Mind the Gap. Waypoint Exclusive: An Analysis of the Super-Medium Class of Helicopters Q4 2017

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1 Mind the Gap Waypoint Exclusive: An Analysis of the Super-Medium Class of Helicopters Q4 2017

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3 Introduction & Executive Summary The super-medium helicopter is the defining new commercial rotary product of the 2010s. Until 2014, there was not a single commercial product that bridged the gap between the 6/7-ton-and-under medium aircraft (AW139s, S-76s) and the 11/12-ton heavies (S-92, EC225). Leonardo s AW189 and Airbus H175 were certified within days of each other in 2014, and with that, a new class of helicopter was born. Bell s 525 Relentless will augment the offering and introduce some novel technologies when it is commercially available in The super-mediums were designed during a period when the target Oil & Gas (O&G) industry was in an upswing, but oil companies were calling for smaller, cheaper-tooperate alternatives to the large S-92s and H225s which saw steadily rising prices and 2-3 year backlogs. When the AW189 and H175 were finally introduced, however, market dynamics had changed dramatically amidst an O&G downturn that has forced oil companies to reduce costs. Given the major changes to the industry since 2014, could it still make sense for the capital-strapped industry to outlay significant sums for new super-medium aircraft? Will they offer operating economics that justify their new acquisition cost? Waypoint s intent in performing this offshore-focused study has been to produce a factually-based comparison of the super-medium helicopters. We sought to make our study a truly apples to apples objective comparison. To that end, we approached each helicopter manufacturer with the same data request for specific operating assumptions. Waypoint has sought to answer the following question: In a changing O&G industry, is the value proposition of the super-medium still present? In response, we examined the current and historic macro-economic drivers that led OEMs to develop this new class of helicopters, specifically the payload/range gap as well as the operating and ownership costs relative to rig distance requirements. On the following pages we lay out the data we ve collected as well as the results of our analysis. Given that the super-mediums are all new helicopter types, we expect that this type of analysis will evolve over time as operational data is collected and the fleet grows in size. In the meantime, we hope you find this first attempt informative and we hope it promotes discussion and understanding of this new asset class. The Waypoint Risk Team Ian A. Gurekian Chief Risk Officer Marc Schechter Vice President Risk & Analytics Patrick Duffy Manager Pricing & Analytics Chris Giroux Credit Analyst Special thanks to Mr. Jeff Scotland for his contribution to the technical and economic analyses included in this report. 3

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5 Key Findings The super-mediums have closed the 7t-11t gap in the payload range offering and the OEMs have delivered on their promise to produce best-in-class aircraft that are cheaper to operate than new-build heavy alternatives. Despite its recent introduction, there are over 60 super-mediums in service today and over 225 on order, suggesting that the anticipated fleet will likely be a significant provider of capacity well into the future. The AW189 and H175 expand on the mission profile of medium helicopters given their additional payload/range capabilities and despite a 3-passenger capacity detriment, they can accomplish many if not most of the missions that have been done by heavy aircraft historically. Given the availability of S-92s in light of the changed dynamic in the O&G industry since 2014, operators may find that heavy aircraft can be had today at acquisition prices or lease rates that place them on par with the super-mediums from a cost per seat mile perspective. Despite a significant downturn in O&G activity since 2014, the industry is beginning to rebound and with the increase in rig activity, oil company earnings and tender activity, the requirement for safe and efficient helicopter transportation will expand anew in which super-medium helicopters will play a more prevalent role. 5

