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Capital Aviation Financing Flight An Introduction to Aircraft Leasing

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Welcome Capital Aviation was founded in 2011 as an aviation advisory and service company with a goal of managing our own fleet of leased aircraft. During the last 3 years we have seen the market forces shift, easing new entrants into the leasing market as new and exciting capital sources emerge. As aircraft orders and deliveries rise to record levels, and passenger growth increases, the room for growth in the lessor market is also increasing. We are excited to be in a position to take advantage of the current global aviation environment, and would like to welcome you in joining us.

Ryan Sullivan, Managing Director, Capital Aviation

Frank Rehrl Commercial Director, Capital Aviation Frank Rehrl has over 25 years Aviation Industry Experience, and over 35 years experience as a company director. Within Aviation he has worked in a variety of roles including Chief Pilot and Head of Training and Standards as well as Senior Executive Roles for Airlines, Maintenance Facilities, Flight Planning and service organisation as well as Aircraft Management Firms. As CoFounder and Commercial Director Frank is responsible for the Asset life cycle including pre purchase activities, ongoing management, return from lease and redeployment. In addition, he monitors the portfolio risk, balance and sets portfolio management criteria. Prior to Aviation Frank was Director of various companies including building supplies, automotive supplies and engineering businesses.

Ryan Sullivan Managing Director, Capital Aviation

Ryan Sullivan has been involved in the Aviation Industry for 16 years and has been trading aircraft for 10 years. He has a wide industry experience including general aviation, LCC and Legacy airlines and aircraft sales prior to Co-Founding Capital Aviation. As Managing Director, Ryan leads from the front sourcing new deals and maintaining ongoing client relationships. He is also responsible for delivering financing pipelines and funding strategies in order to achieve planned growth. www.capitalaviation.net/invest

Opportunity We believe we have entered the market at an opportune time, as the trend to lease increases, world air traffic increases and as new funding sources are required to be sourced by the industry.

Cinven, CVC, GIC and Oak Hill. Oaktree funded Jackson Aircraft offer Square Aviation’s start up, attractive investor Carlyle’s invested in RPK, Cerberus Capital invested in returns secured by and Terra Firma’s an underlying asset AerCap, investment in AWAS have all enjoyed strong returns and in many cases greatly increased their In 2011 and 2012, 3 new lessors entered investment or exited and made large the market, Air Lease Corp, Avolon and returns. Jackson Square Aviation. They have a combined fleet of 457 aircraft worth $14.7 As European Banks and ECA’s reduce their BN as of Jan 2014. lending the Capital market has in part picked up the slack. We see this trend The coming few years are crucial as new continuing and as demand grows and aircraft deliveries peak, while traditional manufacturers increase production to fulfil banks remain under pressure and export record backlogs. We estimate that $10BN credit agencies are required to pull back. in new funding sources will be required As a result new funding sources are yearly for the next 5 years. required to fill the gap, as well as fund the growth. We believe this will make it easier Aircraft Leases provide fixed incomes for for us to enter the market and seek new long periods, providing stable returns funding sources, rather than having to which are not dependant on greater compete for finance with existing lessors market forces. The assets are maintained in the small pool of traditional aircraft by the lessee during the lease, and are financing community. subject to a strict regulatory environment which serves to protect the value of the Many are not aware of aircraft investment asset. This in turn enables us to accurately opportunities, however in recent years predict future vales and forecast long term private equity has entered the aircraft returns. finance market. Avolon is backed by

Why Invest In Aircraft? Efficiently deploys large amounts of capital Stable cash flow backed by long term contracts Predictable long term returns based on forecast future values Highly regulated industry keeping assets maintained Assets secured through international laws and treaties Truly global and mobile assets Low volatility compared to listed equities www.capitalaviation.net/invest

Introduction Since the 1980's Aircraft leasing is continuing to grow in popularity, accounting for more than 1/3 of today’s commercial aircraft. It is expected over half of all commercial aircraft will be owned by lessors before the end of the decade. In 1981 less than 150 aircraft were owned by lessors, this number has grown to over 9000 in 2013. This is a 60 fold increase. This number is expected to double within 15 years. Approximately 1400 aircraft will be delivered in 2013, and more than half will be through lessors. This equates to approximately USD$100 BN in deliveries in 2013. This number is growing due in part to the growth in the AsiaPacific region. According to Boeing there are currently more than 150 aircraft lessors worldwide, serving more than 700 customers in 140 countries. Boeing estimates that lessors account for about 1/3 of its current order backlog. Industry estimates that Lessors represent approximately 40% Airbus’s order backlog. Another common transaction is the “sale and leaseback” where leasing companies buy aircraft from airlines with an ongoing operating lease contract. This sale and leaseback can be done at any time, whether prior to delivery, upon delivery or for a vintage aircraft. This transfers capital back to the airline. Operating leases are popular because airlines do not have, or do not want to spend the capital needed in order to purchase aircraft outright. Airlines are working hard to keep themselves profitable and to keep their obligations off their balance sheets. Beyond the role of providing the aircraft and related services, leasing firms often bring other financial and consultative services to the lessee or others wishing to get involved in the industry. The current backlog in Asia-Pacific will provide lessors opportunities for the next 7 years. With such strong growth contained in one geographical region, this opens the door for new lessors without increasing competition or diminishing returns, as Lessors wont over expose themselves to any single region or airline. www.capitalaviation.net/invest

