24 March 2015 Restructuring Symposium Michael B. Cox Vice Chairman Agenda

. Current state of the industry . Focus on Russia . Elements of successful airline restructurings . Case studies

1 Strong airline market capitalization rates for most regions Equity markets are open for well performing – unlike much of the past 25 years – but as a group, European carriers are significant laggard

TEV / Total Revenue 2010 Average: 0.63x Adj. TEV / EBITDAR 2010 Average: 7.0x 2015 Average 0.82x 2015 Average 8.3x

1.2x 12x 1.0x

0.8x 9x 0.6x 0.4x 6x North America 0.2x LatAm 0.0x 3x 1/1/10 1/1/11 1/1/12 1/1/13 1/1/14 1/1/15 1/1/10 1/1/11 1/1/12 1/1/13 1/1/14 1/1/15 Europe Asia/Pacific 2010 Average: 8.5x TEV / EBITDA2010 Average: 5.7x P / E Regional 2015 Average 7.4x 2015 Average 10.8x 15x LCC 30x 12x 25x 9x 20x 15x 6x 10x 5x 3x 0x 1/1/10 1/1/11 1/1/12 1/1/13 1/1/14 1/1/15 1/1/10 1/1/11 1/1/12 1/1/13 1/1/14 1/1/15

Source: Capital IQ as of February 3rd, 2015 Monthly median multiples, as of 03/03/2015 2 But real warning signs are flashing GDP recovery is faltering in many regions except China, India, and the US

Real GDP trend analysis (as of March 3, 2015)

United States Eurozone United Kingdom Japan

4 6 6 4 3.0 3 4 2.8 2.7 4 2 1.3 2 1.5 2 2.5 1.0 2 0 1 0 0 0 -2 04 06 08 10 12 -1.214 16 18 -1 -2 04 06 08 10 12 14 16 18 -2 -4 04 06 08 10 12 14 16 18 04 06 08 10 12 14 16 18 -2 -6 -4 -4 -3 -8 -4 -6 -6 -10 -5

Brazil Russia India China

6.5 8.0 10 2 6.4 7.5 8 1 0.7 6.0 7.3 6 0 7.0 7.0 4 2.5 04 06 08 10 12 14 16 18 -1 5.5 6.5 2 5.3 -2 0 -2.6 5.0 6.0 -3 -2 -0.2 04 06 08 10 12 14 16 18 -4 5.5 -4 4.5 -5 5.0

04 06 08 10 12 14 16 18 04 06 08 10 12 14 16 18

“Eurozone” – an economic and monetary union of 16 European Union member states which have adopted the Euro currency as their sole legal tender Source: S&P Capital IQ & Bloomberg; % change YoY 3 Over 75% of profits earned by North Am, Asia/Pac Carriers Profit performance is subpar in Europe, ME and Latin America, but 2015 outlook for Asia /Pacific is troubling

Global Industry Profitability 2010-2015E Aggregate Net Income Aggregate net income, US$ Billions US$ Billions

24 2015E N. Amer 27 13

APAC 24 4 2010-2014 62

Europe 5 5

2010-2014 M. East 5 2 -48 2015E

Lat. Am. 2

2000-2009 2010-2015E 1

Africa 0

4 Consolidation, post-restructuring boosted NA carriers ~79% controlled by Top Four, with LCC penetration slowing vs. European market, Asia/ Pacific also has troubling signs

North America Europe Asia +22 pts +2 pts 79% -5 pts 57% 62% ASK share 45% 46% 47% Top Four 32% 30% 27% (%)

20042009 2014 2004 2009 2014 2004 2009 2014

Strong consolidation Weak consolidation No consolidation

+5 pts +9 pts +6 pts 40% LCC Share 27% 32% 31% 19% 19% 13% 19% ASKs (%) 4%

20042009 2014 2004 2009 2014 2004 2009 2014

Modest LCC growth Strong LCC Modest LCC growth growth

5 Capacity discipline: Key driver for NA carriers’ profits Asia’s ASK growth is largely tied to GDP growth, which is not true for Europe

