A Lessor

1
A Lessors Experience4th EASA Industry
Meeting
Cologne, November 17, 2005
2
Agenda

• Todays Objectives
• Introduction to AerCap
• Lessors and Aviation
• Our Concerns
• Case Example
• The Essence
• Conclusive Summary
• Our Request

3
Todays Objectives

• To introduce the Aircraft Lessor Community as a
  significant stakeholder in Aviation
• To highlight the Lessor Communitys concerns with
  respect to the impact of EASA Commission
  Regulation 2042/2003 entry into force
• NOT to discuss the details of such regulations,
  but,
• To achieve an awareness by EASA for the Lessor
  Communitys wishes
• To be granted the opportunity to discuss its
  specific issues (and suggestions for possible
  solutions) in dedicated meetings with appropriate
  EASA staff
• To be granted the opportunity to be represented
  during formal discussions between regulators and
  the Aviation Industry

4
Introduction to AerCap

• Formerly known as debis AirFinance established
  November 95
• Core business operating leasing and full service
  management of large securitization portfolios of
  aircraft
• Largest operating Lessor in Europe, one of the
  largest worldwide
• Fleet of 238 commercial aircraft (owned/managed)
  1
• Over 90 of the fleet on operating lease
• Forward order of 31 A320 family aircraft, 21
  units due for delivery in 05/07
• Aims at expansion (additional forward orders /
  portfolio purchases)
• Customer base 82 Operators in 46 countries 2
• Shareholder Cerberus Capital Management, L.P.
• (1) of which 30 in EASA member states
• (2) of which 33 in EASA member states

5
Lessors and Aviation

• Lessors play an essential role in the development
  of European Aviation, both in manufacturing and
  operations
• Owning up to 40 (1,400 airplanes) of the
  commercial transport category of airplanes in the
  EASA member states
• Owning up to 26 (3,700 airplanes) of the
  commercial fleet in the rest of the world
• Currently have assumed purchase obligations of
  over 600 aircraft from Airbus and Boeing on a
  speculative basis
• Lessors play a significant role in the continued
  operation and development of the European
  operators
• Providing opportunities for business flexibility
  in answer to Industry up- and downward economic
  trends and access to new markets
• For majority of (European) LCCs initial start-up
  of their operation would not be possible without
  Lessors involvement
• Long term providing continued opportunities for
  fleet renewal and expansion
• Lessors strive for highest Airworthiness
  Standards observing the combination of global
  Aviation Authorities rules and regulations in
  order to achieve flexible and maximum
  remarketability

6
Our Concerns (1)

• Administrative and nearly impossible burden to
  assess and provide the EASA approval status of
  used airplanes to be leased to EU operators
• Basic certification basis, SB status, listing of
  approved/non-approved changes, repairs,
  STCs,......
• Challenging task to obtain EASA approval for
  (older, pre 2003) STCs and (non-OEM) repairs
  (the more if STC holder does not exist anymore)
• Leadtime to obtain approvals 4 - 8 months
• The administrative consequences of Annex 1 (part
  M), in particular the differences in
  interpretation by the member states
• Alternative compliance (opt-out procedures) at
  the discretion of national authorities
• The contradiction of Annex 1 (part M) versus
  JAR-OPS Subpart M in respect of (component)
  record keeping
• At least 24 mths after release TO service
  (JAR-OPS) versus at least 24 mths after permanent
  withdrawal FROM service (EASA part M)
• And more...?

7
Our Concerns (2)

• Resulting in additional high aircraft transfer
  cost
• Physical expenditures Modifications, Approvals,
  Component re-certifications and repairs
  conservative exposures estimated between USD 250k
  and USD 1,500k for typical single Aisle aircraft
  in growing size
• Internal resources Lessors currently not
  prepared or catered for such tasks limited
  engineering resources
• Resulting in significant delays in the deliveries
  of aircraft to airlines
• 2-6 months loss in lease rental income (average
  single aisle aircraft USD 175k per month)
• Liability for damages incurred by customers
• Dis-satisfaction of customers
• All in all exposing a severe aircraft
  remarketability risk into Europe a risk which,
  based on recent experience is rather fact than
  risk

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Case Example summer 2005

• Aircraft Fokker 100, average aircraft transfer
  cost USD 450,000
• Re-delivering Lessee South America region
• Aircraft to be transferred to Europe (EASA member
  state EU-1)
• Accepting Lessee Europe, EASA member state
  (EU-2)
• Lessor takes measures to achieve required
  airworthiness standard in accordance with OEMs
  instructions and EU-1 CAA approved procedures for
  import into Europe
• Aircraft exported into EU-1 working party
  modifies the Aircraft to required standard
• Post transfer maintenance, Aircraft delivered to
  Accepting Lessee in compliance with EASA
  regulations and with EU-1 issued Certificate of
  Airworthiness
• Accepting Lessee accepts Aircraft and applies for
  AOC with EU-2 CAA
• EU-2 CAA, based on own inspection revokes the
  CofA on basis of concerns with continuing
  airworthiness of the aircraft or any component
  fitted.
• Result
• Additional delay of 2 months in delivery (160 K
  in rentals)
• Additional Aercap expenditure in excess of USD
  350k over and above average transfer cost for
  this type of airplane into Europe
• Additional Accepting Lessees damages unknown (gt
  USD 1 million)
• Aircraft still not in operation....

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The Essence

• Aircraft transfer cost are the sum of physical
  expenditures on the aircraft, and the loss of
  lease rentals due to extended downtime
• A severe and sudden increase in future perceived
  aircraft transfer cost negatively impacts the
  remarketability and consequently the residual
  value of aircraft
• A decrease in EU remarketability and/or residual
  value affects the availability of aircraft, which
  consequently will
• Affect the competitiveness of EU Operators
  through either a higher cost to lease, or, a
  decreased flexibility by not being able to make
  full use of aircraft leasing opportunities.
• In addition
• Lessor owned aircraft are financed by a large
  cross section of (major) commercial and
  investment banks
• The cost associated with transferring aircraft
  from one airline to the other affects the risk
  profile for these banks, and as such the cost of
  funding, and as such the cost to lease aircraft

10
Conclusive Summary

• The EASA requirements are disrupting the
  flexibility based on which the EU operators can
  continue to lease used airplanes
• It creates additional administrative and costly
  obstacles that are seriously hindering the
  (timely) placement of these airplanes at the EU
  operators
• Severe additional aircraft transfer cost to be
  considered, negatively affects the availability
  of funding at reasonable cost, and as such the
  Lessors capability to offer aircraft to EU
  operators
• Leasing companies are not represented in the
  formal discussions between the EASA and Aviation
  Industry, despite the significance of their role
  in European commercial aviation
• Leasing companies are currently not participating
  in the drafting of the fundamental EASA
  regulations

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We ask you to.....

• Engage with us in detailed and seperate series of
  discussions, with the aim
• To further achieve mutual understanding of the
  background, added value and implications of the
  amended and newly introduced regulations
• To define possible solutions allowing effective
  implementation of such regulations while limiting
  the potential damage it may incur on the industry
  on the short term
• To invite us, as formal industrial
  representatives, to participate in the committees
  dealing with the evaluation and design of
  existing respectively new regulations
• To assist us in our continuous support and
  promotion of airworthiness improvement intentions
  as depicted in our leases

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THANK YOU FOR YOUR ATTENTIONEric P.
Vermeulen Fleet ManagerAerCap Aviation
SolutionsEmail evermeulen_at_aercap.comTel. 31
20 655 9687www.aercap.com
Cologne, November 17, 2005