6 The Evolution of Super-Mediums Filling the Gap? Helicopter range and payload have evolved over the years as operators & end-users have demanded efficiency improvements and extended mission requirements to service operations further offshore. 1) From the 1980s to early 2000s, the O&G industry adapted largely military designs for commercial purposes, and offshore range was less important than payload. Over time, the need for extended range for deepwater operations and additional capacity (Gaps A & B, above right) gave rise to new variants such as the S-92, the AW139 and the EC225. 1) Pre-2005 Payload Over 16 Pax Up to 12 Pax S-76 A/B B A AS 332 L/L1/L2 S-61 2) The S-92 and EC225 greatly increased the performance available to fill Gap A, and the AW139 filled Gap B. However, a new performance gap opened between the original 6.3t AW139 and ~11-12t S-92/EC225, forcing operators to use heavy aircraft even when the payload/range was not always required (Gap C, at right). Additionally, OEM pricing was on a relentless annual increase and the price differential between medium and heavy aircraft had become large. 3) In response to Gap C, Leonardo, Airbus and then Bell designed and introduced the Super-Medium family of helicopters to bridge the gap in not only range and payload, but also in the price of new helicopters. Today, operators and end-users have more options than ever before for new helicopters, and the reduced price and lease rates of used helicopters like the S-92 and AW139 have further expanded their optionality. In the face of the B525 which is encroaching on Heavy territory, it will be interesting to watch for upgraded variants of the S-92 (B?) or new heavy helicopters (Airbus X6?). Similarly, the AW139 continues to expand its MTOW while we wait for the H160 which is poised to capitalize on diminishing S-76 market share. 2) Payload Up to 12 Pax 3) 2014 >> Over 16 Pax Payload Over 16 Pax Up to 12 Pax Range C AW139 S-76 C+/++ Range H175 AW /+ H160 S-76 D(?) Range EC225 S-92 A H225 (X6?) S-92 A (B?) Bell 525 AW189 6

7 Market Drivers of Helicopter Up/Down-Gauging Before the advent of the super-medium, there was a large performance gap between medium (AW139) and heavy helicopters (S-92, H225). The chart at top right, showing the mission requirements in major O&G countries, indicates that on average 90% of offshore beds (and in some cases close to 100%) can be served well within the range of all three super-mediums operating with a full load of 16 passengers. Given that heavy helicopters can perform 100% of the missions, there is a case to be made that minimizing the number of types in an operator s fleet can offset the efficiencies gained by putting multiple types on different payload/range mission profiles. In light of reduced used prices and lease rates for heavy helicopters, this equation becomes even more reasonable in many cases and worth considering. Cumulative offshore beds (served by helicopters) # of beds Australia Average SM Pax Brazil 92% of total offshore beds Netherlands UK Nigeria «12000 Norway United Kingdom % (BZ) Norway 8000 Brazil «82% (NOR) % «Nigeria «99% Netherlands 89% Australia Distance from nearest helicopter base (nautical miles) Source: Rystad Energy Nonetheless, both end-users and operators must always look to diversify their capacity so that a rig or platform s continued operation is never dependent on only one helicopter type. As the number of operational rigs (chart at center-right) begins to recover and the free cash flow of the oil companies (chart bottom-right) trends ever-more positive, end-users and operators alike are looking to diversify their fleets and invest in further helicopter capacity. Change of Count of Active Offshore Rigs Free Cash Flow ($B) $6.7 $6.6 5 $14.3 $17.3 $ Δ Active Jack-Ups -11 Δ Active Floaters Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Source: Clarksons Research $9.1 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 *Aggregate chart data for: Exxon Mobil, Shell, Chevron, Total, BP, Statoil, Eni, ConocoPhillips and Repsol, Anadarko and Apache. Source: SEC company filings and Bloomberg L.P. 7

