1. Capital Markets and Financing 3 November 2015 Wui Jin Woon Senior Director, Capital Markets

2. © HKAC | Hong Kong | 3 Nov 15 | 2 Agenda Airline funding of aircraft deliveries Delivery financing options for lessors Operating lessor funding

3. © HKAC | Hong Kong | 3 Nov 15 | 3 Airline funding of aircraft deliveries

4. © HKAC | Hong Kong | 3 Nov 15 | 4 How are aircraft financed? Source: Boeing

5. © HKAC | Hong Kong | 3 Nov 15 | 5 Airline Financing Considerations Cost v Diversification Manage financing risk Financial markets change over time and a particular source might be unavailable at a point in time Balance Relationship Execution risk Flexibility Regional v Global Banks Lease v Buy

6. © HKAC | Hong Kong | 3 Nov 15 | 6 Consider the various cycles Aviation Cycle Aircraft Values Airline Profitability CMV ≥ CBV 6 th consecutive year Debt Cycle Bank Sentiment Bond Market Appetite Margins at historical lows All eyes on the Fed Equity Investor Cycle Return Requirements Long Run Appetite Strong interest TBD

7. © HKAC | Hong Kong | 3 Nov 15 | 7 Delivery financing options for lessors

8. © HKAC | Hong Kong | 3 Nov 15 | 8 Capital markets an increasingly significant financing source Source: Boeing

9. © HKAC | Hong Kong | 3 Nov 15 | 9 Lessor Financing Considerations Cost v Diversification Cost is key to leasing competitiveness Similar diversification considerations to airlines (financing risk, market risk, balancing other issues) But a wider scope to diversify due to portfolio of lessees Trading flexibility Fleet strategy Liability management Ratings considerations

10. © HKAC | Hong Kong | 3 Nov 15 | 10 Financing strategy is connected to fleet strategy Portfolio Size 0-50 50-100 100+ Growth Rate (aircraft added per year) 0-1010-2020+ Bilateral (non- recourse) Bilateral (full- recourse) Secured portfolio financing Unsecured debt Note: box sizes are not strictly representative. Chart excludes export credit financing Warehouse facility

11. © HKAC | Hong Kong | 3 Nov 15 | 11 Operating lessor funding

12. © HKAC | Hong Kong | 3 Nov 15 | 12 Lessors have a constant need for funding Aircraft are depreciating assets, so lessors have to buy aircraft just to stay the same size To achieve IRR targets, aircraft under 15 years of age need to be financed Aircraft usually need to be re-financed at least once while they are owned by a lessor

13. © HKAC | Hong Kong | 3 Nov 15 | 13 Lessors must adapt to changing financial markets 1990200020102015 Post Gulf war and GPA GPA workout refinancing First ABS transactions Many banks in market Post 9/11 FI backed lessors ABS markets re-opened Banks re-entered as market improved Financial crisis and recovery Increased ECA borrowing Use of recourse Portfolio finance in bank market New capital markets issuance Currently ABS for debt and equity Growth of capital markets Diversity of banks

14. © HKAC | Hong Kong | 3 Nov 15 | 14 Lessors need to pay attention to the liabilities side of the balance sheet Recipes for trouble: Borrowing short/lending long Excess leverage leading into a downturn High refinance risk Unmatched funding Concentration of relationship banks Dependence on capital markets Structures that are difficult to unwind

15. © HKAC | Hong Kong | 3 Nov 15 | 15 Credit Rating Considerations Rating agencies differ in the sector teams that cover lessors (S&P: corporates, Fitch, Moody’s: FIG) While the rating methodologies are different, there are some common considerations: LikeDislike Diversified fleet by customerConcentrated fleet Mainstream liquid aircraftOut of production aircraft Unsecured debt /Unencumbered assets High proportion of secured debt Large and well-positioned in industrySmall and relatively new in industry Diverse earningsMonoline businesses Shareholder has a positive influence on financing (support, franchise) Shareholder treats business as non- core / short term