Aerospace – Supply Chain Overview

September 20XX
Table of Contents
1. Executive Summary
2. Industry Overview
3. Key Growth Drivers
4. Business Dynamics
5. Key Performance Metrics
6. Recent Trends

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© TresVista Financial Services 20XX

1. Executive Summary
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Executive Summary

 Global aerospace & defense sector valued at ~$920.6 bn, and expected to grow at
Sizeable Backlogs CAGR of 5.3% over 20XX-20XX supported by the size of existing primes / OEM backlogs,
at 7+ years of Boeing and Airbus production

 Aerospace cycle defined by greater proportion of orders from emerging markets;

Increased Deliveries
planes delivered to non-OECD countries grew at a 20.0% CAGR since 20XX

Aerospace In Early  Traffic to grow at a 6.0% CAGR, above 3.0% longer term GDP growth; supported by
Upcycle rising fuel prices, aging fleet along with growing demand from emerging markets

 Industry characterized by few, high value adding players (Prime, Tier1) at the top and
Pyramidal Structure
large number of small part manufacturers (Tier 2, Tier 3) at the bottom

 Increased consolidation witnessed in Tier 2 and Tier 3, with latter trading at a premium
Valuation
on account of higher margins

 Industry focused on efficiency leading to performance based contracts, outsourcing

Outlook
and new technologies to make aircraft more fuel efficient

4
2. Industry Overview
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Industry Overview
Introduction

Aerospace & Defense Opportunity A&D Sector — Size (1)

 Global aerospace and defense (A&D) sector is valued at in $ bn.
1,400.0
$920.6 bn and expected to grow at a CAGR of 5.3% 1,190.5
1,200.0
between 20XX and 20XX 920.6
1,000.0
● Defense accounts for 72.0% of total value
800.0 658.8
 Order book of ~12,705 aircrafts supports revenue 600.0

growth for next several years (2) 400.0

 Global A&D market dominated by the US (59.0% market 200.0

0.0
share), followed by Europe (22.0%), and Asia (19.0%) 2005 2009 2014

 Boeing and EADS are the leading market players with Industry Structure
7.4% and 6.5% share in commercial aerospace
 A&D industry is becoming more global due to 26.3%
heightened competition, growing travel demands, and
security requirements in emerging markets
1.7%

72.0%

Commercial Aerospace Rejional Jet Defense

The growth in aerospace & defense sector is expected to be led by emerging markets
(1) Data Monitor, Clearwater report.
(2) Installed base and backlog includes aircrafts from Airbus, Boeing, Embraer, and Bombardier. Backlog includes firm orders, options, Letter of Intent (LOIs) and option LOIs. 6
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Industry Overview
Business Segments

Commercial Aerospace (1) Regional Jet (2) Defense (3)

 Revenue grew by 11.0% in 20XX  Revenue remained flat with total  Global defense revenue decreased
 Annual production record of 1,011 billing of $15.5 bn in 20XX 3.3% in 20XX
deliveries by Boeing and Airbus in  Industry backlog (20XX) of ~1,300  Defense sector in the US remained
20XX aircraft valued at $44.6 bn, with flat, with Asia and ME driving
● 5.2% delivery growth in 20XX improved fundamentals of late growth
 Major players include Airbus, and  Major players include Bombardier  Major players include Boeing,
Boeing & Embraer Lockheed Martin & Northrop
Grumman
No. of Airplanes in $ bn. in $ bn.
50,000 400.0 382.0 1,200.0
1,066.8
1,003.0
39,530 350.0 1,000.0
40,000
300.0
266.0 800.0
28,580
30,000
250.0
600.0
19,410 200.0
20,000
139.0 400.0
150.0
10,000
100.0 200.0

0 50.0 0.0
2010 2020 2030 2002-2011 2012-2021 2022-2031 2011 2015

Market for regional jets is expected to grow faster than commercial aerospace & defense
(1) Delloite 20XX A&D report, Boeing: Current Market Outlook (20XX-20XX).
(2) Bombardier Business Aircraft: Market forecast (20XX-20XX). 7
(3) moneymorning.com.au/20120417/australia-the-pacific-pawn-in-usa-versus-china.html.
3. Key Growth Drivers
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Key Growth Drivers

