GRUPOGRUPO , AEROMÉXICO S.A.B. de C.V.

Prepare For Takeoff Coverage Initiation: Premier Edition

May 24, 2011 Buy Changing Opinion News Ticker AEROMEX Updating Estimates Other Target Price MXN 34.50 Last Price MXN 27.93 We are initiating coverage on AEROMEX with a year-end 2011 target price (TP) of MXN 34.50 per share and a BUY recommendation. Our TP implies an 2011E Dividend Yield 0.0% Mkt. Cap. (Million) MXN 19,841 upside potential of 23.5% over the stock’s current trading price. Enterprise Value (Million) MXN 21,091 T12 Price Range 27.93 --- 31.00 With this Premier Edition Coverage report we are also initiating coverage on T12 VaR@alpha=1.50% (0.28%) the sector. Thus we include a key term and math glossary for a better understanding from investors, as well as a deep insight on key industry topics AEROMEX results a very attractive investment option considering its Stock performance attractive valuation (at current levels) and long-term fundamentals amidst the 105 ongoing recovering phase of the airline industry, in our view. 103

100

Grupo Aeromexico (GAM) is in a unique leading position to capture ’s 98 aviation industry attractive fundamentals. Following Mexicana’s grounding in August 2010, GAM has become the largest and leading legacy airline in Mexico with 95

a 30% TPT market share. After capitalizing resources (USD 300 million) through its ReturnIndex 93 initial public offering (IPO), GAM is now in an unbeatable condition to detonate 90 stronger cash flow generation in the coming years through available-seat-kilometers 88 AEROMEX: Base= 31 .00 on April 13 , 2011 (ASKs) expansion (2011-2013E CAGR of 13%) and higher load factors (79.0%E Date IPC: Base= 37 ,348 on April 13 , 2011 2011-2013E), exploiting the ongoing consolidation process in Mexico. 85 Apr-11 Apr-11 May-11 May-11 May-11 We believe that the consistently growing middle-income class is an additional key driver for the industry’s development , as it translates into a larger number of Mexicans demanding discretionary goods and services, such as air travel.

In this Premier Edition of our AEROMEX Coverage Initiation report we present a deep insight into some of the most relevant aspects of the airline industry , including: 1) a comprehensive section on oil price volatility / hedging strategies used by the / and the implication it has on crack spreads, 2) the consolidation process the Mexican industry is experiencing, 3) the benefits an airline receives from joining a global , 4) a detailed analysis of Aeromexico’s fleet and 5) the evolution of the global airline industry.

We are initiating coverage on AEROMEX with a YE2011 TP of MXN 34.50 per share and a BUY rating. Our TP implies an upside potential of 23.5% over the stock’s current trading prices. We are using an Adj. EV/EBITDAR forward multiple valuation with a 6.5x target. We believe that this is the best methodology for valuing airlines as their multiples tend to vary over time, depending on the company’s expected profitability. A DCF method turns to be quite irrelevant, from the difficulty in forecasting reasonable long-term cash flows in such a cyclical sector.

2009 2010 2011E 2012E 2013E Estimates Pablo Duarte de León Net sales (MXN) 22,348 28,080 34,196 37,108 41,704 Transport, Conglomerates, Fitness & Steel EBITDAR (MXN) 2,718 6,198 6,612 7,082 8,123  [email protected] EBITDAR margin 12.2% 22.1% 19.3% 19.1% 19.5% ℡ +52 (55) 1103 6600 x5031 Net income (MXN) -2,296 2,334 1,533 1,531 1,306 EPS (MXN) N.A. N.A. 2.16 2.16 1.84 Emilio Alanis Alonso DPS AEROMEX (MXN) N.A. N.A. 0.00 0.00 0.00  [email protected] ROE N.A. N.A. 26.9% 19.7% 13.7% Actinver Valuation Corporate Headquarters Adj. EV/EBITDAR N.A. N.A. 5.8x 6.4x 6.3x 1200 Guillermo González Camarena P/E N.A. N.A. 12.9x 13.0x 15.2x Floors 9-11, Santa Fé P/BV N.A. N.A. 3.5x 2.6x 2.1x México, D.F. 01210

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Contents

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Table of contents

Airline Sector Glossary …….………………………………………… 5

Investment Thesis ….……………………………..…………………… 6-11 Positives ……………………….…………………………………………. 6 Risk Factors ……………………………………………………………… 7 Attractive Long-Term Growth Expectations For The Mexican Aviation Industry …………...………………………... 8 GAM is in a Unique Leading Position to Capture Mexico’s Attractive Fundamentals …………………………... 9-11

Valuation: EV / EBITDAR Fwd Multiple ………………………….. 12-17 Adj. EV/EBITDAR Forward Multiple Methodology ……….……….…. 12 Finding AEROMEX Most Comparable Peers ………………...…….... 13 Table of Global Comparable Companies ……..……….……...…….... 17

2011-2015 Forecasts …………...…... ……...……..…….……………... 18

EBITDAR and Target Price 2011E Sensitivity Tables ………….….. 19

Operating and Macroeconomic Assumptions/Forecasts ……...... 20

Forecasted Income Statement and Valuation Metrics ………...…. 21

Forecasted Balance Sheet and Cash Flow Statement …………..… 22

Oil Prices Volatility / Hedging Strategies / Crack Spread … 23-27 Oil: The Sensitive Subject For Airlines ………...... ……………....…... 23 Dynamic Hedging Strategies: A Premium For Stocks …………….... 24 The Wide WTI / Brent Spread and Its Implication on Crack Spreads ………………………………………….. 25-26 Jet Fuel Price Determination in Mexico ………………….………….... 26-27

The Mexican Aviation Industry …………………..….....….……... 28-29

Grupo Aeromexico: Company Description ….….....….……... 30-40 Brief History ……………………………………….…….....….….….….. 31 Grupo Aeromexico Management Team ………………………….…… 32 Grupo Aeromexico Board Members ………...…………………….…… 32 Corporate Structure: Stockholders ……………………………….…… 33 Dividend Policy ……………………………………………….…….…… 33 Grupo Aeromexico’s Aircraft Fleet …………………………….………. 34-39 Aeromexico’s Loyalty Program …………………….…………….……. 40

Airline Alliances …………………….………………..….....….……... 41-43

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The Global Airline Industry Evolution ………………...………… 44-46

Historical PAX Traffic Graphs ……...……………..……………... 47-48

AEROMEX: Company Snapshot ………………………………...… 49

Disclaimer and Corporate Directory ……...………….…….…... 50-51

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Airline Sector Glossary

For a better understanding and follow up of our Aeromexico’s “Prepare For Takeoff” Coverage Initiation report, we have included this section with key airline terms and indicators used for analysis purposes. We recommend our investors familiarize themselves with such terms.

Terms / Indicators Math / Conversions

ASK: Available Seat Kilometer. The indicator of capacity. ASK: RPK / Load Factor = # of seats offered * Avg. Length of Haul RPK: Revenue Passenger Kilometer. The indicator for traffic. RPK: # PAX * Avg. Length of Haul = ASK * Load Factor

Load Factor: Actual used capacity. Load Factor: RPK / ASK

Avg. Length of Haul (LOH): Average route distance. Avg. Length of Haul (LOH): RPK / PAX

PAX: Revenue-Paying Passengers. Break-even Load Factor (BELF): CASK / TR Yield

TRASK: Total Revenue (TR) per Available Seat Mile. The Passenger Revenue: # PAX * Yield total sum of ASKs. Also referred as RASK. TRASK: Total Revenue / ASK PRASK: Passenger Revenue per Available Seat Kilometer. Refers to the revenue generated from each PRASK: Yield * Load Factor = Passenger Revenue / ASK passenger. Yield: Passenger Revenue / RPK Yield: Avg. price paid by the passengers for each flown kilometer. CASK: Total Operating Expenses / ASK

CASK: Total Costs per Available Seat Kilometer (ASK). Utilization: Avg. Block Hours operated per day Common measure of total costs per unit offered. EBITDAR Margin: EBITDAR / Total Revenue. CASK Ex-Fuel: Costs Excluding Fuel Costs per ASK.

EBITDAR: Earnings Before Interest, Taxes, Depreciation & Amortization and Aircraft Rentals. A key operating indicator for valuation. Used to make comparable the airlines’ operating performance. 1 Mile: 1.609 Kilometers

Adjusted Net Debt: Refers to Total Financial Debt 1 Gallon: 3.78541178 Liters (Adjusted for 7 times Aircraft Rentals) minus Cash. 1 Barrel of Oil: 42 Gallons Adjusted EV: Enterprise Value incorporating the airline’s Adj. Net Debt.

Block Hours: Time the plane spends from gate to gate.

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Capacity and utilization forecasts Investment Thesis: Positives

45,000 90% Attractive long-term growth expectations for the Mexican aviation 40,000 80% industry. Mexico and other South American countries such as Chile and 35,000 70% Brazil, share a very similar characteristic: they have low air travel ratios (trips 30,000 60% per capita). According to our estimates, approximately just 8% of the Mexican 25,000 50% population travels by airplane. Annual average trips per capita are just 0.4 20,000 40% times (same as Brazil), while bus travels per capita reach 28 times. This Load Factor Load ASKs (million) ASKs 15,000 30% represents a strong growth potential for the Mexican industry in the coming 10,000 20% years, following the airlines higher efficiencies reached following the current 5,000 10% consolidation process (post-Mexicana’s mortem). It is expected that by 2020, 0 0% this will lead to a ~90% total passenger traffic (TPT) growth in Mexico. 09 10 11E 12E 13E 14E 15E ASKs (mn) Load Factor Economic growth and demographics should support solid local air travel

Source: Actinver. growth in the coming years. We believe that the consistently growing middle- income class is an additional key driver for the industry’s development, as it translates into a larger number of Mexicans demanding discretionary goods and services, such as air travel.

EBIDTAR generation GAM is in a unique leading position to capture Mexico’s attractive fundamentals. Following Mexicana’s bankruptcy, we have observed huge 10,000 uniform GAM’s LTM PAX traffic growth (+20%), the highest ever registered by 8,123 the company. Setting Aeromexico as a clear winner in the Mexican industry. 8,000 7,082 After capitalizing resources (USD 300 million) through its initial public offering 6,612 6,198 (IPO), Grupo Aeromexico is now in an unbeatable condition to detonate 6,000 stronger cash flow generation in the coming years through available-seat- kilometers (ASKs) expansion (2011-2013E CAGR of 13%) and higher load

4,000 factors (79.0%E 2011-2013E), exploiting the consolidation process in Mexico.

MXNmillion 2,718

2,000 GAM’s efficiencies and competitive advantages will support our stronger growth expectations and turn it into a more profitable regional legacy carrier, in our view. Besides GAM’s unique position to benefit from attractive 0 current market conditions, we believe that the company has become more 2009 2010 2011E 2012E 2013E efficient over recent years at different fronts, which should turn it into a more Source: Actinver. profitable company while expanding its operations.

We highlight the major changes that Aeromexico has been implementing in order to improve its operations: 1) increased flight personnel efficiencies, 2) superior fleet efficiencies (modern fleet), 3) disciplined fuel hedging strategies. It is also worth noting the company’s strong pricing power and unique local business model as fundamental competitive advantages.

Finally, it is true that holding a long position for a long-term in airlines’ stocks is proven to result unprofitable due to the volatility in the industry’s long cycles. However, the key for a profitable investment in the aviation sector is to capture the right phase of the cycle in companies with strong fundamentals and attractive growth expectations (as is the case with Aeromexico), while keeping an eye on short-term volatility caused by oil prices, in our view. US Airlines’ stock prices have historically returned investors +140% during the recovering phase of the industry’s cycle (now at its early stage).

Because of that, AEROMEX results a very attractive investment option considering its attractive valuation (at current levels) and long-term fundamentals amidst the ongoing recovering phase of the airline industry.

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Global and US airlines historical operating margins (yearly)

140 10% 120 8% 100 5%

3% 80

0% 60

Operating Margin Operating -3% 40

-5% Index Airlines US Bloomberg 20 -8%

-10% 0 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

US Recession Years Op. Margin Global Airlines Op. Margin US Airlines Bloomberg US Airlines Index

Source: ATA, Bloomberg, Actinver.

Investment Thesis: Risk Factors

As part of the factors affecting an airline’s profitability we highlight the following as the main concerns that could negatively affect GAM’s expected profitability: 1) oil prices volatility (as well as crack spreads volatility; basis risk), 2) un- expected delays from aircraft deliveries (as may be the case for the B-787-8 Dreamliners) -reducing expected ASKs growth, 3) lower than expected Mexican and US economic growth would impact GAM’s PAX traffic, 4) un- expected catastrophic events (such as epidemics, natural disasters or clima- tological occurrences) may severely impact PAX traffic growth, 5) persistent violence-related events may deter inter-national travelers from coming to Mexico.

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Average annual air trips per capita Attractive Long-Term Growth Expectations For The Mexican Aviation Industry 5.0 4.5

4.0 The Mexican aviation industry presents a significant growth potential 3.4 3.0 from its current underdevelopment. Mexico and other South American 3.0 countries such as Chile and Brazil, share a very similar characteristic: they 2.4 2.3 have low air travel ratios (trips per capita). According to our estimates, approx- 2.0 Median of 1.3x imately just 8% of the Mexican population travels by airplane. Annual average # of Flights # 1.0 trips per capita are just 0.4 times (same as Brazil), while bus travels per capita 0.5 0.4 0.4 0.2 reach 28 times. 0.0 It is worth bringing to mind that the Mexican aviation industry is currently under UK U.S. Chile Brazil China development as airlines are still assimilating the process of becoming more and Mexico Canada Australia more efficient on the back of global industry development and learning from Switzerland recent macroeconomic events (crisis, oil prices hike, flu outbreak). Some years Source: Aeromexico, Actinver. ago, local airlines were highly inefficient and unprofitable ( some even today ) due to the high operating costs base (such as personnel) they inherited prior to the de-regulation process (privatization) in the country. At that time, air travel- Air travel penetration by country ing was a luxury only top business men and high income classes could afford. It was until the low-cost carriers -LCCs entered the market (a new efficient 100% business model) at the end of 2005, when we were able to observe the great 90% growth potential the Mexican aeronautical industry had. 80% 70% 60% In the 1960’s the US experienced the same level of underdevelopment, when 50% trips per capita were at 0.5x (now at 2.2x). Industry efficiencies along with 40% 30% sustained GDP growth (as well as improving GDP per capita) were the main 20% 15.2% drivers behind the NA’s sector strong development. The aeronautical industry Total ASK / Population / ASK Total 10% in the US now represents 8% of its GDP. It is worth mentioning that the US 0% (mature) market has reached a 100% penetration as measured by total ASKs / US UK

Iran population, while Mexico is just at 15.2% penetration (slightly lower than Italy India Brazil Egypt China Japan Russia Turkey France Mexico Ethopia

S Africa S Brazil). This represents a strong growth potential for the Mexican industry in the Vietnam Thailand Germany Indonesia

Philippines coming years, following the airlines higher efficiencies reached during the Source: OAG, AW, Actinver. current consolidation process (post-Mexicana’s mortem). It is expected that by 2020, this will lead to a ~90% total passenger traffic (TPT) growth in Mexico.

Economic growth and demographics should support solid local air travel Mexico's GDP per capita (USD) expansion in coming years. We believe that the consistent growing middle-

11.91 income class is an additional key driver for the industry’s development. 12 Mexican GDP per capita has grown steadily over the last ten years, from an annual income of MXN 60,406 in 2000 to MXN 109,929 in 2009. In line with the 12 11.21 11.14 expected economic growth and development of the country, this positive trend in the income of the Mexican population should continue, allowing a larger 11 10.87 10.89 10.65 number of Mexicans access to discretionary goods and services, such as air 10.45 10.44 10.38 travel.

USD ('000) USD 11

This goes along with the attractive potential coming from demographics. 10 Mexican population growth (1% annually in recent years) together with the fact that 57% of the population is below 30 years old, represents positive factors for 10 the development of the industry as a higher mass of potential travelers will 05 06 07 08 09 10 11E 12E 13E eventually enter the market. According to the Mexican institute INEGI, by 2020, Source: OECD, IMF, Actinver. the active labor force will be comprised of more than 59 million inhabitants.

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GAM is in a Unique Leading Position to Capture Mexico’s Attractive Fundamentals

Following Mexicana’s grounding in August 2010, Grupo Aeromexico has become the flag legacy carrier in the market . Since 08/10, GAM has been the most active Mexican airline capturing GMA’s lost PAX traffic. It goes without saying that GAM has become the largest airline in Mexico with a 30% TPT market share. After capitalizing resources (USD 300 million) through its initial public offering (IPO), Grupo Aeromexico is now in an unbeatable condition to detonate stronger cash flow generation in the coming years through available-seat-kilometers (ASKs) expansion (2011-2013E CAGR of 13%) and higher load factors (79.0%E 2011-2013E), exploiting the consolidation process in Mexico ( For a background, please refer to page 10 ).

Following Mexicana’s bankruptcy, we have observed huge uniform GAM’s LTM PAX traffic growth (+20%), the highest ever registered by the company. Setting Aeromexico as a clear winner in the Mexican industry.

Grupo Aeromexico: Historical total PAX traffic

13

A-H1N1 12 Hurricane Oubreak '09 Wilma'05 11 Tequila Crisis '94 10

LCCs' War of Mexicana's 9 9/11 '01 Prices '07 Grounding '10 T12M Passenger (million) Passenger T12M 8 Financial Crisis '08

7 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Source: DGAC, Actinver.

