taking flight from the cape town convention

9th International Repossession Conference – Dubai – Sofitel Dubai Jumeirah Beach Residence, UAE


‘JOIN THE DEBATE’

FROM THE CAPE TOWN CONVENTIONFRAMEWORK TO EASE REPOSSESSING DISTRESSED AIRCRAFTFRAMEWORK TO EASE REPOSSESSING DISTRESSED AIRCRAFT

November 2015

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GLOBAL MARKET FORECAST 2014 - 2033A forward-looking view of the air transport sector’s evolution

Airbus & Boeing Global Market Forecast for the next 20 years anticipatesthat air traffic will grow at 4.7 to 5.0 per cent

36 770annually, requiring over 36,770 newpassenger aircraft and freighters at a value of nearly US$ 5.2 trillion.

15,500 of these airplanes (42 percent of allnew deliveries) will replace older, less efficient airplanes;

The remaining 21,270 airplanes will be for thefleet growth, which stimulates expanding in emerging markets and development of innovative airline business models.

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innovative airline business models.

Source: 1BlueHorizon Group Research, Airbus & Boeing Global Market Forecast 2014 - 2033


BY 2020, OVER 50% OF A/C UNDER OPERATING LEASE

1970

3,722 a/c17 leased

2020

Forecast

1980

6,037 a/c100 leased

1990

9,160 a/c1 343 leased

2000

15,032 a/c3 717 leased

2010

21,741 a/c7 943 leased17 leased

0.45% Over 50% leased

100 leased1.7%

1,343 leased24.7%

3,717 leased24.7%

7,943 leased36.5%

C G f f


Source: © 1BlueHorizon Group Research, World Airline Fleet 1970 - 2014

FACT: the Growth of Aircraft Leasing since the 70s is impressive !


… WITH MORE NEW AIRCRAFT COMING TO FINANCEFACT: more new aircraft coming to finance than at any time in history…

Narrowbodies 9,610 73.6%

Widebodies 2 612 20 5%Widebodies 2,612 20.5%

Regional 745 5.8%


Source: 1BlueHorizon Group Research - Order Backlog, Western Built Jets, Pax Usage Only, In Service Only


THE ECONOMIC USEFUL LIFE OF A/C (IN THEORY )

US$ per

Year

ECONOMIC OBSOLESCENCE

Years

OBSOLESCENCE


Source: 1BlueHorizon Group Framework


COUNTRY WITH IMPORT A/C RESTRICTIONS

Russia

Kazakhstan UkraineBelarus

MexicoEgypt

Algeria Libya

TurkeyLebanon

Jordan

a a sta(CIS)

Vi

Bangladesh

Bhutan

India

NepalPakistanIran

China

No limit Bolivia

Ecuador

Brazil

Ethiopia NigeriaVietnam

Indonesia

Sri Lanka

No limit.

12 years

15 years

20 years

Bolivia

Notes Algeria, new onlyBrazil: Pax 15 yrs, Cargo 20 yrsBolivia: 25 yrsChi I f l R l & P ti

The age limitations have only started to appear widely in the last three to five years and becoming an increasingly recurrent phenomenonThe downward impact on aircraft valuation will affect both airlines and leasing companies. ‘Lessors will either be forced to charge higher lease rates to take into account the shorter

Comments


China: Informal Rule & PracticeEcuadaor: Post 1990 onlyPakistan for Cargo

Source: 1BlueHorizon Group Research

g geconomic useful life of the aircraft, or to pay less for the aircraft to ensure they get paid for its depreciation.’


NEVER UNDERESTIMATE THE A/C REPOSSESSION

When looking at lease contracts, the most likely time for an issue to occur is not at aircraft delivery or whilst th i ft i b i t d b t t th i t th t ththe aircraft is being operated, but at the point that the asset is returned to the Lessor, at the end of the contract or if the asset has to be repossessed!

