1. Global Airlines Industry - Raymond and Leo British Airways - Billy
Delta Airlines - Trevor
Singapore Airlines - Herman

2. Presentation Agenda Airline Industry Overview State of the Industry
Traffic and Economics
Regional Summaries
Analysis of
British Airways
Delta Airlines
Singapore Airlines

3. Airline Industry Overview
Economy grows, travel grows
Current short-term cycle is severe
RPKs negative growth
SARS virus
Long-term forecast remains healthy
Economies will grow 3.2% annually
Air travel will be 5.1%
Industry deregulation stimulates air travel
New routes and more frequencies
Economic and traffic growth rates vary by region

5. Air Traffic Cycles Long-term Trend
State of Industry
Air Traffic Cycles
Long-term Trend

6. Air Travel Cycles Annual negative world traffic growth
In 1991 and in

7. Air Travel Cycles Cont’…
Long-term trends remain healthy
Drivers for long-term air travel growth
Economic growth
Globalization of trade
Airline network service improvements
Declining fares
Deregulation and liberalization

8. Air Travel Cycles Cont’…
In short term, air travel is more volatile
Consumer confidence
Business profits
Depressed income
High-technology stock market “bubble”
September 11
Outbreak of SARS

9. Long-term Trend

10. Long-term Trend Cont’…
Keys:
Forecast shows 5% fewer world RPKs (Revenue per kilos) at the end of 20 years than without this unusual short-term cycle
Yet, air travel growth will continue the pace at 5.1% annually

11. Traffic and Economics

12. Economic and Traffic Forecast
World GDP is forecast to grow by 3.2% over the next 20 years
Mature economies, GDP growth will average between 2~3%
Emerging economies, GDP growth may average over 4%

13. Forecast Cont’…

14. Regional Summaries

15. European Airline Industry

16. Companies Company in focus: British Airways Others: Air France KLM
Lufthansa
Virgin Atlantic

17. Source: Air Transport Association

18. Industry Highlights – 2002/03
Passengers
13.8 millions reduction
Breakeven Load Factor
69.4%; compared to a 69.2% load factor
Profit
USD$0.87 billions loss

19. Factors influencing the industry
SARS phenomenon
Iraqi War
Post 9/11 recovery phrase
External Shocks
Currency Appreciation
Security & Insurance

20. Source: Association of European Airlines

21. Competition External Internal Consolidation & Alliances
The US Airlines in the North Atlantic market
Internal
Substantially increased of no-frills competition in Europe
Ryanair, Easyjet, Go, bmibaby, Virgin Exp, etc
Consolidation & Alliances
Star, Oneworld, KLM/Northwest, SkyTeam

22. Regulatory Environment
Deregulation is a global trend
First stage of liberalization in European Airlines
European governments wants:
Low fares
Consequence
Increased demand
Increased demand for infrastructure growth

23. Trends Slow recovery Mature economies with low growth rates
Continuation of liberalization
Growing international networks
Rise of “No-Frills” carriers

24. Source: Association of European Airlines

25. N. American Airline Industry

26. Companies Company in focus: Delta Airlines Others: United Airlines
American Airlines
Southwest Airlines
Northwest Airlines

27. Industry Highlights – 2002/03
Passengers
17.4 millions reduction
Breakeven Load Factor
Increased from 76.7% to 81.4%; compared to 72.1% load factor
Profits (Loss)
USD$12.1 billions loss

28. Factors influencing the industry
Post 9/11 recovery/syndrome
Customer avoidance of air travel
Government tax & Security policies
Insurance
Escalating fuel prices
Economic downturn
Iraq War and SARS phenomenon

29. Source: Air Transport Association

30. Competition 85% of the passengers have more than 2 or more carriers
Growth of hub-and-spoke
Increased competition in small markets
Alliances
Star
SkyTeam
OneWorld
Star: Singapore Airlines
SkyTeam: Delta
OneWorld: British Airways

31. Regulatory Environment
Deregulations
Mature liberalization
Post 9/11 Financial Effect
Increase financial burden for airlines
Additional insurance costs
Increased tax burden

32. Source: Air Transport Association

33. Source: Air Transport Association

34. Trends Slowly recovering Mature economies with low growth rates
Low fares
Cost-cutting strategies
Efficient airline networks

35. Asian Airline Industry

36. Northeast Asia Annual GDP growth is forecast at 2.1%
This low rate is driven by Japan
Korea will grow at a faster rate than Japan
Air travel will grow above world average
Globalization and liberalization
Fully deregulation
Air travel growth at 6.2%

