Viewpoint. UK Aerospace is ready for take off Fuelling the engines for the journey ahead. > London > Manchester > Bangalore > São Paulo > Shanghai

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1 Fuelling the engines for the journey ahead > London > Manchester > Bangalore > São Paulo > Shanghai Inflexion Private Equity Partners LLP is authorised and regulated by the Financial Conduct Authority. Registered office: 9 Mandeville Place, London W1U 3AY. Registered in England and Wales No. OC316601

2 Contents 03 Great Britain: the UK s comparative advantage 04 A two-speed sector 06 The soaring middle classes: Orders take-off 07 On the runway: Commercial fleet projections 08 Fuel efficiency acquires wings 09 Flight path to innovation 10 Composites of the value chain 12 International destinations 14 Ticket to fly Our most recent aviation and advanced engineering experience: Charles Thompson Inflexion In the earliest days of the aerospace industry, Britain led the skies with innovation and excellence. Aircraft like Concorde and the Vulcan demonstrated our superior design and manufacturing capabilities, while their fearless pilots were revered as rockstars. Despite the rise of globalisation, that prestigious history has given Britain a powerful advantage in today s aerospace community. There is no doubt that Britain is punching well above its weight, as we have maintained a comparative advantage over low cost economies, which should only improve in the face of rising labour costs in places like China and Brazil. While it is tempting to believe that all manufacturing is cheaper in the BRIC economies, we are seeing first-hand experience that high quality manufacturing can often be cheaper in the UK. This is counterintuitive, but in reality wage inflation in emerging economies for the top professional bands, such as highly qualified engineers, is escalating much faster than the minimum wage or published labour rates. High-IP products can often be cost-effectively manufactured in Britain, with reduced lead times and less drain on the management team s resources. The aerospace sector is hugely important for the UK, contributing 11.4 billion to GDP, with the government highlighting the strong foundations for the UK aerospace sector to grow 11. Indeed Britain is the second largest aerospace exporter, after the US. We are delighted to be partnering with the team at Inflexion, who share our vision and enthusiasm in providing world leading services and who, with their global network and significant experience, can help us grow faster and further within this exciting industry. Rob Clarke CEO, CTC Aviation Group Our global reputation today is based on our leadership in areas such as wing design, engine manufacture and advanced electronic systems. If we are going to stabilise the economy from its current turbulence, we need to spread our wings and regain some of the confidence from our past, by focusing back on the engineering skills which drove our original economic prosperity. The necessary investment into production capacity, technology and training to service demand, as well as R&D spend, to continue to develop product portfolios and remain competitive, results in the need for capital. Since bank lending continues to be suppressed, alternative funding solutions must be sought by mid-tier companies looking to capitalise on international growth opportunities. Britain has the potential to rule the skies once again, but not without the leaders of tomorrow stepping into the pilot s seat. Viewpoints series researched and compiled with support from Angela Galbraith. 1 The Aerospace Industry, UK Parliamentary Paper, John Bardens and Chris Rhodes, November 2012

3 Great Britain: The UK s comparative advantage The UK will offer the global Aerospace Industry the world s most innovative and productive location, leading to sustainable growth for all its stakeholders. Gavin Campbell Chairman of the Aerospace Technology Steering Group, Director Design Engineering & Technology Development, Bombardier, 2011 Britain has a long and prestigious history of specialist niche engineering, especially in the aerospace sector. The Made in Britain stamp is synonymous with heritage and quality; it is this branding which gives the UK a key advantage within the safety conscious, indeed safety critical, international aerospace community. Aerospace is one of the few sectors where the UK still maintains a comparative advantage over the low cost economies and, as a result, is one of our largest export industries, with exports accounting for approx. 70% of the sector s total sales 2. The UK is world renowned for high-value aerospace technological advancement. According to ADS, the UK is the second largest aerospace exporter in the world, enjoying a 17% global market share, employing over 100,000 people and generating c. 25 billion per annum 3. The aerospace sector is therefore vital to the UK economy and our existing global reputation for quality is translating well in the new burgeoning aerospace markets. Total UK exports to China showed growth of 31% p.a. between 2009 and , a significant part of this driven by high tech engineered products. Revered names such as BAE Systems, Rolls Royce and Martin-Baker demonstrate that when it comes to high quality, complex engineering Britain is still great. UK vs. Emerging market competitive advantage by sector The UK holds a comparative advantage in Aerospace, whilst the emerging low cost economies hold a comparative disadvantage Source: Department for Business Innovation & Skills. Industrial Strategy: UK Sector Analysis, September 2012 Note: Comparative advantage shows sectors in which the UK can produce goods and services more efficiently 2 ADS Group 3 ADS Group 4 HMRC export data

