Exit. Sell side advisory End-of-Lease options Remarketing. Exit. Addressing Issues Risk monitoring Dispute support Repossession

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1 Enhancing Decision Making Full service Aviation Intelligence, Asset Management, Advisory Only consultancy that also appraises, manages and remarkets Global approach Independent No vested interest in a deal progressing No conflict in treatment of assets under management or for sale/re-lease Diversified talent pool and inputs Imaginative solutions from a breadth of backgrounds 3 years of trading experience Quantitative and qualitative approach Unique access to critical data and human intelligence Exit Sell side advisory End-of-Lease options Remarketing Addressing Issues Risk monitoring Dispute support Repossession 4 Exit Managing the Asset Technical and regulatory advisory Transition management Maintenance and costs analysis 1 Identification 3 Building Value Entry Market entry and analysis Competitive intelligence Fleet/Asset selection 2 Acquisition The Deal Negotiation Critical factors Risk assessment Opportunity CDD, ODD, TDD Valuations Benchmarking

2 IBA s Market Update Webinar January 17 th, 218 Dr Stuart Hatcher Chief Intelligence Officer stuart.hatcher@iba.aero Mike Yeomans Head Analyst, Commercial Aircraft & Leasing mike.yeomans@iba.aero Kane Ray Head Analyst, Commercial Engines kane.ray@iba.aero Paul Lyons Head of Advisory paul.lyons@iba.aero Melissa Whybrow Marketing Manager melissa.whybrow@iba.aero

3 217 Big Events that will continue to shape 218 Trump elected to office Donald trump gets into White House under the Make America Great slogan Increased political tension, US protectionism, U-turn on the environment, Iran s growth in question UK triggers Article 5 General Election/loss of majority, EU divorce substantially agreed, transition/future trade negotiations next Hard Brexit & uncertainty more likely other states may follow Catalonia remains unrecognised. Poland, Hungary, Czech Republic at odds with EU US DOC Levies tariff on CSeries US takes aggressive stance against Delta deal Airbus weighs in CSeries fortunes could swing either way. Significant move by OEM to consolidate Mohammed bin Salman made Saudi Crown Prince big changes to the region which will likely affect Iran expansion and Qatar too Saudi modernisation will hamper Iranian development, likewise potentially more problems for Qatar new vision for OPEC? Xi Jinping confirmed for another term Chinese president s political thought enshrined into the party s constitution Larger middle class, more sustainable growth, higher demand for travel, but stringent control on investment. Easier for western businesses to invest Ryanair recognises unions Threat of pilot strikes forces O Leary s hand Increased costs likely, but Ryanair s operating mantra continues to lead the pack

4 GDP Growth % GDP Signals Growth still on the cards India continues to grow at even greater rate although a sharp oil spike could hamper growth China s economy maturing and forecasts suggest gentle growth rate decline as consumer market spreads Asia Pacific s growth remaining firm Latin American bounce back Middle East will strengthen amidst development, modernisation and oil price resilience Europe and North America reducing <2% Forecasts enforce expectation that traffic growth will remain robust across all regions Forecasts are routinely uplifted even for Europe Small pockets of negative growth still appear IMF - GDP Forecast AF AP EU LA NA World ME India China

5 Oil Price per bbl Number of aircraft Oil Continues to fluctuate Oil Price creeping up 16 Brent Crude - Dec 26-Dec 217 'v' Gross Orders 2 Healthy demand sees oil at 3-year high Oil analysts regularly reforecasting by suggesting the balance will come sooner than expected i.e. production cut agreements to soak up inventory 218 forecasts suggest levels in the mid 6s pretty much where we are today although that s been the answer for the past few years! Overall gross orders from Airbus and Boeing for new technology aircraft continue to track alongside so once again book-to-bill ratios exceeded 1. although the strengthening economic outlook will be feeding this Brent USD/BL Airbus Boeing

