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Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016
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Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

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Page 1: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

Michael B. Cox, Vice Chairman Seabury Group

Africa: Aviation’s Next Frontier

March 2016

Page 2: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

1

Agenda

African Economic Outlook

Airlines in Africa

Aviation financing in Africa

Opportunities and challenges

Page 3: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

2

Economic trendsAfrica’s gross domestic product (GDP) has been growing consistently for the last twenty years,outperforming the global economy

Source: World Bank and Seabury Analysis

2,3232,3922,296

1,934

1,735

1,464

1,562

982844

700574571585561549561539506458

5%6%6%5%6%

5%3%3%4%3%3%3%

5%4%4%4%

5%

2%2%2%

4%4%4%

3%3%4%

3%

0

500

1,000

1,500

2,000

2,500

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

3%3%

19951994

3%3%

Growth Rate %

20142012 20132011

7%

3%

2010

4%

2009

-2%

3%

2008

1%

2007

1,3354%

2006

1,142

2005200420032002

2%

2001

2%

2000

4%

19991998

3%

19971996

Africa GDP growth (annual %)Global GDP growth (annual %)Africa GDP (current US$)

GDP in USD billion

Page 4: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

3

Economic trendsAfrica is one of the world’s top economic growth performers and is expected to remain strong in thecoming years

Source: World Bank Global Economic Prospects- January 2016

6.56.56.7

7.97.97.87.3

1.5

-2.5

-3.7

1.42.22.42.72.5

1.71.5

4.74.74.2

3.4

-2

6

8

0

4

2

-42018f

1.6

6.9

2017f

1.7

2015e 2016f

India

China

Africa

United StatesEuro zone

Brazil

GDP growth rate (%)

Page 5: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

4

Economic trendsWith a young population and a growing urban middle class, a potential 2 trillion (USD) marketopportunity is expected

Source: United States Census, African Union Commission; the World Bank; the IMF and the AFDB

Urban population (% of total)

Africa population by income groupUS$ millions

37.2%

32.4%

54.4%

41.1%

32.9% 32.4%

20%

30%

40%

50%

60%

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

28.9%27.0%29.7%

194 243 272 318 322 312 293 267 230 181

264291

340379

456545

654775

91143

46

63

85

105

129

152

185

2000199519901985

35

1980

35

2005 2025 (f)

1,051

2020 (f)20152010

Below poverty line

Above poverty line and below 5K GDP per capita

Above 5K GDP per capita

Population above 5k GBP per capita

185

152129

105

634335

+43%

2015 2025 (f)2020 (f)2010200019901980

Above 5K GDP per capita

Africa

China

India

Approx. 65% of the population is less than 35 years old

Page 6: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

5

African total trade weight in 2000Metric tons (M)

African total trade weight in 2014Metric tons (M)

African total trade (by weight) trendsBetween 2000 and 2014, African trade flows have increased significantly with Asia Pacific to nearly the European levels; with significant North American reductions

Notes: Trade commodities include amongst others raw materials, industrial consumables, foods, chemicals and products and temperature or climate control; (1) Intra- African flows are partial, the missing flows are inside and between North Africa and West Africa; (2) Inflow trade weight from China jumped from accounting for 20% of the Asian Pacific inflow in 2000 to 50% in 2014; (3) Outflow trade weight to China jumped from accounting for 33% of the Asian Pacific outflow in 2000 to 70% in 2014;Source: Seabury Global Trade Database

Latin America

Asia Pacific

46

34

31

32

250

Europe

86

108

2593

932

Middle-East&

South Asia

North America 153

Latin America

Asia Pacific

113

28

20

15

261

Europe

43

31

883

262

Middle-East&

South Asia

North America 62

Intra-Africa

151

Intra-Africa

351

Outflow trade Inflow trade Internal trade

Page 7: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

6

Intra Africa trade trends and regional integration (by weight) Approx.13% of African trade is intra-Africa with limited regional integration

Source: Intra-African Trade’ – A Renewed Urgency for Further Regional Integration by the AU

Intra Africa trade by regional blocs & within Africa in 2015

Member States: 11Pop.: 124 millionGDP: $175 Billion

Member States: 15Pop.: 340 millionGDP: $1,322 Billion

Member States: 20Pop.: 406 millionGDP: $735 Billion

Member States: 15Pop.: 277 millionGDP: $1,193 Billion

Page 8: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

7

Trade trends- Foreign direct investment Foreign direct investment (FDI) inflows to Africa as a whole remained stable at $54 billion in 2014

Source: unctad.org/en/PublicationsLibrary/wir2015_en.pdf, UNCTAD World Investment Report 20151

