2 What Services for What Airframes

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1 The In-Flight Connectivity Market: A Boom for the Satellite Industry? ASSESSING THE OPPORTUNITY FOR SATELLITE CONNECTIVITY ON AIRPLANES October 9, 2013 Christopher Baugh, President Claude Rousseau, Senior Analyst

2 Webinar Agenda Presenters Claude Rousseau Senior Analyst NSR France 1 State of the Market 2 What Services for What Airframes crousseau@nsr.com Christopher Baugh President NSR London cbaugh@nsr.com 3 From the Ground Up 4 HTS: A Trump Card? 5 The Bottom Line 2

3 About NSR NSR is a Global Leader in Satellite Market Research and Consulting Founded in 2000, NSR specializes in analysis of growth opportunities across the satellite industry Extensive Client Research, Consulting and Advisory Services Multi-Client Reports on Various Satellite Topics NSR s expert consultants are located globally and possess over 130 years of combined industry experience. Holistic approach to research enables NSR to anticipate trends with a higher degree of confidence and precision than the competition and stay ahead of the curve. 3

4 NSR s Thought Leadership NSR has been ahead of the curve since it s inception NSR Leadership Position TODAY NSR coined the acronym HTS Excel sheets with every report PowerPoint-based reports FREE Analyst time with every report Methodology discussion Satellite-based Mobility Coverage First-to-market coverage- wireless backhaul, energy markets, etc. Regular Webinars And MANY more NSR Leadership Position TOMORROW New Report Elements New and Enhanced Coverage Ex: Satellite Man/Launching, EO, Wireless Backhaul, etc. New Partnerships And MANY more NSR aims to stay at the forefront of future market coverage, innovative offerings and actionable analyses for our clients. 4

5 The NSR Footprint Global in Reach, Local in Knowledge NSR features the most global presence of any satellite consulting/research company. With on the ground regional experience in established and emerging markets, NSR s multi-cultural and multi-lingual provides industry-leading telecom market research and consulting delivering unique, actionable intelligence. 5

6 NSR Complete Coverage of the Satellite Market Energy Markets FSS MSS VSAT and Broadband Government & Military Satcom M2M and SCADA Financial Due Diligence- ALL SECTORS Earth Observation DTH and Video Sat. Manufacturing & Launching Wireless Backhaul 6

7 About NSR s Aeronautical Satcom Markets Report Report Elements Enhanced Coverage Includes Addressable markets by airframe type Market share of service providers Competitive landscape Voice and data communications IFEC and Safety of flight Air-to-Ground Forecast NSR reports deliver clarity - Critical market insight giving Market Leaders the edge on competition.. A Complete PowerPoint report document containing all quantitative and qualitative analysis A Market Summary document containing an overview of the report findings and recommendations. An Excel file containing all data and graphs so clients can easily use it as a basis for their internal market projections Four (4) hours of consulting time with the NSR analyst who authored the report to review report findings and interpret market forecasts 7

8 State of the Market What s Hot?

9 State of the Market Commercial Aircraft Demand by Airframe Sales More than 1,100 aircraft delivered by main manufacturers in 2012 Boeing: 601; Airbus: 588 Boeing booked 1,203 orders for commercial aircraft in 2012, Airbus had 914 orders Highest since 2007 for Boeing! Airline passenger traffic worldwide increased by 5.3% in 2012 Projections Boeing and Airbus forecast to 2032 Over 7,900 new wide-body units An additional 22,450 single-aisle units Demand for aircraft led by Asia Europe and North America follow At 2012 production rate, expect about 11,000 new wide-body and narrow-body aircraft in ten years 9

10 State of the Market Business Jet Demand Sales Roughly 1,500 business jet (incl. turboprops) deliveries in 2012 Slower market that is expected to rebound Main regions where rebound will happen are Latin America and Asia North America remains the key region with higher inventories but will see slow addition rates as long as economy is uncertain Addressable Market Gains due to business jet sales rebound but also smaller, lower cost equipment and growth in long-range super business jets (Airbus Corporate Jet, Boeing Business Jet) that expand potential market Satellite service providers have OEM deals with Bombardier, Cessna, Hawker, Boeing, Dassault and Gulfstream 10

