FCG Group: Further Development Of Services, Meeting Baltics/North European Business Aviation Market Demands BALTIC BUSINESS AVIATION FORUM

Dr. Leonid GORODNITSKI

October 25, 2012 Riga, LATVIA

PRESENTATION CONTENT 1. Baltic BA Market Development In The Context Of European BA Market Trends. 2. European BA Market: Major Data. 3. Rapid Rise And Decline Of The BA Market. Updated Medium-Term Forecasting. 4. Holding FCG: Ensuring Customer/Market Driven Operations And Development.

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 2/33 >

BALTIC BA MARKET: SET UP AND EVOLUTION ● USSR - no BA segment/services. ● Demands in BA services have been steadily developed:    

USSR disintegrated in 1991; Private business development; Affordability growth; Awareness of the BA benefits.

● Limitations Offer:

of the

Initial

Market

 ―Readjustment‖ of existing fleet, infrastructure, operational practices to the BA needs (adaptation rather than dedicated facilities);  Charter flights only (initially);  Non sufficient services to the BA passengers and crews (―депутатские‖);  No aircraft management, maintenance, flight support, etc.;  Poor regulations - restrictions to the full scale BA development;

● The topics above were steadily addressed while the BA Market growth in the region BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 3/33 >

RECALLING AEROFLOT TIME

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 4/33 >

BALTIC BA MARKET PECULIARITIES & ● Aviation has migrated from USSR Aviation ADVANTAGES regulations, operation practices, technologies and infrastructure to modern ICAO/EASA compliant System.

the

● All the International Aviation Safety and QA standards have been introduced, operationally met and ensured. ● Attractive cost platform for BA aircraft owners, operators and service providers. ● Beneficial Geo-location. ● Understanding of Western Aviation procedures, technologies and experience gained while "old days operations―.

● Operational and financial transparency. ● Multilingual language).

environment

(incl.

Russian

● Generally well-developed Aviation segment: RIX Hub, AirBaltic, Aviation Training (RKII GA / TSI, RAI). BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 5/33 >

BEING A PART OF NORTH EUROPEAN/PAN-EUROPEAN MARKET Daily Movements Growth Rate 20.00% 15.00% 10.00% 5.00% 0.00% -5.00%

2005

2006

2007

2008

2009

-10.00% -15.00% -20.00%

General European Trend Baltics and NE Market change

* - where Baltics and NE : Den, Est, Fin, Lat, Lit, Nor, Pol, Sw



FCG Holding - a Service Provider at the Baltic/North European BA Market.



The Market changes in line with the Pan-European market tendencies and trends.



FCG Holding screens and analyzes the trends above, aiming to ensure high effectiveness of the services rendered. BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 6/33 >

PRESENTATION CONTENT 1. Baltic BA Market Development In The Context Of European BA Market Trends. 2. European BA Market: Major Data. 3. Rapid Rise And Decline Of The BA Market. Updated Medium-Term Forecasting. 4. Holding FCG: Ensuring Customer/Market Driven Operations And Development.

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 7/33 >

EUROPEAN BUSINESS AVIATION MARKET ● Total number of BA flights (2011):

Movements Share by States, 2011 Baltics and NE Bulgaria Hungary Canary Islands Slovakia

 704.000

Romania

● BA growth in 2011:  2.3%

Lisbon FIR Serbia & Montenegro Croatia Czech Republic Ukraine

● BA Market Share (of all flights):

Turkey Low density States* Greece

 7.1%

Netherlands

● Baltics and NE* flights:  66.890 (9.5% of the total)

Belgium/Luxembourg Austria Spain Switzerland Italy

* - where Baltics and NE : Den, Est, Fin, Lat, Lit, Nor, Pol, Sw

Germany United Kingdom France 0%

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

2%

4%

6%

8%

10%

12%

14%

16%

< 8/33 >

EUROPEAN BUSINESS AVIATION MARKET, cont’d

Fleet Share by States, 2011 Baltics and NE Ireland Greece

● Europe total number of airframes: 3.953

Belgium Netherlands Luxembourg Turkey

 2.708 jets;

Small Fleet States

 1.245 turboprops.

