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Aviation Market  UpdateFebruary 11th 2016

Phil Seymour – CEOphil.seymour@ibagroup.com

Stuart Hatcher – CIO & VP Valuationsstuart.hatcher@ibagroup.com

Paul Lyons – Strategy Directorpaul.lyons@ibagroup.com

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Agenda 

• IBA Intro• Macro view• Orders & Deliveries• Single Aisles• Twin Aisles• Airlines• OEMs• Lessors

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Two minutes on usSELECTION• Target intelligence• Market entry• Competitive intelligence

OPPORTUNITY• Key stakeholder DD• Asset DD & values• Benchmarking• Negotiation

RUNNING THE ASSET• Redelivery planning• Technical support and advisory• Maintenance reserves and DOCs

EXIT• IDD on prospective buyer • Sell side advisory• IPO readiness

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

4.EXIT

3.BUILDING VALUE

2.AQUISITION

1.IDENTIFICATION• Full service: Data, leasing

platform, asset management, redeliveries, advisory

• Diversified talent pool: Creative solutions from a variety of backgrounds

• Exclusive data: Unique access to data and intelligence

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Volatile Crude

• Oil volatility remains a concern• Airlines learned to manage through prolonged high

pricing as traffic demand was rising• Long term high pricing sparked interest in new engine

options• Airlines still don’t believe low pricing will last beyond two

years• New technology still remains valid, but given strong

demand for more capacity, current technology remains viable

• Slowing down of demand for oil in developing countries –better management of production required

• Iran re-entrance will effect some change too• Middle East and Russian tensions will continue• End users in advanced economies continue to take

advantage, whilst strong USD hurts emerging market

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Brent Crude US$/bbl

Tough to manage

Manageable

Good Times

Source: FRED

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GDP

• GDP growth has remained steady although shift has moved away from the BRIC countries

• IMF predictions – China (6.3%),Russia (-1.0%), India (7.5%), Brazil (-3.5%), USA (2.6%), Euro area (1.7%), Japan (1.0%) –

• Advanced economies rising slowly, and slow rise in emerging economies – but not for China or countries dependent on China

• Emerging markets still account for 70% growth• How real is Chinese growth – shift to consumer

market or is a meltdown on the horizon? Traffic increase of 10.9% in China leans towards optimistic view

• Traffic demand continue to follow overall GDP trend but prolonged consumer demand in the face of low oil/commodity pricing has shifted the gear

4.27%

1.83% 2.08%2.76%

4.15%3.59%

4.09% 3.94%

1.45%

‐2.06%

4.08%

2.85%2.26% 2.36% 2.49% 2.40%

5.90%

‐2.69%

‐0.33%

0.76%

13.62%

7.25%

5.65%

7.25%

1.69%

‐1.62%

8.21%

6.55% 6.13%5.60% 5.90%

6.50%

‐4.00%

‐2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

GDP RPK

Source: IMF & IATA

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Traffic Relationship has shifted

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RPK ‐

GDP X 10^9 US$ 2005

1985‐2015

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1985‐2009

How resilient is this shift – one‐way global consumer demand shift or bubble?

Source: IATA & IBA

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Business Confidence

• Conservative views compared to 2015• Firm confidence in Europe with

concerns for Brazil and China• US dipped below 100 – highlighting

issues with the strong USD

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Sloven

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Hungary

Turkey

Spain

Mexico

Japan

Russia

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Australia

France

Poland UK

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Switzerland

South Africa

United States

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Estonia

Finland

Slovak Rep

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India

China (PRC

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urg

Greece

Korea

Chile

Brazil

Business Confidence

Jan‐16 Jan‐15Source: OECD

SH1

Slide 7

SH1 Stuart Hatcher, 10/02/2016

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Pax traffic remains steady

• Business confidence, GDP and air travel demand tends to correlate but if China’s shift continues from manufacturing to consumption we may see a wider pattern

• IATA expect pax traffic to remain firm for US, Western Europe and Asia Pacific in 2016

• We expect regional shifts from Europe to US, and in/out traffic from South America

• Despite weak business confidence index, domestic Chinese demand looks solid

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Fragile Freight Demand

• Very slow growth – 2.2% overall with contraction in Europe and minor expansion in Asia Pacific region

• 1H15 particularly bad, with recovery in the 2nd half of the year

• Middle East saw large expansion in 2015 (11.3%) despite oil price effects on local economies. Expansion into new markets has driven growth

• Despite the low oil price, demand growth continually remains weak

• 2016 forecast looks more promising (not difficult!) with growing Eurozone and higher global consumption but market remains fragile

• Strong USD will hamper exports

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Load Factors

• Pax load factors are encouraging, although helped by minor contraction in capacity in 4Q15 – typical seasonal trend

• Freight load factors continue to disappoint overall but a minor capacity drop helped stem the problem

• Domestic load factors helped to boost factors with India and US markets leading the way with 83.2% - 85.4% respectively. China remains strong at 81.2%. All 3 up from 2014.

