MortenBeyer&Agnew

Macro-Economic Outlook for the Aviation SectorAirline Economics Aviation Finance & Leasing School – Dublin 2018

Kathryn Peters – Director – Business Valuation & Economic Analysis – Morten Beyer & Agnew

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About mbamba is a global consulting firm with offices in the U.S. and Asia, providing a broad

spectrum of services to airlines, governments, and investors since 1992.

Industry Expertise | Integrated Teams | Credentials |• Aerospace Engineers

• MBAs

• Pilots

• Legal Background

• Government

• Airline Operations

• Aircraft Maintenance

• ISTAT Certified Appraisers

• CVA Certified Valuators

• IATA Audit / Training Org.

• SMS Licensed Training Org.

Consulting Services Include |• Asset Valuations

• Market Analysis & Evaluation

• Cost Benefit Analysis

• Investment Due Diligence

• Asset Management

• Technical / Audit Services

• Financing Support Alternatives

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Key Staff

Robert F. Agnew President & CEO

ISTAT Certified Senior Appraiser

Sherry BrooksVP| IOSA Program

Lindsey WebsterDirector | Asset ValuationsISTAT Certified Appraiser

Kathryn PetersDirector | Business Valuation

& Economic AnalysisCertified Valuation Analyst

David TokophChief Operating Officer

ISTAT Certified Senior Appraiser

Jacob AgnewManaging Director

mba aircraft solutions

Marc Wilson VP| Technical & Quality

IOSA Lead Auditor

Anne CorreaDirector | Business Development

Macro-Economic Outlook

CorporateTrends

FinancialMarkets

CostDrivers

DemandDrivers

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Demand Drivers

5

6

Global Traffic Growth

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017(NovYTD)

Africa Asia/Pacific Europe LatinAmerica MiddleEast NorthAmerica TOTALMARKET

Traffic• GeneralTourism• Business• VFR• SpecialEvents

Economy• GDP• TradeAgreements

RegulatoryChanges• OpenSkies• AddedSlots

WeatherExtremes• Volcanoes• Tsunamis

Epidemics• Ebola• SARS• Zika

Terrorism• 9/11• IstanbulAirport

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Demand Drivers - Traffic

GDP vs RPK Growth 2005 - 2017

8

2005

2006 2007

2008

2009

2010

2011

2012

20132014

2015

2016

y=0.50x+0.0003R²=0.9038

-2.5%

-1.5%

-0.5%

0.5%

1.5%

2.5%

3.5%

4.5%

-6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

GDPGR

OWTH

(WORLDBA

NK)

RPKGROWTH(IATA)

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Forecasted Global Traffic & GDP Growth

2.1%,3.0%

3.0%,6.1%

3.5%,5.9%

3.9%,5.7%

1.7%,3.7%

3.5%,5.6%

2.0%,4.3%

Africa

LatinAmerica

NorthAmericaEurope

Asia-Pacific

CIS

MiddleEast

Source:Boeing2017CMO

GDP,RPK

RegionAnnualPercentageGrowth

Cost Drivers

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Cost Drivers

Fuel

FinanceRates

FX

Labor

Maintenance

11

Ten Year Brent Crude ppb

12

$0

$20

$40

$60

$80

$100

$120

$140

$160

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18

A330NEO Breakeven TimeA330-800neo A330-900neo

Airbus List Price $259.90 $296.40 mba Jan 2018 BV $102.21 $115.08

Premium over ceo$8.42 $11.96

Fuel $/barrel Years to Reach Break Even150 1.5 2.2140 1.6 2.3130 1.8 2.5120 1.9 2.7110 2.1 3100 2.3 3.390 2.5 3.680 2.9 4.170 3.3 4.660 3.8 5.450 4.6 6.540 5.7 8.130 7.6 10.8

A330-300/900Fuel$/bbl DOC -300 DOC -900 DOC Savings

$ 150.00 $11,094 $9,950 10.3%

$ 140.00 $10,549 $9,481 10.1%

$ 130.00 $10,004 $9,012 9.9%

$ 120.00 $9,459 $8,544 9.7%

$ 110.00 $8,914 $8,075 9.4%

$ 100.00 $8,369 $7,607 9.1%

$ 90.00 $7,824 $7,138 8.8%

$ 80.00 $7,280 $6,669 8.4%

$ 70.00 $6,735 $6,201 7.9%

$ 60.00 $6,190 $5,732 7.4%

$ 50.00 $5,645 $5,263 6.8%

$ 40.00 $5,100 $4,795 6.0%

$ 30.00 $4,555 $4,326 5.0%

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Inflation Rate§ FixedwingaircraftarecommonlypurchasedinUSdollars,regardlessoftheregiontheaircraftis

beingsold.§ TheUSiscurrentlythelargestmarketforaviation,withthehealthoftheUSeconomyhighly

correlatedtoaircraftvalues.§ ThehistoricalaverageoftheUSConsumerPriceIndexcanbeusedtodetermineunderlying

inflationintheUS.§ Actualaircraftmarketvaluescanbehigherorlowerthanforecastedvaluesduetoactualmarket

conditionsatthefuturedate,whichcanhaveagreaterimpactonvaluesthaninflationincluding:§ Productionstatus§ Fuelprices&efficiency§ EconomicstabilityasmeasuredbyGDP,ASKs,RPKs,FTKs§ Numberofparked/availableaircraft§ Ubiquity&favorability

§ Shorttermimpactsofinflationmaybemoreorlessthan2.0%,butlongtermratestendtoaveragearound2.0%.