4 A two speed sector The commercial aerospace sector is enjoying a boom time with record order books, increasing deliveries and unprecedented backlogs. This is in contrast to the defence sector, currently operating in the wake of military spending cuts and ever increasing margin pressures due to fiscal austerity measures. The more commercially focused aerospace companies such as Goodrich, Precision Castparts and Spirit Aerosystems reported double digit growth in revenues in , whereas more defence oriented companies, such as L-3 Communications and BAE Systems, reported revenue declines 6. Overall UK civil aerospace revenues grew by 5.1% in 2011, whereas defence aerospace showed zero growth 7. This compares to UK GDP growth of 0.9% 8. The defence sector is still important; however, as technological advancement is often driven by defence programmes subsequently adapted to civil applications, although the larger civil OEMs do have their own sophisticated in-house research capabilities. Defence still accounts for approximately half of the UK aerospace industry 9. Indeed it is not all doom and gloom for defence. Export markets remain strong, with growth of 5.2% 10, although wider security concerns may prohibit the full realisation of the potential addressable overseas market. Global military spending Source: SIPIRI as quoted in EADS Annual Review % USA 7% China 4% UK 4% France 4% Russia 3% Japan 3% Saudi Arabia 3% Germany 3% India 2% Italy 2% Brazil 22% Rest of world Worldwide fighter aircraft market forecast Source: Teal Group as quoted in EADS Annual Review PwC, Aerospace and Defence, 2011 year in review and 2012 forecast, July Defence News: Top 100 for UK Aerospace Industry Survey 2012, ADS 8 ONS 9 UK Aerospace Industry Survey 2012, ADS 10 UK Aerospace Industry Survey 2012, ADS

5 It is thought likely that the defence sector will see an increase in mergers and acquisitions as the industry looks to cut costs and boost growth in the face of defence budget cuts. There is also a clear focus on sub-sectors that have largely been ring-fenced from cuts, with more emphasis on cyber warfare and countermeasures. PwC notes a trend in buying specialist cyber security companies, as well as an increased interest in more innovative aerospace programmes such as unmanned systems 11, however this market remains predominantly US led. Defence companies may also try to expand into civil aerospace activities, due to the expected cutbacks in the US military, the largest defence customer. Under the sequestration mechanism the US defence budget reduction could be as much as $50 billion for 2013, but the more realistic scenario is that US military spend will decline by 2-3% annually between 2012 and Despite the downturn in the Defence sector, high margin niches such as security, communications, intelligence and protection of high value assets and personnel will continue to offer global growth opportunities to fleet of foot companies. Terry Timms Former Managing Director of the Defence Systems Division of Meggitt Plc The recently axed 28 billion merger between French and English Aerospace icons EADS and BAE Systems demonstrates the desire for aerospace companies to re-adjust the revenue mix between commercial and military. EADS, with its high profile Airbus arm, has approximately 80% of revenues driven from commercial activities 13, whereas BAE has a major exposure to US defence. Following the announcement of the failure to agree a transaction BAE shares fell 2% whereas EADS shares jumped 3% 14, highlighting the dividing fortunes of military and commercially focused players. The other smaller aerospace sectors such as private jets, helicopters and space have also exhibited mixed performances. The business jet market is correlated to the western economic environment and the industry has yet to fully recover from the recession, remaining 10% below its 2007 peak 15. However changes to business jet regulations in Asia should help the recovery of jet orders in the longer term, as the emerging markets move towards more private charter 16. Likewise the Chinese government has approved the use of low altitude airspace for civilian craft which could see an increase in helicopter sales into the market. The oil & gas and wind industries increased exploration of offshore sites should also support the market uptake 17. Moving further afield the UK space industry is enjoying average growth rates of 7.5% with space data and technologies identified as a key growth market. The European Space Agency s Ministerial Council recently set its budget for the next 5 years with Britain committing a total investment of 1.2 billion to help drive forward the UK s ambition to build a 30 billion space industry by The continued commercialisation of the space industry should also yield some lucrative contracts according to FAA, 18 of the 84 global space launches in 2011 were commercial 19. Global Top 100 aerospace companies growth by subsector Source: PwC, Aerospace Top 100, based on analysis of company accounts, 2012 Large Commercial Commercial OEMS Engines Regional Aircraft Business Jets Defence Aerospace -3% -3% 5% 7% 7% 10% 11 PwC, Aerospace Top 100 Special Report, Byron Callan of Capital Alpha Partners quoted in Aviation Week, January Estimate based on divisional reporting in Annual Financial Statements BBC News, 10 October PwC, Aerospace and Defence, 2011 year in review and 2012 forecast, July PwC, Aerospace and Defence, 2011 year in review and 2012 forecast, July EADS Annual Report, UK Space Agency, July FAA, Commercial Space Transportation: 2011 year in Review, January 2012