37. Northeast Asia Cont’… Fragmentation will continue
North America will remain popular
Europe continues to grow

38. Southeast Asia
A mixture of countries at varying stages of economic growth
GDP is forecast to grow at 4.7% annually over the next 20 years
The region is diverse
Economic and cultural interchange

39. Southeast Asia Cont’…
Southeast Asia has strong cultural ties with both Europe and North America
VRF (visiting friends and relatives)
Region with its natural resources and cultural attractions is forecast to develop as a leisure destination for Asia

40. Southwest Asia GDP outlook is forecast to grow at 5.5% Subject to:
Privatization
Globalization
Infrastructure
Tourism development
Overall traffic growth of the region will average 7.0%

41. Southwest Asia Cont’…
Traffic within Southwest Asia will average 8.7%, one of the world’s highest
Encompasses several air travel markets
Middle class travels for business
Pilgrimage
Tourists and VFR

42. China GDP forecast of 5.9% per year is the highest in the world
China is the fastest growing region
Air travel expands at 7.6%
World Trade Organization
Globalization is a major driver

43. China Cont’… Airline industry is modernizing Airline consolidation
Infrastructure investment
Network and fleet rationalization
Participation in major alliances

44. Airlines Analysis

45. Stock Price: £ 224
£1=1.68 US Dollar
(Nov 7, 2003)

46. British Airways Background British Airways is a public limited company
BA, is the leading airline in Europe
One of the biggest in the world
It manages almost 330 planes, 550 destinations in 133 countries
BA has holdings in other airlines, such as the Australian, Quantas, and the Spanish Iberia.
Major destinations are Europe, America, Africa, Australia, South Pacific and Middle East

47. British Airways Strategies Low-cost strategy
£650 m in cost saving by March 2003
Reduced manpower by 4446 people
Corporate Mission
Low fare in UK domestic market
Greater use of e-technology for customers, staff and agents
Focus on business class passengers

48. British Airways Main Competitors Europe Market North America Market
Lufthansa and Air France are dominating the market
North America Market
United Airlines & Delta are dominating the market

49. British Airways Alliance Oneworld alliance 8 airline members:
British Airways, Aer Lignus, American Airlines, Cathay Pacific, Finnair, lberia, LanChile and Qantas.

50. SWOT Analysis Strengths Weaknesses Strong brand name Good reputation
Reduce net debt
Weaknesses
Reduce boeing aircrafts
Routes reduced
Reduce service and flights
Increase insurance cost
Increase security cost
Downturn in passenger demand
cutting flights to the US and the Middle East

51. SWOT Analysis Opportunities Threats ‘Open skies’ between US and UK
Predict growth in Europe market
Threats
Economic weakness
SARS
Middle East developments
Price competition with other airlines in Europe

52. Financial Ratio

53. Financial Data Total Revenue=$12,147 i by 7.8%
Total Expense=$7616 i by 10.21
Net Income=$72 h by 2.39
Net asset=$3,592 h by 3%
Earnings per share=6.7
Operating margin=3.8% h by 5.1 pts
Net debt/total capital ratio=60.7% i by 5.3 pts

54. Operating Data RPK= £100,112 h by 5.8% ASK= £139,132 i by 0.9%
Passenger Load Factor=71.9 h by 1.5%
RTK= £14,213 i by 2.9%
ATK= £21,328 i by 6.7%
Overall Load Factor=66.6 h by 4%
Passengers Carried(000)=38,019 i by 5%
Tonnes of Cargo Carried(000)=764 h by 1.2%

55. Stock Valuation 1 Year Price Chat 1year price range: £85.00 - £215.75
Today’s stock price: £224

56. Stock Valuation

60. Balance Sheet Total Asset=12900 Current Asset=2725
Total Liabilities=10626
Current Liabilities=2904
Total Shareholder Equity=2274

61. Income Statement

62. Revenue Composition

63. Cost Structure

64. Profits Over 5 Years

65. Earnings Per Share Over 5 Years

66. Cash Flow Statement Cash and Cash Equivalents
( Net cash inflow for capital expenditure and financial investment
+ Net cash inflow/(outflow) for acquisitions and disposals
= Cash used in financing)

67. British Airways Fleet Valuation Avg Fleet age(yrs): 7.5
Avg Life (yrs): 25
Depreciation Method: Straight-Line
Avg Salvage Value: 0

68. Net MVA vs Mkt Cap Net MVA vs Mkt Cap Est fleet value = 21US B
Current assets =2.725 B
Total debt =5.149 B
Net MVA =18.57US B vs Mkt cap=2.425B
Therefore, the assets are……undervalued

69. Recommendation Good News Improved net income Increased cash inflow
Reduced net debt
Decreased operating costs
Recommendation:
S-T: buy
Bad News
Decreased in revenue
Downturn in passenger demand
Assets undervalued
L-T: hold