Commercial Aerospace

Traffic and GDP Growth Historical Traffic Growth (1)

RPKs(3) (trillions)
 Air traffic grew at CAGR of 5.0% since 19XX, resilient to 6.0
recessions, financial crises, Gulf wars, oil shock, and Credit crisis
5.0
9/11 attack
4.0 9/11
 Air traffic has been growing at approximately 1.5x-2.5x
3.0
the global GDP growth rate Gulf War

2.0
 Global load factor for airlines are at record high level of
1.0
~79.0% and further increase in traffic will be met by
fleet expansion 0.0
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010

Global Load Factor (2) GDP and Air Traffic (1)

90.0% 10.0%
80.0%
8.0%
70.0%
6.0%
60.0%
50.0% 4.0%
40.0% 2.0%
30.0% 0.0%
20.0% Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
-2.0%
10.0% 2006 2007 2008 2009 2009 2010 2011 2012E 2012E
-4.0%
0.0%
-6.0%
World real GDP Passenger Traffic

Average global GDP growth of ~3% translates to traffic growth of 6.0% in the long term
(1) Airbus Global Market Forecast (20XX-20XX).
(2) Sector Primer – Bank of America Merrill Lynch dated 13 May, 20XX. 9
(3) RPK: Revenue Passenger Kilometers.
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Key Growth Drivers

Commercial Aerospace

Emerging Market Drive Traffic Growth Changing Dynamics of Air Travel (1)
Air Traffic, RPKs (billions)
 Air traffic growth is shifting from U.S. & Europe to Asia 14,000
Pacific with China’s air traffic growing at CAGR of 8.7 % 12,000
in 20XX-20XX 10,000
8,000
 Growth in propensity to travel is estimated to be 4.0x in
6,000
China and 3.0x in India by 20XX compared to 20XX
4,000
 Two third of the traffic growth will be generated by 2,000
emerging economies by 20XX 0
1990 2010 2030
North America Europe Asia Pac China Middle East Other

Global Traffic Growth (2) Trips per capita in 20XX (1)

RPM (billions) Trips per capita - 2010
800.0 800.0 10.000

600.0 600.0 UK USA

1.000 India 2030 China 2030
400.0 400.0 France Germany
Brazil
Russia
200.0 200.0 China
0.100
- - India

200.0 200.0
0.010
400.0 400.0
2010 2011 2012E 2013E 2014E 2015E 2016E
2010 real GDP per capita
Emerging Markets US & Europe 0.001
0.0 10,000.0 20,000.0 30,000.0 40,000.0 50,000.0

China is estimated to exceed U.S. in air traffic by 20XX

(1) Airbus Global Market Forecast (20XX-20XX).
(2) Broker Report. 10
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Key Growth Drivers

Commercial Aerospace

Replacement Demand Age of airline fleet (1)

 Average age of world airline fleet is at 12.3 years Average Age
15.0

 Increase in fuel prices leads to airlines replacing their 14.0

existing fleet with newer more fuel-efficient airplanes to 13.0

save on fuel-costs 12.0

 Replacement demand is expected to be 40.0% of the 11.0

future demand between 20XX-20XX 10.0

9.0
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
World Airlines US Airlines

Global Traffic Growth Fuel Price vs. Retirement of Fleet (2)

Units Retirements as % of Fleet Crude Oil Price per BBL
40,000 2.5% 100.0

2.0% 80.0
30,000
Growth 1.5% 60.0

20,000 1.0% 40.0

Replacement 0.5% 20.0

10,000
0.0% 0.0
Retained fleet
0
2010 2030 % of Fleet Retirements Crude Oil Price

Increasing fuel prices to drive replacement demand in the range of ~40.0% going forward
(1) Aerospace Industry Update report dated July 20XX, Goldman Sachs.
(2) Airbus Global Market Forecast (20XX-20XX). 11
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Key Growth Drivers

Regional Jet

Key Growth Drivers Number of Billionaires (1)

