Avia Solutions Group Poland, Aviation support services

Reuters: ASGG.WA Bloomberg: ASG PW 1 April 2011

Boarding completed Recommendation BUY Portfolio weighting – Recommendation BUY. 12M Target Price PLN 90

Avia Solutions Group (ASG) is a group of companies engaged in Price (PLN, 31 March 2011) 55.00 aviation-related services for airlines and travel operators. It provides Target price (PLN, 12-month) 90.00 integrated aircraft maintenance, ground handling, crew training, charter and other services. ASG was mainly focused on the Baltic and CIS Market cap. (PLN m) 324.1 markets, however, the group plans to expand its European operations in Free float (%) 20.3 2011. In the long term, Eastern Europe and the CIS should catch up with Number of shares (m) 5.9 the Western air traffic standards, likely yielding a very strong foundation Average daily turnover 1M (shares) 7.4k for ASG’s long-term prosperity. In the short term, we expect the EURPLN 4.02 company’s figures to be strengthened through the expansion of its USDPLN 2.85 Maintenance, Repair and Overhaul (MRO) capabilities for new aircraft. The establishment of new ground handling bases at Polish airports and the delivery of refuelling services, with first new contracts already 57.0 Price WIG Rebased signed, will boost ASG’s results from 2011 onward. We expect intensive Buy Hold 56.0 investments and foreign expansion will contribute to a more than doubling of 2010’s net profit for a 2012 result of EUR 11m. We are 55.0 initiating coverage of ASG with a BUY recommendation and a 12-month 54.0 Target Price of EUR 22.3 (PLN 90), which implies a 64% growth potential. 53.0

ASG is composed of four business segments that offer airlines and travel 52.0 operators an extensive range of services. The group is the largest fuel provider, with 51.0 a 90% market share, and the second-largest ground service provider, with a 40% market share at Vilnius airport. ASG also provides airlines with MRO (Maintenance, 50.0 Repair and Overhaul) services at its hangar in Vilnius and line stations in Italy, the UK, Turkey, Russia, Kazakhstan and Tajikistan. Currently, the company has its eyes on Mar-11 the Polish market and has also expressed its intentions to expand in the CIS The chart measures performance against the WIG index. On region. 3/31/2011, the WIG index closed at 48,730. Each ASG business line is developing on its own, but taken together they create solid synergy effects and cross-selling opportunities. Cost control and the delivery of superior quality are the key strategies for all segments. Consequently, all of the companies in the group have access to cheaper services and can offer a good price-to- Main shareholders % of votes quality ratio. The location of ASG bases gives the company access to both Eastern ZIA Valda Cyprus 32.9% European markets and CIS countries. Indeco: Investment and Development 21.9% We expect ASG to more than double its 2010 net profit to EUR 11m in 2012. The Harberin 18.3% entire CIS and Eastern Europe regions promises a tremendous upside in air traffic to ING pension fund 6.6% match the standards of Western countries, which will create huge opportunities for all market participants. Additionally, the recent trend of an increasing outsourcing activity observed among airlines promises a lucrative future for service companies such as ASG. A small company like ASG, operating in a multibillion market, has an enormous upside potential if any of its business lines prove to be successful. Company description Based on our DCF valuation, we are setting a 12M TP at EUR 22.3 (PLN 90). A Avia Solutions Group is a group of companies engaged in comparison with both Polish and foreign peer groups yields per share valuation in the the aviation services market in the field of repair, ground range of PLN 73–99, with the average valuation settling at PLN 86. Having that said, handling, charter operations and crew training. we are initiating coverage of ASG with a BUY recommendation.

Avia Solutions Group: Financial summary

EUR in millions, unless otherwise stated

2008 a 2009 2010 2011E 2012E 2013E

Revenues 30.3 67.6 90.1 120.9 157.6 184.5

EBITDA 1.3 3.7 8.7 13.0 16.4 19.7 Research team: EBIT 0.4 2.3 7.2 11.4 13.5 16.1 Net profit (0.1) 1.3 5.4 9.1 11.1 13.4 Zbigniew Porczyk P/E (x) n.a. 45.2 11.3 8.5 7.3 6.0 +48 22 534 16 10 [email protected] EV/EBITDA (x) 52.1 17.5 5.5 5.2 4.2 3.5 Source: Company data, DM BZ WBK estimates, 2011 multiples based on average number of shares

DISCLAIMER: Disclosure statements provided on the last page of this report are an integral part of this document. Avia Solutions Group 1 April 2011

Table of contents

TABLE OF CONTENTS...... 2 INVESTMENT SUMMARY...... 3 VALUATION ...... 5 TESTING AVIA SOLUTIONS GROUP SENSITIVITY ...... 10 COMPANY PROFILE ...... 11 AVIATION MARKET...... 17 MRO MARKET...... 26 ASG FINANCIALS...... 30 VALUATION DRIVERS VERSUS RISK FACTORS ...... 39 FINANCIAL STATEMENTS AND FORECASTS ...... 41

2 Avia Solutions Group 1 April 2011

Investment summary Avia Solutions Group (ASG) is a group of companies engaged in aviation-related services ASG – a successful group of companies for airlines and travel operators offering integrated aircraft maintenance, ground handling, engaged in aviation- crew training, charter and other services. The group operates in four business segments: related services aircraft maintenance, repair and overhaul (MRO) – represented by FL Technics, aircraft

ground handling and fuelling – represented by Baltic Ground Services, charter operations – represented by Small Planet Airlines, pilot and crew training – represented by Baltic

Aviation Academy. ASG is the market leader in refueling at the Vilnius airport, the second

biggest player in ground handling services in Vilnius, one of the leading and fastest growing MRO providers in Eastern Europe with 7.6k sq.m. of hangars in Vilnius, 13.7k sq.m. of total

workshop space and eight foreign line stations (Italy, UK, Turkey, Lithuania, Russia, Kazakhstan and Tajikistan). The group acts as a provider of all-aviation-services and thus generates big cross-selling opportunities. Moreover, being cost-effective, all subsidiaries

have a competitive edge over its competitors through access to cheaper services.

FL Technics – a MRO FL Technics is a MRO company providing integrated aircraft maintenance and repair company acting as a solutions and services. The major areas of FLT’s operations are: heavy maintenance, one-stop-shop for components maintenance, line maintenance, engineering, spare parts, and technical technical support training. The company has been serving Boeing 737 Classic so far and expanded its maintenance capability list by adding Boeing 737 New Generation line and base maintenance in March and June 2010. However, FLT acquired the final license for Airbus

320 family at the beginning of 2011 and the full effects of this new capacity list expansion could be visible in financial reports from 2012 on. The company is acting as a one-stop- shop for technical support, which offers significant cross-selling opportunities. However, the

company’s biggest asset is its strategic geographical location and efficient cost structure .

Baltic Ground Services Baltic Ground Services conducts such operations as check-in, baggage delivery, aircraft – a ground handling preparation and refueling. BGS is the market leader in refueling services at the Vilnius services company operating at the Vilnius airport (90% market share) and the second most important ground handling provider airport, wishing to enter in Vilnius (40% market share). BGS derives most of its revenues from refueling services but the Polish market makes the highest profit on ground handling services. The company is to enter the Polish

market (Warsaw, Krakow, Katowice, Wroclaw, Gdansk, and Poznan). Currently, the company is establishing bases at Warsaw and Krakow airports and has already signed two

contracts for ground handling services in Warsaw.

Small Planet Airlines are charter airlines operating in four markets: Lithuania, Estonia, Small Planet Airlines – charter airlines Poland, and Italy. The company has an 80% market share in Lithuania and currently it has operating in Lithuania, a fleet of 7 aircraft (Boeings 737-300 & 757-200). SPA travels to 75 destinations and in Estonia, Poland, and 2009 it transported ca. 0.4m passengers. The company is an important component of the Italy group as it creates synergy effects for the whole group and may serve as the first client on new markets for its sister companies.

Baltic Aviation Academy performs aviation training courses and provides professional

flight personnel solutions for airlines. The company operates one FFS in Vilnius Baltic Aviation Academy – an aviation (Boeing 737 CL) and contracts other FFSs across Europe for different types of aircraft. training company BAA sees the possibility of earning high profit in the CIS region as airlines located in those focused on CEE and CIS regions countries are in the period of transition from old aircraft to new (or newer) Western ones and their pilots need to be trained. Moreover, regulators require pilots to take part in recurrent trainings in order to maintain the pilot license and thus create a steady demand for services of such companies as BAA.

3 Avia Solutions Group 1 April 2011

The aviation is an essential part of the transport industry and has been growing rapidly along with the world economy in the recent years. The 6-year growth trend was suddenly

stopped by the economic crisis. However, signs of recovery emerged in 2010 and a further

The aviation industry is growth of the industry is expected. The industry should expand at least in line with expected to grow at the the world’s GDP development. Moreover, recent financial problems of airlines urged them fastest pace in CEE and to seek cost optimization and intensify their outsourcing efforts of non-core business CIS regions activities such as MRO and ground handling. What is more, Eastern Europe and CIS countries , i.e. the major region of ASG’s operations, are expected to grow at much higher

rates than Western Europe, North America or Latin America.

In 2011 we expect ASG to deliver revenues/EBITDA/net profit of EUR 121m (+34% y/y), We forecast ASG’s net profit at EUR 9.1m in EUR 13.0m (+49% y/y) and EUR 9.1m (+69% y/y) respectively, while ASG’s 2011-2014 2011 and 2011-14 CAPEX is projected at ca. EUR 24m, with investments in MRO segment (EUR 11m) CAPEX at EUR 24m. earmarked as a priority.

Going forward, we expect ASG 2010-2013 CAGRs of sales/EBITDA/net profit at ASG’s key profit growth factors: MRO capability respectively 27%, 32% and 36%. We believe these goals will be achievable through 1) list expansion, entering MRO segment expansion into new aircraft types, 2) entering engine repairing market, 3) engine repair market, charter and refueling charter and refueling segment expansion, and 4) increased demand for aviation training expansion services from CIS countries.

The development of ground handling services represents the most potent upside to We see the the company, as we have conservatively assumed low exposure of ASG to the Polish development of ground handling services to be market. We believe that higher than assumed market shares in the Polish airports can be the most potent achieved in the future. Moreover, our model does not include ASG’s expansion to the upside… Italian market. Even a few percent of market share on some Italian airports would create a

huge upside to the company’s valuation. Finally, being a small company on a multibillion market creates potent upside opportunities should any of ASG’s business lines proves to be successful.

We see potentially increasing competition, regulatory risk and the scale of ASG as main

…while increasing risk factors to investing in ASG. The company’s relatively short reporting history and competition and recent development may raise concerns in relation to the sustainability of this growth and regulatory risk the risk of a reverse trend. The increasing competition from Turkish and Asian companies represent main risk factors may trim ASG’s foreign expansion plans while the regulatory risk in Poland may postpone entering particular airports.

12month Target Price: Based on DCF valuation, we set a 12-month Target Price at EUR 22.3 (PLN 90), 64% EUR 22.3 (PLN 90) above the current valuation. A comparison with the peer group shows a valuation in the

range of EUR 18 and EUR 25 per share, with average valuation settling at EUR 21.5 (PLN 86).

4 Avia Solutions Group 1 April 2011

Valuation

DCF valuation

Consistent with DM BZ WBK methodology, a DCF model is our primary valuation tool.

Our DCF model indicates Avia Solutions Group’s 12-month target price of EUR 22.3, or PLN 90.

