An Ethereum-based Solution to Leased Aircraft Audits BitLease An Ethereum-based Solution to Leased Aircraft Audits Team 8: Andres Florez, Paul Lee, Junaedy Liem & Lyanna Lim

Like a digital twin the Dave Treat mentioned Like a digital twin the Dave Treat mentioned. There are issues such as getting a complete inventory of the current planes but as we discussed, I guess they routinely do this. Would be interesting to see if the regulatory provisions for inside a plane the same as for critical systems. Need a bit more information on the specifics of the blockchain implementation. 82/100 Very nice.

Problem: Current leasing process is highly convoluted Multiple parties generate records in aircraft leasing Record review is challenging due to a lack of organized and reliable database Manu-facturer Airline MROs External auditor Lessor $ Aircraft MRO Service MRO service Lease Compliance report Records Review of physical documents Rebuild aircraft maintenance history Verify signatures in maintenance documents of internal auditors vs. regulator’s database Identify possible modifications to records Current leasing process generates multiple, independent records that mandate costly audits at the end of each lease 2

Solution: BitLease will solve cumbersome aircraft lease audit process BitLease eases record storage & auditing BitLease enables immutable record keeping that benefits lessors & lessees Manufacturer BitLease is an aircraft leasing implementation of Ethereum Enables & enforces smart contracts between lessors, lessees and all other leasing parties Immutable records on private, permissioned blockchain enables faster, cheaper audits MROs Records Airline Records Records Bitlease BitLease reduces the cost and time of aircraft leasing audits 3

Solution: BitLease will simplify the aircraft leasing industry Blockchain: a game of winners and losers How Bitlease Works MROs Regulator Airlines (lessees) and aircraft owners (lessors) will benefit from reduced audit costs, immutable record of service, transaction confirmation efficiencies (from days to minutes) and higher consistencies Any repair and maintenance work is recorded onto the blockchain. The transaction is verified only if all relevant parties agree, i.e. consensus The regulator monitors maintenance records and validates signatures of airlines’ internal auditors. Smart Contracts on Ethereum Manufacturers Airlines External auditors will be partially displaced; disintermediation occurs Abusers will be discouraged to undertake fraudulent activities Lessors The manufacturer adds the model, aircraft identification number, and maintenance records to the aircraft template as permitted by the smart contract. The internal auditor registers the aircrafts’ maintenance records onto BitLease. Physical supply chain is integrated, but supporting information systems are often fragmented and involves a lot of cumbersome paperwork. With Bitlease, every participant in thenetwork could monitor, access and share and analyze consistent and up-to-date information on the lease record and repair record of the plane, irrespective of where the plane is in its life cycle. One complete agreed view of the complete aircraft history and this would greatly improve service warrant and recall costs by providing an agreed shared record of aircraft information and its transfer across the supply chain. How Bitlease will work The smart contract will ensure that only the regulator can do this. The regulator then transfers ownership of the aircraft to the manufacturer by invoking a transaction on the blockchain. The transaction is verified if all relevant parties agree. This is referred to as consensus – made more efficient through blockchain usage. Bitlease will allow the validation method to be tailored to meet the needs of the business network. The manufacturer adds the make, model and the aircraft identification number to the aircraft template again as permitted by the smart contract. This update is visible to all members of the supply chain with the right permission. When the aircraft is finally transferred to the leasing company, airlines can lease the planes. This synchronized process continues across the supply chain At all stages, the security, integrity and validity of vehicle information is assured using proven cryptographic services. 4