● Baltics and Fleet: 294 (7.4%)

Czech Republic

Cayman Isl (Eur. based) Bermuda (Eur. based)

NE*

 175 jets;

 119 turboprops.

Isle of Man Spain Portugal Italy Switzerland USA (Eur. based) Austria France United Kingdom

* - where Baltics and NE : Den, Est, Fin, Lat, Lit, Nor, Pol, Sw

Germany 0%

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

5%

10%

15%

< 9/33 >

BA OPERATORS Operators/Agents, 2011 2000

1200 800

7

8

9

3

Number of Airframes

78

35

Operators/Agents, 2011 1451

1400 1224

1200 1000 800 600 400

311

200

111

67

27

11

October 25, 2012 Riga, Latvia

4/Day

2/Day

1/Day

1/Week

1/Month

0

BALTIC BUSINESS AVIATION FORUM

53

20+

23

15-19

34

10-14

47

16/Day

● 9% of these flights are by ―Nreg‖ aircraft.

61

8/Day

● 50% fly around once/month in Europe or less.

82

0

 limited resources to keep up

with changes in equipment requirements or other regulations.

132

6

226

5

400

4

530

2

● Most of these operators are logged flying a single airframe

1600

1

● 3,200 operators or agents with flights in Europe.

1901

Number of Flights

< 10/33 >

THE DISTANCES FLOWN Movements per Day 250

Movements/Day Turboprop Movements/Day Piston Movements/Day Jet

200 150 100 50

2000

1900

1800

1700

1600

1500

1400

1300

1200

1100

1000

900

800

700

600

500

400

300

200

100

0

0

Direct Distance (km)

● Most common range:

300 – 400 km

● Under 500 km: ● Over 2000 km:

50% 9% only

   

Only 30% of scheduled flights in Europe are under 500 km; Most business flights are shorter than scheduled flights; ―Taxi rather than the ocean liner‖; The larger proportion of turboprop and piston aircraft in BA fleet.

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 11/33 >

AIRPORT PAIRS ● The BA network of airport: about 100,000 links, three times as many links as the scheduled flight network. ●

● Of these airport pairs, only 5% had a scheduled alternative: at least one scheduled flight per working day. ● The business network carries much less traffic, reaching 40% of the time are flying empty on positioning flights.

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 12/33 >

BA SAFETY ● Viable alternatives to BA motorway and rail travel in EU. ● Average Europe Travel Safety:

Accident Rates /100.000 Departures 2.5 2.17 2

 Motorway: 7.5 fatal./bil.pas.km

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

0.46

0.5

0.22

Accident rate Accident Rate

Sched Comrcl Jets

BA Turboprops

0.04 0

BA Jets

the BA is not the safest segment of Aviation Transport  However, it is much safer than motorway travel 7.5 fatalities and still safer than rail travel

0.81

0.73

Sched Comrcl Jets

 In spite to the general opinion

1

BA Turboprops

● Comparison with BA Safety:

1.5

BA Jets

 Rail: 0.9 fatal./bil.pas.km.

Fatality rate Fatality Rate

< 13/33 >

EBBA IMPORTANT INITIATEVES AND EFFORTS ● Introduced International Standard for Business Aircraft Operations (IS-BAO)  Recognized European Standard;  Over

500 operators registered globally compliance.

are being in

● Development of the International Standard for Business Aircraft Handling (IS-BAH).  EU‘s Ground Handling Regulation did not include airports of

less than 2M passengers (primarily – the airports BA operates from)  Further safety assessments of FBOs and Ground Handlers against this standard

● BA campaign to curtail illegal charter flight activity within Europe.  Aiming to discourage the operation of aircraft without a valid

AOC;  EBAA published a guidance for operators, passengers, politicians, authorities and regulators. BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

brokers,

< 14/33 >

PRESENTATION CONTENT 1. Baltic BA Market Development In The Context Of European BA Market Trends. 2. European BA Market: Major Data. 3. Rapid Rise And Decline Of The BA Market. Updated Medium-Term Forecasting. 4. Holding FCG: Ensuring Customer/Market Driven Operations And Development.