6 Interest Rates US Prediction small increases Rates creeping up and likely to rise in.25% increments through the year to >2.%. Feds dot plot indicates tight opinion for 22 at 3.%, but the journey remains sketchy as opinion is split for UK view small increases Recovered to pre-brexit levels of.5% - but the battle to balance sterling, import pricing and economic growth continues Expectation is for rate to reach 1.% by 22 via 2 x.25% jumps- but if inflation doesn t come down, a higher rate is expected Brexit-related action will continue to destabilise the balance, but if in doubt do nothing! Interest Rate Impact on Aviation Consumers with less disposable income, coupled with higher fares will affect traffic. UK view small increases Recovered to pre-brexit levels of.5% - but the battle to balance sterling, import pricing and economic growth continues Expectation is for rate to reach 1.% by 22 via 2 x.25% jumps- but if inflation doesn t come down, a higher rate is expected Brexit-related action will continue to destabilise the balance, but if in doubt do nothing! Rentals will rise if capital costs rise. Other forms of investment may become more attractive which may see values recede Liquidity concerns; bond pricing, economic recovery slows

7 Yields Low but starting to trend up Stronger economic conditions, weaker dollar, and airfares stabilising have provided a boost to yields since start of the year In constant dollar terms, this is tracking sideways Upward pressure from increased labour and oil costs Premium traffic share also on the rise especially across the Pacific Some influence from a very active hurricane season Expectations that oil will continue to increase, and gradual increase to fares, plus growing demand and improving economic conditions should boost 218 yields further albeit at a modest level

8 Traffic Growth % Load Factors % World Traffic YTD - Traffic growth (Jan-Nov) Solid Traffic Growth Continues 12.% 9.% Best growth rates seen for 6 years 1.% 8.% World, 7.7% AP, 1.2% EUR, 8.3% 85.% 8.% General economic uplift, and low airfares driving unprecedented levels of traffic, but fares are rising and unlikely to be driving factor 6.% AF, 6.6% LA, 7.1% ME, 6.7% 75.% Traffic continues to outstrip capacity growth generally but some regions experiencing higher capacity increases 4.% NA, 4.2% 7.% On track to be an above trend year in terms of RPK growth for all regions combined 2.% 65.% Load factors continue to stretch upwards for some regions such as North America.% World AF AP EUR LA ME NA Regions 6.% Asia Pacific continues to lead the pack RPK ASK PLF IATA

9 Traffic Growth % Load Factors % International Traffic YTD - International Traffic growth (Jan-Nov) Solid Traffic Growth Continues 12.% 9.% Good international traffic movements with growth at 8.% 1.% AP, 9.5% LA, 9.5% 85.% All regions experienced growth above capacity World, 8.1% AF, 7.8% 8.% EUR, 8.4% ME, 6.9% 8.% 75.% International traffic affected by travel bans of PEDs early on in 217 but Middle East bounced back 6.% 4.% 2.%.% NA, 4.9% World AF AP EUR LA ME NA Regions RPK ASK PLF 7.% 65.% 6.% 55.% 5.% IATA Inbound traffic to North America still affected by security concerns, but outbound is more robust Upward trend in Europe and Middle East has slowed compared to 216 Strong Latin American performance but hurricane activity did stifle growth in September and October African markets experienced growth with divergence in Nigerian and South African markets rising oil price v slowing economy

10 Traffic Growth % Load Factors % Domestic Traffic YTD - Domestic Traffic growth (Jan-Nov) 2.% 9.% India, 17.6% 15.% 85.% China, 13.% Russia, 1.4% 8.% 1.% World, 7.% Japan, 6.% 75.% 5.% US, 3.7% Brazil, 3.% 7.% Aus,.3%.% World Aus Brazil China India Japan Russia US 65.% -5.% Countries 6.% RPK ASK PLF% IATA Solid Traffic Growth Continues Incredible growth variances evident China, India still growing very quickly Russia has had its problems but continues to recover Brazil now showing signs of improvement albeit small. October traffic was up at 7.7% from the lows seen in previous years Australia has started to see recovery in the latter part of the year despite YTD figures showing very little growth North American traffic heavily affected by September hurricanes. Consumer confidence remains high Japan has experienced ups and downs in 217 with Typhoon activity hitting figures for September/October but much higher than the.1% growth experienced this time last year

