Current Aviation Industry Overview Challenges that faced airlines and the aviation industry as a whole over the

last few years, has forced the industry to rethink how they do business on both a financial and operational level. Most airlines have faced up to these challenges, and as a result have been remarkably successful at turning around ailing companies, in many cases completely reinventing themselves. Although high fuel prices are affecting profitability, airlines are now in a much stronger position then 2000, due to unprecedented demand for air travel. The notion of restructuring and cost cutting has been embraced wholeheartedly by European and Asian airlines as the only viable way to secure their long-term security. North American airlines have been slower to face up these challenges, and face major cost cutting exercises in order to reach necessary levels of efficiency. There is no doubt that the aviation industry has come through one of the toughest periods in over 30 years. The industry is now in an excellent position to face the challenges ahead

Major changes in the airline industry The air transport has gone through a period of unprecedented change, during the global slowdown. Many commentators claim the industry is almost unrecognizable to that of ten years ago. Major factors that have resulted in this ever changing landscape is: Many major airlines have been operating under major losses over the last few years, resulting in bankruptcy and the need for massive restructuring. Approximately 1800 old and mid generation aircraft have been withdrawn from service. Revenue raised from business traffic has been greatly reduced. The emergence of low cost carriers in the US and Europe, and the adoption of this model in Asia and Middle East. The growth of business via the internet. Consolidation of airlines in Europe and Asia through mergers The opening up of the Chinese economy to outward investment, and the recovery of the US economy.

Aviation Market Forecast Economic recovery coupled with the steadying of world markets, has resulted in the return of business confidence and corporate investment in the aviation industry. The political environment has also begun to slowly stabilize; this has resulted in high level growth in the demand for worldwide leisure travel. This resulted in much stronger levels of air traffic in 2004 than had been forecast. Over the 2004 2023 period world passenger levels is forecast to increase by 5.3% year on year. Companies such as boeing and airbus will reap the benefits of this growth. Traffic growth coupled with fleet renewal, will require the delivery of approximately 16,600 new passenger aircraft. Freight traffic is also expected to grow at 5.9% per year, throughout the 2004 2023 period. Traffic growth and fleet demand will result in the demand 3,100 freighter deliveries of which 23% will be purpose built freighters.

Aviation Insurance Forecast The global aviation industry saw the lowest level of losses in its history in 2004 although concerns in the insurance industry over the severity of claims are growing, according to Aons 2004 Airline Insurance Market Review*. An average of 22 total losses per year during the 1990s decreased to just 15 in 2004. Though there were fewer losses, the total loss amount of US$1billion showed a moderate increase from the figure recorded in 2003. While the introductions of safety initiatives are clearly reducing the number of incidents, the cumulative cost of those incidents to the insurance industry is on the increase. Despite fears over the growing cost of claims, the airline insurance market remained buoyant with an average premium reduction of 7% achieved in 2004 by the worlds airlines as insurers competed for business. Market capacity continued to be adequate despite the departure of one underwriting syndicate in 2004 and the outlook for the 2005 renewals is stable provided there is no significant change in the level of losses. While 2004 was the safest year on record in the aviation industry, the actual severity of claims made has shown an increase on the previous year. This factor is clearly of concern to the insurance industry.