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Global Air Freight Forecast

Global Air Freight Forecast Presented To: ITDU Spring 2006 Conference June 21, 2006 Agenda Introduction to BACK Aviation Solutions Methodology and Data Source Review BACK’s 2006 Air Freight Forecast Key Drivers Overview Freighter Fleet Forecast New Freighter Aircraft Programs Overview

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Global Air Freight Forecast

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  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 • BACK’s 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. 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 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 • 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. 1) Econometric modeling is used to forecast global air freight demand GDP and Economic Indicator Forecast Trade Forecast by World Region Air Freight Forecast by World Region Unconstrained Demand By World Region 2) Passenger aircraft cargo capacity is assumed to be utilized first before freighter capacity is required minus Passenger Belly Accommodated Freight Demand Historical share of air freight captured by passenger aircraft Passenger Capacity Growth Forecast equals Freight Demand For Freighter Capacity 3) Allocation of expected demand by freight volume capacity and distance flown is derived through a thorough analysis of operated schedule data Global freighter network Schedule analysis Regional analysis of aircraft Operated by size category Demand forecast by Region and Aircraft Category Freight Demand Assignment by Aircraft Type 4) Required airframe growth by volume capacity (for freighters) is calculated using utilization and aircraft capacity assumptions as well as accounting for fleet additions to replace retiring aircraft Fleet Analysis Retirement Analysis Range/Payload/Productivity Assumptions Required Freighter Aircraft By Size Category 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

  8. 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

  17. 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

  19. Worldwide fleet: Emerging markets drive demand for capacityChina, Russia, India, Asia, and Africa expected to grow rapidly • China’s 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 CAGR 3.1% 3.7% 4.6% 8.7% 6.2% 5.7% 5.9% 6.0% 6.4% 7.4% Source: BACK Aviation Solutions Fleet Forecast

  20. 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

  21. New Freighter Aircraft Program Overview

  22. 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 • 747-8F:The 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-freighter conversion program

  23. 156 tonnes 153 tonnes 150 tonnes A380-800F: 5600 NM @ 150 t 3000 nm @ 158 t 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 747FA380F 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. Revenue Payload Tonnes Boeing Airbus 150 A380F 747-8F 16%increase 747-400F/-ERF 747-400BCF ~90 tonne product line gap 777 Freighter 100 MD-11SF 767-300F 767-300BCF 50 A300-600F 767-200SF A300SF A310SF 757-200SF 737-700C/QC 0 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 Singapore 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 doesn’t 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

  29. Contact information Marty Graham Manager, Analytical Services Commonwealth Business Media BACK Aviation Solutions 1270 National Press Building Washington, DC 20045 202 355 1166 Email:Mgraham@BackAviation.com

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