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9 Product Overview AW189 An AW-Family super-medium that delivers type and rating commonality with the classleading AW139 and AW169. Only super-medium today to offer full de-icing capabilities. The AW189 began development as a civil derivative of the AW149, based on the general architecture of the AW139 stretched, widened, re-engined and initially targeted to the Turkish military when it was first shown in The AW149 first flew in 2009, but in 2011, the Turkish military chose the Sikorsky Black Hawk. Given the parallel growing opportunities in the civil market in the super-medium category (16-19 seats), AW derived from the AW149 the AW189 model, optimized for the civil market and destined to be at the top end of the AW Family, larger than the AW139 and the smaller AW169. The first AW189 flew by the end of 2011, and AW found itself in a strong position to challenge the delayed EC175 in filling the 7-11 ton gap. The first production AW189 flew just a little over 2 years after the program was announced, and type certification was received in early 2014, just days after the EC175. The launch customer was Bristow who ordered their first 6 in late 2011 for oil and gas use and later ordered 11 to be part of the UK SAR fleet. By mid 2017, 41 AW189s had been delivered. AW189 by Region Total Europe Asia Pacific Latin America Middle East North America AW189 Summary Stats/Characteristics Engine Model 2 x GE CT7-2E1 Engine Power (AEO MCP) 1,395 kw (1,870 shp) Fuel Capacity (Offshore) 2,063 liters (545 gal) Max Speed (VNE) 169 kts (313 km/hr) Max Range 889 km (480 nm) MTOW 8,600 kg (18,960 lbs) Empty Weight (Offshore) 5,500 kg (12,125 lbs) Rotor Blades (Main / Tail) 5/4 Service Ceiling 4,572 m (15,000 ft) Length / Height 17.6 m / 5.1 m AW189 Fleet Statistics, Q Total Lessors Delivered 41 8 (20%) On Order (16%) OGP Intended Production Rate >20 / year Top AW189 Operators & Lessors Delivered On Order Total Top Operators Bristow Gulf Helicopters Rosneft Era 2 2 Aeroleo 2 2 Other Total AW189 by Usage Total O&G Demo Utility SAR Trainer VIP Top Lessors LCI Milestone Waypoint Source: Fleet data excl. prototype aircraft from Leonardo and Flightglobal, September 2017; aircraft statistics and performance data from Leonardo. 9

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11 Product Overview H175 Airbus Helicopter s super-medium offers bestin-class cabin volume and solid economics at the lowest MTOW while keeping pace in both payload and range across the category. Eurocopter (now Airbus Helicopters) launched the EC175 in December 2005, with a development agreement with Chinese partners (the Harbin Aircraft Industry Group) to develop a new aircraft in the 7.5t class. Eurocopter unveiled the EC175 at Heli-Expo 2008 and it first flew in late 2009, but the program then entered a period of stagnation, as lackluster customer feedback and technical issues with the avionics, augmented by Eurocopter s distraction by EC225 gearbox problems, resulted in type certification being delayed almost four years, to The first customer was NHV in December 2014, with Russia s UTAir also being an initial delivery customer. Certification of an increase in take off weight to 7.8t occurred in EASA approval was recently received for a limited ice protection system. There are currently 19 H175s in operation, mainly in O&G operations. H175 by Region 2 Total Europe Asia Pacific H175 Summary Stats/Characteristics Engine Model 2 x P&W PT6C-67E Engine Power (AEO MCP) 1,227 kw (1,645 shp) Fuel Capacity (Offshore) 2,616 liters (691 gal) Max Speed (VNE) 175 kts (324 km/hr) Max Range 1,083 km (590 nm) MTOW 7,800 kg (17,196 lbs) Empty Weight (Offshore) 4,717 kg (10,399 lbs) Rotor Blades (Main / Tail) 5/3 Service Ceiling 4,572 m (15,000 ft) Length / Height 18.1 m / 5.3 m H175 Fleet Statistics, Q Total Lessors Delivered 19 9 (47%) On Order (25%) OGP Intended Production Rate 2018: 10; 2019: 15; 2020: 20 Top H175 Operators & Lessors Delivered On Order Total Top Operators NHV Babcock CHC 1 1 UTair Bristow Other Total H175 by Usage Total O&G Demo Utility VIP Top Lessors Milestone Waypoint LCI 3 3 Source: Fleet data excl. prototype aircraft from Airbus and Flightglobal, September 2017; aircraft statistics and performance data from Airbus. 11