• China ASK up 9.4% - RPK up 10.9%, India up 10.6% -RPK up 20.2%, US ASK up 4.3% - RPK up 4.9%

• International – Middle East ASK up 13.2%, RPK up 10.5%• Latin America intl. traffic up 9.3% but outlook doesn’t look

good

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Yields & Currency concerns

• As fuel costs have declined, downward pressure on yields have continued

• Many operators have removed fuel surcharging despite hedging at higher levels remaining in place

• Some operators have risen base fares, but it depends on market environment

• Stronger USD has significant impact on global fares. Further squeezing non-US airlines that have costs in USD but fares in local currency

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Currency – Strong USD

• Largest impact to Russia, Brazil, Argentina and Scandinavia• Some natural hedge on international routes with US but as

maintenance, lease rentals and new aircraft purchases remain in USD, non-fuel costs have risen for most non-US operators

Percent change in bilateral exchange rates vs. the US dollar since the start of 2014

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5 Forces by the man himself ‐ 2011

Supplier power ‐ HighPowerful unions, concentrated oligopolies in aircraft and engine manufacturing, local monopolies at airports and increasing concentration in the supply of services. 

The bargaining power of the GDSs is very high, since each of the three major GDSs is insulated from competition

Buyer power ‐ HighCommoditisation of air travel 

Low switching costs

Threat of substitution ‐ HighMedium and rising, with improving technology for web‐conferencing and competition from high speed 

rail on short haul markets

Competitive Rivalry ‐ High

Economics (high sunk costs per aircraft, low marginal cost per passenger, perishable product, limited economies of scale), government constraints restricting consolidation through exit or cross‐border merger. Indirect distribution channels currently encourage commoditization and competition on price and schedule alone.

Threat of new entrants ‐ HighEasy entry into many markets

Easy access to distribution channels and limited incumbency 

advantages

Source: IATA

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“High capital” availableNovations and Sales

But general macro concerns

Increasingly negative but not for this reason

LessorsAirlines now in position of Strength

Source: IATA

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Increasingly negative with more competition

OEMs

Source: IATA

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Increasing options: PMA and Part Out

Lower fuel price encouraging For re‐lifing older kit

Utilisation dependant

MRO

More OEM involvement in Airframe

Source: IATA

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Massive rise in profits

Source: IATA

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Airline Costs Shifting

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What will Airlines do with all this cash?

• Airlines have shown “rational” behaviour since 2007 by cutting routes and parking older aircraft• Profits were achievable during prolonged high fuel cost period but margins were thin• New efficient aircraft were ordered to reduce DOCs/COCs as fuel was expected to remain high for good• With fuel low – what do airlines do?

• Buy more aircraft?• Open new routes?• Start a price war?• Cancel/defer new orders and buy older aircraft?• Buy out leased aircraft?• Pay dividends?• Buy shares in other airlines?• Stop leasing aircraft?

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Historical Net Orders – Airbus & Boeing

• Another strong year for orders• 3rd year in row and 7 out of 8 years for Airbus lead• Book to Bill @ 1.0 for Boeing, whilst Airbus is 1.5• Order volumes were down as expected – why?

• No point buying fuel efficient aircraft?• Have plenty on order already?• I’m going to remain focused on a rational

strategy?• Lets wait and see what happens to fuel?• Delivery is too far away?0

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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Net Orders ‐ Airbus & Boeing

Airbus Net Boeing Net

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Historical Deliveries – Airbus & Boeing

• Boeing retains the lead for deliveries, Airbus remain consistent with much lower volatility

• 2016 expected to remain similar – although Boeing declare slight drop

• We expect Airbus to deliver more in 2016 (680) as A350 ramps up

• We expect Boeing to deliver less in 2016 (740) –down 22 from 2015

• 777 and 747 lowering production rates• Airbus & Boeing both indicate production increases

for A320/737s• A320 – Rate 50 by 2017, 60 by 2019• 737 – Rate 52 by 2018, 57 by 2019

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Deliveries ‐ Airbus & Boeing

Airbus Deliveries Boeing Deliveries

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Market Cycle becoming more volatile

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Market Cycle

Net Orders Deliveries Airline Results

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Current Backlog Spread

• Large lessor component but half what it should be –indicates 20% of fleet will be captured through SLBs

• Neo continues to outsell MAX

• Large unidentified orders that could be Chinese

• A320 backlog @ 11 years at current rate, 737 @ 8.5 years

• 777ceo backlog @ 2.2 years so production drop inevitable.

