Market Outlook Kevin Bruce Regional Director of Marketing Boeing Commercial Airplanes November 2002

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1 Market Outlook Kevin Bruce Regional Director of Marketing Boeing Commercial Airplanes November 2002

2 Agenda! Current Situation! Market Evolution! 2002 Current Market Outlook

3 The Underlying Dynamics of Our Industry

4 Air Travel Has Become Disconnected from Economic Growth Percent change in GDP Terrorism threat during Gulf War affected worldwide traffic World RPKs Asian economic slump affected primarily Asian airline traffic Percent change in RPKs 15 Terrorism in U.S. has affected worldwide traffic World GDP

5 2002 World Outlook Euro Area 0.8%" United States 2.4%" Japan Other Asia* South America* 4.5% -1.4% -0.7%" G Y R Satisfactory Cautionary Major Concern Britain 1.6% China* (mainland) 7.8% Canada 3.3% Russia* 4.0% Australia India* 3.8%" 4.8% World Growth 1.5% % Mexico* Eastern Europe* 1.5% 1.9% * All Markets based on The Economist consensus forecasts. Major markets updated monthly; emerging markets quarterly. $0 $2,000 $4,000 $6,000 $8,000 GDP, Billions U.S. Dollars

6 World Air Traffic Recovering Slowly Major World Markets, Revenue Passenger Miles Latest 12-month Average = -10.8% Long-term Forecast = 4.9% Mo. % Change - History Mo. % Change - Forecast 12-Mo. Avg. - History 12-Mo. Avg. - Forecast Latest Estimate Monthly Percentage Change Over Prior Year 10 0 J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N Source: ROM Associates

7 U.S. Domestic Traffic Remains Weak Sept. shows growth over 2001; but still well below U.S. Domestic, Revenue Passenger Miles Latest 12-month Average = -12.7% Long-term Forecast = 3.5% Mo. % Change - History Mo. % Change - Forecast 12-Mo. Avg. - History 12-Mo. Avg. - Forecast Latest Estimate Monthly 10 Percentage Change 0 Over Prior Year -10 J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N Source: ROM Associates, ATA, and Airline Reports

8 European Traffic is Slow to Improve Major Airline International Revenue Passenger Miles Latest 12-month Average = -10.0% Long-term Forecast = 4.7% Mo. % Change - History Mo. % Change - Forecast 12-Mo.Avg. - History 12-Mo. Avg. - Forecast Latest Estimate 10 Monthly Percentage Change 0 Over Prior Year -10 J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N Source: ROM Associates, AEA, and Airline Reports

9 Asian Traffic is Improving Faster Than Expected Major Airline International Revenue Passenger Miles Latest 12-month Average = -4.8% Long-term Forecast = 6.2% Mo. % Change - History Mo. % Change - Forecast 12-Mo. Avg. - History 12-Mo. Avg. - Forecast Latest Estimate 10 Monthly Percentage Change 0 Over Prior Year -10 J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N Source: ROM Associates and AAPA

10 World Air Cargo Is Recovering 20% 15% 10% Latest 12-Month Moving Average = -7.0% Long-Term Forecast = 6.4% Mo. % Change - History 12-Mo. Avg. History 12-Mo. Avg. Forecast Mo. % Change - Forecast Monthly Percentage Change Over Prior Year 5% 0% 1998 January -5% 1999 January 2000 January 2001 January 2002M M J S N January -10% -15% -20% Sources: U.S. Department of Commerce, AAPA, AEA, ATA and the Boeing World Cargo Forecast.

11 About 4,000 Airplanes Are Closing In on Retirement Period I Period II Period III Active 100 Parked 100 Scrapped 2,000 Parked 580 Scrapped 120 Scrapped 1,200 Parked 1,300 Active 2,600 Active 11,600 1,400 Airplanes 5,900 Airplanes 12,300 Airplanes e.g. 707, DC-8 e.g. 727, /200, /200/300, DC-9, DC-10, A300 e.g. All in-production models plus MD-11, MD-80, 737 Classic Three flight crew Stage I noise Turbojets, early turbofans 4-engines High fuel burn Two/Three flight crew Stage II noise (later hushkits) Early turbofans Tri-jets, short-haul twins ~30% lower fuel burn Two flight crew Stage III noise and quieter High-efficiency turbofans Twinjets dominate ~70% lower fuel burn

