers, Cessna, with 60-70% of its deliveries and installed base in N America, is most levered to a recovery in North America bizjets. ■ See positive risk-rewards for stocks We believe N 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: Business Jet Deliveries by Quarter (Ex VLJs) 40% 30% 20% 10% - 0% (10%) - (2d%) - (30%) - (40%) - (50%) 8 8 8 8 =-2 9 Source: ASCEND This report has been prepared by UBS Securities LLC ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 19. 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. EFTA01177227 UBS Business Jet Update 9 May 2012 Ex VLJs, Q I global bizjet deliveries increased by 2%, driven by double-digit growth in both North America (+11%) and Western Europe (+23%), mostly offset by declines in Asia ex-China (-50%) and Latin America (-25%). Chart 2: North America Deliveries by Quarter (Ex VLJs) Chart 3: Western Europe Deliveries by Quarter (Ex VLIs) 40% - 60% 40% 20% 20% -11;1)4 0% (20%) (40%) (60%) ''1111111 (20%) (40%) (60%) (80%) go= 0. b eb , b g g g b b b b Source. ASCEND Source: ASCEND Chart 4: Emerging EMEA Deliveries by Quarter (Ex VLJs) Chart 5: China & India Deliveries by Quarter (Ex VLJs) 120% 500% 100% 400% 60% 300% 60% 40% 200% 20% 100% 0% 0% (20%) (40%) (100%) (60%) (200%) 0 Wm , Ca b b b b b Source: ASCEND Source: ASCEND Chart 6: APAC Other Deliveries by Quarter (Ex VLJs) Chart 7: Latin America Deliveries by Quarter (Ex VLJs) 150% 120% 100% 100% 80% 60% 11 40% 20% 0% (20%) (40%) I (60%) (80%) N N Source: ASCEND Source: ASCEND UBS 2 EFTA01177228 UBS Business Jet Update 9 May 2012 Longer Term Regional Trends (Ex VLJs) We estimate that business jet industry deliveries have moved 44% lower through the downturn from -1,000 deliveries at the peak in 2007-08 (ex VLIs) to -550 now. Deliveries into North America (ex VLIs) have fallen from -550 at the peak in 2007-08 to -300 now, accounting for the majority of the overall decline. Meanwhile, annual deliveries into Europe have fallen from nearly 300 to roughly 100 now, while growth in China and India has offset declines in the rest of the Asia-Pacific region. Chart 8: Change in Unit Deliveries L12M vs Peak (Ex VLds) Chart 9: % Change in Unit Deliveries L12M vs Peak (Ex Ms) 100 - 40% - 0 20% - (100) - 0% (200) - (20%) - (300) - (40%) - (400) - (60%) (500) - (80%) North WestemEmergingChina & APAC Latin Total All North WestemEmergingChina & APAC Latin Total All America Europe EMEA India Other America ex VU America Europe EMEA India Other America ex VU Source: ASCEND and UBS estimates Source: ASCEND and UBS estimates Following two years of large declines, we estimate business jet industry deliveries have grown 2% over the last 12 months (ex VLIs), led by 13% combined growth in North America and Western Europe while the rest of the world declined by 17% in aggregate with Eastern Europe and the Middle East accounting for most of the decline. (Please note that our analysis excludes Embraer Legacy and Lineage deliveries, which account for roughly 2-3% of total industry deliveries.) Chart 10: Unit Delivery Growth by Region (Ex VIAls) (100) - (150) - (200) - (2501 - 2008 2009 2010 2011 112M ■ Noah America ■ Western Europe Emerging EMEA ■ China & Inch ■ APAC Other Latin