• A330ceo enough production for nearly 2 years –same point as the A330neo expected EIS

• Lessor spread widened for Airbus

• Both OEMs below book to bill 1.0 ratio for widebody aircraft

lessor airline other unknown totalA320ceo 210 625 2 227 1064A320neo 966 3021 5 479 4471A330ceo 25 123 7 27 182A330neo 55 115 0 0 170

A350 70 673 1 2 746A380 23 104 0 13 140

1349 4661 15 748 677320% 69% 0% 11% 100%

Lessors airline other unknown total737 MAX 590 1824 6 652 3072

737 180 833 50 282 1345747 0 18 1 0 19767 0 76 0 0 76777 27 166 2 23 218

777X 0 296 0 10 306787 138 579 5 51 773

935 3792 64 1018 580916% 65% 1% 18% 100%

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2015 orders

80%71%

79%

20%29%

21%

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2013 2014 2015

Identified Gross Orders % Split

Airline Lessor

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Airbus Boeing

Airbus/Boeing Split

Airline Lessor Unidentified Government/ Private

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Who has yet to Order?

0 50 100 150 200 250 300 350 400 450 500

American AirlinesChina Eastern Airlines

China Southern AirlineseasyJet

LATAM AirlinesjetBlue AirwaysUnited Airlines

LufthansaBritish Airways

Air FranceDelta Air Lines

Air ChinaIndiGo

Turkish AirlinesVueling

Sichuan AirlinesAeroflot‐Russian Airlines

AirAsiaAlitalia

Spirit AirlinesAvianca

Shenzhen AirlinesAir CanadaAir IndiaWizz Air

Backlog Fleet

A320 family Operators Fleet BacklogAmerican Airlines 360 145China Eastern Airlines 241 0China Southern Airlines 234 0easyJet 220 181LATAM Airlines 217 82jetBlue Airways 156 91United Airlines 153 0Lufthansa 145 136British Airways 130 35Air France 127 3Delta Air Lines 126 45Air China 125 0IndiGo 101 430Turkish Airlines 99 104Vueling 99 63Sichuan Airlines 98 0Aeroflot-Russian Airlines 95 0AirAsia 80 309Alitalia 79 0Spirit Airlines 79 87Avianca 77 133Shenzhen Airlines 77 0Air Canada 75 0Air India 74 0Wizz Air 66 146

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Who has yet to Order?

B737 family Operators Fleet BacklogSouthwest Airlines 577 254Ryanair 328 248United Airlines 311 141American Airlines 266 138China Southern Airlines 159 25Air China 139 0Delta Air Lines 135 68GOL Transportes Aereos 135 72Hainan Airlines 127 9Xiamen Airlines 123 28Alaska Airlines 122 67WestJet 113 71Lion Air 107 243Shandong Airlines 88 0Shenzhen Airlines 88 0Turkish Airlines 87 94SAS 85 0Garuda Indonesia 81 50Virgin Australia 77 45COPA Airlines 76 72China Eastern Airlines 73 33Jet Airways 70 75Qantas 67 0Shanghai Airlines 65 0Norwegian Airlines 63 135

Some still have to place orders, others are planning on big growth!!

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Orderbook Positive & Negatives

Pro:• Current traffic growth will sustain current backlog

for growth not replacement• If traffic is sustainable, older aircraft will be around

for some time• Can identify heavy A320/B737 users that have still

yet to order sufficient aircraft• Many operators have yet to decide on a widebody

replacement strategy too

Con:• RPK growth slows back to traditional levels• Production increase pushes excess supply into the

market • New aircraft sufficient for replacement and growth

pushing older types back onto lessors • Deferments likely• Lease terms likely to shrink along with economic

life• Some weakness in order book – Russian &

Brazilian carriers

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Hedging

• Fuel prices have remained low since 4Q 2014

• Global yields have dropped already by 4-6% of a global saving of $70Bn in fuel costs, the real number will be closer to $35Bn – also factoring the strong USD against some currencies