GAM’s efficiencies and competitive advantages will support our stronger growth expectations and turn it into a more profitable regional legacy carrier, in our view. Besides GAM’s unique position to benefit from attractive current market conditions, we believe that the company has become more efficient over recent years at different fronts, which should turn it into a more profitable company while expanding its operations.

We highlight the major changes that Aeromexico has been implementing in order to improve its operations : 1) increased flight personnel efficiencies, 2) superior fleet efficiencies (modern fleet), 3) disciplined fuel hedging strategies . It is also worth noting the company’s strong pricing power and unique local business model as fundamental competitive advantages vs. other local carriers.

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Mexican Passenger (PAX) Traffic Market Composition (Pre and Post-Mexicana’s Mortem)

Total PAX breakdown (Jan-Aug '10) Total PAX breakdown (Post-Mexicana)

Other US Airlines 10% Other US Airlines 9% 6% Volaris 8% 11% UAL 7% UAL Interjet Gpo 6% AA 12% 6% Aeromexico AA 19% 6% VivaAerobus 5% VivaAerobus 4% European 4% Gpo European 4% Gpo Aeromexico Canadian 4% Mexicana Canadian 4% 30% 23% US Airways 4% US Airways 4% Latam 3% Latam 2% 3% Alaska Airlines 2% 1% Aeromar 1% 2% Magnicharters 2%

National PAX breakdown (Jan-Aug '10) National PAX breakdown (Post-Mexicana)

Gpo Gpo Mexicana Aeromexico 24% 44%

Aeromar Aeromar 2% 2% Gpo Aeromexico Magnicharters Magnicharters 27% 3% 2% VivaAerobus VivaAerobus 7% 10% Interjet 22% Interjet Volaris 12% Volaris 12% 17%

Intl. PAX breakdown (Jan-Aug '10) Intl. PAX breakdown (Post-Mexicana)

Gpo AA AA European Aeromexico 8% UAL 11% 8% 13% 12% Gpo US Aeromexico Canadian Airways 14% 8% 7% Gpo Mexicana Canadian UAL US 18% 7% 15% Airways 8%

European Other US 6% Other US Latam Airlines Airlines 7% 19% Alaska Airlines 5% 18% Alaska Airlines 6% Latam 4% Volaris 3% Source: DGAC, Actinver. Volaris 2% Source: DGAC, Actinver.

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Grupo Aeromexico benefits from its strong pricing power as it is the only local carrier able to transfer up to 60% of fuel price hikes to customers (on the back of their more inelastic behavior). This goes in addition of the disciplined hedging strategies the company uses (covering up to 50% of its expected jet fuel consumption) via call spreads and swaps (locking up healthy oil price ranges). Increases in oil might be business as usual for Aeromexico, while other carriers will inevitably experience pressure on operating margins (from their more price-sensitive customers).

Average aircraft fleet age The company owns a modern fleet, which translates into lower costs. During the last years, GAM has been retiring old aircraft and acquiring state-of- 18 the-art equipment in order to reduce maintenance and fuel costs. GAM’s fleet 16 (without considering its old MD-83, expected to be retired by YE2011) has an average age of 7.9 years, lower against North American (12.1) and European 14 Avg. 12.1 12 Avg. 9.8 (9.8) averages. Successful global airlines have proved that a key element of 10 profitability is the carriers fleet. Fuel-efficient, modern and homogenous planes, 7.9 significantly reduce maintenance & repair, as well as jet fuel costs due to lower 8

Age (years) Age consumption. 6

4 We find worth noting that as part of its expansion plan, Aeromexico has orders 2 to acquire 5 Boeing 787-8 Dreamliners starting 2012. This superefficient jet 0 model will consume 20% less fuel than any other plane of its size.

US UK Italy GAM France Mexico Aeromexico’s unique legacy business model in Mexico will continue to Canada Germany translate into a stronger revenue generation from its higher yield paying Netherlands Source: Ascend, DGAC, GAM, Actinver. passengers (RPKs). GAM is the only carrier in Mexico that serves the most important routes (in number of passengers transported), including the business golden triangle ( - - ) with a high number of frequencies, which results in a better option for corporate travelers. Further- more, it is the sole carrier in Mexico offering Premium passenger services through its loyalty program: Club Premier. Not to mention that it is the only local airline member of a global airline alliance, which results into value added Average annual costs per pilot services for businessmen.

Finally, we find positive Aeromexico’s new pilot contracts arrangement. 250 230 228 -19% 222 215 After several negotiations with the pilots union, the company successfully 203 200 180 reached two key conditions on the pilots’ contracts: 1) flight personnel 164 155 productivity was increased from 55 to 72 weekly average flying hours (even 150 135 130 higher than the US average of 60 hours) and 2) lower salaries (-40%) to newly hired personnel (in line with salaries paid by Volaris and Interjet). Personnel 100 contracted under previous conditions will continue to perceive their current

50 annual salaries (avg. USD 240k for Aeromexico and avg. USD 140k for Aeromexico Connect). This should reduce overall average annual pilot salaries 0 of GAM from USD 203k to USD 164k (-19%) in a 5 to 10-year period.

Even when we consider this as a positive step taken by Aeromexico, (skillfully Volaris Interjet

Mexicana taking advantage of the situation Mexicana experienced with the pilots union, in 5-10YRs in Delta(DAL) Aeromexico Aeromexico (UAL) largely responsible for its bankruptcy), it is still a factor that will diminish JetBlue(JBLU) American(AMR) Southwest(LUV) competitiveness to the company in coming years, as its personnel costs UnitedContinental currently remain above the global industry average. Personnel costs represent Source: Aeromexico, Companies information, Actinver. the second largest cost of an airline (~25% of the total).

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Valuation

Adj. EV/EBITDAR Forward Multiple Methodology

We are initiating coverage on AEROMEX with a year-end 2011 target price (TP) of MXN 34.50 per share and a Buy rating. Our TP implies an upside potential of 23.5% over the stock’s current trading prices. We are assuming no dividend payment for 2011.

We are Not using a Discounted Cash Flows (DCF) valuation due to the airlines’ cycle volatility and resulting difficulty in forecasting reasonable long-term cash flows. Instead, we are using a much more realistic Adj. EV/EBITDAR forward multiple approach. According to our analysis, we have found that legacy airlines multiples tend to vary over time, depending on the company’s expected profitability (linked to the industry’s cycle). This can be observed in the downward sloping forward valuation curve of our sample of 6 different global legacy airlines (DAL, LCC, UAL, AMR, ALK and THAI).

Legacy airlines valuation curve

20.0x

18.0x

16.0x 14.0x 12.0x 10.0x

8.0x

6.0x EBITDAR / Fwd 12M EV 4.0x 2.0x

0.0x

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

12M Fwd EBITDAR Margin Source: Consensus, Companies' data, Bloomberg, Actinver.

We have plotted the historical LTM Adj. EV/EBITDAR forward multiple against the companies’ LTM EBITDAR margin to show these findings. One way to read the graph is that, during times of industry growth (recovery & expansion cycles), forward multiples tend to contract, as investors are anticipating weaker profits in sight of the next cycle (unwilling to value strong peak margins as sustainable). During periods of margin contraction, multiples tend to expand, expecting better results.

Unfortunately, we do not have history on AEROMEX’s valuation in order to determine the forward multiple it should be valued according to our 2011E EBITDAR margin. However, we are using a 6.5x Adj. EV/EBITDAR 2011E multiple, which corresponds to AEROMEX’s most comparable peers: the Regional Legacy carriers. Coincidentally, this multiple turns to be the most widely used multiple in the markets’ valuation of airlines’ stocks.

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We are additionally presenting a graph which plots global airlines’ Adj. EV/ EBITDAR 2011E multiples according to their EBITDAR margin estimates (consensus). Thus, we observed that companies with stronger multiples tend to be valued with a higher multiple. Those stocks trading far below the industry’s average valuation line are considered to be undervalued, while stocks trading far above this line are considered to be overvalued, according to our analysis.

Airlines valuation: Adj. EV/EBITDAR vs. EBITDAR margin '11E

12.0x

10.0x Lan EVA JETIN AirTran SpiceJet 8.0x AMR Copa VirginBlue JetBlue MAS Ryanair Cebu THYAO AB1 AirArabia LCC ALGT WestJet easyJet SKYW 6.0x DAL ChinaS AirChina SAS Asiana Tam Aeromex AF LUV ALK Gol UAL VLG AirNZ SIA 4.0x HA LHA / EBITDAR2011E EV Adj. 2.0x

0.0x 0% 5% 10% 15% 20% 25% 30% 35% EBITDAR Margin 2011E

Source: Consensus, Actinver.

Finding AEROMEX Most Comparable Peers

We believe it is too simplistic to state that AEROMEX’s peers should be Latam airlines: (CPA), LAN (Chile), TAM (Brazil), GOL (Brazil), or even the recently gone-public Colombian -Taca. Each airline operates under a specific business model (some even hybrids) and markets (very different from each other), responsible for the company’s competitiveness, profitability, growth, and consequently, valuation.

Thus, for valuation purposes, we took the time to group global airlines from our sample (42) into four major airline business models: 1) Intercontinental Legacy, 2) Regional Legacy, 3) Traditional / Modern Low-Costs (LCCs) and 4) Luxury / Cargo / Hub-and-Spoke. We even found difficulties in grouping airlines such as Copa Airlines (CPA) due to its unique hub-and-spoke successful business model (with hybrid lower cost regional operations), responsible for CPA’s stronger valuation across the industry.

For this analysis, we first grouped global and Mexican airlines into 8 specific business models: 1) Global Luxury Connectors, 2) Intercontinental Networks, 3) Geo-Focused Networks, 4) Network Extenders (Connectors), 5) Ultra Low- Cost, 6) Traditional Low-Cost, 7) Modern Low-Cost, and 8) Charters. We present these groups with their own characteristics as to better understand where Aeromexico and Aeromexico Connect fit in.

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Airlines’ business models

Global Luxury Intercontinental Geo-Focused Network Network Extender Connector Network

Commonly participate in global alliances

(May join by June ’11)

Ultra Low Cost Traditional Low Cost Modern Low Cost Charter

Source: Companies’ information, Aeromexico, Actinver.

Aeromexico operates as a regional legacy carrier, focused mainly in Mexico with several international routes. It serves all the most important (higher density) domestic routes, including the corporate golden triangle (Mexico City (MEX) - Monterrey (MTY) - Guadalajara (GDL)), with a high number of daily frequencies (different from other local competitors). Additionally, through Aeromexico Connect, Grupo Aeromexico serves lower density routes and other short-haul international routes, acting as a network extender for Aeromexico.

Other global carriers with very similar characteristics (regional legacy carriers) are: Alaska Air, Jet Airways, China Southern, China Eastern, Intl., SkyWest and MAS, the airlines we have identified as Aeromexico’s closest peers.

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Why not value AEROMEX with LAN’s or Copa’s (CPA) multiples? To begin with, LAN Chile’s and Copa’s business models differ greatly from Aeromexico’s. Copa operates mainly as an international hub, connecting North America with South America. It centralizes low-density routes in and turns them into highly-profitable routes. On the other hand, LAN Chile also operates a high number of long-haul routes, including routes to Europe, Asia, Australia and North America. Additionally, LAN Chile also operates an extensive cargo system, which represents 24% of its total revenue. LAN has a dedicated fleet, management and maintenance crew specifically in charge of operating its cargo business, as it was born a cargo airline.

LAN: International routes map COPA: International routes map

America Europe and Oceania

Source: LAN, Actinver. Source: COPA, Actinver.

Airlines: Revenue breakdown Both airlines, LAN (22% EBITDAR margin; 9.9x Adj. EV/EBITDAR 2011E multiple) and Copa (25% EBITDAR margin; 8.1x Adj. EV/EBITDAR 2011E 58% 30% 12% multiple), benefit from these competitive advantages, as well as from other Cathay 69% 26% 6% operating efficiencies, in order to post the top EBITDAR margins and multiples LAN 72% 24% 4% in the industry. Singapore 73% 15% 12% -KLM 78% 11% 11% Regarding key operating metrics, we observe that Aeromexico’s higher TAM 78% 9% 13% personnel costs against Copa and other global airlines diminishes its Gol 92% 8% 0% competitiveness, as measured in CASM (CASK). Another way of measuring an

Lufthansa 66% 8% 26% airline’s efficiency is through its break-even load factors (BELF), which

BA 87% 7% 6% basically are the load factor at which and airline’s total revenue per RPM (RPK) equals operating costs (CASM or CASK). Even though LAN’s CASK and CASK 79% 6% 16% ex-fuel indicators are slightly higher than those of Aeromexico, its Cargo 75% 6% 19% business allows the company to have lower BELFs. Copa 95% 5% 0% American 86% 3% 11% Once again, for the case of Aeromexico we found more similarities with Alaska Delta 85% 3% 12% Airlines’s operating figures (another regional legacy carrier). In the next tables Aeromexico 91% 2% 6% we present these operating statistics, measured in kilometers and miles in order to make them comparable to Aeromexico. 0% 25% 50% 75% 100% Passenger Cargo Other

Source: LAN, Actinver. Data for FY2009-10.

ACTINVER 15 GRUPO AEROMÉXICO, S.A.B. de C.V.

May 24, 2011

Selected Operating Statistics Comparable Tables

Kilometers Aeromexico Average GOL LAN TAM 2010 1Q11 2010 1Q11 2010 1Q11 2010 1Q11 2010 1Q11 ASKs (mn) 24,067 6,747 42,260 11,633 31,172 8,591 42,355 12,094 71,445 19,101 TRASK (¢ USD) 9.2 9.7 9.7 9.8 9.2 9.4 10.7 11.0 9.5 9.4 PRASK (¢ USD) 8.2 8.5 7.9 8.1 8.3 8.4 7.3 8.1 7.7 7.3 Yield (¢ USD) 10.6 11.3 10.7 10.7 12.1 11.7 9.4 10.0 10.7 9.9 CASK (¢ USD) 8.3 9.0 8.7 9.0 8.3 8.2 9.2 10.0 9.0 9.0 CASK ex-fuel (¢ USD) 5.9 6.1 5.9 5.9 5.3 4.8 6.5 6.8 6.1 5.8 Fuel / total costs (%) 28.8 32.5 31.8 35.3 36.4 40.6 29.8 32.2 32.1 36.0 Load Factor (%) 77.4 75.1 74.1 75.6 68.6 72.3 78.3 80.9 72.0 74.0 BELF (%) 70.0 69.6 66.7 68.1 68.6 69.9 60.2 61.8 68.1 71.2

Miles Aeromexico Average Copa Airlines Alaska Airlines Delta United-Continental 2010 1Q11 2010 1Q11 2010 1Q11 2010 1Q11 2010 1Q11 2010 1Q11 2010 1Q11 ASMs (mn) 14,958 4,193 103,792 28,637 10,950 3,122 29,174 7,112 232,684 56,219 165,420 41,005 169,565 60,172 TRASM (¢ USD) 14.8 15.6 13.6 13.9 13.0 13.6 13.1 13.6 13.6 13.8 13.4 13.5 13.7 13.6 PRASM (¢ USD) 13.2 13.7 12.2 12.3 12.3 13.0 12.7 12.4 11.7 11.7 11.5 10.9 12.0 11.9 Yield (¢ USD) 17.0 18.2 14.9 15.7 16.0 16.8 13.6 13.3 14.1 15.3 14.2 15.1 14.4 15.3 CASM (¢ USD) 13.4 14.4 12.3 12.7 10.5 10.3 11.0 10.3 12.4 13.9 13.2 13.4 13.1 13.6 CASM ex-fuel (¢ USD) 9.5 9.7 8.5 8.6 7.2 6.6 7.9 7.8 8.3 9.0 9.3 9.6 8.8 9.0 Fuel / total costs (%) 28.8 32.5 30.7 31.7 30.8 35.9 28.4 24.0 33.4 35.7 29.7 28.6 33.0 33.6 Load Factor (%) 77.4 75.1 80.6 77.7 76.9 77.4 82.1 82.3 83.0 76.4 81.0 77.1 83.1 78.0 BELF (%) 70.0 69.6 68.5 69.7 59.4 55.9 66.9 75.0 58.4 59.6 79.8 81.2 76.5 77.0

Source: Consensus, Companies information, Actinver.

It is of interst to note that Aeromexico’s yield (PAX revenue / RPM) is higher than other US legacy carriers (and Copa’s), which means that, on average, Aeromexico’s passengers (PAX) pay more for each mile flown vs. other airline travelers.

ACTINVER 16 GRUPO AEROMÉXICO S.A.B. de C.V.

