Royal Jordanian Airlines 2011 Preliminary Results Update Recent Developments and Highlights The least you can say is that year 2011 was an unfortunate year for RJAL, where the company had cancelled more than 1,300 flights and the company’s 2011 losses reached a net loss of JD (57.9) ( million according to company’s preliminary results. results The liberalization of the airlines industry in Jordan, the political turmoil in the region, the strong competition of low cost carriers and the raising prices of fuel all had a fierce negative impact on the profitability of the company which was reflected on the performance of the stock during year 2011 where the company’s stock price dropped from JD1.62 1.62 to JD 0.66 during year 2011, and dropping even further in 2012 to JD 0.58 0.5 up to February27th. Grim outlook for the industry for 2012 The he IATA expects year 2012 to witness sluggish growth and weak profits within the industry, where after tax profit is expected to drop from USD 6.9 billion in 2011 to USD 3.5 billion in 2012. Also the recovery of the industry in the MENA is dependent on the political stability of the region which is currently unclear. RJAL’s future plans RJAL has already ady started to counter the competition from low cost carriers by introducing several new unique routes unexplored by low cost carriers. Also the company started eliminating flights that the company believes are not profitable and so far it has cancelled 460 flights for Q12012 and is considering cancelling several aircraft purchases. Fuel prices are expected to be unstable throughout 2012 due to the European crisis and the tension caused by Iranian threats of halting fuel exports to certain countries. RJAL’s management has stated its intention to hedge part of its fuel exposure during the following years.

February 29th, 2012 Rating: SELL Feras Musmar Senior Research Analyst Awraq Investments [email protected] Hazem Mraish Research Analyst Awraq Investments [email protected] Stock Data Price* Fair Value Market Cap (Mn) 52 Week High 52 Week Low Bloomberg Reuters Free Float

JD 0.58 JD 0.53 JD 48.9 JD 1.68 JD 0.57 RJAL JR RJAL.AM 33.8%

* Price as of February 27, 2012

Figure1:: Ownership Structure

Gov. of Jordan 26.0%

Free Float 33.8%

Key Financial Highlights # of Shares (JD m) Stock Price (JD) Revenues (JD m) Earnings (JD m) EPS (JD) P/E BV per share (JD) P/BV DPS (JD)

2009

2010

2011 E

2012 E

84.373 2.03 598.260 28.60 0.34 5.97 1.26 1.61 0.00

84.373 1.52 684.791 9.65 0.11 13.82 1.38 1.10 0.00

84.373 0.66 725.878 (58.12) (0.69) N/A 0.69 0.96 0.00

84.373 0.53 773.060 (9.09) (0.11) N/A 0.58 0.91 0.00

Others 7.1% Abdul Min’em Al-Rashid Rashid 4..0%

Social Sec. Cor. 10.1%

Mint Trading Mideast 19.0%

Source: Securities Depository Center

Source: Royal Jordanian Airlines Company, Bloomberg, Awraq Investments

Awraq Investments

www.awraq.com

Tel: 962 6 550 3803

Fax: 962 6 550 3801 Toll Free: 080022248

P.O. O. B Box 925102 Amman 11110 Jordan

Royal Jordanian Airlines (RJAL RJAL) 2011 Preliminary Results Update February 29th, 2012

