viewoint state of the iranian airline sector

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0 © 2014 1BlueHorizon Group - www.1bluehorizon.com All rights reserved 1BHG | VIEWPOINT IRANIAN AIRLINES SECTOR 13.11.2014 PROPRIETARY INFORMATION BLUEPAPER | THE WAY WE SEE IT STATE OF IRANIAN AIRLINE SECTOR ‘ONCE’… A WHOLE NEEDS OF 400 AIRLINERS FOR THE NEXT DECADE… November 2014 Updated We generate 1Blue Horizon ® out of the Rough... www.1bluehorizon.com FINALIZED PROPRIETARY INFORMATION

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Page 1: Viewoint State of the Iranian Airline Sector

0© 2014 1BlueHorizon Group - www.1bluehorizon.com Al l r i gh ts reserved1BHG | VIEWPOINT IRANIAN AIRLINES SECTOR 13.11.2014

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

BLUEPAPER | THE WAY WE SEE IT

STATE OF IRANIAN AIRLINE SECTOR‘ONCE’… A WHOLE NEEDS OF 400 AIRLINERS FOR THE NEXT DECADE…

November 2014Updated

We generate 1B l ueHo r i z on ® out of the Rough... www.1bluehorizon.com

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

Page 2: Viewoint State of the Iranian Airline Sector

1© 2014 1BlueHorizon Group - www.1bluehorizon.com Al l r i gh ts reserved1BHG | VIEWPOINT IRANIAN AIRLINES SECTOR 13.11.2014

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

O Iranian Airline Sector has been battling sanctions since the 1990s, when the U.S. stopped Tehran from buying civil aircraft, spare parts and post-sale services, supposedly to stop the Islamic Republic from procuring militarily technology…

O The embargo on aircraft and parts exports to Iran has left the Iranian airlines saddled with not only some of the oldest fleets in the Middle East, but in the world - a contributing factor to the dreadful safety record of the country's aviation system over the past 20 years…

O While Iran has attempted to kick start its own commercial aviation manufacturing industry and has also sourced aircraft from Russia and Ukraine, its efforts to acquire Western-made aircraft and replacement parts have largely been frustrated, thanks to the effects of sanctions imposed by many countries… It is notorious that the country will need at least 40 new aircraft p/a…

O The age of the aircraft and lack of spare parts has resulted in the grounding of large portions of the country’s commercial fleet. The country’s four largest carriers – Iran Air, Iran Aseman Airlines, Mahan Air and Meraj Airlines – all have average fleet ages above 22 years...

O Iran’s fifth 5-year National Development Plan (2010-2015) urges the government to reduce the average age of its aircraft to 15 years by 2015…

O The Civil Aviation Organization of Iran and Iranian airlines are increasingly optimistic that the sanctions related to the civil aviation will be lifted very soon to support required safety improvement requiring 400 new aircraft for the next decade with an overall value around USD 18 billion - At 1BlueHorizon Group® we believe that it is time to consider carefully Iran…

FOREWORD

Cover picture: In the 1970s, Iran's airlines were the pride of the region. The national carrier Iran Air, boasted a fleet of the latest Boeings and was pursuing the purchase of Concorde jets…

Page 3: Viewoint State of the Iranian Airline Sector

2© 2014 1BlueHorizon Group - www.1bluehorizon.com Al l r i gh ts reserved1BHG | VIEWPOINT IRANIAN AIRLINES SECTOR 13.11.2014

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

Iran is a regional powerhouse, being strategically located between the Arab World and the Turk countries as well as Afghanistan and Pakistan in the East

Key Facts Official Name: Islamic Republic of Iran Capital city: Tehran Population: 81.8mn (2015), 17th largest country Average household size: 5.2 pax/ household (2014) Official language: Persian Official currency: Iranian Rial

Government Form of Government: Islamic Republic, unitary state Established in 1979 by the Islamic Revolution Head of State: Supreme Leader Ali Khamenei Head of government: Hassan Rouhani

Geography 1.65 mn km2, 18th largest country, roughly five times larger

than Germany Neighboring countries: Afghanistan, Armenia, Azerbaijan,

Iraq, Pakistan, Turkey, Turkmenistan Sea cost: Persian Gulf, Caspian Sea and Gulf of Oman Divided into 31 provinces

Key Facts Map

Source: CIA world factbook, aneki.com, BUDDEOMM (2010)

Page 4: Viewoint State of the Iranian Airline Sector

3© 2014 1BlueHorizon Group - www.1bluehorizon.com Al l r i gh ts reserved1BHG | VIEWPOINT IRANIAN AIRLINES SECTOR 13.11.2014

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

Not only has Iran a particular large population, being the 17th largest country in the world, its population is also particularly young with a median age of 28.8 years

Key Facts Population DensityPopulation in Numbers 81,800,000 (2015) - 17th largest country Population consists of

– 61% Persians - 16% Azeri– 10% Kurds & the rest being Arabs, Turkmen and others

Median age: 28.8 (70% under the age of 35) Population growth rate: 1.25% (2015e) Population density: 44.9inhabitants/ km2

Literacy: 77%1

Academic quote: 8.3% of women and 11.3% (2006)2/ Germany: 17% (2000)

Urbanization Urbanization: 73.4% of total population (2015) Urbanization rate: +2.07% annual change

Big cities1. Tehran (8.4 mn)2. Mashhad (3.0 mn)3. Esfahan (1.8 mn)4. Karaj (1.8 mn)5. Tabriz (1.6 mn)

6.Shiraz (1.6 mn)7. Ahvaz (1.0 mn)8. Qom (1.0 mn)9. Kermanshah (0.8 mn)10. Orumieh (0.6 mn)

Source: CIA World Factbook (2015), Encyclopedia Britannica (2002), BUDDECOMM (2013), Statistical Center of Iran, IAB Institute for Employment Research1) Definition according to CIA World Factbook: Age 15 and over can read and write2) Definition: Share of female/ male 20+year population with tertiary degree.

Page 5: Viewoint State of the Iranian Airline Sector

4© 2014 1BlueHorizon Group - www.1bluehorizon.com Al l r i gh ts reserved1BHG | VIEWPOINT IRANIAN AIRLINES SECTOR 13.11.2014

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

The economy is dominated by its hydrocarbon sector. The economic sanctions, however, isolate the country & severely hinder it from participating in the global economy

Key Facts GDP Growth■ Iran is the second largest economy in the Middle East and North

Africa (MENA) region after Saudi Arabia, with an estimated Gross Domestic Product (GDP) in 2014 of US$406.3 billion.

■ It also has the second largest population of the region after Egypt, with an estimated 78.5 million people in 2014.

