Newsletter, Spring 2015

Aircraft Market Update

Many in the business aviation industry anticipated that 2015 would bring the long-awaited recovery of the aircraft market, and while the first quarter of the year has exhibited positive indicators, challenges still remain.

In what can be considered an encouraging sign, the General Aviation Manufacturers Association (GAMA) 2014 year-end report cites a 6% increase in delivered business jet units and a 5% increase in billing dollars over 2013 levels. Additionally, in March 2015, JetNet reported that the number of business jets for sale is only 9.9% of the total world-wide fleet — a percentage generally signifying a healthy market and well below the low to mid-teen levels between 2009 and 2013.

Is now the time to purchase a pre-owned aircraft?As a result of these positive indicators, typically, pre-owned aircraft prices would begin to see some much-needed stability or, perhaps, gradually increase. However, as the business aviation market continues to slowly recover from the economic downturn of 2008, pre-owned aircraft prices do not appear to be moving upward.

The first quarter 2015 editions of both major aircraft value reference guides, Aircraft Bluebook and Aircraft Value Reference (Vref), show that the values of many mid- to ultra-long-range aircraft, at just five years old, are continuing to decrease.

Change in Average Retail Price — Quarterly Comparison

2010 Aircraft ModelsAircraft Bluebook

Q4 2014 — Q1 2015 Vref

Q4 2014 — Q1 2015

Bombardier Challenger 300 Unchanged ($500,000)

Bombardier Global XRS ($900,000) ($1,000,000)

Bombardier Lear 45XR ($155,000) ($400,000)

Cessna Sovereign Unchanged ($250,000)

Cessna Citation X ($443,000) ($250,000)

Dassault Falcon 2000LX Unchanged ($500,000)

Dassault Falcon 7X ($1,775,000) ($1,000,000)

Embraer Legacy 650 Unchanged ($500,000)

Gulfstream G450 ($900,000) ($500,000)

Gulfstream G550 ($900,000) ($1,000,000)

All dollar amounts are in US Dollars

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Comparing the average asking price and inventory of a sampling of models from the “Big 3” manufacturers, Gulfstream, Dassault and Bombardier, from August 2014 to January 2015, a similar picture emerges.

Average Asking Price

$0

$5

$10

$15

$20

$25

$30

$35

$40

Gulfs

tream

G55

0

Gulfs

tream

G45

0

Falco

n 7X

Falco

n 900

EXy

Falco

n 200

0LX

Falco

n 200

0EXy

Glob

al XR

S

Glob

al 50

00

Chall

enge

r 605

Chall

enge

r 300

Aver

age

Aski

ng P

rice

Bombardier Dassault

Aircraft Models

Gulfstream

August 2014January 2015

All dollar amounts are in US Dollars, millions

Source: JetNet, March 2015

Inventory

0

5

10

15

20

25

30

35

Gulfs

tream

G55

0

Gulfs

tream

G45

0

Falco

n 7X

Falco

n 900

EXy

Falco

n 200

0LX

Falco

n 200

0EXy

Glob

al XR

S

Glob

al 50

00

Chall

enge

r 605

Chall

enge

r 300

August 2014January 2015

Quan

tity

for S

ale

Bombardier Dassault

Aircraft Models

Gulfstream

Source: JetNet, March 2015

This data illustrates an increase of aircraft inventory at low values — of the selected sample of aircraft models, 70% saw a decrease in the average asking price while, over the same period, 70% saw an increase in inventory. These models are widely considered the “cream of the crop” and are decreasing in price, so it is no surprise that values of older aircraft such as Challenger 604, Gulfstream GIV-SP, Cessna Citation X or Falcon 900B have not yet reached their minimum value.

For all makes and model years, the March 2015 Aircraft Bluebook reported that 646 aircraft had a stable value, 396 aircraft decreased in value and 8 increased in value over last quarter, implying that now could be a good time to purchase a quality pre-owned aircraft at an astonishingly low price.

3Aircraft Market Update Newsletter | Spring 2015

Modernized Air Transportation SystemsUpcoming navigational changes will affect aviation, both business and commercial, all over the world.

Next Generation Air Transportation System (NextGen) is a new airspace initiative that will ultimately transform air traffic control from a ground-based to a satellite-based system. Once implemented, these sweeping changes will enable planes to fly closer together, take more direct routes and avoid delays currently caused by airport “stacking” as planes wait for a runway to open. GPS technology will save time and fuel, reduce traffic delays, increase capacity and permit controllers to monitor and manage aircraft with greater safety margins.