6 The soaring middle classes: Orders take-off Inflexion s investment in CTC has provided us with a substantial accelerator to our growth plans and over the coming year we aim to add significant resources to our training centres in order to take advantage of the almost unstoppable growth of the aviation market. Chris Clarke President, CTC Aviation Group The continued rise of the global middle classes and their increasing demands for air travel has resulted in a large aircraft order book, especially from the emerging markets. Globally the sector is forecasting strong growth in the near term as passenger numbers rise and the distance they travel broadens; air traffic volumes are forecast to grow from approx. 5 trillion revenue passenger kilometres (RPK) in 2011 to 14 trillion RPK by This translates to a requirement to more than double the world s aircraft fleet over the next 20 years. According to estimates made by Airbus and Boeing deliveries are expected to be somewhere in the region of 28,000 to 34, new large aircraft, with a total value between $4 and $4.5 trillion 22/23. To put these forecast volumes into context Airbus has only delivered 7, aircraft since it started over 20 years ago, so a significant increase in production capacity is necessary to meet the increasing global demand. In addition to the considerable volumes of large commercial aircraft, ADS estimates 24,000 business jets, 5,800 regional aircraft and 9,500 helicopters will be required globally and values the total potential market share of the UK at $352bn 25. Air traffic volumes forecast - world annual RPK (trillion) Source: Airbus and ICAO, Airbus Global Market Forecast 2012 The major manufacturers are sitting on several years worth of orders; therefore there is strong visibility on revenue creation over the medium term. Airbus currently estimates unfulfilled orders of 4,388 aircraft 26, and Boeing suggests it will take the company seven years to work off its production backlog of commercial jet orders - approximately 4046 units worth $308 billion in value 27. The two aircraft manufacturers have issued plans to increase their combined production by 40% 28 in an attempt to fulfil the orders before emerging competitors can service the volumes. Aerospace suppliers in countries with an existing competitive advantage and production capabilities, will be in prime position to service this burgeoning demand. The UK has a significant portion of the current global value chain for major aircraft, and is well placed to benefit from the forecasted growth momentum. The aftermarket services and the refurbishment and replacement of ageing fleets further enhance the opportunity for UK aerospace companies to really take-off. 20 Boeing Current Market Outlook, Boeing Current Market Outlook, Boeing Current Market Outlook, Airbus Global Market Forecast, Airbus statistics, ADS website, 2011 statistics 26 Airbus order book statistics, 30 June Boeing, 2012 Annual Investor Conference, May New Statesman, July 2012