70. Delta Airlines U.S. Carrier
Nov. 5 / 03
Stock Price: $12.89

71. Background Information
Founded – 1924
Headquarters: Atlanta, Georgia
CEO: Leo F. Mullin
Employees: 70,000+
Daily Flights + Partners: 6,130
Destinations: 453 cities in 82 countries

72. Strategies Build adequate liquidity Significant reduction in costs
Become more competitive in the “low-fare” sector
Song, a highly competitive, wholly owned subsidiary

73. Competitors / Alliances
American Airlines
United Airlines
International Airline companies (minimal)
Alliances
Atlantic Southeast Airlines
Comair, Inc.
Other Delta connection carriers
Skyteam Alliances
Codeshare partners

74. SWOT Weaknesses Strengths Lower fairs due to high competition
Less demand due to 911
Higher Expense
Strengths
Well positioned hub networks
Partners & Alliances
Good Employee Relations
Technological Innovation

75. Map of Hub Network

76. SWOT Analysis Opportunities Boston airport terminal project
More international flights and coverage
Threats
Low-fare airline companies
Demand for air travel does not increase

77. Balance Sheet - Assets Total Assets $24,720 $23,605 Period Ending
Dec 31, 2002
Dec 31, 2001
Cash & Cash Equivalents
$1,969
$2,210
Total Current Assets
$3,902
$3,567
Property & Equipment
$16,524
$16,097
Other Assets
$4,294
$3,941
Total Assets
$24,720
$23,605

78. Balance Sheet - Liabilities
Period Ending
Dec 31, 2002
Dec 31, 2001
Total Current Liabilities
$6,455
$6,403
Non-current Liabilities
$16,530
$12,349
Total Liabilities
$22,985
$18,752
Common Stock
$271
Retained Earnings
$1,639
$2,930
Accumulated income (loss)
($1,562)
$25
Total Equity
$893
$3,769

79. Fleet / Net MV Assets Aircraft Type Owned Capital Lease
Operating Lease
Total
Average Age B 18 - 3 21
23.5 B 42 10 52
17.8 B 26
16.1 B 71
2.2 B 77 41
121
11.3 B 15
19.6 B 4 24 28
12.9
B ER 51 8 59
6.9 B
1.8 B
2.9
MD-11 7
8.9
MD-88 63 57
120
12.5
MD-90 16
7.1
EMB-120 29
11.8
ATR-72 19
8.5
CRJ-100/200 73
122
195
3.7
CRJ-700
0.3
473 45
313
831
9.0

80. NMV Asset Evaluation
Total Market Value of Owned Fleet (in millions) $14186
Less: Total LT Debt
Add: Current Assets
Total NMV of Assets (Not including investments) $8512
Delta’s market capitalization is sitting at 1.65 billion, which is less than total NMV of assets which sits at 8.5 billion. This shows that Delta’s equity is undervalued.

81. Income Statement - Revenue
Period Ending
Dec 31, 2002
Dec 31, 2001
Passenger
$12,321
$12,964
Cargo
$458
$506
Other
$526
$409
Total Operating Income
$13,305
$13,879

82. Revenue Allocation (2002)

83. Income Statement - Expense
Period Ending
Dec 31, 2002
Dec 31, 2001
Salaries
$6,165
$6,124
Aircraft Fuel
$1,683
$1,817
Depreciation
$1,148
$1,283
Contracted Services
$1,003
$1,016
Other Expenses
$3,306
$3,639
Total Operating Expense
$13,305
$13,879

84. Expense Allocation (2002)

85. Earnings Trend
Operating Income
Net Income

86. EPS Trend

87. Cash Flow Statement Net Cash from Operations $285
Less: Net Cash from Investments (1109)
Add: Net Cash from Financing
Net Cash Inflow / Outflow $1977
Major Changes
Operations – Flight equipment less spending (2321)  (922)
Investing – Boston Airport Terminal (485)  58
Financing – Short Term Obligations 701  (1144)

88. Ratios Year 2002 Delta American United Valuation Ratios P/E Ratio N/A
P/BV Ratio
2.37
Internal Liquidity
Current Ratio (MRQ)
0.798
0.712
0.783
Management Effectiveness
ROA (TTM)
-3.28%
-5.49%
-16.26%
ROE (TTM)
-66.72% %
Profitability Ratios
Profit Margin (TTM)
-6.12%
-9.60%
-27.85%
Operating Margin (TTM)
-8.75%
-7.56%
-21.02%