11 State of the Market Service Provider Contracts 11

12 State of the Market Market Share by Revenues Who is Leading? GoGo has the largest installed base across narrow-body and business jets via ATG and L-band services on flights that carried over 150 million passengers in the past year Row44 s Ku-band installed base has reached over 400 in North America and Europe Trends in OEM will help take-up of satcom units on commercial airlines Deals such as the Thales/GoGo partnership help address equipment and service right off production line Portfolio of solutions : ATG, Ku-band and HTS Ka-band; i.e. one-stop shop Leverage historical relationship with aircraft manufacturers (Airbus) 12

13 State of the Market Market Share by In-Service Units Who is Leading? Row44 has the largest share of the Ku-band connectivity market with 48% market share Row44 through its deals with SouthWest Airlines and Norwegian has installed to date over 500 Ku-band systems Close behind, ViaSat has 39% market share followed by Panasonic ViaSat has installed several hundred systems on government aircraft and business jets Very few wide-body commercial aircraft have units generating revenues, which mostly use Panasonic s system 13

14 State of the Market Market Share by Aircraft Contracts ATG Leads Through IFEC GoGo has largest contracted base of aircraft, with over 1,800 aircraft signed up for ATG and a sizeable base of business aviation customers on Iridium s L-band service GoGo has a 53% market share among aeronautical service providers by number of aircraft contracted (outfitted or to be outfitted) The largest satcom service provider based on signed contracts is Panasonic with a backlog of over 800 aircraft It has the 2 nd largest market share with 15% followed by ViaSat, which has signed up Continental and JetBlue 14

15 State of the Market Aeronautical Satcom Markets In-Service Units Connectivity on airplanes today is mostly through L-band systems However, for entertainment and Wi-Fi services, the major solution taken up is Air-to-Ground offered by GoGo The general aviation and rotor wing market has the most airplanes with some form of satellite link Revenues Revenues more important in Ku-band IFEC revenues generated mostly from Ku-band Business jets are the sweet spot of broadband connectivity today Revenues going forward to be driven by regional commercial air traffic ATG ARPU still very low (less than $1/month per user) Roll-out expected outside North America will help counter constrained bandwidth Revenues from GA & RW currently outshine other airframes. Continued push to install units on other airframes will likely change this lead. 15

16 What Services for What Airframes An Airframe-by-Airframe Analysis

17 What Services for What Airframes Aeronautical Satcom Addressable Market Bottom Line: GA & RW is largest addressable market and wide-body smallest Total airframes is close to 100,000 today With more than 60% of all airframes, lower cost general aviation and rotor wing aircraft are and will remain the most important addressable aeronautical market 17

18 What Services for What Airframes What Connectivity Service for What Airframe? Across all airframes today, L-band rules 18

19 What Services for What Airframes Demand For Connectivity by Airframe In-Service Units Majority of aero satcom units for general aviation and rotor wing market Growth more important for wide-body and narrow-body due to connectivity needs for passenger and crew Equipment cost comes down, but certification and installation remain high thus could delay installations Cost of installation can reach up to 100% of equipment cost for certain airframes Type and capabilities of system dictate prices; e.g.. System for wide-body Internet and live television can reach up to $400K, so equipment prices are usually higher for larger aircraft flying longer routes offering more services Narrow-Body: +12,100 Wide-Body : +7,700 19

20 What Services for What Airframes Penetration Rate VSAT Connectivity In-Service Units Connectivity growth will inch up faster in wide-body markets Starting from a lower base but longer routes in short-term and trends to regional ones will help penetration rate Narrow-body addressable market fairly large, and penetration rate will be lower with shorter routes than wide-body aircraft Bottom Line VSAT penetration rate to reach 50% in wide-body market over the next ten years while about a quarter of narrow-body addressable market will have VSAT by

21 What Services for What Airframes Penetration Rate L-Band Connectivity In-Service Units L-Band is widely available on all types of airframes and will remain so for the forecast period (33% overall) Drivers are cockpit and safety of flight communications with inflight entertainment replacing older voice units Bottom Line All airframes benefit from a strong installed base of L-band units. Over the next ten years, connectivity solutions for GSM and voice will add more units, but safety of flight will remain the key driver for the uptake of L-band solutions 21

22 From the Ground Up Air-to-Ground, MSS, FSS and High Throughput Satellite Connectivity

23 From the Ground Up Connectivity Services Market Share What Flavor? ATG : over 2,250 in 2012 over North America Regional play - contrary to satellite, which has multi-regional or global coverage Popular due to lower equipment cost, but high passenger usage does not lead to higher revenues per plane due to limited bandwidth Price will likely come down with satellite competition coupled with upgrades to EV-DO Rev.B and dual-band modems Retail revenues higher in Ku-band due to higher ARPU and good uptake in business jets and government aircraft 23