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 15/33 >

BA – RAPID GROWTH TILL THE YEAR 2007 ● BA Growth 2001-07: 49%

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

Piston

Turboprop

600 500 400 300 200 100

2007

2006

2005

2004

2003

2002

2001

0 2000

● BA European fleet 3,000 airframes (70% more in 2 years).

Jet 700

1999

● Business jets flights 12% both 2006 and 2007

800

1998

● In 2007 - 764.000 business flights in Europe, which was 7.8% of all IFR flights

Growth of BA Movements (‗000s)

1997

● Compared to a 19% increase for the rest of air traffic.

< 16/33 >

GROWTH and FORECAST FACTORS CONSIDERED in 2007 ●

Globalization leading to more business travel;



9/11 led to the general perception of greater delays at airports (security constraints);



Growing prosperity brings BA within the reach of more companies and individuals;



Social perspectives change which recognize the value of business aviation (rather than seeing it as a luxury);



Stronger euro making dollar-priced aircraft cheaper.



Order intakes: more than 400 jets ordered worldwide (first half of 2007), an increase of 11%



New products: the VLJ manufacturers predict annual production of 1,000 jets.



Fractional Ownership: Fractional fleets was growing in Europe





Greater importance was given to card programs (buying flight hours instead of actual shares in an aircraft).



Economic growth: World economic growth was expected to continue



Emerging international markets: Since 2003 new business jets delivered outside of the U.S. have increased from 23% of the total to approximately 45%.

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 17/33 >

FORECASTED DATA ● Total business fleet registered in Europe (jets, turboprops and piston) to increase to about 4,600 aircraft (2017), up from the 3,000 in service at the end of 2007. ● The forecasted fleet will lead to (by 2017):

1 200 900 600 300

 1300

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

more flights/day less growth scenario  1600 more flights/day mid growth (VLJ expectations)  2200 more flights/day high growth (significant portion of this growth is in air taxi)

BA Flights in Europe: Actual&Forecasted in 2007, (‗000s)

Actual Flights

forecast 4.7%

forecast 3.7%

< 18/33 >

BA – COMING THROUGH CRISIS CIRCUMSTANCES BA Flights in Europe: Actual 2011 against Forecasted 2007, (‗000s)

1 200 900 600 300 0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

World Economy slow down reduced actual flights by 25% compared to the Market expectations (as per the Forecast made in 2007)

Actual Flights

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

forecast 4.7%

forecast 3.7%

< 19/33 >

CRISES: THE LESSONS LEARNT Flights Growth Compared to Previous Years (%) 15 10 5

-5 -10

jan 09 feb 09 mar 09 apr 09 may 09 jun 09 jul 09 aug 09 sep 09 oct 09 nov 09 dec 09 jan 10 feb 10 mar 10 apr 10 may 10 jun 10 jul 10 aug 10 sep10 oct 10 nov 10 dec 10 jan 11 feb 11 mar 11 apr 11 may 11 jun 11 jul 11 aug 11 sep 11 oct 11 nov 11 dec 11 jan 12

0

-15 -20 -25



BA has grown on average by 2.3% in 2011 to around the volume of 2006.



