Aerospace Update

AEROSPACE INDUSTRY UPDATE

APRIL 2008

Table of Contents

Delta Air Lines, Northwest Airlines Combining

Bell Boeing receives $10.4 billion Multi-Year V-22 Osprey contract

Boeing Reports 1st Quarter Profit Rise 38 pct

Boeing Delivers Proposal to Equip Indian Air Force with Super Hornet Fighters

Donaldson to Provide Boeing 747-8 with HEPA Cabin Air Filters and E/E Cooling Filter

Airbus’ New Mobile, AL Facility Will Produce Aerial Tankers and Freighters

Airbus Sees Asia-Pacific Growth for Jetliners

Delta Air Lines, Northwest Airlines Combining

World headquarters of combined airline to be in Atlanta, with executive offices in Minneapolis/St. Paul and major airline operations and employee base remaining in Minnesota

Delta Air Lines Inc. (NYSE: DAL) and Northwest Airlines Corporation (NYSE: NWA) announced an agreement in which the two carriers will combine in an all-stock transaction with a combined enterprise value of $17.7 billion. The new airline, which will be called Delta, will provide employees with greater job security, an equity stake in the combined airline, and a more stable platform for future growth in the face of significant economic pressures from rising fuel costs and intense competition.

The merger combines Delta’s strengths in the South, Mountain West, Northeast, Europe and Latin America with Northwest’s leading positions in the Midwest, Canada and Asia; competition will be preserved and enhanced as a result of complementary networks.

Delta CEO Richard Anderson will be chief executive officer of the combined company. Delta Chairman of the Board Daniel Carp will become chairman of the new Board of Directors and Northwest Chairman Roy Bostock will become vice chairman. Ed Bastian will be president and chief financial officer. The Board of Directors will be made up of 13 members, seven of whom will come from Delta’s board, including Anderson, and five of whom will come from Northwest’s board, including Bostock and Doug Steenland, the current Northwest CEO. One director will come from the Air Line Pilots Association (ALPA).

Delta will have executive offices in Atlanta, Minneapolis/St. Paul and New York, and international executive offices in Amsterdam, Paris and Tokyo. The company’s world headquarters will be in Atlanta. Delta is committed to retaining significant jobs, operations and facilities in Minnesota.

The merger creates one of the strongest balance sheets among major U.S. airlines, permitting the combined airline to invest in its fleet and services to enhance the customer experience.

Delta and Northwest, together, will have more than $35 billion in aggregate annual revenues, operate a mainline fleet of nearly 800 aircraft and employ approximately 75,000 people worldwide. The transaction is expected to generate more than $1 billion in annual revenue and cost synergies from more effective aircraft utilization, a more comprehensive and diversified route system and cost synergies from reduced overhead and improved operational efficiency. The company expects to incur one-time cash costs to not exceed $1 billion to integrate the two airlines. The combined company will have a stronger, more durable financial base and one of the strongest balance sheets in the industry, with expected liquidity of nearly $7 billion at closing.

Under the terms of the transaction, Northwest shareholders will receive 1.25 Delta shares for each Northwest share they own. This exchange ratio represents a premium to Northwest shareholders of 16.8 percent based on April 14 closing prices. The transaction is expected to be accretive to current Delta shareholders in year one excluding one-time costs. The merger is subject to the approval of Delta and Northwest shareholders and regulatory approvals. It is expected that the regulatory review period will be completed later this year.

Delta also announced that it has reached agreement with the company’s pilot leadership to extend its existing collective bargaining agreement through the end of 2012. The agreement, which is subject to pilot ratification, facilitates the realization of the revenue synergies of the combined companies once the transaction is completed. It also provides the Delta pilots a 3.5 percent equity stake in the new company and other enhancements to their current contract.

Boeing Sees 1st Quarter Profit Rise 38 pct

Boeing Reports 1st Quarter Profit Rise 38 pct

Boeing Co. reported a better-than-expected 38 percent jump in its first-quarter earnings, as it improved efficiency and recorded more orders for its aircraft.

The aerospace company said it earned $1.2 billion, or $1.62 per share, for the quarter ending March 31. That compares with $877 million, or $1.13 per share, a year earlier. Revenue rose 4 percent to $16 billion from $15.37 billion a year ago.

The company's commercial airplane segment saw its operating profit grow 39 percent to $983 million in the January-through-March quarter. Revenue grew 8 percent to $8.2 billion.

Meanwhile, operating profits for Boeing's defense unit rose 10 percent to $860 million while revenue slipped 2 percent to $7.6 billion.

Boeing said its total backlog reached a new record of $346 billion.

The company also reaffirmed its 2008 guidance, saying it expects to earn between $5.70 and $5.85 this year while delivering between 475 and 480 airplanes.