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13 Product Overview Bell 525 Relentless Bell s clean-sheet design is aiming to be world-class with the introduction of flyby-wire controls, new-gen gearbox design, streamlined configurations as well as full de-icing and rig-approach. At the highest MTOW of all super-mediums, the 525 has the potential to reach into the Heavy category. Bell began development on the 525 in the 2000s but did not unveil the product until Heli-Expo 2012, after both competing products were already introduced. The lead customer was PHI while the lead lessor was Waypoint. The 525 introduces a fly-by-wire flying control system and touchscreen interface, neither of which has been used previously in a civil helicopter. Development has been beset by setbacks, most recently the loss of the first prototype in July Test flights were suspended but restarted in June of Bell expects to deliver its first aircraft in While Bell s product will arrive years after its competitors, it will be the largest and most powerful of the super-mediums when it enters service. Its cabin could seat 19 passengers in a high-density configuration, potentially competing directly with the H225 and S-92. Its larger size and its novel design characteristics suggest that the last chapter in the development of the super-medium class of helicopters is not yet written. Bell 525 Summary Stats/Characteristics Engine Model 2 x GE CT7-2F1 Engine Power (AEO MCP) 1,278 kw (1,714 shp) Fuel Capacity (Offshore) 2,461 liters (650 gal) Max Speed (VNE) 185 kts (343 km/hr) Max Range 1,037 km (560 nm) MTOW 9,299 kg (20,500 lbs) Empty Weight (Offshore) 6,071 kg (13,385 lbs) Rotor Blades (Main / Tail) 5/4 Service Ceiling 3,658 m (12,000 ft) Length / Height 19.8 m / 5.5 m Bell 525 Letters of Intent Waypoint Leasing 20 Milestone/GECAS 20 Abu Dhabi Aviation 10 Guangxi Diwang Group 10 Other 20 Total 80 Source: Fleet data from Flightglobal, September Aircraft statistics and performance info. from Bell. 13

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15 Product Overview Comparison Summary All three super-mediums are extremely capable helicopters and their design, level of automation and focus on safety are all best in class. While not exhaustive, below is a summary table that attempts to highlight the most important attributes of each of the super-mediums, as well as the AW139 and S-92 as bookends to highlight the differences and even similarities in some cases across the various product ranges. Standard Offshore Passenger Configuration Optional Passenger Configuration AW139 AW189 H175 B525 S Certified 19 Certified 18 (not certified) 19 (intended) 22 (not certified) Total Flight Hours To-Date >1,905,000 >29,000 18,000 (In Testing) >1,300,000 MTOW (KG) 6,800/7,000 8,600 7,800 9,299 12,020/12,564 Payload (KG) 2,385/2,585 3,100 3,083 3,227 3,990 Payload : MTOW Ratio 35% / 37% 36% 39% 35% 33% 123/ Passengers (NM) Standard Offshore Fuel 2,068 2,063 2,616 2,461 2,877 capacity (L) Aux Fuel Potential (L) n/a 506 n/a 265 1,590 Cabin Volume (M 3 ) / 8.0 / / / / / 1.04 Volume per standard pax Baggage Hold Volume (M 3 ) Full De-icing Certification Yes Yes Limited. Planned to be Yes Full planned certified Float Certification SS6 SS6 SS6 SS6 SS6 Avionics (ADS-B, TCAS II, HUMS, EGPWS) Available Available Available Available Available Automated Rig Approach No Under Development *Radius of Action (ROA) at ISA, 110KG/passenger, Standard Cruise, Reserve fuel Source: OEM data EASA yes FAA pending Planned Yes 15

