2 What Services for What Airframes

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The In-Flight Connectivity Market:

A Boom for the Satellite Industry?

ASSESSING THE OPPORTUNITY FOR SATELLITE

CONNECTIVITY ON AIRPLANES

Christopher Baugh, President Claude Rousseau, Senior Analyst

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Webinar Agenda

1 State of the Market

2 What Services for What Airframes…

3 From the Ground Up

4 HTS: A Trump Card?

5 The Bottom Line

Claude Rousseau [email protected] Senior Analyst NSR France Christopher Baugh [email protected] President NSR London Presenters 2 October 2013 In-Flight Connectivity: A Boom for Satellite?

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About NSR

NSR is a Global Leader in Satellite Market Research and Consulting

Founded in 2000, NSR specializes in analysis of growth

opportunities across the satellite industry

NSR’s expert consultants are located globally and possess over 130 years of combined

industry experience.

Multi-Client Reports on Various Satellite Topics Extensive Client Research, Consulting and

Advisory Services

“Holistic” approach to research enables NSR to anticipate trends with a higher degree of confidence and precision than the competition and stay ahead of the curve.

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October 2013 In-Flight Connectivity: A Boom for Satellite?

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NSR’s Thought Leadership

NSR has been ahead of the curve since it’s inception…

NSR aims to stay at the forefront of future market coverage, innovative

offerings and actionable analyses for our clients.

In-Flight Connectivity: A Boom for Satellite? October 2013

NSR Leadership Position TODAY NSR coined the acronym “HTS”

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The NSR Footprint

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NSR features the most global presence of any satellite consulting/research company. With on the ground regional experience in established and emerging markets, NSR’s multi-cultural and multi-lingual provides industry-leading telecom market research and consulting delivering unique, actionable

intelligence.

October 2013

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NSR Complete Coverage of the Satellite Market

October 2013 6 FSS MSS Government & Military Satcom Financial Due Diligence-ALL SECTORS DTH and Video Wireless Backhaul Sat. Manufacturing & Launching Earth Observation M2M and SCADA VSAT and Broadband Energy Markets

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About NSR’s “Aeronautical Satcom Markets” Report

NSR reports deliver clarity - Critical market insight giving Market Leaders the edge on competition.. A Complete PowerPoint report document containing all quantitative and qualitative analysis

A Market Summary document containing an overview of the report findings and recommendations.

An Excel file containing all data and graphs so clients can easily use it as a basis for their internal market projections

Four (4) hours of consulting time with the NSR analyst who authored the report to review report findings and interpret

market forecasts

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Report Elements

Addressable markets by airframe type

Market share of service providers Competitive landscape

Voice and data communications IFEC and Safety of flight

Air-to-Ground Forecast

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State of the Market

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Projections

Boeing and Airbus forecast to 2032

– Over 7,900 new wide-body units

– An additional 22,450 single-aisle units

Demand for aircraft led by Asia

– Europe and North America follow

At 2012 production rate, expect about

11,000 new wide-body and narrow-body aircraft in ten years

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Commercial Aircraft Demand by Airframe

Sales

More than 1,100 aircraft delivered by main manufacturers in 2012

– Boeing: 601; Airbus: 588

Boeing booked 1,203 orders for commercial aircraft in 2012, Airbus had 914 orders

– Highest since 2007 for Boeing!

Airline passenger traffic worldwide increased by 5.3% in 2012

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Addressable Market

Gains due to business jet sales rebound but also smaller, lower cost equipment and

growth in long-range super business jets (Airbus Corporate Jet, Boeing Business Jet) that expand potential market

Satellite service providers have OEM deals with Bombardier, Cessna, Hawker, Boeing, Dassault and Gulfstream

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Business Jet Demand

Sales

Roughly 1,500 business jet (incl. turbo-props) deliveries in 2012

– Slower market that is expected to rebound

Main regions where rebound will happen are

Latin America and Asia

North America remains the key region

with higher inventories but will see slow addition rates as long as economy is uncertain

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Market Share by Revenues

Who is Leading?