89. Operating Data Year 2002 2001 Revenue Passenger Miles (mill) 102,029
101,717
Available Seat Miles (mill)
141,719
147,837
Passenger Load Factor
72.0%
68.8%
Breakeven Passenger Load Factor
79.0%
77.3%
Cargo Ton Miles (mill)
1,405
1,583
Fuel Gallons Consumed (mill)
2,514
2,649
Number of Aircraft in Fleet
831
814
Average Age of Aircraft (years)
9.0
9.1
Employees
75,100
76,300

90. Stock Valuation Last Trade 12.89 Trade Time Nov 5 / 03 Change
Delta Air Lines (NYST: DAL)
Last Trade
12.89
Trade Time
Nov 5 / 03
Change
-0.06 (0.46%)
Prev Close
12.95
Open
Bid
N/A
Ask
1y Target Est
19.40
Day’s Range
12.68 – 13.04
52wk Range
6.56 – 16.05
Volume
2,421,300
Avg Vol (3m)
2,505,181
Market Cap
1.59B
P/E (TTM)
N/A
EPS (TTM)
-6.741
Div & Yield
N/A (N/A)

91. Stock Price Chart

92. Hold – Moderate Buy Recommendation Undervalued according to NMV assets
High market share
No dividends & negative earnings
Very volatile industry

93. Today’s stock price: S$12.50 Exchange rate: S$1 to US$0.57

94. Background Found in Oct. 1972
Separated from Malaysian Airways
Started from 10 aircrafts flying 22 cities
Right now, spans over 90 cities globally with about 95 aircrafts
Singapore government owned 57% of shares
In Oct 1972, the company is separated from Malaysian Airways

95. Background con’t Ranking in 2002 World 4th largest airline in RPK
World 2nd largest airline in freight carried

96. Alliances Equity partner Star Alliances
acquired 49% shares of Virgin Atlantic Airways in March 2000
Star Alliances
Joined in April 2000, become 11th members with such as Air Canada, United Airline, Lufthansa, Thai Airline, ANA Airways.

97. Competitors
Cathay Pacific
Japan Airlines
Malaysian Airlines

98. SWOT Analysis Strengths:
Low debt (debt to equity traditionally <0.1)
Encourage employees’ motivation
Profit-sharing program
Young aircraft , average age of 5 years old
Excellent in-flight services
e.g.: free drinks, complimentary headsets…

99. SWOT Analysis con’t Weakness: Relied on long haul flight
Located in SARS outbreak area
A large proportion of sales are relied on long haul flight such as to America, when the global economy still remain weak, the company’s revenue still can’t be improved

100. SWOT Analysis con’t Opportunities: Work with partners Demand increase
Competitors’ struggle
Since many other airlines are facing difficulties to survive in the industry after the outbreak of SARS, it may be a good opportunity to capture those market shares that are hard to do in the past

101. SWOT Analysis con’t Threats: Global economic weakness
SARS comeback again
Fuel cost increase
terrorism

102. Strategies Cost cutting Assets selling No-pay leave Wage cuts
Reduction in staff
Less flying allowance paid
Postpone profit-sharing bonus
Assets selling
sold 5 Pratt and Whitney engines finance corp.
Laid off 596 staffs
Wage cuts b/w 5% and 16.5%

103. Strategies con’t New route developing Re-Fleeting plans
Bangalore
Shenzhen
L.A.
Re-Fleeting plans
Combination of Air-Bus and Boeing
Price cutting, promotion, flights adding
KrisFlyer: When you fly Singapore Airlines or any KrisFlyer partner airline, you will earn miles that can be redeemed for free flights, upgrades and companion tickets.
New route developing: thrice-weekly direct flight to Bangalore and Shenzhen, direct long haul flight from Singapore to L.A.
Flights adding: will add extra of 114 flights from Oct to Jan in order to fulfill the demand on this “peak” period
Other than that, the company will have a lot of sales promotion and price-cutting strategies in order to capture the mkt share to pre-SARS period
Re-fleeting plans: before that, about 80% of aircrafts are produced by Boeing. The company want to change this proportion since some new types of Air-Bus are said to be more cost efficient

104. Balance sheet
Show the balance sheet

105. Earning per share

106. Operating profit

107. Cost structure

108. Income statement

109. Income statement con’t
Show the income statement overhead!!!

110. Cash flow statement
Show the cash flow statement overhead!!!

111. Operating data
Show the operating stat overhead!!!

112. Operating data con’t

113. Operating data con’t

114. Ratios

115. Stock valuation Ticker: SIAL.SI Trade in Singapore Stock Exchange
Shares issued (as at 30SEP03): 1.22B

116. Stock valuation con’t

117. 5-year price chart

118. 1-year price chart

119. Recommendation Moderate Buy Good management Recover so fast Low debt
Volatile stock, but upward trend