Today: China has World’s 2nd Largest Aircraft Fleet US Fleet #1 … China Fleet #2 Existing Aircraft Fleets (2010) Aircraft (units) Source: Airfleets, COMAC

China’s Airlines Largely Comprised for Foreign Aircraft China Major Airline Fleet Composition* Source: Company Websites; Planespotters * December 2010 Today: China Fleet Comprised of 99% Foreign Aircraft Boeing Airbus Boeing Airbus Boeing Airbus

The Future: … 230% Increase in Aircraft Needed in China (2028) 230% Increase in Aircraft Needed in China by 2028 Existing Fleet and New Deliveries (2010 - 2028) Aircraft (units) Source: Airfleets, COMAC, Boein,g, EIU

Driven by: Forward Trend in Exploding Middle Class China’s Middle Class: 400 million (2010) … 500 million (2015) Sources: Urbanization Rates, Population based on UN, World Urbanization Prospects 2007; MGI Consumer Demand 2008

China World’s 3rd Highest Traffic Volume by 2020 Foreign Inbound & Chinese Outbound Travel Volume Driven by: Growth Spike in China’s Travel Volume 237 13 21 51 CAGR 11.8% 69 167 million Traveler Increase USD millions Source: China National Tourism Association (CTNA); World Tourism Organization (UNWTO)

Foreign Investors: … hunger for China Opportunity Source: Company Information pages, EIU Aerospace OEM’s Functional Deployments in China Wide Variance in Strategies employed by Major Aerospace OEM’s

China Civil Aircraft Fleet (2010) China: … also hungers for Opportunity, However China Fleet 99% Foreign Airplanes Source: All Publically Available Information , Company Website

Therefore: … China developing own Suite of Domestic Aircraft Source: Chinese Aerospace Market Research

Beijing Tianjin Shanghai Harbin Shenyang Xi’An Chengdu Moreover: … China Broadening entire Industrial Base Leveraging Foreign Investment in Production and Research & Development Turbine NGVs, turbine rings, compressor seals Landing gear & engine nacelle components Precision sheet metal A350 composite parts Heat shields A320 Final Assembly Line Composites manufacturing COMAC C919 Production Design & Production of ECS Autoclaved composite parts Engine parts Landing gear components Nanjing Suzhou Xiamen Source: AeroStrategy, 2010 Sensors, valves, nozzles EC175 design & production ERJ145 Assembly

38 New Airports … USD46 billion Investment by 2020 Number of Airports in China 20% Increase And also: … Developing Country’s entire Aviation Infrastructure Source: EIU, Center fro Asia Pacific Aviation Number of Airports Investment in New Airports USD18 bn USD39 bn USD46 bn

Table of Contents Preface Foreign Investment: Strategic Deployment in World’s Fastest Growing Market Today’s Burning Corporate Platform: Markets and Global Cost Reduction 1. Revenue Drivers: Growth driver for the Aerospace Sector 1. Economic Growth: World Bank Projects China as #1 Economy in World by 2020 1. Travel Growth: Growth Spike in China’s International Travel 1. Tomorrow’s Market: Huge Demand Surge for Future New Aircraft 2. Cost Reduction: Airbus Moves Final Assembly of A320’s to China & Strategic Sourcing 2. Resources: Boeing NO Aircraft Assembly … Aggressive Sourcing 2. Resources: China Aggressively Developing own Civil Aircraft 2. Resources: Why Initial Focus on Single-Aisle & Regional Jets? 3. Innovation (Stage 1): Development of a Regional Jets 3. Innovation (Stage 2): Development of Single-Aisle Jets 3. Innovation: Investment Directed at Aviation Clusters 3. Innovation: Investment Largely Aligned with AVIC Subsidiaries The 2030 Future? How Soon China’s Twin-Aisle and Jumbo Jets?… China’s Economic Health Senior Executives Select China as Most Attractive in World Foreign Investment Continues to soar – Strong Vote of Confidence Healthy Balance Sheets – Banks, Enterprises, Households

Foreign Investment: Strategic Deployment in World’s Fastest Growing Market

Today’s Burning Platform: Markets and Global Cost Reduction Market Access/Revenue Growth … Global Structural’ Cost Reduction 2. Resources INNOVATION REVENUE COST R&D Sales Service Sourcing Production /Assembly Distribution Engineering IT HR F&A Procure 3. Knowledge 1. Markets EFFICIENCY

1. Revenue Drivers: Growth drivers for the Aerospace Sector Economic Growth  Travel Demand Industry Infrastructure Source: Public Sources Economic Growth - China’s economy has doubled every 7 years for the past 20 years … tripled most recently - World Bank has forecasted China to have world’s largest economy by 2020 (GDP, PPP-adjusted) - China Middle Class growing by an additional 80 million people every 5 years Travel Growth - China’s traffic volume grew at a CAGR of11.8% between1995 and 2009 - China to have an increase in travel volume by 67 million travelers by 2020 Industry Infrastructure and Cluster Formation China aggressively developing travel infrastructure: 38 New Airports, USD46 billion Investment by 2020 China aggressively developing aviation industry through joint venture partnerships with major foreign suppliers and aerospace OEMs