Fig. 1. ASG: DCF analysis PLN in millions, unless otherwise stated 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Net sales 120.9 157.6 184.5 197.7 213.2 225.4 238.0 251.4 265.6 280.8 EBIT 11.4 13.5 16.1 15.9 16.8 17.8 18.8 19.9 21.0 22.2 Cash taxes on EBIT 1.8 2.1 2.5 2.5 2.6 2.8 2.9 3.1 3.3 3.5 NOPAT 9.6 11.4 13.6 13.5 14.2 15.1 15.9 16.8 17.7 18.7 Depreciation 1.7 2.9 3.6 4.0 3.8 3.1 2.7 2.6 2.5 2.6 Change in WC 4.5 4.8 2.0 1.1 1.7 1.0 1.1 1.2 1.2 1.2 Capital expenditures 11.1 7.6 2.9 2.4 2.7 2.8 2.8 2.8 2.8 2.8 Net investments 13.9 9.5 1.3 -0.5 0.6 0.7 1.2 1.3 1.4 1.4 Free cash flow -4.3 1.9 12.3 13.9 13.6 14.4 14.7 15.5 16.3 17.3 RFR 6.3% Debt risk premium 3.0% ERP 5.0% Beta levered 1.7 Tax rate 16% Cost of equity 14.47% Cost of debt after tax 7.85% % D 30% % E 70% WACC 12.49% PV FCF 2011-2020 53.2 Terminal growth 0% Terminal Value (TV) 148.0 PV TV 45.6 Total EV 98.8 Net debt* -12.8 Equity value (EUR, 1 Jan 2011) 111.7 Number of shares (m) 5.9 Value per share (EUR, 1 Jan 2011) 18.95 Month 4 Current value per share (EUR) 19.86 12m Target Price (EUR) 22.34 EUR/PLN exchange rate 4.02 12m Target Price (PLN) 89.82 Revenue growth 78.86% 30.37% 17.06% 7.15% 7.86% 5.71% 5.57% 5.64% 5.67% 5.71% EBIT growth 390.13% 18.81% 19.53% -1.26% 5.35% 6.25% 5.62% 5.76% 5.24% 5.73% NOPAT growth 463.87% 18.81% 19.53% -1.26% 5.35% 6.25% 5.62% 5.76% 5.24% 5.73% FCF growth n.a. n.a. 560.33% 12.77% -2.26% 5.94% 2.31% 5.23% 5.23% 6.29% EBIT margin 9.40% 8.57% 8.75% 8.06% 7.87% 7.91% 7.92% 7.92% 7.89% 7.89% NOPAT margin 7.94% 7.23% 7.38% 6.80% 6.65% 6.68% 6.68% 6.69% 6.66% 6.66% CAPEX/Revenues 9.14% 4.83% 1.55% 1.23% 1.27% 1.22% 1.16% 1.10% 1.04% 0.98% Change in WC/Revenues 3.71% 3.06% 1.09% 0.58% 0.80% 0.46% 0.46% 0.46% 0.44% 0.43% Source: DM BZ WBK estimates, * Net debt as of 2010 minus net IPO proceedings

5 Avia Solutions Group 1 April 2011

We base our model for ASG on individual estimates for FLT, BGS, SPA and BAA using the following assumptions:

• WACC : we have assumed RFR at 6.3%, ERP at 5.0%, unlevered Beta at 1.2

• Dividends : we have assumed that ASG will start paying 50% dividend starting from 2013 onwards FL Technics

• Sales : we have assumed six business lines (Heavy maintenance, Components Maintenance, Line maintenance, Technical Training, Spare parts, and Engineering). Each segment has been forecasted separately. Heavy maintenance, Line maintenance, and Spare parts will drive sales to the highest extent thanks to obtaining the Airbus capacity and the establishment of new line stations. Overall, we expect FLT’s respective 3-year and 10-year CAGRs at 25.7% and 13.4%.

• Gross margin : we expect gross margin to decrease from the 2010 level of 41% to 32% in 2011, 27% in 2012 and 25% in 2013. Margin decrease is strictly connected with an increasing scale of operations.

• CAPEX : FLT plans to invest ca. EUR 15m until 2013. The biggest investments include expanding the hangar space (EUR 6m) and new spare parts inventory financing (EUR 4m). After those heavy investments, we foresee the company’s CAPEX to stabilize at the level of EUR 1.3m. Baltic Ground Services

• Sales : we have assumed a steady growth of 3% p.a. in BGS Lithuania operations. We also expect that in 2011 the company will start its operations in Poland and that it will reach its full capacity in 2014. After this period we expect a growth of 4% p.a. in Poland.

• Gross margin : we expect gross margin to slightly increase in BGS Lithuania operations, by ca. 0.4% p.a. due to the effect of scale from 2010 reading of 10.3% to 2014 of 10.5%. In Poland, we expect gross margin to amount to 9.3% in 2011 and decrease to a long-term plateau of 8.0%.

• CAPEX : BGS plans to establish its bases on the Polish airports (EUR 1m per each base) and requires investments in the working capital requirement (mainly fuel). After 2013, we expect CAPEX to stabilize at EUR 1.2 p.a. Small Planet Airlines

• Sales : we derive total sales from the passenger number that is a joint effect of plane capacity and the number of planes. We have divided revenues into four segments: fuel revenue, operations cost recharged (fully recharged by tour operators), ACMI revenue and other revenue. Overall, we expect respective 3-year and 10-year CAGRs at 8.3% and 6.7%.

• Gross margin : we derive the gross margin from particular segment profits. We have assumed a 1.6% margin on fuel, no margin on operations cost recharged, and 26% on ACMI costs. Overall, we expect gross margin to increase from 5.4% in 2010 to 8.2% in 2011, remaining stable thereafter.

6 Avia Solutions Group 1 April 2011

Baltic Aviation Academy

• Sales : we have assumed three business lines, i.e. theoretical training, FFS training and other training. The biggest component (90%) is the Full Flight Simulator training which we expect to grow by 100% in 2011, 20% in 2012, 10% in 2013 and stabilize thereafter at 5% p.a. growth. Overall, we expect respective 3-year and 10-year CAGRs at 37% and 14%.

• Gross margin : due to the increasing scale of operations we expect the gross margin to drop from 2010 level of 35% to 26% in 2011, and remain stable thereafter.

Below we list changes in assumptions that we have implemented since the IPO report:

• IPO: the actual net IPO proceedings amounted to EUR 17.6m vs. our estimates of EUR 21.4m

Comparable valuation

We have compared ASG against the international peers, all in the field of aviation market. As ASG is a composite of four different businesses which trade at different multiples, we compared each segment of ASG to a different peer group. BGS has been compared to ground handling companies, FL Technics has been compared to international MRO providers, and Small Planet Airlines has been compared to charter/low cost airlines. We have used all those peers to create a group for BAA. Finally, we have arrived at the price of ASG as a sum-of-the-parts of all its segments. The comparative valuation implies ASG’s share value of EUR 21.5 (PLN 86).

Fig. 2. Avia Solutions Group: Peer group multiples Market Cap P/E EV/EBITDA Company Price Currency (EURm) 2011E 2012E 2013E 2011E 2012E 2013E Ground Handling Services John Menzies PLC 520 GBp 351 8.2 7.7 7.6 5.0 4.8 4.6 TAV Havalimanlari Holding AS 7.36 TRY 1,221 15.0 11.0 9.5 9.5 8.4 7.8 Kobenhavns Lufthavne 1632 DKK 1,718 17.4 16.3 n.a. 9.1 8.7 n.a. Flughafen Wien AG 44.75 EUR 940 11.5 14.0 14.9 n.a. n.a. n.a. Celebi Hava Servisi AS 24.65 TRY 273 12.9 12.6 n.a. 6.5 6.0 5.4 Median 12.9 12.6 9.5 7.8 7.2 5.4 Maintenance, Repair and Overhaul SIA Engineering Co Ltd 4.05 SGD 2,472 15.4 14.1 n.a. 20.4 18.6 n.a. SATS Ltd 2.51 SGD 1,555 13.4 12.0 12.1 9.0 8.2 8.4 Singapore Technologies Engineering Ltd 3.26 SGD 5,559 18.4 17.0 16.1 11.8 11.0 10.5 BBA Aviation PLC 203.2 GBp 1,094 11.4 10.5 9.9 7.7 7.1 6.6 AAR Corp 27.72 USD 776 13.0 11.3 n.a. 6.4 6.1 n.a. MTU Aero Engines Holding AG 47.79 EUR 2,485 12.9 11.3 10.1 n.a. n.a. n.a. Median 13.0 11.3 11.1 8.3 7.6 8.4 Charter / Low cost carriers AirAsia BHD 2.69 MYR 1,739 8.9 7.7 6.5 7.8 6.9 5.8 Allegiant Travel Co 43.81 USD 587 14.8 11.8 8.9 5.5 4.8 3.8 Air Berlin PLC 3.12 EUR 266 n.a. n.a. 12.9 7.4 5.3 4.4 Norwegian Air Shuttle AS 107.5 NOK 474 11.1 7.0 5.3 5.8 3.7 2.9 Republic Airways Holdings Inc 6.43 USD 218 7.7 5.3 4.6 5.2 4.9 5.2 Median 10.0 7.4 6.5 5.8 4.9 4.4 Total median 12.9 11.3 9.7 7.5 6.5 5.4 Source: Bloomberg, DM BZ WBK estimates

7 Avia Solutions Group 1 April 2011

Overall, the comparative valuation indicates that ASG’s share price ranges from EUR 18.1 (PLN 73) to EUR 24.6 (PLN 99), based on our forecasts and respective ratios. In the light of P/E ratios, ASG’s valuation comes at EUR 20.6 (PLN 83) per share, while according to EV/EBITDA multiple one company share should be worth EUR 22.4 (PLN 90). All in all, the comparative valuation points at the per share price of EUR 21.5 (PLN 86).

Fig. 3. Avia Solutions Group: Comparable valuation – price per share (EUR) Price implied by P/E Price implied by EV/EBITDA Average 2011E 2012E 2013E 2011E 2012E 2013E ASG 18.1 21.1 22.6 20.4 22.1 24.6 Average 20.6 22.4 21.5 FLT 11.8 11.2 11.9 13.7 12.0 14.3 BGS 3.1 6.8 7.3 3.7 7.2 7.4 SPA 2.0 1.5 1.8 1.7 1.4 1.6 BAA 1.3 1.6 1.6 1.3 1.4 1.4 Source: DM BZ WBK estimates, fully diluted number of shares, 2011 multiples based on the average number of shares

Fig. 4. Avia Solutions Group: Comparable valuation – price per share (PLN) Price implied by P/E Price implied by EV/EBITDA Average 2011E 2012E 2013E 2011E 2012E 2013E ASG 72.8 84.9 90.8 82.2 88.8 99.1 Average 82.8 90.0 86.4 FLT 47.2 45.1 48.0 55.1 48.3 57.6 BGS 12.5 27.5 29.3 15.1 29.1 29.6 SPA 7.9 6.1 7.0 6.7 5.7 6.4 BAA 5.2 6.3 6.4 5.3 5.8 5.4 Source: DM BZ WBK estimates, fully diluted number of shares, 2011 multiples based on the average number of shares

Fig. 5. Avia Solutions Group: Comparable valuation In % P/E EV/EBITDA 2011E 2012E 2013E 2011E 2012E 2013E ASG 100% 100% 100% 100% 100% 100% FLT 65% 53% 53% 67% 54% 58% BGS 17% 32% 32% 18% 33% 30% SPA 11% 7% 8% 8% 6% 7% BAA 7% 7% 7% 6% 6% 5% Source: DM BZ WBK estimates, fully diluted number of shares, 2011 multiples based on the average number of shares

Fig. 6. Avia Solutions Group: EBITDA/EBIT/NP margin comparisons in peer group Market Cap EBITDA margin EBIT margin NP margin Company Price Currency (EURm) 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E Avia Solutions Group 10.8% 10.4% 10.7% 9.4% 8.6% 8.7% 7.6% 7.0% 7.3% John Menzies PLC 520 GBp 351 4.4% 4.6% 4.8% 3.0% 3.2% 3.3% n.a. n.a. n.a. TAV Havalimanlari Holding AS 7.36 TRY 1221 31.2% 35.3% 37.8% 20.0% 25.3% 27.9% 9.6% 13.5% 15.0% Kobenhavns Lufthavne 1632 DKK 1718 51.5% 53.9% n.a. 35.7% 38.1% n.a. 21.5% 23.0% n.a. Flughafen Wien AG 44.75 EUR 940 34.0% 35.8% 38.3% 21.7% 20.4% 20.5% 14.8% 12.3% 11.5% Celebi Hava Servisi AS 24.65 TRY 273 24.7% 26.7% 29.6% 17.1% 16.8% n.a. 11.3% 12.5% 16.1% BGS 6.0% 7.8% 8.4% 4.4% 5.7% 6.3% 3.4% 4.7% 5.2% Median 31.2% 35.3% 33.7% 20.0% 20.4% 20.5% 13.1% 13.0% 15.0% SIA Engineering Co Ltd 4.05 SGD 2472 16.2% 17.7% n.a. 12.4% 13.3% n.a. 24.0% 26.0% n.a. SATS Ltd 2.51 SGD 1555 16.2% 17.7% 17.2% 11.1% 12.7% 16.8% 10.9% 12.2% 12.9% Singapore Technologies Engineering Ltd 3.26 SGD 5559 12.7% 13.6% 14.3% 10.4% 11.1% 11.6% 8.5% 9.1% 9.7% BBA Aviation PLC 203.2 GBp 1094 13.2% 14.3% 15.3% 9.8% 10.8% 11.7% 6.6% 7.2% 8.0% AAR Corp 27.72 USD 776 12.1% 12.8% n.a. 9.2% n.a. n.a. 4.8% 5.3% n.a. MTU Aero Engines Holding AG 47.79 EUR 2485 14.3% 15.8% 17.6% 10.5% 11.6% 13.1% 6.2% 7.2% 8.4%

