EFTA02444120.pdf

SUBS UBS Investment Research UBS Business Jet Update Used Inventories Hold, Pricing Falls Further Global Equity Research Amerces Aerospace Sector Comment 10 June 2009 • Vs ailable inventories look to he stabilizing ailable business jet inventories look to finally be stabilizing, albeit at record witubs cccruinvestmentresearch high levels both in absolute terms and at IS% of the installed base. While still 55% David E. Strauss above prior year levels, available business jet inventories were roughly unchanged Aratyst sequentially in May including a 1% decline in young available aircraft listings (less than 10 years in age). New delivery position inventories have declined sequentially in each of the past two months. Cnstina Fernandez Aralg • Excess supply to pressure backlogs, force further production cuts We estimate average asking prices for most young aircraft models have now fallen 30-40% froni peak levels, with pricing down another 3-4% in the past month. Darryl Genovesi While our survey of industry professionals suggests some incremental interest at Associate Analyst these levels, we think record high used available inventories will continue to overhang orders, pressure existing backlogs and force further production cuts. • Expect weak orders & backlog risk to pressure valuations Overall, we think the current business jet market is characterized by significant oversupply, weak pricing and tight financing. While our key indicators and contacts indicate a bottom is near, we think the potential for further production cuts along with the risk of an extended downturn limits upside for most of the stocks. We think TXT can trade higher on an improved liquidity profile post its recent capital raise and is our preferred bizjet play over GD. Chart 1: Total Available and Young (less than 10 years in age) Aircraft Listings 38.00 18% 3200 16% 2000 14% A 2.400 12% a... 2000 10% 1.800 8% a 12131) 6% 800 4% 400 2% 0 0 *wm$$$$4-4-grilsam"484.3 1444.144/14ilkiimi4411414 0-10 Years 10. Yeats —%ot Fleet Avadatie to( Sale % of Installed Base Source. JETNET and UBS °striates Thls report has been prepared by UBS Securities LLC ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 10. IJBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Customers of UBS in the United States can receive independent, third-party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at vAwcubs.comiindependentresearch or may call +1 877-208-5700 to request a copy of this research. EFTA_R 1_01520326 EFTA02444120 U93 Business Jet Weil 10 June 2009 Used Business Jet indicators We believe the used business jet market serves as a leading indicator of the new business jet market. We closely monitor several key indicators of activity in the secondary market, including: I) inventory of available for sale aircraft including new delivery positions listed for sale, 2) age distribution of available aircraft and 3) pricing of available for sale aircraft. We estimate 3,057 business jet aircraft available for sale at the end of May (including 2,878 used aircraft and 179 new delivery positions). roughly in line with the prior month, although still 55% higher from the prior year. While total inventory levels remain at all time record highs both in absolute terms and at 18% of the in-service fleet, we think the slower growth rate over the past few months indicates that inventories are beginning to stabilize. Chart 2: Sequential Change in Used Aircraft Listings 10% - 8% - 6% - 4% - 2% • 0% -2% • lel f ) 'lir' I -fig Sane: IRS estimates Young available aircraft inventories (less than 10 years in age), which had driven the recent inventory build, have also shown much lower sequential growth rates over the past few months and in May actually declined by 1%. Chart 3: Sequential Change in New and Almost New (0-5 Years) Aircraft Listings 30% 25% • 20% 15% - 10% - 5% - 0% -5% - -10% - -15% • 20%- $ a I Son: UBS estimates New delivery position inventories have declined sequentially in each of the past two months. UBS 2 EFTA_R1_01520327 EFTA02444121 WM Business Jet tides 10 June 2009 We estimate average asking prices for most young aircraft models have