Engine Investor & Financier London Roadshow. Tuesday September 19 th 2006 Bob James

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1 Engine Investor & Financier London Roadshow Tuesday September 19 th 2006 Bob James

2 TES Aviation Group Overview Established 1995, HQ Cardiff, UK. Privately owned Professional 52 person team Over 60 customers in 20 countries 700 engines under fleet management ~100 Shop Visits per year Independent Technical, Commercial & Logistic expertise OEM agreements (GTA s) in place - training, manuals & conferences Established industry relationships with repair shops, airlines, lessors, financiers & legal firms ISO / AS9100 / AC056A Quality accredited

provisioning, remarketing and disposition.

3 TES Aviation Group Structure Aircraft Engine Tech / Commercial Asset Management and technical services Aircraft Engine Physical Asset Mgt, Parts provisioning, remarketing and disposition. Tailored software solutions for effective asset management. TES Aviation Group Complete Asset Management Services

4 TES Engine Portfolio CF6-80E CF6-80A2 Engine Quantity by Type CF6-50C2 JT8D-200 CF6-50E2 CF6-80C2 APU CFM56-7 PW125B V2500-A5 V2500-A1 PW4000 RB E4 CFM56-5B CFM56-5A CFM56-5C CFM engines valued in in excess of of $2.0 bn bn

5 Banks and Leasing Companies TES Customer Portfolio Manufacturers US Based Aircraft Manufacturer UK Based Engine Manufacturer Airlines

6 Breaking up is never easy! When to part out? How much value is left at the end? Key types? What are the main considerations from an investors perspective? What are are the the key key considerations of of Reduce To To Produce (RTP) programs on on aircraft engine?

7 Where is the residual value in an aircraft? OR

8 Engine Value Projections with Time Engine value increase as as a percentage of of aircraft value, until the tthe engines account for for almost all all the the residual value

9 Financial, Management and Trading Phases Where are are your asset investments in in the the aircraft life life cycle?

10 Financial Phase - Attributes New equipment No engine shop visit liability Premature removals OEM supported Warranties on wing life, removal rate Guarantees reliability, piece part life, fuel burn OEM grow data & experience OEM campaigns supported Provisioning kits supported Limited aircraft remarketing Less demands for Technical Asset Management New Equipment at at OEM list list pricing typically less less likely to to offer financially viable disassembly program

11 Financial Phase Hopefully the warranty and guarantees are in place!

12 Management Phase - Focus Engine Removal Planning and Forecasting When? What? How Much? Where? Engine shop visit liabilities Contract Definition Workscope definition / control Design standard of parts fitted? Maintenance reserve draw downs Workscope and replacement material Shop contract terms Industry support programs AD s SB s Transaction contract management Delivery / Re-delivery / Configuration planning Technical & Commercial Management become important with specific products suited to to disassembly programs

13 Management phase Engines beyond economical repair offer exchange potential

14 Trading Phase - Attributes Equipment obsolescence Engine values may exceed aircraft value Cost of overhaul exceeds cost to replace Engine exchanges rather than repair Reliability decreasing Cost of operations increasing Operators look to phase out equipment Disassembly of equipment for parts Aircraft and engine trading Entrepreneurial / opportunistic investments Technical decision making important to risk management Asset values not generally proportional to lease income Disassembly programs increasingly offer a preferred exit exit route

15 Trading phase What do we do with this is there residual value?

16 Engine Life Cycle Which assets are where in the cycle? Average (AC) Age Engine Life Cycle Profile BR700 CFM56- AE3007 CFM56-7 5B TRENT GE90 V2500 CF34 CFM56- PW4000 CFM56-5C 5A PW2000 RB ALF CF6-50 JT9D JT8D Basic CF6-6 CF6-80 TAY CFM56- JT8D- RB211- CFM Engine Type + No. Engines Financial Management Trading Not Not all all assets progress chronologically through the the phases

17 Engine Life Cycle Management Phase Engines Tay 650 CF6-80 PW4060 CFM56-3 CFM56-5A RB E4 PW2037 JT8D-217/9 Axes : X Aircraft Age; Y Aircraft Deliveries by Year Source : ACAS Management Phase Engines Potential for for part-out

18 Engine Life Cycle Trading Phase Engines CF6-50 CFM56-2 Axes : X Aircraft Age; Y Aircraft Deliveries by Year Source : ACAS What are are the the market demographics?