8 Avia Solutions Group 1 April 2011

FLT 22.1% 19.5% 18.7% 19.7% 16.5% 15.4% 16.3% 13.7% 12.9% Median 13.2% 14.3% 16.3% 10.4% 11.3% 12.4% 6.6% 7.2% 9.0% AirAsia BHD 2.69 MYR 1739 38.9% 44.0% 51.7% 26.0% 30.6% 37.0% 18.1% 20.8% 25.0% Allegiant Travel Co 43.81 USD 587 17.4% 19.9% 24.7% 10.7% 12.4% 16.4% 7.4% 9.9% 13.7% Air Berlin PLC 3.12 EUR 266 2.9% 4.0% 4.8% 0.4% 1.3% 2.3% -0.8% 0.0% 0.3% Norwegian Air Shuttle AS 107.5 NOK 474 8.1% 12.5% 15.9% 5.4% 8.8% 11.4% 3.2% 5.2% 6.5% Republic Airways Holdings Inc 6.43 USD 218 17.4% 18.5% 17.4% 7.0% 7.7% n.a. 1.5% 2.1% 2.5% SPA 2.8% 2.6% 3.2% 2.7% 2.6% 3.1% 2.1% 2.1% 2.6% Median 17.4% 18.5% 17.4% 7.0% 8.8% 13.9% 3.2% 5.2% 6.5% Total median 16.2% 17.7% 17.4% 10.6% 12.4% 13.1% 8.5% 9.9% 10.6% Source: Bloomberg, DM BZ WBK estimates

Valuation summary

Fig. 7. Avia Solutions Group: Valuation summary Implied equity value per share (EUR) DCF model 22.3 Comparable valuation 21.5 Source: DM BZ WBK estimates

9 Avia Solutions Group 1 April 2011

Testing Avia Solutions Group sensitivity

In our view, any company may be best tested through looking at its sensitivity factors. Below, we present a valuation matrix dependent on the RFR and terminal growth rate.

Fig. 8. Avia Solutions Group: Valuation sensitivity matrix In EUR, unless otherwise stated Terminal Risk free rate growth rate 5.7% 5.9% 6.1% 6.3% 6.5% 6.7% 6.9% -3.0% 21.5 21.2 20.9 20.6 20.3 20.0 19.8 -2.0% 22.0 21.7 21.4 21.1 20.8 20.5 20.2 -1.0% 22.7 22.3 22.0 21.7 21.3 21.0 20.7 0.0% 23.5 23.1 22.7 22.3 22.0 21.7 21.3 1.0% 24.4 24.0 23.5 23.1 22.8 22.4 22.0 2.0% 25.5 25.0 24.5 24.1 23.7 23.2 22.8 3.0% 26.8 26.3 25.7 25.2 24.7 24.3 23.8 Source: DM BZ WBK estimates, fully diluted number of shares

Fig. 9. Avia Solutions Group: Valuation sensitivity matrix, percentage change In % Terminal Risk free rate growth rate 5.7% 5.9% 6.1% 6.3% 6.5% 6.7% 6.9% -3.0% -4% -5% -7% -8% -9% -10% -12% -2.0% -1% -3% -4% -6% -7% -8% -10% -1.0% 2% 0% -2% -3% -4% -6% -7% 0.0% 5% 3% 2% 0% -2% -3% -5% 1.0% 9% 7% 5% 4% 2% 0% -1% 2.0% 14% 12% 10% 8% 6% 4% 2% 3.0% 20% 18% 15% 13% 11% 9% 7% Source: DM BZ WBK estimates, fully diluted number of shares

10 Avia Solutions Group 1 April 2011

Company profile

Avia Solutions Group (ASG) is a group of companies engaged in aviation-related services for airlines and travel operators offering integrated aircraft maintenance, ground handling, crew training, charter and other services. The group operates in four business segments: aircraft Maintenance, Repair and Overhaul (MRO), aircraft ground handling and fueling, charter operations, pilot and crew training. ASG is the market leader in refueling at the Vilnius airport, the second biggest player in ground handling services in Vilnius, one of the leading and fastest growing MRO providers in Eastern Europe with 7.6k sq.m. of hangars in Vilnius and eight foreign line stations (Italy, Turkey, Russia, Kazakhstan and Tajikistan). The group acts as a provider of all-aviation-services and thus generates big cross-selling opportunities. Moreover, being cost-effective, all subsidiaries have a competitive edge over its competitors through access to cheaper services. Please find more details concerning each segment’s market in the next chapters (pages 17 – 29). Fig. 10. Avia Solutions Group: Sales breakdown by segment in 2007-2010 In % (lhs), EUR in millions (rhs)

100% 100 90% 90 80% 80 70% 70 60% 60 50% 50 40% 40 30% 30 20% 20 10% 10 0% 0 2007 2008 2009 2010 MRO (lhs) Charters (lhs) Ground servisec and fuelling (lhs) Aviation training (lhs) Sales (rhs)

Source: Company data, DM BZ WBK estimates, excluding inter-company sales Fig. 11. ASG: sales geographical segmentation in 2009 Fig. 12. ASG: sales geographical segmentation in 9 months 2010 In % In %

Other Other Kazakhstan Lithuania 24% Kazakhstan 19% 7% 38% 6% Italy 7%

Italy 6% Estonia 10% Estonia Russia Lithuania Russia 20% 11% 37% 15%

Lithuania Russia Estonia Italy Kazakhstan Other Lithuania Russia Estonia Italy Kazakhstan Other

Source: Company data, DM BZ WBK estimates Source: Company data, DM BZ WBK estimates

11 Avia Solutions Group 1 April 2011

The company’s target markets are CIS and CEE countries. Lithuania remains the main sales market of ASG with more than 35% revenue. In nine months of 2010, the second biggest market was Russia with ca. 15% of total sales. Aircraft maintenance, repair and overhaul (MRO)

FL Technics (FLT) is an ASG’s subsidiary which is an aircraft and aircraft component maintenance company providing an integrated aircraft maintenance and repair solutions and services. The major areas of FLT operations are: heavy maintenance, components maintenance, line maintenance, engineering, spare parts, and technical training. The company has been serving the Boeing 737 family and Saab aircraft so far. However, FLT acquired the final license for the Airbus 320 family at the beginning of 2011 and the full effects of this new capacity list expansion could be visible in financial statements from 2012 on. Picture 50 on page 28 presents new expected deliveries of aircraft and thus the potential scope of aircraft FLT can serve.

Fig. 13. FL Technics: Sales breakdown by segment in 2007-2010E In % (lhs), EUR in millions (rhs)

100% 30 90% 80% 25 70% 20 60% 50% 15 40% 10 30% 20% 5 10% 0% 0 2007 2008 2009 2010E Heavy maintenance (lhs) Spare parts (lhs) Engineering (lhs) Components maintenance (lhs) Line maintenance (lhs) Technical training (lhs) Sum (rhs)

Source: Company data, DM BZ WBK estimates, including inter-company sales

The company’s revenues used to derive mainly from heavy maintenance which used to account for more than 75% of total sales. However, from 2010 due to the change of business focus, the spare parts segment is becoming the biggest sales input and will account for ca. 39% of total revenues in 2010. Line maintenance is the third biggest segment and has been growing from 5% in 2009 to 13% in 2010.

FLT has two hangars (7.6k sq.m.) in Vilnius, capable of performing 4/5 C/D checks simultaneously. Moreover, the company provides foreign line stations in Italy, UK, Turkey, Russia, Kazakhstan (3 LS) and Tajikistan (2 LS).

The company is acting as a one-stop-shop for technical support, which offers significant cross-selling opportunities. However, the company’s biggest asset is its strategic geographical location and effective cost structure.

12 Avia Solutions Group 1 April 2011

Fig. 14. Labor costs (EUR per hour) In EUR

60 55

50 45

40 36 36

30 25

20

10

0 FL Technics Lufthansa My Technics Aeroplex Lufthansa (Bulgaria) (Turkey) (Hungary) (Germany)

Source: Company data, DM BZ WBK estimate

Fig. 15. FLT: sales geographical segmentation in 2009 Fig. 16. FLT: sales geographical segmentation in 9 months 2010 In % In %

Other Russia 30% Kazakhstan 40% 12% Other 46%

Lithuania Kazakhstan 4% 10% Russia 58% Russia Kazakhstan Lithuania Other Russia Kazakhstan Other

Source: Company data, DM BZ WBK estimates Source: Company data, DM BZ WBK estimates

During the period of nine months of 2010, 58% of MRO segment sales was generated from customers domiciled in Russia, which constitutes an 18 p.p. increase in comparison with 2009.

Aircraft Ground Handling and Fuelling

Baltic Ground Services (BGS) is an ASG’s subsidiary which is a ground handling company. It conducts such operations as check-in, baggage delivery, aircraft preparation and refueling. BGS is the market leader in refueling services at the Vilnius airport (90% market share), and the second most important ground handling provider in Vilnius (40% market share). Company is currently setting up its operations on the Polish airports, with first contracts for ground handling services on the Warsaw airport signed.

13 Avia Solutions Group 1 April 2011

BGS derives most of its sales from refueling services. However, as into-plane fuelling is a high-volume low-margin activity, the company generates most of its profit from ground handling services.

Fig. 17. BGS: sales geographical segmentation in 2009 Fig. 18. BGS: sales geographical segmentation in 9 months 2010 In % In %

Lithuania Germany Other 4% 5% 37%

Irleand Irleand 7% Other Lithuania 29% Germany 62% 47% 9%

Lithuania Germany Irleand Other Lithuania Germany Irleand Other

Source: Company data, DM BZ WBK estimates Source: Company data, DM BZ WBK estimates

During nine months of 2010, 47% of all BGS’s revenues were generated by companies domiciled in Vilnius. An increase as compared to 2009 was the result of the fact that the company started servicing clients domiciled in Vilnius after the bankruptcy of flyLAL. Moreover, an increase in refueling services in Lithuania had a huge impact on BGS’s sales.

Charter operations

Small Planet Airlines (SPA) are charter airlines operating in four markets: Lithuania, Estonia, Poland, and Italy. It has a 80% market share in Lithuania and currently it has a fleet of seven aircraft (Boeing 737-300 & 757-200) and plans to lease three additional aircraft in 2011. SPA travels to 75 destinations and in 2009 it has transported ca. 0.4m passengers.

SPA is a very important part of the entire Group. Despite the fact that it generates only a small part of the group profit, it creates synergy effects for the whole group. Its cost- effective strategy can be conducted due to lower costs of MRO and ground handling delivered by sister companies. Please note also that SPA generates high sales but operates on a small margin.

The charter business is all about costs. SPA’s cost of the available seat kilometer is 17% lower compared to the European Low Cost Carrier (LCC) average. Moreover, the company has a stable and predictable revenue stream as is not dependent on ticket sales – the risk is transferred on tour operators who also pay mostly in advance.

14 Avia Solutions Group 1 April 2011

Fig. 19. Cost per Available Seat Kilometer In EUR cents

6.7 7

5.8 6

5 4.6 3.8 4 2.9 3

2

1

0 Asian LCC Small Planet European LCC Traditional Asia Traditional Airlines airline European airline

Source: Company data

Fig. 20. SPA: sales geographical segmentation in 2009 Fig. 21. SPA: sales geographical segmentation in 9 months 2010 In % In %

Other Poland Other Italy Italy 8% 9% 8% 7% Estonia 13% 18%

Estonia 30% Lithuania 55% Lithuania 52%

Lithuania Estonia Italy Other Lithuania Estonia Italy Poland Other

Source: Company data, DM BZ WBK estimates Source: Company data, DM BZ WBK estimates

Pilot and Crew Training

Baltic Aviation Academy (BAA) performs aviation training and provides professional flight personnel solutions for airlines. Most of its revenues come from the Full Flight Simulator (FFS). The company operates one FFS in Vilnius (Boeing 737 CL) but also leases other FFSs across Europe for different types of aircraft. BAA sees the possibility of high profits in CIS as those airlines are in the period of transition from old aircraft to new (or newer) Western ones and their pilots have to be trained. The company offers FFS training on 12 types of aircraft while the world’s leading independent provider, Oxford Aviation Academy, serves 24 types.

