Coping With A Time Of Extremes Aviation Industry Overview And Forecast Presentation To The Wichita Aero Club Luncheon Meeting Wichita, KS By Richard Aboulafia Vice President, Analysis Teal Group Corporation May 2013

Jetliners Are A Serious Anomaly Aircraft Markets, Through Good And Bad Years

*FAA registries without debt instruments or lease presumed to be cash Source: JETNET; Presentation and Analysis by Chase & Associates 77 % 23% 60% US Business Jet Sale Transactions: Financed Vs. Cash

Business Jet Leading Indicators Strong, But Market Growth Slow Strong profits recovery, and strong cash buildup (record 7.1% of assets in cash). – Equities markets, Case-Shiller index also turning up. Stage was set for 2011 recovery, quashed by Japan, Mideast turmoil, US legislative gridlock, Eurozone fears etc was nearly identical looks all too familiar (“Spring Swoon?”). Available cash, coupled with pent-up demand implies upturn 2013 followed by decent recovery, but... – Exogenous shocks and risks remain (fiscal cliff, more Eurozone horrors, etc). Bottom half hoping for a US re-equipment cycle (like the rest of the economy…)

Five (6) Wichita-Related Thoughts (Revisited And Revisited Again) 1.There are five great aviation clusters in the world today. Wichita is one of them. Clusters can not be created; only destroyed. (Still True.) (Yes.) 2.Of these clusters, Wichita has the highest exposure to the business jet market, the fastest growth segment, but with very high cyclicality. (What nobody saw coming was the bifurcation between the top and bottom half. I also thought the business aircraft peak would come in 2009, just after my speech; turned out it was in I’d also point out that Wichita has the most diverse industrial base of any cluster.) (I was partly wrong. It’s diverse in OEMs, but not diverse enough in segment exposure and globalization. It’s also the most exposed to weak OEMs).

Five Wichita-Related Thoughts (2) 3.Business jets are well behind the other aviation segments in outsourcing, a possible threat to manufacturing jobs in Wichita. While it’s also an opportunity (with Spirit), there’s no guarantee that work will be performed here. (Still True.) (Yes.) 4.I’m skeptical about KC-X. But the military overhaul/upgrade market is growing. (Very wrong on the first, right on the second.) (Sadly overtaken by events.) 5.São Jose Dos Campos wants some of your business. (Still True.) (Yes, but they are not unstoppable.)

That Sixth Wichita-Related Thought 6.My biggest concern with Wichita isn’t the market and jobs. It’s engineering and design.