Keynote address Christian Mc Cormick Director of Finance

Keynote address Christian Mc. Cormick Director of Finance China Aircraft Leasing Company

Lessor Risk versus Airline Risk Why Lessors have more options with a focus on the Chinese market Your Speaker: Christian Mc Cormick Managing Director Finance

Understanding Lessor versus Airline risk How Lessor’s Finance their fleets The Chinese Market Chinese Lessor access to financing

Understanding Lessor versus Airline risk How Lessor’s Finance their fleets The Chinese Market Chinese Lessor access to financing

Understanding Lessor versus Airline risk Today’s Revelation: The great « Secret Bancaire » (Bank-Client Secrecy): Its not what you think! The Real Secret: Bankers and financial investors are not as smart as you think they are For their risk analysis they rely on a very basic principle. The old adage: Never put one’s Eggs into just one basket

Understanding Lessor versus Airline risk What is Airline Risk: • A Single corporate risk • A Single Jurisdiction risk • Limited aircraft types and manufacturers (Although for majors this is not always the case). • Most airlines are not in good financial condition, many are virtually bankrupt, have been in the past, will likely be in the future • Many are loosing money • They are highly leveraged

Understanding Lessor versus Airline risk What is Lessor Risk? Lessors offer financiers and investors the ability to spread risk accross multiple airlines around the world

Understanding Lessor versus Airline risk What is Lessor Risk? Lessors offer financiers the ability to spread risk accross multiple aircraft manufacturers

Understanding Lessor versus Airline risk What is Lessor Risk? Lessors offer financiers the ability to spread risk accross multiple assets types

Understanding Lessor versus Airline risk What is Lessor Risk? Lessors offer financiers the ability to spread risk accross multiple countries and jurisdictions

Understanding Lessor versus Airline risk What is Lessor Risk? Lessors offer financiers the ability to put their eggs in multiple baskets and in the hands of people who have experience in placing aircraft, and managing aircraft assets Te M chn an ic ag al er Comm er Mana cial ger se Lea ger a n Ma

Understanding Lessor versus Airline risk The World Lessor Market in a Nutshell • 156 Lessors worldwide • Early 2015, Lessors had 8660 aircraft in service (out of a world total of 38 050) That’s 22, 75% of the World’s Fleet • Lessors had 2382 Airbus and Boeing aircraft on order (out of a world total of 12 000; 6300 for Airbus and 5700 for Boeing) That’s 20% of the World’s Aircraft order book These numbers exclude future Sale and Leaseback transactions in which a Lessor buys aircraft to be delivered to an airline and then leases them back to the airline.

Understanding Lessor versus Airline risk The World Lessor Market in a Nutshell • Percentage of Aircraft operated in a region managed by lessors 78% 24% 43% 35% 59% 48% 75% 40% 48% 33% Source: Ascend and Boeing

Understanding Lessor versus Airline risk The World Lessor Market in a Nutshell • Top 20 Largest Customers by Deliveries over the last 20 years Ryanair Southwest Airlines GECAS Aer. CAP/ILFC American Airlines ANA China Southern Airlines Lion Air Delta Air Lines Continental Airlines GOL Air China Japan Airlines Corporation Alaska Airlines Hainan Airlines Emirates Airlines BOC Aviation Virgin Australia Xaimen Airlines Air Berlin Source: Ascend and Boeing Aer. Cap/ILFC Easyjet GECAS China Eastern Airlines China Southern Airlines CIT Leasing Group Air Asia Air China Lufthansa BOC Aviation Qantas Jet Blue Airways Indigo Lan Airlines Turkish Airlines TAM US Airways Iberia Air Berlin Avianca

Understanding Lessor versus Airline risk The World Lessor Market in a Nutshell • Top 15 Largest Customers by orders of Widebody Aircraft Emirates Etihad Airways Qatar Airways All Nippon Airways ILFC United Airlines Air Lease Corporation (ALC) Fedex American Airlines Korean Air British Airways Singapore Airlines Air Canada Aeroflot Air France – KLM Group 198 93 75 71 59 57 55 44 39 36 34 32 31 25 25 Source: Air Finance Journal Deals Database, Orders and Deliveries Report Q 2, 2015 Air Asia X Qatar Airways Emirates Singapore Airlines Etihad Airways Delta Air Lines Air Lease Corporation (ALC) Cathay Pacific United Airlines CIT Asiana Airlines JAL TAM Linhas Aéreas Lufthansa Air France-KLM Group 97 83 78 75 70 58 50 46 35 33 32 31 27 25 25

Understanding Lessor versus Airline risk The World Lessor Market in a Nutshell • Top 15 Largest Customers by orders of Narrowbody Aircraft Ryanair Southwest Airlines Lion Air American Airlines Norwegian Air Lease Corporation (ALC) GECAS United Airlines Aercap SMBC Aviation Capital Fly. Dubai Turkish Airlines Westjet GOL BOC Aviation 263 262 261 150 142 140 131 119 96 95 88 86 78 78 77 Source: Air Finance Journal Deals Database, Orders and Deliveries Report Q 2, 2015 Air Asia Lion Air ILFC American Airlines Indigo Easyjet Avianca Air Lease Corporation (ALC) Lufthansa GECAS SMBC Aviation Capital CALC (China Aircraft Leasing Corp) Qantas Norwegian Jet. Blue 312 226 214 190 180 153 147 142 137 132 119 118 104 100 97

Understanding Lessor versus Airline risk • Boeing and Airbus have projected that 40 -50% of aircraft will be owned or managed by lessors in the next 10 years. . .