• United, Southwest, Delta, Lufthansa, Ryanair – all hedging based on longer term high fuel costs and are losing out

• AA, Emirates, Etihad, Air China, China Southern, China Eastern all unhedged

• Asiana, Air Asia, JAL, ANA and Cathay have between 10%-50% hedged

• Fare pricing will likely remain regionally competitive to ensure market share doesn’t drop and that will be reflected in the yields and airline results for each carrier

• Internationally, carriers such as Emirates will continue to take business away from others as they can go low on fares and take advantage of the low fuel price

• Domestically, Europe can breathe a sigh of relief that Ryanair cant go too crazy, whilst in the US, AA will take advantage of the higher fares rather than go super low

• Falling yields still indicate that fares are dropping ahead of fuel globally as other costs aren’t rising disproportionally

• Some will undoubtedly try to unwind their hedges but providing fares remain relatively stable and within reason for hedged airlines to react to, then some will ride out the storm

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Single Aisle Market

• Slower orders for 2015 as backlogs reach biblical proportions

• Oil reaching new low may shift short-term focus away from new orders

• Fewer lessor orders with more bias towards operators that haven’t bought yet

• Deals driven by discounts not necessarily long-term optimisation – more conversions within the family

• Expect greater push from Boeing to equalise the neo/MAX variance

• Used aircraft values rising for <10 year olds – off or on-lease – from a low base position

• Older types trading but often priced too high for part-out

• Lease rates factors falling as silly money undercuts the market

• Availability of 737NGs and A320s falling

• How does neo/MAX value increase stand in low oil price environment?

• Technology risk remains a potential problem

Trends

• Sale & Leasebacks

• Sales with leases attached

• Lease Rate Factors

• OEM pricing

• Lease Term Lengths

• Extension opportunities

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Twin Aisle Market

• Lessors easing off from ordering more Medium/Large twin aisles

• Market concerned by older 777 market and effect on the 777-300ER as there are >50 lease returns before 2020.

• Expect more production easing for existing types

• Reconfiguration and engine overhaul costs significant barrier

• A330 availability rising but proving easier to place for the right model

• A380 and 747-8 market still very small and challenging to think where used aircraft can be placed. First A380 returns due soon

• Still 225 747-400s to replace in the short-term which provides some hope

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777

• Sudden rise in availability caused concern• 777-200ER already on watch • Delta announcement on low ball price• Real deals start to happen• Is this a widebody issue or an engine issue??• Tight engine aftermarket doesn’t help either• Like A340s, 777 value drops triggered impairments• Appraisers remain split• 777-300ER has stronger concentration risk today

with Emirates dominance• Same for A380 too

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777 Stats

Engine Net Order Delivered Backlog Active Retired Av/Age Stored Stored

%Av/Age @ Ret

RR 16 16 - 13 2 1 7.1%GE 9 9 - 8 1 - 0.0%PW 63 63 - 57 4 2 3.4%RR 168 168 - 133 5 27 16.9%GE 161 161 - 156 4 1 0.0%PW 93 93 - 86 - 5 5.5%RR 42 42 - 37 - 5 11.9%GE - - - - - - 0.0%PW 18 18 - 16 2 - 0.0%

777-200LR GE 59 59 - 57 - 6.32 2 3.4% -777F GE 160 117 43 117 - 3.46 - 0.0% -777-300ER GE 788 608 180 605 - 4.66 3 0.5% -777X GE 306 - 306 - - - - 0.0% -

1883 1354 529 1285 18 46

17.00

777-200 17.56 17.14

777-200ER 14.12 16.77

777-300 14.78

Stored Total RR PW GETransaero 7 4 3Malaysia Airlines 7 7 0Egyptair 2 0 2Singapore Airlines 12 12 0Kenya Airways 4 4 0British Airways 1 1 Fire

Financial problemsFleet Replacement

Financial problemsBankruptcyComments

Insurance Write-off

Comments???

1-2 specualtive as placedPIA?

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Twin Aisle Market

• Slower orders overall

• Market is very cautious about which aircraft to go with

• Options are very wide with plenty of choices

• Unlike single aisles, twin aisles are more difficult to manage in an operating lease structure

• Tier 1 credits with less likelihood of lease extension

• Will Iran open up options for 777/A330 placements?

• More common practice in sale leaseback transactions to see return conditions waived from Full to Half – or even lower

• 1st A380s to return soon

• What happened to the A340 market?