now fallen 30-40% from peak levels, with pricing down another 3-4% in the past month. While our survey of industry professionals suggests some incremental interest at these levels, we think record high used available inventories will continue to overhang orders, pressure existing backlogs and force further production cuts. Overall, we think the current business jet market is characterized by significant oversupply, weak pricing and tight financing. While our key indicators and contacts indicate a bottom is near, we think the potential for further production cuts along with the risk of an extended downturn limits upside for most of the stocks. We think TXT can trade higher on an improved liquidity profile post its recent capital raise and is our preferred bizjet play over GD. Chart 4: GD and TXT Forward PIE Multiples 30x 25x • 20x d • 15x. 4•1-3/4W`'•• .01/4% '2 t i/, Y \ \ lox• LL 5x- Ox ct, gga (O Ia.; 4 4 I 'ci 6 c 4 4 4 4 Go Txr Note: Reward PE using riling 12-month Masai) EPS through May 2009 and 1)85 estimates ice future mends. Tr PE multiple la the current period reflects our 2010 estimate. Source: LIEIS estimates jE,S 3 EFTA_R1_0 1520328 EFTA02444122 U93 Business Jet *bit 10 June 2009 Available Inventory Levels We estimate 3,057 business jet aircraft available for sale at the end of May (including 2,878 used aircraft and 179 new delivery positions), roughly in line with the prior month, although still 55% higher from the prior year. While total inventory levels remain at all time record highs both in absolute terms and at 18% of the in-service fleet, we think the slower growth rate over the past few months indicates that inventories are beginning to stabilize. Of the five major manufacturers. Bombardier had the highest percentage of its respective fleet available for sale at 19%, followed by Cessna at 18%, and Dassault, Gulfstream and Hawker Beechcraft all at 16%. Chart 5: Business Jets Available for Sale and as a Percentage of the Installed Base 3.600 18% 3.200 16% 2,803 14% <.? 2.403 12% z7,3 a. 2.003 10% % 1,203 6% -6 803 4% 400 2% 0 0% PPP 67' 27, '33 53 4 '4 '4"4' fl ", `4 11414144.U444414..41..414144444 Sass: JETNET end UBS 'situates Chart 6: Absolute YoY Growth In Available For Sale Aircraft Listings 75% 25% 1 0% lfjl riquiv1/4.4immpinfirIfir -25% 1;3 L33 a '“ fit tic ". 4 rei niti14444144141414:141-111 Source. JETNET and UBS estimates By age class, we estimate the 0-5 and 6-10 year classes now have 11% (612) and 16% (543) of their respective fleets available for sale as compared to 5.10% a year ago. Meanwhile, business jets 20-30 years old now have roughly 30% of their fleets available for sale, above the recent average of 20%. Available inventory levels are stabilizing at record high levels J654 EFTA_R1_01520329 EFTA02444123 UN Business Jett/plait 10 June 2009 Chad 7: Available Inventory by Age Class and as % of Fleet in Age Class 800 700 600 500 400 300 200 100 0 aaaal Used Avadable 0-6 6-10 11-15 16-20 21-25 26-30 30+ Age Class (Yrs.) of Ago Class 40% 30% 20% 44 10% e 0% Source. JETNET and MS estimates Currently, 38% of jets available for sale arc less than 10 years in age, well above the 20-25% average over the last several years. Chart 8: Available Inventory by Age Class (in years) 26-30 23% 30r 045 12%* 21-251 11-15 9% 16-20 12% 6% 6-10 18% Source: JETNET and U8S estirnates Chart 9: Young Aircraft Available for Sale (less than 10 years in age) 1200 i r 40% 35% 1,000 30% i 800 220% 5% 15 15% (2 E 400 10% 200 0-5 Years 6-10 Years of Total Available Source: JETNET and UMestimates We estimate the new/almost-new component of available aircraft inventories. including new delivery positions and used aircraft five years old or younger, declined by 3% in May to 612. roughly 2.5x prior-year levels. J655 EFTA_R1_01520330 EFTA02444124 UN Babas JM Updeta 10 June 2009 Of the 612 0-5 year old aircraft available for sale, 179 arc new delivery positions, Table 1: New Aircraft Delivery Positions 3% lower from April at 184, but still 2.5x higher from a year ago (ex Eclipse). Listed for Sale at May 31 and April 30 Chart 10: Historical New Aircraft Delivery Positions Listed for Sale 240 Edpre wideion a 7 as 2® 160 120 - t 8° - 4 0 0 n e n p , 1 ) I I , y i p p p f . 