LEGAL AND CONTRACTUAL PROTECTIONS


Source: 1BlueHorizon Group Analysis


ONE INSTRUMENT TO MITIGATE THE RISK WITH A/CAircraft financing is associated with RISK… and as per it definition, RISK is the potential of losing something of value, weighed against the potential to gain something of value!

Strategic Risk– Political / Government Intervention / Regulation / Union Negotiations– Global Economic Uncertainty / Terrorism / Military Escalation– Volatile or Seasonal Demand / Tourism

P iti i f th / L C t C titi / P i i

g

– Positioning of the company / Low Cost Competition / Pricing

Financial Risk– Availability of Credit– Adequate Liquidity– Currency Fluctuations / Hedging (Oil and Currency)Currency Fluctuations / Hedging (Oil and Currency)– Fixed Obligations/ debt and other financial commitments– Aircraft financing and Return Conditions

Operational Risk– Hazardous activities

Fli ht ti– Flight operations– New Technology– Maintenance– Human Factors– IT failures, technology and e-commerce

C

THE CAPE TOWN CONVENTION


Compliance Risk– External Regulations and Legislations

Source: 1BlueHorizon Group Analysis

CONVENTION


CONTRACTUAL PROTECTIONS BECAME ESSENTIAL The OPERATOR needs freedom to monetize assets, whereas the LENDER

requires that it remain accessible and in good condition

An aircraft is an item of personal property, can be subject to mortgage, An aircraft is an item of personal property, can be subject to mortgage, conditional sale, lease, trust, possessory liens etc.

Geneva Convention on recognition of rights in aircraft

Many countries have special registries for title and security interests and the need for Perfecting Security in Aircraft was broadly acknowledge and basic questions of international law arise – where to file?

The Cape Town Convention (16 November 2001)

The Protocol to the Convention On International Interests in Mobile E i t M tt S ifi t Ai ft E i t t k ff t 1st M hEquipment on Matters Specific to Aircraft Equipment took effect on 1st March 2006 “Aircraft Protocol”

The Cape Town Convention creates a central international registry of



interests in aircraft


BASEL III REGULATORY FRAMEWORK FOR FINANCIERSCapital Requirements Risk Coverage Liquidity Coverage

Capital definition

Minimum capital ratios

Counterparty risk

Trading book and

Liquidity Coverage Ratio

Net Stable Funding Ratio Minimum capital ratios

Capital conservation buffer

Countercyclical buffer

Trading book and securitization

Systemic risk

Net Stable Funding Ratio

Monitoring Tool

Leverage ratio

Reducing risks to creditors is absolutely required for a such challenging industry like the



g y g g yAirline business with low margins to give access to finance at reasonable costs


CAPE TOWN CONVENTION AND AIRCRAFT PROTOCOL The Convention on The International Recognition of Rights in Aircraft, 19 June 1948,

“The Geneva Convention”

The Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment, 16 November 2001 “The Cape Town Convention”

The Protocol to the Convention On International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment took effect on 1st March 2006 - “Aircraft Protocol”

Create internationally recognized security interest in aircraft in all contracting States Offer creditor various default remedies and possibilities of expedited relief in an event

f d f ltof default Create an electronic, international registry Access to finance at reasonable costs by reducing risks to creditors



Reduce legal uncertainty caused by differences in national laws


CATEGORY OF TRANSACTIONS

Lessee under an aircraft lease

Mortgagor under an aircraft mortgage

Assignor under a security assignment of a lease or other document originally creating an international interestcreating an international interest

Buyer under a conditional sale or hire purchase agreement

Seller under an aircraft purchase agreement or engine contract is situated in p g ga state in which Cape Town is in force. It also applies when the parties have agreed the aircraft or helicopter in question (but not engines which are detached from an aircraft or helicopter) will be registered in one of those states




SCOPE OF THE CAPE TOWN CONVENTIONAs international treaty intended to standardize transactions involving movable property (1Aircraft equipment, 2001) the Cape Town Convention is important…