America Source: ASCEND and UBS estimates UBS 3 EFTA01177229 UBS Business Jet Update 9 May 2012 Small and Midsize Trends (Ex VLJs) Small and midsize aircraft have accounted for nearly the entire delivery decline since the prior peak in 2007-08 with all regions below prior peak levels. Chart 11: Change in Unit Deliveries L12M vs Peak (Small/Mid) Chart 12: % Change in Unit Deliveries L12M vs Peak (SmallMid) 0 • • • 0% ' (1(00) 50) (20%) (150) (40%) (200) (250) (60%) (300) (350) (80%) (400) (450) (100%) North Western Emerging China 8 APAC Lath Total Nom WestemEmerging China 8 APAC Latin Total America Europe EMEA India Other America Srngl & America Europe EMEA India Other America Small & Midsize Midsize Source: ASCEND and UBS estimates Source: ASCEND and UBS estimates However, after declining in 2009-10, small/midsize deliveries now look to be recovering, led by growth in North America, Latin America and Western Europe. Over the last 12 months, we estimate small cabin deliveries have grown 17% globally with midsize up 6%. Chart 13: Unit Delivery Growth by Region (SmalUMidsize) 100 - 50 - 0 ! mom .- (50) - (100) (150) - (200) - (250) - 2008 2009 2010 2011 L12/41 • North America ■ Western Europe Emerging EMEA • China 8 India • APAC Other Latn America Source: ASCEND and UBS estimates UBS 4 EFTA01177230 UBS Business Jet Update 9 May 2012 Large Cabin Trends Large business jet deliveries have held relatively flat through the downturn as growth in Asia has mostly offset declines in North America and Europe. Chart 14: Change in Unit Deliveries L12M vs Peak (Large) Chart 15: % Change in Unit Deliveries L12M vs Peak (Large) 1 so 700% 4o 600% 30 500% 20 10 400% 0 U 300% (10) - 200% (20) - 100% (30) - (40) 0% (50) - (100%) North Western Emerging China & APAC Lath Total North WestemEmerging China & APAC Latin Total America Europe EMEA India Other America Large America Europe EMEA India Other America Large Source: ASCEND and UBS estimates Source: ASCEND and UBS estimates While stnall/mid deliveries appear to be recovering, large aircraft deliveries have moved 10% lower over the past 12 months as modest growth in North America, Western Europe and China has been more than offset by declines in the rest of the world. By manufacturer, the decline is attributable to Dassault and Bombardier with Gulfstream 450/G550 deliveries up modestly. Chart 16: Unit Delivery Growth by Region (Large) 50 40 30 20 10 - (10) - a (20) - (30) - (40) - (50) - 2008 2009 2010 2011 L12M • North America ■ Western Europe Emerging EMEA • China & India ■ APAC Other Lain America Source: ASCEND and UBS estimates UBS 5 EFTA01177231 UBS Business Jet Update 9 May 2012 We estimate deliveries into North America now account for 53% of overall industry deliveries, slightly lower than the peak in 2007-08. Latin America, China/India have grown as a portion of total deliveries at the expense of a smaller market in Western Europe. Chart 17: Total Bizjet Deliveries by Region- Last 12 Months Chart 18: Total Bizjet Deliveries by Region — Peak (2007-08) APAC Oder Latin America APAC Other 2% China & India 2% Latin America 13% China & India 3% 7% 8% Emerging Emerging EMEA EMEA North America 8% 8% 53% North America Western Western 56".6 