244 a 4 r -i g fAa4A34 4 a 3 • Toul Ex Wyse Ecepse 500 Sane: !MET and LEISestimates We estimate young aircraft inventories (less than 10 years in age) declined by 1% in May. following steady increases over the past two years. Chart 11: Young Aircraft (less than 10 years) Inventories as a % of Installed Base 1400 1.200 1.000 800 600 400 200 0 3nReci; 6.-,?:?)* 8;?$*-- "'"" -'44 1^ r.4. 1" e43 3232332232 -1q313/313343 - 42s 314 0-10 Years —% of Ins%Iled Base 3 Source: JETNET and UBS tamales Despite the sequential decline this month, young aircraft inventories are still roughly double prior year levels. Chart 12: Absolute YoY Growth in Young Aircraft (less than 10 years) Listed for Sale 150% 100% 50% ET 0% 'IIhIIl ,,J le lila') -11" I e -50% ifili11111111111111111M Son JETNET and LSS estimates Model May-09 Apr-09 C4abonklustang 34 32 Pherom 100 28 27 Pherom 300 10 ID Challenger 300 10 9 Challenger 605 9 It Olsten CJ4 9 9 O939011 C.13 8 ID G6Ifslream G550 8 9 Craton XIS+ 7 ID Global Express 5000 6 7 Challenger 850 6 8 Global Express MS 5 6 Gulfstream 6-450 5 S Citainn Sorcriegn 3 5 Falcon 2000LX 3 3 Falcon 900EX EASY 3 3 Leonel 60XR 3 3 Lineage 1000 3 3 Aibus A318 Me 3 1 Boone Blikl 2 2 Altus A319O.1 2 1 Leanei 45XR 1 2 Adam A700 I 1 Boeing BBJ2 I 1 Bourg BBJ3 1 1 Dilation X 1 1 Diamond D-JET I 1 Falcon 2000EXEASy 1 1 Falcon 7x 1 1 HarAcer9O3XP 1 1 FlondeJet HA-420 1 1 Sno Swearingen SJ30-2 I 1 Pruner II I - Citabon CJ2* • 1 Gullstearn G-150 • • Legacy 600 In 119 184 Source: JetNel and UBS estmates JBS6 EFTA_R1_01520331 EFTA02444125 UN Business Jel Update 10 June 2009 A Look at the Newer Models Of the 26 newer models that we track individually, 21 had at least 10% of their installed fleets available for sale at the end of May. Seven of these 26 models had higher inventory levels in May compared to the prior month, while eight were flat and II declined. All 26 models had higher levels of available inventory compared to the prior year. Table 2: Used Aircraft Listings and Average Asking Price for Newer Models ?abaft Yodel Manufacturer Used Matta* as %o1 Model Used Available (tints) Average Pia May-09 May-09 Apr-09 Change May-08 Change May-09 May-08 Change Ma? Change Max Dale Long Range Faccn 900E% Dassault 11% 26 26 0% 10 160% $ 24.5 $ 34.5 -29% S 35.7 -32% Oct-08 Gabe! Extwesel Bornteme, 10% 33 11 6% 15 120% 5 35.6 $ 469 47% S 489 -27% Am45 GuYsream G-V i G-500 GuYstream 7% 11 12 8% 6 117% $ 30.6 $ 45.0 -32% 3 45.0 42% Jul-08 Gursream GA( GOstream 20% 42 40 5% 26 62% $ 14.3 $ 191 -25% S 20.1 -29% Jan-08 Gueskeam G-IVSPi G-400 Guestrearn 13% 40 40 0% 17 135% 5 18.4 $ 28.0 49% 5 31.5 41% Aug-08 Guasiream G-550 ~am 7% 19 19 0% 4 375% 5 41.0 $ 58.0 -27% $ 599 42% Jrm-07 Lwal, Chalenger 604 Bombards 13% 48 48 0% 19 153% 5 16.2 $ 20.4 -20% 5 223 47% Jan-08 F8[1=11(00 Dassault 13% 30 27 11% 12 150% $ 18.4 $ 1(7 -12% $ 21.8 -24% Feb-09 Fatten 2000E% Dassault 6% 11 12 -8% 3 267% $ 25.6 $ 33.8 -24% $ 353 -28% Mar-09 Legacy 600 Fmbraer 13% 20 20 0% 2 900% S 1(3 $ 20.0 4% $ 243 -21% Dec-07 Medium Large Chateriger 303 Bombardier 8% 22 22 0% 7 214% $ 18.1 $ 24.8 -27% $ 243 -27% Auga Citation X Cessna 10% 29 31 4% 19 53% S 10.9 $ 13.3 48% $ 188 -42% Mar-06 Faccrt 50E% Dassault 20% 20 21 -6% 6 233% $ 10.0 $ 158 -33% $ 18.0 -45% Aug-06 Gilts-ream 6400 ~ream 15% 34 35 4% 19 79% $ 13.7 5 15.3 40% $ 17.8 -22% Mar-0S Medium GaSfream G-1032 G:gleam 19% 15 16 4% 14 7% 5 5.9 5 7.0 45% S 110 -46% Mar-06 Hawker 800XP Hawker Beechcraft 14% 65 65 0% 24 171% $ 13.7 $ 9.0 -25%S 9.1 41% Jan-08 Lanett60 i6OXR Gombarder 23% 84 80 5% 39 115% S 5.9 $ 7.6 -22%S 77 -23% ann-08 Self Light Excel XIS Cessna 11% 80 78 3% 37 116% 6.0 $ 8.5 -30%5 95 47% May-06 Lem« ;43xR Boransfder 12% 47 50 4% 24 96% $ 5.4 72 -24%$ 78 -30% May47 Light Hatchet 400AL Hawser Beechcraft 18% 56 58 .3% 41 37% $ 2.1 $ 32 45% $ 35 -40% Jan46 Diann CD/ CJI• Cessna 18% 53 56 -5% 34 56% $ 32 $ 3$ -17% 5 33 -17% May478 Citation CJ2i CJ2* Cessna 15% 58 63 4% 26 123% 5 4.6 $ 5.0 4% 5 5.3 -14% Fe005 Gunn Emcee Cessna 11% 25 25 0% 16 56% $ 5.9 $ 7.1 -16% S 7A -19% Sep-07 Leone( 40 i 40%9 Borrbander 10% 12 14 -14% 8 