GoGo has the largest installed base across narrow-body and business jets via ATG and

L-band services on flights that carried over 150 million passengers in the past year

Row44’s Ku-band installed base has reached over 400 in North America and Europe

Trends in OEM will help take-up of satcom units on commercial airlines

– Deals such as the Thales/GoGo partnership help address equipment and service right off production line

– Portfolio of solutions : ATG, Ku-band and HTS Ka-band; i.e. one-stop shop

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Market Share by In-Service Units

Who is Leading?

Row44 has the largest share of the Ku-band connectivity market with 48% market share

– Row44 through its deals with SouthWest Airlines and Norwegian has installed to date over 500 Ku-band systems

Close behind, ViaSat has 39% market share followed by Panasonic

– ViaSat has installed several hundred systems on government aircraft and business jets

Very few wide-body commercial aircraft have units generating revenues, which mostly use

Panasonic’s system

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Market Share by Aircraft Contracts

ATG Leads Through IFEC

GoGo has largest contracted base of aircraft, with over 1,800 aircraft signed up for ATG

and a sizeable base of business aviation customers on Iridium’s L-band service

GoGo has a 53% market share among aeronautical service providers by number of aircraft

contracted (outfitted or to be outfitted)

The largest satcom service provider based on signed contracts is Panasonic with a backlog of over 800 aircraft

– It has the 2nd _{largest market share with 15% followed by ViaSat, which has signed up} Continental and JetBlue

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In-Service Units

Connectivity on airplanes today is mostly

through L-band systems

– However, for entertainment and Wi-Fi

services, the major solution taken up is Air-to-Ground offered by GoGo

The general aviation and rotor wing market has the most airplanes with some form of satellite link

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Aeronautical Satcom Markets

Revenues

Revenues more important in Ku-band

IFEC revenues generated mostly from Ku-band

– Business jets are the sweet spot of broadband connectivity today

– Revenues going forward to be driven by regional commercial air traffic

– ATG ARPU still very low (less than $1/month per user)

– Roll-out expected outside North America will help counter constrained bandwidth

Revenues from GA & RW currently outshine other airframes. Continued push to install

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What Services for What Airframes…

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Aeronautical Satcom Addressable Market

Bottom Line:

GA & RW is largest addressable market and wide-body smallest

Total airframes is close to 100,000 today

With more than 60% of all airframes, lower cost

general aviation and rotor wing aircraft are and will remain the most important

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What Connectivity Service for What Airframe?

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In-Service Units

Majority of aero satcom units for general aviation and rotor wing market

Growth more important for wide-body and narrow-body due to connectivity needs for

passenger and crew

– Equipment cost comes down, but certification and installation remain high thus could delay installations

– Cost of installation can reach up to 100% of equipment cost for certain airframes

– Type and capabilities of system dictate prices; e.g.. System for wide-body Internet and live

television can reach up to $400K, so equipment prices are usually higher for larger aircraft flying longer routes offering more services

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Demand For Connectivity by Airframe

Narrow-Body: +12,100

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In-Service Units

Connectivity growth will inch up faster in wide-body markets

– Starting from a lower base but longer routes in short-term and trends to

regional ones will help penetration rate

Narrow-body addressable market fairly large, and penetration rate will be lower with shorter routes than wide-body aircraft

Bottom Line

VSAT penetration rate to reach 50% in wide-body market over the next ten years while about a quarter of narrow-body

addressable market will have VSAT by 2022.

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In-Service Units

L-Band is widely available on all types of airframes and will remain so for the forecast period (33% overall)

Drivers are cockpit and safety of flight communications with inflight entertainment replacing older voice units

Bottom Line

All airframes benefit from a strong installed base of L-band units. Over the next ten years, connectivity solutions for GSM and voice will add more units, but safety of flight will

remain the key driver for the uptake of L-band solutions

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From the Ground Up

Air-to-Ground, MSS, FSS and High Throughput Satellite

Connectivity

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Connectivity Services Market Share

What Flavor?

ATG : over 2,250 in 2012 over North America

– Regional play - contrary to satellite, which has multi-regional or global coverage

– Popular due to lower equipment cost, but high passenger usage does not lead to

higher revenues per plane due to limited bandwidth

Price will likely come down with satellite competition coupled with upgrades to EV-DO

Rev.B and dual-band modems

Retail revenues higher in Ku-band due to higher ARPU and good uptake in business jets

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Revenues

Where Revenues Come From?