May 24, 2011

Table of Global Comparable Companies

Global Airlines Valuation Adj. EV/ EBITDAR EBITDAR Price Mkt Cap EV Return ReturnP/E P/BV EV/EBITDA EBITDAR Margin CAGR Company Ticker (Local) (USD) (USD) YTD YoY actual 2011E 2012E 2011E actual 2011E 2012E 2011E 2011E 11-12E Intercontinental Legacy 753.HK 8.0 17,337 28,240 -8% 9% 6.5x 8.8x 9.6x 2.1x 9.6x 9.2x 8.7x 5.9x 25% 4.4% EVA Airways 2618.TT 28.7 2,932 4,564 -22% 71% 7.1x 12.6x 10.6x 2.1x N.A. 8.8x 8.2x 8.9x 18% -11.0% Qantas QAN.AU 2.1 5,018 7,264 -17% -14% 16.2x 10.4x 7.6x 0.8x 4.0x 3.7x 3.0x 5.1x 16% 12.8% THYAO.TI 4.3 2,678 5,434 -20% 20% N.A. 9.8x 7.0x 1.8x 11.8x 6.8x 5.4x 6.8x 16% 22.3% Air France-KLM AF.FP 11.5 4,826 14,647 -16% 22% 5.5x N.A. 7.7x 0.5x N.A. 4.4x 3.9x 4.4x 12% 33.5% AC/B.CN 2.4 685 3,045 -30% 41% 5.0x N.A. 11.0x N.A. 2.7x 2.9x 2.4x 5.8x 12% 7.0% United Continental UAL.US 26.3 8,675 14,372 10% 42% 6.4x 7.0x 5.2x 4.5x 4.0x 3.8x 3.6x 4.2x 11% 5.5% Delta DAL.US 11.2 9,493 20,823 -11% -16% 7.2x 8.0x 5.3x 12.5x 5.3x 5.9x 5.2x 5.9x 11% -1.6% US Airways LCC.US 10.0 1,620 3,840 0% 39% 4.9x 9.8x 5.4x N.A. 3.7x 5.1x 4.1x 6.1x 11% -3.6% LHA.GY 15.0 9,651 12,078 -8% 39% 7.5x 11.3x 8.9x 0.9x 2.8x 2.9x 2.7x 3.7x 11% 6.2% AMR AMR.US 6.6 2,184 8,503 -16% -4% N.A. N.A. N.A. N.A. 5.8x 7.2x 4.7x 8.4x 7% 10.2% Median Intercontinental Legacy 4,826 8,503 -16% 22% 6.5x 9.8x 7.6x 2.0x 4.0x 5.1x 4.1x 5.9x 12% 6.2% Average Intercontinental Legacy 5,918 11,165 -13% 23% 7.4x 9.7x 7.8x 3.2x 5.5x 5.5x 4.7x 5.9x 14% 7.8%

Regional Legacy Alaska Air ALK.US 68.1 2,440 2,842 20% 54% 8.9x 9.2x 8.5x 2.1x 3.4x 3.7x 3.5x 5.0x 21% 5.7% China Southern 1055.HK 4.2 9,811 17,221 -12% 24% 5.0x 8.8x 10.2x 1.3x 8.2x 8.5x 7.9x 5.9x 21% 1.6% China Eastern 670.HK 3.6 8,184 16,826 -9% -1% 6.8x 8.8x 9.9x 2.2x 9.1x 8.9x 8.1x 6.1x 20% 4.9% Thai Airways Int'l THAI.TB 36.5 2,620 6,302 -26% 58% 12.2x 9.7x 7.9x 1.0x 6.4x 5.4x 4.8x 5.8x 20% 10.6% SkyWest SKYW.US 15.6 826 2,009 0% 5% 14.6x 15.9x 8.5x 0.6x 4.9x 4.7x 3.8x 6.2x 20% 4.9% Jet Airways JETIN.IN 447.1 853 3,770 -42% -9% N.A. 6.7x 5.6x 4.8x 10.9x 8.1x 7.6x 7.9x 20% 23.2% Aeromexico AEROMEX* 27.9 1,690 1,780 -10% -10% 7.3x 12.9x 13.0x 3.5x 6.2x 4.6x 5.8x 5.8x 19% 6.9% MAS MAS.MK 1.6 1,792 2,379 -22% -15% 19.6x 17.8x 9.3x 1.6x 16.1x 6.6x 4.4x 7.5x 19% 25.9% AIR.NZ 1.1 954 1,118 -26% -8% 9.7x 14.8x 7.7x 0.7x 2.5x 3.2x 2.4x 4.7x 15% 2.4% Hawaiian Hold. HA.US 5.7 289 162 -27% -15% 7.2x 12.5x 8.3x 1.0x 1.1x 1.3x 1.0x 4.2x 15% 0.4% SAS SAS.SS 18.9 976 4,535 -16% -26% N.A. 40.0x 10.9x 0.4x 53.0x 11.7x 9.5x 5.5x 10% 54.0% Median Regional Legacy 1,384 3,306 -19% -4% 9.3x 11.1x 8.5x 1.2x 7.3x 6.0x 4.6x 5.9x 20% 5.3% Average Regional Legacy 2,875 5,716 -16% 7% 10.5x 14.4x 8.7x 1.6x 11.6x 6.2x 5.3x 5.9x 18% 13.3%

Traditional / Modern Low-Cost (LCCs) Cebu Air CEB.PM 93.3 1,313 1,419 -17% N.A. N.A. 9.5x 8.0x 3.0x N.A. 6.7x 5.5x 6.8x 31% 12.1% Gol GOLL4.BZ 19.6 3,238 4,300 -22% -6% 23.6x 10.7x 10.1x 1.8x 7.2x 4.5x 3.9x 4.6x 27% 23.9% easyJet EZJ.LN 345.1 2,390 2,453 -22% -11% 22.6x 11.3x 9.8x 1.0x 5.9x 5.3x 4.7x 6.2x 25% 4.0% Ryanair RYA.LN 3.4 7,018 8,402 -10% 19% 13.3x 10.7x 9.2x 1.7x 7.8x 6.7x 6.2x 6.2x 23% 11.9% AIRARABI.UH 0.7 911 545 -12% -19% 11.2x 11.6x 10.4x 0.7x N.A. 6.9x 5.0x 6.9x 21% 14.1% Westjet WJA.CN 15.5 2,240 1,968 10% 25% 13.0x 15.7x 11.8x 1.6x 4.4x 4.2x 3.6x 6.6x 20% 13.5% Tam TAMM4.BZ 34.1 3,156 6,255 -12% 37% 6.3x 16.1x 21.0x 3.1x 6.1x 5.2x 5.4x 5.5x 19% 5.4% SpiceJet SJET.IN 39.5 354 241 -51% -25% 15.5x 8.2x 7.3x N.A. N.A. 11.9x 4.6x 7.9x 17% 19.1% Air Berlin AB1.GY 3.0 362 1,138 -18% -9% N.A. N.A. N.A. 0.5x 7.5x 8.5x 5.9x 7.0x 16% 2.6% JetBlue JBLU.US 6.1 1,799 3,768 -8% 8% 19.0x 19.1x 12.1x 1.1x 6.7x 6.7x 5.5x 6.9x 15% 8.7% Allegiant Travel ALGT.US 46.9 893 731 -5% -10% 15.3x 19.7x 12.9x 2.8x 5.5x 6.4x 4.7x 6.5x 15% 5.5% AirTran AAI.US 7.4 1,012 1,484 1% 47% 43.7x 32.3x 17.5x 1.9x 9.6x 9.0x 6.4x 8.0x 14% 4.0% VLG.SM 8.7 365 71 -11% 7% 5.7x 7.9x 7.0x 1.3x 0.8x 0.8x 0.7x 4.3x 14% -4.2% Southwest LUV.US 12.1 9,611 8,479 -6% 2% 16.6x 19.0x 12.2x 1.4x 5.1x 4.8x 3.9x 5.1x 13% 15.1% Virgin Blue VBA.AU 0.3 696 1,730 -30% -34% N.A. N.A. 11.1x 0.7x 5.3x 7.5x 4.3x 7.8x 12% 8.2% Median Traditional / Modern Low-Cost (LCCs) 1,313 1,730 -12% -2% 15.4x 11.6x 10.8x 1.5x 6.0x 6.7x 4.7x 6.6x 17% 8.7% Average Traditional / Modern Low-Cost (LCCs) 2,357 2,866 -14% 2% 17.1x 14.8x 11.5x 1.6x 6.0x 6.3x 4.7x 6.4x 19% 9.6%

Luxury / Cargo / Hub-and-Spoke Copa CPA.US 62.3 2,715 3,302 6% 27% 10.8x 11.0x 9.4x 1.8x 9.4x 8.9x 7.7x 8.0x 25% 14.1% SIA.SP 14.1 13,531 9,174 -8% -1% 15.5x 14.2x 11.7x 1.2x 3.8x 3.7x 3.3x 4.3x 24% 5.4% Lan LAN.CI 13,466.0 9,655 12,330 -8% 39% 22.5x 20.8x 17.3x 6.9x N.A. 10.1x 8.4x 9.8x 22% 8.8% Cathay 293.HK 18.0 9,125 12,333 -16% 20% 5.1x 8.0x 7.7x 1.3x 6.0x 5.8x 5.4x 5.9x 19% 4.2% Asiana 020560.KS 9,130.0 1,486 4,529 -5% 25% 7.3x 5.6x 4.9x 1.6x 5.9x 6.7x 6.4x 5.8x 15% -2.8% Median Luxury / Cargo / Hub-and-Spoke 9,125 9,174 -8% 25% 10.8x 11.0x 9.4x 1.6x 5.9x 6.7x 6.4x 5.9x 22% 5.4% Average Luxury / Cargo / Hub-and-Spoke 7,302 8,334 -6% 22% 12.2x 11.9x 10.2x 2.6x 6.3x 7.0x 6.3x 6.8x 21% 5.9%

Median Global Carriers 2,390 4,300 -12% 7% 10.2x 10.8x 9.3x 1.6x 5.9x 6.4x 4.7x 6.1x 17% 6.2% Average Global Carriers 4,042 6,454 -13% 11% 12.3x 13.2x 9.7x 2.1x 7.5x 6.2x 5.0x 6.2x 17% 9.6%

Source: Consensus, Actinver.

ACTINVER 17 GRUPO AEROMÉXICO, S.A.B. de C.V.

May 24, 2011

2011-2015 Forecasts

Please refer to our Forecasted Financial Derived from Grupo Aeromexico’s aircraft expansion plan, we expect capacity Statements and Operating Metrics section in (ASKs) to be the company’s main growth revenue driver for the 2011-2015 order to get a deeper insight into all the period (CAGR of 11%). We are assuming the acquisition of 24 aircraft during variables and assumptions we have that period (all of which will be 80% debt / 20% cash financed), while incorporated in our valuation model as to maintaining load factors slightly under 80.0% levels (which might turn to be reach our estimates. conservative in the short-term taking into account the current consolidation process in the industry). For 2011 we anticipate total ASKs and RPKs of 29,360 mn and 23,050 mn, respectively (load factor of 78.5%; vs. 77.4% in 2010).

As a result of the increased capacity and RPKs (maintaining stable yields), our forecasts assume a 2011-2015E CAGR of 13.5% in total revenue. For 2011, the entrance of 3 new EMB-190s and higher load factors will result in total revenue of MXN 34,196 million (+21.8% YoY growth).

Following the idea that oil price volatility is the single most important driver of an airline’s stock price in the short term we are using the WTI futures curve as our 2011-2012 oil price estimates (USD 100 /bbl in 2011 [+19.0% YoY] and USD 98 /bbl in 2012 [-2.1% YoY] on average), so we can better reflect changes in short-term expectations in our valuation. For the longer run, we are using the consensus’ forecasts, in order to reduce noise short-term volatility cause.

At the EBITDAR level we anticipate a 2011-2015E CAGR of 13.5%. We expect CASK ex-fuel to decrease 6.6% YoY in 2011 in light of further efficiencies at the company’s operations. Consequently, our 2011 MXN 6,612 EBITDAR estimate assumes a 6.7% YoY growth.

Finally, we note that the low effective tax rate (5% for 2011 and 5% for 2012) implied in our forecasts, derives from deferred tax benefits that the company will receive during the next two years (~MXN 450 mn per year). It is also worth noting that 2010 was a non-recurring year as the company registered ~MXN 900 million tax benefit.

Sensitivity Tables

It is important to mention that we are including Sensitivity Tables in our report (Please refer to page 19 ) which clearly reflect the potential effects from a change / changes combination on each of the following variables: 1) crude oil price, 2) PRASK, 3) Load Factor and 4) ASKs, should have in our 2011E EBITDAR, EBITDAR margin and Target Price. This gives investors with the possibility of considering their own assumptions on any of these key variables and clearly identifying the effects such changes may have on the company’s expected profitability and valuation.

ACTINVER 18 GRUPO AEROMÉXICO S.A.B. de C.V.

May 24, 2011

EBITDAR and Target Price 2011E Sensitivity Tables

WTI / PRASK Sensitivity Tables

EBITDAR 2011E EBITDAR Margin 2011E PRASK -6.0% -4.0% -2.0% Base 2.0% 4.0% 6.0% PRASK -6.0% -4.0% -2.0% Base 2.0% 4.0% 6.0% WTI 0.993 1.014 1.035 1.056 1.077 1.098 1.119 WTI 0.993 1.014 1.035 1.056 1.077 1.098 1.119 15.0 115 3,716 4,336 4,956 5,576 6,196 6,816 7,436 15.0 115 11.5% 13.2% 14.8% 16.3% 17.8% 19.2% 20.6% 10.0 110 4,061 4,681 5,301 5,921 6,541 7,161 7,781 10.0 110 12.6% 14.2% 15.8% 17.3% 18.8% 20.2% 21.6% 5.0 105 4,406 5,026 5,646 6,267 6,887 7,507 8,127 5.0 105 13.6% 15.3% 16.8% 18.3% 19.8% 21.2% 22.5% Base 100 4,752 5,372 5,992 6,612 7,232 7,852 8,472 Base 100 14.7% 16.3% 17.8% 19.3% 20.8% 22.2% 23.5% -5.0 95 5,168 5,788 6,408 7,028 7,648 8,268 8,888 -5.0 95 16.0% 17.6% 19.1% 20.6% 22.0% 23.3% 24.7% -10.0 90 5,620 6,240 6,860 7,480 8,100 8,720 9,341 -10.0 90 17.4% 18.9% 20.4% 21.9% 23.3% 24.6% 25.9% -15.0 85 6,072 6,692 7,312 7,932 8,552 9,172 9,793 -15.0 85 18.8% 20.3% 21.8% 23.2% 24.6% 25.9% 27.2%

Target Price 2011E PRASK -6.0% -4.0% -2.0% Base 2.0% 4.0% 6.0% WTI 0.993 1.014 1.035 1.056 1.077 1.098 1.119 15.0 115 8.0 13.7 19.3 25.0 30.7 36.4 42.0 10.0 110 11.1 16.8 22.5 28.2 33.9 39.5 45.2 5.0 105 14.3 20.0 25.7 31.3 37.0 42.7 48.4 Base 100 17.5 23.1 28.8 34.50 40.2 45.9 51.5 -5.0 95 21.3 27.0 32.6 38.3 44.0 49.7 55.3 -10.0 90 25.4 31.1 36.8 42.5 48.1 53.8 59.5 -15.0 85 29.6 35.2 40.9 46.6 52.3 58.0 63.6

WTI / Load Factor Sensitivity Tables

EBITDAR 2011E EBITDAR Margin 2011E Load Factor -3.0 -2.0 -1.0 Base 1.0 2.0 3.0 Load Factor -3.0 -2.0 -1.0 Base 1.0 2.0 3.0 WTI 75.5% 76.5% 77.5% 78.5% 79.5% 80.5% 81.5% WTI 75.5% 76.5% 77.5% 78.5% 79.5% 80.5% 81.5% 15.0 115 4,391 4,786 5,181 5,576 5,971 6,366 6,760 15.0 115 13.3% 14.3% 15.3% 16.3% 17.3% 18.2% 19.1% 10.0 110 4,736 5,131 5,526 5,921 6,316 6,711 7,106 10.0 110 14.3% 15.4% 16.3% 17.3% 18.3% 19.2% 20.1% 5.0 105 5,082 5,477 5,872 6,267 6,661 7,056 7,451 5.0 105 15.4% 16.4% 17.4% 18.3% 19.3% 20.2% 21.1% Base 100 5,427 5,822 6,217 6,612 7,007 7,402 7,797 Base 100 16.4% 17.4% 18.4% 19.3% 20.3% 21.2% 22.0% -5.0 95 5,844 6,238 6,633 7,028 7,423 7,818 8,213 -5.0 95 17.7% 18.7% 19.6% 20.6% 21.5% 22.3% 23.2% -10.0 90 6,296 6,691 7,085 7,480 7,875 8,270 8,665 -10.0 90 19.1% 20.0% 21.0% 21.9% 22.8% 23.6% 24.5% -15.0 85 6,748 7,143 7,537 7,932 8,327 8,722 9,117 -15.0 85 20.4% 21.4% 22.3% 23.2% 24.1% 24.9% 25.8%

Target Price 2011E Load Factor -3.0 -2.0 -1.0 Base 1.0 2.0 3.0 WTI 75.5% 76.5% 77.5% 78.5% 79.5% 80.5% 81.5% 15.0 115 14.2 17.8 21.4 25.0 28.6 32.2 35.9 10.0 110 17.3 20.9 24.6 28.2 31.8 35.4 39.0 5.0 105 20.5 24.1 27.7 31.3 35.0 38.6 42.2 Base 100 23.6 27.3 30.9 34.50 38.1 41.7 45.3 -5.0 95 27.5 31.1 34.7 38.3 41.9 45.5 49.2 -10.0 90 31.6 35.2 38.8 42.5 46.1 49.7 53.3 -15.0 85 35.7 39.4 43.0 46.6 50.2 53.8 57.4

ASKs / PRASK Sensitivity Tables

EBITDAR 2011E EBITDAR Margin 2011E PRASK -4.5% -3.0% -1.5% Base 1.5% 3.0% 4.5% PRASK -4.5% -3.0% -1.5% Base 1.5% 3.0% 4.5% ASKs 1.008 1.024 1.040 1.056 1.072 1.088 1.103 ASKs 1.008 1.024 1.040 1.056 1.072 1.088 1.103 4.5% 30,681 6,549 7,035 7,521 8,007 8,493 8,979 9,465 4.5% 30,681 19.2% 20.3% 21.4% 22.5% 23.5% 24.6% 25.5% 3.0% 30,241 6,105 6,584 7,063 7,542 8,021 8,500 8,979 3.0% 30,241 18.1% 19.3% 20.4% 21.5% 22.5% 23.6% 24.6% 1.5% 29,800 5,661 6,133 6,605 7,077 7,549 8,021 8,493 1.5% 29,800 17.0% 18.2% 19.3% 20.4% 21.5% 22.5% 23.5% Base 29,360 5,217 5,682 6,147 6,612 7,077 7,542 8,007 Base 29,360 15.9% 17.1% 18.2% 19.3% 20.4% 21.5% 22.5% -1.5% 28,919 4,773 5,231 5,689 6,147 6,605 7,063 7,521 -1.5% 28,919 14.8% 15.9% 17.1% 18.2% 19.3% 20.4% 21.4% -3.0% 28,479 4,329 4,780 5,231 5,682 6,133 6,584 7,035 -3.0% 28,479 13.6% 14.8% 15.9% 17.1% 18.2% 19.3% 20.3% -4.5% 28,039 3,884 4,329 4,773 5,217 5,661 6,105 6,549 -4.5% 28,039 12.3% 13.6% 14.8% 15.9% 17.0% 18.1% 19.2%

Target Price 2011E PRASK -4.5% -3.0% -1.5% Base 1.5% 3.0% 4.5% ASKs 1.008 1.024 1.040 1.056 1.072 1.088 1.103 4.5% 30,681 33.9 38.4 42.8 47.3 51.7 56.2 60.6 3.0% 30,241 29.9 34.2 38.6 43.0 47.4 51.8 56.2 1.5% 29,800 25.8 30.1 34.4 38.8 43.1 47.4 51.7 Base 29,360 21.7 26.0 30.2 34.50 38.8 43.0 47.3 -1.5% 28,919 17.7 21.8 26.0 30.2 34.4 38.6 42.8 -3.0% 28,479 13.6 17.7 21.8 26.0 30.1 34.2 38.4 -4.5% 28,039 9.5 13.6 17.7 21.7 25.8 29.9 33.9

Source: Actinver.