Regardless achieved results it is a bit early to state the trend:  During the past 12 months, 50 European business jets—about 2% of the total fleet—were

sold to buyers on other continents.  Almost one European business jet in five—19%—is up for sale, more than one-third higher than the worldwide for-sale average of 14%.  Outside Europe, the fleets have grown an overall 3% with the vast majority, 79%, going to buyers in North America. BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 20/33 >

FORECASTING THE BA GROWTH RATES Flights Growth – Actual and Projected Data (%) 15% 10% 5%

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

-5%

2004

0%

-10% -15%

● The BA is expected to end 2012 with a reduction of 2% in business flights compared to 2011. ● However, this should reverse from 2013. ● In the medium-term, with an expectation of economic growth continuing to be relatively weak, the outlook is not for a return to pre-2008 growth rates. BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 21/33 >

FORECASTING THE BA FLIGHTS TILL THE YEAR 2018

● The derived data:  much

less optimistic comparing with the precrises forecast (interrupted lines);  just to approaching the pre-crises volumes by the year 2015

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

1 400

BA Flights in Europe: Forecasted in 2011, (‗000s)

1 200 1 000 800 600 400 200 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

● The growth rate Forecast (prev. slide) allows to project the volume of annual BA movements.

Actual Movements 2007 Forecast 4.7%

2011 Forecast 2011 Forecast 3.7%

< 22/33 >

PRESENTATION CONTENT 1. Baltic BA Market Development In The Context Of European BA Market Trends. 2. European BA Market: Major Data. 3. Rapid Rise And Decline Of The BA Market. Updated Medium-Term Forecasting. 4. Holding FCG: Ensuring Customer/Market Driven Operations And Development.

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 23/33 >

FCG IS CHALLENGED BY THE MARKET DEMANDS/REQUIREMENTS

FLIGHT CONSULTING GROUP

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

● Analysis of the Market trends/demands allows FCG Holding to develop the services in full correspondence with the mentioned trends.

● This resulted in simple transparent operational structure, ensuring the full scope of BA services, based on the activities of consolidated self-sufficient profit-centers‗ operations.

< 24/33 >

FCG: ADJUSTING THE OPERATIONS AGAINST MARKET TRENDS Operating Costs & Revenue

Service Line #1 (G.Handling) Baltics/NE Market Screening

(mid term)

Service Line #2 (Fl.Support) Service Line #3 (Chrtr Sales)

+

...

(current data & forecst)

Scope of Works estimates

Service Line #n

● ●

Permanent screening of Baltics/NE Market provides FCG the projected Scope of Works; FCG uses developed CBA/Financial Models in order to plan own mid-term development and ensure a balance between System components:     

Scope of Works; Scope of Services to provide; Estimated Revenue; Estimated Operating Costs; Existing Fixed Costs.

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

Control: • Operating Costs • Services‘ Content&Scope

Fixed Costs

Fixed Costs Control

< 25/33 >

FCG: SOME FACTS & FIGURES ● ● ●

Operation experience since Year 2000; Employs more than 60 persons; Headquarter in Riga, Latvia;



More than 70 Business Jets on permanent flight support world-wide; 125 states, 2.500 airports, 73.500 supported flights; Around 90 % of all Business Jet flights to/from Latvia; More than 450 business aviation operating partners; Services to many Airports in Baltics; Official Representative of UTAir Airline in Baltics; Membership in the IATA, European and National (USA) Business Aviation Associations; Services availability – 24/7.



● ● ● ● ●



BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 26/33 >

FBO RIGA SERVICES ● Ground Handling 24/7 handling; Catering (top quality local gourmet restaurant); Fuel at special rates; Aircraft interior/exterior cleaning; Water service, toilet service; De-icing; Oxygen service; Nitrogen service; Hotel accommodation for the crew (spec. air crew rate: 55 Eur room/night at Radisson 5*);  Crew transportation (business class car – 20 Eur one way).         

● Passenger Handling: full service ensuring comfortable arrivals and departures.      

VIP hall or GAT facilities; Check –in and luggage assistance; Immigration/customs clearance; Luxury limousine transportation; Help desk; Hotel bookings.