15 Avia Solutions Group 1 April 2011

Fig. 22. BAA: sales geographical segmentation in 2009 Fig. 23. BAA: sales geographical segmentation in 1-3Q’2010 In % In %

Kazakhstan Other Russia Tajikistan 6% 24% Other 29% 9% 30%

Kazakhstan Tajikistan 14% 27% Russia 61% Russia Tajikistan Kazakhstan Other Russia Tajikistan Kazakhstan Other

Source: Company data, DM BZ WBK estimates Source: Company data, DM BZ WBK estimates

IPO

ASG went public on the WSE in March 2011, setting a share price in the range of PLN 52-67. The company offered 1.5m new shares and closed a deal at the PLN 52.00 level. As a result, the company received net EUR 17.6m from IPO. Main reasoning for IPO were investments in MRO segment and expansion of BGS onto Polish airports.

For the time being, BGS implemented its Polish expansion plans. The company commenced its ground handling operations in Warsaw and signed first contracts with City Airlines (ad-hoc flights) and with Small Planet airlines (1 flight per day). Moreover, ASG has just signed a contract with WizzAir for ground services in Vilnius (21 flights per week). BGS also plans to start its refueling operations in Krakow in min-April. Currently, the company is incurring ca. EUR 1.2m set-up costs for the above mentioned operations.

As far as FLT development is concerned, the company is currently negotiating or closing deals for spare parts and airframes purchases worth ca. USD 13m. Moreover, according to the company, hangar expansion project in Vilnius will start this year.

16 Avia Solutions Group 1 April 2011

Aviation market

World

The aviation is an essential part of the transport industry and has been rapidly growing along with the world economy in the recent years. The six-year growth trend was suddenly stopped by the economic crisis. However, signs of recovery emerged in 2010 and a further growth of the industry is expected. The industry should expand at least in line with the world’s GDP development. Fig. 24. Air traffic growth and GDP In %

Air Trafic (lhs) GDP (rhs) 30% 8%

25% 7%

20% 6%

15% 5%

10% 4%

5% 3%

0% 2%

-5% 1%

-10% 0%

1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Source: Global Insight, ICAO, Airbus Figure 24 presents a relationship between the world GDP and air traffic growth. A strong positive correlation between those two can be observed. Additionally, Figure 25 presents the aggregated revenues of scheduled airlines which can be used as an estimate of the aviation market excluding aircraft construction and MRO. However, it has to be underlined that those revenues do not account for the entire aviation market. The nine-year CAGR for 2000-2009 period amounted to 5.3%. Figures 26 & 27 present passenger-km and freight tonne-km development along with respective load factors. Fig. 25. Scheduled airlines revenues In USD billions

Operating revenues (lhs) Growth y/y (rhs) 600 20%

500 15% 400

300 10%

200 5% 100

0 0%

-100 -5% -200

-300 -10% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: ICAO, DM BZ WBK estimates

17 Avia Solutions Group 1 April 2011

Fig. 26. World passenger movement Fig. 27. World freight In millions In millions

Freight tonne-km Passenger-km (lhs) 160 performed 64% 4500 78% Weight load factor (rhs) Passenger load factor (rhs) 140 63% 4000 76% 3500 120 62% 74% 3000 100 61% 2500 72% 80 60% 2000 70% 60 59% 1500 68% 40 58% 1000 66% 20 57% 500

0 56% 0 64%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: ICAO Source: ICAO

The aviation industry profoundly suffered from the financial crisis, however, historical data show that air travel has proved to be resilient to external shocks. Please note on the Figure 28 that from the peak in the world annual traffic before the WTC attacks till the beginning of the financial crisis, the world traffic rebounded from the crisis and grew by 38%.

Fig. 28. World annual traffic In trillions

Source: Airbus

Despite the fact that the aviation industry is crucial to the economy, airlines cannot successfully make use of their strong position. In the recent years, airlines generated losses rather than profits. Airlines had been profitable until 2000, but after the disastrous 2001 it managed to generate positive earnings only in 2006 and 2007. These were, however, wiped off in 2008 and 2009. Please see Figure 29 for more details.

18 Avia Solutions Group 1 April 2011

Fig. 29. Airlines net profit and EBIT margin In USD billions

Net profit (lhs) EBIT margin (rhs) 20 8%

15 6%

10 4% 5 2% 0 0% -5 -2% -10

-15 -4%

-20 -6%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: ICAO, IATA

The outlook for the industry seems positive. A decrease in ticket prices and the expected world economy growth are strong drivers of the future air traffic growth. Statistical data shows that the elasticity of demand for air travel in respect of ticket prices remains between -0.5 and -1.0 whereas in respect of GDP growth between 1.0 and 2.5. Moreover, the real GDP per capita rate growth and the resulting increase of personal welfare will encourage citizens to travel more by air.

Fig. 30. Elasticity for air travel demand Domestic China -0.5 0.5 to 1% decrease in air travel China – Japan 1% increase in air fares demand US-W. Europe Domestic Europe (elasticity for air fares is -0.5 to -1) -1 Domestic US

Domestic China +2.5 1.0 to 2.5% increase in air travel China – Japan 1% increase in GDP demand US-W. Europe Domestic Europe (elasticity for GDP is +1.0 to 2.5) +1 Domestic US

Source: Airbus

Figure 31 provides a deeper insight into the relationship between real GDP per capita rate and propensity to travel. A clear positive relationship can be observed which, along with the expected convergence of developing countries to the developed world earnings levels, draws a positive outlook for the air traffic forecasts.

19 Avia Solutions Group 1 April 2011

Fig. 31. Propensity to travel

Source: Airbus

Figure 32 presents world and regional growth rates for 2009-2018, 2019-2028 and 2009-2028 periods. Please note that the emerging countries are expected to develop at higher growth rates with Asia adding the most traffic in the nominal terms.

Fig. 32. Passenger traffic growth by airline domicile In %

World Middle East Asia-Pacific CIS Latin America Africa Europe North America 8%

7%

6%

5%

4%

3%

2%

1%

0% 2009-2018 2019-2028 20-year growth

Source: Airbus

Europe

Europe, with only 11% of the world’s population and ca. 21% of the world PPP GDP, accounts for as much as 27% of the total world air traffic. The global economic recession which started in 2008 had a severe impact on the aviation sector in 2009,

20 Avia Solutions Group 1 April 2011

as traffic in Europe recorded its fastest decline on record with a 6.6% drop in flights y/y. In 2010, the number of IFR flights in Europe increased by ca. 0.8% compared to the same period last year. The rebound arrived more slowly than expected, and the ash cloud severely affected traffic in April. Now, the flight number equals to the 2006 level. Fig. 33. Flight Movements in Europe In millions

Pesimistic Optimistic Normal 13.0 12.5 CAGR: 4.1% 12.0 11.5 CAGR: 2.9% 11.0 CAGR: 1.7% 10.5 10.0 9.5 9.0 8.5 8.0 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E 2016E Source: Eurocontrol

Figure 33 presents Eurocontrol’s estimates for the flight movement growth in Europe assuming different scenarios. The institute expects the six-year CAGR to settle at 2.9%. On Figures 34 & 35, we present the expected 2010 and six-year CAGR growth rates for each European state.

Fig. 34. Flight Movements in Europe in 2010E

Source: Eurocontrol

21 Avia Solutions Group 1 April 2011

Fig. 35. Flight Movements in Europe in 2010-2016E

Source: Eurocontrol

Moldova, Georgia, Turkey, and Ukraine are expected to grow at the fastest pace in Europe while the Western European countries to grow at the slowest pace. In the long term this disparity would not change materially and Eastern European countries are expected to grow at the levels above 4% p.a. while Western ones below this level.

Low Cost Carriers (LCC) now carry over a third of the scheduled traffic in Europe and will continue to act as a stimulus for air traffic growth into the future, mainly due to their impact on ticket prices. In the long term, opportunities for mergers and acquisitions among LCC will lead to the possibility for fewer but larger groups, enabling them to reinforce their networks and access more markets, potentially even on long-haul routes. The two major LCC in Europe, namely Ryanair and Easyjet, account for over 40% of the LCC market.

Poland

The Polish aviation market is expected to expand at one of the fastest rates in Europe. In connection with the market size and good condition of the economy of Poland, it draws an optimistic prospects for the future. Eurocontrol forecasts 7% growth in 2010 and 5.2% CAGR in the period 2009-2016. Civil Aviation Office (Urzad Lotnictwa Cywilnego) presented a slightly more optimistic forecasts of 5.8% CAGR of PAX in the period of 2009-2016. Figures 36 and 37 picture passenger and PAX number changes in Poland.

22 Avia Solutions Group 1 April 2011

Fig. 36. Passenger number in Poland Fig. 37. PAX number in Poland In millions, unless otherwise stated In thousands, unless otherwise stated

70 40% 500 20% 35% 450 60 15% 30% 400 25% 50 350 10% 20% 300 40 15% 250 5% 30 10% 200 5% 0% 20 0% 150 -5% 100 10 -5% -10% 50 0 -15% 0 -10% 2004 2006 2008 2004 2006 2008 2010E 2012E 2014E 2016E 2018E 2020E 2022E 2024E 2026E 2028E 2030E 2010E 2012E 2014E 2016E 2018E 2020E 2022E 2024E 2026E 2028E 2030E

Passenger no. (lhs) Passenger growth y/y (rhs) PAX (lhs) PAX growth y/y (rhs)

Source: ULC Source: ULC

High and stable GDP growth, 38m population, and the growing share of LCC draw bright prospects for the Polish aviation market. Moreover, the rate of propensity to travel is 5-times lower than the 15UE average. In Poland, there were 0.54 passenger in 2008 per each citizen, as compared to 2.6 in the Western Europe.

Warsaw is the most important Polish airport accounting for 43% of the total air traffic in Poland. Krakow, Katowice and Gdansk account for 14%, 12% and 10% of the air traffic, respectively. It has to be highlighted that regional ports are increasing their share and this trend should be continued. However, plans to build another airport in Warsaw, namely Modlin airport, may change this trend. Modlin should attract more LCC and charter airlines that now account for a high share of regional airports’ traffic. Please refer to Figure 38 for specific passenger numbers on Polish airports and forecasts figures for 2012, and to Figure 39 for percentage segmentation in 2009.

Fig. 38. Air passenger traffic breakdown in Poland Fig. 39. PAX number breakdown in Poland In % In %

2007 2008 2009 2007 2008 2009 50% 60% 45% 50% 40% 35% 40% 30% 25% 30% 20% 20% 15% 10% 10% 5% 0% 0% Lodz Rest Lodz Rest Krakow Poznan Krakow Poznan Gdansk Gdansk Warsaw Warsaw Katowice Wroclaw Katowice Wroclaw Source: ULC Source: ULC

23 Avia Solutions Group 1 April 2011

Fig. 40. Air passenger traffic breakdown in Poland in 2008 and forecasts for 2012

8,0

2,0

PL Gdansk 1,0

0,3 PL Szczecin 14,0

3,0

1,3 9,4 PL Poznan 2,0 PL Warsaw

0,3 3,0 PL Lodz

1,5 PL Wroclaw 4,6

8,0 2,4

0,9 PL Katowice Number of passengers in 2008 2,9 0,3 Projected capacity in 2012 PL Krakow PL Rzeszow

11 Number of passengers (in mln)

Source: ULC, DM BZ WBK estimates

Fig. 41. Air passenger traffic breakdown in Poland in 2009 In % Lodz Rest 2% 5% Poznan 7% Wroclaw 7%

Warsaw 43% Gdansk 10%

Katowice 12%

Krakow 14%

Source: ULC

LCC carry the most of the Polish passengers, 43%, traditional airlines account for 41% of the air traffic, whereas charters have a 16% market share. The most recent data shows that the three leading airlines accounted for as much as 62% of the air traffic. Please note that Ryanair and Wizzair have jointly a 37% market share.

24 Avia Solutions Group 1 April 2011

Fig. 42. Psg. number segmentation in Poland in 2010 Fig. 43. The biggest airlines in 2010 in Poland In % In % Traditional Charters, airlines, REST, 15.9% 40.7% 12.2% PLL LOT + EUROLOT, 24.4%

CHARTERS , 15.9%

NORWEGIAN, 1.9% EASY JET, 2.6% WIZZAIR, LUFTHANSA 19.0% , 6.0% LCC, 43.4% RYANAIR, 18.1%

Source: ULC Source: ULC

Lithuania

The Lithuanian aviation market is a relatively small but rapidly expanding one. The recent recession, which severely hurt the Baltic States, did not miss the air traffic in Vilnius. However, Eurocontrol expects Lithuania’s 7-year CAGR of 5.1% and 30-year CAGR of 5.7%. Airport in Vilnius accounts for ca. 70% of the whole aviation market in Lithuania.