• Sale leaseback transactions still quite common and popular with banks

• For greater stability, smaller and simpler is best!

Trends

• Sale & Leasebacks

• Sales with leases attached

• Lease Rate Factors

• OEM pricing

• Lease Term Lengths

• Return Conditions

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Technically, lives should be getting longer

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But they wont!

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Aircraft Age

Opportunistic retirements, high operating costs, stronger competitive environment, safety concerns, high rate of technology advancement, poor reliability, corrosion/fatigue/Limit of validity, emission legislation (NOx/CO2/Noise), Cost of configuration, age restrictions, production exceeds demand, cheaper financing for new, “last off the line”

Higher reliability, improved fuel burn, part-out market at capacity/drop in part pricing, stable fuel pricing, rising financing costs for new aircraft deliveries (ASU), long backlogs, bypassing age restrictions, supply chain issues, low rate of technology advancement

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Other Types

• Regionals• Lower fuel cost has stimulated the regional

market• Secondary leases for Ejets disappointing drop

from where rates were at new – but they are shifting

• Too much capacity coming to the market in next 2-4 years with E2 and MRJ

• Too many technical delays• Both MRJ and Bombardier handing the market

to Embraer• Economic useful life remains shorter than

larger narrowbodies

• Turboprops• Resilient side of the market• Showing signs of weakness across all ages• Too much new capacity placed into the market

which has softened lease rates and market values

• High concentration of lower credit lessees• Low oil pricing doesn’t help• Market primarily split between Q400s and

ATR72-600s• Long term winner

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Regional View – North America

• Unprecedented Airline performance – very high Q4 results• AA $1.3bn 16% - 145 Airbus on order, 169 Boeing on order• Delta $926m 17% - 101 Airbus on order, 86 Boeing on order• United $924m 13% - 35 Airbus on order, 178 Boeing on order• Southwest $591m 20% - 254 Boeing on order• JetBlue $190m 21% - 91 Airbus on order• Alaska $186m 21% - 67 Boeing on order, 67 Boeing on order• Hawaiian $49m 16% - 22 Airbus on order• Allegiant $57m 30%• Air Canada - 88 Boeing on order• WestJet $49m 12% - 71 Boeing on order

• Region accounts for 18% of Boeing backlog, 10% Airbus backlog• For US carriers, strong domestic growth but expect some international

weakening if USD remains strong. Canada suffering weakened Q4 – but still decent

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Regional View ‐ Europe

• 894 Boeing on backlog, 1203 Airbus

• Migration from Syria hot on the agenda – general political discontent

• UK planning EU referendum – Brexit is being fought hard

• Wide currency variances against USD – Krona particularly hit – Euro close to parity

• Ryanair – 9% margin – still paying too much for fuel – still attacking easyJet with lower fares. O’Leary hates paying dividends!

• 100 years of terrorist activity in some form still continues – France has seen the brunt in 2015 – others are on-guard

• LCC Wizz (7%) growing fast but still faces wider regional demand swings

• Europe looking more to Iran with new routes likely to open

• Lufthansa took the first A320neo

• IAG now encompassing Aer Lingus – so like leasing everyone is heading to Dublin!

• Aeroflot moving in on Transaero woes

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Regional View – Asia Pacific

• Mixed results

• India doing well – IndiGo & Spicejet announcing good results – with margins of 20%/17% - amazing when you consider that Spicejet was dead in 2014! Jet Airways even managed 9%

• Korea having problems with weakening traffic and some expensive aircraft to pay for – margins closer to 5% for Korean Air and 1% for Asiana

• Australia remains weak but some profit expected for Virgin

• JAL doing well with 15% margin, ANA 7% - but they are upbeat!

• Chinese traffic rose >10%. Domestic demand is soaring – but airline stocks remain volatile with big swings

• Strong competition between Singapore, Cathay, Philippines, Garuda

• Malaysia Airlines still trying to sort its issues out

• Traffic is there, but economies are adapting, currency exchange has posed problems and strong rivalries

• 956 Boeing on order, 1949 Airbus on order!!!