7 On the runway: Commercial fleet demand projections There are huge opportunities in the civil aerospace sector as the supply chain seeks to increase production rates and develop new technologies for the next generation of aircraft. Access to finance is vital in achieving success. Jeff Taylor Director Aerospace Policy & Strategy ADS Group Both Boeing and Airbus have launched more fuel efficient narrow body aircraft, and forecast significant deliveries of single aisle planes over the next 20 years. PwC expect total aircraft production to grow at 10% CAGR through to 2016, and with 21% of suppliers surveyed demonstrating a capacity and/or financial risk, funding gaps could cause supply chain issues, impacting on deliverability and profitability 29. Consolidation is anticipated in the lower tier supplier pool to increase efficiency and deliver more integrated supply chains after continued pressure from OEMs 30. The availability of finance to fund acquisitions, increase production capacity and invest in new technology will prove crucial. Fleet mix 2011 to ,000 50,000 40,000 30,000 20,000 Single aisle 10,000 Twin aisle Regional jets Source: Boeing Market Outlook, ,011 New deliveries Retired fleet 2,031 Large 29 PwC, Aerospace and Defence, 2011 year in review and 2012 forecast, July EADS notes expectation in Annual Report, 2011

8 Fuel efficiency acquires wings The holy grail of aviation is fuel economy. Operator prices and margins are significantly tied to the fluctuations in oil prices, and the industry as a whole is under pressure to reduce pollutant emissions. As such OEMs continue to search for more fuel efficient engines and lighter weight shells and components to reduce both fuel costs and the carbon footprint of passengers. Airbus and Boeing have brought out new fuel efficient aircraft the A320neo and 737MAX. Airlines and leasing companies have begun placing large orders for these new models, in order to replace aging fuel consumptive fleets, to reduce their exposure to volatile oil prices. These energy efficient models accounted for more than 65% and 90% of total orders received in 2012 for Airbus and Boeing respectively 31. It is expected that two thirds of the existing fleet will be replaced with more eco-efficient aircraft over the next 20 years 32, reflecting the critical importance the airlines place on driving down fuel costs a significant expense in their operating models. The Airbus A320neo professes fuel savings of 15% 33, and the wider Aerospace industry claims to have delivered a 50% improvement in fuel efficiency in the last 30 years 34. However, the Sustainable Aviation Strategy and the stated goal of halving industry CO2 emissions by 2050 demonstrates that the UK government plans to keep this issue on the agenda. A holistic approach to fuel economy is thought to be required combining energy saving measures with lighter frames, therefore efficient engine technology and composite materials technology are likely to be a key growth areas. Ultimately innovation is the answer. The industry has achieved marginal improvements to fuel efficiency over the last 50 years. However the launch of the A320NEO and 737MAX, with improved efficiency of 15%, shows that fuel economy is firmly back on the aerospace agenda. Average fuel burn for new jet aircraft, Annual reductions Period Seat-km Ton-km 1960s 1970s 1980s 1990s 2000s 2.3% 0.6% 3.5% 0.7% 0.2% 3.6% -0.1% 2.5% 0.9% 0.3% Source: ICCT 31 Airbus Orders and Deliveries YTD 2012, December and Boeing Orders and Deliveries YTD 2012, December 32 Airbus, Market Forecast, EADS, Annual review Department for Business Innovation & Skills, Manufacturing in the UK: An economic analysis of the sector, December 2010