Fig. 44. Passenger number in Vilnius In millions

2.5

2 2016/09 CAGR 5.1% 1.5

1

0.5

0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: Vilnius International Airport

25 Avia Solutions Group 1 April 2011

MRO market

Maintenance, Repair and Overhaul (MRO) involves fixing an aircraft should it develop a fault. It also includes performing routine actions which keep the aircraft in working order. MRO may be divided into four sub-segments: Heavy Maintenance and Modifications, Line Maintenance, Engines, and Components.

Heavy Maintenance and Modifications (HM) covers hangar maintenance for aircraft, including the majority of scheduled inspections, all check aligned tasks, engineering orders as well as additional work arising during the aircraft visit. Heavy maintenance requires aircraft to be taken into a hangar as it takes a longer time to be performed. Heavy Maintenance is usually described as a C-Check or D-Check. C-Check is performed approximately every 12-18 months or a specific number of actual flight hours as defined by the manufacturer. D-Check is the most comprehensive check for an airplane and occurs approximately every 4-5 years. During this check, the entire airplane is taken apart for inspection. Modifications include any kind of aircraft interior refurbishments, change of seat order etc.

Line Maintenance (LM) is needed for aircraft operation and is performed on a daily basis. This check is usually done overnight at an airport gate. It includes such actions as oil change, landing gear servicing, minor defect handling etc.

Components include a trade of spare parts (SP) whereas Engines (ENG) include aircraft engine handling. Please note that engine handling also includes spare parts for engines and had been separated as an individual category due to its size.

Nowadays, due to airline performance optimization, a growing outsourcing trend can be observed. In 2009, around 50% of all MRO operations were outsourced to third parties with the highest share in Engines segment (95%) and the lowest in Line Maintenance (33%).

Airlines may pay third parties for every repair performed or they may pay on a paid by the hour basis fixed rate, which is a fixed rate for each flight hour of the aircraft. In such a case, whatever happens the MRO provider has to repair the aircraft at its own cost. Fig. 45. World MRO market size In billions of USD (lhs) and units (rhs)

MRO Market (lhs) Fleet (rhs) 50 25,000 45.1 45.7 42.7 43.0 45 42.2 41.0 42.3 37.8 38.3 38.8 40 36.1 37.0 20,000 35

30 20,573 15,000 20,128 20,128 19,975 19,975 19,330 19,330 25 18,816 17,903 17,903 17,627 17,627 17,206 17,206

20 16,030 10,000 15 10 5,000 5 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F 2012F Source: TeamSAI

26 Avia Solutions Group 1 April 2011

According to TeamSAI research group, world MRO market amounted to USD 46b in 2009. The AreoStrategy consulting group estimates the market size at USD 43b. Figure 56 shows the MRO market size changes over time along with the fleet size. Two issues should be underline here. Firstly, the 2009 financial crisis hit the aviation industry hard and prompted airlines to reduce MRO costs and put pressure on margin lowering. Secondly, the MRO market shrank after 2009 problems despite the constant growth of the total world fleet.

North America and Europe account for 63% of the whole world MRO market, while Asia Pacific (including China and India) for 23%. Nominal values and the market share for more fragmented regions are presented in the Figures 46 & 47. Fig. 46. World MRO market Fig. 47. World MRO market share In % In %

2010F 2020F 2010F 2020F 18 35% 16 30% 14 25% 12 10 20%

8 15% 6 10% 4 5% 2 0 0% India India Africa Africa China China AsiaPacific AsiaPacific MiddleEast MiddleEast LatinAmerica LatinAmerica NorthAmerica NorthAmerica EasternEurope EasternEurope WesternEurope WesternEurope Source: TeamSAI Source: TeamSAI Eastern Europe currently accounts for 4% of the world MRO market and has a value of USD 1.8b. It is expected to grow three times faster than Western Europe (2010-2020 CAGR of 9.8% vs. 3.6%) and increase its market share to 7% in 2020. TeamSAI forecasts Eastern Europe 10-year CAGR to be the highest in the world (9.8% p.a.).

Fig. 48. World MRO market breakdown, 2010F In %

HM, 21%

ENG, 42%

LM, 18%

SP, 19%

Source: TeamSAI

27 Avia Solutions Group 1 April 2011

Engines account for the biggest part of the MRO market (42%), while the remaining segments (HM, LM, SP) have an approximately 20% market share. It has to be understood, that normally MRO activity comprises labor, material and repair costs. Repairs are also made up of labor and material. Eventually, each sector of the MRO business has very different characteristics in the demand for labor and materials, as presented in Figure 49. The activity-based demand for materials is roughly 50% of the total MRO market when weighted across all sectors. In the nominal terms, Spare Parts market can be valued at USD 23b. Fig. 49. Commercial Jet Labour/Material Factor Sector Labor Material Heavy Maintenance 75% 25% Engines 24% 76% Components 50% 50% Line Maintenance 85% 15% Source: TeamSAI

Finally, the scope and prospects of operations of MRO companies are strictly correlated to the number and type of aircraft in operations. Figure 50 presents expected deliveries of new aircraft which will shape the future market demand for MRO services. Moreover, Figures 51 & 52 illustrate changing market structure in Russia and CIS.

Fig. 50. Air transport delivery forecast In units

Source: AeroStrategy

28 Avia Solutions Group 1 April 2011

Fig. 51. Russia & CIS: aircraft decomposition by type In units

Russian-built aircraft Western-built aircraft Western-buil aircraft share 1000 60% 900 50% 800

700 40% 600 500 30% 400 20% 300

200 10% 100 0 0%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: Airbus, Boeing

Fig. 52. Russia & CIS: aircraft decomposition by age In units

900 100% 800 90% 700 80% 70% 600 60% 500 50% 400 40% 300 30% 200 20% 100 10% 0 0% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Old generation (lhs) Mid generation (lhs) New generation (lhs) Old&Mid generation share (rhs)

Source: Airbus, Boeing

29 Avia Solutions Group 1 April 2011

ASG financials

Sales

We expect ASG to post a respective 3-year and 10-year revenue CAGR at 27% and 12%, growing to EUR 185m in 2013 and almost tripling the 2010 reading by 2020. These growth rates do appear overwhelming at first glance, but investors must bear in mind that the bulk of the revenue growth comes from high-volume low-margin activities, i.e. refueling and charters. Those two segments contribute for ca. 75% of sales in the forecasting period while adding just ca. 25% of net profit. Fig. 53. Avia Solutions Group: Sales breakdown by segment in 2007-2013E EUR in millions

GH FLT SPA BAA 200

180

160

140

120

100

80

60

40

20

0 2007 2008 2009 2010 2011E 2012E 2013E

Source: Company data, DM BZ WBK estimates, inter-company sales proportionally excluded ASG sales growth in 2011 is expected to be mostly driven by BGS and FLT, while in 2012, by BGS. In order to arrive at the total ASG top line, we have estimated each ASG subsidiary’s sales separately, using a different methodology. Fig. 54. FLT: Sales breakdown by segment in 2007-2013E EUR in millions unless otherwise stated

60 60%

50 50%

40 40%

30 30%

20 20%

10 10%

0 0% 2007 2008 2009 2010E 2011E 2012E 2013E Heavy maintenance (lhs) Components maintenance (lhs) Line maintenance (lhs) Technical training (lhs) Spare parts (lhs) Engineering (lhs) Growth y/y (%, rhs)

Source: Company data, DM BZ WBK estimates, including inter-company sales In the case of FL Technics we have estimated each company’s segment (Heavy maintenance, Components maintenance, Line maintenance, Spare parts, Engineering, Technical Training):

30 Avia Solutions Group 1 April 2011

• Heavy maintenance : we have assumed that the total personnel will rise 10% p.a. until 2015 and 5% p.a. in the subsequent years. We expect that one worker can perform 1.8k working hours a year and that the loading factor will rise from 65% in 2010 to 85% in 2011 and remain on the level of 75% thereafter. We have assumed that the charge per man-hour will rise at 10-year CAGR of 3% p.a. from the level of 2010. Moreover, we expect that spare parts contribution to the working hours revenue will rise from 25% in 2010 at the pace of 1 p.p. annually to reach the level of 33% and remain constant thereafter. Adding other services, we have arrived at the total revenue generated by HM.

• Line maintenance : we expect that the number of man-hours delivered will be linearly correlated with the number of line stations and that FLT will open 4 line stations in 2011 and in 2012. Moreover, we expected that spare part revenue will amount to 15% of the man-hour sales. Due to the expected increase in competition, we have conservatively assumed that total revenues will remain constant after year 2012.

• Spare parts : we have arrived at the total volume of sales by adding four revenue segments: pure spare part revenue, services resold, scrapped aircraft sales (i.e. FLT purchases old aircraft, scraps them, then refurbishes and sells their parts), and engines. We have assumed that spare parts and services resold would rise by 20% p.a. in the three next years, by 10% p.a. in the following two years and by 5% p.a. thereafter. As far as scrapped aircraft revenue is concerned, we expect it to increase by 50% in 2011-2013, by 20% till 2016 and at 10% p.a. rate thereafter. Another most important component of the revenue is engine repair (ca. 75% of total costs is the cost of spare parts) which we have assumed to total at EUR 5m in 2011 and rise at 20% p.a. in 2012-13 and at 10% p.a. rate in the following years.

• Component maintenance : we expect that CM revenue will rebound from the 2010 decline and reach 2009 levels in two years, and that it will slowly rise in the subsequent years. In 2013, we expect a 5% growth that will decline by 1 p.p. annually to reach the level of 1% in 2017 and remain stable thereafter.

• Technical training & engineering : we have assumed that the engineering segment will remain constant in 2011 and rise 5% p.a. thereafter. As far as technical training is concerned, we expect it to post a 20% p.a. growth until 2015 and a 5% p.a. growth thereafter.

In the case of Baltic Ground Services , its total forecasted revenues can be derived separately from the Lithuanian and Polish market which can be divided into refueling and ground services sub-segments.

As far as the Lithuanian market is concerned, we expect the company to preserve its market share, and we have conservatively assumed the growth rate at 3% p.a. (please note that Eurocontrol expected the Lithuanian aviation market to rise at CAGR of more than 5% p.a.).

Forecasting sales in the Polish market is crucial to arriving at the right amount of the BGS top line. We have forecasted fuel and ground handling services sales separately for each Polish airport that BGS is planning to enter (Warsaw, Krakow, Katowice, Wroclaw, Gdansk, and Poznan). We have used ULC passenger traffic estimates and

31 Avia Solutions Group 1 April 2011

assumed that the share of all airports in the total market would remain stable in the entire forecasting period.

• Refueling services : we have assumed that carrying one passenger from Polish airports requires 26kg of jet fuel and that this amount would decrease by 1% p.a. Moreover, we have assumed the jet fuel price to remain stable at the level of USD 1,000 in the entire forecasting period. Having the estimates for the passenger number on each Polish airport, we have arrived at the estimated market values for each port. The most crucial part is forecasting BGS market shares for each market. Please refer to Figure 55 for our assumptions.

Fig. 55. BGS: Refueling market shares on the Polish airports in 2010-2013E In % unless otherwise stated 2010 Market size Airport (USD m) 2010 2011E 2012E 2013E + Warsaw 232 0% 3% 5% 6% Krakow 75 0% 3% 6% 6% Katowice 64 0% 4% 8% 8% Wroclaw 37 0% 0% 4% 6% Gdansk 53 0% 0% 3% 6% Poznan 35 0% 0% 3% 6% Source: DM BZ WBK estimates

Fig. 56. Fuel revenue: Sales breakdown by airport in 2010-2013E EUR in millions unless otherwise stated

Warsaw Krakow Katowice Wroclaw 60 Gdansk Poznan Vilnus

50

40

30

20

10

0 2010E 2011E 2012E 2013E

Source: Company data, DM BZ WBK estimates, including inter-company sales

• Ground handling services : we have assumed that one passenger accounts for EUR 10 of ground handling services on the Polish airports and that this price will remain stable in the entire forecasting period. Please note that we do not adjust it for CPI, which implies that we expect the passenger-revenue to decrease in real terms. We believe that such a trend can be a result of the increasing competition in this segment. Please refer to Figure 57 for our estimates of BGS market shares.