11 Traffic Growth % Load Factors % Freight Traffic 3.% 25.% 2.% YTD Freight Traffic growth (Jan-Nov) AF, 25.6% 6.% 5.% 4.% Best full year since 21 Strong economic recovery globally supporting 217 growth. 4.5% growth expected for 218 Strong Customer Confidence, increased investment and growth in e-commerce should underpin continued growth for 1H18 although not possibly as strong as seen for % EUR, 12.7% 3.% 16 th consecutive months where demand has outperformed capacity growth improving load factors World, 9.7% 1.% 5.% AP, 8.6% LA, 6.3% ME, 8.3% NA, 8.3% 2.% 1.% Africa still seeing strong growth due to Asian investment in the region FTKs increased by >6% Latin American recovery evident.% World AF AP EUR LA ME NA Regions RPK ASK PLF IATA.% Increases in capacity for Africa and Latin America encouraged drops in load factors Freighter fleet grew by 5.8% in 217. Parking levels fell from 11.9% to 9.6% P2F on the rise 11.4% more conversions

12 Outlook for 218 Signals Regional GDP Demand Trends Supply Trends Oil Europe Pax Traffic Deliveries (>15 seats) Interest Rates North America Freight Traffic Deliveries (<13 seats) GDP Asia Pacific Yields Parked World Trade China Load Factors Bankruptcies USD India Orders Geopolitical Threats World

13 Airbus Airbus saw orders and deliveries increase YOY in 217 and exceeded Boeing s 217 net order tally by around 2 aircraft. Airbus backlog expanded with a Book to Bill of A32neo family most popular although still >1 orders for the ceo. A38 family experienced negative net orders when Air France switched two for a trio of A35s. The A35 received 36 commitments, although the A35-1 received a minor blow when Cathay swapped six of its existing order to the smaller -9 variant. Airbus delivered 75 aircraft in 217, up 17 since 216 despite some setbacks in the late summer months. Aircraft Family Order Summary Net Orders A32ceo Family 128 A32neo Family 926 A33ceo Family 15 A33neo Family 6 A35 Family 36 A38 Family -2 Current Backlog 7, Net Orders 217 Deliveries Deliveries 217 v Book to Bill 1, Net Orders 216 Deliveries Orders 217 v Book to Bill

14 ATR ATR sales improved strongly in 217 compared with the previous year, with sales figures boosted by an order for 3 x ATR72-6F from FedEx and 5 x ATR72-6 from IndiGo. ATR achieved a positive Book to Bill in 217, with fewer deliveries and an increase in orders compared to 216. ATR deliveries have reduce to align with demand. Lessor s share of the ATR backlog has reduced. With the lower production rate and prospects of increased fuel costs, we could see some recovery for the ATR72 through 218. Order Summary Aircraft Family Net Orders ATR ATR72-6F 3 ATR Current Backlog Net Orders 217 Deliveries Deliveries 217 v Book to Bill Net Orders 216 Deliveries Orders 217 v Book to Bill

15 Boeing Boeing received 912 net orders in 217 and delivered 763 aircraft. An improvement over 216, which saw its backlog shrink by around 85 aircraft. Boeing s widebodies sold well compared to its competitor, securing 167 net orders against Airbus 55. Boeing deliveries were low in the first quarter with reduced NG handovers and preparations for the MAX production ramp-up. A temporary grounding of the 737 MAX followed EIS in May and struck a meaningful blow to the delivery schedule. Boeing staged an impressive recovery to finish 217 with deliveries up on 216, despite some challenges in 1H17. Order Summary Aircraft Family Net Orders 737NG MAX X Current Backlog 5, Net Orders 217 Deliveries Deliveries 217 v Book to Bill Net Orders 216 Deliveries Orders 217 v Book to Bill

16 Bombardier Bombardier achieved 72 net orders in 217 as CSeries orders were down on the previous year. Bombardier s Dash 8 turboprop model enjoyed improved demand in 217 compared to previous years. The DHC8-4 has struggled for orders in recent years, so new commitments from SpiceJet (25), PAL (7) and Ethiopian (5) have given the program the shot in the arm it needed. CSeries orders have reduced, although the Airbus deal sheds some positive light on the prospect of new orders. CSeries deliveries have suffered at the hands of engine delivery delays affecting its sole powerplant choice, the Pratt & Whitney PW15G. Order Summary Aircraft Family Net Orders DHC8 Family 44 CRJ Family 16 CSeries Family 12 Current Backlog Net Orders 217 Deliveries Deliveries 217 v Book to Bill Net Orders 216 Deliveries Orders 217 v Book to Bill