9 Flight path to innovation We have the potential to grab a greater share but aerospace is a global industry and there are many other countries hoping to have a slice of the pie. That is why the government is doing all it can to make the UK an attractive environment for aerospace ensuring that companies are more likely to invest in jobs and facilities here with us. Vince Cable Business Secretary July 2012 The fuel efficiency agenda and the required increases in production rates from demand drivers requires innovation in technology, an overhaul of traditionally clunky supply chains, as well as greater productivity in the manufacturing processes and assembly. Historically the defence sector s investment in research and technology has driven aviation innovation which is then adopted by civilian markets. However, the deep defence budget cuts, as a result of the 2010 Strategic Defence and Security Review, means that a valuable source of enabling technologies has been depleted and commercial manufacturers may need to self-fund more research projects. Ultimately the runway to innovation must be paved by engineers, but the UK has suffered a brain drain to financial services in the last few decades, causing a shortage of home grown engineering talent. However, the number of students taking specialised aerospace engineering degrees has doubled since , as the government reprioritises attracting talent into the sector, although more still needs to be done to maintain the UK s specialist engineering skills set. The Aerospace Growth Partnership (AGP) has been established as a joint government industry process aimed at creating a strategic roadmap for the future of the UK civil aerospace industry for the next 20 years. In July, it announced 120 million of government investment in aerospace research, part of a total 200 million investment in aerospace innovation since 2011, including a UK Centre for Aerodynamics focused on Research & Technology projects 36. It is estimated that the total private and government investment in aerospace research and technology is approx. 1.8 billion p.a 37. The launch of the Government supported initiatives in an age of austerity reflects the importance of innovation in maintaining UK aviation leadership to continue to drive our economic engine. Since parliament is focused on investment to capitalise on the growth, so too should ambitious management teams in the sector; innovation is vital to competing on the international stage. 35 ADS, Industry Survey Department for Business, Innovation and Skills, July Parliament.uk, Full speed ahead: maintaining UK excellence in motorsport and aerospace - Business, Innovation and Skills Committee, March 2010 R&T spending for 2008

10 Composites of the value chain The UK aerospace supply chain needs to have the ability to influence product design and functionality of future aircraft and engines. This will require early engagement with R&D networks during design processes. Aerospace Growth Partnership, Reach for the Skies: A Strategic Vision for the UK Aerospace Industry 2012 Aviation as a whole is not known for being a high margin industry. In fact, many of the major airlines barely break even 38. The aerospace manufacturing industry on the other hand operates with comparatively bullish average operating margins of 8% 39, with certain key niches significantly outperforming. Estimated segment profit margin Source: PwC, Sectoral Structural Analysis, July 2012 Aerostructure Subsystems Aerostructure Systems# Propulsion Comp & Subsystems Propulsion Integration Electronic Subsystems Electronic Systems Integration Aerostructure Components Equipment Systems Electronic Assemblies Integrated Sys/Platform Primes 5.7% 5.5% 8.3% 18.8% 16.0% 14.5% 14.5% 14.0% 13.6% 12.8% These high margin niches typically have complex engineering requirements, with a significant amount of IP or process know-how integrated into their operations. IP and differentiation drives through to margins, locking value in, especially if it includes data rich feedback on processes and performance. High margin niches are also most likely to be found in emerging technologies, or areas that are aligned with the key macro trends of today. Fuel efficiency is all-important in the face of rising oil prices and technologies that help reduce consumption and materials that can reduce the weight of the aircraft will continue to command a premium, therefore engine efficiency and composites are key areas of focus. 38 CAPA, Centre for Aviation, Airline profitability prospects improve but profit margins still anaemic, October Deloitte, 2011 Global Aerospace & Defence Industry performance wrap-up, July 2012

11 Orders have started to come in for the A350 with a weight efficient airframe made from over 70% advanced materials. The overall aircraft consists of 53% composite materials, resulting in reduced fuel consumption. The components made from composites include rudders, elevators, maintenance doors with Carbon Fibre Reinforced Plastic (CFRP) even being proven for use in the fuselage 40. The industry s commitment to the future of composites is demonstrated through the Airbus and Harbin Hafei partnership for the development of a Composite Manufacturing Centre, to secure future supply of lightweight components 41. Given the composite revolution is starting to gain apace, investment in autoclaves and other composite related equipment and tooling is likely to follow. However, composites is not the only niche forecast to prosper as the AGP has assessed several product groups that are considered likely to yield great opportunities for UK aerospace manufacturers, as they couple high growth and high profitability sectors with UK skills and experience. Upper tier aerospace companies need to have confidence in the quality of UK suppliers if the UK is to feature strongly in future OEM sourcing decisions. Collaboration and alignment between suppliers and top tier companies is also needed, including greater risksharing. A mix of coordination, collaboration, clustering and/or consolidation is required across the UK supply chain. Aerospace Growth Partnership, Reach for the Skies: A Strategic Vision for the UK Aerospace Industry, 2012 AGP growth subsector focus Advanced wing design, integration and manufacture Helicopters Aircraft and engine control systems Advanced aero-engines Landing gear systems Electrical power systems Wheels and brakes Advanced propeller systems Advanced rotor blade design Avionics Aviation data management Advanced power trains Source: Aerospace Growth Partnership, Reach for the Skies: A Strategic Vision for the UK Aerospace Industry, 2012 In addition the after sales market including maintenance repair and overhaul as well as data management are also deemed to be sectors that the UK could compete strongly. 40 Airbus website 41 Airbus website