50% $ 8.1 nia eVa 5 83 -29% Jul-06 Primer Hawker Beedx7aft 13% 35 33 6% 26 35% $ 3.7 $ 4.5 -17% 5 4.7 .22% Jan46 Comer, CJ3 Cessna 1% 23 26 -12% 11 109% $ 71 3 ).4 4% $ 60 -11% Jan-08 1. Global Express *so includes Express 5000 and Express %RS 2. Gultstream G-100 also includes Aska 11255PX 3. Canon Excel also iddes XIS/ XIS.. 4. Bead* 400A does rick include Hat 400%P. Much had 15 arcraft available b sa this not 5. This column represents Ole maximum average pro actseved snce 2005 for each aircraft model. Note: Analysis excludes new aircraft delivery postrons. Source: JETNET and L8S estrrates J657 EFTA_R1_01520332 EFTA02444126 U93 Business Jet Update 10 June 2009 Pricing Trends in the Secondary Market Rather than look at average pricing for the entire population of available aircraft. which can be distorted by monthly changes in its composition, we monitor four models that we believe capture pricing trends in their respective categories. Super Light We estimate the average asking price for a Citation Excel declined roughly 4% sequentially in May. and is now off 37% from its recent peak, while available for sale inventory increased by three aircraft. Chart 13: Citation Excel Rolling Three-Month Average Asking Price 11131313111113 3 3 3 Available Inventory S5 R3M Average Mang Price (RHS) Source: Jetlet and UBS estrnates Medium We estimate the average asking price for a Hawker 800XP declined roughly 3% sequentially in May, and is now off 31% from its recent peak, while available for sale inventory levels were unchanged from the prior month's all-time high. Chart 14: Hawker BOOXP Rolling Three-Month Average Asking Price 80 70 - I B0 g. 50 - I 40 S= 20 - 10 0 - - ,Avalatile Inventory $11.0 • $10.5 $10.0 $35 $9.0 - $8.5 - $8.0 • $7.5 $7.0 H31 R3M Average Asking Pace HS) I Source: Jegiel and UBS esemates J658 EFTA_R1_01520333 EFTA02444127 U93 Business Mt UM* 10 Aim 2009 Medium Large We estimate the average asking price %r a Citation X declined roughly 4% sequentially in May, and is now off 42% from its recent peak, while available for sale inventory declined by two aircraft from the prior month's all-time high. Chart 15: Citation X Rolling Three-Month Average Asking Price 35 30 25 .6. 20 115 10 $ 0 Ar\e„N ril\i" 0 ri 4 4 4 4 4 4 0 9 3 2 z -1 4U4 41 -1 4&if Avaiable Inverday MI Average Asking Price (NHS) $18 $17 $16 $15 $14 $13 512 $11 a p I 3 Source. Jet et and UPS estmates Large We estimate the average asking price for a G-IVSP declined roughly 4% sequentially in May, and is now off 41% from its recent peak, while available for sale inventory levels were unchanged from the prior month's all-time high. Chart 16: Gulfstream G-1VSP Rolling Three-Month Average Asking Price 40 35 - vAfl ( $34 32 $30 $28 $26 - $24 - $22 - $20 11111111111111131 Available Inventory Ft3k1 Average Asking Price (RIC) $18 a 2 iP Source: JetNet and UBS estimates UBS 9 EFTA_R1_01520334 EFTA02444128 U93 BusInas Jet US* 10 June 2009 ■ Statement of Risk The business jet market is cyclical in nature, largely driven by the general economic environment. Business jet manufacturers' earnings and cash flow are dependent on end-user demand, availability of customer financing, program execution and inventory management. ■ Analyst Certification Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1 ) all of the views expressed accurately reflect his or her personal views about those securities or issuers; and (2) no pan of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report. U6510 EFTA_R1_01520335 EFTA02444129 UBS BusinnsJoi Update 10.kine2002 Required Disclosures This report has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS. For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past perfomtance is not a reliable indicator of future results. Additional information will be made available upon request. UBS Investment Research: Global Equity Rating Allocations UBS 12-Month Rating Rating Category Coverage' IB Services Buy Neutral Sell Buy Hold/Neutral Sell 51% 37% 12% 36% 31% 22% UBS Short-Term Rating Rating Category Coverage' IB Services.' Buy Sell Buy Sell less than 1% less than 1% 43% 38% 1:Percentage of companies 2:Percentage of companies the past 12 months. 