Market Update –Narrow bodies and transition ?? Twin Aisle Storage rising, A330 production line bridged, 777 still has some way to go. ... Preliminary Workpack Preliminary Engine

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    MarketUpdate Narrowbodiesandtransitionmanagement

    May2016

    PhilSeymour CEOStuartHatcher CIO

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    SELECTION Target intelligence Market entry Competitive intelligence

    OPPORTUNITY Asset DD & values Competitor analysis Key stakeholder DD Benchmarking

    THE DEAL Negotiation Critical factors Risk assessment

    RUNNING THE ASSET Technical & regulatory support and advisory Redelivery planning Maintenance reserves and DOC analysis Regular reporting around fleets & values

    EXIT IPO readiness DD on prospective buyer Sell side advisory

    ADDRESSING ISSUES Portfolio monitoring & analysis Early warning of concerns Litigation & dispute support

    4.EXIT

    3.BUILDINGVALUE

    2.AQUISITION

    1.IDENTIFICATION

    Full service

    Data, asset management, technical advisory

    Independent

    No vested interest in a deal progressing or in placating advertisers

    No conflict in treatment of assets under management or for sale

    Diversified talent pool

    Imaginative solution finding from a breadth of backgrounds

    Exclusive data

    Unique access to critical data and intelligence

    EnhancingDecisionMaking

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    Economic View

    Traffic

    Narrow body Market

    Rest of the year

    2016Catchup

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    2016Qu2EconomicViews

    Oil volatility persists and pricing is becoming more sensitive to supply disruptions

    Canadian Wildfire, Libyan unrest, Saudi Oil Ministry change

    Chinese demand increase but for how long?

    Pricing maybe low now, but as oil discovery budgets have reduced from $95bn to $40bn, current supply could be hit hard within next 20 years!

    USD has been dropping, but signs of a return are apparent

    Oil/Gold/Stock v USD

    No absence of new investors continuing to pile into the space

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    EconomicOutlook

    Signals

    Oil

    Interest Rates

    GDP

    World Trade

    USD

    Regional Forecast

    Europe

    North America

    China

    Latin America

    Asia Pacific

    World

    2016 2017

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    TrafficRelationshiphasshifted

    Source:IATA

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    PaxTrafficremainssteady

    Source:IATA

    Passenger traffic growth up at 7.9% in February,

    Whilst economic signals look poor for China, service industry business growth continues to hold.

    Once again, India remains on top. Fastest growing economy and >20% YOY growth and growing

    Domestic Japanese & Brazilian market remains under pressure.

    Russia recovered well in March after loss in January

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    TheImpactontheAviationCycle

    Demand trends

    Pax traffic

    Freight traffic

    Yield

    Load Factors

    Orders

    Supply factors

    Deliveries

    Parked

    Secondary market

    Economic life

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    SingleAislePoints

    Slow orders for 2016 Oil may shift focus Fewer lessor orders with more bias

    towards operators that havent bought yet Expect keener pricing from Boeing to

    steady 737MAX market share Availability Falling Storage Falling Lease Rates under pressure will leak

    into pricing Market remains liquid across all ages,

    but. At a price

    Sale & Leasebacks

    Sales with leases attached

    Lease Rate Factors

    OEM pricing

    Lease Term Lengths

    Extensions

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    PotentialNewOrders AirbusA320 family Operators Fleet BacklogAMERICAN AIRLINES 363 138CHINA EASTERN AIRLINES 250 0EASYJET 249 174CHINA SOUTHERN AIRLINES COMPANY 238 0AIRASIA 174 306JETBLUE AIRWAYS 159 87UNITED AIRLINES 153 0LUFTHANSA 151 126TAM - LINHAS AEREAS 134 0BRITISH AIRWAYS 131 35DELTA AIR LINES 129 79AIR CHINA 128 0AIR FRANCE 122 3LATAM AIRLINES GROUP 112 78INDIGO 108 426VUELING 106 58UNDISCLOSED 104 676TURKISH AIRLINES 103 100SICHUAN AIRLINES 100 0AIR CANADA 94 0AEROFLOT RUSSIAN AIRLINES 87 0SPIRIT AIRLINES 85 81ALITALIA 79 0SHENZHEN AIRLINES 78 0WIZZ AIR 67 144AVIANCA 67 136AIR INDIA 66 0AIR BERLIN 65 3

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    PotentialNewOrders BoeingB737 family Operators Fleet BacklogSouthwest Airlines 599 248Ryanair 351 223United Airlines 312 139American Airlines 271 134China Southern Airlines 147 25Delta Air Lines 141 62Air China 138 22GOL Transportes Aereos 134 71Hainan Airlines 128 9Xiamen Airlines 125 37Alaska Airlines 129 60WestJet 114 70Lion Air 108 240Shandong Airlines 90 13Shenzhen Airlines 86 7Turkish Airlines 92 86SAS 85 0Garuda Indonesia 80 50Virgin Australia 74 45COPA Airlines 76 70China Eastern Airlines 76 43Jet Airways 70 75Qantas 67 0Shanghai Airlines 72 0Norwegian Airlines 59 130