Cape Town is only intended to apply to high-value airframes and engines in civilian use To come within the convention and protocol:civilian use. To come within the convention and protocol:- airframe (when fitted with engines) must be type certified to carry at least

eight persons or goods in excess of 2,730 kilograms and engines must have: - if Jet-propelled at least 1 750 lbs of thrusthave: if Jet propelled, at least 1,750 lbs of thrust

- if turbine-powered or piston-powered, at least 550 take-offshaft horsepower (or its equivalent)

When states ratify Cape Town they can pick yup and chose between provisions they want to adopt




CURRENT STATUTS OF CAPE TOWN CONVENTIONPanama

28 JUL 2003Ethiopia

21 NOV 2003Nigeria

16 DEC 2003Pakistan

22 JAN 2004USA

28 OCT 2004Oman

12 MAR 2005Ireland

23 AUG 2005Malaysia

2 NOV 2005Senegal

9 JAN 2006

Af h i t Kenya Mongolia South Africa Colombia Indonesia Mexico Cape Verde Albania

Angola30 APR 2006

IndiaAfghanistan23 JUL 2006

Kenya13 OCT 2006

Mongolia19 OCT 2006

South Africa18 JAN 2007

Colombia19 FEB 2007

Indonesia16 MAR 2007

Mexico31 JUL 2007

Cape Verde26 SEP 2007

Albania30 OCT 2007

UAE Saudi Arabia7 JUN 2008

Luxembourg27 JUN 2008

Bangladesh15 DEC 2008

Kazakhstan21 JAN 2009

Cuba28 JAN 2009

Singapore28 JAN 2009

Tanzania30 JAN 2009

China3 FEB 2009

India31 MAR 2008

Togo27 JAN 201029 APR 2008 7 JUN 2008 27 JUN 2008 15 DEC 2008 21 JAN 2009 28 JAN 2009 28 JAN 2009 30 JAN 2009 3 FEB 2009

Rwanda28 JAN 2010

Aruba17 MAY 2010

Sint Maarten17 MAY 2010

Neth. Antilles17 MAY 2010

New Zealand20 JUL 2010

Jordan31 AUG 2010

Malta11 Oct 2010

Norway20 DEC 2010

Cameroon8 JAN 2011

27 JAN 2010

Latvia8 FEB 2011

Russia25 MAY 2011

Tajikistan31 MAY 2011

Belarus28 JUN 2011

Turkey23 AUG 2011

Brazil30 NOV 2011

Myanmar3 DEC 2012

Canada1 APR 2013

Kuwait31 OCT 2013

Bhutan4 JUL 2014

San Marino9 SEP 2014

Vietnam17 SEP 2014

Three protocols to the convention are specific to:1Aircraft equipment (aircraft and aircraft engines); signed in 2001;2Railway equipment; signed in 2007;

AdoptedEvaluated by ECA, under consideration by OECDQualifying declarations but implementation issues


Note: As of November 2014, the convention has been ratified by 62 states as well as the European Union.Source: 1BlueHorizon Group Research

2Railway equipment; signed in 2007;3Space assets; signed in 2012.

Qualifying declarations, but implementation issuesQualifying declarations not adopted


CREATING AN INTERNATIONAL INTEREST

In Writing

Person creating has power to dispose the aircraft object

Agreement must enable the object to be identified

Convention solely covers debtors situated in a contracting State

Location of the creditor irrelevant

REGISTRATION Single web-based International Registry open 24/7

Registry based in Ireland

Interests subject to a simple priority regime whose main principles are:- registered interests beat unregistered- earlier registrations beat registrations and- the parties can vary priorities by registering subordination arrangements



at the International Registry.