Airline industry Overview The airline industry is highly affected by the economical and political situation internationally. While year 2010 showed positive results of economical recovery and the airline industry witnessed its best year since a decade where where the net profit after tax reached USD 15.8 15 billion, a substantial increase from the net loss of USD (4.6) billion incurred in year 2009, several factors has damaged the recovery of the aviation sector during year 2011, starting from the global concerns of of a deepening recession, the debt crisis in the euro-zone, euro the tsunami, earthquake and the nuclear spillage that followed in Japan, ending with the political unrest in the MENA region which interrupted regular flights to several countries and sometimes resulted ulted in a total halt to flights to those countries, countries, all which resulted in the drop of after tax profits of the industry to USD 6.9 billion. The IATA expects that 2012 after tax profits will witness a further drop to reach USD 3.5 billion. Although during H1 2011 the airline industry faced lots of challenges it witnessed good recovery during the third and fourth quarters of year 2011, where the IATA reported growth in Global passenger traffic, where revenues passengers’ kilometers (RPK) (RP grew by 5.6% in September and 3.6% in October, with an average growth of 6% during the year. It should be noted that the highest growth rates where witnessed in both the Middle East and Latin America, while RJAL’s passengers grew by 6.5% during 2011 which is around the average avera growth for the middle east and higher than global growth of 6.1%, the company was unable to utilize the growth in passengers during the year and reported huge losses. Figure 2: Revenue Passenger Kilometer (RPK) growth in 2011

USD billion

Europe

Asia Pacific

North America

Middle East

Latin America

Africa

140 120 100 80 60 40 20 0

Source: IATA

Low margins industry Due to the several factors stated before, the airlines industry has witnessed very low margins during year 2011; the IATA stated that net profits margins are estimated to be around 1.2% for year 2011 a notable drop from year 2010 margin of 2.9%. 2.9% The he IATA expects that margins for year 2012 to drop further to reach 0.6% during 2012, also the IATA expects that if the current European crisis becomes a banking crisis margins should drop even further to -1.4%. This does not necessarily mean that the net profit margin for RJAL is expected to be around that number, RJAL does not face competition in many of its routes, and its current local competition are low cost carriers. RJAL is planning to focus on new routes rou and maintaining the young age of its fleet, discontinue unprofitable routes. In addition to the fact that RJAL’s net profit margin (as it can been seen in the table below) on average has over performed the industry, except for the last two years RJAL, which could mean that RJAL might over perform the industry in year 2012.

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Royal Jordanian Airlines (RJAL) Preliminary Results 2011 Update February 27th, 2012 Prices of jet fuel Although most companies hedge a part of their fuel exposure to lock in the losses of fuel prices instability, the increase in fuel prices will affect the profitability profitab of operation. The IATA estimated that fuel expenses will increase in year 2012 to reach 198 billion, the estimates of the IATA where made on fuel prices of $1001, while actual Prices of fuel are expected to be around $118 and forecasted to increase further further in year 2013 to reach $ 1252. Therefore the fuel expenses will be much higher than the IATA estimates during 2012. Airline companies pass a part of the increase in fuel expenses to customers through charging fuel surcharges, which in the case of RJAL RJAL is not passed fully due to the competition from other airlines. Capacity and Traffic During years 2009 and 2010, the highest growth in capacity was witnessed in the Middle East where capacity grew by 11.1% and 15.8% respectively. The capacity of the region is estimated to have grown by 9.1% during year 2011 and expected to grow a further 8.6% 8 in year 2012, the highest expected growth rates in the capacity of all regions. This increase in capacity and competition is expected to decrease the EBIT margin in the region to 3% in year 2011 and 2.9% in year 2012. Figure 3:: Capacity (ATK), % change over year 2008

2010

2011F

2012F

15.8

20.00

2009

8.5

8.6

5.8 4.1 6.2 0.6

1.2

4.5 1.5

2.9

3.9 3.6

9.6 6.4 3.2 1.4

1.1

2.3

5.00

4.7

5.1

7.2

5.2 5.7 4.7

10.00

9.1 8.6

9.5

11.1

15.00

-2.8 -5.6

-4.8

-5.4

-1.5

(5.00)

-3.5

0.00

(10.00)

Source: IATA

Other regions that are expected to witness notable growth during 2012 are Latin America and Asia-Pacific, Pacific, where their capacity is estimated to grow at 8.6% and 6.2% respectively. But both regions are expected expected to witness drop in EBIT margins from their 2010 levels.