3:Percentage of companies 4:Percentage of companies within the past 12 months. under coverage globally within the 12-month rating category. within the 12-month rating category for which investment banking (IB) services were provided within under coverage globally within the Short-Term rating category. within the Short-Term rating category for which Investment banking (IB) services were provided Source: UBS. Rating allocations are as of 31 March 2009. UBS Investment Research: Global Equity Rating Definitions UBS 12-Month Rating Buy Neutral Sell UBS Short-Term Rating Definition FSR is > 6% above the MRA. FSR is between -6% and 6% of the MRA. FSR is > 6% below the MRA. DefinMon Buy: Stock price expected to rise within three months from the time the rating was assigned because of a specific catalyst or event. Sell: Stock price expected to fall within three months from the time the rating was assigned because of a specific catalyst or event. Buy Sell UK 11 EFTA_R1_0 1520336 EFTA02444130 UBS Buskins Jet Update 10 lute 2009 KEY DEFINITIONS Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months. Market Return Assumption (MRA) is defined as the one-year local market interest rate Pus 5% (a proxy for, and not a forecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock's price target and/or rating are subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment case. EXCEPTIONS AND SPECIAL CASES UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management. performance record. discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell: Negative on factors such as structure, management, performance record, discount. Core Banding Exceptions (CBE): Exceptions to the standard +1-6% bands may be granted by the Investment Review Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating. When such exceptions apply. they will be identified in the Company Disclosures table in the relevant research piece. Research analysts contributing to this report who are employed by any non-US affiliate of UBS Securities LLC are not registered/qualified as research analysts with the NASD and NYSE and therefore are not subject to the restrictions contained in the NASD and NYSE rules on communications with a subject company, public appearances, and trading securities held by a research analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report, if any. follows. UBS Securities LLC: David E. Strauss; Cristina Fernandez; Darryl Genovesi. Brazil Regulation 388 Analyst Certification Except as provided above, each research analyst primarily responsible for the content of this investment research report, in whole or in part, certifies that: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers, and such recommendations were elaborated independently, including in relation to Banco UBS Pactual S.A. and/or its affiliates, as the case may be; (2) no relationship is maintained with any person who works for the subject companies which securities are mentioned on this research; (3) Banco UBS Pactual S.A. and/or its affiliates (including the funds, portfolios and investment clubs in securities managed by them) do not own directly or indirectly 1% or more of the total capital of the subject companies or are involved in the acquisition, alienation or intermediation of such securities in the market; (4) does not hold, directly or indirectly securities of the subject companies which represent 5% or more of his or her net worth, and is not involved in the acquisition, alienation or intermediation of such securities in the market; (5) neither the analyst nor Banco UBS Pactual S.A. and/or its affiliates receive compensation for any services rendered or presents any commercial relationships with any of the subject companies or person, entity or any kind of funds which represents the same interest of the subject companies; (6) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the pricing of any of the securities issued by any of the subject companies and/or to the specific recommendations or views expressed by the research analyst in this research although part of the analyst's compensation comes from the profits of Banco UBS Pactual S.A. and/or its affiliates and, consequently, revenues arisen from transactions held by Banco UBS Pactual S.A. and/or its affiliates. Company Disclosures Company Name General Dynamics Corp." Textron Inc.'''' s• Ba• ore."