DEFAULT REMEDIES AND INSOLVENCY

DEFAULT REMEDIES R i i l h d i i f h i f d i d h i l Repossession involves the deregistration of the aircraft and its export and physical

transfer from the territory in which it is situated (Article 9 (1) )

Request for deregistration and export recorded under an “irrevocable deregistration d t t th i ti ” (IDERA)and export request authorization” (IDERA)

THREE INSOLVENCY REGIME DECLARATIONS Alternative A - generous to creditor

Alternative B

If the ratifying state opts to keep its own insolvency laws, financiers' rights on insolvency will depend on how pro-creditor that state’s insolvency laws are



insolvency laws are.


FROM REPOSSESSION TO DEREGISTRATION

1 - REPOSSESSION Important consideration for lessor how to best protect their investment in event of default

during the term of the transactionduring the term of the transaction

2 - RECONFIGURATION Aircraft will need work to be put in an attractive condition for potential lessees Aircraft will need work to be put in an attractive condition for potential lessees

3 - REMARKETING If Lessee defaulted, the aircraft will need to be delivered on lease to a new customer to

generate revenue

4 - DEREGISTRATION Repossession involves the deregistration of the aircraft and its export and physical transfer

from the territory in which it is situated (Article 9 (1) ) Request for deregistration and export recorded under an “irrevocable deregistration and export

request authorization” (IDERA)



request authorization (IDERA)


BENEFIT OF THE CAPE TOWN CONVENTION

FOR THE LESSOR Bring speed, certainty and cost savings to the process of

repossessing aircraft and engines on an insolvency or other default where these assets are in a country whose legaldefault where these assets are in a country whose legal system would otherwise give cause for concern;

Protect the parties’ title and security interests in aircraft and p yengines.

FOR THE LESSEEFOR THE LESSEE Hope is that benefits for financiers will result in reduced finance costs to

airlines.




Join the debate that is whyJoin the debate, that is why you’re here…

SHOUKRAN - THANK YOU - MERCI -SPASIBA - GRACIAS - XIE XIE

Any clarifications or questions regarding this document should be addressed to:Any clarifications or questions regarding this document should be addressed to:

LEONARD FAVREPartner, Group Managing Director

1BlueHorizon GroupP.O. Box 34154 M +971 50 6164007 (U.A.E.)Abu Dhabi M +41 79 2080256 (Switzerland)United Arab Emirates leof007

[email protected]


Abu Dhabi | Bern | London | Montreal | Paris


DISCLAIMER© 1BlueHorizon Group®. All rights reserved. Without the prior written consent of 1BlueHorizon Group®, it is not permitted to modify this document or create derivative works. High quality global airline industry insight requires investment. Please do not cut & paste the document. Email [email protected] to get / buy additional rights.The information and opinions contained in this presentation and any other are material discussed verbally are provided as at the date ofThe information and opinions contained in this presentation and any other are material discussed verbally are provided as at the date of this presentation and are subject to verification, completion and change without notice. In giving this presentation, neither the Company nor its advisers and/or agents undertakes any obligation to provide the recipient with access to any additional information or to update this presentation or any additional information or to correct any inaccuracies in any such information which may become apparent.

Conflict of InterestThere is no conflict of interest. 1BlueHorizon Group® makes use of internal tests. In case it might come to a conflict of interest we will inform dedicated directors in due course.

LEONARD FAVRE - Partner, Managing Director Email: [email protected] Dhabi (U.A.E.) & Bern (Switzerland)A strategic thinker with 20+ years progressive experience as experienced senior management advisor or in senior executive roles in the Aviation, Aerospace & Defense industry. He started his involvement in this particular field of business as Chief Financial Officer of the Swiss Ministry of Defense and later on when the Swiss National carrier Swissair collapse in 2001 as one of the Swiss Ministry of Economy adviser.