19 Demographic considerations How many engines in service What are the operator demographics? Geographic spread / concentration of operators Engine type applications to different aircraft Engine thrust ratings and upgrade potential What are the SV arisings / material forecast Obsolesence, regulatory directive considerations? How many repair facilities are there? Future value predictions for the type? Spare engine availability? Market demographics significantly influence decision making

20 Demographics by Operator ( Example) RB E4 powered B757 - Individual Operator Fleet Size PW2037 powered B757 - Individual Operator Fleet Size 8 Operators 226 Engines 7 Operators 98 Engines 3 Operators 224 Engines 2 Operators 362 Engines No. of a/c 1 to 5 6 to to to Operators 158 Engines 3 Operators 88 Engines 3 Operators 492 Engines No. of a/c 1 to 5 6 to to to Operators 230 Engines 4 Operators 54 Engines 15 Operators 70 Engines Total RB E4 Operators : 82 Total RB E4 Engines installed : 1140 Total Operators with <6 aircraft : 62 Total PW2000 Operators : 27 Total PW2000 Engines installed : 862 Total Operators with <6 aircraft : 15 Source : ACAS May 2006 Operator diversity significantly greater of of RB E4 than than PW2037

21 Engine Life Cycle Aircraft Values Value dictated by position in the life cycle. Predictions show peak values circa Value Index for All Commercial Jets (History and Forecast) History Forecast Index More money, chasing fewer deals = fewer disassembly programs Years Source Avitas We We have seen B757 programs move from viable disassembly to to conversions to to continued passenger use, use, all all within mths

22 Which Assets do we part-out Key considerations Purchase price / Book Value how much do we need to realise? Full part-out modelling required :- Airframe value Age / operator profile Volume in service Commonality Airframe Part-out location Who can disassemble? Logistics, environmental concerns Reputation, capacity, storage and part-out cost Engine Removal Costs Certifications and records Airframes often sold sold separately to to engines

23 Which Assets do we part-out Key considerations Engine disassembly - Location, capacity, capability, space & cost Parts Repair - Which parts, where, repair investment and timescale Scrap Rates - Scrap rates by line item by P/No. Sales Prices Overhaul sales price by line item and part no. Sales Demand - Sales timing prioritisation of parts (A,B,C,D) Sales outlets to be defined Competition OEM pricing, DER/PMA pricing, material availability Engine disassembly can can be be logistically and and technically complex

24 Which Assets do we part-out Key considerations Can we lease the engine residual life before disassembly? Engine Life Limited Parts (LLP s) status vs potential rebuild life Key material scrappage based upon time since Overhaul and known technical issues. Specific LLP s may account for 75% of total LLP value rejection during inspection may adversely impact value of material recovery Technical documentation increasingly important standards vary As a lender, how do I maintain asset security post disassembly to parts? Maintaining security remains a critical aspect to to asset backed financing of of disassembly programs

25 Full Due-Diligence Inspection Full records check updated and certified Traceability documentation requirements of piece parts significantly greater than if installed in an engine! Certified operator on / off disk sheets. Birth document Non incident statement from every operator AD s certified means of compliance. Repair Certifications FAA/EASA not local release Key modification incorporation major impact on obsolescence and material value recovery. Historical shop visit data Full definition of works performed Key component configuration number of previous repairs, repair standards and OEM soft time recommendations. Accurate cost cost modelling requires both time and and expertise

Full Due-Diligence Inspection (Contd ) Current MPA performance check full take-off power check in addition to ECM Full video boroscope overviewed by experienced engineers Log books updated for Ferry

26 Full Due-Diligence Inspection (Contd ) Current MPA performance check full take-off power check in addition to ECM Full video boroscope overviewed by experienced engineers Log books updated for Ferry Flights 2 hours and 1 cycle can have a major value impact Full physical inventory your definition of Bare and QEC will not be the same as mine Storage & preservation review 30 days means 30 days. 45 days means a technical deviation or an expensive engine shop visit!! Total technical control and and focus required to to maximise values

27 Sales Outlets influencing factors Market demand shop visit arisings, new part cost, repairability and obsolesence. Material availability - quantity and quality of material available, competitors and market players Airlines Who? Where? How Big? Parts Traders Who? What? How Much? Repair Shops How Many? Where? Repair Volume? Critically assess your disposition provider as as required for for credit committee approval on on an an unsecured debt transaction