16 Technical Analysis Introduction to the Study Waypoint s intent in performing this study has been to produce a factuallybased comparison of the super-medium helicopters. As different assumptions and different circumstances can yield more-or-less favorable comparisons when evaluating products, we sought to make our study unbiased apples to apples, idiomatically. To that end, we approached each helicopter manufacturer with the same data request for specific operating assumptions. As a result, all of the payload/range data presented in the charts below and on the following pages are a direct output of the information provided to us by the OEMs and compared in an impartial manner. Since the super-medium helicopter class first took shape in the early 2010s, the industry has debated as to whether these helicopters would infringe more heavily on the market share of heavy helicopters, medium helicopters, or both. As such, we have opted to include in our study the S-92 as a representative heavy helicopter, and the AW139 and S-76D as representative medium helicopters. We have included the heavy and medium helicopters as controls, to show how each of the super-mediums stack up against their competition across a variety of mission profiles. Our analysis shows that at common O&G radiuses of action (ROA up to 140 nm), the super-mediums can carry a full compliment of passengers and payload. Once the radius of action (ROA or Rig Range) exceeds ~140nm, however, performance results become more variable. A note on the H225: Due to the grounding of the H225 in 2016, operators and customers became acutely aware of their dependence on one helicopter type for all of their heavy/ long missions. As a result, the supermedium class has benefitted and despite the downturn many units have been delivered into active service and the orderbook continues to take shape. As the H225 is not currently in wide use in the O&G industry, for this study we used the S-92 as the representative heavy aircraft for payload/range and operating cost comparisons. This is an O&G Study: This study is focused on the performance of the helicopters in an O&G setting only. It will also be instructive to compare these assets in future studies across a range of mission profiles such as SAR and potentially EMS or Utility functions. Please Note: The range / payload charts and related cost per seat mile calculations in this paper are all calculated at ISA, which while a generally accepted standard for calculation purposes is not necessarily representative of conditions in which most O&G helicopters fly. To get a more complete picture of the performance of the helicopters presented, the analysis will be replicated in the future for other conditions. Hot and high conditions in particular will be assessed as performance is expected to differ amongst types, perhaps substantially. 16

17 Technical Analysis Payload vs. Range All three super-mediums deliver 16 passenger capacity to a ROA of ~140nm which satisfies most mission profiles before payload needs to be sacrificed for range. At 150nm and beyond, all three types must reduce passenger payload in order to achieve greater ROAs. Passenger Capacity at ROA Passengers (@110kg/Passenger, including baggage and suits) S92 19B525 AW H175 AW139 S76D NM 100NM 150NM 200NM 250NM 300NM Radius of Action (Rig Range) nautical miles Source: OEM Data S-92 and B525 assume use of Aux tank provisions at ranges that require them. AW189 is base configuration (no Extended Range belly tank option included) For a full set of assumptions used in this analysis, please see Appendix A 17

18 Technical Analysis Super-Mediums Only AW189 and H175 in base configurations The AW189 and the H175 are both in operation today, while the B525 has an expected EIS of Here we compare the two aircraft that are performing missions today. On paper, the 8.6t MTOW AW189 (no belly provisions) appears the stronger contender, with higher MTOW and more powerful engines. The 7.8t MTOW H175, however, after its upgrade from 7.0t, actually delivers a larger radius of action outside of 225nm while still maintaining an 8-12 passenger load. Perhaps most importantly, both aircraft perform with a full load of 16 passengers out to ~140nm before trade-offs occur. Payload and Radius (Standard Day) 18 pax Number of Passengers (Incl. passenger, baggage, 110KG each 16 pax 14 pax 12 pax 10 pax 8 pax 6 pax 4 pax 2 pax AW189 H Radius of Action (Rig Range) nautical miles Addition of Extended Range AW189 To provide extended range, Leonardo offers a belly tank option for the AW189. Compared to Aux Tanks in other aircraft like the S-92 and proposed in the B525 that can be added or removed, the belly tanks in the AW189 are a permanent option that must be selected at manufacturing and cannot be retrofitted at a later date. One can see that the AW189 with belly tanks (dotted line at right) has a similar payload/range profile to the H175, but the added weight of the additional tank requires an offset to payload. The recently- announced Safran Aneto engine option on the AW189K (in lieu of the baseline GE CT7) will offer improved performance and see the AW189 enlarge its footprint, especially in hot & high performance. Payload and Radius (Standard Day) 18 pax Number of Passengers (Incl. passenger, baggage, 110KG each 16 pax 14 pax 12 pax 10 pax 8 pax 6 pax 4 pax 2 pax AW189 AW189 Ext. Range H Radius of Action (Rig Range) nautical miles Addition of Bell 525 (and with Aux Tanks) At right, we have overlaid the Bell 525 performance data provided by Bell this aircraft is of course not yet in production. On paper, and according to initial test flight results, the B525 operates at a small range advantage to the AW189 and H175 at all payloads between 9 and 16 passengers without Aux tanks. Only with Aux tanks does the B525 maintain this range advantage past a radius of action of 250nm. Bell insists that the B525 s operational performance commitments are conservative as they stand today and it is possible there will be MTOW improvements in the future as we ve seen with both the AW189 and the H175. Note: For a full set of assumptions used in this analysis, please see Appendix A 18 Payload and Radius (Standard Day) Number of Passengers (Incl. passenger, baggage, 110KG each 18 pax 16 pax 14 pax 12 pax 10 pax 8 pax 6 pax 4 pax 2 pax AW189 AW189 Ext. Range H175 B525 B525 w Aux Tanks Radius of Action (Rig Range) nautical miles

