Avia-Tek (www.avia-tek.com) Partner and Co-Founder, Todd Siena, explains at the Beverly Hills SpeedNews Conference the group strategy of China's AVIC. The presentation also includes an update and outlook of the C919, CJ1000A, general aviation, and a Q&A session.

1. A Look Into China's Aviation Market:
Outlook and Forecasts for Civil Aircraft, Engines, and Opportunities
Aerospace Consulting – Emerging Markets
Hong Kong • Shanghai • Palm Beach
SpeedNews 26th Annual Commercial Aviation Industry Suppliers Conference
Beverly Hills, California, USA – March 6, 2012
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2. Disclaimer
Avia-Tek Ltd. hereafter referred to as “CONSULTANT”
will provide advice based on our business experience,
knowledge, and best efforts in achieving the goals
within the scope of this agreement. CONSULTANT is
not responsible for any changes in market conditions,
changes in Chinese laws, and/or any changes by
potential targets that may adversely affect the client
and/or the outcome of its business and/or investments.
CONSULTANT is not a qualified or certified law or
accounting firm; nor are we licensed to practice law or
provide legal advice; nor licensed to provide accounting
services. Any legal recommendations and/or financial
projections that we provide are based solely on our
business experience. The client is strongly advised to
get appropriate legal and accounting advice prior to
making any financial investments based on
CONSULTANT’s recommendations.
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3. Presentation Agenda
• Commentary on the Corporate Strategy of AVIC Group
• Outlook
 Civil Aircraft
 Civil Aircraft Engines
 General & Business Aviation
• Conclusions
 Risks
 Opportunities
www.avia-tek.com Aerospace Consulting – Em erging Markets 3

4. Presentation Agenda
• Commentary on the Corporate Strategy of AVIC Group
• Outlook
 Civil Aircraft
 Civil Aircraft Engines
 General & Business Aviation
• Conclusions
 Risks
 Opportunities
www.avia-tek.com Aerospace Consulting – Em erging Markets 4

5. Group revenues grew 23.1% to USD 31 billion for 2011
Approximately
400,000 AVIC Industry Corporation of China 482 Billion RMB
Credit Line
Employees
Since 2009
AVIC General Aviation (CAIGA) AVIC Technics (former Defense) CAC SAC Hongdu
XAIC SACC CCAC
AVIC Aircraft Shanfei FAI LAMC CATIC Defense
Hafei
AVIC Helicopter (Avicopter) Changfei AVIC Flight Test Center
XAE Liming Liyang
AVIC Engine FAST BALP AECC AVIC Capital
AVIC Avionics Systems AVIC Construction Engineering
AVIC Electromechanical Systems AVIC Automobile
AVIC International AVIC Tech Foundation Establishment
AVIC Commercial Aero Engine (ACAE) Joy Air
Source: AVIC
www.avia-tek.com Aerospace Consulting – Em erging Markets 5

6. Can you express your long-term group strategy in 8 words?
两融 Two Integrations
三新 Three Objectives
五化 Five Changes
万亿 One Trillion CNY
Source: AVIC
www.avia-tek.com Aerospace Consulting – Em erging Markets 6

7. The AVIC group is embracing globalization,
but continuing to invest in strengthening local clusters
两融 •
•
Integrate with the global supply chain
Integrate AVIC with local economies to establish
三新 aerospace clusters
五化
万亿
Source: Avia-Tek analysis
www.avia-tek.com Aerospace Consulting – Em erging Markets 7

8. Three new objectives are defined to replace the old
两融 •
•
Create Brand Value
Commercialize Operations
三新 • Empower the Group
五化
万亿
Source: Avia-Tek analysis
www.avia-tek.com Aerospace Consulting – Em erging Markets 8

9. Empower the group and break down communication walls
BEFORE AFTER
两融
三新
五化
万亿
Source: Avia-Tek analysis
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10. How has the strategy shift been implemented internally
and responded to externally?
Source: Avia-Tek analysis,
www.avia-tek.com Aerospace Consulting – Em erging Markets
interviews 10