■ Characterized by a large hydrocarbon sectors, small scale private agriculture& services and a noticeable state presence in manufacturing & finance

■ GDP per capita (PPP): 16,165 US$ (IMF 2014)

■ Real GDP should rise to 5.8 % and 6.7 % in 2016 and 2017

■ GDP composition by sector (2014 est.): Agriculture (9.1%), industry (40.7%) and services (50.3%)

■ Export goods: Petroleum (80 %), chemical and petrochemical products, automobiles, fruits and nuts, carpets

■ Export partners: China (26.8%), Turkey (11%), India (10.6%), Japan (7.3 %), South Korea (5.9 %)

■ Unemployment rate: 11.4% (2014), up from 10.4% in 2013

■ The inflation rate declined from a year-on-year peak of 45.1% in 2012 to 15.6% in June 2015 in line with the lifting of sanctions and the tightening of monetary policy by the Central Bank of Iran.

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

24

20

16

12

8

4

0

22.5%

-0.3%

12.5%

1.0%

10.8%

0.1%

25.4%

1.0%

18.4%

7.8%

11.9%

5.8%

10.4%

4.7%

-1.1%

21.0%

Inflation (%)GDP Growth (%)

in %

Source: World Economic Outlook Database, IMF, 2014, World Bank Iran brief (2014)1) Based on IMF World Economic Outlook Database 2014 (IFM estimates start after 2008 for GDP growth and after 2010 for inflation.

-1.9%

1.5%

23.0%

35.0%

Page 6: Viewoint State of the Iranian Airline Sector

5© 2014 1BlueHorizon Group - www.1bluehorizon.com Al l r i gh ts reserved1BHG | VIEWPOINT IRANIAN AIRLINES SECTOR 13.11.2014

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

Iran is facing severe economic sanctions from the USA as well as the European Union, covering most sectors of Iran’s economy including the airline industry

Trade Relations with Iran Analysis Most severe economic sanctions are

being imposed by the USA, maintaining an almost absolute embargo with Iran

The European Union is maintaining a ban on foreign trade, financial services, energy sector, technological goods and insurance to Iranian firms

All Iranian financial institutions have been excluded from international monetary transactions through the electronic SWIFT network

Iran’s oil industry has been worst affected by international sanctions followed by the energy sector and aviation industry

Trade ties remain strongest with ECO countries (Economic Cooperation Organization), particularly Turkey & Pakistan as well as Russia & China

Countries imposing sanctions Active trade partners

Source: © 1BlueHorizon Group Analysis, The Economist, 2014; US Foreign Affairs Bureau, 2014; European Union, 2014

Page 7: Viewoint State of the Iranian Airline Sector

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

International sanctions continue to pose great challenges on Iranian airlines’ operations, mainly in terms of buying/leasing aircrafts as well as financing fuel procurement

International Economic Sanctions The United States has imposed an arms ban and an almost

total economic embargo on Iran; the sanctions also include a ban on selling aircraft or spare parts to Iranian airlines

Though international oil companies are not prohibited from supplying kerosene (worth up to $ 5m p.a.) to Iranian airlines, most firms chose not to engage in any business with the Iranian airlines

In June 2011, the United States imposed sanctions against Iran Air, stating that Iran Air had provided material support to the Iranian Revolutionary Guard Corps (IRGC)

In 2012 the US froze all property of the Central Bank of Iran and other Iranian financial institutions, as well as that of the Iranian government, within the United States

The American view is that sanctions should target Iran's energy sector that provides about 80% of government revenues, and try to isolate Iran from the international financial system

Aircraft acquired must have less than 10% of US manufactured components on board and it must not have belonged to a US airline since its registration

As most Airbus aircraft are powered by General Electric, CFM, Pratt and Whitney or Rolls-Royce engines, Iran Air has not been able to acquire many of their aircraft

Current American sanctions do not prevent Iran Air from leasing American or European aircraft either

On flights from the EU, Iran Air is forced to add fuel stops at tier 2 airports including Istanbul, Budapest, Ljubljana or Belgrade in order to procure jet fuel

Most of the fleet of Iranian airlines today consist of old Boeing and used or leased Airbus as well as other manufacturers (e.g. Fokker, Tupolev). Most used aircrafts have been purchased through 3rd parties such as other airlines. This has resulted in a series of disasters and incidents: in the last 25 years there have been 17 plane crashes, resulting in 1,500 casualties

A number of 108 aircraft have been added to the fleet of Iranian passenger planes during the last five years

Implications for Iranian Airlines

Source: Financial Times, Spiegel, Bloomberg, © 1BlueHorizon Group Research & Analysis updated in 2014

Page 8: Viewoint State of the Iranian Airline Sector

7© 2014 1BlueHorizon Group - www.1bluehorizon.com Al l r i gh ts reserved1BHG | VIEWPOINT IRANIAN AIRLINES SECTOR 13.11.2014

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

Although Iranian airlines have survived over 20 years of international sanctions on aircrafts and spare parts, rising fuel prices and inflation pose high pressure on their financial viability

The Iranian oil ministry, whose revenues have dwindled after EU oil sanctions imposed last year, has increased the price of jet fuel by 3.5 times for domestic flights and enforced international market rates for overseas destinations

In January 2013 the ministry refused to provide airlines with fuel until they paid off outstanding debt amounting to $285m, this dispute led to an unprecedented one-day halt in domestic flights

In 2012, the government of Mahmoud Ahmadinejad allowed the country’s 17 airlines to increase ticket fares by 65% for domestic flights and almost double for overseas destinations.

However, this increase did not cover the rocketing fuel and airline maintenance costs

In January 2013 the ministry refused to provide airlines with fuel until they paid off outstanding debt amounting to $285m, this dispute led to an unprecedented one-day halt in domestic flights

Rising Fuel Prices The central bank was hit by US sanctions last year and

faces difficulties in transferring hard currency into the country

The central bank has not been able to consistently supply airlines with US dollars at semi-subsidized rate (24,516 rials) which is higher than the official rate, but lower than the open market rate

As a result, Iranian airlines are running up debts with overseas airports and companies

High inflation, which is officially 28.7% but believed by many economists to be far higher, coupled with the fall of rial (which has dropped by about 60 per cent over the past year) have also adversely affected passenger numbers

Aviation industry analysts fear that the financial crisis, coupled with the existing sanctions, may further erode the poor safety record of Iran’s airliners.

Inflation and Currency Devaluation

Source: Financial Times, Spiegel, Bloomberg, © 1BlueHorizon Group Research & Analysis updated in 2014

Page 9: Viewoint State of the Iranian Airline Sector

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

Despite the challenges, the total air travel industry in/from Iran (business & leisure) will witness the strongest growth among all modes of transportation with aggregate growth of 4.8% p.a.