19 Book-Ends Super-Mediums vs. The Competition Mediums vs. Super-Mediums The AW139 (7.0t MTOW) remains a strong competitor, with a 4-pax deficit to the super-mediums out to a ROA of ~140nm, while the S-76D operates in a different segment. Past an ROA of 150nm, or at 12 passengers and below, the gap between the super-mediums and the AW139 narrows somewhat with a payload benefit to the super-mediums of only ~2 passengers at the same ROA or a ROA benefit of ~50nm between 8-12 passengers. It is interesting to note where the AW139 and non-belly-tank equipped AW189 possess similar performance results (9 pax/225nm ROA) though it is also worth noting that ROA at 225nm or greater is uncommon. Heavies vs. Super-Mediums The S-92, both with and without aux tanks, maintains a premium of +3 passengers over the super-mediums to a ROA of 240nm. At passengers, the S-92 (no aux tanks) also maintains a ROA advantage of at least 50nm. With aux tanks, the S-92 is in a range class of its own, though this capability is often reserved for SAR operations. Both Bell and Leonardo have indicated that they are looking to offer 19-pax layouts for the B525 and AW189, respectively, to compete against the S-92 at shorter ROAs. It is not clear how commercially viable such high-density layouts will be; we note that the high-density (15 pax) AW139 layout is a rarity offshore. Payload and Radius (Standard Day) 18 pax 16 pax Payload and Radius (Standard Day) 22 pax 20 pax Number of Passengers (Incl. passenger, baggage, 110KG each 14 pax 12 pax 10 pax 8 pax 6 pax 4 pax 2 pax AW189 H175 B525 AW S-76D Number of Passengers (Incl. passenger, baggage, 110KG each 18 pax 16 pax 14 pax 12 pax 10 pax 8 pax 6 pax 4 pax 2 pax AW189 Ext. Range H175 B525 B525 w Aux Tanks S-92 S-92 Aux Tanks Radius of Action (Rig Range) nautical miles Radius of Action (Rig Range) nautical miles Note: For a full set of assumptions used in this analysis, please see Appendix A 19

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21 Efficiency Frontiers Cost per Seat Mile Comparison The OEMs have promised that the super-mediums would have lower operating costs than heavy helicopters while performing most of the mission profiles. To analyze this claim, Waypoint used a range of cost data points from the OEMs, as well as Waypoint s accumulated operating cost data, and to fill small gaps, Conklin and de Decker. We standardized all data that is not product-specific (i.e, pilot and AMT labor costs, insurance, fuel). Product-specific costs came from the OEMs and Waypoint s incurred costs and rates (i.e. asset capital costs and PBH costs where we assumed all aircraft are enrolled). Please see Appendix A for a full listing of all of our assumptions and data sources. We have compared the helicopters on a cost per seat mile (CSM) basis the cost of flying one passenger one mile. Our findings suggest the OEMs have kept to their promise at least when comparing new-build super-mediums against newbuild heavies. Per the chart below, the super-mediums CSMs are less than an S-92 s at most ROAs. At an optimal ROA of 140nm, the super-mediums CSMs are at their lowest in the $3.0 to $3.5 range a $0.5 to $1.0 advantage over a new-build S-92. While the lower hourly operating costs for super-medium aircraft account for some of the CSM advantage, capital costs are an even larger driver, given that a super-mediums acquisition cost is ~40% less than that of a new-build S-92 (per OEM list prices). Note that the saw-tooth nature of the CSM lines occurs where passenger count must be reduced for the aircraft to achieve more range the CSM increases initially because of the reduction in available seats, but then declines again as the mileage increases assuming the now-lower passenger number. This CSM penalty becomes more pronounced as the ROA is increased, and the magnitude of the penalty is greater for the super-mediums at any ROA than it is for the heavy. Overall the super-mediums are very cost-competitive at most rig-ranges and only at ROAs of >200nm does that cost benefit start to decay more rapidly against the more-capable S-92. Cost per Passenger Seat Mile 6.0 Total Cost per Passenger Seat Mile $USD (average annual based on one trip/day 6 days/week) H175 AW189 Ext Rng S92 New Radius of Action (Rig Range) Nautical Miles Note: For a full set of assumptions used in this analysis, please see Appendix A 21