1 2

Source: IATA industry statistics Source: JP Morgan chase

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Royal Jordanian Airlines (RJAL) Preliminary Results 2011 Update February 27th, 2012 Figure 4:: EBIT margin, % revenues

1.0%

1.6%

2.0%

0.7% 0.2%

1.9% 1.5% 0.8%

3.6% 3.0% 2.9%

3.0% 2.4%

3.4% 3.1%

2.5% 2.0%

4.0%

2.9% 2.8%

4.0%

6.0%

3.0%

2012F

4.7%

5.0%

7.0%

5.0%

2011F

6.0%

2010

0.0%

Source: IATA

During year 2010 the industry industry has witnessed an impressive USD 15.8 billion in profits, unfortunately margins have dropped substantially during year 2011 and are expected to drop further during year 2012 to reach only 5% and only USD 3.5 billion in profits. profits Figure 5: Net profit, USD billion 2010

2011F

2012 2012F

18.00 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 (2.00)

Source: IATA

The highest drops where witnessed in the Asia-pacific Asia pacific and North American region, which were the main contributors in the global drop in margins.

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Royal Jordanian Airlines (RJAL) Preliminary Results 2011 Update February 27th, 2012 Company Brief Royal Jordanian Airlines (Ticker: RJAL) is a Jordanian company with a capital of 84.373 million Jordanian Dinars, the company went public in the year 2007 and benefited from exclusivity of operations up until the end of year 2010 where the government’s liberalization of the civil aviation sector was completed. By the end of year 2010 RJAL served 58 destinations across the globe, during 2011 the company has added several new destinations in order to combat low cost carriers (LCCs) by choosing routes that cannot be utilized by LCCs such as Nairobi and other African countries. The company considers the young age of its fleet one of its competitive advantages and keeps consistently replacing its airplanes and focuses on marketing its fleet as one of the youngest fleets in the region, RJAL has a fleet of 32 aircraft and is planning to phase out and replace several aircrafts during year 2012, in addition to eleven Boeing 747 crafts the company has on order. In addition, the company fully owns a private equity company focused on chartered flights called Royal Wings; the company has only one aircraft in addition to access to RJAL’s fleet depending on the availability of the aircrafts. Company Sales and Profitability Although the company recorded an increase in revenues in 2011 which amounted to JD 726 million compared to JD 685 million in 2010. The company reported a negative gross margin and a net loss of JD (58.12) million compared to a net profit of JD 9.65 million in 2010. Figure 6: Royal Jordanian Indicators Revenue JD (000) Cost JD (000) Fuel surcharge on tickets JD (000) Rev. – Fuel surcharge JD (000) Passengers (000) Available seat KM (000) Revenue passenger Km (000) Total distance traveled in Km (000) Seat factor % Fleet

2006 447,049 387,980 55,898 391,151 2,005 8,395 5,574 52,275 66.4% 20

2007 544,909 453,285 78,949 465,960 2,366 9,276 6,545 56,056 70.6% 22

2008 700,031 615,008 118,288 581,743 2,701 10,244 7,380 64,379 72.0% 25

2009 598,260 504,296 87,841 510,419 2,669 9,934 6,773 66,017 68.2% 26

2010 684,791 603,041 106,792 577,999 3,022 11,171 7,896 70,982 70.7% 28

2011 725,878 733,295 140,640 585,239 3,218 11,492* 8,044* 73,112 70.0% 32

Source: Royal Jordanian financial statements * Estimated

Revenue per passenger has been relatively stable during the last five years, where it was JD 230 in 2007 and it slightly decreased to reach JD 226 in 2011. The highest revenue per passenger was recorded in year 2008 where it amounted to JD259. It should be noted that fuel surcharges made up 24% of revenue per passenger during 2011, if we exclude fuel surcharges from revenues we will notice that revenues per passenger dropped from JD 191 in 2010 to JD 182 in 2011, therefore should fuel surcharges drop in the future RJAL will witness a significant drop in its revenue per passenger. Number of passengers increased 6.5% to reach 3.218 million passengers in year 2011. Figure 7: Passengers Indicators Revenue / passenger Cost / passenger Rev. without fuel sur. / Passenger