20.5% 20.6% 20.7% 20.9%

73.2% 73.2% 73.2% 73.2%

1.9%1.9%1.8%1.7%

2014ff

4.2%4.6%

7,130

4.4% 4.0%

+12.6%

7,395 8,031

2015ff2013ff2012

7,698

AirLand Sea Rail

Domestic Travel Forecast

Domestic air travel will increase consistently until 2015, outpacing overall growth both in the business and the leisure segments with an absolute CAGR of 3.5% p.a. and 5.1% p.a. respectively

Proportionally, domestic air travel will also gain in importance, representing 46.8% of all business and 49.2% of all leisure journeys by 2015

Total Departures by Mode of Transport

Total departures originating in Iran will grow by 12.6% until 2015:- Air traffic thereof will grow proportionally to represent

~21% of all departures (+4.8% p.a.)- Particularly sea transportation will witness declining

demand, dropping to merely 4% of all departures

‘000 trips ‘000 trips

2012

+2.9% p.a.

11.4%

46.8%

43.0%

542

41.8%

2015ff

591

46.1%

11.0%

LandAir Rail

49.2%

11.1%

+3.9% p.a.

41.8%

6,916

39.8%

10.8%

47.4%

7,735

2012 2015ff

LeisureBusiness

Source: Euromonitor Iran Travel Industry 2014, © 1BlueHorizon Group Analysis

Page 10: Viewoint State of the Iranian Airline Sector

9© 2014 1BlueHorizon Group - www.1bluehorizon.com Al l r i gh ts reserved1BHG | VIEWPOINT IRANIAN AIRLINES SECTOR 13.11.2014

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

By 2015, Turkey will become Iran’s most popular destination with growth of 8.2% p.a. (2010-2015); airlines will face tremendous potential to expand their route networks accordingly

Departures/Arrivals from Iran (top 6 destinations)

568613656

444473525

517602

8,000

6,000

4,000

2,000

0

9,000

1,000

7,000

5,000

3,000

2,990

2,288

8,031

2015ff2012

7,130

2,856

413423

1,794

+4%

‘000 trips Aggregate demand for travel from Iran (departures) will increase at a solid CAGR of 4% p.a. until 2015

Turkey represents the most favored destination from Iran, with the total number of trips increasing by 8.2% p.a. over the same period of time– By 2015, 28.5% of all departures from Iran will be

destined for Turkey By 2015, Saudi Arabia will represent the largest arrival

origin and the 3rd largest departure destination from Iran– Though Saudi Arabia benefits tremendously from

pilgrimage tourism during the Hajj, it merely contributes to 7.6% of all trips originating in Iran

By 2015, 37.2% of all departures as well as 41.8% of all arrivals will be from/to non-top 6 countries

The forecast indicates tremendous potential for airlines to extend their existing route networks to cover the identified growth destinations

Industry Outlook

Others

IndiaChinaQatar

Saudi ArabiaUnited Arab EmiratesTurkey

858 933

187161

174168

215180

225191

208206

293275

3,000

2,500

1,000

0

2,000

500

1,500

2,0382,233

2015ff2012

+3%

Departures Arrivals

JapanPakistanKuwait

Syria

Source: Euromonitor Iran Travel Industry 2014, © 1BlueHorizon Group Analysis

Page 11: Viewoint State of the Iranian Airline Sector

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

On a global level, the airline industry is subject to volatile fuel prices, high interest rates, decreasing consumer spending and tightening regulations

Energy Prices: Fluctuation in crude oil and related energy prices

Interest Rates: Change in prime and related interest rates

Consumer Spending: Change in overall level of consumer spending on goods and services

Technology Innovation: Advances in science and technology, including information technology

Government Regulations: Changes in government regulations or business policies

Airline Industry Main Drivers Critical Issues and Challenges

Profitability depends on business/ consumer travel:Global aviation traffic rises and falls at twice the pace of economic output, so a change in the economy doubles the impact for airlines. Because of relatively high fixed-costs of airplanes, airport facilities, and labor, airlines cannot easily adjust to reduced passenger traffic

Fuel costs may vary tremendously – Jet fuel accounts for 20-30%of industry operating costs, relatively more for airlines with low labor costs. Fuel costs can change rapidly, making it difficult for airlines to adjust ticket prices

Capital-intensive industry - Airplanes are expensive to acquire and maintain. Most new airplanes typically cost between $50 and $250 million. Newer planes are usually more fuel-efficient, but the high prices deter many airlines from buying them

Airlines depend on skilled employees - Airlines cannot fly without certified pilots and mechanics, whose training takes years. The unions that represent these employees at most airlines have an exceptionally important voice in labor issues

Source: © 1BlueHorizon Group Analysis, Market Research Airline Forecast 2014

Page 12: Viewoint State of the Iranian Airline Sector

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

In the meantime, legacy carriers from around the world continue to face harsh profitability challenges with operational KPIs differing tremendously across the industry

AirlineTotal Desti-

nations

Fleet Size

Seat Load

Factor

# of Employ-

ees

Net Profit Margin

65 52 - 7,500 -

122 169 80% 33,634 2.4%

124 119 - 15,032 -

82 64 75.8% 9,038 0.03%

49 35 70% 3,876 -

42 30 73% 5,375 -38%

59 32 69.8% 4,545 -7.5%

43 60 72% 11,044 -4.8%

62 161 73.5% 29,852 -2%

185 184141

179

199

111

142

126

Legacy carriers around the world are facing similar operational challenges towards profit margins and other relevant KPIs

When considering employee-to-aircraft ratios, airlines such as Gulf Air (111 employees per aircraft) or Qatar Airways (126 employees per aircraft) illustrate best-in-class performance

Iran Air illustrates a ratio of 144 employees per aircraft, a favorable ratio compared to local and global competitors

144

Employee/Aircraft Ratio for Selected Legacy Carriers

Facts & Figuresof Selected Legacy Carriers

Source: © 1BlueHorizon Group Analysis, Arab Air Carriers Organization, 2014, Company Websites, Last published annual report, 2014

Page 13: Viewoint State of the Iranian Airline Sector

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

Jet fuel accounts for approx. 30% of airlines’ operating expenses

Airlines have tried to pass on fuel price increases to consumers, but unless all airlines do this simultaneously, those that did it were at a competitive disadvantage

To minimize the impact of fuel price increases, airlines may cancel low-capacity routes, consolidate routes, and use one-engine taxiing at airports.

Proactively, most airlines engage in financial hedging to protect against fuel cost increases, and may buy newer planes and engines that are more fuel-efficient for a particular type of service.

Fuel consumption of aircraft varies widely: an Airbus 319 that carries 122 may burn 758 gallons of fuel per hour, while a Boeing 747-400 that carries 369 may burn 3,500 gallons per hour. Because of high fuel costs, newer planes and engines have been designed to be as efficient as possible for a particular type of service

However growth is ahead, with strong and complex cross winds existing… the jet fuel at low level of USD 66/bbl by the end of 2014 relieves airlines from increasing cost pressures

Fuel Cost Jet Fuel Prices

Source: BMI Freight Transport Report 2014, © 1BlueHorizon Group Analysis

A key contributor is Jet fuel prices which stood at $66/bbl, a reduction of 47% on Jan-14 and will thus relieve airlines from increasing cost pressures

In 2015 the fuel bill is estimated at $192 billion; 26.1% of operating expenses lower than previous years.