 Affluence Leading to Business Jet Growth 500
427 428
● The number of billionaires reached a record high of 400

1,231 in 20XX with China showing a y-o-y growth of 300

66.0% 200 182 192 178

 Aging Fleet 100

107
72
116
72
95
62 86 53 56
36 49
● With 24.1% of the fleet above 25 years, there is 4 6
0
increased expectation of replacement in the next North Europe China Russia Asia ex. Middle Latin India Africa
America & CIS China East America
decade 2010 2011

Business Jet Fleet Age (20XX) (1) Business Jet Fleet Forecast (1)
Fleet
4,000 Avg. Age = 15.9 years 14,200 4,600
3,410 31,500

3,000 2,840 9,800 3,100

2,690 21,900

15,200
2,000
1,365 1,520 1,590
1,255
1,000
690
970
0
1-5 6-10 11-15 16-20 21-25 26-30 31-35 36-40 >40
Aircraft Age Groups

Economic recovery, increased wealth creation & jet utilization will drive the growth for business jets
(1) Bombardier Market Forecast (20XX-20XX).
12
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Key Growth Drivers

Defense

Key Drivers(1) Military Expenditure by Country (20XX) (1)

in $ bn.
 US Defense Budget 800.0
698.0
● U.S. & other developed countries remain the key 700.0

driver despite of the defense budget reduction on 600.0

500.0
account of growing fiscal deficit 400.0
412.0

 China’s Increasing Budget 300.0

200.0
● Increase in China’s military expansion, along with its 119.0
60.0 59.0 59.0
100.0 55.0 45.0 45.0 41.0 37.0
neighbors have resulted in increased exports for the 0.0
U.S. defense industry

China vs. U.S. Defense Budget (2) Projected U.S. Military Expenditure (3)
in $ bn.
in $ bn.
800.0
3,500.0 710.0
675.0 660.0
700.0 620.0 630.0 640.0
3,000.0
2,500.0 600.0

2,000.0 500.0
1,500.0 400.0
1,000.0 300.0
500.0 200.0
0.0 100.0
2009 2013 2017 2021 2025 2029 2033 2037
0.0
China U.S.
2011E 2012E 2013E 2014E 2015E 2016E

China’s rapid military expansion, along with others in Asia, is likely to drive growth
(1) Stockholm International Peace Research Institute (SIPRI).
(2) nextbigfuture.com/20XX/XX/china-economic-forecast-to-20XX-and.html. 13
(3) A&D 20XX review – PWC.
4. Business Dynamics
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Business Dynamics
Industry Supply Chain

Overview
Prime Tier-1 Tier-2 Tier-3

Engine Manufacturer Mechanical Parts Accessories

Landing Gear
Wheels & Brakes Bearings
Manufacturer
Airframe Manufacturer
Flight Control Plastic Parts &
Wings
Actuators Castings

Interiors & In-Flight

Fuselage Avionics & Hydraulics
Entertainment

 Primes - Control design, manufacturing and assembly function, the most critical component of value chain
 Tier 1 - Support Primes by providing them with equipments and systems like engines, Wings, Fuselage
 Tier 2 - Manufacture and develop parts as per the specifications provided by primes and Tier 1 suppliers
 Tier 3 - Responsible for supplying basic products, components and other non-core value added services

Fragmented industry with multiple layers in the supply chain

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Business Dynamics
Industry Supply Chain

Various Components In Play Across The Industry (1)

(1) Commercial Aerospace: Industry Overview by Bank of America Merrill Lynch.