2006 223 194 195

2007 230 192 197

2008 259 228 215

2009 224 189 191

2010 227 200 191

2011 226 228 182

Source: Royal Jordanian financial statements

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Royal Jordanian Airlines (RJAL) Preliminary Results 2011 Update February 27th, 2012 The sales of airline companies are very seasonal and RJAL’s sales are no different where it sales peaks in the third quarter of each year because the weather improves at that time of the year and tourists’ numbers are highest in that period. RJAL’s AL’s third quarter of 2011 was the most profitable during the year where the company’s revenues has increased to reach JD 219 million compared to JD 203 million in Q3 2010, and the company has reached a record number of passengers for that quarter. The company also recorded a positive gross margin of JD16 million and a loss of JD (3) million in Q3 2011,, which is much lower than the losses incurred during the first half of 2011 which amounted to JD (39 39) million and losses incurred in the last quarter which whic amounted to JD (16) million. Figure 8:: Quarterly Revenues (JD million) Quarterly Royal Jordanian Sales (JD million) 250

236 219

218 203 200

176

JD million

163 146

150

178

175

171 150

138

149

183

143

135

124

181

169

100

50 -

Source: Royal Jordanian quarterly financial statements

The net profit margin of the company has been volatile throughout the period (2006-2011), (2006 the peak of 4.78% was recorded in 2009 then it dropped to 1.41% in 2010, 2010 and then dropping to -8% % in 2011 which is the lowest net profit margin recorded during the last la six years. Although revenues during 2011 were higher than 2010, the company has reported losses of JD (58.12) million, due mostly to the increase in the global prices of fuel, and the company’s policy of not hedging its fuel exposure during the year 2011. 201 Figure 9:: Net Profit & Net Profit Margin

JD million

Net Profit 40 30 20 10 0 (10) (20) (30) (40) (50) (60) (70)

Net Profit Margin 4.8% 28.6

3.7% 20.4

6% 4%

1.4% 6.1

9.7

2% 0%

1 1.4% -2% -3.5% (24.6)

-4% -6% -8%

-8.0% (58.1)

-10%

Source: Royal Jordanian Airlines (RJAL)

Revenue streams

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Royal Jordanian Airlines (RJAL) Preliminary Results 2011 Update February 27th, 2012 Revenue from passenger is the main revenue stream for RJAL constituting on average 67% excluding passenger related revenues such as fuel surcharges, excess baggage and other revenues. Fuel surcharges alone makes on average about 20% of revenues (although it should be noted that fuel surcharges are highly related to the prices of fuel, fuel and the company is unable to pass the increase increase in fuel expenses fully to customers due to the competition in the industry). ). Passenger revenues grew from JD 379 million in 2007 to JD 469 million in 2011. Figure 10:: Passenger & Cargo Revenues

JD million

Passengers

Cargo

468

500 450 400 350 300 250 200 150 100 50 0

469

464 412

379 294

43

41

37

39

30

39

Source: Royal Jordanian Airlines (RJAL)

While passenger revenues has been growing steadily, the revenues from cargo has been fluctuating during the period (2006 – 2010), the cargo revenues were the highest in year 2006 when they were JD 43 million, dropping to JD 30 million in year year 2009 and the rising again to JD 39 million in year 2011. 201 The IATA expected that the global cargo revenues will drop during year 2012. On average cargo constituted about 6% of revenues during the period from (2006-2011). Seat factors and number of passengers During the period from (2006 – 2010) the company’s seat factor has increased from 66.4% in year 2006 to reach 70% 70 in year 2011,, the highest seat factor reported was in year 2008 when seat factor reached 72%. As it can be noted from the graph below, RJAL’s Seat factor has always been lower than the average reported factors in the middle east and the globe. Figure 11:: Seat Factor Worldwide 80% 78% 76% 74% 72% 70% 68% 66% 64% 62% 60%