Page 14: Viewoint State of the Iranian Airline Sector

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

Note: RPK stands for Revenue Passenger Kilometers Source: © 1BlueHorizon Group Analysis, Airbus Global Market Outlook 2014 (2014 – 2034)

RPK traffic growth from/to Middle East by Region

One of the Key parameters when analyzing the region’s air transport is its people’s propensity to travel. There are several factors which directly affect this, including: • Economic stability and an

expanding middle class • Growing and significant urban

population • Strong and/or growing

competition • High levels of immigration • Lack of extensive train networks

in the region • And geographical features (large

distance between population centers and the presence of large bodies of water or continental mountains)

Propensity to travel

5.9%

6.8%Africa

6.4%North America

4.7%Europe

7.6%CIS

6.7%Asia-Pacific

Middle East

Latin America

Despite sign of saturation on the Intra Middle East traffic due to condensed competition, the Middle Eastern carriers will grow from an 8% share to 13% of

traffic in the next 20 year…

There remains significant untapped potential for liberalization within the region: The Kingdom of Saudi Arabia is taking steps toward opening its underserved domestic markets, and without any doubt as soon as the sanctions will be lifted Iran will follow…

Strategically located, the Middle East is predestined as a global 1-stop hub connecting established Western with Eastern growth-markets with 2/3 of the world’s population within eight flying hours

7.4%

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

Particularly, the Arabian sea has witnessed the emergence of several fast-growing carriers leading to increased competition also for the Iranian domestic market

AirlineTotal Desti-

nations*

Middle East

Europe / Americas

Asia / Africa Home

65 35 21 / - 9 / - Tehran

55 37 6 / - 11 / 1 Tehran

54 54 - - Tehran, Shiraz

122 17 32 / 11 38 / 22 Dubai

124 25 30 / 7 43 / 19 Doha

82 16 16 / 5 37 / 8 Abu Dhabi

90 40 15 / 2 19 / 14Jeddah, Riyadh,

Dammam

62 28 15 / - 14 / 5 Dubai

82 26 21 / - 20 / 11 Sharjah

* Individual routes may not add up to total number of destinations due to seasonality

Home Base of Selected Airlines in the Persian Gulf Scheduled Network – Number of Destinations

Source: © 1BlueHorizon Group Analysis, Airline Websites – Last published annual report 2014

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

Independently of the Low Cost Carrier, different business models have emerged: in the Middle East only 21% of the aircraft are for Short Haul, in Europe 71% - means 3.4 times bigger...

Long Haul79%

Short Haul21% Long Haul

29%

Short Haul71%

Middle East(313 Aircraft)

Europe(1.523 Aircraft)

Mix fleet 2013

Source: © 1BlueHorizon Group Research, Long Haul: All aircraft type> A320/B737 without B737ER, 2013 based on companies reports

The Middle-East Big 3 (MEB3) The European Big 3 (EB3)

Middle East is the only region in the world where the wide-body fleet is larger than the single-aisle fleet...

Page 17: Viewoint State of the Iranian Airline Sector

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

The Long Haul fleet key advantage to link continents

... or the Middle-East Big Three ‘MEB3’ carriers have 3 times the ordered seat, in the next 10 years compared to the European Big 3 ‘EB3’ and the trend is growing

19,131

48,475

169,469

+188%

92,294

28,700

58,786

30,527

9,128

Source: © 1BlueHorizon Group Analysis, Ascend, www.anna.aero (without the last Dubai Air Show orders….)

Page 18: Viewoint State of the Iranian Airline Sector

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

Foreign airlines maintain strong flight frequencies/seat capacities to Iran; Turkish Airlines offers 94 flights per week whereas Emirates accumulates a weekly seat capacity of ~16,418

Destination Map Iran Foreign & Domestic Airlines Air Traffic to/from Iran by Foreign Airlines

Foreign airlines Domestic airlines

Routes to/from Iran by foreign & domestic airlines

Based on the frequency of flights and the respective aircraft type used, the top 3 foreign airlines have available weekly seat capacity as follows:- Turkish Airlines*: ~12,972 available seats per week- Qatar Airways*: ~7,488 available seats per week- Emirates*: ~16,418 available seats per week

Emirates thus illustrates the largest seat capacity out of all foreign airlines serving Iran

Top 3 Foreign Airlines

# of Flights per Week

to/from IranDestinations in Iran Aircraft Type

Used

94

Tehran; Shiraz; Esfahan; Mashad;

Kermanshah; Tabriz

A319/320B737

52 Tehran; Shiraz; Mashad A320

45 Tehran B777-300A330-200

* A319= 126 pax; A320= 143 pax; B737= 143 pax | A320= 144 paxB777-300= 386 pax; A330-200= 250 pax

Source: © 1BlueHorizon Group Analysis, Airline Websites – Last published annual report 2014

Page 19: Viewoint State of the Iranian Airline Sector

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

The Iranian airline Industry is also illustrating solid growth at 3.4% annually, driven by inbound and outbound flights from the Middle East and Asia

Air Departures and Arrivals to Iran

1,352 1,400 1,459 1,523 1,594 1,680

666 688 711 735761

788

0200400600800

1,0001,2001,4001,6001,8002,0002,2002,4002,6002,800

2015ff

2,258

2013ff

2,355

2014ff

2,468+4%

2,019 2,088 2,170

20112010 2012

‘000 trips

Arrivals Departures

Inbound travel will grow at a 3.4% CAGR to reach 0.78 million trips in 2015

Outbound travel will grow at a 4.4% CAGR to reach 1.68 million air trips in 2015

The total number of flights is expected to reach 2.5 million inbound and outbound flights by 2015

This positive growth trend will be dominated by growth in arrivals from the Middle East and Asia, offsetting a continued negative growth in arrivals from Europe and the US

The decline in arrivals from European countries will average a negative 1-2% during the forecast period, with a negative 2% CAGR for arrivals from Germany, Spain and from France

Strained relationships with South Korea will also see arrivals from this market decline at a much faster CAGR of -4% during the coming years

Industry Outlook

Source: Euromonitor Iran Travel Industry 2014, © 1BlueHorizon Group Analysis

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

The air travel market in Iran is set to reach a value of IRR 18.6 billion by 2015 despite growing concerns regarding aircrafts safety

Air transportation industry is set to increase by 4% annually to reach by 2015 a value of IRR18.6 billion

Domestic tourism sees the most activity, although it does not generate as much sales value, 3.8 million domestic trips will be taken by air in 2015, a 31% increase from 2010

The leading national carrier is Iran Air followed by Iran Aseman Airlines. Mahan Air and Kish Air also service an extensive network of domestic routes and also some intraregional routes. Domestic services by all airlines are frequent, reliable and time efficient for anyone travelling within the country