Seasonally Adjusted Index of Monthly ASKs by Airline Registration Region

150 46% 140 Asia

130

23% 120 Europe

110 Index, 100 equal to 2008 to Index, 100 equal

100 5% North America 90

80 20082009 2010 2011 2012 2013 2014 2015

Source: Diio Mi, Seabury analysis 6 Europe/Asia look very exposed to excess capacity Europe, and to a lesser extent Asia, look very exposed to a correction

Growth in Real GDP and ASKs by Region CAGR %

7.3% 6.8% 6.5%

5.2%

3.6% 2.9% 2.8% 2.0% 2.2% 1.6% 1.0% 0.3%

2004-08 2008-14 2004-08 2008-14 2004-08 2008-14

North Europe Asia America

GDP growth

ASK growth

7 JVs are supplanting global alliances in importance North Atlantic JVs are setting the “template” for future global consolidation of capacity

North Atlantic Asia - Europe North Pacific

Global alliance ASK share 85% 82% 92% JV ASK share 75% 34%* 32%

Access to the USA for many European airlines is now via joint ventures instead of codeshare

Source: IATA Pax IS 12 months to March 2015 *Excludes Middle East JV’s 8 Global consolidation is happening at faster pace Capacity discipline globally is being driven by top American & European airlines through JVs – but at the expense of medium/small airlines

Russian airlines have largely not participated in joint ventures

9 Airlines that restructured are driving global profitability Restructuring problem airlines with permanent fixes has allowed these airlines to earn the lion’s share of the industry’s global profits since 2008

Judicial Restructurings Non-Judicial Restructurings

Labour Competitive costs

Network Aligned to demand

Capacity Reduced capacity

Fleet Match fleet obligations to capacity

Other Costs Eliminate other costs

10 Agenda

. Current state of the airline industry . Focus on Russia . Elements of successful airline restructurings . Case studies

11 Market pressures are mounting The recent price drops of crude and petroleum coupled with Russia’s currency depreciation and international sanctions has increased market volatility

Oil prices vs Exchange rate $/BBL RUB/$ 125 $/BBL 80 120 RUB/$ 75 115 110 70 105 65 100 95 60 90 55 85 50 80 75 45 70 40 65 60 35 55 30 50 25 45 40 20 1-Jan-13 1-Apr-13 1-Jul-13 1-Oct-13 1-Jan-14 1-Apr-14 1-Jul-14 1-Oct-14 1-Jan-15

Indicator 2014 2013 % Brent, $/bbl 98.9 108.6 -8.9% Urals, $/bbl 97.6 107.7 -9.4% ESPO, $/bbl 100.3 110.5 -9.2% Exchange rate, RUB/$ 38.42 31.85 20.6%

Source: NASDAQ and Seabury Analysis 12 Yet airline capacity continues to outpace the economy Russian GDP is nearing stagnation with growth rates declining precipitously over the past decade yet air traffic capacity continues to grow at higher rates

GDP and ASK YOY Growth Rate GDP Growth 30 ASK Growth 28 26 24 22 19,6% 20 18 14,8% 18,5% 16,9% 16 14 12 11,2% 8,2% 8,5% 9,7% 10 8 7,2% 5,2% 6,4% 6,2% 5,6% 4,3% 6 6,8% 4,5% 3,4% 4 3,3% 2 1,3% 0,6% 0 -22004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -4 -6 -5,4% -7,8% -8

Source: World Bank, Seabury analysis 13 Carriers are fighting for market share The deteriorating economic situation and the political tensions are adding pressure to an already struggling aviation sector

Total Capacity (ASKs in billions) Existing fleet and orders +5.3%

International Routes 189.72 180.14 152 Domestic Routes 164.16 154 154.34 102 130.00 100.90 Airlines 96.53 58 89.37 109.00 58 88.34 75.24 18 62.72 93 74 83.62 88.81 34 66.00 74.79 46.28 54.75 0 Current 12 VIM Airlines 10 Orders 2009 2010 2011 2012 2013 2014

Market share based on seats

Domestic 22.8% 0.0%

37.6%

39.1% 8.6% International 26.1% 12.2% 12.8% 11.4% 5.0% 9.1% 5.6% 2.0% 3.8% 2.4% 1.5%