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Business Dynamics
Supply Chain Components

Airframe Primes (1) Cost structure of a Commercial Airliner (1)

 Assemble large aircraft and are also involved in 6.0% 4.0% 3.0%
11.0%
manufacturing of fuselage (body), wings and
15.0%
empennage (tail) representing 35.0-40.0% of the total
manufacturing cost 14.0% 37.0%

 Outsources 60.0-65.0% of the plane value resulting in 19.0%

the proliferation of aerospace component industry 3.0%

25.0%
 Most critical component of the value chain
characterized by stiff entry barriers due to high cost and Engine Systems Avionics Interior Landing Gear
Other Fuselage Wing Empennage
technological requirements
Current Civil Fleet by Aircraft Type (1)
 An aircraft takes 8-15 months to build, therefore aircraft
primes locks most of its cost through long-term 5.0%

contracts with the suppliers 16.0%

 Aircrafts are classified as Single-Engine, Twin-Engine,

Very Large Aircraft (VLA); further they can be classified
by range & seating capacity 19.0% 60.0%

 Competitive players include Boeing, Airbus, Bombardier

& Embraer
Single Aisle Twin Aisle Regional Jet 747 and Larger

Long term contracts with supplier bode well for Airframe primes
(1) Commercial Aerospace: Industry Overview by Bank of America Merrill Lynch.
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Business Dynamics
Supply Chain Components

Tier 1 - Aircraft Engine Primes (1) Engine delivery value (20XX-20XX) (2)
 Global engine demand is estimated at 149k; to be Pounds of Thrust

>75,000
delivered from 20XX-20XX, worth ~$975.0 bn
45,000 - 75,000
 Accounts for approximately 25.0% of the cost of a 22,000 - 45,000
10,000 - 22,000
commercial airliner 6,000 - 10,000
 Engines are rated by the amount of thrust they can 3,000 - 6,000
< 3,000
deliver and the future engines are expected to generate Turboprops
thrust of more than 22K pounds in $ bn. 0.0 50.0 100.0 150.0 200.0 250.0 300.0 350.0 400.0
 JV’s/Alliances have increased to capitalize on the Passenger Freight Bizjets
demand from emerging market and to leverage Aircraft Engine Manufacturers
common platform
Alliances Companies % Stake
 The major aero engine suppliers include General The Engine Alliance GE Aviation 50.0%
Electric, Pratt & Whitney and Rolls-Royce Pratt & Whitney 50.0%
CFM GE Aviation 50.0%
Snecma Moteurs 50.0%
International Aero Engines Rolls-Royce 32.5%
Pratt & Whitney 32.5%
Japanese Aero Engines Corporation 23.0%
MTU Aero Engines 12.0%
PowerJet NPO Saturn JSC 50.0%
Snecma Moteurs 50.0%

Engine manufacturers form JVs to capture the opportunities from emerging markets
(1) Commercial Aerospace: Industry Overview by Bank of America Merrill Lynch.
(2) Market Outlook – Rolls Royce. 18
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Business Dynamics
Supply Chain Components

Tier 1 - Aerostructures, Nacelles and Gears Aerostructures and Nacelles (1)

 Aerostructures are used to provide stability and aero-
dynamicity, includes all or part of the fuselage, wings
and flight control surfaces
 Spirit is the largest aerostructure manufacturer with
~16.0% market share of $40.0 bn
 Nacelle is an aerodynamic structure around engine,
containing nozzle and thrust reverser
 Independent nacelle suppliers include Goodrich, Spirit,
Aircelle and GKN Landing Gear(1)
 Landing gear constitutes 4.0% of the plane value with
the market dominated by Safran and Goodrich
 Large jet aircraft have one nose gear to allow the
aircraft to maneuver while on the ground; with two
wheel set at the back to absorb shock while landing

Aerostructures are built to have high strength to weight ratio, with low drag
(1) Commercial Aerospace: Industry Overview by Bank of America Merrill Lynch.
19
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Business Dynamics
Supply Chain Components

Tier 2 - Tires and Brakes (1) Tier 2 - Hydraulic System (1)

 Aircraft tires are filled with nitrogen as they  Hydraulic servo-valves are used to manipulate primary
expand/contract less at extreme temperatures and secondary flight control, landing gear, and steering
 Single-aisle aircraft use steel disc brakes, while larger, system
twin-aisle aircraft use carbon brakes as they have more  It is also used to provide additional power
stopping power  Recently the hydraulic systems are being replaced by
 Major manufacturers include Goodrich, Messier Dowty, digital system as they are:
Honeywell and K&F - Much lighter than hydraulic system, hence fuel
efficient
Tier 2 - Avionics (Aviation Electronics)
- Less susceptible to mechanic failure
 Includes radios, navigation equipment, sensors, - Requires less physical maintenance
processors, and electronic displays
- Can relay positioning feedback information to
 Avionics are different from electronics as they operate
under extreme temperatures pilot