However, planes are beyond their typical life expectancy, especially those used on local routes and maintenance and safety are significantly below Western standards, making air travel within Iran a safety concern

According to the Iranian Civil Aviation Organization (IR-CAO), there were five accidents in Iran within 12 months extending from March 2009 to March 2010. A total of 186 civilians were killed in these accidents

Industry OutlookAir Travel Value

2010 2011 2012 2013 2014 2015

19,0

18,5

18,0

17,5

17,0

16,5

16,0

15,5

15,0

14,5

14,0

18,6

17,7

17,0

16,3

15,6

15,1

IRR billion

Source: Euromonitor Iran Travel Industry 2014, © 1BlueHorizon Group Analysis

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

Air travel in Iran is split predominantly between Iran’s three largest players (Iran Air, Iran Aseman, Mahan Air with Meraj Airlines emerging) and a small presence of major international airlines

Iran Air Iran Aseman Airlines

Mahan Airlines International Airlines

2

4

The company commends a 13% market value share of international flights and an 8% share of domestic flights

There have been many security concerns plaguing Mahan Air’s brand image, although all other airlines have also had accidents and security issues

Mahan Air still lags behind in this context as it was also banned from flying to and from the EU in 2007. The U.S. has imposed sanctions on Mahan Air three times since 2011 for allegedly shipping arms to the Syrian government; ferrying members of the Islamic Revolutionary Guard Corps; and providing transport for the Lebanese militia Hezbollah.

3

1

Iran Aseman Airlines was created in 1980 and now operates scheduled domestic and regional flights in the Persian Gulf, as well as charter air services

The company was owned by Iranian Civil Pension Fund Investment and was privatized in 2008. It is based at Mehrabad International Airport for domestic flights and Imam Khomeini International Airport in Tehran for international flights

It has a base in Shiraz International Airport (SYZ) and Mashhad International Airport in addition to the Dubai International Airport

Iran Air is the country’s flag-carrier and operates services to 60 destinations, including 35 international and 25 domestic destinations

It is based at the Tehran Imam Khomeini International Airport (IKA) for international flights and Tehran’s Mehrabad International Airport (THR) for domestic flights

The company also operates a low cost carrier, Iran Air Tours, which operates from the Mashhad International Airport (MHD)

The airline services domestic cities: Mashhad, Zahedan and Ahvaz. The airline started operating in 1990, and is the main carrier for

Iran Air’s domestic flights. The airline also operates charter flights

Key international destinations serviced by the airline include Dubai and Abu Dhabi, Bahrain, Kuwait and Qatar and another 20 or domestic destinations. The company had a fleet of 36 aircraft as of November 2014

Low cost airlines including Air Arabia, AtlasJet and Jazeera Airways have also entered this market with some success

Air Arabia’s launch in Iran has contributed to increased traffic between the United Arab Emirates and Iran. Iranians travel a lot to the United Arab Emirates, especially to Dubai, although it is generally the more wealthy Iranians who go to Dubai and who would hence be less worried about cost

A number of international airlines also fly to Iran from several regional and intercontinental destinations, including the regional leaders: Emirates Airlines, Qatar Airways, Turkish Airlines as well as Saudia, which holds the largest market share of Saudi tourists travelling to Iran

Mahan Air is a private airline operating scheduled domestic flights and international flights to 61 destinations in 12 countries

*Market share by total number of flights to/from Iran

Iran Air55%

Others45%

Market share*

Source: Euromonitor Iran Travel Industry 2014, © 1BlueHorizon Group Research & Analysis

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

As Iran’s flag carrier, Iran Air was established in 1962 and operates three subsidiaries, operating services to 80 destinations.

Overview

Tehran

In spite of the restrictions due to sanctions, Iran Air has managed to continuously expand its operations and operates three subsidiaries – Iran Air Tours, Homa Tourism Center, and Homa Hotel Group

Iran Air Tours functions as an independent airline entity, nonetheless it is still considered to be a complementary organization for the activities of Iran Air

Homa Tourism Center covers incoming, outgoing and domestic tours, while Homa Hotel Group consists of five 5-star hotels in Tehran, Mashad, Shiraz, and Bandar Abbas.

Subsidiaries Iran Air is facing challenges in terms of fuel efficiency due to

the outdated fleet in use The fleet can’t be overhauled due to tightening international

sanctions on the country Customer loyalty and trust in the Airline is degrading due to

the increasing number of safety incidents

Future Outlook

Fact Sheet Iran Air was established in 1962, as a result of a merger

between Pars Airways and Iranian Airways Iran Air covers 35 destinations in the Middle East and 30

destinations outside the region Frequent-flyer program: SkyGift Since 1994, 10 Airbus planes and One Fokker have been

added to the fleet that consists of 51 airplanes Revenue: USD 850 million (2012)

Source: Euromonitor Iran Travel Industry 2014, © 1BlueHorizon Group Analysis

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

Iran Air’s current route network bears tremendous potential for expansion particularly to its key economic partners within ECO (incl. Pakistan) and China

Iran Air Route Network – International & Domestic

With over 30 domestic and regional destinations, Iran Air has a solid coverage particularly on its domestic routes

However, it is facing strong competition from Middle Eastern carriers such as Turkish Airlines, Qatar Airways and Emirates who maintain high flight frequencies and large seat capacities to/from Iran

Iran Air is the sole carrier offering routes to/from Lebanon (incl. Mahan Air)

Serving over 20 destinations across Europe, Iran Air illustrates a developed route network, though these routes are subject to volatility due to the imposed sanctions by the European Union

As of today there are no routes connecting North Africa Iran Air is also the sole carrier on routes to/from the UK, France, Denmark and

Sweden

With just over 10 destinations across Asia, Iran Air still possesses tremendous potential to tap into the continent on a larger scale

Iran Air remains the sole carrier to its economic partners Pakistan and Chinaas well as to India, Thailand and Malaysia (incl. Mahan Air)

As trade is expected to increase with Iran’s key economic partners within ECOas well as China, air travel growth to these countries is to be expected

Middle East

Europe

Asia

Source: Iran Air website, 2014

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

At the end 2014, Iran Air fleet has plane averaging 27.1 years in age, which is almost twice the international average

Source: © 1BlueHorizon Group | Case Material

A modernization program needs to be implemented swiftly to avoid dramatically safety issues… Iran Air needs to purchase at least 100 wide-body and short-haul

jets in the future…

Aircraft Total OrdersPassengers Year of

entry Comment PotentialJ Y Total

Airbus A300B4-200 8 0 30 248 278 1980

Airbus A300-600R 4 0 30 248 278 1994 Potential conversion to freighter (P2F program)

Airbus A310-300 2 0 0 200 200 2001 Potential conversion to freighter (P2F program)

Airbus A320-200 5 0 12 144 156 2009

Boeing B747-200BM 3 0 22 427 449 1978Boeing B747SP 1 0 22 283 305 1978 Maintenance in China (?)