Solution: High feasibility due to market structure and existing technology Once leading lessor adopts BitLease, airlines will follow Lessors are few and concentrated: Top 10 lessors have 66% market share Air lease market growth is high: CAGR of 6% through 2021 Requires only one lessor buy-in Lessors have significant information asymmetry once aircrafts are on lease, see value in a common database Physical audit is mandated by international aviation agencies – process must be done and is highly expensive Simplifies processes for regulators & lessors Leverages existing Technology Solution exists in already-established blockchains (eg: Quorum, Smart Contracts & Digital Twins) Airlines already use internal software for MRO purposes Guarantees privacy to all parties involved Market Share: http://4.bp.blogspot.com/-ZfuCWrRn16Y/VM9t9Y-5yEI/AAAAAAAAB6Q/pX7IAKR5Bss/s1600/top%2B50%2Blessors%2Bby%2Bfeet%2Bvalue.jpg CAGR: http://www.prnewswire.com/news-releases/global-aircraft-leasing-market-research-report---industry-analysis-size-share-growth-trends-and-forecast-2014--2021-300381376.html 5

Implementation: A deployed product will be available in 5-7 months Definition Development Proof of Concept Deployment Expansion 1 month 2 - 3 months 1-2 5 Identify lessor and airline Clarify business process Define development guidelines Develop software Develop storage system Develop user interface Develop training materials Develop test scenarios Perform tests Make adjustments Train personnel Launch application Monitor progress Expand to other airlines Expand to other lessors 6

Future Work: Potential Upside for other Applications Oil & Gas Equipment: Oil & gas companies which lease drilling rigs and crews from oil-field services companies can utilize blockchain to record equipment lease and equipment repair and maintenance. Heavy Industrial Equipment: Lessors and lessees of land drilling and excavation equipment, heavy construction machinery etc can utilize blockchain to keep records. Medical Equipment: Hospitals and clinics which rent medical devices for fixed-term use can keep records on the blockchain ledger. Container Ships: Charter owners (lessors) and liner companies (lessees) can also utilize this blockchain technology to keep records of lease contract conditions and repair records Market Share: http://4.bp.blogspot.com/-ZfuCWrRn16Y/VM9t9Y-5yEI/AAAAAAAAB6Q/pX7IAKR5Bss/s1600/top%2B50%2Blessors%2Bby%2Bfeet%2Bvalue.jpg CAGR: http://www.prnewswire.com/news-releases/global-aircraft-leasing-market-research-report---industry-analysis-size-share-growth-trends-and-forecast-2014--2021-300381376.html 7

Risks & Mitigation: Mitigations plans have been formulated for high risk issues No lessor is on board right now Hire industry expert with connections in lessor companies Regulator buy-in Encourage lobbying from lessors and lessees First mover disadvantage Quickly increase barriers to entry through regulatory mandates Low barriers to entry (Bitcoin / Ethereum is non-proprietary) BitLease application to be proprietary Security attacks Usage of Ethereum blockchain 8

Financials: We require $770k in exchange for 30% share in BitLease Year 1 Year 2 Year 3 Year 4 Year 5 ( + ) Revenue 13 250 500 1,000 2,000 ( - ) Developers -120 -180 -300 -450 -600 Management -200 -250 -400 Software licenses -4 -6 -10 -15 -20 Rental -30 Other overhead -0 -23 -32 -45 -53 ( = ) Total Operating Expenses -354 -489 -672 -940 -1,103 EBITDA -342 -239 -172 60 898 Taxes 120 84 -21 -314 Net Income -222 -156 -112 39 583 Free Cash Flow -233 Terminal value   5,007 Present Value 2,407 Investment 770 ROI 3.1x Assumptions Q1 Q2 Q3 Q4 Year 1 Year 2 Year 3 Year 4 Year 5     Revenue assumptions Licenses (#) - - - 10 50 100 200 400 Cost per license ($/year) 5,000 Salaries assumptions: Developers (#) 4 4 4 4 6 10 15 20 Developers salary ($/year) 30,000 Management (#) 4 4 4 4 5 6 8 8 Management salary ($/year) 50,000 Software licenses: License cost ($/year) 1,000 Other costs: Rental expense ($/year) 30,000 Other overhead (% of operating expenses) 5% Tax Rate 35% WACC 15% Growth 3% 9