 Avionics has moved towards integrated system or “glass  Airbus pioneered the use of digital control and uses this
cockpit”, which displays wide range of operating data on system on all of its aircraft models, except for the A300
a single main screen and A310

Hydraulic systems are replaced by more precise electrical systems

(1) Commercial Aerospace: Industry Overview by Bank of America Merrill Lynch.
20
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Business Dynamics
Supply Chain Components

Tier 3 - Industry Characteristics (1) Product Mix (2)

12%
 Includes hardware, bearing, electrical component and
machined part
16%
 Total addressable market of $6.5 bn with 69.0% sold to 46%
OEMs/subcontractors and the remaining to airlines and
aftermarket MRO
 North America and Europe constitutes ~68.0% of the
market 26%

 Sales channel weighted towards distribution (~64.0%) Hardware Bearings Electric Comps Machined Parts

 Distribution market relatively consolidated (especially Geographic Segmentation (2)

hardware) with the top four companies constituting 11%
~50.0% of the market 5%

 Commercial Aerospace controls 56.0% of the market 39%

with the remaining contributed by defense 16%
 Key Players – B/E Aerospace, Wesco, Precision Castparts

29%
North America Europe Asia Pasific Latin America Other

Large and fragmented addressable market

(1) Commercial Aerospace: Industry Overview by Bank of America Merrill Lynch.
(2) Wesco Aircraft Initiating Coverage by Citigroup. 21
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Business Dynamics
Supply Chain Components

Materials 100.0%

 Aluminum and aluminum alloys are the principal 80.0%

structural material used in aircraft as they have good 60.0%

strength-to-weight and stiffness characteristics,
40.0%
provides good corrosion resistance and is relatively
inexpensive 20.0%

 Titanium is 60.0% heavier and 10.0x costlier than 0.0%

aluminum but is twice as strong and has higher melting B747 B777 A340 A380 B787 A350 XWB
point, hence used in structures surrounding hot areas Composite Titanium Steel Alum/Lithium Alloys Other Aluminum

Composites - Niche Focus (1)

 Unlike aluminum, composites are ~25.0% lighter with higher strength-to-weight ratio and can be made available in
complex shapes associated with modern aircraft
 Estimated demand for composite engine structures to grow at CAGR of 7.0%, reaching a high of 1,324.5 MT in 20XX;
representing market value of ~$800.0 mn
 Relative to traditional materials, composites are expensive; costs expected to decline significantly through the
automation of manufacturing processes going forward
 Major players comprise of Hexcel, Amoco, Toray & Toho

Usage of composite is increasing significantly over traditional materials like aluminum & steel
(1) Commercial Aerospace: Industry Overview by Bank of America Merrill Lynch.
22
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Business Dynamics
Supply Chain Components

MRO (1)(2) Breakout of MRO market (1)

7.0%
 Global MRO market valued at $45.7 bn (20XX) consists
primarily of airframe maintenance, engine and 15.0%
35.0%
component work as well as line maintenance
● Global MRO industry is expected to reach $50.0 bn
by 2015, implying a 20XX-20XX CAGR of 3.5%
20.0%
 Key revenue from MRO is derived from engine
maintenance (43%), followed by heavy maintenance
visits and modifications (21%) 23.0%

Engine Component Line Airframe Heavy Modification

 Emerging markets to dominate MRO sector with India
and China growing at ~9.5% over 20XX-20XX Line Airframe Heavy
Market Overview (2)
Modification

in $ bn.
 Major players include Triumph Group, Helico, and AAR 60.0 10-year 10-year
Projected Projected
CAGR CAGR
50.0
Other 3.0%
Heavy 3.0%
40.0 ME 5.0%