Fokker 100 16 0 0 104 104 1991

McDonnell Douglas MD-82 1 0 12 133 145 2013 Leased

Tupolev Tu-204 - 35 TBA TBA Deal announced in 2007(!)

Iran Air Cargo FleetAirbus A300B4-200F 2 0 1978

Boeing B747-200F 1 0 1980

Boeing B747-200C 1 0 2008

Total 44 35

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Mahan Airlines established in 1991 is Iran’s first private airline and today the largest airline based on seat numbers and fleet size (average 23.6 years)

Overview

Tehran

Fact Sheet The airline carried 5.6 million passengers in 2014 with an average

load factor of 77% and in mid-2015 had a fleet of 65 aircraft, making it the largest airline in Iran based on seat numbers and fleet size;

The U.S. has imposed sanctions on Mahan Air three times since 2011 for allegedly shipping arms to the Syrian government; ferrying members of the Islamic Revolutionary Guard Corps; and providing transport for the Lebanese militia Hezbollah;

Mahan Air serves over 61 destinations.

Source: Euromonitor Iran Travel Industry 2014, © 1BlueHorizon Group Analysis

Aircraft Total OrdersPassengers Year of

entry Comment PotentialJ Y Total

Airbus A300B4-200 2 0 16 231 249 Phasing out by 2015

Airbus A300-600R 14 0 21 28 246

Airbus A310-300 11 0 23 157 180

Airbus A321-200 1 0 --- --- ---

Airbus A340-300 4 0 --- --- ---Airbus A340-600 7 0 55 160 215

Avro RJ85 / RJ100 6 0 8 104 112

Bae 146 10 0 0 90 90 1 -200 series / 9 -300 series

Boeing B747-300 Combi 2 0 24 432 456

TOTAL 57 0

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

Iran Aseman Airlines historic links go back to 1958 to the airline Air Taxi Co., which became Pars Air in the 1970s and later Iran Aseman Airlines

Overview

Tehran

Fact Sheet The airline was established and started operations in 1980; Aseman was the first aviation company in the Middle East to

provide Air Ambulance services; The airline is owned by Iranian Civil Pension Fund Investment

Company; Iran Aseman Airlines serves over 54 destinations. Iran Air fleet has plane averaging 23.4 years in age

Source: Euromonitor Iran Travel Industry 2014, © 1BlueHorizon Group Analysis

Aircraft Total OrdersPassengers Year of

entry Comment PotentialJ Y Total

Airbus A320-200 3 0 --- --- 180

Airbus A340-300 1 0 --- --- 300ATR 72-200 4 0 --- --- 70

ATR 72-500 2 0 --- --- 70

Boeing B727-200 3 0 --- --- 175 2 are B727-200F

Boeing B737-400 2 0 --- --- 150Fokker 100 20 0 --- --- 109Dassault Falcon 20 1 0 --- --- --- Air Ambulance

TOTAL 36 0

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

Mahan Air outperforms Iran Air and Iran Aseman Airlines across major operational KPIs; all of Iran Air and Iran Aseman Airlines’s top 20 routes illustrate major delays and partially high flight cancellation rates

Iranian Airlines - Operational Performance Top 20 Routes

Iran Air’s operational performance on its 20 most active routes indicates delays on every single of its routes

Average flight cancellations on its top 20 routes are comparatively high, particularly due to a cluster of routes with high cancellations e.g. RAS-THR

Though Iran Air outperforms Aseman across all KPIs, its performance is still significantly lower when compared with Mahan Air

96

5246

37352927

21201815121099

0102030405060708090

100

0

10

20

30

40

50

60

70

80

MHD - THR

BND -THR

65

OMH - THR

RAS-THR

IKA -KUL

AWZ - THR

TBZ -THR

30

IKA -BOM

BUZ -THR

ZAH -THR

IKA -FRA

IKA -DXB

ADU -THR

16

KSH -THR

XBJ -THR

AZD -THR

10

SYZ -THR

IKA -IST

IFN -THR

Cancelled Flights (%) On-Time Performance (%) Average Delay (minutes)Minutes %

Average

Cancelled Flights 17% 2% 38%On-Time

Performance 67% 71% 35%

Average Delay 29 min. 12 min. 50 min.

Source: © 1BlueHorizon Group Analysis, FlightStats, 2014

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

Meraj Airlines established in 2010 is a Private and the first VIP airline, and the youngest airline in Iran based on the fleet age with 21.7 years (!)

Overview

Tehran

Fact Sheet Meraj Airlines It also operates the Air transports for the Heads of

State and Government of Iran. Based in Tehran-Mehrabad and Tehran-IKA, the company has

established another 2 hubs as well, respectively in Mashhad and Kish Island for better coverage of its flight network.

Meraj Airlines is known as having punctual flights and the safest Airline in Iran and in the Middle East.

Meraj Airlines serves over 20 destinations.

Source: Euromonitor Iran Travel Industry 2014, © 1BlueHorizon Group Analysis

Aircraft Total OrdersPassengers Year of

entry Comment PotentialJ Y Total

Airbus A300-600R 2 0 18 244 262

Airbus A320-200 4 0 12 156 168 1 in VIP configuration

Airbus A321-231 1 0 --- --- --- VIP operated for the Gov.

Airbus A340-300 1 TBA --- --- 90 VIP operated for the Gov.

Boeing B707 2 0 --- --- --- VIP operated for the Gov.

Boeing B737-4286 Adv 1 0 --- --- --- VIP

Dassault Falcon 50 2 0 --- --- --- VIP

TOTAL 13 0

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

Other smaller airlines operate schedules domestic and international services, as well as charter services

Established in 2010 and based in Tabriz, ATA Airlines serves over 12 destinations.

Overview

Tabriz

Source: Euromonitor Iran Travel Industry 2014, © 1BlueHorizon Group Analysis

Aircraft Total OrdersPassengers Year of

entry Comment PotentialJ Y Total

Airbus A320-200 4 0 --- --- 180

McDonnell Douglas MD-83 6 0 --- --- 161

TOTAL 10 0

Established in 1989 and operating from Kish Island, the airline serves over 18 destinations.

Overview

Kish Island

Aircraft Total OrdersPassengers Year of

entry Comment PotentialJ Y Total

Fokker 100 3 0 --- --- 117

McDonnell Douglas MD-82 5 0 --- --- 160McDonnell Douglas MD-83 4 0 --- --- 162

TOTAL 12 0

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

Other smaller airlines operate schedules domestic and international services, as well as charter services (cont’d)

Established in 1993 and operating from Tehran-Mehrabad, Caspian Airlines serves over 20 destinations.

Overview

Source: Euromonitor Iran Travel Industry 2014, © 1BlueHorizon Group Analysis

Aircraft Total OrdersPassengers Year of

entry Comment PotentialJ Y Total

McDonnell Douglas MD-82 1 0 --- --- 160

McDonnell Douglas MD-83 4 0 --- --- 162

TOTAL 5 0

Established in 1993 and operating from Qeshm Island, the airline serves over 22 destinations.