32 Avia Solutions Group 1 April 2011

Fig. 57. BGS: Ground handling services market shares on the Polish airports in 2010-2013E In % unless otherwise stated 2010 Market size Airport (EUR m) 2010 2011E 2012E 2013E + Warsaw 89 0% 1% 2% 3% Krakow 29 0% 0% 1% 3% Katowice 25 0% 0% 3% 3% Wroclaw 14 0% 0% 3% 6% Gdansk 20 0% 0% 2% 4% Poznan 13 0% 0% 2% 6% Source: DM BZ WBK estimates

Fig. 58. Ground handling services revenue: Sales breakdown by airport in 2010-2013E EUR in millions unless otherwise stated 9 8 7 6 5 4 3 2 1 0 2010E 2011E 2012E 2013E

Warsaw Krakow Katowice Wroclaw Gdansk Poznan Vilnus

Source: Company data, DM BZ WBK estimates, including inter-company sales

As far as Small Planet Airlines are concerned, we have decomposed its revenue into four components. First comes fuel revenue which adds a significant amount to the total sales but is virtually profit-neutral, i.e. SPA generates a very low margin here (1.6%). The second component are recharged costs of operations and those are fully covered by customers, i.e. it is totally profit-neutral. The third component is ACMI revenue and on this sales stream SPA makes its profit. The fourth component is food revenue.

• Fuel revenue: assuming that SPA planes would fuel up at prices of USD 850/t in 2011 (+3% growth each year) and that the average plane would need ca. 2.5t/flight hour, we have arrived at the EUR 1.5k/flight hour of fuel revenue. We expect flight hours to increase by 25% in 2011 due to new aircraft utilization (new aircraft with higher seat number).

• Recharged costs of operations: keeping in mind that these costs are totally profit-neutral, we have assumed that the 2010 rate of EUR 40 per passenger will drop 10% p.a. in 2011 and in 2012 and start increasing 5% p.a. from 2016.

• ACMI revenues: we have assumed that those sales will be a percentage of the recharged costs of operations. We expect that the 2010 level of 112% will decrease to 10% in 2011 and remain stable thereafter.

• Food revenue: we have assumed that food revenue passenger rate in 2011 would increase to EUR 0.4 / passenger from 2010 level of EUR 0.16. In the

33 Avia Solutions Group 1 April 2011

following years this rate should grow to reach the level of EUR 0.6 in 2013 and rise 5% p.a. thereafter.

In the case of Baltic Aviation Academy, the biggest contributor to the company’s sales is the full flight simulator (FFS) training. The other are theoretical training and other training. We expect that FFS revenue will rise by 100% in 2011, 20% in 2012, and by 10% thereafter. We also expect theoretical training to rise in line with FFS while other training by 10% annually.

Gross margin

ASG delivered 15.5% gross profit margin in 2008, 14.0% in 2009 and 18.7% in 2010. In the following years, we expect gross margin to decrease and settle below the level of 15%. However, an aggregated gross margin is strongly affected by the change in ASG sales structure and thus margin levels should be examined on each ASG’s subsidiary level.

Fig. 59. ASG gross profit in 2007-2013E Fig. 60. ASG gross profit segmentation in 2010-2013E EUR in millions unless otherwise stated EUR in millions

Gross Profit (lhs) Gross Profit Margin (rhs) 30 GH FLT SPA BAA 30 35%

30% 25 25

25% 20 20

20% 15 15 15%

10 10 10%

5 5 5%

0 0% 0 2007 2008 2009 2010 2011E 2012E 2013E 2010 2011E 2012E 2013E

Source: Company data, DM BZ WBK estimates Source: Company data, DM BZ WBK estimates

FL Technics generates the highest gross profit margin among the four companies. After an expected 41% peak in 2010, we expect margins to shrink and reach 25% in 2013 and 19% in 2020. Baltic Aviation Academy has the second highest margin and we expect that the 2010 level of 34% will diminish along with rising revenues to reach in 2011 a level of 26% and remain stable thereafter. In the case of Baltic Ground Services, taking into consideration the entrance onto Polish market, we expect a gross margin to remain in the range of 9.5-10%. As far as Small Planet Airlines are concerned, we expect a rebound in 2011 to 8.2%, remaining stable thereafter.

34 Avia Solutions Group 1 April 2011

Fig. 61. ASG: Gross profit margin in 2007-2013E In %

FLT BGS SPA BAA 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2007 2008 2009 2010 2011E 2012E 2013E

Source: Company data, DM BZ WBK estimates

Gearing

ASG used to finance its operations heavily with debt. However, in 2009 the company reduced its debt exposure below the 2x debt/EBITDA threshold. Including the net IPO proceedings, ASG would not have any net debt position and would reduce its debt/EBITDA ratio below the level of 1x.

Fig. 62. Avia Solutions Group: Net debt position, debt to reported EBITDA ratio in 2007- 2013E

Net debt (lhs) Debt/EBITDA (rhs) 8 6.0

7 5.0 6 4.0 5

4 3.0

3 2.0 2 1.0 1

0 0.0 2007 2008 2009 2010 2011E 2012E 2013E

Source: Company data, DM BZ WBK estimates

Our cash earning projections for ASG show that the company would generate enough cash to finance its further growth after it has used up IPO proceeds. Moreover, cash earnings projections leave space for future dividend payouts.

35 Avia Solutions Group 1 April 2011

Fig. 63. Avia Solutions Group: Cash Earnings* vs. CAPEX in 2009-2013E EUR in millions, unless otherwise stated

Cash earnings CAPEX 20 18

16 14

12 10 8

6 4

2 0 2009 2010 2011E 2012E 2013E

Source: Company data, DM BZ WBK estimates. *Cash Earnings = net profit + depreciation

CAPEX

During the recent IPO, we provided investors with our estimates of ASG’s future CAPEX outlays, which we listed below. According to the company, all plans remain unchanged and currently the company is incurring EUR 1.2m set-up costs for bases in Warsaw and Krakow, and negotiates/closes deals for spare parts and airframes purchase of total value of USD 13m.

Fig. 64. Avia Solutions Group: IPO targets EUR in millions Investments FLT 15.5 Expansion of hangar facilities 6.1 Financing of a new spare parts inventory 4.1 MRO service equipment for new types of aircraft 1.4 Fuselage purchase 2.9 Establishing maintenance bases 1.0 BGS 11.4 Establishing operation bases at Polish airports 6.1 Working capital requirement for refueling 2.6 Equipment purchase 2.7 Total 26.9 Source: Company data, DM BZ WBK estimates

2010 forecast execution

Please refer to the Figure 65 for the comparison of our estimates of ASG’s 2010 results and the actual figures. The company beat our top-line forecast by 2% and the bottom- line one by 6%.

36 Avia Solutions Group 1 April 2011

Fig. 65. Avia Solutions Group: 2010 forecasts execution EUR in millions 2010E* 2010 Revenue 88.4 90.1 EBIT 7.0 7.2 EBITDA 8.4 8.7 PBT 5.9 6.4 Net profit 5.1 5.4 EBITDA margin 8.2% 9.6% Net profit margin 5.7% 6.0% Source: Company data, DM BZ WBK estimates, *adjusted for EUR 1.1m write-up

2011-2013 forecasts – summary

To sum our forecasts up, we expect ASG consolidated sales to rise from EUR 90m in 2010 to EUR 121m in 2011, EUR 158m in 2012 and to EUR 184m in 2013. The biggest contributor to sales in 2011 would be Baltic Ground Services and FL Technics, while the 2012 growth would be mostly driven by Baltic Ground Services.

Fig. 66. Avia Solutions Group: Sales development by segment in 2010-2013E EUR in millions, unless otherwise stated

200 1 -2 6 4 180 18 31 -4 5 160 28 140 3 13 3 -7 120 18 100

80 184 158 60 121

40 90 20 0 GH GH GH FLT FLT FLT SPA BAA SPA BAA SPA BAA 2010E 2011E 2012E 2013E Eliminations Eliminations Eliminations

Source: Company data, DM BZ WBK estimates

In line with sales, we expect FLT to add extra gross profit to the highest extent in 2011. However, BGS would also be strongly contributing to the growth of gross profit. In 2012, we expect BGS to generate the highest growth of gross profit. From 2013 onwards, we expect profits to stabilize.

37 Avia Solutions Group 1 April 2011

Fig. 67. Avia Solutions Group: Reported gross profit drivers in 2010-2013E EUR in millions, unless otherwise stated

30 0.3 0.2 1.6 0.7 2.8 0.4 0.3 25 -0.2 0.7 1.9 0.5 20 1.4

15 28.0 25.2 10 21.3 16.8 5

0 GH GH GH FLT FLT FLT SPA BAA SPA BAA SPA BAA 2013E 2012E 2011E 2010E

Source: Company data, DM BZ WBK estimates

38 Avia Solutions Group 1 April 2011

Valuation Drivers versus Risk Factors

ASG is a relatively young company and this fact implies that it has strong upsides and risks that should be examined. In our forecasts, we have tried to remain conservative and have not included risky projects that may provide a substantial pay-off. Upsides

In terms of the aviation market development , we see signs that may lead to a more profitable business environment from the ASG’s perspective. First of all, LCC and charter airlines are growing faster than the traditional airlines. Such clients may be the first to implement outsourcing if they do not perform it or change its outsourcing company in the case of a better offer.

Moreover, our forecasts of the Polish market do not include any effects of the new airport in Warsaw, Modlin . For the time being, only 20% of Warsaw’s total air traffic can be attributed to LCC, which is the effect of high fees at the city’s airport. In terms of the entire country, Poland’s LCC air traffic accounts for ca. 45%. The new airport would attract LCC traffic to Warsaw, which may be a considerable upside for ASG, as many airlines will be establishing their bases in Modlin and will probably be looking for partners in the field of ground handling, refueling and MRO.

What is more, as the aviation industry has profoundly suffered from the financial crisis, airlines may increase their outsourcing activities and look for business partners that will carry out their non-core operations.

A higher market share of ground handling services in Poland should be viewed as another upside for ASG. We have conservatively assumed that ASG’s market share, depending on the airport, would stand at ca. 3-6%. If we assume that this market share may be twice as large, our valuation would increase by 15%. We do not see such a market share as impossible. On the contrary, we view it as achievable.

Airbus MRO license may add to ASG’s value as it doubles the potential scope of MRO activities. In our model, we have assumed a steady growth of each FLT business line without giving a large weight to Airbus MRO. If ASG proves to be successful in delivering MRO services for the Airbus family, one may expect a sudden growth in demand that would eventually increase FLT’s bottom line.

What is more, ASG is a considerably small company on a multibillion market and thus has an enormous upside potential in the case that any of its business lines proves to be very successful.

Finally, ASG plans to enter the Italian market as well. The company sees the Italian aviation market as very similar to the Polish one. Moreover, Small Planet Airlines also operate in Italy, thus serving as a first potential customer. We have not included this option in our valuation. Risks

We believe that the increasing competition on the aviation market may pose the highest risk for ASG. Companies from Asia and/or Turkey may provide airlines with both ground handling and MRO services offering competitive prices and considerable quality.

Moreover, the size and growth rate of ASG may be considered as another risk factor. The company has a relatively short reporting history and has been developing significantly in the recent period. Such situation may raise concerns whether the reverse

39 Avia Solutions Group 1 April 2011

trend is possible. Business diversification is a factor which mitigates this risk, that is, the company may lose part of its business in one segment but may also sky-rocket in another segment.

As far as ground handling development in Poland is concerned, a regulatory risk always exists. BGS has the certificate and the commercial permit for ground handling operations in Poland in general and in Warsaw in particular, and a license for refueling activity on Krakow airport. What BGS lacks for the time being is signed agreements with other airports. However, this fact does not seem to be a problem. What should be borne in mind is the fact that getting a contract may involve good business or personal relationships. Moreover, market leaders, such as Petrolot, Warsaw Airport Services or LOT Services, may lobby for not introducing new companies, or delay their entry into the market. To include this risk in our valuation, we have made conservative assumptions concerning the expected market shares in Poland.

The bankruptcy of travel agencies poses a risk to Small Planet Airlines as it may be left with unsold seats for the entire season (6 months). However, this risk does not include the collection of receivables as most of SPA’a clients pay in advance.