Line 3.0%
Asia 6.0%
30.0

Component 4.0%
20.0 Europe 2.0%

10.0 Engine 4.0% N.America

1.0%

0.0
Segment Geography

North American market to experience 1.0% growth against a global CAGR of ~4.0%
(1) Commercial Aerospace: Industry Overview by Bank of America Merrill Lynch; Aerospace Global Report 20XX.
(2) Commercial Services Report by AAR. 23
5. Key Performance Metrics
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Key Performance Metrics

Value Chain Comparison

LTM EBITDA Margin

EBITDA Margin

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%
Airframe Manufacturers Tier 1 Tier 2 Tier 3 Materials

LTM EV/EBITDA Multiple

EV/EBITDA
12.0x

10.0x

8.0x

6.0x

4.0x

2.0x

0.0x
Airframe Manufacturers Tier 1 Tier 2 Tier 3 Materials

Tier 3 trades at a premium on account of higher EBITDA Margin

(1)Airframe Manufacturers - BA US, AM FP, BBD/B CN, TXT US, UNAC RM, UUAZ RM, IRKT RM, RTVL RU; Tier 1 - UTX US, GR US, SAF FP, MTX GR, SPR US, FNC IM; Tier 2 - LMT US, RTN US, NOC US, LLL US, HO FP,
ZC FP, TDY US, ESL US, MOG/A US, SAABB SS, XLS US, ULE LN, CW US, MANT US, GY US, MAL CN, LAT FP; Tier 3 - PCP US, COL US, TDG US, MGGT LN, BEAV US, COB LN, TGI US, HEI US, SNR LN, ROLL US, AIR US,
ATRO US, HRX CN, LMIA US, SIF US, DCO US; Materials - HXL US, CRDN US, UMC LN, AVON LN. 25
(2)Enterprise Value calculation as of July 20XX
TresVista Financial Services

Key Performance Metrics

Category Comparison

LTM EBITDA Margin

EBITDA Margin
30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%
Prime Engine Electronic Mechanical MRO Sundry Interiors Space Systems
Manufacturer Systems Components Equipment

LTM EV/EBITDA Multiple

EV/EBITDA

12.0x
10.0x
8.0x
6.0x
4.0x
2.0x
0.0x
Prime Engine Electronic Mechanical MRO Sundry Interiors Space Systems
Manufacturer Systems Components Equipment

Mechanical Component manufactures have the highest EBITDA margin

Prime -BA US, EAD FP, AM FP, BBD/B CN, TXT US, SPR US, UNAC RM, UUAZ RM, IRKT RM, RTVL RU; Engine Manufacturer - UTX US, RR/ LN, SAF FP, MTX GR; Electronic Systems - LMT US, RTN US, NOC US, LLL US,
COL US, HO FP , ZC FP, MGGT LN, COB LN, TDY US, FNC IM, ESL US, MOG/A US, SAABB SS, XLS US, ULE LN, CUB US, MANT US, ATRO US; Mechanical Components - PCP US, GR US, TDG US, SNR LN, ROLL US, LMIA
US, LAT FP; MRO - TGI US, HEI US, AIR US, HRX CN, MAL CN; Sundry Equipment - SIF US; Interiors - BEAV US, DCO US; Space Systems - CW US, GY US 26
Enterprise Value calculation as of July 20XX
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Key Performance Metrics