11. Western and Chinese OEMs are localizing and globalizing their supply
chains, respectively… e.g. a changing role for CATIC/AVIC International
Source: Avia-Tek analysis,
www.avia-tek.com Aerospace Consulting – Em erging Markets
interviews 11

12. Five changes are needed to achieve long-term goals
两融 •
•
Market-oriented reforms
Specialization
三新 • Corporate governance
五化 • Internationalization
• Industrialization
万亿
Source: Avia-Tek analysis
www.avia-tek.com Aerospace Consulting – Em erging Markets 12

13. AVIC is creating aerospace centers of excellence (COEs)
and restructuring to achieve system-level capabilities
• Helicopters  Tianjin
• UAVs  Guizhou
• GA Aircraft  Zhuhai
• Transport Aircraft  Shaanxi
• Engines  Shanghai
• Avionics, Landing Gear, Composite Blades…etc.
Source: Avia-Tek analysis
www.avia-tek.com Aerospace Consulting – Em erging Markets 13

14. Can AVIC reach a revenue target of CNY 1 trillion by 2020?
两融 •
•
Requires consistent 25% CAGR over 8 years
If we assume appreciation of the Renminbi between
三新 •
2 to 3% per year against the dollar
In 2020 dollars, that could be USD 195.5 billion
五化 • Organic growth from domestic programs
万亿 • External growth from outbound M&A
Source: Avia-Tek analysis
www.avia-tek.com Aerospace Consulting – Em erging Markets 14

15. Presentation Agenda
• Commentary on the Corporate Strategy of AVIC Group
• Outlook
 Civil Aircraft
 Civil Aircraft Engines
 General & Business Aviation
• Conclusions
 Risks
 Opportunities
www.avia-tek.com Aerospace Consulting – Em erging Markets 15

16. Civil Aircraft Outlook – Focus on the C919
• Announcement soon for delay of the
program is very possible
• Problems to ramp up the JVs is a key issue 235
+20
• Word on the street in Shanghai – delays Launch Customer Orders
from one to three years for JVs
 Implications?
2010 2011 2012 2013 2014 2015 2016
Type
End Joint Preliminary Certificate
Conceptual Design First 90%
Design Phase Review Cut Drawings Roll Out
Launch 25% Critical Detailed First Flight First
Customers Drawings Design Design Delivery
Review Review
Source: Avia-Tek analysis,
www.avia-tek.com Aerospace Consulting – Em erging Markets
COMAC, interviews 16

17. Presentation Agenda
• Commentary on the Corporate Strategy of AVIC Group
• Outlook
 Civil Aircraft
 Civil Aircraft Engines
 General & Business Aviation
• Conclusions
 Risks
 Opportunities
www.avia-tek.com Aerospace Consulting – Em erging Markets 17

18. Civil Aircraft Engine Outlook – Focus on the CJ1000A
• FAL for the LEAP-X1C still in question
• JV with a Western OEM is possible for CJ1000A
Present - 2016 2016 - 2020 2021 -
Phase 1 Phase 2 Phase 3
Develop a demo First demo test Serial production
engine based on
currently available Core test EIS
technologies
TC Certificate
Joint projects with
external suppliers PC Certificate
Source: Avia-Tek analysis, ACAE
www.avia-tek.com Aerospace Consulting – Em erging Markets 18

19. Presentation Agenda
• Commentary on the Corporate Strategy of AVIC Group
• Outlook
 Civil Aircraft
 Civil Aircraft Engines
 General & Business Aviation
• Conclusions
 Risks
 Opportunities
www.avia-tek.com Aerospace Consulting – Em erging Markets 19