5685

209178

401401

54100

301

186

326

428

5448

146159

289

465

0

100

200

300

400

500

600

North AmericaLatin America and the

Caribbean

EuropeDevelopping Asia

AfricaTransition Economies

201420132012

FDI inflows, by regions, 2012-2014USD Billions

Page 9: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

8

Agenda

African Economic Outlook

Airlines in Africa

Aviation financing in Africa

Opportunities and challenges

Page 10: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

9

Growth in Real GDP and ASKs by Region

Source: Diio and Seabury Analysis

2.9%

0.3%

7.3%

2.8%2.0%

1.0%

2.2%1.6%

5.5%6.2%

3.3%4.0%

5.2%

3.6%

6.8% 6.5%

North America

2004-08 2008-14 2004-08 2008-14 2004-08 2008-14 2004-08 2008-14

Europe Asia

GDP growth

ASK growth

Commercial traffic in Africa is expected to grow at 5.2% annually between 2011 and 2030

Africa

GDP & ASK growth per yearCAGR %

Page 11: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

10

0

100

200

300

400

500+5%

2015

43%

26%

19%

6%4%1%

20142013201220112010200920082007

55%

16%

18%6%3%1%

ASKs to / from Africa and other continentsASKs both ways (Billions)

ASK distributionSince 2007, the distribution of ASKs to / from Africa has shifted from being European oriented to a more global orientation

Source: Innovata schedule data, Seabury analysis

EuropeMiddle East & South AsiaAfricaAsia PacificNorth AmericaLatin America

Page 12: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

11

ASKs top 10 carriersASKs both ways (Billions)

International ASKsSince 2007, the 5.4% YoY growth of international ASKs to / from Africa has been primarily driven by Emirates, Ethiopian and other African carriers

Source: Innovata schedule data, Seabury analysis

+5.4%

2012

383

2011

372

2010

369

2009

336

2008

327

2007

283

2015

430

2014

418

2013

397

IAG xxxxxxxxLH Group xxxTUI Travel xxx

Kenya AirwaysOthers

RA Maroc xxxx Egypt Air xxxxxSouth African Ethiopian Airlin Air France KLM

Emirates xxxxx

Page 13: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

12

Africa - EuropeASKs both ways (Billions)

Africa – Middle-EastASKs both ways (Billions)

Africa - AsiaASKs both ways (Billions)

African air traffic growthLow-growth European market represents a large part of the African air traffic but it has been quickly equalled in capacity since 2007 with the Middle-Eastern markets

Notes: S.A.A = South African Airways, R.A.M = Royal Air MarocSource: Innovata schedule data, Seabury analysis

Africa – North AmericaAfrica – Latin AmericaASKs both ways (Billions)

Africa: Dom. vs. Int.ASKs both ways (Billions) ASKs both ways (Billions)

+2.0%

2015

198

2014

195

2013

190

2012

194

2011

197

2010

201

2009

188

2008

192

2007

168

Fran-KLM

IAG xxxxx

LH Group

TUI Trave

R.A.Mxxx

Others

+12.1%

2015

121

2014

109

2013

100

2012

89

2011

79

2010

74

2009

66

2008

58

2007

49

Emiratesx

THY Grou

Qatar Airx

Egypt Airx

Saudiaxxx

Others

+5.3%

2015

29

2014

31

2013

29

2012

27

2011

26

2010

25

2009

21

2008

21

2007

19

Ethiopian

S.A.Axxxx

Egypt Air

Qantas Gr

Air Mauriti

Others

+6.6%

2015

5

2014

5

2013

5

2012

4

2011

5

2010

5

2009

4

2008

3

2007

3

S.A.Axxxx

TAAG Ang

Ethiopian

R.A.Mxxx

TACVxxxx

Others

+7.4%

2015

19

2014

19

2013

19

2012

19

2011

18

2010

17

2009

14

2008

13

2007

11

Deltaxxxx

S.A.Axxxx

Egypt Airx

R.A.Mxxx

Ethiopian

Others

+5.9%

2015

88

2014

87

2013

83

2012

76

2011

76

2010

74

2009

69

2008

66

2007

56

InternationalDomestic

Page 14: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

13

Intra-Africa capacity

Source: Diio and Seabury Analysis

The intra-African markets are underserved and represents a huge opportunity for airlines

2014 Inter-regions capacity as a % of total capacity ( ASMs)

Too often, the best option for intra-African routes is to connect through Europe of the Middle East