Overview

Qeshm Island

Aircraft Total OrdersPassengers Year of

entry Comment PotentialJ Y Total

Airbus A300-600 5 0 24 283 307

Airbus A320-200 3 0 12 144 156

Avro RJ100 4 0 0 110 110Fokker 100 4 0 --- 117 117

TOTAL 12 0

Tehran

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

The Fokker 100 is a medium size twin-turbofan airliner. With very low operational costs in the 100-seat short-range class made it a best seller when it was introduced in the late 1980s. The production ended in 1997 with 283 airframes delivered. Today around 200 Fokker 100 aircraft remained in airline service with 47 airlines around the world .Fokker 100 are available in the market and ideal to build a ‘Low Cost’ regional network within and around Iran. The market price unit, the maintenance cost and the fuel consumption are also very attractive (at least for the next ten years).

Fokker 100 (or even Fokker 70)

The Airbus A320 family consists of short- to medium-range, narrow-body, commercial passenger jet airliners manufactured by Airbus Industrie. The family includes the A318, A319, A320 and A321, and the ACJ business jet (passenger capacity ranges from 100, on the A318, to 220, on the A321).On 1 December 2010, Airbus officially launched the new generation of the A320 family with the A320neo "New Engine Option“ (with fuel savings of up to 15%).Airbus A320 aircraft are available in the market and still a very good aircraft for the coming decade despite the coming improved version.

Airbus A320 family

If for the Regional network a fuel-efficient fleet is essential today, Iranian airliners continue to purchase Fokker 100 and/or Airbus A320 aircraft types

Note: Many aircraft in very good conditions are available in the market (Asia, South America, etc.)Source: Manufacturers websites, Fokker Services www.fokkerservices.com, © 1BlueHorizon Group Analysis

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A300-600 (‘Mahan Air’) A300-600 (‘Qeshm Airlines’)

A300 B2-200 / B4 -200

to be phase out…The Airbus A300B2-200 is the first production version of the program launched in 1972 as the world's first twin-engined widebody (the first product of Airbus Industrie). The B2/B4 are 3-crew widebody and the maintenance cost and fuel burn very high.

to be converted as freighter, or…The Airbus A300-600 and A310 -200/-300 are the world's first 2-crew widebody airliner with similar cockpit , eliminating the need for a flight engineer, including single type rating which ease operations. High demand in the market for (converted) freighters.

build on the experience (incl. crew) keep some for conversion (2 to 4) sell the rest to finance the P2F program

For the short to medium range fleet, the time for the Airbus A300 family aircraft is over, at least as passenger aircraft (P2F to be considered)

Note: At least EADS-EFW in Dresden Germany and MNG Technic in Turkey are offering Passenger to Freighter (P2F) conversion programs.

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The Boeing 747 is a wide-body commercial airliner and cargo transport aircraft, often referred to by its original nickname, Jumbo Jet, or Queen of the Skies. It was the first wide-body ever produced.The -100 was the original variant launched in 1966. The−200 model followed in 1971, featuring more powerful engines and a higher MTOW. Passenger, freighter and combination passenger-freighter versions of the −200 were produced. The shortened 747SP (special performance) with a longer range was also developed, and entered service in 1976.

Boeing 747 SP / -100 / -200 / 200C / - 200BM

The comfort and Economics of old 747 are not anymore at the industry standard, not eco-friendly with old engine technology associate with high fuel burn...

Alternate to be consideredIf at this stage Iran Air is only considering the second hand market, we recommend to consider either the Airbus A330/A440 family (Iran Aseman)… B747-400 (Mahan Air). Or older B777-200 until the B-747-8 will be available there…

Finally, for the ‘long haul’ fleet, we don’t believe that old Boeing 747 are still the appropriate aircraft, despite the available maintenance knowledge

Note: Many aircraft in very good conditions are available in the market or will be available with ongoing fleet renewable (Middle East, Asia, South America, etc.)Source: Manufacturers websites, © 1BlueHorizon Group Research &Analysis

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With a captive market over 80 million people, the future look bright soon or later with sound growth ahead – but the sanctions are still in place, so far!

Source: © 1BlueHorizon Group Analysis, CNN report September 2015 (http://edition.cnn.com/2015/09/09/travel/irans-aviation-industry/)

Since news of the Iran nuclear deal broke, lots of business clients have been calling up, BUT we have been forced to give them a bit of a cold shower…

There's this expectation, or assumption, in the business community that the sanctions are being lifted, when, in fact, the U.S. legal framework is scheduled to remain in place…

Only a small fraction of U.S. sanctions — the ones related to Iran's nuclear activities — will be suspended as part of this deal.

A senior Obama administration official put it this way in a briefing with reporters: ‘We are not removing our trade embargo on Iran.’

There is one big exception: the civil aviation industry. Once inspectors have certified that Iran is complying with the agreement, likely sometime early next year, companies such as Airbus and Boeing will be able to sell civilian aircraft and parts to Iran. Industry officials say that could mean sales of 400 aircraft worth $20 billion in the next decade!

OEMs spokesmen are all saying that their company is reviewing the agreement, but won't comment until the U.S. government gives further direction… but at the same time it is obvious that Negotiations with the manufacturing giants are under way!

At 1BlueHorizon we are pointing out that Europe's sanctions, which are far less extensive and longstanding than U.S. sanctions, will be lifted quickly…

The nuclear talks could still disrupt momentum. But as the international business elite set their sights on Iran, the new player is determined to welcome them with a world-class travel network.

1BlueHorizon Group® understanding related to the sanctions status:

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To date, true sanctions are still hurting Iranian commercial aviation by denying Iranian airlines access to safe and modern aircraft.

Source: © 1BlueHorizon Group Research & Analysis

With respect to U.S. sanctions against Iranian Airlines and Aviation not allowing them to order or purchase any airplanes, and only being allowed to purchase airplanes which is older than 10 years.

It is notorious that out of Iran’s 250 commercial planes, about 150 were flying while the rest are ‘not functional’ due to a lack of spare parts...

The National Development Fund of Iran has reportedly put aside $500m for purchasing aircraft and the same amount for the purchase of spare parts…

Head of Iran’s Civil Aviation Authority mention a few times that Iran would seek mass purchases of aircraft if the sanctions, which prevented the country from buying Western aircraft since the 1970s, were lifted…

‘Once’… Iranian airlines will be ready to buy at least 40 passenger planes every year for 10 years…with an estimated value of around USD18 billion!