Next year, the company predicted it will earn between a better-than-expected $6.80 and $7.00 per share and said it and is on track to deliver between 500 and 505 planes, including 25 of its thrice-delayed 787 jetliners.

The fuel-efficient plane has been beset with delays the company attributed to outside contractors and won't be delivered to customers until late 2009.

Boeing's bigger rival in commercial aircraft is Europe's Airbus, which announced recently that it was raising prices because of the devalued U.S. dollar and high cost of metals.

Boeing executives said the company was well-positioned to weather the souring economy, thanks to its diverse portfolio of customers, especially in the Middle East and Asia. And executives predicted domestic airlines would invest in new, fuel-efficient planes to help them cope with rising fuel costs, rather than delay purchases.

Bell Boeing receives $10.4 billion Multi-Year V-22 Osprey contract

Amarillo, Texas - The Bell Boeing Program Office announced today the US Department of Defense has awarded a $10.4 billion, five year Multi-Year Procurement (MYP) contract to deliver 167 V-22 Osprey tiltrotor aircraft. Bell Boeing is a strategic alliance between Bell Helicopter, a Textron Inc. (NYSE: TXT) company and The Boeing Company (NYSE:BA).

The five-year contract includes 26 CV-22 aircraft for the Air Force Special Operations Command (AFSOC) and 141 MV-22 aircraft for the US Marine Corps. The contract includes an option for additional aircraft. The Bell Boeing Program Office recently celebrated the production of the 100th V-22.

Boeing Delivers Proposal to Equip Indian Air Force with Super Hornet Fighters

The Boeing Company [NYSE: BA] recently delivered a detailed, 7,000-page proposal offering its advanced F/A-18E/F Super Hornet to the Indian Air Force as part of India's Medium Multi-Role Combat Aircraft (MMRCA) competition.

"Our proposal team worked diligently to fully understand and meet the requirements set out by the Indian Ministry of Defense (MOD). We are offering India the best-value, most advanced and proven multirole combat fighter in production today," said Jim Albaugh, president and CEO, Boeing Integrated Defense Systems (IDS).

India issued a Request for Proposal (RFP) for 126 new multirole combat fighters in August 2007. Boeing completed its proposal before the initial March 3 deadline, which the MOD rescheduled for April 28.

"Boeing's strategic goal has been to seek a long-term partnership with India to help strengthen the country's aerospace capabilities and enhance its national security," said Chris Chadwick, president of Boeing Precision Engagement & Mobility Systems. "Choosing the F/A-18E/F would give Indians a direct hand in building an advanced fighter aircraft that will robustly defend their shores and airspace, infuse new strength into the Indian Air Force, and serve as a catalyst for India's growing defense aerospace industry."

The Super Hornet variant being offered to India, the F/A-18IN, is based on the F/A-18E/F model flown by the U.S. Navy and currently being built for the Royal Australian Air Force (RAAF). Advanced technology -- such as Raytheon's APG-79 Active Electronically Scanned Array radar -- and proven reliability are drawing U.S. and international customers' increasing interest in the aircraft as a cost-effective and lethal air defense.

Boeing has delivered more than 340 Super Hornets to the U.S. Navy. Australia has ordered 24 Super Hornets to bolster its fleet of F/A-18 Hornets, and Boeing is in discussions with several other international customers about their interest in procuring the Super Hornet.

"One of the concerns here in India is the cost of owning and maintaining combat fighters over their lifetime," said Vivek Lall, Boeing IDS vice president and India country head. "The F/A-18E/F Super Hornet offers a very attractive life-cycle-cost dynamic, since the fighter won't need a scheduled visit to a maintenance depot until it has clocked a minimum of 6,000 hours of flying time, and even well beyond that."

Over the past 36 months, Boeing IDS has reached out to the Indian aerospace and technology sectors to identify potential public and private industrial partners. To date, it has signed long-term partnership agreements with Hindustan Aeronautics Limited, Tata Industries, and Larson and Toubro. If the F/A-18IN Super Hornet is selected, these companies and others are expected to play a significant role as Boeing transfers some production and assembly to India.

The U.S. Embassy in New Delhi will formally turn over the Boeing-U.S. Navy submission to the Indian Ministry of Defense. Delivery of the first F/A-18IN Super Hornets can begin approximately 36 months after contract award.

Donaldson to Provide Boeing 747-8 with HEPA Cabin Air Filters and E/E Cooling Filter

Donaldson Company (NYSE:DCI), a leading, worldwide manufacturer of filtration systems and parts, has been selected by Boeing Company to provide the High Efficiency Particulate Air (HEPA) Cabin Recirculation filter and Electronic Equipment (E/E) Cooling filter for the new Boeing 747-8 Freighter and Intercontinental.

"Donaldson is pleased to be awarded the 747-8 recirculation filter and electronic equipment cooling filter programs," said Sheila Peyraud, General Manager, Aerospace and Defense at Donaldson. "Donaldson values our partnership with Boeing and is excited to be working on the 747-8 program."

