The Leasing Market in a Hurricane

Eithne Manning, Head of Funding and Tax SMBC Aviation Capital Important Notice and Disclaimer

This presentation has been prepared by SMBC Aviation Capital Limited (the Company and its subsidiaries (the “Group”) and the industry in which the “Company”) solely for information purposes and does not constitute, and Group operates. These statements may be identified by words such as should not be construed as, an offer to sell or issue securities or otherwise “expectation”, “belief”, “estimate”, “plan”, “target”, or “forecast” and similar constitute an invitation or inducement to any person to purchase, expressions or the negative thereof; or by the forward-looking nature of underwrite, subscribe to or otherwise acquire securities in the Company or discussions of strategy, plans or intentions; or by their context. All any member of the Group (as defined below). statements regarding the future are subject to inherent risks and uncertainties and various factors could cause actual future results, This document may not be (in whole or in part) reproduced, distributed, performance or events to differ materially from those described or implied in stored, introduced into a retrieval system of any nature or disclosed in any these statements. Such forward-looking statements are based on numerous way to any other person without the prior written consent of the Company. assumptions regarding the Group’s present and future business strategies and the environment in which the Group will operate in the future. Further, The information contained in this document has not been verified or certain forward-looking statements are based upon assumptions of future reviewed by the Company’s auditors and, as such, is subject to all other events which may not prove to be accurate and neither the Company nor any publicly available information and amendments without notice (such other person accepts any responsibility for the accuracy of the opinions amendments may be material). expressed in this document or the underlying assumptions. The forward- The Company makes no representation or warranty of any sort as to the looking statements in this document speak only as at the date of this accuracy or completeness of the information contained in this document or presentation and the Company assumes no obligation to update or provide in any meeting or presentation which accompanies it or in any other any additional information in relation to such forward-looking statements. document or information made available in connection with this document This document is not intended for distribution to, or use by, any person or and no person shall have any right of action against the Company or any entity in any jurisdiction or country where such distribution or use would be other person in relation to the accuracy or completeness of any such contrary to local law or regulation or which would require any registration or information. licensing within such jurisdiction. This document contains statements that constitute forward-looking statements relating to the business, financial performance and results of the

2 SMBC Aviation Capital: Introduction

Top 5 613 $11.1bn LARGEST OWNED,MANAGED SHAREHOLDER LESSOR ANDCOMMITTED SUPPORT AIRCRAFT

A-/A- 81% $2.5bn S&P/FITCH NARROWBODY FY2020 SALE AND RATINGS AIRCRAFT LEASEBACKS

3 Agenda

Part #1 Part #2

Lessor Perspective Lessors’ Access to Funding • Lessor landscape pre pandemic • Access to funding markets pre pandemic • The impact of the pandemic on lessors • The impact of the pandemic on funding • Lessor response markets • Outlook • Outlook

4 End of Cycle Landscape Recap

5 Increasing Role of Aircraft Lessors

Today 43% of global fleet is leased equating to around 11,000 aircraft – market value in excess of $325 billion

Global Commercial 25,300 Aircraft Fleet Leased Aircraft 17,600 12,500 8,300 4,500 1,800

11,000 1,030 6,600 43% 35 100 3,000

1970 1980 1990 2000 2010 2020

Source: Ascend

6 Leasing Industry Overview – Main Players

Lessor Fleet Ranking Growing Asian Presence: 13 of the top 24 lessors have 35 Asian shareholders – in excess of 3,000 aircraft 30

) Significant M&A Activity: n 25 b $

( 12 lessors changed ownership or

t e

e acquired competitors since global l F

20

d financial crisis e g n a

M 15

&

d Recent acquisitions by e n Japanese Corporates: w 10 O ACG and Aircastle

5

0 0 2 4 6 8 10 12 Average Age of Portfolio

Source: Ascend World Fleet 04 Jan 2021, Management Info. Average age weighted by fleet IMV 7 7 Leasing Industry is Growing but Remains Fragmented

– In 2008, top 10 lessors accounted for 70% of total lessor market – Proliferation of new entrants outweighs impact of consolidation – Today, top 10 lessors account for just 50% of total lessor market

Declining Share of Top Lessors 2008 2014 2019

Top 20 Lessors Top 10 Lessors

#Lessors

Source: Ascend

8 Features of Top of the Market

Profitability 1 2019 year of record profitability Other Funding Markets Bank lending and ABS wide open for non Investment Grade lessors 6 Influx of Liquidity Capital inflows driving competitive 2 market and yield compression

Bond Issuance Bond markets primary source of financing for Investment Grade 5 lessors to fund, record tight levels Direct Orders Direct Order channel exhibiting 3 signs of oversupply, especially for Trading Activity wide body aircraft Robust secondary trading market allowing recycling of capital and 4 portfolio management opportunities