17 Embraer Embraer deliveries finished 217 down on 216, despite strong performance in the first half. A further slowdown in deliveries is expected in 218 as Embraer transitions to the new E2 model. Orders improved upon 216, although the Book to Bill was below 1. Despite the impending Entry Into Service of the E2, sales were concentrated on the E1, with notable commitments from Skywest (45) and American Airlines (14). Order Summary Aircraft Family Net Orders E Jet Family E2 13 E Jet Family E1 69 Current Backlog Net Orders 217 Deliveries Deliveries 217 v Book to Bill Net Orders 216 Deliveries Orders 217 v Book to Bill

18 New Narrowbody Operating Leases New leases increased in 217 for the Airbus A32-2 and Boeing 737-8, by 32% and 2% respectively. In the circa 15-seat segment, the A319-1 is outperforming the Boeing in terms of new operating leases. New operating leases of 737-7s have declined in each of the last two years. 8 6 New Narrowbody Leases The most popular Airbus A32-2 and Boeing models show increased demand YOY in terms of new leases. Boeing 737 Classic aircraft now represent a smaller share of the leasing market. Some demand remains. A321 operating lease demand peaked in 216 but showed a 19% YOY decrease in Includes passenger aircraft only 25 2 Includes passenger aircraft only New Narrowbody Operating Leases Aircraft % Change 217 v 216 Volume % % % % 737-9ER 2% A % A % ER A319-1 A32-2 A321-2 A %

19 New Widebody Operating Leases The Airbus A33-3 has seen an increase in the number of new leases. Storage has reduced. Expect lower re-lease rates for A33s than a year or two ago. Rates have stabilised at lower levels. New Airbus A35-9 leases have increased as a result of increased deliveries and the aircraft is becoming more established in the market New Widebody Leases Boeing 767-3ER passenger leases are down. Suitable aircraft are going into freight conversion. 1 No new leases for the Boeing in 217, the market is clearly favouring the and operating lease demand continues to grow. This is an attractive aircraft for widebody lessors. No new operating leases for the A38. All leased A38s so far have been through sale leasebacks Includes passenger aircraft only New Widebody Operating Leases Aircraft % Change 217 v 216 Volume 4 35 Includes passenger aircraft only A % A % 3 A % A33-2 A33-3 A ER 777-2ER 777-3ER ER -82% 777-2ER -25% 777-3ER -67% % A38-8

20 Narrowbody Secondary Trading Volumes (excludes Avolon/CIT and DAE/AWAS M&A) Overall narrowbody trading levels increased slightly in 217 compared to 216. The Airbus A319-1 and Boeing show increased trading levels YOY since 215 as investors diversify from the more popular, and often highly priced, A32-2 and B737-8 models. The A319-1 is outperforming the Boeing in terms of secondary trades and IBA has seen an uptick in trades of both types with leases attached. Sales off lease increased , but plateaued in the last 12 months. Trades involving Airbus A32-2 and A321-2 aircraft declined in 217 compared to 216. The 215 A32 trade total was bolstered by AWAS sale of a subset of its portfolio which included 5 A32 aircraft. Boeing 737 Classic aircraft show the vast majority of trades (88%) involving off lease aircraft. Some will be converted to freighters, however many face retirement Narrowbody Secondary Trades Includes passenger aircraft only Narrowbody Secondary Trading Volumes Includes Sold off lease, Sold With Lease and Sold and Leased Back Transactions Aircraft % Change 217 v 216 Volume % % % ER A319-1 A32-2 A % 737-9ER 61% A % A % A %

21 Widebody Secondary Trading Volumes (excludes Avolon/CIT and DAE/AWAS M&A) Secondary trading of widebodies has remained flat over the past two years, although there are some differences based on aircraft model Widebody Secondary Trades Boeing aircraft are proving popular with lessors and investors. Sale leasebacks are driving increased secondary trades. The now accounts for the majority of 787 production. Secondary trades of the smaller have declined as a result. Sale leaseback demand for the A38 remains strong for new and nearly new aircraft. Boeing 767-3ER aircraft continue to trade readily in the secondary market. Strong demand remains for freighter conversions Boeing 777-2ER transactions have declined since 216, storage levels have increased. Includes passenger aircraft only Widebody Secondary Trading Volumes Includes Sold off lease, Sold With Lease and Sold and Leased Back Transactions Includes passenger aircraft only Aircraft % Change 217 v 216 Volume A33-2 4% A % A % A % 767-3ER -3% 777-2ER -36% ER 59% A33-2 A33-3 A35-9 A ER 777-2ER 777-3ER % %