•7*". Reuters 12-mo rating Short-term rating Price Price date GD.N Neutral N/A US$59.25 09 Jun 2009 TXT.N Neutral N/A US$11.95 09 Jun 2009 Source: UBS. All prices as of local market close. Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricing date 2. UBS AG, Its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement of securities of this company/entity or one of its affiliates within the past 12 months. UBS 12 EFTA_R1_01520337 EFTA02444131 UBS Business JM Update 10 June 2009 4. Within the past 12 months. UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from this company/entity. 5. UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from this company/entity within the next three months. 6a. This company/entity is. or within the past 12 months has been, a client of UBS Securities LLC, and investment banking services are being, or have been, provided. 6b. This company/entity is. or within the past 12 months has been, a client of UBS Securities LLC, and non-investment banking securities-related services are being, or have been, provided. 6c. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC. and non-securities services are being, or have been, provided. 7. Within the past 12 months. UBS Securities LLC has received compensation for products and services other than investment banking services from this company/entity. 16. UBS Securities LLC makes a market in the securities and/or ADRs of this company. 18. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Textron Inc. 22. UBS AG, its affiliates or subsidiaries held other significant financial interests in this company/entity as of last month's end (or the prior month's end if this report is dated less than 10 working days after the most recent month's end). Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report. General Dynamics Corp. (USS) Na Target (USS) Stack Dice (US$) 120— ice— 80- 60- 20- 0 .v0 o v a E 0 0 0 l Ball I Bty Mud N3 Rake I I I I ; S s s a l l l I I 1-01-Jan-07 — 4 4 Source: UBS: as of 09 Jun 2009 UBS 13 EFTA_R1_01520338 EFTA02444132 UBS Business Jet Update 10 June BM Textron Inc. (USS) Pita Tager MA Sim 018$) 80 O- en 0- 400- 200- 0.0 Bur I S S 2 2 2 S But Nags S; Pattl 0 S 1 Lr Source: UBS; as of 09 Jun 2009 Note: On August 4, 2007 UBS revised its rating system. (See 'UBS Investment Research: Global Equity Rating Definitions' table for details). From September 9, 2006 through August 3, 2007 the UBS ratings and their definitions were: Buy 1 = FSR is > 6% above the MRA, higher degree of predictability; Buy 2 = FSR is > 6% above the MRA, lower degree of predictability; Neutral 1 = FSR is between •6% and 6% of the MRA, higher degree of predictability; Neutral 2 = FSR is between •6% and 6% of the MRA, lower degree of predictability; Reduce 1 = FSR is > 6% below the MRA, higher degree of predictability-. Reduce 2 = FSR is > 6% below the MRA, lower degree of predictability. The predictability level indicates an analyst's conviction in the FSR. A predictability level of '1' means that the analyst's estimate of FSR is in the middle of a narrower, or smaller. range of possibilities. A predictability level of '2' means that the analyst's estimate of FSR is in the middle of a broader, or larger, range of possibilities. From October 13, 2003 through September 8. 2006 the percentage band criteria used in the rating system was 10%. UBS 14 EFTA_R1_0 1520339 EFTA02444133 UBS Business Jet Update 10June 2009 Global Disclaimer Thu roport has bean preparod by UBS Secedes MC, as aikido of US$ AG 08$ AG as subsidiaries Mathes and atlas are reface to heron as 08$ In oaten counthos US$ AG a referred to as UBS SA. This report a a asadrubon only weer such proanlances as may be perated b) applicable law Nothing n this reps pavanes a repasontehen that any linemen strategy or recannendabon velem* herein a surd. a appropriate b a rectoienti ndadvar onanntances a °thermse comatubas a personal reocarrardsion II is