12 International destinations In the year when the message of export or die was more prominent than ever before, ADS members increased overall export sales levels by 9.4% over the previous year. The Space sector led the way with a 13% increase whilst export sales of airframes and systems, engines and equipment rose by 10%. ADS Group, UK Aerospace Survey, 2012 The key growth markets in aerospace are the Middle East and the emerging economies of China, Brazil and India. Aircraft manufacturers expect 38% of new commercial aeroplanes to be sold to the Asia-Pacific market alone 42. As passenger volumes continue to rise these nations demand more aircraft from western manufacturers such as Boeing and Airbus, but the duopoly they have enjoyed is starting to be disrupted by indigenous emerging market manufacturers such as Brazil s Embraer and China s Comac. Globalisation of aerospace manufacturing is a continuing trend, yet despite increasing foreign direct investment into China, the more advanced R&D investments have not been made. R&D investment has been more focused towards India and traditional advanced aerospace economies 43, due to intellectual property protection concerns and also the access to the enhanced engineering skills set required for innovation and technological advancements. The UK Department for Trade and Industry has identified the importance of the UK aerospace industry building trade relationships in the high growth developing regions to secure work on their home grown aerospace programmes. UKTI Aerospace Sector teams frequently visit Brazil to maintain regular contact with Embraer and continue to facilitate the UK-China Aviation Working Group (AWG) and engage with COMAC, XAC, Avicopter and AVIC to try to forge partnering opportunities for UK companies with these OEMs 44. Emerging markets driving traffic volumes ASKs year-over-year monthly evolution (%) Source: Airbus Global Market Forecast, Livingstone Aerospace Summer/Autumn PwC, Aerospace and Defence, 2011 year in review and 2012 forecast, July UKTI website

13 Over the next 10 years, the large high growth markets such as China, India and Brazil will drive global civil aerospace growth, although existing/ traditional aerospace markets will remain important for UK industry. UK Aerospace International Strategy 2012 Forecast indicators Annual traffic growth Source: Boeing Global Market Forecast, 2012 Middle East - AsiaPac Within China Within AsiaPac incl. China Within AsiaPac excl. China Within Latin America Europe - AsiaPac North America - Latin America Transpacific Within CIS Africa - Europe Europe - Latin America North Atlantic Within Europe Within North America 2.2% 7.2% 6.9% 6.7% 6.5% 6.5% 5.7% 5.1% 4.8% 4.8% 4.8% 4.6% 3.8% 3.5% Inflexion has offices in India, China and Brazil which are exclusively focused on helping our UK portfolio companies with market entry, market development and procurement in these high growth economies. Our international team's comments on the aerospace market in their home geographies highlight the increasing importance for UK advanced manufacturing companies to think globally. Rohit Hegde Director Inflexion India The Indian aerospace industry is one of the fastest growing markets in the world due to escalating demand of aircraft from HNWI s, corporates and airlines. In 2011 domestic air passengers grew by 18.8% from Indian defence has a budget of $35 billion to be spent on military aviation in the coming years. With the new reform of foreign direct investment in the aviation sector, the Indian aviation sector is set to write a new growth story for all the aviation players. Xuan Ye Director Inflexion China With 259 million passengers in 2011 China was the second largest domestic air passenger market behind the US, but whilst the US experienced volume growth of 1.3% last year, China s increase was a staggering 11% growth. China has plans to build 82 new airports and receive around 800 new commercial aircraft deliveries in the next three years, in order to satisfy consumer growth demands. The local aeronautics manufacturing base will significantly benefit from this, as well as the national project to commence production of China s own narrow-body aircraft, the COMAC C919. However the sheer volumes also present compelling opportunities for overseas companies to service a proportion of this demand. Frédéric Junck Director Inflexion Brazil Brazil is home to EMBRAER, the world's third largest aircraft manufacturer, which plays an important role in developing the local aircraft component and aerospace R&D industries. Brazil s commercial air passenger volumes have doubled in the last decade and it is expected to become the world's fourth largest market, transporting 90 million passengers by Infraero (Brazil s National Airport Administrator) announced an investment of $3.5 billion in over 30 airport reforms and expansions ahead of Brazil hosting the 2014 Fifa World Cup, and the country experienced fleet growth of 6.8% in 2011, adding 13,094 aircraft, turboprops, jets and helicopters. In fact Sao Paulo s helicopter fleet is the 2nd largest in the world, after New York. All of these dynamics make Brazil a compelling market for tier 1 and 2 aerospace suppliers.