9 Impact of Covid-19

10 Impact of Covid-19 on the Aircraft Leasing Sector

Unprecedented Shock

Financial Challenges

Path to Recovery Industry Outlook Financial Strength

Market Opportunities

Adjusting to New Reality Lessor Challenges Through Period of Market Dislocation

Rental Managing Airline Impact on Deferrals Restructurings Profitability

• Extent of rent deferral • Increased number of • Increased asset requests has abated airlines in bankruptcy impairment and credit proceedings losses

• Virus resurgence presents new near term risk • Lessors have increased • Wide body and older size and scope of aircraft most impacted restructuring teams • Strong lessor liquidity required to support • Impairment triggered airline requests • Younger narrowbody earlier under IFRS Vs aircraft will be retained US GAAP

12 Effective OEM Duopoly a Key Industry Risk Mitigant

— Large jet aircraft market is dominated by and — Barriers to entry are very high — OEM has vested interest to avoid oversupply and “white tail” risk — Results in disciplined behaviour with aircraft supply broadly tracking passenger growth

Historical Delivery of New Aircraft Vs Global Passenger Traffic

1800 6

1600 Airbus Boeing Other Pax Traffic (RPM) 5 1400

1200 4 t f a M r

1000 P c r R i

3 a n 800 f o i o l

l . i o

600 2 r N T 400 1 200

0 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: Ascend, Passenger Jet aircraft with 120+ seats 13 Lessors Materially Reduced Near Term CapEx Commitments

Restructuring of direct orders and OEM production delays materially reduced near term commitments

IG Lessors Capex Reduction SMBC Aviation Capital

22% 53% 48% CAPEX ($Bns) 25.4 3.3 79% 20.2 2.7

11.8 15.7 1.4 0.7

Initial CAPEX Revised Initial CAPEX Revised Initial CAPEX Revised Initial CAPEX Revised (as at 30 Sep) (as at 30 Sep) (as at Sept 30) (as at Sept 30) 2020 2021 2020 2021

Source: Company Financial Reports. Initial Capex based on March 2019 reports. Revised Capex includes actual deliveries up to Sept 30th, 2020 and forecast thereafter • 15bn+ of SLB transactions completed since March 2020 Flight to • Leading airline credits seeking to shore up liquidity Quality • Limited market for tier 2 / tier 3 airlines

• Less competing capital driving improved returns and structures Risk Adjusted • Reduction in bank lending, JOLCOs providing opportunities Returns • Divergence in returns/credit quality versus direct order channel Sale and Leaseback Market: Changed Dynamics • Primarily narrowbody aircraft with selective widebody transactions Asset Focus • OEM production delays reducing inventory of new aircraft • Airlines monetising unencumbered, on-balance sheet aircraft

• OEM production ramp-up to provide increased SLB inventory Market • c.450 part completed MAX aircraft to deliver in 2021-22, A320NEO Opportunity monthly rate increase in Q4 2021 • Market will open for tier 2 airlines once path to recovery more clear

15 Sale and Leaseback Market Providing Opportunities

– Over $200bn of liquid aircraft types due to deliver over the next 3 years – Airlines not funding for cash as they rebuild balance sheets and some funding channels currently closed – Leasing will remain the preferred funding channel until debt markets fully recover

Financing requirement by Year and Family ($bn)1 2021-2024 deliveries by region2

Other 80 14% A320 B737 787 A350 70 Asia Pacific 60 33% 50

40 North 30 America 24% 20 10 0 Europe 2021 2022 2023 29%

Access to capital will be a significant competitive advantage

1 Cirium Fleets October 2020, SMBC estimates 2 Cirium Fleets October 2020 16 Strong Long Term Fundamentals

17 Long Term Traffic Growth Drivers Remain Intact

Propensity to Increased Growing Increase in travel increases Urbanisation ‘Middle Class’ LCC carriers with wealth

Age profile and lessors ownership by region1 20 year delivery forecast by region2

Age Leased % Age Leased % Other Europe 16 70% 26% 21% 14 60% 12 50% 10 40% 8 South 30% 6 East Asia 11% 4 20% North America 2 10% 21% 0 0% China S. Europe Asia Middle Africa N. 21% America Pacific East America

1 Cirium Fleets October 2020, SMBC estimates 2 Cirium Feets October 2020 18 Narrowbody and New Technology Aircraft Returning to Service Earlier

- Domestic and regional traffic leading the recovery – narrow Narrowbody In Service % Vs Jan 2020 body aircraft have returned to service before widebodies

120% A220 (CSeries) CRJ Family NG Classic - Airlines are returning newer, more fuel efficient aircraft first 100% CEO NEO 80% NB 60% 40% 20% 0% Jan Feb Mar Apr May Jun Jul Aug Sept Oct