22 Retirements The average age at retirement for aircraft retired in 217 was 23.6 years. Average Age of Retired A/C Number of Aircraft Retired Regional jets were retired youngest at less than 2 years. Regional jet retirements featured some young Embraer E Jet aircraft alongside some of the less favoured, smaller capacity Bombardier CRJ2 (28) and Embraer ERJ145 (8) aircraft. Unsurprisingly the most commonly retired aircraft were narrowbodies due. The average age at retirement exceeded the commonly used 25 year assumption. The Boeing 737 Classics were retired in significant numbers as Southwest disposed of its last 737-3s. Widebody aircraft were retired at an average age of 23.5 years, although there are noticeable differences between models. A33 family aircraft were retired on average at 18.7 years, 777s were retired at an average age of 2.3 years in % Share of Retirements by Asset Class % 7 2.6% % Narrowbody Widebody Turboprop Regional Jet Aircraft Class Average Retirement 217 Number of Retirements Narrowbody Widebody Turboprop Regional Jet Aircraft Family Average Retirement 217 Number of Retirements A31 Family MD-8 Family Family Family DHC8 Family /1 Family A3 Family MD-11 Family Family Family Family Family A32 Family ATR Family Family A34 Family CRJ Family A33 Family ERJ Family E-Jet Family 1.1 9

23 Narrowbody Lease End Projections A32ceo and aircraft are expected to account for the majority of lease ends in 218. Narrowbody Passenger Aircraft Lease Ends to 227 Between the two models, a combined 2 A319s and 737-7s have lease ends forecast in 218. In 218, only 58 are for the compared with 128 for the A319. A32-2 lease ends are expected to exceed those of the in both 218 and 219. Extensions and re-leases are expected to fill the shortfall from Narrowbody Current Lease Ends Aircraft Series Count A32 CEO A319 CEO A321 CEO A32 CEO A319 CEO A321 CEO A A32 NEO A321 NEO 737 MAX 8

24 Widebody Lease End Projections There are over ERs with lease ends expected over the next two years. Anything suitable will be snapped up for freight conversion. 3 Widebody Passenger Aircraft Lease Ends to 227 A33s and 777s are expected to account for over half of lease ends in 218. The first 787-8s are expected to come back from their initial leases in 222. Based on our projections there is a high concentration of lease ends in 226, which could prove to be a testing year for the aircraft s secondary market Widebody Current Lease Ends Aircraft Series Count 15 A33 CEO A A A A33 CEO A A A31-2 A A A35

25 Widebody Lease End Projections Airbus A33ceo Although 6 to 7 A33ceo lease ends are projected per year over the next four years, the majority of these will be the smaller A33-2 model. 6 Airbus A33ceo Family Lease Ends 8 Peak A33-2 lease ends are expected in This coincides with peak deliveries in 28 and those aircraft coming back off their first leases. While there will undoubtedly be extensions, our projection points to increased pressure on the A33-2 as we enter the 2s. Airbus A33ceo Delivery History A33-3 A33-2 TOTAL A33-3 A

26 Widebody Lease End Projections Boeing 777-2ER IBA s lease end forecast for the 777-2ER shows lower volumes than for the competing A33ceo family. However storage levels have been increasing. 3 Boeing 777-2ER Lease Ends IBA s iq records 52 Boeing 777-2ER aircraft currently parked. First with the failure Transaero and now VIM, it appears that placement opportunities for the aircraft are becoming scarcer. 25 With the prospect of increased numbers of aircraft coming to market, the outlook for values and lease rates is gloomy. 2 Current Operator 218 Current Operator KLM - Royal Dutch Airlines 1 Air France 6 Aeromexico 3 Alitalia 5 Air New Zealand 3 United Airlines 4 Korean Air 2 KLM - Royal Dutch Airlines 3 1 All Nippon Airways 2 Nordwind Airlines 1 Air France 2 British Airways 1 Nordwind Airlines 2 Asiana Airlines 1 5 Asiana Airlines 1 NokScoot 1 Japan Airlines 1 EL AL Israel Airlines 1 Transaero Airlines 1 Biman Bangladesh Airlines

