October 2010 Airlines' risk analysis, the essential tool kit? Shane Matthews Head of Credit Risk, RBS Aviation Capital

RBS RBS Aviation Capital - today Team 63 aviation professionals Global reach Portfolio Overview Top 4 operating lessor 217 owned, 36 managed aircraft 95 new aircraft on order with Boeing & Airbus Over 60 airline customers in over 40 countries Seattle New York London Toulouse Shanghai Hong Kong Singapore Dubai Dublin (HQ) 7 analysts dedicated to airline credit & risk management

RBS Portfolio Risk Management Asset Risk Analysis Credit Risk Analysis Transaction Quality Analysis A holistic “3-pillar” framework approach promotes… –Pro-active anticipation of issues –Early initiation of corrective action –Reinforced by cross-functional ownership for risk mitigation This leads to…. –Timely exit from several troubled airlines –Limited exposure to bankruptcies / defaults –High asset and credit portfolio quality Strategy - Financial Services Approach to Risk Management

RBS How do we look at an airline? Franchise/business Plan Competitive environment Regulatory environment Track record Financial performance (cost and revenue) Financial forecasts (are they realistic) Management – expertise, track record and lock in Ownership Fleet profile – is it fit for purpose These all combine to form a risk profile We take a sum of the parts approach

RBS How we look at an airline? Full Service Carrier Low Cost Carrier Hub and Spoke Pt to Pt Long Haul Short Haul Future direction is more important than historic positioning

RBS Financial Ratios Cashflow Loan to value/investment to value ROCE/RWA Interest cover Debt/ Equity (including off balance sheet debt) Liquidity Ratios Margins Key Sensitivities – these are company specific Shall we care how much the airline makes rather than can it service it obligations?

RBS Features of Asian Aviation Market Large population base Wide geographic spread with large bodies of water Strong economic activity High level of Government involvement Growing personal wealth Growing leisure market Gradual deregulation Fragmented Full Service market Low LCC penetration Booming demand for aircraft and aircraft financing in Asia

RBS Market Position Full Service Carrier Low Cost Carrier Hub and Spoke Pt to Pt Long Haul Short Haul SIA Cathay Pacific Virgin Blue Tiger AirAsia Qantas ANZ PAL MAS Jetstar AirAsia X

RBS Servicing your obligations

RBS Cash is King on a Rainy Day

RBS Sources of information Site Visit Due diligence calls Competitor visits Formal briefings for PLCs Internet News services Wary of consumer websites – there is a natural bias Constant process

RBS Ongoing Monitoring Our job does not end once the credit application is approved Banks do not like surprises so we therefore continue to monitor your performance We have a policy of meeting each of customers at least once a year We do a formal review of each of our clients annually Ongoing monitoring does lend itself to speeder decisions

RBS Thank You Q&A