Understanding Lessor versus Airline risk How Lessor’s Finance their fleets The Chinese Market Chinese Lessor access to financing

How Lessor’s Finance their fleets Through a parent with a big balance Sheet:

How Lessor’s Finance their fleets Through a parent with a big balance Sheet: Some Examples of Japanese financiers entering the leasing market Aquisition 2012

How Lessor’s Finance their fleets Through a parent with a big balance Sheet: Purchase of Pool of Assets November 2014 45 Aircraft $1, 9 Billion March 2015 90 Aircraft 40 Airlines $4 Billion

How Lessor’s Finance their fleets Through a parent with a big balance Sheet: Merger/Takeover September 2015 260 Aircraft $7, 6 Billion

How Lessor’s Finance their fleets With public listed equity:

How Lessor’s Finance their fleets Through a private Investment Bank:

How Lessor’s Finance their fleets With structured financings through bank debt including: PDP financings Export Credit Financings Finance Leases Operating Leases Commercial Debt Corporate Debt Tax Leverage Leases Optimised Leases. . .

How Lessor’s Finance their fleets With structured financings through the capital markets Warehouse structures, ABS, Jointe Ventures, Takeovers. . . $680 M ABS Joint Venture $516 M ABS Joint Venture $640 M ABS $556 M ABS $260 M ABS Takeover $7. 6 B

Understanding Lessor versus Airline risk How Lessor’s Finance their fleets The Chinese Market Chinese Lessor access to financing

The Chinese Market • Over 42% of global air traffic (measured in RPKs) now routes through the Asia Pacific region with APAC carriers now responsible for 33% of total passengers carried globally with the five busiest international and domestic city-pair routes all in the APAC region. Four of the top five city pairs are out of/to Hong Kong with Hong Kong-Seoul traffic showing the most growth. • Boeing considers more Chinese Boeing CEO Dennis Muilenburg has indicated that more 737 work could be placed into China following on from the company’s plan to set up a facility in China to paint, finish and deliver 737 aircraft manufactured in Seattle. Thursday 24 September: Boeing announce that CAAC has ordered 300 B 737. . . • CAAC stats show double digit growth for Chinese aviation: Statistics released by the Civil Aviation Administration of China (CAAC) show that China's civil aviation industry total turnover grew 12. 5% to 7. 39 billion tonne-kilometers in July 2015 compared to the year-ago period. Some 39. 15 million people traveled by air during July – a year-on-year increase of 9. 2%. The number of passengers travelling on domestic and international flights increased 7. 6% and 26. 7% respectively to 35. 5 million and 3. 65 million. . . Source Airline Economics 23/9/15

The Chinese Market China Aviation Supplies Holding Company orders 30 A 330 Family and 100 A 320 Family aircraft Chengdu Airlines in talks for 10 aircraft leasing deal • • Source Air Finance Journal 29/10/15 • • CALC delivers last of five A 320 to Air India delivering its 56 th aircraft CALC delivers first of 100 aircraft order to Air Macau with KDB financing Source CALC

The Chinese Market 74% of population in emerging countries will take a trip annually in 2034. PRC, the most populous country in the world will make 1. 09 trips per capita in 2034, showing its promising future in the aviation industry. Source: Sabre, HIS Economics and Airbus GMF 2015

The Chinese Market Source: Global Market Forecast 2015 -2034 By Airbus

The Chinese Market Source: Global Market Forecast 2015 -2034 By Airbus

The Chinese Market In the coming 20 years from 2015 to 2034, the RPK traffic of Asia Pacific will undergo a sustainable and steady growth, with an annual growth rate of 5. 7%. The Asia Pacific world market share will increase from 29% to 36% in 2034.

The Chinese Market 17% of leasing backlog resides with Chinese lessors (394) 194 aircraft orders in 2014 were by Chinese leasing companies (22%) 262 aircraft deliveries to China in 2014 (19%) 100 to CALC, China’s largest lessor

Understanding Lessor versus Airline risk How Lessor’s Finance their fleets The Chinese Market Chinese Lessor access to financing

Chinese Lessor access to financing Chinese Banks: Low margins Massive amounts of dollars View Chinese airline and lessor risk as corporate risk Regional Banks and Investors: Korea, Japan, Singapore. . . Good margins Massive amounts of dollars Are developing sophisticated aircraft asset valuation techniques

Chinese Lessor access to financing Good Profitability Comparison with other leasing firms 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 74% 81% 49% 25% 22, 4% CALC 11% 14, 6% Aer. Cap 11, 5% Air Lease 7, 4% FLY leasing 3 year average revenue growth 6, 4% Aircastle ROE(2014) 15% 6, 8% AWAS

Chinese Lessor access to financing But Concentrated Risks • Tend to be focused on Chinese airlines and airlines in the APAC region • Limited aircraft type variety • Single or not very multiple Jurisdiction For the moment limited access to US and European Capital Markets

Chinese Lessor access to financing CHALLENGES & OBJECTIVES • Internationalisation of lessee portfolio: • More international airlines • More jurisdictions • Expand order book to other manufacturers • Become a full value-chain aircraft solution provider To become even more attractive targets for US and European investors and the Capital Markets

Today, the world’s best investment opportunity for aviation financiers and investors in Asia