32%

51%

66%68%

0%

20%

40%

60%

80%

100%

Asia North America Europe Africa

Page 15: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

14

Existing Fleet Fleet Orders Total FleetProp RJ Narrow Wide Prop RJ Narrow Wide Exist. Order

12 - 20 30 2 - 20 18 62 40

- - 26 23 - - - 5 49 5

- - 34 18 - - 8 1 52 9

- 4 36 7 - - - 3 47 3

- 15 11 9 - - - - 35 -

15 - 26 11 - - 6 - 52 6

- - 13 - - - 10 - 13 10

- - 28 2 - - 4 1 30 5

- - 5 6 - - - 2 11 2

- - 6 - - - - - 6 -

- - 11 - - - - - 11 -

- - 4 - - - - - 4 -

3 1 3 - - - - - 7 -

- - 3 1 - - - - 4 -

4 - 1 2 3 - - - 7 3

2 2 4 - - - - 2 8 2

- 2 2 - - - - 3 4 3

3 - 2 - - - - - 5 -

- - 3 - - - - - 3 -

3 - 13 - - - - - 16 -

All Others (42 carriers)

African carriers5 African carriers offer more than 65% of the total capacity; largely from Ethiopia, South Africa, Egypt, Morocco and Kenya in a continent of 54 countries

Source: ASM are LTM December 2015 from Diio.net; fleet data from Ascend (March 2016) and CAPA (March 2016)

3,413

2,194

781

869

1,136

1,087

1,392

833

1,264

746

727

3,457

8,043

19,784

9,067

3,832

5,804

11,955

4,040

17,002

21,750ASMs (millions, LTM Dec 2015)

Page 16: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

15

Actual and forecasted fleet in AfricaAll major manufacturers share the view that Africa’s fleet will more than double until 2035

170 189 200 283 324 303 303

117 122

119145 142

142

261 331 351

566

4322

90

401

+132%

6766

+158%

2034

58

1,179

55

2016

800

1995 2000

2,146

489

2015

582

43

20101990

38

359

32

925

48 8642

894

49 57

446

83

56

58

2005

Airbus NBWB (2034) Boeing WBBoeing NB

NB (2034) Airbus WBRegional

Notes: Airbus forecasts 1,117 deliveries and 100 retirements of NB and WB aircraft for the 2015-2014 period; Boeing predicts 1,170 deliveries for the same period. Embraer forecasts deliveries of 240 70-130 seat regional aircraft and 140 turboprop regional aircraft for the 2015-2034 period. Regional fleet includes the following manufacturers: ATR, BAE Systems, Bombardier, Embraer and FokkerSource: Ascend, Airbus forecast, Embraer forecast, Seabury analysis

Passenger aircraft in service (actual and forecasted)# of aircraft

Page 17: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

16

Africa’s fleet average ageThe average age has been steadily dropping since 2000

1413

19

131415

16

14

1112

13

9

20101990 20152000

Regional (Western) Narrow Body Wide Body

Notes: Core regional fleet includes the following manufacturers: ATR, BAE Systems, Bombardier, Embraer and FokkerSource: Ascend, Seabury analysis

Aircraft average age# of years

Page 18: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

17

Expected NB and WB deliveries to airlinesAirbus and Boeing expect over 1,100 WB and NB deliveries until 2035 with only 137 firm orders today

26%

20%Other 14%

13%

9%

9%9%

15%

12%

Other

12%

9%29%

15%

9%

1712

6

24

5 5

22

3

4

10

139

25

20202019 20222021

18

2022+

34

14

2016

NB

WB

20182017

39

15

10

Source: Ascend, Seabury analysis

Current orders in Africa# of aircraft

NB orders

WB orders

Page 19: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

18

African airlines; joint ventures and international allianceWith only 4 airlines participating in global alliances; joint ventures have become more prominent

Commercial agreement

Investment (and commercial agreement)

Global alliance

Page 20: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

19

Agenda

African Economic Outlook

Airlines in Africa

Aviation financing in Africa

Opportunities and challenges

Page 21: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

20

Aircraft lessors increasing Africa exposureIn Africa, Lessors are increasing their market shares; in a region with relative limited access to capital their role is essential to the industry’s growth

Source: Boeing Capital, Ascend 2014 data, Seabury analysis

Lessor fleet share% of total fleet

Page 22: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

21 21

Aircraft financing environment

Capital Providers 2009 2010 2011 2012 2013 2014 2015 2016F 2016 Africa Seabury Outlook

Leasing Companies

With appetite for higher risk, major source of capital

Capital Markets Very limited opportunities, potentially through Exim-Bond

Commercial Banks Some appetite, increased “regional” risk make the banks cautious