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Regional View – Latin America

• GDP outlook very bad• Doesn’t look good for Brazil• 423 Airbus on backlog, 255 Boeing• Rocky times ahead for GOL, as Brazil suffers• Zika, poor growth, crumbling Real, Olympics!• Government changes ahead• Mexico operators showing demand uplift• Colombia showing tourism growth helping Avianca

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Regional View ‐ Africa

• Wide issues• South African economy weakening• Kenya Airlines trying to sort its finances by selling

young expensive aircraft• Emirates big player on its doorstep draining traffic• Too many areas still no-go zones• Egypt facing additional terrorism concerns as are

French territories and Algeria• Pockets of growth – Rwanda, Morocco, • Nigeria suffers with low oil price• Ethiopia leading• Boeing backlog 69 – Airbus 47

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Regional View – Middle East

• Once again Middle East provides focus• Emirates, Qatar, Etihad push hard and show largest

international growth• Saudi Arabia on edge of austerity measures – Saudi

Aramco• Oman growing its regional stretch too• Syria and Iraq are no-go areas• Massive migration issue of biblical proportions• Tensions strong within the region – with divisions

everywhere• Boeing 542 on order, Airbus 405 – expect more orders• A380 & 777 hub• Iran orders Airbus and ATR

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Iran ‐ huge opportunity

• Fleet old and patched up• Hub aspirations• Drivers: replacement, capacity,

inbound• Demo, Geo and infrastructure• Tourism, GDP growth and the

diaspora • Short and long term supply• OEMs, lessors, operators,

MRO, developers443 up for grabs

581

Airbus118

ATR  20

• Sanctions Navigation• OFAC exemption, SDNs and trading in US$

• Erroneous assumptions• Latent demand, financing challenges

• Snapback• Political pressure to push on and at least 65 days

notice to retrieve kit, but big question marks over condition, equals challenges

• Corruption• CPI rank of 130, alongside Nigeria

• Infrastructure & Safety• Improvements outstripped by capacity. Planes,

people, infrastructure

• Politics• Internal tensions, upcoming elections

But…

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Airline Strategies

• What we have learnt from the high fuel market is that airlines with older aircraft can make a profit

• There were far fewer bankruptcies than expected as capacity was managed instead

• New aircraft aren’t needed in low fuel price environment and therefore legacy carriers will continue to buy mature aircraft rather than new ones and everyone will balance the cost of new ‘v’ extending or buying mature. EasyJet, IndiGo, BA, Air France, Lufthansa – all are looking at buying mature assets – Ryanair may just keep hold of its older owned fleet

• Large new orders have become the most expensive hedge! If fuel remains low and provided airlines can buy, lease or extend good mature assets, then we may expect to see some deferments

• However, if traffic continues to grow at the same rate, then orders are largely there for growth not replacement and the usedmarket simply cant supply that much capacity into the market

• Secondary market values will continue to strengthen provided traffic growth does.

• What will make an aircraft attractive will depend on the airframe, interior and engine condition.

• Leases will be extended more often either because they need the capacity and/or they don’t want to pay the compensation to the lessor, but also the interior reconfiguration cost goes away (for both sides!)

• Second-hand sales will benefit those with good aircraft with plenty of life remaining on the airframe and serviceable engines

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Lessor Activity

• Established lessors finding it difficult to compete in open bid situations

• Too much cheap money chasing limited product • Lease rate factors down to 0.6%, full-life returns

are being relaxed• Lease extensions very common but at much lower

rates and weaker terms• All lessors trying to grow but also illustrate they can

trade too• Lessors becoming more prudent with setting

reserve levels where they can • M&A activity is warming up• Impairments on widebodies?• Good time to sell

• 2016 sale list:• CIT• AWAS• ACG• Part of GECAS?• BOC IPO?• Pembroke?• List goes on….

• Buyers – Chinese or Japanese

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Maintenance Reserves and/or cost provision

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Many chasing this cash….

• Airlines want it themselves.• Lessors want it to increase security and for alternate uses• OEM’s want it – long term support offerings e.g Boeing Goldcare/Airbus FHS

OEM programs are not just maintenance reserves – they often transfer the risk. Maintenance reserves To lessors do not transfer risk.

Easy to see why airlines opt for OEM programs

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2016 view

• Low oil continues to stimulate growth in developed economies – expected to rise slightly with greater management of supply and demand

• Emerging markets growing but oil is too low• Strong USD will hurt US exports and non-US

airlines with USD DOCs• Interest rates will remain low with slow rises ahead• Likewise, inflation – especially in Europe will

remain due to low oil pricing/cheap commodity pricing

• UK referendum in 2016 on EU wouldn’t be good• Traffic will remain strong for 2016 within US and

Europe• China remains on watch

• Possible further impairments for lessors and banks on 777

• Lessor M&A deals throughout the year• Iran could offer plenty of new opportunities and

most lessors have already been down there?!