24 From the Ground Up Revenues Where Revenues Come From? Aero satcom revenues most important in general aviation and rotor wing due to sheer number of units installed Highest growth will occur in wide-body and narrow-body airframe market with IFEC as a driver Overall revenue growth will take place in narrow-body (+12%) and wide-body (+6%) Increase in passengers using personal electronic devices helps drive revenues Narrow-Body: $767 million Wide-Body : +$532 million 24

25 From the Ground Up Wide-Body Connectivity Services What Flavor? 13,000 in-service units on wide-bodies by the end of ,100 more across all bands of service L-Band units will show strong growth (+3,700), but Ku-band with over 2,200 units and HTS (+1,650) will drive large growth To meet higher connectivity demand, shift to occur from L- and Ku-band to HTS 25

26 From the Ground Up Wide-Body Connectivity Services Revenues The biggest portion of wide-body revenues comes from L-Band services From $300 M in 2013 to close to $400 M in 2022 A major driver of revenues will come from Ku-band services, which NSR expects will reach approx. 2,500 units, bringing in $280 million in retail revenues by the end of 2022 The biggest growth for wide-body in-flight connectivity is expected to come from HTS with over $205 M by the end of 2022, which drives higher ARPU Meets demand for high bandwidth, and future networks expected to offer near global coverage across both Ku- and Ka-band frequencies Ku-Band: +$230 million HTS: +$200 million L-Band: +$100 million 26

27 From the Ground Up Narrow-Body Connectivity Services What Flavor? Satcom units on narrow-body aircraft will grow to 21,000 at the end of 2022 Add 12,000 units across all bands Most units on L-band systems with close to 5,300, but Ku-band units have strong take-up rates with 4,600 units HTS will grow to 2,200 in a shorter timeframe 27

28 From the Ground Up Narrow-Body Connectivity Services Revenues Narrow-body revenues comes from Ku-Band services with close to $520 M in 2022 Ku-Band units showing very good take-up in the short- to medium term with antenna production rates increasing at 50 units/month in A major driver of revenues will be HTS services, which are expected to grow to 2,200 units, generating $254 million in retail revenues by the end of 2022 Market differentiation and medium-haul traffic are key elements of the success of both Ku-band and HTS in the NB market Growth and success of HTS in this market will show the way for others Ku-Band: +$450 million HTS: +$254 million L-Band: +$65 million 28

29 From the Ground Up Business Jets Connectivity Services What Flavor? Business jets are a solid satcom market 10,300 units in-service in 2022, roughly 4,400 new units - mostly L-band units Ku-band units form a small but lucrative segment expected to grow by 550 units High-bandwidth connectivity demand will see about 760 HTS units brought into action over the next ten years 29

30 From the Ground Up Business Jets Connectivity Services Revenues Business Jet satcom revenues will be generated from L-Band units (for the most part) with about $310 M in 2022 Many OEM deals signed, and STC for new products coming quickly Office-in-the-sky concept requires reliable links for GSM, texting and Internet usage and sometimes videoconferencing Strong per unit bandwidth needs pushes Ku-Band units to over 750 in-service driven mostly by customers in developing economies in the Middle-East, Latin America and Asia The business jet HTS market is expected to start in 2015 once the market for Narrow-body is proven (expect a transition of ViaSat and Inmarsat clients to HTS) Ku-Band: +$27 millions HTS: +$65 millions L-Band: +$77 millions 30

31 From the Ground Up General Aviation and Rotor Wing Connectivity Services What Flavor? GA & RW satcom market reach 35,000 in-service units with vast majority using L-band systems for commercial aircraft (which make-up close to 90% of the market) Ideal market for flight following, weather alerts and location-based services Factory-installed and retrofit with Inmarsat and Iridium products with some broadband connectivity Very small Ku-band segment expected to grow by about 400 units mainly in government and military markets for ISR and rotor wings over the medium-term Competition will grow from L-band solutions, in particular Inmarsat SBB 200 and Iridium OpenPort Aero around

32 HTS: A Trump Card? The Impact of Higher Capacity Satellites On Aeronautical Markets

33 HTS: A Trump Card? Capacity Shifting Gears Order of Magnitude from MSS to FSS to HTS in Aeronautical Market L-Band ~ 500 Kbps Ku-Band 500 Kbps up to 10 Mbps HTS Up to 50 Mbps 33