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 27/33 >

BUSINESS AVIATION INFRASTRUCTURE IN RIX

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 28/33 >

WINTER HOUSE TM CONCEPT Riga Hangars

Billund Hangar

Tallinn Hangar

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 29/33 >

BEYOND DAY-TO-DAY OPERATIONS: OTHER PROJECTS Accumulated experience and operational redundancy is applied to a variety of Projects (both: in Latvia and beyond):  BA Consulting, Kazakhstan, 2007;  BA Consulting, Ukraine, 2008;  Hangar

   



and BA Terminal, Riga, 2009. Implemented in cooperation with Triangel Ltd.; Lufthansa Bombardier Aviation Services/MRO in Riga, Implemented, 2010; BA Consulting, Ras al-Khaimah, 2010; Consulting: BA Development, Belarus, 2010; Cyprus BA Terminal, 2011, Start-up/Design consulting; Others.

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 30/33 >

CONCLUSION ● TO CLOSELY MONITOR THE BA MARKET/CUSTOMERS DEMANDS AND TRENDS.

BALANCED DEVELOPMENT

● TO PROPERLY (AND IN DUE TIME) ADJUST THE SCOPE AND VOLUME OF SERVICES RENDERED. ● TO FURTHER DEVELOP THE FCG GROUP OF COMPANIES, IMPLEMENTING ADVANCED BA TECHNOLOGIES IN LINE WITH INTERNATIONAL STANDARDS OF BA OPERATIONS AND SAFETY. BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 31/33 >

MAJOR FOCUS

QUALITY!

QUALITY! QUALITY! BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 32/33 >

THANK YOU FOR THE ATTENTION! Dr. Leonid GORODNITSKI ph: + 371 67 668 667 fax: + 371 67 207 400 [email protected] http://www.fcg.aero

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 33/33 >

MAJOR INFORMATION SOURCES ● „More to the Point: Business Aviation in Europe‖, Eurocontrol Study Report, 2008 ● „The economic impact of business aviation in Europe‖, Study Report, EBAA and PricewaterhouseCoopers LLP, 2009. ● ―European Business Aviation Association Activity Report‖, EBAA, 2010 ● „Traffic Tracker Europe‖, EBAA, Eurocontro, 2011-2012 ● „Business Aviation in Europe in 2010‖, STATFOR-Eurocontrol Briefing, 2011 ● „Business Aviation in Europe in 2011‖, STATFOR-Eurocontrol Briefing, 2012 ● „2012 A Pivotal Year for European Business Aviation‖, Press Release, EBAA, March 2012 ● „Business Aviation Footprint in Europe‖, EBAA, May 2012 ● „EBAA – Key issues‖, EBAA, May 2012 ● „Europe's Business Jet Market Continues To Decline‖, Article, Aviation Week, May 2012 BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 34/33 >

Low density States* Cyprus Slovenia Ireland Santa Maria FIR Bosnia-Herzegovina Malta Azerbaijan Moldova FYROM Belarus Albania Georgia Armenia

2.12% 0.39% 0.39% 0.31% 0.22% 0.17% 0.13% 0.10% 0.08% 0.08% 0.07% 0.07% 0.06% 0.04%

11.7 11.7 9.2 6.5 5 4 2.9 2.4 2.3 2.2 2.1 1.7 1.1

Small Fleet States

2.68%

Bulgaria

19

7

26

0.66%

Slovenia

14

3

17

0.43%

Slovakia

10

5

15

0.38%

Croatia

7

5

12

0.30%

Romania

9

2

11

0.28%

Hungary

5

2

7

0.18%

Malta

7

0

7

0.18%

Cyprus

3

2

5

0.13%

Monaco FYROM

4

0

4

0.10%

2

0

2

0.05%

BALTIC BUSINESS AVIATION FORUM

October 25, 2012 Riga, Latvia

< 35/33 >