Other Russian Foreign Carriers Source: DIIO Year ending December 2014 Carriers- 29 14 Aviation sector is feeling the pressure The deteriorating economic situation and the political tensions are adding pressure to an already struggling aviation sector

“Transaero has turned to the government and to creditors for aid last December as the airline was having difficulties meeting its debts obligation and feared it might be forced to ground all of its jets before the end of the year.” - Travel Weekly, January 2015

“90% of Russian airlines lease their planes from international leasing companies ” - Moscow Times, August 2014

“AerCap has around 100 airplanes on lease to Russian airlines, out of a total fleet of around 1,300 aircraft ” - Reuters, January 2015

“Deputy Prime Minister Arkadi Dvorkovitch said he was considering credit guarantees and subsidies worth up to 28 million euros (S$45.27 million) to support struggling airlines. He told the business daily Vedomosti that two of the top three domestic airlines, Transaero and UTair, were already in difficulty. ” - Vedomosti, December 2014

“Russia's new low-cost carrier, Dobrolyot, announced that it was suspending all of its flights following the imposition of EU sanction.” - Moscow Times, August 2014

“Vladimir Tasun, head of Russian Air Operators Association (also known as AEVT) asked the presidential administration to providethe airlines with state support. The source noted that this refers to four large airlines – Aeroflot, UTair, Transaero and S7. Current order book consists of ~200 aircraft.” - Ruaviation.com, October 2014

With many predicting crude oil prices to remain well under $100/barrel, the pressure on the Russian economy and its airlines is expected to continue

15 Access to aircraft finance is weakening While Russian carriers need foreign financiers for their aircraft, those financiers are actively mitigating their risk exposure to Russia

“In November 2014 Utair was unable to make bond payment. The company cited insufficient funding for its failure to repay 1.23 billion rubles ($27 million) and 1.45 billion rubles of installments on two 1.5 billion-ruble tranches of three-year debt.” - Bloomberg, November 2014

“Some aircraft financiers have expressed concerns that Western leasing companies may be left with unpaid bills and problems in recovering their aircraft as Russia's airlines grapple with a weakened economy” - Reuters, December 2014

“Russia’s VEB Leasing has ceased operations of five aircraft—two Sukhoi Superjet 100s and three Bombardier Q400s—for Yakutia Airline. The lessor intends to withdraw the aircraft from the carrier due to constant payment delays, the lessor said in a statement. ” - Atwonline.com, December 2014

“The chief executive of Aircastle said Boeing Co and Airbus jetliner sales to Russia are likely to be squeezed by a falling Russian ruble” - Reuters, December 2014

“The company achieved revenue growth of 24% as the top-line figure surged to $238 million. The year-over-year increase came on the back of higher maintenance charges which arose due to the early return of several aircrafts from Russian airlines.” -Aircastle Annual Report, 2014

“Experts expect at some point in 2015 Aeroflot will get state aid, as the economic situation will bring chaos to its finances” - aviationdoctor.wordpress.com, January 2015

16 Agenda

. Current state of the airline industry . Focus on Russia . Elements of successful airline restructurings . Case studies

17 Typical restructuring options The most successful airline restructurings have followed the right structure and venue for the situation

Cooperation BOD Appointed CRO Judicial Proceeding . Strong management team fully . Concerns about the . Material change to the business capable of executing management team capabilities and/or liquidity necessitate Typical restructuring and/or commitment to significant changes to contracts Scenario comprehensive restructuring and/or elimination of surplus . Ultra aggressive implementation of tactical tool . Financial advisor becomes the . CRO reports to the board with . File for court protection from “arms/legs” in support of the authority to implement an creditors such as US Chapter 11 existing management team aggressive restructuring program or local proceeding - Advisors work closely with - Aggressive cash conservation - Certain relief from creditors management on all program implemented automatically preventing them restructuring fronts leveraging immediately from taking action to collect advisor experience and their debts Execution - Has authority to negotiate over management knowledge of the market contracts and/or early - Potential ability to fully reject airline exit of surplus aircraft burdensome contracts . Advisor assists management . CRO works with management to . Aggressively restructure / with design and implementation transition to a post-restructured modify debt of a restructuring including: environment . Forces stakeholders to actively - contract and labor negotiations participate in the reorganization - early exit of surplus aircraft