Aero satcom revenues most important in general aviation and rotor wing due to sheer number of units installed

Highest growth will occur in wide-body and narrow-body airframe market with IFEC as a

driver

Overall revenue growth will take place in narrow-body (+12%) and wide-body (+6%)

– Increase in passengers using personal electronic devices helps drive revenues

Narrow-Body: $767 million

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Wide-Body Connectivity Services

What Flavor?

13,000 in-service units on wide-bodies by the end of 2022

– 8,100 more across all bands of service

L-Band units will show strong growth

(+3,700), but Ku-band with over 2,200 units and HTS (+1,650) will drive large growth

To meet higher connectivity demand, shift to

occur from L- and Ku-band to HTS

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In-Flight Connectivity: A Boom for Satellite?

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Wide-Body Connectivity Services

Revenues

The biggest portion of wide-body revenues comes from L-Band services

– From $300 M in 2013 to close to $400 M in 2022

A major driver of revenues will come from Ku-band services, which NSR expects will reach approx. 2,500 units, bringing in $280 million in retail revenues by the end of 2022

The biggest growth for wide-body in-flight connectivity is expected to come from HTS with

over $205 M by the end of 2022, which drives higher ARPU

– Meets demand for high bandwidth, and future networks expected to offer near global coverage across both Ku- and Ka-band frequencies

Ku-Band: +$230 million

L-Band: +$100 million HTS: +$200 million

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Narrow-Body Connectivity Services

What Flavor?

Satcom units on narrow-body aircraft will grow to 21,000 at the end of 2022

– Add 12,000 units across all bands

Most units on L-band systems with close to 5,300, but Ku-band units have strong

take-up rates with 4,600 units

HTS will grow to 2,200 in a shorter timeframe

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Narrow-Body Connectivity Services

Revenues

Narrow-body revenues comes from Ku-Band services with close to $520 M in 2022

– Ku-Band units showing very good take-up in the short- to medium term with antenna

production rates increasing at 50 units/month in 2017-2018

A major driver of revenues will be HTS services, which are expected to grow to 2,200 units, generating $254 million in retail revenues by the end of 2022

– Market differentiation and medium-haul traffic are key elements of the success of both

Ku-band and HTS in the NB market

– Growth and success of HTS in this market will show the way for others

Ku-Band: +$450 million

L-Band: +$65 million HTS: +$254 million

October 2013

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Business Jets Connectivity Services

What Flavor?

Business jets are a solid satcom market

– 10,300 units in-service in 2022, roughly 4,400 new units - mostly L-band units

Ku-band units form a small but lucrative segment expected to grow by 550 units

High-bandwidth connectivity demand will see about 760 HTS units brought into

action over the next ten years

October 2013

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Business Jets Connectivity Services

Revenues

Business Jet satcom revenues will be generated from L-Band units (for the most part) with about $310 M in 2022

– Many OEM deals signed, and STC for new products coming quickly

“Office-in-the-sky” concept requires reliable links for GSM, texting and Internet usage and sometimes videoconferencing

– Strong per unit bandwidth needs pushes Ku-Band units to over 750 in-service driven mostly by

customers in developing economies in the Middle-East, Latin America and Asia

The business jet HTS market is expected to start in 2015 once the market for Narrow-body is proven (expect a transition of ViaSat and Inmarsat clients to HTS)

Ku-Band: +$27 millions

L-Band: +$77 millions HTS: +$65 millions

October 2013

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General Aviation and Rotor Wing Connectivity Services

What Flavor?

GA & RW satcom market reach 35,000 in-service units with vast majority using L-band systems for commercial aircraft (which make-up close to 90% of the market)

– Ideal market for flight following, weather alerts and location-based services

– Factory-installed and retrofit with Inmarsat and Iridium products with some broadband connectivity

Very small Ku-band segment expected to grow by about 400 units mainly in government and military markets for ISR and rotor wings over the medium-term

– Competition will grow from L-band solutions, in particular Inmarsat SBB 200 and

Iridium OpenPort Aero around 2016-2017

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HTS: A Trump Card?