ACTINVER 19 GRUPO AEROMÉXICO, S.A.B. de C.V.

May 24, 2011

Operating and Macroeconomic Assumptions / Forecasts

Grupo Aeromexico, S.A.B. de C.V.

Period 2009 2010 1Q11 2Q11E 3Q11E 4Q11E 2011E 1Q12E 2Q12E 2012E 2013E Exchange rate 13.59 12.67 12.14 12.31 12.49 12.69 12.41 12.77 12.92 12.95 12.55

Operating Metrics

ASKs (mn) 22,994 24,067 6,747 7,059 8,143 7,411 29,360 6,747 7,270 31,868 34,418 YoY Change 4.7% 27.3% 27.0% 27.0% 9.0% 22.0% 0.0% 3.0% 8.5% 8.0% RPKs (mn) 15,025 18,632 5,065 5,424 6,635 5,926 23,050 5,092 5,616 25,127 27,190 YoY Change 24.0% 28.7% 31.3% 29.4% 9.0% 23.7% 0.5% 3.5% 9.0% 8.2% Load Factor 65.3% 77.4% 75.1% 76.8% 81.5% 80.0% 78.5% 75.5% 77.2% 78.8% 79.0% Gpo. Aeromexico Passengers (k) 10,004 11,222 3,077 3,459 4,274 3,818 14,628 3,297 3,654 16,060 17,373 Avg. Length of Haul (km) 1,568 1,568 1,568 1,552 1,552 1,560 1,545 1,537 1,562 1,565

Gpo. Aeromexico Fleet 90 97 98 98 99 97 97 98 99 105 112 Owned Fleet - 4 5 5 7 7 7 8 9 15 22 Leased Fleet 90 93 93 93 92 90 90 90 90 90 90 Wide Body 9 10 10 10 10 10 10 10 10 12 13 B777-200 4 4 4 4 4 4 4 4 4 4 4 B787-8 ------2 3 B767 5 6 6 6 6 6 6 6 6 6 6 Narrow Body 81 87 88 88 89 87 87 88 89 93 99 B737 34 38 38 38 38 38 38 38 38 41 44 EMB-190 7 7 8 8 10 10 10 11 12 13 16 ERJ-145 37 39 39 39 39 39 39 39 39 39 39 MD-83 3 3 3 3 2 ------

TRASK - MXN 0.972 1.167 1.174 1.133 1.165 1.185 1.165 1.156 1.143 1.164 1.212 YoY Change 20.0% 10.0% 4.3% -3.6% -6.7% -0.2% -1.6% 0.8% 0.0% 4.1% PRASK - MXN 0.831 1.037 1.031 1.027 1.063 1.099 1.056 1.036 1.032 1.064 1.106 YoY Change 24.8% 10.7% 8.5% -1.2% -5.0% 1.8% 0.5% 0.5% 0.7% 4.0% Yield - MXN 1.271 1.339 1.373 1.336 1.305 1.374 1.345 1.373 1.336 1.349 1.400 YoY Change 5.4% 9.5% 5.0% -3.0% -5.0% 0.4% 0.0% 0.0% 0.3% 3.8% CASK - MXN 1.019 1.054 1.089 1.090 1.034 1.076 1.071 1.133 1.097 1.073 1.109 YoY Change 3.4% 1.6% 3.1% 0.1% 1.6% 1.5% 4.1% 0.7% 0.3% 3.3% CASK (ex-fuel) - MXN 0.771 0.750 0.735 0.708 0.666 0.702 0.701 0.758 0.712 0.691 0.708 YoY Change -2.8% -5.0% -6.1% -9.4% -5.5% -6.6% 3.2% 0.5% -1.5% 2.5%

Jet Fuel (USD / bbl) 75 96 136 127 118 119 125 119 119 118 125 Into-Plane Spread (USD / bbl) 12 22 20 20 20 24 20 20 20 18 Fuel Inventory Litres (mn) 894 952 260 282 324 293 1,158 265 290 1,263 1,405 Fuel Inventory Gallons (mn) 236 251 69 74 86 77 306 70 77 334 371 Break-Even Load Factor (BELF) 68.5% 70.0% 69.6% 73.9% 72.3% 72.6% 72.2% 74.0% 74.2% 72.7% 72.3% Employees 8,265 10,433 10,584 10,584 10,692 10,476 10,476 10,796 10,906 11,567 12,338

Macroeconomic Assumptions

Mx GDP Growth -5.95% 5.52% 4.98% 4.02% 4.07% 3.88% 4.24% 3.17% 2.95% 3.43% 3.02% Mx Inflation (INPC) 138.54 144.62 146.32 146.82 148.42 150.62 150.62 152.32 153.22 156.78 163.14 YoY Change 3.6% 4.4% 3.1% 4.5% 4.3% 4.1% 4.1% 4.1% 4.4% 4.1% 4.1% US GDP Growth -2.60% 2.85% 2.30% 3.20% 3.30% 3.40% 3.05% 2.95% 3.00% 3.04% 3.00% US Inflation (CPI) Growth 1.43% 1.27% 2.13% 3.00% 3.00% 2.70% 2.70% 2.10% 2.10% 2.00% 2.00% WTI (USD / bbl) 74 84 98 107 98 99 100 99 99 98 107 YoY Change 13.5% 17.2% 26.1% 20.6% 12.2% 19.0% 0.7% -7.8% -2.1% 8.3%

Source: Actinver

ACTINVER 20 GRUPO AEROMÉXICO S.A.B. de C.V.

May 24, 2011

Forecasted Income Statement and Valuation Metrics

Grupo Aeromexico, S.A.B. de C.V.

Period 2009 2010 1Q11 2Q11E 3Q11E 4Q11E 2011E 1Q12E 2Q12E 2012E 2013E Exchange rate 13.59 12.67 12.14 12.31 12.49 12.69 12.41 12.77 12.92 12.95 12.55

Income Statement (MXN million)

Total Revenue 22,348 28,080 7,924 7,999 9,490 8,782 34,196 7,796 8,308 37,108 41,704 YoY change 25.6% 40.1% 32.5% 22.4% 1.7% 21.8% -1.6% 3.9% 8.5% 12.4% Total Passenger Revenue 19,097 24,953 6,953 7,248 8,657 8,145 31,003 6,990 7,504 33,900 38,078 Cargo 482 642 240 155 179 163 737 148 160 710 792 Others 2,770 2,485 731 596 654 474 2,455 658 644 2,498 2,835

Total Costs and Operating Expenses 23,441 25,376 7,345 7,691 8,423 7,972 31,431 7,647 7,976 34,202 38,175 Op. Expenses (ex. Rentals, D&A) 19,630 21,882 6,458 6,743 7,407 6,976 27,584 6,696 6,958 30,025 33,582 Personnel 6,130 6,411 1,817 1,820 1,764 1,729 7,130 1,890 1,857 7,490 8,458 Aircraft Fuel 5,702 7,321 2,386 2,691 2,998 2,772 10,847 2,530 2,798 12,185 13,803 Aircraft Maintenance and Repairs 1,926 1,943 522 469 539 578 2,109 532 484 2,227 2,447 Airport Services 2,468 2,660 786 816 977 845 3,424 786 840 3,716 4,073 Aircraft Insurance 116 126 31 34 35 34 135 33 36 146 164 Passenger Services 511 526 152 166 193 178 690 157 176 772 859 Selling and Marketing 2,180 2,319 611 605 742 672 2,631 611 623 2,858 3,117 Administrative 260 228 64 50 65 72 251 67 52 261 272 Others 338 350 89 90 93 95 367 90 91 370 389

EBITDAR 2,718 6,198 1,466 1,257 2,083 1,806 6,612 1,101 1,350 7,082 8,123 YoY change 128.0% 76.6% 26.2% 2.7% -22.9% 6.7% -24.9% 7.4% 7.1% 14.7% EBITDAR Margin 12.2% 22.1% 18.5% 15.7% 22.0% 20.6% 19.3% 14.1% 16.2% 19.1% 19.5% Aircraft Rentals 3,345 3,017 787 815 881 860 3,342 845 876 3,631 4,031 EBITDA -627 3,180 679 442 1,203 946 3,270 255 474 3,451 4,092 YoY change N.A. 577.4% 56.6% -3.1% -39.2% 2.8% -62.4% 7.3% 5.5% 18.6% EBITDA Margin -2.8% 11.3% 8.6% 5.5% 12.7% 10.8% 9.6% 3.3% 5.7% 9.3% 9.8% D&A 466 476 100 134 135 136 505 106 142 545 563 Operating Income (EBIT) -1,093 2,704 579 308 1,068 810 2,765 149 332 2,906 3,529 YoY change N.A. N.A. 89.7% -5.2% -43.5% 2.3% -74.2% 7.9% 5.1% 21.4% Operating Margin -4.9% 9.6% 7.3% 3.8% 11.3% 9.2% 8.1% 1.9% 4.0% 7.8% 8.5%

Net Financial Result -1,045 -1,231 -253 -181 -130 -127 -691 -137 -147 -850 -1,330 Other Income (Loss) -229 387 139 -135 -135 -135 -266 -60 -60 -240 -177 Exceptional Items -39 -87 3 --- 3 -- -- Pre-Tax Income (EBT) -2,407 1,774 468 -8 802 548 1,810 -48 125 1,816 2,022

Income Taxes -86 -608 -45 -92 151 74 88 -127 -75 95 526 Effective Tax Rate 4% -34% -10% 1189% 19% 14% 5% 266% -60% 5% 26% Consolidated Net Income -2,320 2,382 513 85 652 474 1,723 79 200 1,721 1,496 Minority Interest -24 48 47 47 47 47 190 47 47 190 190 Majority Net Income -2,296 2,334 465 37 604 426 1,533 32 152 1,531 1,306 YoY change N.A. N.A. N.A. -54.0% -67.2% -34.3% -93.2% 310.8% -0.1% -14.7% Net Margin -10.3% 8.3% 5.9% 0.5% 6.4% 4.9% 4.5% 0.4% 1.8% 4.1% 3.1%

Valuation Metrics Adj. EV / EBITDAR 6.5x 5.4x 5.4x 5.8x 5.8x 6.3x 6.2x 6.4x 6.3x EV / EBITDA 6.2x 4.1x 4.0x 4.6x 4.6x 5.4x 5.3x 5.8x 5.5x Price / Earnings 7.3x 6.4x 8.2x 12.9x 12.9x 18.0x 16.3x 13.0x 15.2x Price / BV 526.3x 4.6x 3.9x 3.5x 3.5x 3.4x 3.3x 2.6x 2.1x Price / EBIT 6.7x 5.8x 5.9x 7.2x 7.2x 8.5x 8.4x 6.8x 5.6x Price / EBT 8.9x 7.7x 9.8x 11.0x 11.0x 15.3x 13.9x 10.9x 9.8x Source: Actinver

ACTINVER 21 GRUPO AEROMÉXICO, S.A.B. de C.V.

May 24, 2011

Forecasted Balance Sheet and Cash Flow Statement

Grupo Aeromexico, S.A.B. de C.V.

Period 2009 2010 1Q11 2Q11E 3Q11E 4Q11E 2011E 1Q12E 2Q12E 2012E 2013E Exchange rate 13.59 12.67 12.14 12.31 12.49 12.69 12.41 12.77 12.92 12.95 12.55

Balance Sheet (MXN million)

Total Assets 11,392 14,030 15,012 19,734 21,624 22,262 22,262 22,267 22,458 29,242 33,985 Current Assets 2,416 4,416 4,760 9,586 10,670 11,357 11,357 10,953 10,788 10,774 10,518 Cash and Equivalents 231 1,324 1,347 6,258 7,209 7,881 7,881 7,341 7,143 6,830 5,913 Cash / Revenue 1.0% 4.7% 4.4% 19.4% 21.2% 23.0% 23.0% 21.5% 20.8% 18.4% 14.2% Inventories 531 512 523 575 616 618 618 635 640 701 800 Accounts Receivable 1,167 1,999 2,033 2,124 2,183 2,192 2,192 2,333 2,355 2,542 3,028 Advance Payments 486 581 857 628 662 665 665 644 650 701 777 Net PPE 4,697 3,643 3,862 3,740 4,492 4,367 4,367 4,718 5,043 11,718 16,718 Real Estate 1,992 2,003 2,014 2,024 2,024 2,033 2,047 2,066 2,108 Flight Equipment 7,221 7,221 8,096 8,096 8,096 8,542 8,995 15,946 21,462 Accum. Depreciation 5,398 5,532 5,667 5,803 5,803 5,909 6,051 6,348 6,911 Deposits for Equipment 47 48 49 50 50 51 52 54 59 Others 4,279 5,971 6,390 6,407 6,462 6,538 6,538 6,596 6,627 6,749 6,749 Investment in Non-Controlling Subs. -- 88 88 88 88 88 88 88 88 88 Goodwill and Intangibles -- 1,284 1,284 1,284 1,284 1,284 1,284 1,284 1,284 1,284 Other Assets -- 5,018 5,035 5,090 5,166 5,166 5,224 5,255 5,377 5,377

Total Liabilities 14,038 14,413 14,838 15,455 16,568 16,589 16,589 16,417 16,329 21,416 24,377 Current Liabilities 9,768 10,329 10,387 11,050 11,763 11,810 11,810 11,755 11,776 14,230 16,201 Operating ST Liabilities 8,599 9,412 9,445 10,095 10,542 10,605 10,605 10,629 10,723 11,420 12,733 Accounts Payable - 5,239 4,822 5,404 5,598 5,639 5,639 5,682 5,731 6,032 6,677 Tax Payable - 1,063 1,051 1,328 1,399 1,405 1,405 1,400 1,413 1,525 1,714 Other Short-Term Liabilities - 3,109 3,572 3,364 3,545 3,560 3,560 3,547 3,579 3,863 4,342 Short-Term Debt 1,169 917 942 955 1,222 1,205 1,205 1,126 1,054 2,810 3,468 Long-Term Liabilities 4,271 4,084 4,451 4,405 4,804 4,780 4,780 4,661 4,552 7,186 8,176 Long-Term Debt 1,927 1,318 1,481 1,433 1,832 1,808 1,808 1,689 1,580 4,214 5,203 Deferred Benefits on Aircraft Purchases 18 17 16 18 18 18 18 18 18 18 19 Other Long-Term Liabilities 2,326 2,749 2,954 2,954 2,954 2,954 2,954 2,954 2,954 2,954 2,954

Shareholders Funds -2,647 -383 174 4,279 5,056 5,673 5,673 5,850 6,129 7,825 9,608 Minority Interest 96 4 132 -17 -17 -17 -17 46 46 46 105 Shareholders Equity -2,742 -387 42 4,296 5,073 5,690 5,690 5,804 6,083 7,779 9,503 Total Liabilities and Equity 11,392 14,030 15,012 19,734 21,624 22,262 22,262 22,267 22,458 29,242 33,985

Leverage / Profitability

Total Debt 3,096 2,235 2,423 2,388 3,054 3,013 3,013 2,815 2,634 7,024 8,671 Net Debt 2,864 911 1,076 -3,870 -4,155 -4,868 -4,868 -4,525 -4,509 194 2,758 Adj. Net Debt 26,279 22,032 22,596 18,361 18,725 18,527 18,527 19,279 19,718 25,613 30,972 Net Debt / EBITDA -4.6x 0.3x 0.3x -1.0x -1.1x -1.5x -1.5x -1.6x -1.6x 0.1x 0.7x Adj. Net Debt / EBITDAR 9.7x 3.6x 3.3x 2.6x 2.6x 2.8x 2.8x 3.1x 3.1x 3.6x 3.8x Interest Coverage Ratio -1.3x 3.0x 3.1x 1.5x 4.5x 3.4x 3.2x 0.7x 1.6x 2.6x 2.1x ROE N.A. N.A. 7238.3% 72.5% 47.4% 26.9% 26.9% 18.9% 20.0% 19.7% 13.7%

Cash Flow Statement (MXN million)

Majority Net Income 2,334 465 37 604 426 1,533 32 152 1,531 1,306 D&A 476 100 134 135 136 505 106 142 545 563 Adjusted Cash Flow 2,810 565 171 739 562 2,038 137 294 2,076 1,869 Changes in Working Capital 290 288 -735 -314 -48 -809 112 -61 -347 -653 Change in Debt -439 25 -50 650 -64 561 -205 -197 3,993 1,827 Capital Expenditures -326 -416 - -874 - -1,291 -447 -452 -7,851 -5,516 Dividends ------Other -663 137 3,912 -7 -32 4,010 86 65 265 202 Net Cash Flow 1,093 23 4,767 822 514 6,126 -541 -229 -1,170 -965 Beginning Cash 231 1,324 1,347 6,258 7,209 1,324 7,881 7,341 7,881 6,830 Ending Cash 1,324 1,347 6,258 7,209 7,881 7,881 7,341 7,143 6,830 5,913

Source: Actinver

ACTINVER 22 GRUPO AEROMÉXICO S.A.B. de C.V.

