FW: Bizjet Survey: Deteriorating back to Normal

• Index drops to 39: Our business jet index came in at 39, down from 48 in February, indicative of survey respondents’ increasingly negative view of market conditions combined with fear that market will fall further. However, overall conditions still appear relatively strong, albeit decelerating, reflective of what we believe is a return to normal from unprecedented levels in 2006-07 rather than anything worse.
• Business conditions off 10%+ from peak, but still above normal: Overall business conditions have declined 13% from the peak in mid-2007, but are still solidly above normal. Domestic conditions are off by 15%, including a further decline in April while international is off only 7% while holding relatively stable at high levels this survey. The sharp deterioration in our index primarily reflects more negative views on pricing and inventory levels.
• Used inventories begin to move higher: We have begun to see an increase in used inventory levels, including relatively young used (under 10 years in age), although they remain at relatively low levels as a percentage of the installed base.
• Buy ratings on GD/TXT: We believe strong 2006-07 demand and the ramp up in new light jets will drive deliveries and EPS significantly higher through 2010. Trading at 15x forward EPS, we think there is some risk to GD/TXT multiples on likelihood for orders to slow, although strong G650/Columbus order activity likely limits near-term downside.

Please see our full note attached.

Best
David

<<Bizjet_Survey_052708.pdf>>
David Strauss
UBS Investment Research
U.S. Aerospace & Defense
(212) 713-6185
david.strauss@ubs.com

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