washed solely be 'narration papaws. rl don not roulade an adremsenient and es not la be construed at a sob:Aaron a an one to buy or sell any swathes cc Wawa Inancal rnsourneas in any ansocoori No reaesentaten or warranty. either manias a waned. is provided n rotation to the accuracy. completeness co telobray of the inlorrnaten careened heron. easel wth renect to micanabon conamng US$ AG its sae: ones and affnota nor ntareed be comae* Warrant a summary of the senators, markets a developments attend tom Ilse Mat UBS Wes not undenake that rwoowe we obtain aorta. na Ad it awe wen rot-sears any invearent profits nor accept any Jabot* for any wwialmertz losses Jena:noels meaty fl ea and sweeten should exercise bnadence n narrative. niesiment Clatuas The rococo should not be regarded by reacrents as a sobsotVe *r the exercise of trier Can judgement Any opines expressed n nos fecal We tuned la charge inthCot refute Md may Oda a be mitre, lo rano* entressed by of totheis areas or groups of US$ at a real ol usaig Cider** skarn:dons and Ching ReSliardi ell abate. utogne and Cane Coverage solely at me client:COI ol UBS thressment Sans Rowan", Ilanagarreni The analyie chritaned heron t based On numerous anurr(fiCen Drknent WinienCes <WV tow/ n materiely difiefeal results The enable • I rewooreibie for the biehatahr. a 114 Meer, mai nwacl with hating desk Personnel. sales Pasonna and other conalutmcies to the ar pars of p tham; antesong and iranpreting marketer/errata 0(3$ is Tinder no otegatne to lads* a beep theca the alarm:den contained herein UBS rates ah inform son pares D contra to ?tow a edormation contained in one or more areas adorn UBS. rib Other areal units raps a aelotes of MS The comparaacn of tre Shahid rite prepared this report * delerrnried ealasettiy by research management and aria management not mating investment thinking) Anayst corrgensabon is net based on investment Darning ieverwes trowerte corpernation may relate to the Waif A.Ant of LEIS 1/vestment Bank as a stub orWith nagment brining via and tracing are a pan The saunas described heron may not be °Iota toe sale n at mmsdeteers a to Conan categonas of rotators. Obtains. Oenvathe aolucts and ti.eaec-s aro not sole te for at investors are tradng in Weise intinorisentS is coniglared nay //algae and Selehreeked Stetribei may weave a high degree of risk red ma y be NO* nee* in TeSCOnat 10 liveduatons in reforest rates arid Cana mane condo:fins Pat pertomerion a not nonesany indiciarte of Saturn royts Foreign currerra rates of exchango may agerfaily snort Sin value price cr income of any seemey a related instrument mentionsd in trirs regal Far ruestmom atNia trade execution a other enquires. care shwa trentact them oral sales rcnoraverathe Nether 085 enr any at to ^odes. no any of US$' a wry of rs athlete erosions employees o. agents accepts my lability for any loss or damage arming out of the use of ail a any pal el Tel repot For fintricel instruments aerated to berg on an EU itched nuns: US$ AG as alines a subsidiaries Toicluding 1.65 Securtos LTC ender (.85 Carnal Mantels LP) arts as a macset maker a booth* prairie (.n azowdarea *TM the interpolator, of these bona n The UK) in to Mengel inStrumentS Of the maser sae that entre the Wady of sadly proved is Caned Out in accordance red the delthbon given lo it by the Line and regulations of any other EV turedatent such inharnation n alterably dsobtal rn tie research retool 085 are els anlabe and emOlOyeet may heat bng a sae poatons Pane as parapal are buy are set in ingrurnents of &roan.* ilenbted teen Any aces sleben as retied we fir inferring:1o/ purpose> only and do not represeM valuations sy eilabal locates of other instruments There * no representation that any tranfeclica can or could have been effected at nixie aeon and any Dien do not oedema.