Professional background (highlights) Chairman Advisor for an Airline Start-up in the Middle East and MRO infrastructure in Europe Chief Restructuring Officer for a family conglomerate, managing a fleet of more than 20 aircraft (wet lease, charter and re-marketing); Director Enterprise Improvement for AlixPartner LLP, part of the core team restructuring a major Middle East airline for fleet and strategy; Vice-President Business Development & Strategy for Maximus Air in Abu Dhabi, where he managed the wet lease fleet (ACMI & Charter) and


developed it into a leading Middle-East brand through the improvement of operational capabilities and fleet management; Senior Associate with Booz Allen Hamilton where he directed successfully, major start-up airline projects in the Middle-East and Europe.

Note: Detailed References upon request

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SOLUTIONS PACK

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December 2014

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A b u D h a b i | B e r n | L o n d o n | M o n t r e a l | M o s c o w | P a r i s


1BlueHorizon Group® value proposition is simple — Going the Extra Mile by generating trust to propel your business further

P R O P R I E T A R Y I N F O R M AT I O N

g g p p y

O 1BlueHorizon Group® (Asset Management | Management Consulting | Interim Management) was established in 2007 as a network of International aviation professionals, providing objective, independent, evidence-based analysis, advice and implementation support. We build on the experience of our team to help clients realize real and measurable results , quickly. Start-ups, restructuring, cost cutting, project management office, due-diligence or exploiting growth opportunities, we have experts who have faced these challenges.

O Our highly competent seasoned senior professional have experience from leading companies in both management roles within their disciplines and as senior level professional advisors throughout diversemanagement roles within their disciplines and as senior level professional advisors throughout diverse and complex locations in the Middle East, Europe, Africa, Asia Pacific and North America.

O Privately owned, 1BlueHorizon Group® is independent of any financial institution, manufacturer, operator, insurance company or maintenance provider assuring our clients the benefit of truly unbiased comprehensive and flexible provision of serviceunbiased, comprehensive and flexible provision of service.

O 1BlueHorizon Group® believes in working closely with client staff to transferour knowledge and experience, which means 1BlueHorizon Group® continuesto deliver value long after the project is complete.

O A unique blend of languages age groups cultural backgrounds and skillsO A unique blend of languages, age groups, cultural backgrounds and skills qualifies 1BlueHorizon Group® to provide turnkey solutions for any and all of your aviation requirements - worldwide.

O 1BlueHorizon Group® range of services is continuously tailored and adaptedto suit the geographical scope and needs of our customers.


Source: © 1BlueHorizon Group | Corporate profile

to suit the geographical scope and needs of our customers.


For the last ten years we have been actively involved with our Senior personnel in major airlines, start-ups or Economic development ventures


personnel in major airlines, start ups or Economic development ventures

Wataniya Airways - Chairman Mr. Abdulsalam Al Bahar with Mrs Ghaida Abdul Latif, vice chairman –

director general & CEO of Syrian Arab Airlines.

Flydubai - CEO Mr. Ghaith Al GhaithHis Highness Sheikh Ahmed Bin Saeed Al Maktoum, President of the Dubai Civil Aviation

Authority, Chairman of Dubai Airports, Chairman & Chief Executive of Emirates Airline & Group

H.E. Mohamed Hamad bin Azzan Al Mazrouei WRDC's Director General and

Democratic Republic in Congo (Transport)A O C i I di


Gulf Air - Ex CEO Samer Majali Mazrouei, WRDC s Director General and Acting Under Secretary of the Court of the Ruler's Representative in the Western Region (al Gharbia)

of Abu Dhabi Emirate

AerospaceOne Company in IndiaJet Green in PakistanAbabeel Air in Libya

Note: Detailed references upon request


1BlueHorizon Group® three dedicated Practices are built to propel clients business further with a comprehensive approach ahead of strategies


The 1BlueHorizon® difference

bus ess u t e t a co p e e s e app oac a ead o st ateg es

GENERATING THRUST TO PROPEL YOUR BUSINESS FURTHER...