Source: World Bank 1. Economic Growth: World Bank Projects China as #1 Economy

China World’s 3rd Highest Traffic Volume by 2020 Foreign Inbound & Chinese Outbound Travel Volume 1. Travel Growth: Growth Spike in China’s International Travel 237 13 21 51 CAGR 11.8% 69 167 million Traveler Increase USD millions Source: China National Tourism Association (CTNA); World Tourism Organization (UNWTO)

1. Tomorrow’s Market: Huge Demand Surge for Future New Aircraft Deliveries (units) Aircraft Deliveries (2009 – 2028) China has 1,315 Aircraft Today … China Needs 3,165 New Aircraft by 2028 Source: EIU, China Statistical Yearbook; Orient Aviation

2. Cost Reduction– Airbus Moves Final Assembly of A320’s to China Migration of Assembly Functions to China Company: Airbus Total Investment: USD1.2 - 1.5 billion Labor Force 1,000 employees Functions: Final Assembly for A320 Investment Site and Joint Venture Partners: Tianjin. Three-party joint venture with Tianjin Free Trade Zone and Aviation Industry Corporation of China (AVIC). Operational Commencement September 2008 2010 Production Output/Sales 37 A320 planes for eight Chinese airlines 2011 Assembly (Planned) 36 A320 planes Source: All Publically Available Information; Tianjin Economic Development Area (TEDA), Company Website

Source: Airbus S.A.S., “Airbus in China;” Airbus S.A.S., “ Airbus in China: Milestones” Shanghai Shenyang Xi’an Chengdu Shenyang Aircraft Industries Xi’an Aircraft Company Chengdu Aircraft Company Shanghai Aviation Industry Co. Hanzhong Shaanxi Aircraft Company Hongdu Aviation Industry Nanchang Airbus Strategic Sourcing in China* Changhe Aircraft Company Harbin Aircraft Industries Hong Yuan Aviation Forging & Casting Titanium forging parts Xi’an Aircraft Industry Company Access doors for wide-bodied aircraft Wing fixed trailing edges Medium air ducts Chengdu Aircraft Industrial Company A320 rear passenger doors Hafei Aviation Industry Co., Ltd. HTP leading edge ribs and torsion box Shenyang Aircraft Company Produces and assembles emergency exit doors Manufactures: -Fixed leading wing edges and ribs -A320 cargo doors -Skin plates Guizhou Aviation Industrial Group Maintenance jigs and tools * July 2007 2. Resources: Airbus also engaging in Strategic Sourcing in China Harbin Guizhou

Beijing Shanghai Shenyang Xi’an Chengdu Shanghai Aviation Industry Co. Hanzhong Hongdu Aviation Industry Nanchang Boeing Strategic Sourcing in China* Jingdezhen Changhe Aircraft Company Harbin Aircraft Industries Baoji Group Ltd. Titanium ingot, plate & sheet Hong Yuan Aviation Forging & Casting Industry Company 747 titanium forgings since 1984 Xi’an Aircraft Company 737 Next Generation vertical fin 747 trailing edge ribs, floor beams, detailed parts, and subassemblies 747-8 trailing edge flaps Chengdu Aircraft Industries 737 forward entry and over-wing exit doors (a subcontract from Vought Aerospace, USA) 747-8 ailerons and spoilers, single source; horizontal stabilizer parts and subassemblies (a subcontract from Vought Aerospace, USA) 787 rudder, single source (sole provider of this assembly) Southwest Aluminum 747 aluminum forgings Taikoo Aircraft Engineering Company Ltd. (TAECO) 747 parts, subassemblies 747 boeing converted Freighter modification program BHA Aero Composites Company, Ltd. 737 composite panels and parts (flight deck, close out panels, dorsal fin, wing – to – body fairing, cover panels, wing fixed trailing edge, wing fixed leading edge, tail cone, interior parts, secondary composite structures) 747 miscellaneous composite parts and structures 767 and 777 wing fixed tailing edges and dry bay barriers; empennage panels, interior parts, secondary composite structures 777 flight deck interior panels 787 trailing edge panels for the vertical fin, interior parts, secondary composite structures Hafei Aircraft Industries 787 upper and lower body panels for wing-to-body fairings, single source; vertical fin parts Shanghai Aviation Industry Company 737 horizontal stabilizers Shenyang Aircraft Company 737 aft fuselage subassemblies 787 vertical fin leading edge, single source Quick Electronics Print hardware, servers in support of Boeing IT hardware Tianjin Chongqing Xiamen 2. Resources: Boeing no Aircraft Assembly … Aggressive Sourcing * June 2007 Source: Boeing, “About us: Boeing in China.” Shenyang Aircraft Industries Shaanxi Aircraft Company Chengdu Aircraft Company Xi’an Aircraft Company