40 Avia Solutions Group 1 April 2011

Financial statements and forecasts

Fig. 68. Avia Solutions Group: Income statement forecasts EUR in millions, unless otherwise stated 2008 2009 2010 2011E 2012E 2013E Net sales 30.3 67.6 90.1 120.9 157.6 184.5 BGS 0.7 7.6 21.9 40.3 68.5 86.6 FLT 19.0 20.1 24.7 37.4 42.7 49.1 SPA 10.4 46.2 49.2 52.7 58.0 61.5 BAA 0.7 1.3 3.7 6.7 8.1 8.9 Inter-segment eliminations (0.6) (7.7) (9.4) (16.2) (19.7) (21.6) COGS 25.6 58.1 73.2 99.0 132.4 156.5 Gross profit 4.7 9.4 16.8 21.9 25.2 28.0 BGS 0.2 0.9 2.5 3.9 6.7 8.3 FLT 4.2 4.6 10.0 11.9 11.7 12.3 SPA 0.3 3.6 3.6 4.3 4.7 5.0 BAA 0.0 0.6 1.3 1.8 2.1 2.3 SG&A 4.3 7.1 10.2 10.6 11.7 11.9 Other operating income, net ------EBITDA 1.3 3.7 8.7 13.0 16.4 19.7 BGS 0.2 0.7 2.0 2.4 5.3 7.3 FLT 2.0 1.8 6.1 8.3 8.3 9.2 SPA (0.5) 1.3 0.5 1.5 1.5 1.9 BAA (0.3) 0.0 (0.0) 0.9 1.2 1.3 Operating profit 0.4 2.3 7.2 11.4 13.5 16.1 BGS 0.1 0.3 1.5 1.8 3.9 5.4 FLT 1.6 0.8 5.3 7.4 7.0 7.6 SPA (0.9) 1.3 0.5 1.4 1.5 1.9 BAA (0.3) 0.0 (0.1) 0.8 1.1 1.2 Net financial costs (income) (0.3) (0.5) (0.8) (0.5) (0.4) (0.3) Extraordinary gains, net ------Profit before tax 0.1 1.8 6.4 10.8 13.1 15.9 Income tax 0.2 0.5 1.0 1.7 2.0 2.5 Net profit (0.1) 1.3 5.4 9.1 11.1 13.4 BGS (0.0) 0.3 1.0 1.4 3.2 4.5 FLT 1.1 0.2 4.0 6.1 5.9 6.3 SPA (1.2) 1.1 0.5 1.1 1.2 1.6 BAA (0.0) (0.3) (0.1) 0.6 0.8 1.0

Gross margin 15.5% 14.0% 18.7% 18.1% 16.0% 15.2% EBITDA margin 4.3% 5.5% 9.6% 10.8% 10.4% 10.7% Operating margin 1.2% 3.4% 8.0% 9.4% 8.6% 8.7% Net profit margin n.a. 2.0% 6.0% 7.6% 7.0% 7.3% Sales growth 123.3% 33.3% 34.2% 30.4% 17.1% Gross profit growth 101.0% 78.1% 30.2% 15.1% 11.1% EBITDA growth 189.6% 131.5% 50.1% 26.0% 20.3% Operating profit growth 531.9% 210.0% 58.1% 18.8% 19.5% Net profit growth n.a. 300.5% 69.5% 21.4% 21.0% Source: Company data, DM BZ WBK estimates, subsidiaries results based on DM BZ WBK estimates

41 Avia Solutions Group 1 April 2011

Fig. 69. Baltic Ground Services: Income statement forecasts EUR in millions, unless otherwise stated 2008 2009 2010 2011E 2012E 2013E Net sales 0.7 7.6 21.9 40.3 68.5 86.6 Gross profit 0.2 0.9 2.5 3.9 6.7 8.3 EBITDA 0.2 0.7 2.0 2.4 5.3 7.3 Operating profit 0.1 0.3 1.5 1.8 3.9 5.4 Net profit (0.0) 0.3 1.0 1.4 3.2 4.5

Gross margin 26.9% 11.8% 11.5% 9.8% 9.8% 9.6% EBITDA margin 27.9% 8.6% 9.1% 6.0% 7.8% 8.4% Operating margin 9.1% 3.9% 6.7% 4.4% 5.7% 6.3% Net profit margin n.a. 3.3% 4.6% 3.4% 4.7% 5.2% Sales growth 978.6% 186.6% 84.2% 70.2% 26.5% Gross profit growth 372.1% 180.4% 56.8% 70.5% 24.2% EBITDA growth 232.4% 203.4% 21.5% 121.2% 36.4% Operating profit growth 357.4% 395.8% 19.6% 121.3% 39.8% Net profit growth n.a. 298.4% 37.0% 134.2% 41.6% Source: Company data, DM BZ WBK estimates

Fig. 70. FL Technics: Income statement forecasts EUR in millions, unless otherwise stated 2008 2009 2010 2011E 2012E 2013E Net sales 19.0 20.1 24.7 37.4 42.7 49.1 Gross profit 4.2 4.6 10.0 11.9 11.7 12.3 EBITDA 2.0 1.8 6.1 8.3 8.3 9.2 Operating profit 1.6 0.8 5.3 7.4 7.0 7.6 Net profit 1.1 0.2 4.0 6.1 5.9 6.3

Gross margin 22.1% 22.8% 40.6% 31.7% 27.3% 25.2% EBITDA margin 10.4% 8.8% 24.9% 22.1% 19.5% 18.7% Operating margin 8.3 % 4.1% 21.3% 19.7% 16.5% 15.4% Net profit margin 5.8% 0.9% 16.3% 16.3% 13.7% 12.9% Sales growth 6.1% 22.5% 51.7% 14.2% 14.8% Gross profit growth 9.1% 118.3% 18.6% -1.7% 5.8% EBITDA growth -10.4% 247.2% 34.6% 0.9% 9.7% Operating profit growth -47.5% 535.5% 39.8% -4.5% 7.6% Net profit growth -83.6% 2131.0% 51.9% -4.0% 8.1% Source: Company data, DM BZ WBK estimates

Fig. 71. Small Planet Airlines: Income statement forecasts EUR in millions, unless otherwise stated 2008 2009 2010 2011E 2012E 2013E Net sales 10.4 46.2 49.2 52.7 58.0 61.5 Gross profit 0.3 3.6 3.6 4.3 4.7 5.0 EBITDA (0.5) 1.3 0.5 1.5 1.5 1.9 Operating profit (0.9) 1.3 0.5 1.4 1.5 1.9 Net profit (1.2) 1.1 0.5 1.1 1.2 1.6

Gross margin n.a. 7.9% 7.4% 8.2% 8.1% 8.1% EBITDA margin 0.0% 2.8% 1.1% 2.8% 2.6% 3.2% Operating margin n.a. 2.8% 1.1% 2.7% 2.6% 3.1% Net profit margin n.a. 2.4% 0.9% 2.1% 2.1% 2.6% Sales growth 343.5% 6.6% 7.1% 10.1% 6.0% Gross profit growth n.a. 0.1% 19.2% 8.7% 6.1% EBITDA growth n.a. -57.6% 164.2% 5.8% 26.3% Operating profit growth n.a. -58.0% 166.4% 5.8% 26.4% Net profit growth n.a. -59.2% 141.1% 9.7% 30.1% Source: Company data, DM BZ WBK estimates

42 Avia Solutions Group 1 April 2011

Fig. 72. Baltic Aviation Academy: Income statement forecasts EUR in millions, unless otherwise stated 2008 2009 2010 2011E 2012E 2013E Net sales 0.7 1.3 3.7 6.7 8.1 8.9 Gross profit 0.0 0.6 1.3 1.8 2.1 2.3 EBITDA (0.3) 0.0 (0.0) 0.9 1.2 1.3 Operating profit (0.3) 0.0 (0.1) 0.8 1.1 1.2 Net profit (0.0) (0.3) (0.1) 0.6 0.8 1.0

Gross margin 1.9% 42.7% 33.8% 26.2% 26.1% 26.1% EBITDA margin n.a. 1.9% -0.3% 13.0% 14.5% 15.1% Operating margin n.a. 0.1% -2.3% 11.9% 13.1% 13.7% Net profit margin n.a. n.a. -2.3% 8.3% 10.1% 10.9% Sales growth 78.1% 187.0% 80.5% 19.8% 10.0% Gross profit growth 3814.3% 127.3% 39.9% 19.4% 10.0% EBITDA growth n.a. -146.2% -7955.2% 34.1% 14.0% Operating profit growth n.a. -6812.2% -1017.8% 32.3% 14.5% Net profit growth n.a. n.a. -762.1% 45.5% 19.0% Source: Company data, DM BZ WBK estimates

43 Avia Solutions Group 1 April 2011

Fig. 73. Avia Solutions Group: Balance sheet forecasts EUR in millions, unless otherwise stated 2008 2009 2010 2011E 2012E 2013E Current assets 6.4 11.1 22.2 36.6 43.9 54.2 cash and equivalents 0.1 1.7 3.1 13.2 14.6 21.1 other short term investments - 0.4 0.6 0.6 0.6 0.6 accounts receivable 4.0 6.3 14.9 14.0 17.3 19.6 inventories 2.3 2.6 3.6 8.8 11.3 12.9 prepaid expenses - 0.0 0.1 0.1 0.1 0.1 Fixed assets 9.8 9.5 10.6 20.1 24.9 24.3 PPE 8.4 7.3 8.4 17.8 22.5 21.8 long-term investments - - - - - intangibles 0.4 0.6 0.5 0.5 0.5 0.5 goodwill ------long-term receivables 0.6 1.2 1.4 1.4 1.4 1.4 Long-term deferred charges 0.3 0.3 0.3 0.4 0.5 0.6 Total assets 16.2 20.6 32.8 56.7 68.8 78.6 Current liabilities 9.5 13.0 19.1 18.9 19.9 21.8 bank debt 1.1 2.5 7.1 7.1 7.1 7.1 accounts payable 6.8 8.8 10.0 9.1 9.4 10.7 other current liabilities 1.6 1.7 2.0 2.6 3.4 4.0 Deferred income - - - Long-term liabilities 6.3 5.6 6.2 3.6 3.6 3.6 bank debt 5.6 4.4 3.0 3.0 3.0 3.0 other long-term liabilities 0.8 1.1 3.2 0.6 0.6 0.6 Provisions - - - Equity 0.3 2.0 7.5 34.3 45.3 53.2 share capital 0.2 2.0 1.3 1.7 1.7 1.7 capital reserves - - 6.2 23.4 32.5 38.0 net income - - - 9.1 11.1 13.4 Minority Interest 0. 1 - 0.1 0.1 0.1 0.1 Total liabilities and equity 16.2 20.6 32.8 56.7 68.8 78.6 Net debt 6.6 4.8 6.4 (3.6) (5.1) (11.6) Source: Company data, DM BZ WBK estimates

Fig. 74. Avia Solutions Group: Cash flow statement forecasts EUR in millions, unless otherwise stated 2008 2009 2010 2011E 2012E 2013E Cash flow from operations 1.2 1.8 (1.4) 6.3 9.2 15.0 Net profit (0.1) 1.3 5.4 9.1 11.1 13.4 Provisions ------Depreciation and amortization 0.9 1.4 1.486 1.7 2.9 3.6 Changes in WC, o/w (0.5) (0.5) (8.4) (5.2) (5.6) (2.6) inventories (1.8) (0.3) (0.9) (5.2) (2.5) (1.7) receivables (3.0) (2.3) (8.6) 0.9 (3.3) (2.2) payables 4.3 2.0 1.2 (0.9) 0.2 1.3 Other, net 1.0 (0.4) 0.1 0.7 0.8 0.6 Cash flow from investments (3.3) (0.8) (0.5) (13.8) (7.7) (2.9) Additions to PPE and intangibles (3.0) (0.6) (2.4) (11.1) (7.6) (2.9) Change in long-term investments ------Other, net (0.3) (0.2) 1.9 (2.8) (0.1) (0.1) Cash flow from financing 1.7 1.9 8.7 17. 6 - (5.5) Change in long-term borrowing 2.0 (1.1) (1.5) - - - Change in short-term borrowing (0.2) 1.3 4.6 - - - Change in equity and profit distribution (0.1) 1.8 5.4 17.6 - 0.0 Dividends paid - - - - - (5.5) Other, net 0.0 (0.1) 0.1 - - - Net change in cash and equivalents (0.4) 3.0 6.8 10.1 1.4 6.5 Beginning cash and equivalents 0.4 0.1 1.7 3.1 13.2 14.6 Ending cash and equivalents 0.1 1.7 3.1 13.2 14.6 21.1 Source: Company data, DM BZ WBK estimates

44 Avia Solutions Group 1 April 2011

Dom Maklerski BZ WBK S.A.