34 HTS: A Trump Card? HTS By Application Global HTS Bandwidth Demand by Application Global HTS Bandwidth Revenues by Application 100% 100% % Share 80% 60% 40% 20% Contribution & OUTV Distribution DTH Gov/Mil Commercial Mobility Enterprise Data Broadband Access % Share 80% 60% 40% 20% Contribution & OUTV Distribution DTH Gov/Mil Commercial Mobility Enterprise Data Broadband Access 0% What s the Latest? Source : NSR 0% Source : NSR In pure usage terms, consumer-class broadband access will dominate HTS bandwidth demand in future a high volumes business. But revenues from HTS tell a different story Follow the revenues to see drivers behind different HTS business plans 34

35 HTS: A Trump Card? HTS Coverage Source: ViaSat Source: Eutelsat Source: TBS / /15 Source: O3B Networks Source: Intelsat 5 out of 6 HTS mobility value proposition offer regional coverage Source: Inmarsat Key areas of demand: airline corridors, cruise ships and shipping lanes, offshore platforms, government and military 35

36 HTS: A Trump Card? HTS By Airframe HTS Bandwidth Demand Narrow-Body: 11 Gbps HTS market starting in 2013 with ViaSat on JetBlue B737s and B757s (200 aircraft to be outfitted) will provide first test of HTS aeronautical market and will show the way Wide-Body: 10 Gbps of capacity Inmarsat push to transition to GX Business Jets: 6 Gbps HTS Most Promising Commercial Aero Markets Narrow-body #1 Wide-Body #2 Business Jets #3 36

37 HTS: A Trump Card? MSS vs. FSS vs. HTS HTS Not Really a Trump Card Across all three airframes types expected to require higher bandwidth capacity, NSR forecasts that not more than 23% of total retail revenues will come from HTS However, it is clear that MSS L-Band and FSS Ku-Band services will see some current customers leave their service to an HTS value-proposition 37

38 The Bottom Line Aeronautical Market: A Boom for Satellite?

39 The Aeronautical Satcom Markets: Key Findings The Bottom Line Key Findings: The aeronautical satcom market is expected to grow to almost 80,000 in-service units in the next ten years, generating $3.4 B by the end of 2022 ATG leads the in-flight entertainment and connectivity (IFEC) market today ATG IFEC revenue share will drop to less than 14% of IFEC markets (from 44% today) L-band service remain key to future growth, driven by smaller airplanes With more than 60% of all airframes, lower cost general aviation and rotor wing aircraft are and will remain the most important addressable aeronautical market with simple communications still front and center 39

40 The Aeronautical Satcom Markets: Key Findings The Bottom Line Key Findings: Ku-band and HTS revenues will grow faster, boosted by passengers and crew Wide-body and narrow-body grows faster due to connectivity needs for passenger and crew Revenues from Ku-band units and HTS will reach almost 40% of the total market by end of 2022 (up from 10% in 2012), with new aircraft and OEM deals helping new system implementation HTS not a trump card as NSR forecasts no more than 23% of total retail revenues will come from HTS in the next ten years. Bottom Line: Maybe not a boom, but good times are ahead for the industry with a mix of solutions that increase the pie size. Narrow-body is low-hanging fruit regionally, and wide-body globally. IFEC revenues will grow the most, reaching 34% among all service types 40

41 Questions? Claude Rousseau Senior Analyst, NSR France U.S. Office Northern Sky Research, LLC (NSR) 1000 N. West St., Suite 1200 Wilmington, DE United States Phone: Europe Office Northern Sky Research, Ltd (NSR) 19 Bolsover Street London W1W 5NA United Kingdom Phone: 44 (0)

42 Wrap-Up Key Findings: PowerPoint Slides and Session Recording Available on NSR Website within 24 Hours NSR Homepage > News & Resources > Webinar & Presentation Archive Contacts for Further Questions Christopher Baugh, Claude Rousseau, Thank you for attending! Visit for report executive summary and more info 42

43 NSR Global in Reach. Local in Knowledge. Bottom Line Analysis. U.S. Office Northern Sky Research, LLC (NSR) 1000 N. West St., Suite 1200 Wilmington, DE Phone: Fax: Europe Office Northern Sky Research, Ltd (NSR) 19 Bolsover Street London W1W 5NA United Kingdom Phone: 44 (0)