2. Resources: China Aggressively Developing own Civil Aircraft Source: Chinese Aerospace Market Research Stage 2 – Single Aisle (2013): C-series Aircraft Type110/130 , Single-aisle - Twin-Turbofan Development: : Fuselage Build by AVIC’s, Shenyang Aircraft Industries Group , Bombardier Schedule: First Flight in 2011 and In- Service in 2013 2013

2. Resources: Why China’s Focus on Single-Aisle & Regional Jets? Future Global Aircraft Deliveries (2009 – 2028) Source: Airbus, “Airbus Global Market Forecast, von Tronchin, March 2010, other Public Sources China’s 3,165 New Aircraft = 12% of Future Global Demand 26,500 New Aircraft by 2028

Suppliers for China’s ARJ21 3. Innovation (Stage 1): Tied to Development of Regional Jets 2010: ARJ21 Largely Based on Foreign Research & Development Source: Baidu Encyclopedia, Various Public Sources

Suppliers for China’s C919 3. Innovation (Stage 2): Tied to Development of Single-Aisle Jets 2016: C919 Largely Based on Joint Sino-Foreign Research & Development Source: Airframers, January 2011; Various Public Sources

Beijing Tianjin Shanghai Harbin Shenyang Xi’An Chengdu 3. Innovation: Investment Directed at Aviation Clusters Investment Footprint largely aligned with China Aviation Structure/Clusters Turbine NGVs, turbine rings, compressor seals Landing gear & engine nacelle components Precision sheet metal A350 composite parts Heat shields A320 Final Assembly Line Composites manufacturing COMAC C919 Production Design & Production of ECS Autoclaved composite parts Engine parts Landing gear components Nanjing Suzhou Xiamen Source: AeroStrategy, 2010 Sensors, valves, nozzles EC175 design & production ERJ145 Assembly

Source: Xinhua, “Aviation Industry Corporation of China Founded” Shanghai Shenyang Xi’an Chengdu Shenyang Aircraft Industries Xi’an Aircraft Company Chengdu Aircraft Company Shanghai Aviation Industry Co. Hanzhong Shaanxi Aircraft Company Hongdu Aviation Industry Nanchang Strong Manufacturing … Institutional Support … Labor Arbitrage Structure of China’s Aviation Sector Aviation Industry Corporation of China (AVIC) 3. Innovation: Investment Largely Aligned with AVIC Subsidiaries Jingdezhen Changhe Aircraft Company Harbin Aircraft Industries Harbin

China’s Future Aircraft (2020 – 2030) The 2030 Future? How Soon China’s Twin-Aisle and Jumbo Jets … Develop Homegrown China Aircraft –> Compete with Boeing, Airbus, Embraer Stage 3 – Twin-Aisle (2020 – 2025)?: C919 – Extensions? Aircraft Type: Extensions of C919, possible Twin-Aisle version Development: : COMAC and joint ventures with foreign suppliers to jointly research and develop the platform systems In- Service: 2020 - 2025 ? Stage 4 – Jumbo Jets (2020 – 2025)?: ? Aircraft Type: Jumbo Jet Development: COMAC and joint ventures with local domestic suppliers to jointly research and develop the platform systems In- Service: 2020 – 2030 ? 2020? 2020? Source: Chinese Aerospace Market Research

China’s Economic Health

Senior Executives Select China as Most Attractive in World Investor Confidence in China #1 in World Source: World Investment Prospects 2009 - 2011 Top 14 Most Attractive Destinations for Future Investment (2009 – 2011) % Percent of Responses

Source: China Statistical Yearbook Foreign Investment Continues to Soar – Strong Vote of Confidence Record FDI of USD106 billion in 2010 USD Foreign Direct Investment Inflows (1990 – 2010)

Healthy Balance Sheets – Banks, Enterprises, Households USD2.85 trillion in Foreign Reserves … Insulation of Financial System … Clean Balance Sheets China’s Financial System Healthy, Benefits from Insulation, Abundant Liquidity China banks cleaned up in 1990s: Non-performing loans in 1997 averaged 40 – 50%; only 6% in 2007. Financial institutions extended approximately USD1.4 tr in new loans in 2009; almost double that of 2008; and USD1.2 tr in 2010, slightly down from 2009. Forex Reserves Achieve Record High in 2010: USD 2.85 trillion The Central Bank has accumulated over USD 2.85 trillion in foreign reserves. The accumulation of large external surpluses means financial system enjoys abundant liquidity. Clean Balance Sheets for Enterprises and Households State Owned Enterprise net profits as share of GDP has grown from (-1%) in 1997 to (+4.3%) in 2007. Record corporate profit growth over past 5 years (industrial profits rose 38 ppa); liability ratios declined. Urban incomes have nearly doubled in past 10 years. Source: Deutsche Bank; Standard Chartered; UBS; IMF; Other

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