May 24, 2011

Historical oil prices (WTI) Oil Prices Volatility / Hedging Strategies / Crack Spread

160 Oil: The Sensitive Subject For Airlines 140 120 In recent years, oil price volatility is the single most important driver of an 100 airline’s stock price in the short term. This is mainly due to the fact that fuel 80 costs represent roughly 25 to 40% of an airline’s total operating expenses (34%

USD / bbl / USD 60 2011E for Aeromexico). According to our valuation model, each 5% increase in WTI crude oil prices represent a USD 30 million decrease (-5%) in our 2011E 40 EBITDAR forecast ( Please refer to our Sensitivity Tables on page 19 ). Thus we 20 find it vital to present an exhaustive ( to some extent ) analysis on oil, as well as 0 price volatility implications in the airlines businesses (particularly for the Apr-90 Apr-95 Apr-00 Apr-05 Apr-10 Mexican industry).

Source: EIA, Actinver. It results practically impossible for an airline’s management team ( and for us ) to predict when, and to what extent, a geopolitical or natural event might trigger the next relevant oil price movement. It comes to happen even by mere speculation. It is evident that the persistent oil price volatility in the markets makes most investors skeptical on investing in the aviation sector, mainly on concerns of its negative implications on the airlines’ fundamentals.

It is important to note that oil price hikes’ effects are not always consistent across the sector. Different implications between airlines do exist. We have identified four main factors that should make an airline stronger against other competitors: 1) its personnel costs and efficiencies (average flown hours per pilot, planes’ productivity, timely scheduled itinerary), 2) a fuel-efficient fleet (modern aircraft), 3) the airline’s customers base (elasticity on fare increases), and last ( but definitely not least ), 4) the company’s fuel hedging strategy.

In other words, current high oil prices (+USD 100 /bbl) should be business as usual for some carriers, such as Aeromexico, who owns a modern (fuel- efficient) aircraft fleet, has efficient flight personnel (currently costs are high but expected to decrease over time), possesses a high inelastic (corporate) customer base, and uses a dynamic hedging strategy. Not to mention the benefits of operating in an oil rich country such as Mexico, positively correlating GDP growth (+potential air travelers) with oil price increases.

Even at start-point, investors should keep in mind that the global airline industry, as a whole, has become more efficient (from legacy carriers to LCCs) during recent years, nowadays required to survive in an environment of intense competition and higher crude oil prices ( Please refer to the section “Global Airline Industry Evolution” on page 44 for further details ). Just to show the magnitude of the synergies and efficiencies reached by the industry, it is worth noting that with current WTI oil prices of ~USD 100 /bbl, global airlines present higher operating margins than 25 years ago, when oil prices where below USD 40 per barrel.

It is true that holding a long position for a long-term in airlines’ stocks is proven to result unprofitable due to the volatility in the industry’s long cycles. However, the key for a profitable investment in the aviation sector is to capture the right phase of the cycle in companies with strong fundamentals and attractive growth expectations (as is the case with Aeromexico), while keeping an eye on short-term volatility caused by oil prices, in our view.

ACTINVER 23 GRUPO AEROMÉXICO, S.A.B. de C.V.

May 24, 2011

Dynamic Hedging Strategies: A Premium For Stocks

As stated before, jet fuel costs have substantially increased over recent years, adding pressure on airlines to maintain healthy margins and positive cash flows. Nonetheless, these costs are hedgeable through WTI and heating oil (HO) derivatives in the financial markets, making it possible for airlines to lock up future oil prices, reducing volatility in their cash flows.

Aeromexico’s Finance department has a We have observed that global airlines use a variety of strategies ranging from dedicated area in charge of monitoring oil price no hedging to fully hedging using a combination of products. The most used movements (among other factors) in order to products are over-the-counter (OTC) instruments such as call spreads, collars, implement the best short-term hedging and swaps. These products are the most widely used as they are fairly strategy. This consequently helps to determine customizable. OTC derivatives are traded directly between airlines and the most adequate day-by-day air fares to be investment banks. offered to its customers in each flight. Aeromexico holds derivative positions with different investment banks to diminish counter- The airline’s ability to customize the option contracts facilitates the implemen- party risk. tation of a dynamic hedging strategy. This is important as oil prices tend to move in cycles rather than consistently in one direction. Thus, it is possible for an airline to implement a hedging strategy that enables it to lock-in oil prices at the “low” point of the cycle, while capping prices at the “high” end of the cycle.

Avg. airlines 2011E fuel hedging per region As aforementioned, this is a crucial topic for the sector as a ‘hedging premium’ is given by investors to airline’s stocks that follow strict and efficient hedging 2011E Fuel policies. Such a premium is attributed by the ability of the company to generate Region Consumption more stable and consistent operating margins, giving more room for analysts Hedged and investors to forecast its future cash flows. In general (mostly in the past), 35% financial markets discounted the aviation sector’s stocks due to the idea that Europe 60% airlines’ earnings lack consistency. European airlines are the most hedged Latam 24% airlines with a 60% hedge in estimated consumption for 2011. The US follows Aeromexico 24% with a 35% and Latam carriers currently have a ~24% hedged consumption. Asia / Pacific 30% According to our estimates, Aeromexico has already hedged 24% of its 2011 Source: Airlines information, Actinver. fuel consumption.

We believe there’s not an exact percentage of up to what level an airline should be hedged. As derivatives, fuel hedging instruments represent a risk for airlines if they go over-hedged or implement risky strategies (with higher maximum potential losses). Nonetheless, derivatives are the necessary evil that airlines Call Spread options strategy have to deal with. Airlines decisions to get into derivatives are not simple by any means. On one side, a higher cost from an option premium should be paid if buying near-the-money call (bull) options (close to the spot price), sending the hedged price much higher (offsetting potential benefits). On the other side, if airlines opt to use (costless) Zero-Cost collars in order to avoid the premium cost, they could risk having set a high-floor (via the protective put) vs. spot oil prices, if the latter were to experience a sudden drop (losing the benefits from lower oil prices).

Aeromexico follows a good, disciplined hedging strategy, in our view. By using a policy of hedging up to 50% of their total estimated yearly consumption they avoid risks if unexpected oil price movement surprises come to happen. Aeromexico’s hedging strategies consist basically in calls and call spreads with limited upside profits and downside losses (locking up a healthy range for the oil price). The remaining 50% of un-hedged estimated consumption can be transferred to the clients through price increases in flight tickets (through fuel Source: Actinver. surcharges), of up to 60% of the oil price increase.

ACTINVER 24 GRUPO AEROMÉXICO S.A.B. de C.V.

May 24, 2011

Unfortunately, the oil dilemma for airlines does not end here. It is important to mention there isn’t a perfect hedge for jet fuel available in the financial markets (OTC derivatives are very illiquid). This results in a basis risk (spot price of jet fuel [minus] future price of WTI) for the airlines. We will refer to this as the jet

fuel crack spread, or crack spread.

Middle East Turmoil Map The Wide WTI / Brent Spread and Its Implication on Crack Spreads

In 2011 WTI crude oil prices have increased 18% YTD to USD 101 /bbl on

average vs. 2010 avg. price of USD 85 /bbl. Following the geopolitical unrest in the Middle East (ME), beginning in Egypt at the end of January, oil prices experienced their most pronounced hike of up to USD 114 /bbl (WTI). The ME is the region with the richest global reserves. Concerns from production scarcity sent prices up. However, what particularly surprised us was the widening of the WTI / Brent spread after these events, as high as USD -19 /bbl.

Historically, the WTI has traded at a premium to Brent, on its superior and lower sulfur composition (higher quality). However, the WTI / Brent spread has

become more negative, attributable mainly to the ME unrest, in our view. The higher divergence began around the time that protests in Egypt erupted. Brent is the referential product for ~65% of global trade (production represents less than 2% of the world’s production). Also, Brent is gradually becoming more accepted as a benchmark price in Europe, Asia and the ME. Being these the Source: Bloomberg. reasons behind a greater impact on Brent and the widening spread vs. WTI.

World’s largest proven oil reserves by country

Russia (8) Reserves: 79,000mn (bbl) (1) Production: Canada 10,120k (bbl/day) Iraq (3) Reserves: 178,100mn (bbl) (5) Reserves: (6) Production: 115,000mn (bbl) iran 3,289k (bbl/day) (12) Production: 2,399k (bbl/day) (4) Reserves: 137,010mn (bbl) (4) Production: 4,172k (bbl/day) Libya

(9) Reserves: 46,000mn (bbl) Kuwait Mexico (18) Production: 1,790k (bbl/day) (6) Reserves: (15) Reserves: 101,500mn (bbl) 13,350mn (bbl) (10) Production: (7) Production: 2,494k (bbl/day) 3,001k (bbl/day) Saudi Arabia United Arab Em Venezuela (1) Reserves: 264,590mn (bbl) Nigeria (7) Reserves: (2) Production: (2) Reserves: 97,800mn (bbl) 9,764k (bbl/day) 211,170mn (bbl) (10) Reserves: (8) Production: (11) Production: 37,220mn (bbl) 2,798k (bbl/day) 2,472k (bbl/day) (15) Production: 2,211k (bbl/day)

Source: OPEC, CIA (The World Factbook), Actinver

ACTINVER 25 GRUPO AEROMÉXICO, S.A.B. de C.V.

May 24, 2011

Why is the WTI / Brent spread so relevant? The spread between WTI and traditional oil cracks (oil derivatives), such as heating oil and jet fuel, has become completely irrelevant as they follow the same pattern ( obviously not the same magnitude ) of the WTI / Brent spread.

Jet fuel and crude oil (WTI) historical prices

200 Crack Spread (USD / bbl) 180 WTI (USD / bbl) 160 Jet Fuel (USD / bbl)

140

120 100

80 bbl / USD 60 40

20

0 -20 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Source: Reuters, EIA, Actinver.

Crude oil futures curve According to the WTI and Brent futures curves, such a spread is not expected to narrow significantly in the short-term, until 2013. Currently, the WTI / Brent 112 spread is USD -13 /bbl and the futures’ curve assumes the spread will be 110 reduced to USD -1 /bbl by 2019 (never returning to the historical positive 108 WTI/Brent Spread spread in the 2011-2019 period). (USD/bbl) 106 104 -$13 Accounting for this in our valuation model. We couldn’t easily find jet fuel 102 price forecasts to account into our valuation model. However, there are

USD/bbl 100 forecasts of the most followed oil benchmark in the financial markets, the West Brent (USD/bbl) -$1 98 Intermediate (WTI). As aforementioned, oil price movements is the most

96 WTI (USD/bbl) important single driver of an airline’s stock price (valuation) in the short-term. 94 Thus, we incorporated the WTI short-term futures curve (2011-2012) as our 92 WTI forecasts. For the longer run, we use the markets’ consensus forecasts to 06/11 10/12 02/14 06/15 10/16 02/18 06/19 reduce short-term noise on future price expectations.

Source: Bloomberg, Actinver. Following that, we use the WTI / Brent spread trend to estimate the WTI / jet fuel spread. As observed in the graph, we expect such an spread to narrow starting 2013. Nonetheless, particularly for the Mexican aviation sector, we should account for another spread premium to reach the final jet fuel price paid by the local airlines (that incorporates the full into-plane spread), which we call the “ Mexican jet fuel spread”. So forth, our expected into-plane spread forecasts are composed of the WTI / crack premium and the local fuel spread.

Jet Fuel Price Determination in Mexico

In Mexico, the final jet fuel price paid by airlines is determined through a formula imposed by the Mexican Communications and Transport authority, the SCT. Unfortunately, such a formula reduces competitiveness for the local aviation sector.

ACTINVER 26 GRUPO AEROMÉXICO S.A.B. de C.V.

May 24, 2011

Jet Fuel transportation cost by airport Mexican Jet Fuel Pricing Formula (SHCP)

LAP LTO PPE Reference MZT Mkt Mgmt. Transportation = Jet Fuel + x FX Rate + -Discount + IVA Tax CJS Price ((Cost ) ) & Supply Cost CUU Price REX ZCL TIJ Aeropuertos y Jet Fuel 54 CZM Pemex Servicios SHCP (Platt’s) CUN Auxiliares (ASA) AGU TRC Source: SHCP, Actinver. MID SLP 756.3/mMXN cost: Average transportation MXL BJX PVR According to the Mexican jet fuel pricing formula, the final market price should MLM incorporate a ‘management’ cost (Pemex) and a transportation & supply cost CUL PBC (Aeropuertos y Servicios Auxiliares - ASA) over the reference jet fuel price in TAM the US. Both companies, Pemex and ASA, have the local monopolies to MTY PCA produce, distribute and supply jet fuel, respectively. CVM LMM MEX The pricing process: Pemex is the only company able to produce the jet fuel ACA VER kerosene in the country. Over the reference US price, it charges a manage- VSA GDL ment cost. Fuel is then distributed to one of the 16 different ASA distribution HMO centers, spread in different States of Mexico. Depending on the distance SJD MTT 3 (distribution center - airport) ASA adds a freight cost to the “Pemex” jet fuel OAX MXN/m 3 TLC price. Freight costs vary significantly from States depending on the distance, as can be observed in the left hand graph. At the airports, ASA is also in charge of 0 500 1,000 1,500 2,000 2,500 3,000 supplying fuel into the planes, which aggregates a final supply cost to the jet Source: ASA, SHCP, Actinver. fuel price paid by airlines.

Taking into account the whole process, on Mexican Jet Fuel price structure average, jet fuel prices (pre-tax) in Mexico are 28% higher vs. the US reference prices. 12 Mexico is the only country (as far as we know) 1.5 that charges such a ‘management’ cost, 10 0.9 responsible for 63% of the increase. 0.03 1.4 8

6 11.8 MXN / Lt MXN/ 10.3 9.4 4 8.0

2

0 Ref Price Mgmt Cost Pemex Transp. & Discount Pre-Tax IVA Tax Mkt Jet (Platts) (Pemex) Price Supply Jet Fuel Fuel Price (ASA) Source: Actinver. Mexican Jet Fuel ( Turbosina ) Pricing

Ref. Jet Fuel Jet Fuel Mgmt. Cost Pemex Discount Transportation Supply Cost Transp. + Pre-Tax Jet Pre-Tax Jet I.V.A. Mkt Jet Fuel FX Rate Px (USD) (MXN) (Pemex) Price (SHCP) Cost (ASA) - N* Supply (N) Fuel (MXN) Fuel (USD) Tax Price (MXN) A B C = (A*B) D E = (C+D) F G H I = (G+H) J = (E-F)+I K = (J*B) L M = J*(1+L) Consumer Group mnLts / YR USD / bbl USD / MXN MXN / m 3 MXN / m 3 MXN / m 3 ¢USD/gallon Dist.Center-Airp MXN / m 3 MXN / m 3 MXN / m 3 USD / bbl MXN / m 3 A ≥ 385 126.0 12.1 8,004.7 1,431.7 9,436.4 1.50 756.3 95.8 852.1 10,248.4 161.3 15% 11,785.7 B 140 to 384 126.0 12.1 8,004.7 1,431.7 9,436.4 1.08 756.3 101.9 858.1 10,265.7 161.6 15% 11,805.5 C 25 to 139 126.0 12.1 8,004.7 1,431.7 9,436.4 0.78 756.3 128.6 884.8 10,300.4 162.1 15% 11,845.4 D 0 to 24 126.0 12.1 8,004.7 1,431.7 9,436.4 0.56 756.3 143.5 899.8 10,321.2 162.5 15% 11,869.3 Average 126.0 12.1 8,004.7 1,431.7 9,436.4 0.98 756.3 117.4 873.7 10,283.9 161.9 15% 11,826.5

*N - Normal tariffs for jet fuel supply services realized during the established airports' schedules. For extraordinary services, 100% higher tariffs apply. Source: Platts, SHCP, ASA, Actinver.

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May 24, 2011

The Mexican Aviation Industry

A brief background: The local aeronautical market is suffering from the effects of a significant number of carriers’ bankruptcies, mainly caused by: 1) irrational capacity growth (from airlines), 2) oil price hikes in 2008, 3) the global financial crisis and 4) the AH1N1 flu outbreak in Mexico.