Narrowbody Vs Widebody In Service % Widebody In Service % Vs Jan 2020

100% 150% A330/A340 Family A380 Total NB WB 787 Family 777 Family 80% 747 Family A350 100% 60%

40% 50% 20%

0% 0% Jan Feb Mar Apr May Jun Jul Aug Sept Oct Jan Feb Mar Apr May Jun Jul Aug Sept Oct

Source: Cirium Fleets Data – 19th Oct 2020 19 Liquid Aircraft Types Will Perform Better

– Younger, new technology, narrow body aircraft are attractive to airlines, lessor and investors – Since 2015 new technology aircraft have demonstrated better value retention – Younger, narrow body aircraft are less volatile than older wide body aircraft

Lessor Ownership by Aircraft Type Change in Ascend Full Life CMV 2015 - 2020 for New, 5 and 10 years Old Aircraft

80%

60% 0%

-10% 40%

-20%

20% -30%

0% -40%

New 5 yr 10 yr -50%

Source: Ascend

20 Lessors’ Access to Funding

21 Top 20 Lessor Ownership

Private Non IG 13% IG Public 47% owned by Financial Institution 23% • Risk mitigant and competitive advantage • Lower dependence on wholesale funding • Broader third party funding base IG Private 17% 40 % non-FI owned have Investment Grade credit rating • Risk mitigant although dependence on wholesale markets • Access to US IG Corporate Bond Market • Balance sheet strength more likely to attract non-industry specialist lenders.

Majority of larger lessors have Financial Institution good access to funding 47%

Source: Air Finance Journal, Top 20 lessors based on fleet size, October 2020

22 Lessor Debt Structure – Moving to unsecured

Parent (Unsecured)

Unsecured

ABS

Secured Bank/ECA/ExIm

23 Funding Avenues

Shareholder Funding Capital Markets Bank Debt • Fortified most FI owned lessors’ • IG Bond market the main third • Significant growth in unsecured funding base party funding market for IG bank capacity for term and RCF lessors • Significant re-financing risk • Secured bank market active but mitigant • $43bn issuance 2015-2019 under competitive pressure Significant spread compression • Access in all markets a significant • competitive advantage • US Private Placement market also active

ECA ABS Trading Market • Limited activity in recent years • Significant increase in activity up • Capital Recycling • Designed to be lender of last to 2019 • Monetising gains resort • Available liquidity facilitating • Portfolio Management strong trading market

24 Curtailment of Trading Impacts Lessor Profitability but also Financing Requirements

$8bn cashflow generated from trading in FY’19, not far behind the 2017-2019 Composition of Cash Generated2 $12.5bn of bonds issued Operating activities In 2016-2019, average profit on disposals accounted for c.16% of PBT 22%

Cashflow/profits due to reduced trading activity will need to be Proceeds from replaced from other sources debt financing 57%

Proceeds from sales 21%

Aircraft Trading Activity 2000 - 20201 Trading Profit Contribution to PBT2

Sold to current operator Sold with lease Sold to ABS 20% 1600 Trading Activity 1400 15% 18% 18% 1200 Impacted Post Crisis 16% 1000 800 10% 12% 600 Post 9/11 Post GFC 400 5% 200 0 0% 2016 2017 2018 2019

1 IBA Trading Statistics (excluding M&A) 2 Individual company filings of lessors with publicly available information

25 Shareholder Funding

Lessor Number of • Shareholder funding provides access to funding in Aircraft all markets meaning the lessor is not hostage to GECAS 1084 market conditions. Aercap 1024 571 BBAM 519 • FI backed lessors accounted for majority of SLB SMBC Aviation Capital 471 transactions in 2020 ICBC Leasing 455 BOC Aviation 395 394 • Shareholder funding materially reduces re-financing DAE Capital 371 risk Aviation Capital Group 336 AirCastle 280 • Important risk mitigant, viewed positively by rating BoComm Leasing 245 agencies CDB Aviation 239 Carlyle Aviation Partners 236 Castlelake 235

Source: Ascend, January 2021

26 Bond Market Analysis: Structural Shift in Lessor Funding Strategies

– Attractive pricing and deep capacity in unsecured bond market has driven growth in issuance - principal way for IG lessors to fund themselves – c.$71bn of outstanding issuance

Lessor Funding Base Evolution Lessor Bond Issuance 2010-2020

80,000

7 70,000 26 60,000 48 36 58 47 50,000 100 80 95 19 40,000 93 30,000 74 64 20,000 52 53 42 10,000 20 81 0 5

2013 2020 2013 2020 2013 2020 2013 2020 2013 2020 AerCap Aircastle Air Lease BOCA ACG SMBCAC Avolon Unsecured Bond Issuance Other

27 Current Credit Ratings Landscape

January 2015 January 2021 I n

v A- A- e s t m BBB+ BBB+ e n t

G BBB BBB r a d e BBB- BBB- H i

g BB+ BB+ h

Y i e BB BB l d BB- BB-

Unsecured bond pricing is linked to a company’s credit rating. Spreads tighten or widen, though by different magnitudes based on ratings, throughout the cycle. Since 2015 most rated lessors have been upgraded – this has been an important driver of the improved pricing levels achieved. There have been no downgrades of the IG leasing companies since the onset of the crisis, although almost all leasing companies have being placed on negative outlook.