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    OtherConsiderations SingleAisle

    New generation engine technology reliability & reserve rates Economic life debate continues Premium of neo/MAX v ceo/NG Developing economic market softness Lease rate factors under pressure Shorter lease term economics Order bubble Lots of interior flexibility but will it lead to marginalised fleets Ramp ups on the way

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    Values&Rates SingleAisle

    A320-200

    A319-100

    A321-200

    A320neo

    A320 Classics

    737-800

    737-700

    737-900ER

    737 MAX 8

    757-200s

    737 Classics

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    OtherAssetClasses Turboprops Storage rising, regional distress, falling lease rates & values

    Regional Jets Storage rising, demand remains strong for specific types, a lot of new

    aircraft technology coming

    Twin Aisle Storage rising, A330 production line bridged, 777 still has some way to

    go. Softness in placing speculative orders challenged by low oil price.

    Appetite remains intact on financing for new deliveries to good credits

    Freighters Out of production large freighters still in turmoil, narrowbody demand

    rising

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    EconomicSummary

    Economy weak growth on the horizon generally uneasy

    Traffic on the up, LFs holding steady, freight struggling

    Airlines great revenue for some, strong USD squeezing profits

    Developing economies dependant on oil airline bankruptcies ahead

    OEM Challenges: Ramp-ups, market share

    Lessors sales in the pipeline, falling LRFs, increasing competition & new accountingrules

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    RedeliveriesRevisited

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    ExtendorReturn?

    Extend Good deals to be had, especially on

    widebodies, given demand and fit out costs.

    Gap between current and next generation kit has narrowed, slowing adoption

    Still a big decision driven by a complex balance of rates, costs, reserves and demand.

    Return Last minute = bad news and/or big fees Two years planning

    How to replace/wheres it going What can I avoid paying for What do I get next engines, IFE

    Not a lesson in each side shafting the other

    In fact the opposite is true, doing the right thing = a better deal and more choice.

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    Twoyearsout

    We rarely see redeliveries planned sufficiently in advance, yet when they are, they cost less and take up less time.

    24 months ideal, from 15 months out, you risk the domino effect

    Getting lessees to engage early enough is the biggest issue

    ACTIVITY 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 09 08 07 06 05 04 03 02 01INITIALPHASEConfirmationofLeaseReturnPREREDELIVERYPHASEAnalysisofRedeliveryConditionsMROSelection(Lessee)InitialMeetingwithLessorProjectPlanCabin&CargoBaysInspectionPreparationofAircraftRecordsPreliminaryWorkpackPreliminaryEngine&APUBorescopeInspectionsFinalWorkpack(Lessorapproval)PreInputMeetingwithMROREDELIVERYPHASEMaintenancePlanfromMROPerformWorkscope(MRO)AircraftRecordsReviewEnginesHighPowerRunDemonstrationFlightEngine&APUBorescopeInspectionsFinalDiscrepancyListCommercialResolutionAIRCRAFTRETURN

    MONTHSPRIORTOAIRCRAFTREDELIVERY

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    $1.65m Itsoonaddsupandisincreasing

    100,000 200,000 300,000 400,000 500,000 600,000

    Wings&Empennage

    APU

    Interiorandcarpet

    Corrosion

    Landinggear

    Fuselage,windowsanddoors

    Components

    General

    Engines

    Costs fall into three areas: Redelivery planning: falling between cracks Maintenance planning: work to the lease, not the MPD Commerciality: the above two are OK, but the

    negotiation goes badly

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    Engines/APU - $630k

    Always complex to assess, forecast and maintain given the myriad of variables

    Borescope, by definition, is invasive, can they be avoided?

    So what to do:

    Manage cycles and shop visits more strategically.

    ThemainculpritsGeneral - $500k

    Watch for catch-all and ambiguous terms: good, clean, etc

    Damage and old repairs can create need for rework and lead time for materials almost always delays redelivery if only identified at the redelivery check.

    Modifications without detailed acceptable source documents and certification. Back to Birth, PMA and DER

    So what to do:

    Plan better and that starts at the outset of the negotiations

    Components - $260k

    Documentation is everything, yet we have never (thats right, NEVER, seen a full set, on time and acceptable to the lessor

    So what to do:

    Have tight control of the subcontracted component providers, to minimise downtime

    Fuselage, Windows and Doors - $195k

    Records vital again in relation to the fuselage