Introduction Manufacturers are working to increase production in order satisfy customer demand and to contain the large order backlogs.

Over the last few years aircraft deliveries have continued to grow. This is a result of higher value wide body aircraft being delivered in larger numbers such as the Airbus A380, and increased production of narrow body aircraft such as the Boeing 737 and Airbus A320. Increasing production rates of the Boeing 787 will drive additional growth in 2014. There are many factors which lead us to believe now is an opportune time to enter the leasing market. These include Increased aircraft production and deliveries Large aircraft order backlogs Changes to aircraft finance requirements and the finance markets Airlines increasing desire for aircraft leases Increasing world aircraft demand Increasing world aircraft load factors Increased demand in Asia for new/newer fuel efficient aircraft Other successful new aircraft lease companies entering the market since 2011

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Financing Trends and Requirements Basel III and Export Credit The Basel accords are the global regulatory framework which aims for more resilient banks and banking systems through formalised capital requirements. The new Basel III changes were enforced gradually from 2013. Basel III limits the ‘adjusted leverage ratio’ independent of the quality of the assets and the new ‘net stable funding ratio’ requires funding to match lending maturities. Both will impact future loan conditions for long term borrowing including aviation finance. The effect of Basel III could translate into higher loan pricing as banks pass on higher liquidity costs. It is hard to quantify its specific impact precisely as lending rates are an interplay of bank risk costs, liquidity costs, and access to currencies. As a result, airlines may have to cope with increased loan pricing and a more challenging funding environment. Basel III also limits Export Credit agencies funding new aircraft deliveries. Traditionally ECAs were a back stop providing finance to only a small percentage of deals. Since the credit crunch airlines and manufactures have increasingly turned to ECAs for finance. This was seen as anti-competitive and negative to the industry long term. ECA finance is now restricted through the Basel III Accord.

Lessors and The Capital Market Lessors are playing a larger and integral part in funding airliners worldwide. Approximately 1400 aircraft, worth USD $104 BN were delivered in 2013, and more than half were to lessors. Lessors are becoming increasingly innovative in sourcing finance to fund growing portfolios. At a time where, aircraft deliveries are peaking, traditional funding sources are under pressure, aircraft leasing is growing in popularity, As a result of the shifting market, more opportunities to invest in aircraft are being made available to a larger audience. The capital market has been a successful and adaptive investor in Lessors and is key to funding future aircraft. In 2013 more than USD $10BN of new and innovative funding was sourced, and we estimate that at least an additional USD $10 BN in new funding will be required each year for the next few years. www.capitalaviation.net/invest

Generating Returns from Aircraft Returns are generated monthly from fixed lease rental incomes, as well as at other time of the aircraft investment life cycle. Monthly Cash Yield Lease rental income in excess of operating expenses and debt servicing provides a monthly return. Asset Management Active trading of aircraft prior to lease expiry can realise future profits and increase returns and free capital for additional investments. Debt restructuring also can provide additional returns. Capital Gains Aircraft have a useful life of 20+ years but debt schedules outperform asset depreciation building in capital gains. These gains are realised on lease renewals, debt restructuring or aircraft disposal. Additional aircraft are paid off between 10-15 years, however lease income can be generated for 25+ years. Maintenance Reserves Contractual payments made in relation to aircraft maintenance reserves are held, and often not required for scheduled maintenance 10 years in the future. Investing these funds in term deposits provides additional returns. Often aircraft are sold and maintenance reserve funds held for future maintenance is not subject to the sale contract providing immediate and often substantial profit.

Typical Lease Terms New wide body aircraft initial lease periods can vary between 10-16 years, while narrow body aircraft are typically 5-6 years. Typical leases require airlines to provide a security deposit, pay monthly aircraft rental, pay monthly maintenance reserves or agree to return the aircraft in a pre-agreed condition, pay for the positioning and redelivery of the aircraft, maintain the aircraft in an airworthy state according to the relevant manufacturer and civil aviation recommendations and requirements, maintain maintenance records in English, and make the aircraft and records available for inspections. www.capitalaviation.net/invest