The highest number of passengers that It is worth mentioning that the Mexican sector experienced unprecedented PAX Mexico has ever transported annually is the traffic growth following the entrance of LCCs Interjet in 2005 and Volaris in same as the passengers transported in the 2006. Many other new players entered the market at a time when the global US... in a month! industry was experiencing the benefits of a recovering cycle (ASM’s, RPM’S and margin growth). Airport operators OMA and GAP went public in ~2007 (in the middle of the bonanza), with IPO’s offered at sky high multiples (anticipating a sustained +15% traffic growth?). At the peak of the expansion phase (June 2008), Mexico transported up to 54.66 million annual passengers, 30% more PAX than before Interjet began operations.

Un-experienced ( and poorly managed) local airlines were forced to leave the market when the aforementioned negative factors (one over other) struck. The losers? Grounded airlines, the aviation industry, customers and airport operators. The winners? The healthier and stronger carriers (mainly GAM and Interjet).

Fleet breakdown by airline (2011) Mexican total PAX traffic (LTM)

Aeromex Mexicana's Connect 55 47 grounding

Aeromar 14 50 VivaAerobus 11 Aeromexico 51 45 Grounding of: Magnicharters Aerocalifornia 11 Alma Volaris (million) Passenger T12M 40 26 Interjet Entrance of LCCs to NovaAir 22 the Mexican market 35 Source: DGAC, Actinver. 2004 2005 2006 2007 2008 2009 2010

Source: DGAC, Actinver. Total PAX breakdown (2011) Other US Airlines 9% Today: The industry is currently under a period of consolidation in which five Volaris main carriers are taking part of: Grupo Aeromexico (The flag, Legacy airline), 11% UAL Interjet (fast growing Modern LCC), Volaris (Modern LCC with increasing short- 7% haul international routes to the US), and VivaAerobus (the only ultra low-cost Interjet AA 12% 6% carrier in Mexico that operates under the Ryanair model).

VivaAerobus 5% After Mexicana’s cessation of operations, two particular carriers have been European 4% very active trying to recover the traffic left unattended: Aeromexico and Interjet. Gpo They both have managed to increase their total passenger traffic (TPT) market Aeromexico Canadian 4% 30% share from 19 to 30% and from 6 to 12%, respectively. US Airways 4% Latam 3% ALK 3% It goes without saying that Grupo Aeromexico’s IPO was meant to further Aeromar 1% Magnicharters 2% increase its share, benefiting from the market’s consolidation and the global Source: GDAC. recovering cycle (following a rational expansion plan).

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Average aircraft age by airline Expectations: The most efficient and profitable Mexican airlines will drive the sector’s growth during the following years. Unfortunately, as a country, Mexico

30 26.4 lack’s competitiveness at the fuel pricing and tax fronts. However, GAM, Interjet 25 23.2 and Volaris have looked forward to generate further efficiencies in their 7.9 years operations such as: giving boarding priority to passengers carrying printed 20 14.9 boarding passes (Volaris lowers check-in costs by applying this strategy), 15 reducing aircraft taxiing times through faster PAX boarding, reducing meals (or

10 8.2 7.6 quality of meals; now Interjet and Volaris just offer chips and soft-drinks during 5.5

Aircraft age age (years) Aircraft flights, Aeromexico just peanuts [in short-haul routes]), among others. 2.9 5 0 It is also relevant to point out that these airlines operate with a very young fleet (well below the global industry’s average), which further reduces maintenance and fuel costs. Interjet Volaris Aeromar Connect Aeromex Aeromexico VivaAerobus We expect the local industry’s seats offer (the ‘A’ and the ‘S’ in the ASK Magnicharters capacity indicator) to expand at a CAGR 2011-2012 of 23%, considering the Source: DGAC, Actinver. airlines’ expansion fleet plans for the next couple of years. Our estimates assume Interjet will add 12 new Airbus 320 aircraft, VivaAerobus 10 (B-737s), Volaris 8 (Airbus), Grupo Aeromexico +3 EMB-190s (while retiring the old three MD-83s from Aeromexico Travel) and Aeromar +4 planes.

Seat capacity of Mexican commercial airlines

40,000

35,000 +6% +18% 30,000 Others +28% Aviacsa 25,000 -31% Gpo Mexicana +6% 20,000 +9% Aeromar

+9% Magnicharters 15,000 +0% Gpo Aeroméxico +0% 10,000 +91% +28% VivaAerobus +28% Interjet 5,000 +55% +23% Volaris +13% +26% 0 2006 2007 2008 2009 2010 2011E 2012E 2013E

Source: Airlines data, SCT, Actinver.

It will be until the second half of 2012 when the lost seats of Grupo Mexicana de Aviación (GMA) will be completely recovered. Thus, we foresee weak operations for airport operators in the short-term, due to the current seats offer capacity constraints.

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May 24, 2011

Company’s structure Grupo Aeromexico: Company Description

Grupo Aeromexico S.A.B. de C.V. Grupo Aeromexico (GAM) is the largest airline in Mexico, with a 30% total PAX traffic market share. It is the only Mexican carrier operating under a legacy airline business model and the only local member of an airline alliance (Sky Team). GAM attends 40 domestic destinations and 26 international (North Aerovías de México America, Central and South America, Europe and Asia). It is also the only local (Legacy carrier) airline certificated by the IOSA (IATA), international safety standards. Its fleet is comprised of 98 aircraft with an average age of 7.9 years.

Aerolitoral The company mainly serves the corporate and high income segment travelers (Network extender) through two main carriers: Aerovías de México (legacy carrier with 51 Boeing aircraft), Aeromexico Connect (network extender with 47 Embraer planes) and Aeromexico Travel (charter with 3 MDs). The latter is expected to cease AM Travel operations by year-end 2011. Additionally, GAM complements and supports its (charter) airline’s operations with additional services that provide EMA (maintenance), PLM (loyalty program), as well as the following subsidiaries which are currently under a restructuring process:

EMA (Maintenance & Aeromexico Servicios: The previously named “SEAT” is a subsidiary in Overhaul) charge of the land operations of the company which serves airplanes with services such as baggage handling, fueling of airplanes, etc. The company was formerly owned by both Mexicana and Aeromexico yet since Mexicana’s Premier Loyalty & grounding, the company is fully controlled by GAM. Marketing - PLM (Loyalty Progam) Aeromexico Cargo: Formerly know as “”. This division is in charge of the cargo business of GAM, also previously owned through a partnership with Mexicana. Aeromexpress as itself will be dissolved and SEAT (Ground handling employees transferred, leading to the brand new “Aeromexico Cargo”. This services) business represents a potential catalyst for the company, as it currently has a market share of 11% of the total cargo services in Mexico, with stronger growth opportunities. Aeromexpress (Cargo) Aeromexico Capacitación: It is the training school for GMA personnel (pilots,

Under restructuring process operations officers, mechanics and stewardesses). In 2010, 7,288 courses were imparted to 52,712 participants, equivalent to 125,437 hours of training.

Alas de América Sky Team’s major hubs and GMA’s geographical footprint (Training Services)

Source: Actinver.

GMA employed 10,433 people (43% ground personnel, 30% non union personnel, 12% pilots and 15% flight attendants) at the end of 2010. Its shares are quoted on the (BMV) under the ticker AEROMEX* with an average daily operated volume of USD 18 million (May, 2011). AEROMEX* shares began trading on April 14, 2011.

Source: Sky Team, Actinver.

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Brief History

Grupo Aeromexico (GAM) first began operations in 1934, as Aeronaves de México S.A. de C.V. with its inaugural flight from Mexico City to . Initially the company was government-owned. Gradually the company began adding new flights such as international services to the US and Canada, by 1994 GAM had formed a strategic Alliance with Delta Airlines, an alliance that would later prove fruitful. In 2000, a cornerstone in the company’s history was achieved, the founding of SkyTeam (12 members total).

In October of 2007, 100% of the company’s stock was offered through the BMV to an important group of Mexican investors. The Board Members are now comprised of 21 investors, 2 of them designated by Banamex which owns a sizeable part of the company (~40%) and a third pilot member who represents the stock owned by ASPA personnel. Soon after, the investors began injecting cash to the company, amounting to approx. USD 250 million as capital additions .

Aeromexico’s operation now serves over 66 destinations worldwide, 26 of them to international locations (13 in the US and Canada, 3 in Europe, 5 in South America, 2 in Asia and 3 in Central America and the ). With currently over 10 thousand employees (1,263 pilots).

GAM: History and development

Source: Aeromexico.

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GAM: Administration – Management team Grupo Aeromexico Management Team

GAM’s current management team is comprised of highly skilled professionals Board of Directors and directors with extensive experience in the airline industry. Most of them have occupied or still occupy key position in other companies related to the sector. Andrés Conesa Labastida Chief Executive Officer (CEO and Board Member) Andrés Conesa Labastida (CEO): Chairman of the Board and CEO of the Ricardo Sánchez Baker company, Mr. Conesa has served as the company’s CEO since 2005. He has a Chief Financial Officer (CFO) degree in Economics by the Instituto Autónomo de México and a PhD in Raúl Mauricio Saenz Campos Economics from the Massachusets Institute of Technology (MIT). He received Chief Operational Officer (COO) a national award in Economics from Banamex derived from his doctorate. Mr. Conesa has an ample trajectory in the aviation sector, previously serving as a Sergio Allard Barroso Commercial Director member in the boards of IATA, ALTA, Skyteam, Aeromexpress, Alas de América and SEAT. Mr. Conesa was an active member in the Secretaria de Juan Rodríguez Castañeda Hacienda y Crédito Público (SHCP). Director of HR Ricardo Sánchez Baker (CFO) : Mr. Baker has a degree in Economics from Abraham Zamora Torres Director of Corporate Affairs the Universidad Iberoamericana, a post degree in Finance from the Instituto Teconlógico Autónomo de México and a doctorate in Economics from the Edmundo Olivares Dufóo University of California at Los Angeles (UCLA). Before occupying the current Director of Legal Affairs position, Mr. Baker was the CEO’s advisor and Director of Income Strategy. He’s been president of the Administration Committee of Sabre and Seat. He has also been a member of the Boards of Aeromexpress, Alas de América and Source: GAM. PLM. Mr. Baker also was an active member in the Secretaría de Hacienda y Crédito Público.

Raúl Mauricio Saenz Campos (COO): Mr. Saenz has been a part of Aeromexico since 1993. He studied Industrial Engineering and an MBA at the Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM). Mr. Saenz once was the General Manager of Aeromexico Connect (1999-2008).

Grupo Aeromexico Board Members

GAM’s board is comprised by 21 members, 2 of them designated by Banamex and on of them a pilot representing the ASPA.

• María Asunción Aramburuzabala • Javier Arriguniaga Gómez del Campo • José Luis Barraza González • Juan Francisco Beckman Vidal • Henry Bremond Pellat • Fernando Canales Clariond • Marcelo Canales Clariond • Andrés Conesa Labastida • Antonio Cosío Pando • Valentín Díez Morodo • Luis De La Calle Pardo • José Eduardo Nicolás Esteve Recolóns • Juan Fernando Franco Hernaíz

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GAM: Board Members • Eugenio Garza Herrera • Héctor Madero Rivero BoardMembers • Ricardo Martín Bringas • Francisco Medina Chávez José Luis Barraza González • Chairman (President of the Board) Maximino Salazar Nava • Fernando Quiroz Robles María Asunción Aramburuzabala Larregui (Member) • Eduardo Tricio Haro Javier Arrigunaga Gómez del Campo (Member) • Luis Enrique Chiapa Vivas Juan Francisco Beckman Vidal (Member)

Henry Bremond Pellat (Member)

Fernando Canales Clariond (Member) Corporate Structure: Stockholders

Marcelo Canales Clariond (Member) Grupo Aeroméxico (GAM) currently has 710.3 million outstanding shares, of Andrés Conesa Labastida (CEO and Independent Member) which 125.5 mn were offered in its initial public offering (IPO). The initial stock- Antonio Cosío Pando (Member) holders (pre-IPO) were composed by Banamex (45%; 263.1 mn shares), a group of 21 shareholders (51%; 298.27 mn shares) and the pilots union Valentín Díez Morodo (Member) (ASPA) (4%; 23.4 mn shares). Post-IPO holdings (considering a uniform Luis De La Calle Pardo (Member) dilutive effect of the original structure), was: 18% free float, 37% Banamex, 42% original shareholders and 3% ASPA (round numbers). Jose Eduardo Nicolás Esteve Recolóns (Member)

Juan Fernando Franco Hernaíz (Member) GAM Ownership Structure Eugenio Garza Herrera (Member)

Héctor Madero Rivero (Member) Ricardo Martín Bringas (Member) Banamex Francisco Medina Chávez (Member) Free Float 18% 37% Maximino Salazar Nava (Member) ASPA (Pilots Union) Fernando Quiroz Robles (Member) 3% Eduardo Tricio Haro (Member) Original Luis Enrique Chiapa Vivas (Independent Member) Shareholders 42% Source: GAM.

Source: Aeromexico, Actinver Estimates.

Dividend Policy

GAM’s company by-laws consider the possible payment of future dividends, considering the approval through an ordinary stockholders meeting, however so far none have been decreed.

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Grupo Aeromexico’s aircraft fleet Grupo Aeromexico’s Aircraft Fleet

GAM operates a fleet of 98 aircraft comprised of 10 wide bodies (4 B-777-200s -200 and 6 B-767s) and 88 narrow bodies (38 B-737s, 8 EMB-190s, 39 ERJ-145s Capacity: 277 PAX and 3 MD-83s). Through its wide bodies, GAM reaches the largest maximum range available from Mexican carriers. Such aircraft operate the longer-haul -300 routes to destinations such as Tokyo, Paris and Sao Paulo. Regional Capacity: 186 PAX operations and short-haul routes to the US are well served through Aeromexico Boeing 767-200 Connect lower range aircraft (the Embraers 190s and 145s). Capacity: 181 PAX According to the company’s fleet expansion plan, 24 new aircraft will be -800 incorporated during the 2011-2015 period, from which 5 correspond to the new Capacity: 160 PAX super-efficient B-787-8 Dreamliner, 10 B-737s and 9 EMB-190s. MD-83 Capacity: 150 PAX Detailed Aircraft Analysis Boeing 737-700 Capacity: 124 PAX We are presenting a detailed analysis on GAM’s aircraft. We first begin by EMB-190 briefly introducing the company’s two plane suppliers, followed by specific Capacity: 99 PAX individual aircraft descriptions and technical characteristics, some of which are ERJ-145 used in our valuation model (such as pilots and first officers needed to operate Capacity: 50 PAX each model [costs], avg. price of the plane [CAPEX, debt], fuel consumption).

Boeing: The largest company in the world to produce airplanes. It has supplied Boeing 787-8 over 12,000 commercial airplanes in service worldwide. Additionally, Boeing Capacity: 240 PAX produces military aircraft, satellites, weapons, electronic and defense systems, etc. Current airplanes in production by Boeing include the 737, 747, 767, and Source: Aeroméxico, Boeing, Actinver. 777, also the upcoming 747-8 and the 787 Dreamliner.

Embraer: A Brazilian company founded in 1969 with the sole purpose of Aeromexico’s aircraft rentals costs represent producing aircraft, whereas it be for commercial, executive, military or roughly 50% of its EBITDAR, as most of its fleet is leased. However, the next 24 expected agricultural purposes. Quickly through time Embraer has become a company aircraft arrivals for 2011-2015 will be dedicated to the production of smaller aircraft such as the ERJ-145 or the EMB purchased, making for a more flexible airline -195, they specialize in low fuel consumption, versatility and low cost of operation. operation.

Boeing aircraft range capability (from Mexico City) Embraer aircraft range capability (from Monterrey)

Source: Embraer, Actinver. Source: Embraer, Actinver.

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Boeing: B737-700 B737-700 Seating Layout (124 passengers)

12 C Premier (Business) 112 economy Source: Boeing, Aeromexico, Actinver.

Boeing 737-700: The 737-700 was the first of the Next Generation series when first customer ordered the variant in November 1993. The variant was based on the 737-300 and entered service in 1998. It replaced the 737 -300 in Boeing's lineup, and its direct competitor is the A319. It typically seats 137 passengers in a two-class cabin or 149 in an all-economy configuration.

Technical characteristics B737-700 Seats 126 (typical 2-class), 149 (typical 1-class) Typical Cruise Speed 0.785 Mach (@35,000 ft) (583 mph; 938 km/hr) Maximum Range 3,440 nautical miles (6,370 km). [2-class with winglets] Maximum Fuel Capacity 6,875 U.S. gal (26,020 L) Maximum Takeoff Weight 154,500 lb (70,080 kg) Pilots per plane 12 (captains and first officers needed to operate) Cargo 966 cu ft (27.3 cu m) Source: Boeing, Aeromexico, Actinver. Price USD 50.5 - 59.0 million

Boeing: B737-800 B737-800 Seating Layout (160 passengers)

16 C Premier (Business) 144 economy Source: Boeing, Aeromexico, Actinver.

Boeing 737-800: The 737-800 is a stretched version of the 737 -700, and replaces the 737-400. It also filled the gap left by the decision to discontinue the McDonnell Douglas MD-80 and MD- 90 following Boeing's merger with McDonnell Douglas. The - 800 was launched by Hapag-Lloyd Flug (now TUIfly) in 1994 entering service in 1998. The 737-800 seats 162 PAX in a two-class layout, or 189 one class, it competes with the A320.