Europe Europe 24% 16% Source: ASCEND: Note: excludes 10 aircraft where delivery location is unknown Source: ASCEND: Note: excludes 19 aircraft where delivery location is unknown We think a recovery in the smalUmidsize market will be driven by N. American replacement demand as North America still represents more than two thirds of combined smalUmidsize market despite 50-60% decline from peak levels. Chart 19: Small/Midsize Deliveries by Region - Last 12 Months Chart 20: Small/Midsize Deliveries by Region - Peak (2007.08) Lath America APAC Other APAC Other Leon America 15% China & India 2% 0% 7% 4% China & India Emerging 4% EMEA Emerging 7% EMEA North America Western 4% Western North America 57% Europe Europe 65% 21% 12% Source: ASCEND: Note: excludes seven aircraft where delivery location is unknown Scarce: ASCEND: Note: excludes nine aircraft where delivery location is unknown Emerging markets (ex N. America and W. Europe) now account for 39% of annual large cabin deliveries compared to only 26% at the peak of the last cycle. Chart 21: Large Cabin Deliveries by Region • Last 12 Months Chart 22: Large Cabin Deliveries by Region - Peak (2007-08) APAC Other Lath America APAC Other Latin America 4% 9% China & India n 2% China & India North America Emerging 13% 36% North America EMEA Emerging 13% 47% EMEA 13% Western Western Europe Europe 27% 25% Source: ASCEND: Note: excludes three aircraft wtrere delivery locaton is unknown Source: ASCEND: Note: excludes ten aircraft where delivery location is unknown UBS 6 EFTA01177232 UBS Business Jet Update 9 May 2012 Bombardier Chart 23: Change in Unit Deliveries L12M vs Peak (Bombardier) Chart 24: % Change in Deliveries L12M vs Peak (Bombardier) 250% 0 200% 150% (20) - 100% (40) - 50% (60) - 0% (80) - " (50%) (100) — (100%) North Western Emerging China :PAC Other Latn Total North WestemEmerging China &PAC Other Latin Total America Europe EMEA India Americaombardier America Europe EMEA kidia AmericSombardier Source: ASCEND and UBS estimates Source: ASCEND and UBS estimates Chart 25: Unit Delivery Growth by Region (Bombardier) 20 - 10 - 0 (10) (20) — (30) — (40) - (50) - 2008 2009 2010 2011 L12/44 • North America • Western Europe Emerging EMEA • China & hdia • APAC Other Len America Source: ASCEND and UBS estimates Chart 26: Bombardier Deliveries by Region - Last 12 Months Chart 27: Bombardier Deliveries by Region - Peak (2007-08) APAC Other Latn America APAC Other 3% 9% China & India Latin America China & India 2% 4% 10% Emerging EMEA Emerging North America EMEA 48% 12% 7% Western North America Western Europe 61% Europe 18% 23% Source: ASCEND Source. ASCEND UBS 7 EFTA01177233 UBS Business Jet Update 9 May 2012 Cessna (Ex Mustang) Chart 28: Change in Unit Deliveries L12M vs Peak (Cessna) Chart 29: % Change in Unit Deliveries L12M vs Peak (Cessna) 0 0% 111 (50) (20%) - (40%) -- (100) (60%) - (150) (80%) - (200) (100%) - (120%) - North Western Emerging China & APAC Latin Total North WestemEmerging China & APAC Latin Total America Europe EMEA India Other America Cessna America Europe EMEA India Other America Cessna Source: ASCEND and UBS estimates Source: ASCEND and UBS estimates Chart 30: Unit Delivery Growth by Region (Cessna) 40 - 20 - 0 (20) — (40) (60) (80) (100) (120) (140) — 2008 2009 2010 2011 L12M North America ■ Western Europe Emerging EM EA • China & India ■ APAC Other Latin America Source: ASCEND and UBS estimates Chart 31: Cessna Deliveries by Region - Last 12 Months Chart 32: Cessna Deliveries by Region - Peak (2007-08) APAC Other APAC Other Latn America China & India 0% 2% 13% China & India 1% Latin America 2% Emerging 8% Emerging EMEA EMEA 4% 6% North America Western 56% Western North America Europe Europe 72% 26% 10% Source: ASCEND Source: ASCEND UBS 8 EFTA01177234 UBS Business Jet Update 9 May 2012 Dassault Chart 33: Change in Unit Deliveries L12M vs Peak (Dassault) Chart 34: % Change in Unit Deliveries L12M vs Peak (Dassault) 600% - 500% - 400% - 300% - 200% - 100% - 0% (100%) - (200%) - North Western Emerging China & APAC Latin Total North WestemEmerging China & APAC Latin Total America Europe EMEA India Other America Dassault America Europe EMEA India Other America Dassault Source: ASCEND and UBS estimates Source: ASCEND and UBS estimates Chart 35: Unit Delivery Growth by Region (Dassault) I- - U 2008 2009 2010 2011 L12M • North America ■ Western Europe Emerging EMEA • China & India ■ APAC Other Lath America Source: ASCEND and UBS estimates Chart 36: Dassault Deliveries by Region - Last 12 Months Chart 37: Dassault Deliveries by Region - Peak (2007-08) Latn America APAC Other 13% 1% Latin America APAC Other China & India North America 10% 0% 1% 24% Emerging EMEA North America China & India 42% 8% 9% Emerging Western Weslem EMEA Europe Europe 19% 35% 38% Source ASCEND Source: ASCEND UBS 9 EFTA01177235 UBS Business Jet Update 9 May 2012 Gulfstream Chart 38: Change in Unit Deliveries L12M vs Peak (Gulfstream) Chart 39: % Change in Unit Deliveries L12M vs Peak (Gulfstream) 20 2000% 10 ■ 1500% 0 (10) 1000% (20) (30) 500% (40) 0% (50) (60) (500%) North Western Emerging China & APAC Latin Total North WesternEmergingChina & APAC Lath) Total America Europe EMEA India Other AmericaGulistream America Europe EMEA India Other AmericLulfstream Source: ASCEND and UBS estimates Source: ASCEND and UBS estimates Chart 40: Unit Delivery Growth by Region (Gulfstream) 15 - 10 I I 5 - 0 (5) (10) - (15) (20) - (25) - (30) 2008 2009 2010 2011 L12M • North America • Western Europe Emerging EMEA • China & India • APAC Other Latin America Source: ASCEND and UBS estimates Chart 41: Guttstream Deliveries by Region - Last 12 Months Chart 42: Gulfstream Deliveries by Region - Peak (2007-08) Latin America APAC Other 12% China & India APAC Other 3% IS America 1% 5% 8% North America Emerging China & India 49% EMEA 18% 8% North America Emerging Western Europe 57% EMEA 7% Western 23% Europe 9% Source: ASCEND Source: ASCEND UBS 10 EFTA01177236 UBS Business Jet Update 9 May 2012 Hawker Beechcraft Chart 43: Change in Unit Deliveries L12M vs Peak (Hawker) Chart 44: % Change in Unit Deliveries L12M vs Peak (Hawker) 0 0% (10%) (20) - (20%) (40) - (30%) (60) - (40%) (B0) - (50%) (60%) (100) - (70%) (120) - (80%) (140) — (90%) North Western Emerging China & APAC Latin Total North Western EmergingChina & APAC Latin Total America Europe EMEA India Other America Hawker America Europe EMEA India Other America Hawker Source: SCEND and UBS estimates Source: ASCEND and UBS estimates Chart 5: Unit Delivery Growth by Region (Hawker) (5) (10) (15) (20) (25) (30) - (35) - — (40) -- 2008 2009 2010 2011 L12M • North America • Western Europe Emerging DJ, EA • China & hdia • APAC Other Len America Source: ASCEND and UBS estimates Chart 46: Hawker Deliveries by Region - Last 12 Months Chart 47: Hawker Deliveries by Region - Peak (2007-08) APAC Other Lath America Len America APAC Other 2% 9% China & India 'I 11% 3% I I 7% N N I China & India 10% Emerging North America Emerging EMEA - 50% EMEA North America 9% 8% Western 60% Western Europe J Europe tt% 20% Source: ASCEND Source. ASCEND UBS 11 EFTA01177237 UBS Business Jet Update 9 May 2012 Table 1: Deliveries by Cabin Class and Region LY 06A51 VW 22/1 2002 2003 2003 2005 2006 2007 200 2403 2010 2011 2211 3011 4011 1012 2030 100 2090 NII L101 11241 as Peal two sow* II IN 139 72 47 13214 07161 (42%) I7'. 60% A%) (41%) 73588 129%) Mans Even 13 34 16 16 9 178%1 07%4 (V%) 08,- 162% 6% 0% 778%) 47388 71%i Elmore DEA 11 10 9 3 0061 a era 10(3% 49%1 (10%) V%) 2%) Om/ S MI 0 0 0 4 3 10% no (47%) n a 6% 80 nh 625%) 05%) 2 MAC 020 2 3 2 (1 3 000%l 115 (67%) % 50% 13)% (14%) en) 57%) L41049.00 10 22 33 48 18 ti 0% (an (33%. 120% 50% 3% $1%) 63%) 77Y VW 144 291 35 171 63 RN am CNN 0%) 30% 03%) 03%3 02%) NMI 471%) 516411 9301 2002 1003 2004 2005 2006 2007 2003 2403 2610 2311 uni 20113011 4011 1012 2031 2039 2010 011 LIM 1.1214,83831 Nub Mow, 296 295 193 204 02 242 34 221 97 101 130 10 0% 43% I% 3f.a. (13%, 06%) 6% 26% II% Moto twee 55 56 35 36 50 76 90 106 55 15 19 0% 33% 43% 1(0% $11) 07%) 27% 40% giN (none PEA 10 6 4 10 13 18 20 25 II 8 Ohl 6% 0% 119)%i 11% 25% en) ON (50%) (11 olro Amu I 0 0 3 9 2 6 10 1 I 2 a a non 11:0,:d 651E 431.%) 0% 103% 00%) APACOht, 3 6 4 5 6 16 6 (1 9 2 0 00NI n5 (1011%1 nb 0% 50% (NV 110)54 OOP* 1 UM Ant,co 33 24 IS 14 17 27 36 25 Ii 18 le 287% 150% (10%) (4)8:" (31%) 02%) 6% 94% 50% 70413404 303 NI SG 266 313 246 410 193 III ISO 194 92% 55% IN 16% (8%) (5344 (an 29% 17% 02%) mon 23(4 2302 2303 2044 2305 NN 2007 23(4 NW 2010 200 11211 2011 3011 ton ion 2031 MN 2010 2011 LINA 1.12118.11021 Nom Sawa 134 102 96 IN 146 III IV 94 46 77 0394 41% 26% 6% m Ra.) 03%) 13% 15% 611.i Yletom twee 17 26 4 44 (A SI 21 21 18 i73%; 87% 125% ,5,%, 4% 52%) (32%) 0% 6% 71%i Engrg Eno 6 IT 25 N 30 IS I :2594 1140%1 03%) n 20% 0% CA) (71%) (13%) one IN4 13 0 I4 15 12 na 40% (0%) 11:0,:d 84% PM) 75% 7% ($4%) 261.1 MAC 020 4 2 6 12 5 4 na (160%l (10)%l 0% 50% el%) 020%) (75%) 05%) 17% LAX Anne 3 II 13 27 21 19 17 17 • 0* 01 33% 0% In% eh/ (%1 31% 42% TOW 00t6 ITS 113 1 IN 213 233 282 331 IN 131 135 IX 0%) 41% (2%) IN) 20% XI%) (NV 2% 6% 01%) 16196 ON 2002 2064 2004 NN 2666 2)07 220 NW 2019 2311 LIM 20111 3011 tan 90)2 MX MN 2010 NII 1101 LIM ts Peal two Ana 142 14 92 90 101 107 III 120 106 II 67 21%( 5% 63% (17% 5% (1D%) IVO 7% 6% Wtoto Enet 23 6 20 2/ 30 46 53 V) 48 (4 $2 131%1 17%) 22% 87% 23% 803/ 33% 0 lee t • % Errol* ELEA is 6 12 IS IS 18 26 32 43 II (32161 07%2 44% 23% X% 0%) 431%) CanallxIa I I 1 1 5 6 2 17 23 27 (79%) MO% 11% i!smo 7509. 35% 17% 26% MAC OM 3 2 0 3 4 7 1 8 14 10 07,4 no% 03%) t14%1 33% 75% et%) (40%) Lalnlineica 6 1 7 ? 12 II 20 16 22