28 2020 Aircraft Lessor Spread Analysis

– Spread widening in March/April made market prohibitively expensive and indicated significantly reduced capacity – Financial Institution owned lessors outperformed standalone lessors – Significant spreads tightening since March together with lower UST has supported $17.3bn in 2020 – Demonstrates market depth and committed investor base that understands lessor sector risk

1200 SMBCAC 3.55 04/15/2024 REGS Corp

1000 BOCAVI 2 5/8 01/17/25 Corp

800 AL 2.3 02/01/25 Corp

600 AER 4.45 10/01/25 Corp

400 ACGCAP 4.125 08/01/25

200 AYR 4.25 06/15/26 Corp

0 AVOL 2 7/8 02/15/25 Corp

US 5yr Treasury

Source: Bloomberg 29 Commercial Bank Market Has Retrenched

January 2020 January 2021

• 50+ commercial banks active • 6-10 banks active primarily in secured market • Traditional secured bank market facing increased competition • Many banks retrenched to support domestic economy • Growth in unsecured bank market, primarily in Asia • Available capacity focussed on government supported airlines & IG airlines and lessors • Significant RCF availability • Limited unsecured bank RCF/term capacity • Pricing broadly in line with bond markets • Secured bank structures more restrictive • 3-5 year unsecured tenors trending longer

30 Export Credit Agencies

Sources of Airbus and Boeing Delivery Financing • Export Credit Agencies (ECAs) designed to support home country exports.

Cash Capital Markets Bank Debt ECA Insurance Manufacturer • Important backstop in dislocated markets $143bn • Structured nature can be operationally restrictive 7% • Increased activity likely in near term but tempered by recovery in other funding markets $62bn

34%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F

Source: Boeing and Airbus Global Market Outlook 31 Drivers of Growth in ABS Issuance

Funding Aircraft Trading Lowest Cost of Funds – Funding Diversification Generate Efficient Distribution Channel

Aircraft lessors raise secured debt against a discrete pool of assets Monetise/De-risk balance sheet while retaining management/customer relationships • Favoured by non-Investment Grade lessors • Provides lessors with alternative disposal channel to trade sales • Lessor retains equity/residual interest • 144a /Reg S eligibility in 2018 increased size of equity investor • Cost of funds can be competitive allowing Issuer to diversify facilitating smaller and more liquid E note participations funding sources • Resulted in record transaction volumes in 2019 with 10 lessors trading 242 aircraft

32 ABS Market: An Important Driver of Liquidity in the Last Cycle

Aircraft Backed ABS Issuance: 2001-2019 Volumes • Rapid growth in last cycle - $43bn of ($’m) aircraft backed issuance 10000 Aircraft ABS Issuance ABS with Equity Issuance 8000 • Important source of capital providing 6000 both funding and equity distribution

4000 • Growth of ‘aggregator lessors’ focused 2000 on mid life aircraft 0 • Historically, aircraft backed ABS market has closed in a downturn - no Aircraft and Engine ABS: A Note Issuance Spreads 2012-2019 deals between 2008-2011 • ABS structures with larger component of older aircraft and existing widebody technology are more exposed to underperformance

33 ABS Performance in Last Twelve Months

– Onset of crisis resulted in widening of A tranche spreads to levels in excess of 1600bps, but have since tightened by c.1200bps although remain at elevated levels – Principal and Interest payments are behind schedule for B and C tranches, however principal payments have caught up recently for some A tranches – Cash flow has been shut off for almost all E notes since April 2020 – Resulted in widespread downgrades by the Rating Agencies - in aggregate S&P/Fitch/Kroll downgraded 86 of 113 allocated A tranche ratings

Aircraft ABS A Tranche Spreads Vs Other ABS Classes

1 Source: Bloomberg

34 Conclusion

• 2020 – a year of unprecedented challenges but good opportunities for lessors with access to efficient funding

• H1, 2021 will be challenging – H2, 2021 shows promise

• Significant pent up demand for travel may drive faster recovery

• Recovery will be led by young, fuel efficient narrow body technology

• Capital Markets have proved a resilient source of funding for lessors

• Lessors with access to shareholder or bond markets best positioned to grow business and take advantage of market conditions Thank You

37