Using their advanced technologies and experience in the aviation industry, Donaldson will design, develop, and qualify the HEPA cabin recirculation filter and the E/E cooling filter. When installed, the new HEPA cabin air circulation filter provides higher efficiency and an extended filter life due to its media design. Donaldson HEPA filters meet or exceed 99.97% efficiency on 0.3µm, the highest rating available for aircraft cabin recirculation systems, trapping dust, lint, smoke, bacteria, viruses, spores and other contaminants. The new E/E cooling filter will protect the avionics equipment from contamination, which can cause higher operating temperatures and can lead to equipment malfunction or failure.

Donaldson expects to deliver their first ship set in the last quarter of 2008.

Airbus’ New Mobile, AL Facility Will Produce Aerial Tankers and Freighters

Airbus' first major industrial center in the United States will assemble KC-45A refuelling aircraft for supply to the U.S. Air Force by Northrop Grumman. This new facility also will build Airbus' civilian A330-200 Freighter.

The Northrop Grumman KC-45A tanker team - which includes Airbus as a key subcontractor – recently hosted a series of events with local citizens, dignitaries and Airbus employees in Mobile, Alabama to mark the KC-45A's selection by the U.S. Air Force (USAF) to replace its aerial refueling aircraft fleet.

Airbus President & CEO Tom Enders said planning for the Mobile final assembly line in is underway, and construction is expected to begin by the end of 2008. Assembly of the first aircraft is targeted to commence in late 2010, with six aircraft being delivered from Mobile in 2011 - 5 KC-45As and one A330 Freighter.

The U.S. Air Force contract is a key win for the Northrop Grumman-led KC-45 industrial team, more firmly establishing the strong reputation of Airbus and EADS in the United States. The initial contract provides four System Design and Development aircraft and is valued at $1.5 billion. The no. 1 KC-45A airframe completed its first flight in September 2007 and is now ready for military conversion to tanker configuration.

Airbus Sees Asia-Pacific Growth for Jetliners

Speaking to reporters at the Singapore Air Show, Airbus President and CEO Tom Enders said growing Asian-Pacific passenger volume - plus the concentration of flights at key hub cities - will create a continued demand for jetliners in the A350 and A380 size categories. Asia currently accounts for one-third of Airbus' overall backlog of some 3,600 aircraft.

The Asia-Pacific region will continue as an important market over the long term, with forecasted airline traffic growth driving the requirements for larger aircraft such as the Airbus A380 and the A350 XWB Family.

"We have to make the most of new technology to support such essential growth through the use of larger, more efficient aircraft," Enders said. "That's why in the next 20 years, we expect 39 per cent of twin-aisles such as the A350 XWB Family to be concentrated here in Asia-Pacific, along with 56 per cent of large aircraft like the A380."

He noted that more than 50 per cent of passengers flying within Asia today are traveling between just 11 hub cities, which are also at the center of 72 per cent of the demand between Europe and Asia. Routes such as Beijing-Shanghai already are operating at 85 per cent load factors, and are expecting further strong growth.

These developments underscore the importance of A380s and A350s as the region's airlines evolve, Enders added, a fact reflected by orders already booked for these two new aircraft by Asia-Pacific carriers.

Singapore Airlines successfully introduced the A380 in revenue airline service last October, and the carrier should have a total of six of the double-deck aircraft by this summer - when Airbus also will be delivering the first A380s to Qantas and Emirates.

The A380 has garnered a total of 196 firm orders from 17 customers, plus four additional commitments, having regained momentum in the latter part of last year with Emirates' repeat order, along with new orders/commitments from such important customers as British Airways and Grupo Marsans in Argentina, Enders explained.

The A350 XWB also is selling well, with 310 firm orders from 15 customers - including Singapore Airlines, which demonstrated its confidence by acquiring 20 of these jetliners.

Enders added that Asia currently accounts for one-third of Airbus' overall backlog of some 3,600 aircraft. As the result of this strong order book, Airbus production capacity is filled for the next six years at unprecedented delivery rates - with its output increasing from the current average of 41 aircraft per month to 54 monthly in 2010 (with the mix composed of 40 A320 Family aircraft, 10 A330/A340s and 4 A380s).

"I am often asked whether this [airline industry] boom is just a bubble or if it is going to continue, and my response is always the same: many of these orders are coming from the booming Asian market, which continues to grow in line with its economic growth," Enders told the reporters. "While the world's annual average traffic growth is estimated at 4.9 per cent, Asia is continuing to lead with a forecast growth of 6.1 per cent annually over the next 20 years. China alone is counting for 7.4 percent and India for 8 percent. And in 20 years time, the Asian market will be leading, accounting for about one third of the world's revenue passenger kilometers."

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