78% 76%

76%

Middle East

Royal Jordanian 78%

76%

75%

73% % 72%

76%

78%

76%

75%

73% 71%

71%

70%

68% 66 66%

Source: Royal Jordanian Airlines (RJAL), (RJAL) International Air Transport Association (IATA) statistics

Although the seat factor has dropped from 72% in year 2008 to 70% in year 2011, 201 the decrease was not due to a decrease in number of passengers; the number of passengers has increased from 2.669 2. million in year 2008 to reach 3.218 million in year 2011. The decrease Page 7 of 14

Royal Jordanian Airlines (RJAL) Preliminary Results 2011 Update February 27th, 2012 in seat factor was due to the expansion in the fleet of royal Jordanian airlines where the number of aircrafts increased from 25 aircraft in 2008 to 32 in 2011. Figure 12: Number of Passengers 3,500

Thousands

3,000 2,500

3,218

3,022 022 2,701

3,286

2,669

2,366 2,005

2,000 1,500 1,000 500 -

Source: Royal Jordanian Airlines Company Financials

Cost of Sales During the period (2007 – 2011)) the operating expenses constituted on average about %86 of revenues, variations in expense throughout the years were mainly attributed to fuel expenses, which is the main cost component that made up about 34% of cost of sales in year 2010, and estimated to have reached about 45% in year 2011. The company’s policy was not to hedge its fuel exposure during 2011 which increased magnitude of the increase in fuel prices during the year and the subsequent increase in fuel expenses. Several airlines on average hedge 30% of their fuel exposure, exposure especially in USA and Canada, while some companies like US airways group did not hedge any of its fuel exposure, but in general it is safe to say that only a small part of airline companies did not hedge any of their fuel exposure3. RJAL has stated that it will consider hedging in year 2012 to decrease the effect of fuel exposure. Figure 13: Cost of Sales

Figure 14:: Operating expenses

Cost of revenue

Aircraft Fuel

800

733

700

615

JD miliion

600 453

500 400

603

3% 3%

Other flying operating cost 10% Repair & maintenance

34%

504 Passenger services

388

10% %

Aircraft rental expenses

300 200

Stations & ground service

100

Depreciation of aircraft & engines Ground handling unit

0

Source: Royal Jordanian Airlines Company Financials

13 13% 14% 13%

Source: Royal Jordanian Airlines Company Financials

Company financing The company has a limit on its borrowed funds that prevents it to increase debt above 250% of its paid up capital, also the company uses a mixture of operating and capital leases for financing its fleet. The company will need to issue additional capital to fund its plans of purchasing seven Boeing 787, but due to the fact that the current stock price is under the par value of one JD, the company is not allowed to issue additional capital, the choices that the 3

Source: Bloomberg, airlines jet fuel hedging positions 2011

Page 8 of 14

Royal Jordanian Airlines (RJAL) Preliminary Results 2011 Update February 27th, 2012 company has is to improve performance during 2012 to enhance the stock price, or cancel on some of the purchases. Cash flow changes in year 2010 and Q3 2011 In the first three quarters of year 2011 RJAL had a negative operating cash flow of JD (19) million compared to the operating cash flow during the same period in year 2010 which was JD 41 million. Total change in cash flows from all activities amounted to JD 43 million compared to the cash flow of JD 57 million in same period in year 2010.