* retied LIFIS-s internal books and records or theatrical medettoaed valuations acid trey to based on Wain insorclons Different antennas. by UBS or anyother source may yea: Sinntantely ordeal results United Kingdom and the nest of Europe Except as 07ervele spewed herein. tin redone a communicated by UEI$ L anted a subsidiary of OBS AG. to persons an me algae counterpanes or prolostara clients a* is orgy available eo such persons Ile nionnation contained heron door not apply to. and shard nee he rifted upon by. retail cants UBS Limited a adrenal and regulated by the Financial thrices &aunty (ESA. US$ research complies ern at tie ESA recurrent, and laws conberrina thscsothres and these are indicated on the research chore noolcata Franca: hrepiend by US$ Laced and annealed by US$ Lan* end MS Sauna Friona SA US$ Sectarian Fran:* SA is regulated by the Amnia des Mach* Francars (AMP) Vetere an anayst OI UBS Saturnia'. Franca S A has anent-tad to Ts moon. IM report a also deemed to hare been prepared by (.SS Sedates Franca S A Germany. Prepared by UBS Linea and distnbuled by US$ Lenten and US$ Dthrotrand AG USS Onotichlond AG is regulated by the Bundesentla fur FinanzdenstlealurgadfroN *tarn) Spain- Fathered try USS I rand and dotted by tiRS tasted and VATS Securbes Espana SV SA. Ufa Secants Esparta SV. SA is iecaJalecl by the Coombs NaCiOndi dart Mercado de Vabros !Can* Turkey: Prepared by UBS Kraal Geyer*, AS on treat of and distributed by UBS Lmle, Russia: Prepared and distributed by US$ Site.urties CJSC 3sintzonancl- Dar band by US$ AG to persons who are institutional invalas rely Italy Prepared by LAS Landed and erafated by LISS Longed ad UOS Iola Sm S p A MS Italia Sim $ ti A is regulated try Me Bank of Italy and ter Use Corthressone Naainale fa le Saab eta Sosa (CONSOB) Wtwe an analyal of US$ Pans Svn $ DA has contributed W Ter report. the tart a ato deemed to nave been prepared by USS nal* Sm S p A South Africa UBS Seth Alva (Ply) t rimed illegnbation No 19g$0 II140071 is a mamba of the JSF I mood. the South Athcem Futures Exchange arid the Bond Excharqe 0 South Africa LAS South Alice (Pryt Urania is an authonad Franca Semis Provider. Deals of its postal and armee! address aerials: of its Oracle," are >unable On Ming or wish be accessed ale* was its onFa United Slater igsti toed to la parsons by ocher VBS Senoras I I C a by US$ Faience! SeenCet VIC . sane:tones of 1.6$ AG. a by a goof. sobs.," a athlete CA WS AG that a rrot regnant as a VS lige, Caner thon.US affable). to mast US instrolonal rrvettars only UBS Secrets LLC a USS Financial Street-3 Inc accepts resporatrity la the cornea of a report prepared by another non IS agitate amendstributed to US persons by USS Saunas LLC UBS Financial Saran i.e Al tranaaceis by Ai US the securities maraud in this reps, must tie encored through 08$ SoorirmataLC a 08$ Financial Senate Inc and nor Stough a non.US anal. Canada: Cistnbutcd by US$ Surer tes Canada by a sobiaiary at US$ AG and a mambo of the prinope Canadian stork exchanges & CIPF A Kaltman, of cs enamel condibon and a life of its directors and senor chows an be branded upon mown Hong Kong- Cistnti.ted by LEIS Securities Aria Larded Singapore: Pantie:CI by U8S Saunas Pte Ltd Of MS AG. Singapore Branch Japan: Distrbaled by US$ Savona Japan Ltd to imitation* investors only Where ths report has teen prepared by LOS Sauna% Japan LW UBS SOO/MOS Japan Ltd ts to eater. praither are eistnthca el the rear! Australia: Lastraned by LISS AG (Rally of Autaahan Fnanthat Seneca Lonna No 2310811 ad UBS Saunas Australia Ltd (Meta of Australian Financial Services Leant No 2310a) onty to Vacressie clients as Oared by sTEIG 0 the Caparalens A* 2001 New Zealand: Debilluted by LISS New loaned is, Pw investment advisor and suestrrant brae, ascavaise mammon: is assail:ten request and tree of charge by wrong to PO Bax 40. nudges& N1 China: Danboro] by 085 SeCunbeS CO L aged Dubai: The relanYCIT aeon, and cl Str-bufed by LISS AG Maar likarKh intended tar Prattskona Cants only arid a net la Rana chsthbane wan ins UMW Arab Eenrates The *schwa ca tena in research reads pada*, by US$ Long* she! be governed by and cOnidhod in accordance eith E rtglsh law !JIBS *aortae* prailats the reditinbutran of the mama in rented es part viittesit the wane piniablen Of UBS and USS accepts no Sabi ty autsoever for the adorn of TM panes in Mn festal. GOBS 2009 The key symbol and UBS are among the registered and unregstiate trademarks d USS nghts resents. 4stly UBS IS EFTA_R1_01520340 EFTA02444134