14 Ticket to fly With the huge order book at the OEMs for new aircraft it is anticipated that over 400,000 new pilots will be required over the next 20 years. With Inflexion s help we will be positioning ourselves right at the top the training provider market, with state of the art simulation and flight training aircraft. Chris Clarke President CTC Aviation Group Understanding why the aerospace industry is attractive, unlike the technology, is not rocket science. The market fundamentals cannot be ignored and those companies that adapt and innovate to accommodate this growth will thrive. Market mergers will be a key feature over the next few years, illustrated by the recent failed proposal of a 28 billion tie-up between EADS and BAE Systems and talk that Boeing and Airbus are encouraging their larger suppliers to buy smaller firms, to increase efficiency in the supply chain. If export or die was the mantra for 2011 then perhaps buy or be bought could supplement it in The market will consolidate and capital will be required to increase production capacity to service demand. Ultimately all the changes that are expected in the market present major opportunities to those willing to embrace them. British Aerospace, the brand name, is a thing of the past but British Aerospace, the sector, has a bright future. The UK is a leader in aerospace; Inflexion backs UK leaders. To find out more about how Inflexion can help accelerate the growth plans for your business, please contact Charles Thompson, Edward Fraser or Angela Galbraith. Charles Thompson charles.thompson@inflexion.com Edward Fraser edward.fraser@inflexion.com Angela Galbraith angela.galbraith@inflexion.com

15 About Inflexion Investing in high quality, growing businesses, operating in niche sectors across the UK Targeting deals with an enterprise value between 10 million and 100 million Working in partnership with management teams to optimise portfolio performance Inflexion is a leading mid-market investor, backing high growth, established businesses, which occupy niche positions of leadership in their market or have the potential to do so. Active across all industry sectors, we have a diverse portfolio of investee companies and experience from flight training provider, CTC, to world leading manufacturer of subsea vehicles, SMD. At Inflexion, entrepreneurial spirit is at the heart of our approach to investing. Inflexion itself was founded in 1999 by two entrepreneurs who still lead the business today. We back high growth companies and are experienced in helping them address the challenges associated with rapid development. We have proven experience supporting management teams in areas such as: investing in new products and services; aiding international expansion; deepening business infrastructure; succession planning; and providing access to industry contacts and networks, to aid further business development. Inflexion has offices in China, India and Brazil to support portfolio companies in expanding their international footprint. We seek UK based niche market leaders with an international potential. We are an active investor and are ambitious for the companies we invest in, seeking to double their profits under our ownership. > London > Manchester > Bangalore > São Paulo > Shanghai Inflexion Private Equity Partners LLP is authorised and regulated by the Financial Conduct Authority. Registered office: 9 Mandeville Place, London W1U 3AY. Registered in England and Wales No. OC316601