20. GA in emerging economies is driven by increasing
affluence of the population and removal of gov’t restrictions
General Aviation Penetration Rate Worldwide
GA Fleet/1K Capita vs. GDP per Capita in 2005 USD (log scale)
10.0000
1st driving force: GDP
growth Canada
New Zealand US
1.0000
Brazil South Africa Switzerland
0.1000
Germany
Russia
0.0100
India 2nd driving
force:
0.0010
removal of
China barriers
0.0001
1,000 10,000 100,000
Source: Avia-Tek analysis,
www.avia-tek.com Aerospace Consulting – Em erging Markets
World Bank, GAMA 20

21. Demand for GA services is driving the market
• Forestry
• Agriculture
• Territory surveillance
• Offshore
• Rescue and relief
• Private usage and
taxi services
Source: Avia-Tek analysis, CAAC
www.avia-tek.com Aerospace Consulting – Em erging Markets 21

22. A market potential driven by the opening of the airspace
and the improvement of GA regulations
General Aviation Fleet Forecast 2012-2022
Units (log scale)
100000
Pessimistic scenario
Most probable scenario
Optimistic scenario
10000
1000
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Source: Avia-Tek analysis,
www.avia-tek.com Aerospace Consulting – Em erging Markets
Avia-Tek China GA Market Forecast 2012 22

23. A positive trend for China domestic manufacturing despite
strong competition from foreign OEMs
Domestic General Aviation Production Value 2012-2022
Million of CNY
7000
Rotor Wings
6000
Fixed Wings
5000
4000
3000
2000
1000
0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Source: Avia-Tek analysis,
www.avia-tek.com Aerospace Consulting – Em erging Markets
Avia-Tek China GA Market Report 23

24. Presentation Agenda
• Commentary on the Corporate Strategy of AVIC Group
• Outlook, Forecast, and M&A Activities
 Civil Aircraft
 Civil Engines
 General & Business Aviation
• Conclusions
 Opportunities
 Risks
www.avia-tek.com Aerospace Consulting – Em erging Markets 24

25. There are many opportunities in the market,
but planning and execution is a major challenge
• Weaknesses in certain manufacturing capabilities
 Identify those weaknesses
 Identify the relevant product lines
• E.g. Hard metal casting for gas turbine application
• E.g. Composite “friendly” fastening systems
• The General Aviation Ecosystem
 Infrastructure
 Services
 Know-how
• Evaluate your strategic options
Source: Avia-Tek analysis,
Avia-Tek China Aircraft Engine
www.avia-tek.com Aerospace Consulting – Em erging Markets 25
Industry Assessment Report 2012

26. Many foreign firms entering China seem to make the same
mistakes over and over again…
• Aerospace is even more challenging
 Regulatory environment
 Highly political
 Highly strategic industry  secretive culture
• Letting the Chinese party seek you out first…
• Advice from your companies friend who is “the China expert”
 Magnifies all the other normal risks
• IP theft
• JV problems down the road
• Legal issues
• Environmental issues
• Political issues
Source: Avia-Tek analysis
www.avia-tek.com Aerospace Consulting – Em erging Markets 26

27. Our Strategic Approach to China Market Entry
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28. Thank You for Your Attention!
Avia-Tek partners with our clients to help them navigate
the Chinese aviation and aerospace industry
 Industry Market Assessment
 Market Entry Strategy
 Executive Trips and Briefings
 Competitive Intelligence
 Aerospace Sourcing
 Technical Consulting
 Transaction Support
Learn more at www.avia-tek.com or feel free to contact us directly.
North America Asia and Rest of World
J. Todd Siena John Siena, Partner Avia-Tek Head Office
Partner & Co-Founder jcsiena@avia-tek.com info@avia-tek.com
+1-561-797-8818 +86-21-5157-2179
Fluent in English
Fluent in Chinese (会说中文) Europe
David Cook, Europe Representative
+ 86 189 1707 4921
cook@avia-tek.com
siena@avia-tek.com +33-6-1135-4330
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