Air Lease Corporation Drew Szilagyi Qiang (Cindy) Fu Vedvati (Vedu) Shrotre Vishal Shah April 9, 2015

Introduction Macroeconomic Overview Industry Overview Business Overview Financial Analysis Financial Projection Valuation Recommendation Agenda

3 Current Performance Air Lease Corporation (Ticker: AL, NYSE) Incorporated in Delaware Purchased: on Dec 12, 2012 Stock Price: $38.51 Position: 9.2% of all stocks, 3.7% of portfolio Return: 72.54% Market Cap: 3.9B P/E (ttm): EPS (ttm): 2.40 Beta: 1.30 Source: Yahoo Finance, AL K IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation

4 Business Model: Sell aircrafts to third parties Lease to airlines Fleet Management Services Source: AL K, Page4 Introduction IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation Purchase new commercial aircrafts from aircraft manufactures

5 Macroeconomics IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation Source: FAA Boeing IBISWorld U.S. carrier passenger growth over the next 20 year forecasted to be 2.0% per year GDP is forecast to rise 3.2 percent over the next 20 years, which will drive passenger traffic to grow 5.0 percent annually Stably increasing per capita disposable income (United States)

6 Macroeconomics IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation Source: IBISWorld As Fed is committed to helping the American economy get back on its feet, yields are expected to stay low/ slightly higher than today through the outlook period Domestic trips demand is increasing through the outlook period

7 Source: IBISWorld Industry Overview IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation Key Divers for the Industry Oil and natural gas prices: forecasted to increase over the next five years to 2020 Interest Rate

8 Source: IBISWorld Industry Overview IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation One in three airplanes leased, expected to rise to one in two Profit margin of 28.0% in 2014 Forecasted annual revenue growth of 3.3% Passenger airlines accounting for 91% of revenue in the industry in 2014

9 IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation Source: IBISWorld Regulations FAA (Federal Aviation Administration) Requires aircraft lessors to register all US owned or registered aircraft with the agency Aircrafts under direct control of lessors need to obtain a “Certificate of Airworthiness” or a ferry flight permit for the purpose of maintenance and storage Department of Commerce and Department of Treasury Restricts the operation of US made aircrafts in certain countries May also restrict industry operator's ability to do business with specific entities Federal, state and local environmental health and safety regulations Relate to the discharge of materials into the air, water or ground and the health and the safety of employees

10 IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation Source: AL K, page 4 Supply Chain The Boeing Company Airbus S.A.S ATR 200 airlines across 70 countries in Asia, the Pacific Rim, Latin America, the Middle East and Eastern Europe CustomersSuppliers Confirmed purchases: aircrafts from Airbus 2.27 aircrafts from Boeing 3.7 aircrafts from ATR 364 aircraft on order from all three through 2023 Financed through unsecured debt

11 Source: U.S. Food and Drug Administration; IBISWorld, Revenue Source IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation By Service Line 2014 Revenue by Geographic Region

12 Steven F. Udvar-Házy Chairman and Chief Executive Officer since 2010 Founder of Air Lease Corporation Executive Compensation Annual cash incentive Long-term equity incentive awards A mix of 50% RSUs that vest based on attainment of book value goals and 50% RSUs that vest based on attainment of total stockholder return goals 65 employees by the end of 2014 Management Overview IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation Source: Air Lease 2015 Proxy Statement, page 26-27

13 Key characteristics Source components separately for new aircrafts Enters lease agreement months in advance of delivery Own aircrafts only for 1 st third of its life WAL of aircraft fleet is 3.5 years WAL of remaining operating lease term is 7.3 years IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation

14 Operational Characteristics Fully leased for current year High concentr ation in narrow- body 95% international revenue IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation

15 Risk Factors High concentration in a specific country in a geographic region Aircraft Models Concen- tration Aircraft Models Concen- tration Finding a good price for selling old aircrafts Interest Rates Lessee defaults Source: AL K, page IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation

16 Source: Yahoo Finance Stock Performance Comparison vs. Competitors & S&P 500 IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation

17 IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation Source: Team analysis Porter’s Five Forces Moderate Large Customer Size High High Concentration amongst Suppliers High Large Initial Investment High Maintenance Costs Regulations from Federal Aviation Administration Moderate Fierce Competition Low Few substitutes in the Market

18 SWOT ANALYSIS Strengths - Highly diversified product - portfolio - High number of ANDA approvals Strengths - Geographically diversified customers Weaknesses - Thin supplier base - Volatility due to oil price Opportunities -Recovering economy drives up demand for air travel -Increasing interest rate makes leasing more attractive Threats -Possible increase in interest rate makes borrowing more expensive IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation

19 Financial Analysis - Ratios Source: K, Team analysis Company has transitioned from it’s growth stage and now has a declining revenues growth with steady profit margin Profitability Net profit margin-89.2%15.8%20.1%22.2%24.4% Return on asset0.0%3.7%5.1%5.2%5.3% Return on equity-4.2%3.1%5.9%7.8%9.7% IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation

20 Financial Analysis - Ratios Source: K, Team analysis IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation Return on Equity =-4.2%3.1%5.9%7.8%9.7% Tax burden (NI/Pretax Income)85%64%65% x Interest burden (Pretax income/EBIT) 664%59%58%60%64% x Operating margin(EBIT/Sales)-16%42%54%57%59% x Asset turnover (Sales/asset) x Leverage (Asset/Equity) Greenblatt ratio 1 (EBIT/Tangible Assets)3.1%5.4%5.9%6.5% Greenblatt ratio 2 (EBIT/EV) 3.0%5.6%5.5%6.2% Dupont analysis Greenblatt Ratios

21 Financial Analysis - Capital Structure 71% debt financed 68% of debt is Unsecured Senior Notes, used to finance aircraft purchases 3.64% composite cost of funds, 4.00% average fixed debt cost All aircrafts are leased as Operating leases IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation

22 Financial Analysis - Ratios Source: K, Team analysis Solvency Ratios IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation Financial leverage Long-term debt to asset40.1%50.4%59.6%62.7%62.3% Interest Coverage Ratio Solvency Ratio Activity Total asset turnover Fixed asset turnover Activity Ratios High and steady debt levels coupled with improving interest coverage ratio Steady turnover ratios

23 Financial Projections – Revenue Assumptions Source: K, Team analysis IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation Fleet Size Assumptions Incremental Fleet Purchases Additional Purchase agreements not entered into yet 2444 Total Incremental Fleet purchases Current Lease Commitments100%78%56%36%10% Expected % of Fleet leased100%95% Fleet Leased Less: Termination of lease contracts Fleet Size %8.5%5.6%10.2%6.1% Growth Revenue Growth Assumptions Revenue from rental of flight equipment / Plane 5,089 5,191 5,2955,4015,509 % Growth 1.0%2.0% Revenue from rental of flight equipment (thousands) 1,262,1661,396,4241,503,7771,690,4781,828,957 % Growth 27%11%8%12%8%

24 Financial Projections – Balance Sheet Assumptions IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation Team Analysis Capital Expenditure Purchase Cost per plane 59,546 72,352 70,635 88,466 81,604 Flight equipment subject to operating leases 9,832,421 12,214,278 14,674,259 16,863,935 20,137,166 Add: Additions to fleet (already contracted) 2,381,857 2,315,276 1,907,137 2,919,369 3,998,600 Add: Additions to fleet (assumption) - 144, , , ,416 Total Flight equipment subject to operating lease 12,214,278 14,674,259 16,863,935 20,137,166 24,462,183 Financing the Capital Expenditure Debt Financing 6,714,362 8,305,709 9,978,496 11,467,476 13,693,273 Add: Debt Issued 1,762,905 2,543,469 2,904,399 3,768,504 4,603,744 Less: Debt Obligation (171,558) (870,682) (1,415,419) (1,542,706) (1,173,489) Debt outstanding at year end 8,305,709 9,978,496 11,467,476 13,693,273 17,123,528 % of Fleet size68% 70%

25 Financial Projections – Income Statement Assumptions IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation

26 Valuation – Residual Income Method IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation Cost of Equity Risk Free rate2.80% Equity Risk premium5.00% Adjusted Beta1.30 Cost of equity CAPM9.29%

27 Valuation - Comparable Analysis IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation Comparable Companies Analysis ($ in thousands except per share data) CurrentEnterprise Value /Price /Market Cap/ ShareLTM CompanyTickerPriceSalesEBITEPSBVEBT Air Lease CorpAL $ x16.8x16.0x1.4x9.9x AerCap HoldingsAER $ x20.3x9.9x1.2x8.5x FLY Leasing LimitedFLY $ x18.1x11.2x0.8x14.7x Aircastle LTDAYR $ x12.0x17.9x1.1x8.1x Avolon Holdings LtdAVOL $ x19.7x18.5x1.2x16.1x Mean 9.0x17.5x14.4x1.1x11.9x Median 9.2x18.9x14.6x1.2x11.6x High 10.6x20.3x18.5x1.2x16.1x Low 6.8x12.0x9.9x0.8x8.1x Comparable Companies Valuation Implied MultiplesImplied Share Price MetricStatisticsLowMedianHighLowMedianHighWeights EV/LTM Sales$1,050,4936.8x9.2x10.6x$6.46$29.34$ % P/BV0.8x1.2x $21.71$31.21$ % P/E9.9x14.6x18.5x$23.56$34.63$ % M/EBT8.1x11.6x16.1x $29.02$41.56$ % Average Valuation $36.62

28 Source: Bloomberg Technical Analysis IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation

29 Valuation Summary IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation Graham Valuation EPS 2.38 Growth 2.50 Value $ Valuation Summary Residual Income Model $ Benjamin Graham $ Comparable Method $ Average Price $ Current Market price$ 38.51

30 Recommendation Plans to increase fleet size coupled with ability to convert purchases into leases ROE almost equals Cost of Equity Approaching maturity Anticipated rise in interest rates is a double-edged sword IntroMacroIndustryBusiness Financial Analysis Financial Projection Valuation Recomm endation