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Royal Jordanian Airlines (RJAL) Preliminary Results 2011 Update February 27th, 2012 Royal Jordanian Airlines (RJAL) Stock Price Performance RJAL’s stock price witnessed a very sharp drop during year 2011 where it dropped from JD 1.62 to JD 0.66 by the end of 2011, influenced by the poor performance of the company and the losses incurred in every quarter of the year. RJAL’s stock price kept dropping gradually since the beginning of year 2012 where it dropped 14% from JD 0.66 to JD 0.58. The company has a free float of 33.8% Figure 15: Stock Prices of Air Line Companies 52 Weeks 52 week low Royal Jordanian Jazeera Airways Societe Tunisienne de l'air Air Arabia Israel Airlines

Date

52 week high

Date

% Difference

USD 0.80 0.40

February 2, 2012 March 9, 2011

USD 2.31 1.73

March 17, 2011 February 21, 2012

188% 329%

1.08 0.15 0.15

June 23, 2011 January 15, 2012 February 16, 2012

1.49 0.23 0.42

August 3, 2011 March 29, 2011 February 22, 2011

38% 48% 185%

Source: Bloomberg

As it can be noted from the table below, the stock prices of most airline companies were not highly correlated throughout year 2011, due to the different routes and the hubs that the airlines have, in addition to different fuel hedging policies, services and fleet size. Figure 16: Correlation Coefficient for Comparable Airlines (Jan. 2011 – Feb 21, 2012) RJAL AIRARA JAZEER TAIR ELAL

RJAL 1.00 0.138 -0.077 0.194 0.056

AIRARA 0.138 1.00 -0.002 0.065 0.182

JAZEER -0.077 -0.002 1.00 -0.017 -0.024

TAIR 0.194 0.065 -0.17 1.00 0.066

ELAL 0.056 0.182 -0.024 0.066 1.00

Assumptions: Stock prices included for all days of the year. Non trading days carried the previous closing price Source: Bloomberg

During the first four months of year 2011 RJAL’s stock performance was very close to the Amman Stock Exchange Free Float General Index, after April 2011 – as it can be noted from the graph below – RJAL stock performance deviated from the performance of the general index and witnessed a very sharp drop until the end of 2011, the stock also continued to drop gradually during the first two months of 2012. Figure 17: Royal Jordanian Stock Price vs. Amman Stock Exchange Free Float Index General Index 6000 5000 4000 3000 2000 1000 0

RJAL Stock Price 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

Source: Bloomberg

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Royal Jordanian Airlines (RJAL) Preliminary Results 2011 Update February 27th, 2012 Looking at the below graph, we could see that the World Airline Index has been improving from the beginning of year 2009 up to the end of year 2010, while during 2011 the index kept dropping until the year ended. Also in can be noted from the graph below that RJAL stock has been highly correlated with the general index during years 2010 and 2011. During the first two months of year 2012 the Bloomberg World Airline Index started improving while RJAL’s stock continued to drop gradually. Figure 18: Bloomberg World Airline Index & RJAL Stock Price Bloomberg World Airline Index 140 120 100 80 60 40 20 0

RJAL Stock Price 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

Source: Bloomberg

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Royal Jordanian Airlines (RJAL) Preliminary Results 2011 Update February 27th, 2012 Valuation This valuation is based on the Discounted Cash Flow model. Fuel prices and passenger numbers are prime variables affecting the company’s future cash flow. Although we are expecting the number of passengers to increase during the following years, it is still stil uncertain if the increase in passengers will reflect notable positive margins for RJAL in the conditions of uncertainty witnessed in the region, the volatile prices of fuel and the fierce competition in the industry. The current situation for the airlines airlin is tough, and the IATA expects ects 2012 to be a tight year in terms of margins for the industry, while historically RJAL outperformed the industry and scored higher margins, this was not the case in the last two years due most probably to the increasing competition petition from low cost carriers which has affected the profitability of RJAL; the company has started to fend off competition by introducing new routes that is not feasible to be accessed by the low cost carriers which might help the company during the following fol years. We estimated that the number of passengers will keep increasing by 6.5% annually, we assumed that company will report a negative margin of 1% in year 2012, then start reporting positive margins after fuel expenses has been controlled and unnecessary unn expenses been eliminated, we assumed the margins to return to 2% in 2013, 2014 and 3% in 2015. Figure 19: Actual and Projected Earnings per Share Earnings Per Share 0.34