Technical characteristics B737-800 Seats 162 (typical 2-class), 189 (typical 1-class) Typical Cruise Speed 0.785 Mach (@35,000 ft) (583 mph; 938 km/hr) Maximum Range 3,115 nautical miles (5,765 km). [2-class with winglets] Maximum Fuel Capacity 6,875 U.S. gal (26,020 L) Maximum Takeoff Weight 174,200 lb (79,010 kg) Pilots per plane 12 (captains and first officers needed to operate) Cargo 1,555 cu ft (44 cu m) Source: Boeing, Aeromexico, Actinver. Price USD 70.5 - 79.0 million

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Boeing: B767-200ER B767-200ER Seating Layout (181 passengers)

36 C Premier (Business) 125 economy Source: Boeing, Aeromexico, Actinver.

Boeing 767-200ER: The extended-range variant of the original Boeing 767, the 767-200ER, was first delivered to in 1984. The 767-200ER became popular overseas with smaller operators seeking wide-body airliners but not needing the 747's capacity. This model became the first 767 to complete a non- stop transatlantic journey. It is expected to be succeeded in Boeing's lineup by the 787-8 Dreamliner.

Technical characteristics B767-200ER Seats 181 (typical 3-class), 224 (typical 2-class), 255 (1-class) Typical Cruise Speed 0.80 Mach (@35,000 ft) (530 mph; 851 km/hr) Maximum Range 6,385 nmi (12,195 km) Maximum Fuel Capacity 23,980 U.S. gal (90,770 L) Maximum Takeoff Weight 395,000 lb (179,170 kg) Pilots per plane 25 (captains and first officers needed to operate) Cargo 3,180 cu ft (90.1 cu m) Source: Boeing, Aeromexico, Actinver. Price USD 124 - 135 million

Boeing: B767-300ER B767-300ER Seating Layout (186 passengers)

36 C Premier (Business) 150 economy

Source: Boeing, Aeromexico, Actinver.

Boeing 767-300ER: The -300ER is the extended-range version of the -300. It first flew in 1986 and received its first commercial orders when American Airlines purchased several in 1987. The aircraft entered service with AA in 1988. In 1995, EVA Air used a 767-300ER to inaugurate the first transpacific 767 service. The 767-300ER can be retrofitted with blended winglets from Aviation Partners Boeing. These winglets are 11 ft (3.4 m) long and decrease fuel consumption an estimated 6.5%.

Technical characteristics B767-300ER Seats 218 (typical 3-class), 269 (typical 2-class), 350 (1-class) Typical Cruise Speed 0.80 Mach (@35,000 ft) (530 mph; 851 km/hr) Maximum Range 5,990 nmi (11,070 km) Maximum Fuel Capacity 23,980 U.S. gal (90,770 L) Maximum Takeoff Weight 412,000 lb (186,880 kg) Pilots per plane 25 (captains and first officers needed to operate) Cargo 4,180 cu ft (118.4 cu m) Source: Boeing, Aeromexico, Actinver. Price USD 141 - 157 million

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May 24, 2011

Boeing: B777-200ER B777-200ER Seating Layout (277 passengers)

49 C Premier (Business) 228 economy Source: Boeing, Aeromexico, Actinver.

Boeing 777-200ER: The 777-200ER ("ER" for Extended Range), the B-market version of the -200, was originally known as the 777-200IGW for its increased gross weight. The -200ER features additional fuel capacity and an increased maximum takeoff weight (MTOW) over the -200. Aimed at international airlines operating transatlantic routes, the -200ER's maximum range is 7,700 nautical miles (14,300 km).

Technical characteristics B777-200ER Seats 301 (typical 3-class), 400 (typical 2-class), 440 (1-class) Typical Cruise Speed 0.84 Mach (@35,000 ft) (590 mph; 950 km/hr) Maximum Range 7,725 nmi (14,305 km) Maximum Fuel Capacity 45,220 U.S. gal (171,170 L) Maximum Takeoff Weight 656,000 lb (297,550 kg) Pilots per plane 29 (captains and first officers needed to operate) Cargo 5,330 cu ft (151 cu m) Source: Boeing, Aeromexico, Actinver. Price USD 206 - 231 million

Boeing: B787-8 B787-8 Seating Layout (222 passengers)

38 C Premier (Business) 184 economy Source: Boeing, Aeromexico, Actinver.

Boeing 787-8: The Dreamliner is a superefficient airplane with new PAX-pleasing features. It will bring the economics of large jet transports to the middle of the market, using 20% less fuel than any other airplane its size. The airplane will provide non- stop services between mid-size cities having new levels of competence. The customers will benefit of new services like: improved levels of comfort with larger windows, bigger baggage bins and innovation in the cabin.

Technical characteristics B787-8 Seats 210 to 250 passengers Typical Cruise Speed 0.89 Mach (@35,000 ft) (585 mph; 945 km/hr) Maximum Range 7,650 to 8,200 nautical miles (14,200 to 15,200 km) Maximum Fuel Capacity 33,530 U.S. gal (126,915 L) Maximum Takeoff Weight 502,500 pounds (227,930 kilograms) Pilots per plane ~25 (captains and first officers needed to operate) Cargo 4,400 cu ft (124.6 cu m) Source: Boeing, Aeromexico, Actinver. Price USD 161.0 - 171.5 million

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Embraer: EMB-190 EMB-190 Seating Layout (99 passengers)

11 C Premier (Business) 88 economy Source: Embraer, Aeromexico, Actinver.

Embraer EMB-190: The E190 replaces old-generation jets, right-sizes fleets, supplements of replaces flying and opens new markets. These Embraer aircraft compete with the Bombardier CRJ-1000. In addition, being in the 100-seat range, it competes with smaller mainline jets including the - 200, the 737-500/-600 the Airbus A318, and the up-coming Bombardier C-Series.

Technical characteristics EMB-190 Seats 94 to 114 passengers Typical Cruise Speed 0.82 Mach (553 mph; 890 km/hr) Maximum Range 2,762 nmi (4,448 km) Maximum Fuel Capacity 28,600 lb (16,250 L) Maximum Takeoff Weight 105,400 pounds (47,790 kilograms) Pilots per plane 11 (captains and first officers needed to operate) Cargo N.A. Source: Embraer, Aeromexico, Actinver. Price USD 43.0 million

Embraer: ERJ-145 ERJ-145 Seating Layout (50 passengers)

50 economy

Source: Embraer, Aeromexico, Actinver.

Embraer ERJ-145 : The 50-seat ERJ-145 delivers versatility needed for building a regional network - it can be utilized for turboprop replacement, new market development, frequency building, and right-sizing. The ERJ-145 provides high structural efficiency, simplified maintenance, low direct operating costs, outstanding dispatch reliability and schedule completion rates, as well as long, dependable service life in the demanding environment.

Technical characteristics ERJ-145 Seats 50 passengers Typical Cruise Speed 0.80 Mach (530 mph; 851 km/hr) Maximum Range 2,000 nmi (3,706 km) Maximum Fuel Capacity 13,168 lb (7,438 L) Maximum Takeoff Weight 53,131 pounds (24,100 kilograms) Pilots per plane 9 (captains and first officers needed to operate) Cargo N.A. Source: Embraer, Aeromexico, Actinver. Price USD 19.6 - 21.0 million

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MacDonnell Douglas: MD-83 MD-83 Seating Layout (150 passengers)

150 economy Source: Aeromexico, Actinver.

The aircraft series was designed for frequent, short-haul flights for 130 to 172 passengers depending on the plane version and seating arrangement. The Boeing MD-80, a quiet, fuel-efficient twinjet, was certified by the FAA in August 1980 and entered airline service in October 1980. Its Pratt & Whitney JT8D-200 engines, combined with its efficient aerodynamic design, allow the MD-80 to meet all current noise regulations while producing among the lowest operating costs in commercial aviation.

Technical characteristics MD-83 Seats 155 (typical 2-class), 172 (typical 1-class) Typical Cruise Speed 0.76 Mach (@35,000 ft) (504 mph; 811 km/hr) Maximum Range 2,504 nautical miles (4,635 km) Maximum Fuel Capacity 7,000 U.S. gal (26,495 L) Maximum Takeoff Weight 160,000 lb (75,575 kilograms) Pilots per plane 8 (captains and first officers needed to operate) Cargo 1,103 cu ft (28.7 cu m) Source: Embraer, Aeromexico, Actinver. Price Out of production

ACTINVER 39 GRUPO AEROMÉXICO, S.A.B. de C.V.

May 24, 2011

Aeromexico’s Loyalty Program

In December 1991, Aeromexico began a loyalty program named “Club Premier”, the purpose of which was to increase customer loyalty, reward frequent customers and increase market share. By the end of 2010 the company had 2.8 million members affiliated. The program consists of providing customers with miles which may be exchanged for airplane tickets. The miles are obtained by using either your Aeromexico Premier card every time you buy tickets or by making purchases in several commercial establishments associated with the company, some of them are: Restaurants, car rentals, hotels, American express card purchases, Banamex Card Purchases and transferring points from other loyalty programs.

In September of 2010, Aeromexico formed an alliance with Groupe Aeroplan, the largest loyalty program company in the world. Together they own a stake in a new company called Premier Loyalty & Marketing S.A.P.I. de C.V. (PLM), Groupe Aeroplan owns 29% of the company, while Aeromexico owns the remaining 71%. PLM’s currently has a fair value of USD 170 million. In the joint venture, Aeroplan manages Aeromexico’s loyalty program completely, adding more value to the program and further creating synergies with the company’s other programs and alliances.

Km Accumulation by destination Km Redeemed by destination

US and Asia Local Asia Canada 3% 40% 4% 29% Beaches 6% Borders 9% Local Borders 20% 9% Latam & Caribbean Beaches 15% 11% Europe Latam & 13% US and Caribbean Europe Canada 16% 14% 11%

Source: Aeromexico, Actinver. Source: Aeromexico, Actinver.

ACTINVER 40 GRUPO AEROMÉXICO S.A.B. de C.V.

May 24, 2011

Airlines Alliances Airline Alliances

A little background: The development of Alliances between airlines first SkyTeam: Sky Team is the second largest alliance was founded in 2000 began in the 1990’s as a need to address specific weaknesses (low efficiencies by Aeroméxico,Air France, Delta Air and profitability) most carriers experienced. Such was the case of American Lines and Korean Air. The alliance currently consists of thirteen carriers Airlines (AMR) and Delta (DAL), which in the past had strong presence in the from four continents, with the slogan domestic US market yet lacked a solid international network. This presented an "Caring more about you" . SkyTeam opportunity for airlines, as synergies could be reached in a competed environ- also operates a cargo alliance called SkyTeam Cargo. ment through agreements between carriers which in turn could benefit the operations of all companies involved. Star Alliance: It is the world's first (1996) and largest airline alliance (26 The first important structural change in the aviation industry took place with the members). It was founded by five of the world's leading airlines: Lufthansa, deregulation by the US Congress in 1978. Soon later the EU followed, yet in a Air Canada, , slower manner, being the last reforms in 1997, finally opening EU markets for Thai Airways and . The free competition. After the deregulation of the European market, local carriers five-point star logo represents the five original founding airlines. began to assimilate a business model resembling the ones present in the US, turning legacy carriers much more efficient (now privately owned). One of the

OneWorld: Was founded in 1999 by main changes early adopted was the hub-and-spoke model, in which they five airlines: American Airlines, British could connect national and European feeder networks to intercontinental flights Airways, Canadian Airlines, Cathay and more effectively connect passengers in intra-Europe destinations. Pacific and Qantas. Oneworld slogan is “oneworld revolves around you”. In 2009, the group celebrated its 10th It is worth mentioning that following deregulation, the low-cost carriers (LCCs) anniversary with the introduction of a new standard Oneworld livery. business model emerged.

In recent years, airline alliances all over the world (especially in the US and the Source: Alliances’ websites, Actinver. European Union (EU)) have developed very similar competitive structures, following global trends in the airline industry.

Regulatory Environment

Currently the airline industry is still regulated by the Convention on International Civil Aviation signed in Chicago on 7 December 1944 (also known as the Chicago Convention). Some of the main subjects in the convention are the regulation on the number of permitted flights between countries and require- ments on the ownership of the airlines.

In 1992, the Department of Transportation (DOT) began with an initiative of “open-skies”, which basically looks to completely allow entry on all routes, unrestricted capacity and frequency. This would create a complete freedom to compete worldwide. To this date, the US has 90 open-skies partners. By 2002 Europe had the judgments of November 5th which laid the foundation for liberalization of international air services in the EU. The most recent liberaliza- tion of air traffic between the US and EU was through a provisional application in March 2008 of the EU - United States Air Transport Agreement, introducing new freedoms for both regions.

Benefits from Alliances

As a carrier, some of the main benefits obtained from joining an airline alliance are:

• Airlines may link their networks of routes and sell tickets on the flights of their commercial partners, therefore offering access to hundreds of new destinations around the world.

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May 24, 2011

• A wider brand recognition is attained through a larger network.

• Corporate costumers may be more inclined to associate with large net- works with flexible schedules.

• Members may jointly finance expensive and long term projects.

Many benefits derived from alliances are directly reflected on consumers, so much so that the DOT, in cases, justifies exemptions from antitrust laws.

Some consumer benefits and efficiencies (that support loyalty to the airlines) derived from alliances are the following:

• Airlines offer lower prices to customers and service more destinations through their partners.

• A larger network means that secondary airports and smaller destinations cities may be served from the primary destination.

• Customers may receive value added services from different airlines in the alliance, making it a better value overall service.

• Passengers may sometimes link their frequent flyer and loyalty programs (such as Aeromexico’s Club Premier) with other carriers, making it a better opportunity for customers. Passengers belonging to a loyalty program even have access to VIP lounges at the airports from other allied airlines when traveling with them.

ACTINVER 42 GRUPO AEROMÉXICO S.A.B. de C.V.

May 24, 2011

Airline Alliances

Launch year 1996 2000 1999 Members 26 13 12

Europe

US and Canada

Latam

Asia / Pacific

Africa / ME

2,186 (+1,199 of related Fleet 4,023 2,473 operators)

Countries 181 169 145 Destinations 1,160 898 901

Yearly PAX (mn) 603.8 384.0 335.7

Transatlantic PAX 8.85 6.66 5.36 2009 (mn)*

Share of 37.6% 28.3% 22.7% transatlantic mkt.*

Fuente: European Commission, US Department of Transportation (DOT), Actinver. * Source: DOT information for the year ended in June 2010.

ACTINVER 43 GRUPO AEROMÉXICO, S.A.B. de C.V.

May 24, 2011

The Global Airline Industry Evolution

The global airline industry has been much like their flights, constant ups and downs yet always going forward. An industry that began in the early 1920’s with small aircraft connecting short destinations between US cities has now become a multi-billion dollar industry which contributes ~8% of the US GDP, with over 545,000 employees and operates more than 31,000 flights per day (in the US). Three major historical milestones have turned aviation into a more efficient industry, in which some carriers have learned to obtain sustained

profitability.

First Milestone: The Turbine

From the 1920’s up to the 1950’s most airlines operated nationally, with very few exceptions such as and Nortwest Airways offering international flights with routes from Los Angeles to Shangai and Boston to London. Major airplane manufacturers included Ford, Boeing and Douglas, creating aircraft

capable of being profitable and simple enough to be used in regular operations. Soon after the end of World War II, many technological milestones achieved in war would soon make their way to commercial aviation such as the turbine, pressurization, increased efficiency, greater speed and larger payloads.

By the 50’s, the flaghips of the jet age were the , Boeing 707 and the Douglas DC-8, making longer flights possible and increasing passenger traffic worldwide. Soon after, airlines began to demand airplanes capable of carrying larger payloads and achieving higher speeds, as at the time

the cost of fuel did not represent a significant portion of the operating cost in

the industry. Out of the airline’s demands, the jumbo jet was born by the 1970’s with the Boeing 747, MC-D DC-10 and the Lockheed L-1011, all widebodies able to carry up to 366 passengers in some cases, beginning an era of massive air transport. For this, the turbine made it possible for airplanes to fly at higher altitudes, use less fuel, travel at higher speeds and carry massive amounts of weight.

Global scheduled air traffic map (2009)

Source: Actinver.

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May 24, 2011

Largest airlines by PAX carried (2010) Second Milestone: Airline Industry Deregulation

One of the main problems that has historically troubled commercial airlines in 163 most of its history has been the strict industry regulation, severely affecting cost United Airlines 146 efficiencies, profitability and competitiveness. One of the many objections that Southwest Airlines 106 had prevented airline deregulation was the worries that cost pressure after American Airlines 105 deregulation could lead to reduced maintenance standards and therefore Lufthansa 90 deteriorate safety, which ultimately didn’t happen. It wasn’t until 1978 when the China Southern 77 US began with airline deregulation and “open skies” policies, creating a Ryanair 73 friendlier environment for new competitors and ultimately improving conditions Air France-KLM 71 for customers which were greatly benefited. From 1978 to date, the average China Eastern 65 price for an airline ticket has been reduced by more than half. US Airways 60 Aeromexico 12 Million passengers The success experienced in the airline industry in the US after deregulation

0 50 100 150 200 prompted other countries to begin with their own processes for deregulation. In the European market, local carriers began to assimilate a business model Source: IATA. resembling the ones present in the US, turning legacy carriers much more efficient once privately owned. One of the main changes early adopted was the hub-and-spoke model, in which they could connect national and European feeder networks to intercontinental flights and more effectively connect passengers in intra-Europe destinations. Passenger traffic exponentially increased following lower fares, higher offer and the beginning of LCCs.