Recent Deals

Precedence Transaction Comparable

Announced Enterprise Enterprise Value /
Date Target Acquirer Value (in USD) Revenue EBITDA
5/8/2012 Composite Engineering Inc Kratos Defense & Security Solutions Inc 155.0 1.65x 9.7x
1/20/2012 AMSAFE Global Holdings Inc TransDigm Group Inc 750.0 2.88x NA
11/7/2011 Force Protection Inc General Dynamics Corp 237.9 0.41x 12.5x
8/16/2011 Vangent Holding Corp General Dynamics Corp 960.0 1.37x NA
8/5/2011 Schneller Holdings LLC TransDigm Group Inc 288.5 3.43x NA
6/29/2011 Sensis Corp Saab AB 155.0 1.19x NA
5/16/2011 Integral Systems Inc/MD Kratos Defense & Security Solutions Inc 291.2 1.47x NM
5/5/2011 Souriau Esterline Technologies Corp 589.5 2.91x NA
3/9/2011 Ansaldo Energia SpA First Reserve Corp 1,772.7 1.02x NA
2/7/2011 Herley Industries Inc Kratos Defense & Security Solutions Inc 262.2 1.36x 8.1x
1/18/2011 Pacific Scientific Aerospace Meggitt PLC 685.0 1.81x 8.7x
1/14/2011 Norkom Group PLC BAE Systems PLC 165.6 2.47x 13.8x
12/22/2010 Dalsa Corp Teledyne Technologies Inc 330.4 1.56x 8.6x
12/22/2010 ETI A/S BAE Systems PLC 210.7 3.22x NA
12/20/2010 Raytheon Applied Signal Technology Inc Raytheon Co 457.6 2.03x 15.7x
11/16/2010 Abraxas Corp Cubic Corp 124.0 2.07x NA
10/13/2010 Enterprise Integration Group Business Veritas Capital 815.0 1.30x NA
6/30/2010 Argon ST Inc Boeing Co/The 707.8 2.28x 41.0x
3/23/2010 Babcock Southern Holdings Ltd Babcock International Group PLC 2,485.4 1.31x 14.7x
3/23/2010 Vought Aircraft Industries Inc Triumph Group Inc 1,440.0 0.74x 6.2x
3/5/2010 Saab AB Investor AB 1,460.6 0.43x 3.7x
2/26/2010 ODIM ASA Rolls-Royce Holdings PLC 243.0 0.71x 6.7x
1/12/2010 Gichner Holdings Inc Kratos Defense & Security Solutions Inc 133.0 0.90x NA

Tier 3 dominates the deal activity with average EV/Revenue of 2.31 x

(1) Source: Bloomberg and press Release.
(2) Deals as of June 20XX. 27
6. Recent Trends
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Recent Trends
Key Trends

Strategic Trends
 Performance-based contracts gain popularity
● With the decreased use of cost-reimbursable contracts by the U.S. government, companies are becoming more
adept at utilizing and managing fixed price (performance-based contracts)
● GE, Rolls Royce, and Pratt & Whitney are leaders of performance-based logistics services, utilizing accurate
forecast models, and proactive real-time performance data to anticipate and prevent service interruptions
 Risk sharing
● The aerospace industry is moving towards greater dependence on Tier 1s, reducing the number of suppliers and
increased risk sharing by suppliers
● For instance, Embraer had ~350 suppliers for their EMB145 aircraft including four risk sharing suppliers, which
came down to 38 suppliers for EMB170/190 aircraft, with 16 risk sharing suppliers
 Globalization of aerospace manufacturing
● Cost reduction, ability to focus on core business, and increased speed to market are the main factors driving the
globalization/outsourcing in aerospace manufacturing
● OEM integrators such as Airbus and Boeing are shifting their production to low cost China, India, Malaysia,
Singapore and other Asian countries achieving 20.0-30.0% cost savings

Focus on efficiency leads to performance based contracts, risk sharing and outsourcing

29
TresVista Financial Services

Recent Trends
Technical Trends

Manufacturing and Service Trends

Industry Trends

Aircraft
(1) All-electric (2) Power-by-the-
Fly-by-Wire Winglets Composites Maintenance
Plane Hour (3)
Programs

 Manual Flight Controls are  Improves Efficiency  Fixed-Fee Maintenance

Replaced by an Electronic Interface  Reduces Fuel-Costs  Provides Accurate Cost
 Reduces Weight  Improves Aerodynamicity Projections
 Minimizes Human Error  Reduces Breakdown Costs

Increasing Fuel-Efficiency & Cost-Savings are driving the industry trends

(1) Fly-by-Wire: A system that replaces the conventional manual flight controls of an aircraft with an electronic interface
(2) Winglets are the near-vertical extensions of the wing tips, intended to improve the efficiency of the aircraft 30
(3) Power-by-the-Hour: A fixed-fee maintenance program which provides the operator with a fixed engine maintenance cost over an extended period of time
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