While NextGen is a United States initiative, Europe has developed a parallel initiative, Single European Sky, with similar goals. In 2010, US and European authorities reached initial agreement on the interoperability of their future air traffic management systems. Other countries around the world are looking into and, in many cases, implementing similar systems.

The FAA outlines NextGen to include the following aircraft systems and technologies:

• ADS-B – Automatic Dependent Surveillance-Broadcast (Out and In)

• RNAV/RNP – Performance-Based Routing Including Initial Tailored Arrival (ITA)

• CPDLC/FANS – Controller Pilot Data Link Communications/Future Air Navigation System

ADS-BADS-B is an aircraft and satellite-based transmission system that can be broken down into two primary functions, Out and In.

Position data will be automatically broadcast from all ADS-B Out-equipped aircraft. Air Traffic Control (ATC) ground stations and all ADS-B In-equipped aircraft will receive this data. In addition to location data, ADS-B In will provide traffic and weather information to pilots.

At this time, ADS-B Out is mandated; ADS-B In will be optional. The FAA is currently working with the International Civil Aviation Organization (ICAO) and several foreign authorities and governments to standardize equipment for aircraft capable of international travel. In Europe, new aircraft were required to be ADS-B Out capable as of January 2015 and older aircraft must be retrofitted by December 2017. The FAA mandate for all aircraft is 2020.

An aircraft equipped with ADS-B Out sends GPS-derived position and velocity data to other equipped aircraft and ground stations for purposes of air traffic control and coordination.

Source: www.jatcaonline.com

RNAV/RNPBoth RNAV and RNP are types of performance-based navigation which allow an aircraft to fly a specific path between two points. Typically, the navigation provides a number ranging from .1 to 10 determining the navigation system’s performance ability to provide position calculations within a circle designated by that number. The lower the value, the closer an aircraft can be to another.

Per the example on the following page, in oceanic airspace an RNP value of 4 versus 10 will allow the lower RNP-valued system to maintain a closer separation between other aircraft. Eventually, RNP values down to .1 will permit very precise 3-D curved flight paths to be flown on approach to the airport. These improvements will ultimately translate into less time and less fuel.

4 Aircraft Market Update Newsletter | Spring 2015

The RNP approach capability facilitates access to challenging airports and improves the efficiency of operations by saving time and fuel via shorter approach routes and reduced holding time.

Conventional Routes RNAV RNP

Source: Aero Magazine, Performance-Based Navigation Will Enable Efficiency-Enhancing Operations in the Future

CPDLC/FANSController-Pilot Data Link Communication (CPDLC) is a means of communication between a controller and a pilot using data link for ATC communication. Similar to phone texting, CPDLC allows flight crews and ATC to use text messages to replace many of the voice communications previously used between flight crews and ATC.

Source: Dassault Falcon Jet

Aircraft to ATC (Downlink)

ATC to Aircraft (Uplink)

Future Air Navigation System (FANS) is a format of communication for CPDLC. FANS-1 was originally developed by Boeing; FANS-A was the work of Airbus. Merged together, they are now known as a single product named FANS-1/A.

The combined benefit of CPDLC and FANS-1/A is to safely reduce the separation of aircraft. It is expected to lower lateral separation from 100 nautical miles (nm) to 30nm laterally and 30nm trailing.

NextGen improvements are not optional add-ons, such as Satellite TV or High-Speed Internet. These upgrades are mandatory — either now or in several years. Therefore, all private business travelers will need to have his or her aircraft outfitted. NextGen aircraft systems and technologies are not inexpensive. Installation of ADS-B Out is quoted as $78,500 by Gulfstream and $84,600 by Dassault; CPDLC with FANS 1/A is quoted at $300,000 by Gulfstream and $265,000 by Dassault; and RNAV and RNP is quoted at $145,000 by Gulfstream and $125,000 by Dassault.

All dollar amounts are denominated in US Dollars.

All credit products are subject to credit approval.

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Although these items will be standard equipment on all new mid- to ultra-large cabin aircraft, if you are interested in purchasing a pre-owned aircraft, it is suggested to consider aircraft with these modifications already in place or, if they are not, factor in the installation costs before making an offer.

For more information regarding Citi Private Bank Aircraft Finance, please contact your Private Banker.