Key . Strength of management team . Level of authority entrusted in . Expensive and lengthy and trust in advisors drives level CRO directly correlates to Factors . Typically yield s the greatest of result benefits achieved long-term concessions

18 Key elements of successful airline restructurings Successful airline restructurings revolve around 6 key interrelated elements supported by a comprehensive strategy and business plan

Commercial Strategy Fleet

. Evaluate long-term strategy . Eliminate uneconomic Strategic . Rationalize and optimize aircraft Commercial Direction network and schedule . Mark-to-market aircraft Strategy . Match aircraft to network financings Operational plan and growth strategy . Secure future fleet to deliver Fleet Improvement commercial strategy and Cost Reduction Operational Improvement and Labor transformation AIRLINE Cost Reduction Labor . Renegotiate customer and . Improve labor productivity Liquidity Transformation vendor contracts Cost . Streamline organization . Optimize supply chain Capital Structure . Secure sustainable labor Structure . Design and implement cost costs reduction and operational improvement initiatives

Liquidity Capital Structure

. Preserve and protect . Secure capital to finance liquidity during the business plan Catalysts restructuring . Secure aircraft financing Seabury has the unique . Enhance liquidity position . Support potential capability to implement upon completion acquisitions or divestitures restructurings

19 Typical airline restructuring timeline The length of each airline restructuring is dependent on the underlying issues but the sequencing is typically as outlined below

Week 1-4 Week 5-8 Week 9-12 Week 13-16 Week 17-20 Week 21-24 Initiate Restructuring Establish cash management office Identify key restructuring initiatives Identify over market contracts Evaluate the core business Implement ‘quick wins’ to relieve cash Develop the Business Plan Create an optimized fleet and network plan Stress test cash flows and key forecasting assumptions Determine capital structure Finalize amount of concessions required for sustainability Go to the Market with Concessions Develop concessions tailored to each stakeholder group Meet with constituents and communicate the ‘Ask’ Coordinate information flow and restructuring progress Finalize negotiations Implementation All parties receive legal binding documents Finalize amended contracts Documentation and closing Work with management and employees to institute changes

20 Agenda

. Current state of the airline industry . Focus on Russia . Elements of successful airline restructurings . Case studies

21 Case Study: (2013-2014) Seabury crafted and implemented a comprehensive plan including a revised commercial agreement, €100M in aircraft ownership savings and new capital

Situation: Lease obligations Debt restructuring . Huge losses on surplus inefficient aircraft driven Return cond. TV* by adverse environment characterized by high Forgiveness fuel prices, continuous European recession and Rents Forgiveness legacy carrier difficulties . Complex fleet financing structure involving over 50 different finance parties with material balloon payment obligations . Airline had grounded most of its surplus inefficient aircraft and taken certain self-help measures

Results: . Consensual restructuring of liabilities working closely with BBD and lessors . Saved over €100M thereby paving the way to secure new capital . Secured €26 million of new equity capital . Secured a new long-term regional code-share with Airlines Lease Savings Restructured H2.2013 20142015 2016 exposure obligations

22 Case Study: Monarch Airlines Group (2014) Monarch had less than eight weeks of cash – Seabury was retained to structure and implement a comprehensive turnaround plan and raised £125 million of new capital

Situation: Turnaround plan bridge FY14-16 . Rapid expansion and high cost base prevented Monarch from competing effectively with low-cost carriers and resulted in significant losses . Mix of charter and scheduled flying created additional costs and complexities . Highly seasonal business model led to liquidity issues, especially in low season . Airline operated a fleet of 42 aircraft with 4 aircraft types and 18 variations creating complexity and costs

Results: . Successfully optimized fleet and restructured the aircraft portfolio - Immediately crafted plan to cut ~30% of routes & capacity that produced ~100% of losses - Optimized network and exited charter and long haul flying - Secured a new Boeing fleet order for 30 737 MAX aircraft . Reduced annual cost base by £200m p.a. driving 14-16% profit increase - Achieved material labor concessions ~ 40% reduction in labor costs . Removed more than £700m of liabilities . Secured £125m of capital and liquidity facilities upon FY14 Network Revenue LaborMaintenance Other FY16 PBT initiatives PBT successful restructuring

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