Export Credit Agencies

Available to support, some creative solutions, but expensive

Private Equity and Hedge Funds Some availability, looking for yield

Tax efficient leasing** Unlikely

New Sources of Funding*

Public banks and insurance companies

Airframe and Engine Manufacturers

Limited support available

Satisfactory Cautionary Major ConcernCautionary / Satisfactory

Note: *Includes regional banks, pension funds, Islamic finance and other new exotic solutions; **Includes JOLCOs, French Operating Leases, US & Spanish Operating LeasesSource: Boeing Capital, Seabury analysis

African carriers should be well positioned to access traditional and new sources of funding

Concern

Page 23: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

22

Potential sources of funds for other Aviation projectsAlthough Africa presents a challenging environment, alternative sources of financing are available

Source: Baker & McKenzie, Thomson One, Overseas Development Institute, The Commonwealth, World Bank, Reuters

Increased interest of private equity for Africa (c$12b/y)

A steady increase of companies launching IPOs

Sovereign funds exposure:

- Norway’s sovereign fund held African securities >$5.6bn

- Chinese African FDIs rose to $3.5bn in 2013

- Africa’s sovereign funds could invest an additional $29bn

Complicated legal & political framework

Limited market liquidity (growing market but lacking depth)

“Overhang” of unused capital due to limited suitable investment opportunities

High economic volatility linked to high dependency on commodity prices0

1

2

3

4

5

0

5

10

15

20

25

2011 2016p2012 20132010 2014 2015

$B# of IPOs

Banks International Institutions

Sovereign Funds

Private Equity

Partnerships

Sources

IPOs in Africa

Opportunities

Challenges

# of IPOs$B raised

Page 24: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

23

Agenda

African Economic Outlook

Airlines in Africa

Aviation financing in Africa

Opportunities and challenges

Page 25: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

24

Airline success factors: Key elements

Commercial Strategy

Capital Structure

Operational Improvement

and Lean Cost Structure

LaborLiquidity

Fleet

FleetCommercial Strategy

Sound long-term strategy Rationalized and optimized

network and schedule Effective revenue

management Match aircraft to network

plan and growth strategy

Well negotiated customer & vendor contracts Optimized supply chain Monitored lean cost structure Constantly implement best

operational practices

Appropriate liquidity level to deal with seasonality & chocks

Monitoring procedure

No uneconomic aircraft Market aircraft financings Future fleet secured to

deliver commercial strategy

High labor productivity

Streamlined organization

Sustainable labor costs

Appropriate capital to finance business plan Secured aircraft financing Strong balance sheet

Labor

Capital Structure

Best practice operations and lean cost structure

Liquidity

AIRLINE

Airline success revolves around 6 key interrelated elements supported by a comprehensive strategy and business plan

Strategic Direction

Cost Structure

Catalysts

Page 26: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

25

Airline success factors and challenges in Africa

Success factors Challenges

Strong local market Strong networkLow cost base

Managementstability Modern fleetAccess to capital

Government support

Alliances/ partnerships

Cape Town convention

Lack of open skies intra-Africa

Political instability & terrorism

Limited access to capital

LCC/Middle East competition

Weak infrastructure

Management instability

Page 27: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

26

Airline failuresThe continent has had a number of failures in recent years

(2003)(2004) (2002)(2006)

(2011)(2012) (2010)(2012)

(2012)(2014) (2012)(2015)

(2008)(2009) (2007)(2009)

(1995)

Page 28: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

27

Some African Airlines success stories

Success factors

Royal Air Maroc

TAAG Angola

Ethiopian Airlines

Air Côted’Ivoire

Kenya Airways

Air Mauritius

Fast Jet

Challenges

South African Airways

Government support

Modern fleet

Low cost base

Political instability

& terrorism

Strong network

Strong local market

Managementstability

Alliances/ partnership

Access to capital

Cape Town convention

Lack of open skies intra-

Africa*

Note: *There are no real open skies in Africa but airlines focusing on intra-Africa traffic are significantly affected

Weak infrastructure

Limited access to capital

LCC / Middle East competition

Management instability

Page 29: Michael B. Cox, Vice Chairman Seabury Group Africa ...€¦ · Michael B. Cox, Vice Chairman Seabury Group Africa: Aviation’s Next Frontier March 2016. 1 Agenda African Economic

Michael B. CoxVice Chairman, Seabury [email protected]: +1 212 284 1136

Alexis FeketeExecutive [email protected]: +44 786 742 6030

Albert Konan-N’daSr. [email protected]: +1 571 730 9667