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23 Capital Cost Competitive? Used S-92s Challenge As the graph on the previous page illustrates, the OEMs success in producing a cheaper-to-operate super-medium is clearly apparent when comparing the super-mediums to newbuild heavy aircraft. But, as we noted, a substantial portion of the CSM advantage for super-medium aircraft is capital cost ~40% less than heavy aircraft. But what if we are able to change the capital cost for the aircraft? As the AW189 and H175 are new aircraft, there is no secondary market for these aircraft yet the capital cost for any operator will be linked directly to the OEM price. But the S-92 has been in operation for over a decade, and while there is not a substantial second-hand trading market for the type, appraisal data points and supplyand-demand dynamics suggest that used S-92s can be had at substantial discounts to the price of a new S-92 while achieving the same utility. To compare new super-mediums to used S-92s, we assumed a used S-92 capital cost range of $16-$20m, and held all other data constant. At this reduced capital cost, the S-92 s operating costs, on a CSM basis, equal or better the super-mediums CSM for most missions (see the dotted lines in the chart below). This availability of used equipment at attractive terms due almost entirely to the O&G downturn, renders the used S-92 an extremely competitive asset relative to the new-build super-mediums. We have not quantified in our analysis the economies of scale that operators with fleets of heavy aircraft can realize over and above the CSM benefit illustrated here. The incremental cost of adding a new type of aircraft to a fleet (maintenance, training, quality control, etc.) can be significant. The ability to add heavy aircraft at reduced capital expense can thus change the cost profile significantly for operators, particularly those that can benefit from the economies of scale in addition to the greater capability and additional flexibility of heavy aircraft. Cost per Passenger Seat Mile Total Cost per Passenger Seat Mile $USD (average annual based on one trip/day 6 days/week) H175 AW189 Ext Rng S92 New S-92 $16m S-92 $20m Radius of Action (Rig Range) Nautical Miles Note: For a full set of assumptions used in this analysis, please see Appendix A 23

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25 Conclusion & Summary Mind the Gap confirms that in the super-medium class of helicopters, the OEMs have delivered on their promise to produce best-in-class aircraft that are cheaper to operate than new-build heavy alternatives. Our technical analysis corroborates that the currently in-service AW189 and H175 expand on the mission profile of medium aircraft given their additional range, seats, and payload capabilities. They incorporate the latest technologies for passenger safety, comfort and mission-readiness. Our study shows that these aircraft can do most of the missions that have been done by heavy aircraft in the past. We note that the Bell 525 equally looks promising on paper, and compares well in this study, but we reserve judgement until its entry into service. Despite a significant downturn in O&G activity since 2014, the industry is beginning to rebound. The increase in rig activity means that the requirement for safe and efficient helicopter transportation will expand anew, and there is no doubt that the super-medium helicopters will be providing crew change services to a resurgent offshore O&G industry in the future. In addition, the super-mediums will be attractive for other missions that we have not concentrated on in this study, in particular search-and-rescue services. Our study also confirms that given the availability of S-92s today, operators may find that heavy aircraft can be had today at acquisition prices or lease rates that place them on par with the super-mediums when compared on a CSM basis. In addition, the S-92 s proven safety and reliability the aircraft type has flown over a million miles since introduction in 2004 together with its greater capability, gives operators an interesting value proposition when evaluating the use of older S-92s versus new super-medium aircraft. This will be particularly pertinent for existing S-92 operators who stand to benefit from economies of scale that cannot be realized with the introduction of new aircraft type to a fleet. This is an exciting and dynamic time in the development of rotary aircraft. The super-medium helicopter is the defining new commercial rotary product of this decade, and its development and presence is still in relative infancy. Waypoint intends to expand upon and update this study as further super-medium operating and economic data is made available by the OEMs, operators and service providers. We encourage you to reach out to us with feedback on the study its methods and its findings and suggest how we can augment and improve this work for later releases. In the meantime we hope you found this first version informative and thought-provoking. Best Regards, The Waypoint Risk Team 25

