SpeedNews Regional & Corporate Aviation Suppliers Conference A View From Wall Street Ronald J Epstein

Overview Discuss market trends from an investor perspective Equity market conditions Review regional jet market conditions and opportunities ML regional jet forecast Review business jet market conditions and opportunities ML business jet forecast Disruptive products developments Conclusions

Equity Market Performance YTD, Aerospace & Defense has outperformed both S&P 500 and DJ Industrial S&P Supercomposite A&D Index S&P 500 DJ Industrial Average Source: Bloomberg

Commercial Aerospace Beats Defense in 2005

Aerospace/Defense Valuation

Civil Aero OEM Stock Performance Since 2001 Since 2001, Aircraft prime manufacturers have appreciated. Bombardier’s shares; however, continues to lag the group EADS Embraer Boeing Bombardier Source: Bloomberg

Civil Aero OEM Stock Performance YTD YTD civil OEMs outperform the S&P (down 0.8%) Bombardier Boeing EADS Embraer Source: Bloomberg

Business Jet Manufacturer Stock Performance Business jet OEM appreciate since 2001 Textron General Dynamics Raytheon Embraer Bombardier Source: Bloomberg

Business Jet Manufacturer Stock Performance Mixed performance so far in 2005 Bombardier General Dynamics Raytheon Embraer Textron Source: Bloomberg

Regional Jet Concept is Evolving What is a Regional Jet? Capacity: 50-Seats, 70-Seats, 100-Seats Range: 1000 NM, 1500 NM, 2000 NM Can be very confusing to investors Next Generation Aircraft = Small Narrowbody Jets E-170/-190 Family C-Series RRJ and ARJ All potential competitors with Airbus and Boeing products in the small narrowbody market

Airline Bankruptcy Creates Opportunities Impact of airline bankruptcies “Bankruptcy = Scope Clause Relaxation” Scope arbitrage Arbitrage is a mispricing in the market In most cases short lived and corrected by market forces Competitive response to US Airways, JetBlue, Air Canada, United and Delta Continental and American Quicker than expected transition in the North American fleet to 70 to 100 seat jets

“Re-Gauging” of Fleets Rationalization of pilot pay structures and “re-gauging” on domestic routes will drive E-Jet market share gains An ERJ-190 ERJ-170 Interior

Theory of Innovation: Disruption LCCs are a disruptive business model to the Legacy airlines (incumbents) Disruptive business models typically take time to gain a critical mass When confronted with disruptive forces incumbents typically move up market (international long-haul) Incumbents pull out of contested markets (domestic – outsourcing to regional carriers) Points to further rationalization of pay scales and re- gauging of the fleet

Changing Fundamentals for 50-Seat Jets Is there a glut of 50-seaters? Cannibalization by larger aircraft Bombardier “temporarily” halts production When does the ERJ-145 production halt ? Without the US Army ACS program, keeping the line open will be more difficult Emerging market joint ventures: China, Russia Traditional secondary markets not developed - yet Impacts on OEMs (Bombardier, Embraer) Income statement considerations Balance sheet considerations

Regional Jet Market Conditions Stored fleet of RJs remains low Orders moving towards larger aircraft Fleet skewed towards 50-seat aircraft

50 Seat Fleet Evolution

Merrill Lynch Regional Jet Forecast

Business Jet Market is Thriving Demand continues to be robust in all market segments Deliveries could peak in 2007/2008 “Available for sale” fleet as % of fleet at 15 year average levels Historical data suggests bottom in “available for sale” fleet leads peak in new deliveries by 1 to 2 years R2=0.49 for lights, R2=0.52 for mid-size, R2=0.32 for heavies Potentially disruptive forces on the horizon for light jets and avionics

Regression Analysis

Potentially Disruptive Market Forces New Competitors Embraer, Grob, Others? NOT TO BE IGNORED: Embraer will be first BJ OEM with emerging market economics (major aerostructure done in Brazil) Introduction of Very Light Jets (VLJs) New generation of low cost avionics suppliers

Very Light Jets Are Coming Impact of VLJs on market and OEMs Another source of lift or incremental lift Bridging corporate aviation and owner/operator GA Serving a market that is starved for innovation Possible market size for VLJs Number of aircraft transactions in the $0.5 million to $4.0 million range New or used transactions ~2000 Used Transactions ~400 New Aircraft Total: 2400 (20% to 40% share shift) -> 480 to 960 with mid-point of 720 Jets

Low Cost Avionics Market Emerges The Emerging Avionics Suppliers Garmin, Avidyne, Rooted in consumer electronics Potential Low-End Disruptors Could take share at low end of integrated avionics market from Rockwell Collins and Honeywell Highly integrated, FAR Part 23, Inside the cockpit Aspirations for FAR Part 25 Certification Garmin Mustang certifications being done on CJ2

Incumbent Response Develop competitive systems Honeywell APEX Acquisitions Pricey valuations Move up market Garmin, Avidyne -> Rockwell Collins -> Honeywell Could the business jet market become dominated by Garmin at the low end and Rockwell Collins at the high end? Honeywell focuses on large civil?

Merrill Lynch Business Jet Forecast* *Does not include Embraer VLJ or LJ

Conclusions From an investor perspective Equity market conditions – volatile, but aerospace has done well Regional jet market conditions and opportunities Next generation of small narrowbody jets Embraer vs. Bombardier Business jet market conditions and opportunities Disruptive products developments How much better can it get?

Disclosures

Disclosures