0.4 0.2

0.24 0.11

0.08

0 -0.2

(0.09)

-0.4

(0.29)

-0.6 (0.69)

-0.8

Source: Arab Potash Company (Actual), Awraq Investments (Estimates)

We applied a risk free rate of 5.16%, and market return of 11%. Using Beta of 1.14, 1. the cost of equity is 11.82 82%. With 80% weight of equity, 20% % weight of debt; and 6% before tax cost of debt, the Weighted Average Cost of Capital (WACC) is 8.16%. %. The tax rate is 25% as of 2010 according to Royal Jordanian Annual Report.. Based on these assumptions, the Free Cash Flow to Equity method yielded JD 0.53 per share. The sensitivity analysis in Figure 20 provides the results of the weighted valuation using different assumptions for changes in Net profit margin. Figure 21 illustrates the sensitivity of value to changes in Cost of Equity and the terminal growth rate. Figure 20: Value ue Sensitivity to Changes in Revenues % Change in estimated Net Profit Margin % Change

-0.1

-0.05

0

0.05

0.1

Fair Value

0.11

0.24

0.53

0.75

1.12

Source: Awraq Investments

Page 12 of 14

Royal Jordanian Airlines (RJAL) Preliminary Results 2011 Update February 27th, 2012 Figure 21: Sensitivity of Weighted Valuation to Changes in Ke and WACC Sensitivity Analysis Terminal Growth Rate (G)

1.50% 2.00% 2.50%

9.82% 0.70 0.75 0.81

Change in Ke 10.82% 11.82% 12.82% Change in Weighted Valuation 0.59 0.50 0.43 0.63 0.53 0.45 0.67 0.57 0.48

13.82% 0.37 0.39 0.41

Source: Awraq Investments

Peer Multiples For peer analysis we have considered the following Airlines: Air Arabia, Jazeera Airways, Societe Tunisienne de l'air and Israeli airlines. Many airline companies reported negative earnings so they didn’t report any P/E for year 2011, while Jazeera and Air Arabia P/E was 10.43 and 12.08 respectively. As for the average P/BV for the considered peer companies was 1.289, higher than the current P/BV for RJAL which is 0.67. While the P/S for RJAL was much lower than the average of considered peers of 0.84, where RJAL’s P/S ratio was 0.07 where the revenues of RJAL increased during the year and its stock price has dropped significantly. Figure 22: Multiples of Considered Peers as of February 22, 2012 Royal Jordanian Jazeera Airways Societe Tunisienne de l'air Air Arabia Israel Airlines

P/S 0.07 1.81 N/A 1.45 0.04

P/B 0.67 4.10 0.67 0.65 0.40

P/E N/A 10.43 N/A 12.08 N/A

Page 13 of 14

Royal Jordanian Airlines (RJAL) Preliminary Results 2011 Update February 27th, 2012 Disclaimer Awraq Investments and its affiliates obtain information from sources they believe to be reliable, but do not warrant its accuracy or fitness for a particular purpose, and disclaim for themselves and their information providers all liability arising from the use. The Information in this publication is provided in good faith for informational purposes only. The information provided is not offered as tax, legal, or investment advice, or an offer to buy or sell securities or otherwise. The information provided in this publication may be displayed and printed for your personal, non-commercial use only. You may not reproduce, re-transmit, distribute, disseminate, sell, publish, broadcast, or circulate the information in any form or media to anyone, without the expressed written consent of Awraq Investments. Awraq Investments is not liable for any loss resulting from any action taken or reliance made by any person on any information or material posted by it. You should make your own inquiries and seek independent advice from relevant industry professionals before acting or relying on any information or material made available to you in this publication. You rely on this information at your own risk. Awraq Investments, its subsidiaries, parent, and/or any connected parties, may act or trade and/or enter into any transaction that maybe inconsistent or disregard any information contained herein.

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