12 Growth in Parked Fleet Has Stabilized Number of Parked Airplanes (Worldwide) Percent of Fleet 2500 Period I Period II 1,957 Airplanes (12% of Fleet) 25% 2000 Period III Withdrawn from Service 20% Percent of Fleet 1500 Parked at Year-End 15% % 500 5% 0 0% -500 Scrapped During Year Monthly Updates /11 12/31 1/14 2/12 3/14 4/12 5/14 6/13 7/11 8/13 9/ Western-built, commercial jet fleet. Source: Airclaims Ltd. (through September 13, 2002). -5%

13 Timeline for Industry Recovery Airplane Deliveries Airplane Orders (2004) 9/11 Airline Profits (late 2003) (late 2003/2004) Capacity Requirement Traffic Growth (early 2003) Parked Fleet Economic Growth

14 Passengers Drive Airline Strategies

15 Air Travel Growth Has Been Met By Increased Frequencies and Nonstops Index 1980 = 100 Air Travel Growth Total Frequencies Nonstop flights Average Airplane Size

16 Few Choices Prior to Liberalization

17 Liberalization Has Led to Market Fragmentation

18 777 Is Fragmenting the North Pacific As 767 Did the North Atlantic

19 2002 Current Market Outlook

20 Air Travel Growth Varies by Region Added traffic, No. America 2001 traffic growth Annual growth % 3.5% Asia-Pacific 6.2 Europe 4.7 No. Atlantic 4.3 Europe - Asia Transpacific Latin America No. Amer. - L. Amer. Europe - L. Amer. Africa - Europe % World Average Europe-Mid-East ,000 1,500 2,000 RPKs (billions)

Regional Market Evolution Shapes Fleet Requirements 2002-2021 2,500 2,000 1,500 ASKs (billions) 747 and larger Twin-aisle Single-aisle Smaller regional

21 Regional Market Evolution Shapes Fleet Requirements ,500 2,000 1,500 ASKs (billions) 747 and larger Twin-aisle Single-aisle Smaller regional jets 1, Asia-Europe Trans-Pacific North Atlantic Asia-Pacific Europe North America

22 Long-term Demand for New Airplanes Remains Strong 40,000 Units 32,495 30,000 20,000 15,271 10,000 17,224 growth airplanes 6,705 replacements 23, ,566 retained fleet 2021

23 Airlines Will Need Nearly 24,000 New Airplanes Smaller regional jets Single-aisle Twin-aisle 747 and larger 21% 4% 18% 12% 5% 41% 57% 42% Nearly 24,000 Airplanes 1.8 Trillion Delivery Dollars* * In year 2001 dollars

24 European Airlines Will Need Nearly 7,400 New Airplanes Smaller regional jets Single-aisle Twin-aisle 747 and larger 16% 3% 17% 9% 6% 64% 35% 50% 7,379 Airplanes Billion Delivery Dollars* * In year 2001 dollars

25 European Market! 25% of the world s traffic originates in Europe! Despite the current crisis, long term traffic trends are strong Europe RPK share (domiciled) Rest of the world

26 European Air Travel Growth Varies by Region Europe-Europe Europe-North America Europe-Africa Europe-Southeast Asia Europe-Northeast Asia Europe-South America Europe-Central America 2001 Traffic Growth in % 3.6% 4.7% 4.8% 5.8% 5.8% 4.2% Europe-Middle East Europe-China Europe-Southwest Asia 5.2% 6.0% 4.2% World Growth 4.9% RPKs, billions

27 Current Market Segmentation European Region Passengers! Network Carriers account for 78% of passengers! Leisure Carriers accounts for 13%! Low Fare Carriers account for 8-10% Leisure Carriers Low Fare Carriers Network Carriers

28 Low Fare Carriers Have Fastest Growth! Low Fare growing at 30%! Network Carriers have 5% growth! Leisure Carriers are growing slowly at 2% Low Fare Network Leisure 0% 10% 20% 30% 40% Passenger growth

29 European Outlook! Many independent Network Carriers! Fewer Network airlines! Most in strategic global alliances! A few niche carriers! Consolidated Tour Organizations! Leisure and Low Fare carriers share some markets! From no Low Fare Carriers! to a shakeout of the most successful of the Low Fare Carriers

30 A Safe & Efficient Global Air Transport System Airplanes, Services and Customer Solutions

31 Summary! Economic growth will return and traffic growth will rebound to long-term trend! Passengers demand for shorter trip times, nonstop flights and more frequency choices will drive airline strategies and airplane selection! Airline fleets will reflect passengers demands, and almost 24,000 new airplanes will be needed! Boeing is committed to helping our customers succeed

Current Market. Predicting the future is a risky business. Meet your new

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