Asset Management

The Asset Management (AM) Practice works individually with each of our

Performance improvementQuick results / Hands-on

Management

The Interim Management

yclients to develop creative strategies and solutions for all types of aviation equipment, with innovative financing models.…

Turnkey solutionsKnowledge transfer

Ahead of Strategies…

InterimManage-

ment

The Management Consulting (MC) Practice is our ability to strike a rapport working side by side with you and quickly

g(IM) Practice help you by giving comfort and control with relevant seasoned advisors whenever and wherever they are needed… Whereas a managementmentManaging

Consulting

with you and quickly understanding what you need when the margin of error is thin… Providing a highly targeted surgical strike (to-the-point) to improve de performance and

Whereas a management consultant provides an advisory role, Interim managers with performance improvement focus are directly responsible in delivering quick results


improve de performance and going the extra mile…

delivering quick results, visible and measurable...

Source: © 1BlueHorizon Group | Practices


1BHG® Business model dedicated to particular Sectors is built around three Practices providing clients with turnkey solutions to maximize Value Creation


Economic development (Business review / Cluster / Project Management office)

Air Transportation (Airline / Airport / General Aviation / Aerospace & Defense)Ahead of StrategiesThree Practices

Shareholders and management

Practices providing clients with turnkey solutions to maximize Value Creation

Family conglomerates (Governance, Portfolio analysis and investment Strategy)

Management ConsultingOperational Improvement

Asset ManagementFleet Strategy & Planning

Interim ManagementKnowledge transfer

gof companies with specialized

needs often choose 1BHG for our unique custom turnkey solutions. If you want a business plan or a feasibility study to assess the case, or your are burning cash

Our understanding of operational improvement is quite simple:

Whereas restructuring is about stabilizing a company and fixing how it does things, operational i t i b t i

With our Fleet Solutions, we can help you expand your fleet,

transition from older models to newer aircraft types, or provide interim capacity. We back our support with a global team of

Finding talent is difficult even at the best of time. Finding

resources to assist for a short-term assignment of a proven

heavyweight interim executive

case, or your are burning cash and running into trouble, or seek

help to assess the case for entering immunized joint venture

or looking for an interim management solution…

® improvement is about seeing a company through the

transformation of becoming more competitive – going the Extra

Mile.

support with a global team of technical experts and industry

specialists who will provide you with the fleet solution and

support that meets your specific needs.

manager to manage a period of transition, crisis or change within

an organization or to take on critical projects or senior

positions for a limited time is even more difficult.

1BlueHorizon Group® highly competent seasoned professional

will assist you to propel your business further… Going the

extra mile ahead of strategies …


Source: © 1BlueHorizon Group | Business model with Sectors (Horizontals) & Practices (Verticals)

… no matter how complex the issues are!


Our three Sectors expertise covers the entire breadth of the Aviation andDefense sector, Economic development and Family conglomerates


Airline

Airport General aviation Feasibility, Business PlanO ti I t

Performance Management Organization Improvement Privatization Aerospace cluster

Pricing and Revenue Management

Market Forecasting Branding, Marketing and

S l

Operations Improvement Merger & Acquisitions Due Diligence Fleet Planning

Logistic, Cargo, GH Sales

Economic development Corporate governance structure

Portfolio analysis

Family conglomerate

Restructuring MRO, Aerospace & Defence

Performance Management

Aerospace & Defence

Business review Investment strategy The family element

Organization and Change Management

Cluster strategy Project Management office Public–private partnership

(PPP)


Source: © 1BlueHorizon Group | Core competencies in the main three Sectors

… and our clients well recognize this!


Testimonials - What do our Customers think about 1BlueHorizon Group®


“1BlueHorizon Group is the only consulting firm that works successfully on all levels: Board level middle

“1BHG senior personnel come in with strong i b t i t tlevels: Board level, middle

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THE ONLY WAY TO DO GREAT WORK IS TO LOVE WHAT WE DO…A MILE OF RUNWAY WILL TAKE YOU ANYWHERE


NO ONE HAS EVER COLLIDED WITH THE SKYNote: A list of qualifications is made available separately

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