Third Milestone: Low Cost Carriers (LCCs) Largest airlines by fleet size (2011)

Soon after the de-regulation of the industry and the increase of competitors a Delta Air Lines 744 new niche was formed, one that looked to create a new market in the low cost Lufthansa Group 710 air travel segment. Once this occurred, previous airlines were now referred to United … 707 as “Legacy Airlines”, differentiating themselves by offering value added American Airlines 624 services, such as flexible schedules, in flight meals, more frequencies, etc. Southwest Airlines 572 Air France-KLM 564 The first actual low cost airline to begin operations was Southwest airlines in Intl. Airlines Group 487 1971. A new business model, which eliminated the hub-and-spoke model, China Southern 345 increased employee efficiency and offered some of the lowest fares, has US Airways 341 proved fruitful for the company, seldom posting losses since its foundation. Air China 267 Southwest still is the leading LCC in the world, practically setting the standard Aeromexico 98 Aircraft for modern companies. Other leading global low cost carriers include Ryanair (Ireland), JetBlue (US), Air Asia (Malaysia), SpiceJet (India), easyjet (UK), Air 0 200 400 600 800 Arabia (UAE), etc. In recent years, LCCs have based their models in few Source: IATA. principles, such as:

• High efficiency: It is always the target to maintain the airplanes flying as In 2004 Southwest produced 3.2 million ASMs much as possible, emphasizing point-to-point transit, employees working per employee, compared to 2.2 million from more hours than the industry’s average while carrying different responsibili- American Airlines. ties and aggressive fuel hedging strategies.

• Alternate airports: Most LCCss often use alternate airports due to the lower fares charged and better gate availability, resulting in lower costs.

• Single passenger class: Almost all LCCs have a single passenger class in their airplanes, maximizing potential revenue from higher load factors.

• Standardized fleet:: One of the most efficient ways to manage a fleet is to have few or even one airplane model, since it drastically reduces costs derived from maintenance, parts and personnel training.

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GRUPO AEROMÉXICO, S.A.B. de C.V.

May 24, 2011

Personnel CASM (USD) Recent Years: Efficiency, Efficiency and More Efficiency

5.0 By 2001, many airlines were in major trouble, severely affected by labor costs 4.5 and rising prices of oil, all those problems were gravely exacerbated by 9/11. 4.0 Soon after the attacks of 9/11, airlines immediately began with layoffs which 3.5 resulted in a contraction of overall system capacity of 20%, anticipating a decline in PAX traffic due to major safety concerns. The rapid growth the 3.0 industry had experienced in previous years resulted in superior capacity and 2.5 increased labor costs, which ultimately forced four out of the six major US 2.0 ¢ USDASM /¢ carriers (US Airways, United, Delta and Northwest) into chapter 11. Soon after, 1.5 airlines renegotiated their labor agreements and adopted several of the LCCs’

1.0 Legacy strategies, such as charging extra fees for some services and on board 0.5 Low Cost Carriers products. 0.0 95 96 97 98 99 00 01 02 03 04 05 06 It wasn’t until 2004 when the industry recovered pre-9/11 passenger traffic levels, yet it was in that same year when average fuel costs in the US Source: IATA. exceeded average labor costs for the first time in history, forcing airlines to become even more efficient. Once major companies were able to renegotiate their labor terms with the unions, the overall industry was on a leveled playing field, reducing competitive advantages from LCC’s and ultimately benefiting legacy carriers. Later on, both business models began focusing on fuel costs (~25 to 35% of the airlines costs).

Practically all major carriers nowadays have fuel hedging strategies which allow them to cover a portion of their future fuel costs considering their expected consumption. Another course of action that airlines are embarking US Airlines Costs Breakdown ('10) upon is the never ending reduction of fuel consumption, which can be achieved

Utilities Insurance by: 1) lowering total weight of aircrafts (reducing optional packages in new air- AdvertisingAdvertisin 1% 1% plane deliveries), 2) Adding winglets to the existing aircraft which considerably 1%g Fuel 1% reduce fuel consumption (~6.5%), 3) charging extra fees to passengers for 25% IT 1% excess weight from baggage and 4) having modern airplanes which are more PAX Commissions2% PAX Services 2% efficient and require less maintenance. Maintenance 2% Landing fees 2% New airplanes, such as the 787 Dreamliner promises clients savings of up to Other rents 4% Labor 25% 20% in fuel, compared to current models. Advances in high-tech composite Aircraft materials have made future airplanes lighter and stronger, giving companies a rents larger operating radius and the potential of more flexibility in adding new 7% Others 7% Transport routes. Yet the challenge with many carriers will be the fleet modernization -related 14% which could prove a costly and lengthy process. In the near future, the industry Prof. Services 8% will have to face a difficult barrier, the volatile prices of oil and the ultimate need Source: IATA, Actinver. for efficiency.

ACTINVER 46 GRUPO AEROMÉXICO S.A.B. de C.V.

May 24, 2011

Historical PAX Traffic Graphs: Gpo. Aeroméxico and Aerovías de México

Total PAX Gpo. Aeroméxico Domestic PAX Gpo. Aeroméxico

2011 1,000 2011 1,300 2010 2010 2009 2009 2008 950 1,200 2008 900 1,100 850 800 1,000 750

PAX (Thousands) PAX 900 PAX (Thousands) PAX 700

800 650 600 700 550 600 500 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

International PAX Gpo. Aeroméxico Total PAX Aerovías de México

2011 310 1,000 2011 2010 2010 290 2009 2009 2008 900 2008 270 250 800 230 700 210 600 PAX (Thousands) PAX PAX (Thousands) PAX 190

170 500 150 400 130 110 300 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Domestic PAX Aerovías de México International PAX Aerovías de México 2011 700 279 2011 2010 2010 2009 650 2009 2008 259 2008 600 239 550 219 500 199 450 179 PAX (Thousands) PAX 400 (Thousands) PAX 159 350 300 139 250 119

200 99 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

ACTINVER 47 GRUPO AEROMÉXICO, S.A.B. de C.V.

May 24, 2011

Historical PAX Traffic Graphs: Aeroméxico Connect

International PAX Aeroméxico Connect Domestic PAX Aeroméxico Connect

45 2011 600 2011 2010 2010 40 2009 2009 2008 500 2008 35

30 400

25 300 20 PAX (Thousands) PAX PAX (Thousands) PAX 15 200

10 100 5

0 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Total PAX Aeroméxico Connect

2011 600 2010 2009 2008 500

400

300 PAX (Thousands) PAX 200

100

0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

ACTINVER 48 GRUPO AEROMÉXICO S.A.B. de C.V.

AEROMEX: Company Snapshot

May 24, 2011

The core Stockholders Structure

Industry: Transport Country: MEX Last Price (MXN): 27.93 Rating BUY Target Price 34.5 Mkt. Cap (USD mn): 1707.7 Upside 23.5% Free Float (USD mn): 302.0 Banamex 37% Period YE2011 IPO date: 14/4/11 Free lFoat 18% Company Description ASPA 3% Grupo Aeromexico (GAM) is the largest airline in Mexico, with a 30% total passenger (PAX) traffic market share. It is the only Mexican carrier operating under a legacy airline business model and the only local Prev. member of an airline alliance (Sky Team). GAM attends 40 domestic destinations and 26 international Shareholders (North America, Central and South America, Europe and Asia). It is also the only local airline certificated 42% by the IOSA (IATA, International saftey standards). Its fleet is comprised of 98 aircraft with an average age of 8.7 years. Source: Aeromexico, Actinver Estimates Investment Thesis - Positives Key Operating Metrics 1) Attractive long-term growth expectations for the mexican aviation industry (considering its current 2009 2010 2011E 2012E 2013E underpenetration). 2) Mexican economic growth and demographics amidst a growing middle-income class support local air travel expansion. 3) GAM's unique position to consolidate in the local market. ASKs (mn)ASKs (mn) 22,994 24,067 29,360 31,868 34,418 RPKs (mn)RPKs (mn) 15,025 18,632 23,050 25,127 27,190 Investment Thesis - Negatives Load FactorLoad Factor 65% 77% 79% 79% 79% 1) oil prices volatility (as well as crack spreads volatility; basis risk), 2) un-expected delays from aircraft Gpo. AeromexicoGAM Passengers Passengers (k) (k) 10,004 11,222 14,628 16,060 17,373 deliveries (as may be the case for the B-787-8 Dreamliners) -reducing expected ASKs growth, 3) lower Avg. LengthAvg. Length of Haul of Haul (km) (km) 0 1,568 1,560 1,562 1,565 than expected Mexican and US economic growth , 4) un-expected catastrophic events , 5) persistent violence-related events. Gpo. AeromexicoGAM Fleet Fleet 90 97 97 105 112 Income Statement (MXN mn) TRASKTRASK - MXN - MXN 0.972 1.167 1.165 1.164 1.212 2009 2010 2011E 2012E 2013E PRASKPRASK - MXN - MXN 0.831 1.037 1.056 1.064 1.106 Total Revenue 22,348 28,080 34,196 37,108 41,704 Yield - YieldMXN - MXN 1.271 1.339 1.345 1.349 1.400 YoY change 25.6% 21.8% 8.5% 12.4% CASK -CASK MXN - MXN 1.019 1.054 1.071 1.073 1.109 Total Passenger Revenue 19,097 24,953 31,003 33,900 38,078 CASK CASK(ex-fuel) (ex-fuel) - MXN - MXN 0.771 0.750 0.701 0.691 0.708

Total Costs and Operating Expenses 23,441 25,376 31,431 34,202 38,175 Macroeconomic Assumptions Op. Expenses (ex. Rentals, D&A) 19,630 21,882 27,584 30,025 33,582 2009 2010 2011E 2012E 2013E Personnel 6,130 6,411 7,130 7,490 8,458 Mx GDPMx Growth GDP Growth -5.9% 5.5% 4.2% 3.4% 3.0% Aircraft Fuel 5,702 7,321 10,847 12,185 13,803 Mx InflationMx Inflation (INPC) (INPC) 3.6% 4.4% 4.1% 4.1% 4.1% Others 10,230 10,286 11,695 12,477 13,766 US GDPUS Growth GDP Growth -2.6% 2.9% 3.1% 3.0% 3.0% WTI (USDWTI /(USD bbl) / bbl) 74.3 84.4 100.4 98.3 106.5 EBITDAR 2,718 6,198 6,612 7,082 8,123 YoY change 128.0% 6.7% 7.1% 14.7% Valuation Metrics EBITDAR Margin 12.2% 22.1% 19.3% 19.1% 19.5% 2009 2010 2011E 2012E 2013E Aircraft Rentals 3,345 3,017 3,342 3,631 4,031 Adj. EVAdj. / EBITDAR EV / EBITDAR 17.8x 7.1x 5.8x 6.4x 6.3x EBITDA -627 3,180 3,270 3,451 4,092 EV / EBITDAEV / EBITDA -39.8x 7.2x 4.6x 5.8x 5.6x D&A 466 476 505 545 563 Price / PriceEarnings / Earnings -9.6x 9.4x 13.0x 13.0x 15.2x Operating Income (EBIT) -1,093 2,704 2,765 2,906 3,529 Price / PriceBV / BV 0.0x -56.9x 3.5x 2.6x 2.1x Price / PriceEBIT / EBIT 0.0x 8.1x 7.2x 6.8x 5.6x Net Financial Result -1,045 -1,231 -691 -850 -1,330 Price / PriceEBT / EBT 0.0x 12.4x 11.0x 11.0x 9.8x Majority Net Income -2,296 2,334 1,533 1,531 1,306 Net Margin -10.3% 8.3% 4.5% 4.1% 3.1% Leverage and Liquidity ROE N.A. N.A. 26.9% 19.7% 13.7% 12.0 25%

10.0 Balance Sheet (MXN mn) 20% 2009 2010 2011E 2012E 2013E 8.0 Total Assets 11,392 14,030 22,262 29,242 33,985 15% Current Assets 2,416 4,416 11,357 10,774 10,518 6.0 Cash and Equivalents 231 1,324 7,881 6,830 5,913 10% 4.0 Cash / Revenue 1% 5% 23% 18% 14% 5% LTM Revenue / Cash Inventories 531 512 618 701 800 2.0 Accounts Receivable 1,167 1,999 2,192 2,542 3,028 toNetDebtLTM EBITDAR (x) Advance Payments 486 581 665 701 777 0.0 0% Net PPE 4,697 3,643 4,367 11,718 16,718 2009 2010 2011E 2012E 2013E Others 4,279 5,971 6,538 6,749 6,749 Adj. Net Debt / LTM EBITDAR Cash / LTM Revenue EBITDAR (MXN mn) Total Liabilities 14,038 14,413 16,589 21,416 24,377 10,000 Current Liabilities 9,768 10,329 11,810 14,230 16,201 8,123 Operating ST Liabilities 8,599 9,412 10,605 11,420 12,733 8,000 7,082 6,612 Short-Term Debt 1,169 917 1,205 2,810 3,468 6,198 Long-Term Liabilities 4,271 4,084 4,780 7,186 8,176 6,000 Long-Term Debt 1,927 1,318 1,808 4,214 5,203 4,000 Deferred Benefits on Aircraft Purchases 18 17 18 18 19 2,718 Other Long-Term Liabilities 2,326 2,749 2,954 2,954 2,954 MXNmillion 2,000 Shareholders Funds -2,647 -383 5,673 7,825 9,608 Minority Interest 96 4 -17 46 105 0 Shareholders Equity -2,742 -387 5,690 7,779 9,503 2009 2010 2011E 2012E 2013E Total Liabilities and Equity 11,392 14,030 22,262 29,242 33,985

ACTINVER 49 Disclaimer

Analyst Certification for the following Analysts: Juan Carlos Sotomayor Jaime Ascencio Karla Peña Martin Lara Pablo Duarte Roberto Galván Ramón Ortiz

The analyst(s) responsible for this report, certifies(y) that the opinion(s) on any of the securities or issuers mentioned in this document, as well as any views or forecasts expressed herein accurately reflect their personal view(s). No part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this document. Any of the business units of Grupo Actinver or its affiliates may seek to do business with any company discussed in this research document. Any past or potential future compensation received by Grupo Actinver or any of its affiliates from any issuer mentioned in this report has not had and will not have any effect our analysts’ compensation. However, as for any other employee of Grupo Actinver and its affiliates, our analysts’ compensation is affected by the overall profitability of Grupo Actinver and its affiliates. Guide to our Rating Methodology Total Expected Return on any security under coverage includes dividends and/or other forms of wealth distribution expected to be implemented by the issuers, in addition to the expected stock price appreciation or depreciation over the next twelve months based on our analysts’ price targets. Analysts uses a wide variety of methods to calculate price targets that, among others, include Discounted Cash Flow models, models based on expected risk-adjusted multiples, Sum-of-Parts valuation techniques, break-up scenarios and relative valuation models. Changes in our price targets and/or our recommendations. Companies under coverage are under constant surveillance and as a result of such surveillance our analysts update their models resulting in potential changes to their price targets. Changes in general business conditions potentially affecting either the cost of capital and/or growth prospects of all companies under coverage, or a given industry, or a group of industries are typical triggers for revisions to our price targets and/or recommendations. Other micro- and macroeconomic events could materially affect the overall prospects of an individual company under coverage and, as a result, such event-driven factors could lead to changes in our price targets and/or recommendation of the company affected. Even if our overall expectations for a given company under coverage have not materially changed, our recommendations are subject to revision if the stock price has changed significantly, as it will affect total expected return. Terms such as "price targets, our price targets, total expected return, analyst's price targets” or any other similar phrase are used in this document as complementary to our recommendation or as a condition that could change in our point of view and, according to article 188 of Securities Market Act, do not imply in any way that Actinver, its agents, or its related companies are in any form providing assurance or guarantee, nor assuming any responsibility for the risks associated with any investment in the discussed securities. Recommendations for companies, both in the Índice de Precios y Cotizaciones (IPyC) Index and also not belonging to the index. For stocks, we have three possible recommendations:

a) BUY, b) HOLD or c) SELL. A stock classified as BUY is expected to yield returns at least 5% above than that of the IPyC Index. Stocks rated as HOLD are expected to yield returns similar to the IPyC Index, within a range of +5/-5%. Many of the companies within this range are often times solid companies which have reached their potential in a short amount of time and should still be considered as a good investment. Stocks rated as SELL are expected to yield returns below 5% of the IPyC Index.

Rating Distribution as of March 31, 2011

All Companies in the BMV

BUY: 80%

HOLD: 5% SELL: 15%

ACTINVER Octubre 6, 2008 50 Research

(52) 55 1103-6758 Juan Carlos Head of Equity Research (52) 55 1103-6600 [email protected] Sotomayor Salinas x5030

(52) 55 1103-6600 Jaime Ascencio Economist [email protected] x5032

(52) 55 1103-6600 Karla Peña Consumption & Mining [email protected] x5035

(52) 55 1103-6600 Martin Lara Telecoms & Media [email protected] x5033

(52) 55 1103-6600 Ramón Ortiz Cement, Construction & Homebuilders [email protected] x5034

Transport, Conglomerates, Fitness & (52) 55 1103-6600 Pablo Duarte [email protected] Steel x5031

(52) 55 1103-6600 Paulino Musi Analyst Jr [email protected] x5037

(52) 55 1103-6600 Emilio Alanis Analyst Jr [email protected] x5036

(52) 55 1103-6600 David Foulkes Analyst Jr [email protected] x5045

(52) 55 1103 -6600 Roberto Galván Technical Analysis [email protected] x5039

Sales & Trading

Jose Pedro Managing Director (52) 55 1103-6779 [email protected] Valenzuela

Gerardo Roman Head, Sales & Trading (52) 55 1103-6690 [email protected]

Julie Roberts Head, Institutional Sales (210) 298 - 5371 [email protected]

Tulio Chávez Institutional Sales (52) 55 1103-6762 [email protected]

José María Celorio Institutional Sales (52) 55 1103-6606 [email protected]

Maria Antonia Institutional Sales (52) 55 1103-6606 [email protected] Bonifaz

Corporate Headquarters Guillermo González Camarena 1200, Floors 9-11, Santa Fé, México, D.F. 01210

ACTINVER Octubre 6, 2008 51