§ Mbaforecastsfuturebasevaluesfor20yearsat2.0%,similartothe20yearhistoricalaverageofUSCPI.

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Inflation Rate

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

HistoricalCPI30YAverage:2.7%20YAverage:2.2%15YAverage:2.1%10YAverage:1.8%5YAverage:1.3%

Financial Markets

16

17

Corporate Bond Rates

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

Corporate bond yield (to maturity)

US HY Industrials (LHS) US IG Industrials (RHS)

70

80

90

100

110

120

130

140

150

200

250

300

350

400

450

500

550

600

650

Corporate bond spread over benchmark, bps

US HY Industrials (LHS) US IG Industrials (RHS)

Secured Bank Debt Interest Rates

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2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

2009 2010 2011 2012 2013 2014 2015 2016

Air Canada

American

Delta

United

JetBlue

Linear (Air Canada)

Linear (American)

Linear (Delta)

Linear (United)

Linear (JetBlue)

Boeing Aircraft Funding

19

020406080

100120140160

2011 2012 2013 2014 2015 2016 2017 2018F

US$

Bn

Cash, incl. equity Capital markets Bank debtExport credit agencies Manufacturer Non-payment insurance

15

6

11

8

7

16

0 5 10 15 20 25 30 35 40 45

Lessors

US airlines

Non-US Airlines

Capital Markets funding 2016

Unsecured Secured

20

Capital Markets Funding

29

6

6

12

2

7

0 5 10 15 20 25 30 35 40 45

Lessors

US airlines

Non-US Airlines

Capital Markets funding 2017

Unsecured Secured

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ABS Market

4,151

5,816

0.0

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

7,000.0

2016 2017

Aircraft ABS, $mn issued

65.2%

67.8%

50.0%

52.5%

55.0%

57.5%

60.0%

62.5%

65.0%

67.5%

70.0%

2016 2017

Aircraft ABS, Weighted Average LTV

Current Market

22

23

Airline Performance

10

11

12

13

14

15

16

17

18

19

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

$USCe

nts

RASM

USA Europe Asia

-1

-0.5

0

0.5

1

1.5

2

2.5

3

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

$USCe

nts

Profitability

USA Europe Asia

10

11

12

13

14

15

16

17

18

19

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

$USCe

nts

CASM

USA Europe Asia

0102030405060708090100

2009 2010 2011 2012 2013 2014 2015 2016 2017

LCCsinOperation

Europe Asia NorthAmerica SouthAnmerica MiddleEast

Airlines

§Bankruptcies§ HNA Group not paying leases§ Monarch§ Air Berlin§ Alitalia

§ Interline agreements evolving§ Joint Ventures§ Airline Alliances§ Equity partners

§ Fuel hedging ramp-down§ Increased Ancillaries

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0

5

10

15

20

25

30

35

40

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

2013.25 2013.5 2013.75 2014 2014.25 2014.5 2014.75 2015 2015.25 2015.5 2015.75 2016 2016.25 2016.5 2016.75 2017 2017.25 2017.5 2017.75

Num

bero

fAircraft

MarketV

alue

(US$m

illion)

A330-200/300

NumberofA330-200reaching12yearsofage NumberofA330-300reaching12yearsofage 3YearOldA330-300 5YearOldA330-200

Skymark5,0.87%

TransAsia4,0.67% AirBerlin

17,2.83%VIM

2,0.33%

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Market Values During Distress

0

10

20

30

40

50

60

70

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

Num

bero

fAIrc

raft

MarketV

alue

(uS$m

illion)

777-200ER

Numberofaircraftreaching12yearsofage 7YearOld 12YearOld 17YearOld

VIM10,2.37%

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Market Values During Distress

Transaero7,1.66%

Orders & Backlog

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0

1000

2000

3000

4000

5000

6000

7000

8000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017YTD*

AirbusOrders BoeingOrders AirbusBacklog BoeingBacklog

Aircraft Manufacturers & Lessors§ Increase of activity in smaller manufacturing space

§ Bombardier C-Series§ COMAC ARJ-21§ Mitsubishi MRJ90

§ Potential consolidation in manufacturers§ Airbus acquiring C-Series Program§ Boeing and Embraer’s tentative merger

§ Consolidation in leasing§ Avolon – HNA§ Jackson Square – Mitsubishi§ AWAS – DAE§ Jetscape – NAC

§ Start-ups§ Supersonic - Boom§ VTOL, eVTOL including uber§ Electric aircraft

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MortenBeyer&Agnew

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