27 Widebody Lease End Projections Boeing 777-3ER The outlook for the 777-3ER is relatively promising. IBA has identified a spike in lease ends in Boeing 777-3ER Lease Ends Many of these leases will be extended. IBA expects the likes of Air France / KLM will extend. Some of the Emirates, Cathay and LATAM aircraft could likely be handed back to lessors. So far aircraft appear to be placed so we have no immediate concerns. 3 The next couple of years will put 777-3ER liquidity to the test. 26 Current Operator 218 Current Operator 219 Emirates 14 Emirates 8 Etihad Airways 5 Jet Airways 8 Japan Airlines 2 LATAM Airlines Brasil 8 Cathay Pacific Airways 2 Air France 5 LATAM Airlines Brasil 2 Cathay Pacific Airways 5 All Nippon Airways 1 Air Canada 4 Air India 3 KLM - Royal Dutch Airlines 1 Air Austral

28 Single Aisle Market Values are expected to remain strong for the new types. With expectations of rising fuel and rising interest rates, we expect to see some recovery in lease rates this year. Values and lease rates of smaller capacity jets (A319/737-7) are likely to slip if fuel rises. The sale leaseback space is expected to remain competitive amongst new investors. Plenty of M&A activity is expected in 218. Sales of aircraft on lease will rise. Oil prices showing signs of increase. Airline costs to rise in 218. This will favour the new generation of neo and MAX aircraft. With deliveries expected to rise for the new generation of narrowbodies, expect to see an increase in retirements. Trends Sale & Leaseback Pricing Sales with leases attached Lease Rate Premium for new gen Values of mature aircraft Retirements Fuel Extension opportunities

29 Twin Aisle Market Boeing and Airbus A35-9 are top of their class. New models to enter service in 218 Boeing 787-1, Airbus A35-1 & A33neo!!! The future of the A38 program hangs in the balance. Will Emirates take more? Boeing 777-3ER availability is expected to increase. More widebody deferrals are expected in 218. Values and lease rates compression of A33ceo. The Boeing backlog continues to dwindle. Transactions and deliveries are down. Freighter demand, values and lease rates all on the increase. Demand for mid-sized widebody freighters is strong. P2F conversions to rise with increased freight traffic demand. Trends Widebody Models in service Lease Rates P2F Conversions Storage of mature widebodies Mature widebody values and lease rates Redeliveries

30 Regional Market Some recovery is expected in the turboprop market if fuel rises. E17 values are weak, this is a less favoured model amongst the E Jet range. Expect more retirements. Freight traffic demand is strong, expect to see increased conversion of older ATR72s. New orders for the E175 E2 and MRJ9 rely too heavily on scope clause relaxation and commitment to on-time delivery from the OEMs. Possibility of a Boeing+Embraer tie-up could really shake this market up. CSeries has much better prospects with Airbus on board and we expect to see more commitments in the second half once the tariff becomes a non-issue. 5-seaters continue to be retired. Massive trading variances depending on maintenance condition, capability and support. European regional space is highly contested bankruptcies likely Trends ATR storage and availability E17 retirements P2F Conversions CSeries orders 5-seater retirements Bankruptcies

31 Alternative focus Helicopters Some green shoots Commodities up, driving super mediums Offshore still a challenge relatively Parked fleet absorbs returning demand Aftermarket Positive growth forecasts Strong PE/consolidation play Growing influence of OEMs Competition from developing markets Minimising Risk, Maximising Opportunity

32 Engine Orders Alternative focus Freighters 9% FTK growth at Nov 217 Capacity continues to lag demand Not a universal return for all types Cost of conversion can be underestimated Engines Quantities coming on-stream CFM56/V25 remains a staple EIS issues disrupt supply Twin aisles face numerous challenges Industry FTKs (bn per month) 3 25 CFM56 / V25-A5 Engine Orders CFM56-5B CFM56-7B V25-A5 Minimising Risk, Maximising Opportunity

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