Institutional Sales Department

5A Grzybowska St. 00-132 Warszawa fax. (+48) 22 586 81 09

Equity Research

Pawel Puchalski, CFA, Head tel. (+48) 22 586 80 95 [email protected] Telecommunications, IT, Mining, Power

Maciej Baranski tel. (+48) 22 586 81 00 [email protected] Banks

Pawel Burzynski tel. (+48) 22 586 81 55 [email protected] Strategy, Oil & Gas, Chemicals, Biotechnology

Tomasz Sokolowski tel. (+48) 22 586 82 36 [email protected] Pharma, Retail

Zbigniew Porczyk tel. (+48) 22 534 16 10 [email protected] IT Distribution, Mining Machines

Maciej Marcinowski, Research Associate tel. (+48) 22 586 82 33 [email protected]

Maciej Senderek, Research Associate tel. (+48) 22 586 82 25 [email protected]

Sales & Trading

Bartek Godlewski, Head tel. (+48) 22 586 80 44 [email protected]

Wojciech Wosko tel. (+48) 22 586 80 82 [email protected]

Kamil Cislo tel. (+48) 22 586 80 90 [email protected]

Marcin Stosio tel. (+48) 22 586 81 93 [email protected]

Blazej Leskow tel. (+48) 22 586 81 57 [email protected]

Pawel Szczepanski tel. (+48) 22 586 85 15 [email protected]

LIMITATION OF LIABILITY

This material was produced by Dom Maklerski BZ WBK S.A. (DM BZ WBK S.A.), entity that is subject to the regulations of the Act on Trading in Financial Instruments dated July 29th 2005 (Journal of Laws of 2010, No.211 item 1384 - consolidated text, further amended), Act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies dated July 29th 2005 (Journal of Laws of 2009, No.185 item 1439 - consolidated text, further amended), Act on Capital Market Supervision dated July 29th 2005 (Journal of Laws of 2005, No.183 item 1537 further amended). It is addressed to qualified investors and professional clients as defined under the above indicated regulations and to Clients of DM BZ WBK S.A. entitled to gain recommendations based on the brokerage services agreements. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of DM BZ WBK S.A. or entities belonging to BZ WBK. DM BZ WBK S.A. is an author of this document. DM BZ WBK S.A. may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. DM BZ WBK S.A. will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for particular investor and it is recommended to consult an independent investment advisor in case of doubts about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to investor’s individual circumstances, or otherwise constitutes a personal recommendation to particular investor. In the case where recommendation refers to several companies, the name “Issuer” will apply to all of them. Affiliates of DM BZ WBK S.A. may, from time to time, to the extent permitted by law, participate or invest in financing transactions with: Avia Solutions Group S.A. “Issuer”, perform services for or solicit business from such Issuer and/or have a position or effect transactions in the financial instruments issued by the Issuer (“financial instruments”). DM BZ WBK S.A. may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Financial instruments before this material is published to recipients. Unless otherwise permitted by law in the applicable jurisdiction, only authorised affiliates of DM BZ WBK S.A. will effect orders for Financial instruments from customers in such jurisdiction. This material may relate to investments or services of a person outside the United Kingdom or to other matters which are not regulated by the Financial Services Authority. Any further details as to where this may be the case are available upon request. DM BZ WBK S.A. emphasizes that this document is going to be updated at least once a year. This document remains in force for 12 months and no longer than the date of the issue of another recommendation. DM BZ WBK S.A. may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and DM BZ WBK is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report. Information and opinions contained herein have been compiled or gathered by DM BZ WBK S.A. from sources believed to be reliable, however DM BZ WBK S.A. and its affiliates shall have no responsibility or liability whatsoever in respect of any inaccuracy in or omission from this document prepared by DM BZ WBK S.A. or sent by DM BZ WBK S.A. to any person in connection with the offering of the Financial instruments and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits

45 Avia Solutions Group 1 April 2011

and risks involved in the Financial instruments forming the subject matter of this or other such document. This statement shall be deemed to be incorporated in and form a term of any contract entered into by DM BZ WBK S.A. or its affiliates with any such person in respect of any transaction in Financial instruments. The information and opinions contained herein are subject to change without any notice. Dom Maklerski BZ WBK S.A. is not responsible for damages resulting from placing orders based on this document. THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR INVITATION TO SUBSCRIBE FOR OR PURCHASE ANY FINANCIAL INSTRUMENTS AND SHALL NOT BE CONSIDERED AS AN OFFER TO SELL OR TO BUY ANY SECURITIES. THIS DOCUMENT IS FURNISHED AND PRESENTED TO YOU SOLELY FOR YOUR INFORMATION AND MAY NOT BE REPRODUCED OR REDISTRIBUTED TO ANY OTHER PERSON. THIS DOCUMENT NOR ANY COPY HEREOF SHALL NOT BE DISTRIBUTED DIRECTLY OR INDIRECTLY IN THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN OR TO ANY CITIZEN OR RESIDENT OF THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN WHERE ITS DISTRIBUTION MAY BE RESTRICTED BY LAW. ITS DISTRIBUTION MAY BE RESTRICTED BY LAW IN OTHER COUNTRIES. PERSONS WHO DISTRIBUTE THIS DOCUMENT SHALL MAKE THEMSELVES AWARE OF AND ADHERE TO ANY SUCH RESTRICTIONS. TO ANY US PERSON OR TO ANY PERSON IN THE UNITED KINGDOM OTHER THAN AN AUTHORISED PERSON OR EXEMPTED PERSON OR ANY OTHER PERSON FALLING WITHIN ARTICLES 19(5), 38, 47 AND 49 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2001. NEITHER THIS REPORT NOR ANY COPY HEREOF MAY BE DISTRIBUTED IN ANY JURISDICTION OUTSIDE THE UK WHERE ITS DISTRIBUTION MAY BE RESTRICTED BY LAW. PERSONS WHO RECEIVE THIS DOCUMENT SHOULD MAKE THEMSELVES AWARE OF AND ADHERE TO ANY SUCH RESTRICTIONS.

THIS DOCUMENT HAS NOT BEEN PREPARED BY OR IN CONJUNCTION WITH ISSUER. INFORMATION IN THIS DOCUMENT MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORISED OR APPROVED BY ISSUER. THE OPINIONS EXPRESSED HEREIN ARE SOLELY THOSE OF DM BZ WBK S.A DM BZ WBK S.A. INFORMS THAT INVESTING ASSETS IN FINANCIAL INSTRUMENTS IMPLIES THE RISK OF LOSING PART OR ALL THE INVESTED ASSETS. DM BZ WBK S.A. INDICATES THAT THE PRICE OF THE FINANCIAL INSTRUMENTS IS INFLUENCED BY LOTS OF DIFFERENT FACTORS, WHICH ARE OR CANNOT BE DEPENDENT FROM ISSUER AND ITS BUSINESS RESULTS. THESE ARE FACTORS SUCH AS CHANGING ECONOMICAL, LAW, POLITICAL OR TAX CONDITION. THE DECISION TO PURCHASE ANY OF THE FINANCIAL INSTRUMENTS SHOULD BE MADE ONLY ON THE BASIS OF THE PROSPECTUS, OFFERING CIRCULAR OR OTHER DOCUMENTS AND MATERIALS WHICH ARE PUBLISHED ON GENERAL RELEASE ON THE BASIS OF POLISH LAW.

In preparing this document DM BZ WBK S.A. made use of the following valuation methods: discounted cash flows ("DCF") comparative. The DCF valuation method is based on expected future discounted cash flows. One advantage of the DCF valuation method is that it takes into account all cash streams reaching Issuer and the cost of money over time. Some disadvantages of the DCF valuation method are that a large number of parameters and assumptions need to be estimated; and the valuation is sensitive to changes in those parameters. The comparative valuation method is based on the economic rule of "one price". Some advantages of the comparative valuation method are that the analyst need only estimate a small number of parameters; the valuation is based on current market conditions; the relatively large accessibility of indicators for companies being compared; and that there is an extensive knowledge of the comparative method among investors. Some disadvantages of valuation by the comparative method are the considerable sensitivity of the results of the valuation on the choice of companies to the comparative group; the method can lead to a simplification of the picture of the company which in turn can lead to omitting certain important factors (e.g. growth dynamics, extra-operational assets, corporate governance, the repeatability of results, differences in applied accounting standards); and the uncertainty of the effectiveness of a market valuation of companies being compared.

Explanations of special terminology used in the recommendation: EBIT – earnings before interest and tax EBITDA – earnings before interest, taxes, depreciation, and amortization P/E – price-earnings ratio EV – enterprise value (market capitalisation plus net debt) PEG - P/E to growth ratio EPS - earnings per share CPI – consumer price index WACC - weighted average cost of capital CAGR – cumulative average annual growth P/CE – price to cash earnings (net profit plus depreciation and amortisation) ratio NOPAT – net operational profit after taxation FCF - free cash flows BV – book value ROE – return on equity P/BV – price-book value

Recommendation definitions: Buy - indicates a stock's total return to exceed more than 15% over the next twelve months. Hold - indicates a stock's total return to be in range of 0%-15% over the next twelve months. Sell - indicates a stock's total return to be less than 0% over the next twelve months.

Over the last three months Dom Maklerski BZ WBK S.A. issued 7 Buy recommendations, 3 Hold recommendations and 0 Sell recommendations.

The Issuer does not hold shares of DM BZ WBK S.A. Neither members of the Issuer’s authorities nor their relatives are members of the management board or supervisory board of DM BZ WBK S.A. No person engaged in preparing the report is a relative for the members of the Issuer’s authorities and none of those persons or their relatives are party to any agreement with the Issuer, which would be concluded on different basis than agreements between Issuer and consumers. Among those, who prepared this document, as well as among those who didn’t prepare it but had or might have had the access to it, there are no such individuals who hold shares of the Issuer in the amount which does not exceed 5% of the share capital or financial instruments whose value is connected with the value of the financial instruments issued by the Issuer. During the last 12 months DM BZ WBK S.A. has been a party to agreements relating to the offering of financial instruments issued by Issuer and connected with the price of financial instruments issued by Issuer. During the last 12 months DM BZ WBK S.A. was not a member of syndicate for financial instruments issued by Issuer. DM BZ WBK S.A. did not buy or sell any financial instruments issued by the Issuer on its own account, in order to realize investment subissue or service agreements. DM BZ WBK S.A. acts as market maker, on principles specified in the Regulations of the Warsaw Stock Exchange, for the shares of Issuer. DM BZ WBK S.A. acts as issuer’s market maker, on principles specified in the Regulations of the Warsaw Stock Exchange, for the shares of Issuer. During the last 12 months DM BZ WBK S.A. has received remuneration for providing services for the Issuer. These services covered acting as issuer’s market maker and public offering of shares. During the last 12 months Bank Zachodni WBK S.A. which is connected with Dom Maklerski BZ WBK S.A. has received remuneration for providing investment banking services for the Issuer. DM BZ WBK S.A. does not hold shares of the Issuer or any financial instruments of the Issuer being the subject of this document, exceeding 5% of the share capital. Bank Zachodni WBK S.A., which is connected with DM BZ WBK S.A., is not directly or indirectly connected with Issuer.

46 Avia Solutions Group 1 April 2011

DM BZ WBK S.A. does not rule out that in the period of preparing this document any Affiliate of DM BZ WBK S.A. might purchase shares of the Issuer or any financial instruments being the subject of this document which may cause exceeding 5% of the share capital. Subject to the above, the Issuer may be bound by other contractual relationship with DM BZ WBK S.A. DM BZ WBK S.A. does not, directly or indirectly, hold financial instruments issued by the Issuer or financial instruments whose value depends on the value of financial instruments issued by the Issuer (except on the basis of being market maker and issuer’s market maker). However, it cannot be ruled out that, in the period of the next twelve months or the period in which this document is in force, DM BZ WBK S.A. will submit an offer to provide services for the Issuer or will purchase or dispose of financial instruments issued by the Issuer or whose value depends on the value of financial instruments issued by the Issuer. Except for broker agreements with clients under which DM BZ WBK S.A. sells and buys the shares of the Issuer at the order of its clients, DM BZ WBK S.A. is not party to any agreement which would depend on the valuation of the financial instruments discussed in this document. Remuneration received by the persons who prepare this document may be dependent, in an indirect way, from financial results gained from investment banking transactions, related to financial instruments issued by the Issuer, made by DM BZ WBK S.A. or its Affiliates. In the opinion of DM BZ WBK S.A., this document has been prepared with all due diligence and excludes any conflict of interests which could influence its content. DM BZ WBK S.A. is not obliged to take any actions which could cause financial instruments that are the subject of the valuation contained in this document to be valued by the market in accordance with the valuation contained in this document. DM BZ WBK S.A. is subject to the supervision of the Financial Supervision Commission and this document has been prepared within the legal scope of the activity of DM BZ WBK SA. The date on the first page of this report is the date of preparation and publication of the document. ANY PERSON WHO ACCEPTS THIS DOCUMENT AGREES TO BE BOUND BY THE FOREGOING DISCLAIMER AND LIMITATIONS.

Dom Maklerski BZ WBK S.A. with its registered office in Poznan, Pl. Wolno ści 15, 60 - 967 Poznan, registered by the District Court in Poznan – Nowe Miasto i Wilda, Division VIII Commercial of the National Court Register under the number KRS 0000006408, Taxpayer Identification No. 778-13-59-968, with share capital amounting to PLN 45 073 400 fully paid up .

47