The Impact of Higher Capacity Satellites On Aeronautical

Markets

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Order of Magnitude from MSS to FSS to HTS in Aeronautical Market

L-Band

Ku-Band

HTS

~ 500 Kbps

500 Kbps up

to 10 Mbps

Up to 50

Mbps

Capacity Shifting Gears

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0% 20% 40% 60% 80% 100% 2012 2021 % S h a re

Global HTS Bandwidth Demand by Application

Contribution & OUTV Distribution DTH Gov/Mil Commercial Mobility Enterprise Data Broadband Access Source : NSR 0% 20% 40% 60% 80% 100% 2012 2021 % S h a re

Global HTS Bandwidth Revenues by Application

Contribution & OUTV Distribution DTH Gov/Mil Commercial Mobility Enterprise Data Broadband Access Source : NSR

What’s the Latest?

In pure usage terms, consumer-class broadband access will dominate HTS bandwidth demand in future … a “high volumes business …”.

But revenues from HTS tell a different story …

– “Follow the revenues” to see drivers behind different HTS business plans

HTS By Application

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HTS Coverage

Source: ViaSat _{Source: Eutelsat} _{Source: TBS}

Source: Inmarsat Source: Intelsat

5 out of 6 HTS mobility value proposition offer regional coverage

Key areas of demand: airline corridors, cruise ships and shipping lanes,

offshore platforms, government and military

Source: O3B Networks

2015+

2012

2014

2013/14

2014/15

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HTS Bandwidth Demand

Narrow-Body: 11 Gbps

– HTS market starting in 2013 with ViaSat on

JetBlue B737s and B757s (200 aircraft to be outfitted) will provide first test of HTS

aeronautical market and will show the way

Wide-Body: 10 Gbps of capacity

– Inmarsat push to transition to GX

Business Jets: 6 Gbps

HTS By Airframe

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HTS Most Promising Commercial Aero Markets Narrow-body #1 Wide-Body #2 Business Jets #3

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HTS Not Really a Trump Card

Across all three airframes types expected to require higher bandwidth capacity, NSR

forecasts that not more than 23% of total retail revenues will come from HTS

However, it is clear that MSS L-Band and FSS Ku-Band services will see some

current customers leave their service to an HTS value-proposition

MSS vs. FSS vs. HTS

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The Bottom Line

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Key Findings:

The aeronautical satcom market is expected to grow to almost 80,000 in-service units in the next ten years, generating $3.4 B by the end of 2022

ATG leads the in-flight entertainment and connectivity (IFEC) market today

– ATG IFEC revenue share will drop to less than 14% of IFEC markets (from 44% today)

L-band service remain key to future growth, driven by smaller airplanes

– With more than 60% of all airframes, lower cost general aviation and rotor wing aircraft are and will

remain the most important addressable aeronautical market with simple communications still

front and center

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Key Findings:

Ku-band and HTS revenues will grow faster, boosted by passengers and crew

– Wide-body and narrow-body grows faster due to connectivity needs for passenger and crew

– Revenues from Ku-band units and HTS will reach almost 40% of the total market by end of 2022 (up from 10% in 2012), with new aircraft and OEM deals helping new system implementation

HTS not a trump card as NSR forecasts no more than 23% of total retail revenues will come from HTS in the next ten years.

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The Bottom Line

Bottom Line:

Maybe not a boom, but good times are ahead for the industry with a mix of solutions

that increase the pie size. Narrow-body is low-hanging fruit…regionally, and wide-body globally. IFEC revenues will grow the most, reaching 34% among all service types

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Questions?

Claude Rousseau

Senior Analyst, NSR France

www.nsr.com

Europe Office

Northern Sky Research, Ltd (NSR) 19 Bolsover Street

London W1W 5NA United Kingdom

Phone: 44 (0) 207 886 0875 U.S. Office

Northern Sky Research, LLC (NSR) 1000 N. West St., Suite 1200

Wilmington, DE 19801 United States

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Key Findings:

PowerPoint Slides and Session Recording Available on NSR Website within 24 Hours

– NSR Homepage > News & Resources > Webinar & Presentation Archive

Contacts for Further Questions

Christopher Baugh, [email protected] Claude Rousseau, [email protected]

Thank you for attending!

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Wrap-Up

Visit

www.nsr.com

for

report executive

summary and more info

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