28 Repair Shops How Many? Where? Repair Volume? MRO Geographic Location RB E4 RR - UK Iberia - Spain Delta Tech Ops - US MRO Geographic Location JT8D-200 AeroThru st - US Volvo - Sweden Finnair - Finland TAESL US AMECO - China AES - US HAESL Hong Kong PGTC US ITR - Mexico Iberia - Spain Avio - Italy ST Aerospa ce - Singapor Bedek e Aviation (IAI), Israel P&W New Zealand MRO Geographic Location CFM56-3 TIMCO - US Delta Tech Ops -US MTU Canada United Services, US GE - US GE Celma - Brazil AeroThrust - US LTAI - Ireland Snecma France & AFI Belgium - France TAP Portugal Snecm a - Moroc co GE - Wales P&W (NEC) - Norway ST Aerospace - Singapore Lufthansa Technik - Germany THY - Turkey MTU - China Snecma - China IHI - Japan GE - Malaysia GE - US Air Canada - Canada MRO Geographic Location CFM56-5A GE - Wales Snecma - France AFI - France Iberia - Spain GAMCO Abu Dhabi Lufthansa Technik - Germany MTU - China Bedek Aviation (IAI), Israel Jet Turbine - Australia

29 Repair Shops How Many? Where? Repair Volume? Delta Tech Ops -US MRO Geographic Location PW2037 P&W US Finnair - Finland MTU - Germany Delta Tech Ops - US MRO Geographic Location PW4000 SRT Switzerland Volvo Aero - Sweden Lufthansa Technik Germany LTUAM- Germany United Services, US United Services US P&W Cheshire - US AMECO - China GE - Malaysia P&W (ESA) Singapore GE - US MRO Geographic Location CF6-80C KLM Netherlands Lufthansa Technik - Finnair - Germany Finland MTU - Germany MRO Geographic Location V2500 Lufthansa Technik -MTU - Germany Germany IHI - Japan American Airlines - US Alitalia -Italy TAP - Portugal Air India - India Thai Airways - Thailand P&W - US R-R -UK GE - Brazi l GAMCO Abu Dhabi Jet Turbine - Australia ANZES New Zealand SAA Technic al South Africa MTU Zuhai - China P&W New Zealand

30 So what values are achievable from engine disassembly programs?

31 Disassembly Example 1 #1 Engine Unserviceable B757 (RB211) 1986 C Check & Pylon mod required, one engine u/s, one engine low time remaining Do we reduce to spare parts What value can we get realise? #2 Engine Serviceable 1800 cyc residual Part-Out. Net Sales Revenue projection $2.5M Over 24 months Airframe Sales Value $2.25M ~$8.2M over 2 year program Lease out over 12 months residual lease $945,000 X3 90 day $3,500 per day Part-Out. Net Sales Revenue projection $2.5M Over 24 months Are we prepared for $500,000 investment in material repairs? What are the program costs? Finance, shipping, teardown, legal, insurances, mgt fees? Are we prepared for short term leasing to maximise returns?

32 Disassembly Example 2 CF6-50C2 Program 2004/5 Engine purchases x6 $600,000 Costs Acquisition / legal $75,000 Shipping / stands $100,000 Teardown $300,000 Repair of parts $900,000 Other $150,000 Total Costs $1,585,000 Total Parts Sales $4,000,000 Total Gross Profit $2,415,000 Project Return 60% ROS CF6-50C2 Program 2006 Engine purchases x2 $550,000 Costs Acquisition / legal $25,000 Shipping / stands $60,000 Teardown $50,000 Repair of parts $300,000 Other $25,000 Total Costs $1,585,000 Total Parts Sales $1,650,000 Total Gross Profit $640,000 Project Return 39% ROS Would you you provide debt against CF6-50C2 engines for for Would you you provide disassembly? debt against CF6-50C2 engines?

33 !! Caution!! Trust my modelling we ve done this before!! The The Part out and and break up up business can can attract ringmasters.

34 Summary / Conclusions Complete technical and commercial control required throughout the key phases of the aircraft life in order to maintain residual value Study the market demographics carefully if you are to maximise the realiseable value from a disassembly program. Disposition management & control requires careful selection of a partner to manage the process with an excellent technical understanding of the product and sales outlets. Asset backed financing of engines for disassembly remains a niche market but offers significant returns for those prepared to invest with a trusted, experienced and respected service provider.

35 The ultimate residual value retaining asset

36 Thank you for your attention TES Aviation Group The leading engine asset management service provider offering innovative commercial and technical solutions to investors and operators of commercial aircraft engines.

Total credit to the non-financial sector (core debt), % of GDP Table F1.1

Total credit to the non-financial sector (core debt), % of GDP Table F1.1 2012 2013 2014 2015 2016 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Argentina 62.6 66.4 64.6 75.5 75.3 81.7 80.1 75.3 71.6 72.7 Australia 208.0