26 Appendix A: Payload/Range Assumptions AW139 AW189 H175 B525 S-92 Operational Data: (All as provided by each OEM) Configuration Offshore Offshore Offshore Offshore Offshore Passenger Capacity Passenger Weight/ 110KG 110KG 110KG 110KG 110KG pers. (including baggage, suits) Crew Total 2 Crew Weight 170KG 170KG 170KG 180 KG (397lbs) 170 KG Temperature ISA ISA ISA ISA ISA Cruise 5,000 ft 5,000 ft 5,000 ft 5,000 ft 6,000 ft Speed (per OEM) Max Range Cruise Max Range Cruise Best Range Speed Long Range Cruise Long Range Cruise Reserve / 30 min / 10% fuel 30 min / 10% fuel 30 min / 10% fuel 30 min 30 min Contingency Take-Off CAT-A Runway Sea Level CAT-A Runway Sea Level CAT-A Runway Sea Level CAT-A Runway Sea Level CAT-A Runway Sea Level Fuel Offshore Equipped Offshore Equipped, Extended Range tank where required 1. All OEM data as of 4Q 2017 Offshore Equipped Offshore Equipped, Aux tank where required Offshore Equipped, Internal Aux tanks where required 26

27 Appendix B: Cost Assumptions AW139 AW189 H175 B525 S-92 Cost Data: (Combination of OEM provided data, Waypoint databases, and C&DD) Capital Cost 1 Avg. OEM Avg. OEM Avg. OEM (See Note Below) Avg. OEM Sale Price Sale Price Sale Price Sale Price Lease Rate (Annual) 10.80% 10.80% 10.80% 10.80% Insurance Rate (Hull) 1.00% 1.00% 1.00% 1.00% Fuel Cost (/Gallon) $4.17 $4.17 $4.17 $4.17 Gal/Hr Lubricants (% of Fuel) 3.00% 3.00% 3.00% 3.00% Maint Labor Cost /FH $106.00/FH $106.00/FH $106.00/FH $106.00/FH Maint hr/fh PBH Cost /FH $1,395 $1,685 $1,673 $2,428 Captain Cost (Annual) $111,200 $111,200 $111,200 $111,200 Co-Pilot Cost (Annual) $108,100 $108,100 $108,100 $108,100 Benefits $54,825 $54,825 $54,825 $54,825 (Both Annual) Utilization/day (kt mi) Cruise Speed (kts) Capital Cost: OEM sales prices are proprietary so they are not shown here. For the study the average WP purchase price was used. 2. Euro/USD at 1.18 where applicable 3. Maintenance Hrs/FH: Because this metric can vary greatly depending on program maturity, operator, location, type of operation and experience with the asset, Waypoint has chosen figures that we believe are representative of a variety of operations, as well as figures that represent an appropriate spread between medium, super-medium and heavy helicopters. Maintenance /FH figures provided to Waypoint by the OEMs are the following: AW ; AW ; H ; S All OEM data as of 4Q 2017 A note on the B525: Cost data was not readily available for the B525 as it continues to be in testing today and figures are unsubstantiated by operational experience. As such we have chosen to exclude it from the Cost/Seat-Mile analysis to ensure that only operationally and factually substantiated figures are used in the comparison. We look forward to including the B525 in this analysis in future versions once it enters service. 27

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