‘Don’t wait to liaise with the Iranian Airline Sector because at 1BlueHorizon Group® we have a feeling that if the windows and doors are open, we have to be there…’

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

THANK YOU - MAMNUNAM

LEONARD FAVREPartner, Group Managing Director

1BlueHorizon GroupFischrain 88 M +41 79 2080256 (Switzerland)3063 Ittigen - Bern M +971 50 6164007 (U.A.E.))Switzerland leof007

[email protected]

Abu Dhabi | Bern | Madrid | Montreal | Paris

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

We are used to generate 1BlueHorizon® out of the Rough...

Customers with specialized needs often choose us for our unique custom turnkey solutions to propel their business further…

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

LEGAL 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.This presentation has been prepared by 1BlueHorizon Group® (1BHG or the ‘Company’). This presentation does not constitute or form part of any offer to sell or issue, or invitation to purchase or subscribe for, or any solicitation of any offer to purchase or subscribe for, any securities of the Company or in any other entity, nor shall this document or any part of it, or the fact of its presentation, form the basis of, or be relied on in connection with, any contract or investment decision, nor does it constitute a recommendation regarding the securities of the Company or any other company. The information contained in this presentation has not been independently verified. This presentation does not purport to be all-inclusive or to contain all the information that a prospective investor in securities of the Company may desire or require in deciding whether or not to offer to purchase such securities. No representation or warranty, express or implied, is made or given by or on behalf of the Company or any of its affiliates (within the meaning of Rule 405 under the US Securities Act 1933) (‘Affiliates’), members, directors, officers or employees or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this presentation or any other material discussed verbally. None of the Company or any of its Affiliates, members, directors, officers or employees nor any other person accepts any liability whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith. The information in this presentation includes forward-looking statements which are based on the Company's or, as appropriate, the Company's directors' current expectations and projections about future events. These forward-looking statements may be identified by the use of forward-looking terminology, including the terms ‘believes’, ‘estimates’, ‘plans’, ‘projects, ‘anticipates’, ‘expects’, ‘intends’, ‘may’, ‘will’ or ‘should’ or, in each case, their negative or other variations or comparable terminology, or by discussion of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements, as well as those included in any other material discussed at any analyst presentation, are subject to risks, uncertainties and assumptions about the Company and its subsidiaries and investments, including, among other things, the development of its business, trends in its operating industry, and future capital expenditures. In light of these risks, uncertainties and assumptions, the events or circumstances referred to in the forward-looking statements may differ materially from those indicated in these statements. Forward-looking statements may and often do materially differ from actual results. None of the future projections, expectations, estimates or prospects in this presentation should be taken as forecasts or promises nor should they be taken as implying any indication, assurance or guarantee that the assumptions on which such future projections, expectations, estimates or prospects have been prepared are correct or exhaustive or, in the case of the assumptions, fully stated in the presentation. Forward-looking statements speak only as of the date of this presentation. Subject to obligations under the listing rules and disclosure rules made by the Financial Services Authority under Part VI of the Financial Services and Markets Act 2000 (as amended), neither the Company nor any of its affiliates, or individuals acting on its behalf, undertakes to publicly update or revise any such forward-looking statement, whether as a result of new information, future events or otherwise. As a result of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements as a prediction of actual results or otherwise. The 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.

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ABOUT 1BLUEHORIZON GROUP ®

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

37© 2014 1BlueHorizon Group - www.1bluehorizon.com Al l r i gh ts reserved

A b u D h a b i | B e r n | L o n d o n | M a d r i d | M o n t r e a l | P a r i s 1BHG | VIEWPOINT IRANIAN AIRLINES SECTOR 13.11.2014

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Source: © 1BlueHorizon Group | Corporate profile

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

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 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 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 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.

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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 Ghaith

Gulf Air - Ex CEO Samer MajaliH.E. Mohamed Hamad bin Azzan Al

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

Democratic Republic in Congo (Transport)AerospaceOne Company in India

Jet Green in PakistanAbabeel Air in Libya

His 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

1BlueHorizon Group® is working for leading companies in different fields of the Aviation industry: Airliners, Airports, Aerospace and Authorities

Note: A list of qualifications is made available separately

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Family conglomerates (Governance, Portfolio analysis and investment Strategy)

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

Air Transportation (Airline / Airport / General Aviation / Aerospace & Defense)

Management ConsultingOperational

Improvement

Our understanding of operational improvement is quite simple:

Whereas restructuring is about stabilizing a company and fixing how it does things, operational improvement is about seeing a

company through the transformation of becoming more

competitive – going the Extra Mile.

Asset ManagementFleet Strategy &

PlanningWith 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 technical experts and industry

specialists who will provide you with the fleet solution and

support that meets your specific needs.

Interim ManagementKnowledge transfer

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 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.

Ahead of StrategiesThree Practices

Shareholders and management of 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

and running into trouble, or seek help to assess the case for

entering immunized joint venture or looking for an interim management solution…

1BlueHorizon Group® highly competent seasoned professional

will assist you to propel your business further… Going the

extra mile ahead of strategies …

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

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

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… no matter how complex the issues are!

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InterimManage-

mentManagingConsulting

Asset Management

The Management Consulting (MC) Practice is our ability to strike a rapport working side by side 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 going the extra mile…

The Interim Management (IM) Practice help you by giving comfort and control with relevant seasoned advisors whenever and wherever they are needed… Whereas a management consultant provides an advisory role, Interim managers with performance improvement focus are directly responsible in delivering quick results, visible and measurable...

The Asset Management (AM) Practice works individually with each of our clients to develop creative strategies and solutions for all types of aviation equipment, with innovative financing models.…

Source: © 1BlueHorizon Group | Practices

Performance improvementQuick results / Hands-on

Turnkey solutionsKnowledge transfer

Ahead of Strategies…

The 1BlueHorizon® difference

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

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GENERATING THRUST TO PROPEL YOUR BUSINESS FURTHER...

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1BlueHorizon Group® Aviation Competence Areas

Due Diligence(Merger & Acquisition)

Air Cargo Business

Network Strategies &Capacity optimization

Market IntelligenceTurnkey projects

Restructuring & Performance Improvement

Industry attractiveness

Natural development

Divest / strategic hold

Low Moderate High

Selective development

Com

petit

ive

posi

tion

Dominant

Strong

Favourable

Defendable

Weak

Industry attractiveness

Natural development

Divest / strategic hold

Low Moderate High

Selective development

Com

petit

ive

posi

tion

Dominant

Strong

Favourable

Defendable

Weak

Alliances

Passenger experience& Service optimization

Non-core Aviation Activities

Ground &Aircraft Handling

MRO & Maintenance

Airline Strategy & Start-up

Fleet Management & Sourcing

Air Authorities support

Airport Expansion

Marketing , SalesLoyalty Programs

Source: © 1BlueHorizon Group | Aviation Competence Areas

Our expertise covers the entire breadth of the air-transportation business areas and is ideally suited to support Iran current and future requirements

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

“1BHG senior personnel come in with strong views but integrate perfectly in our teams"

“1BHG has convinced us through it's excellent industry- and technology expertise"

"The 1BHG team knows perfectly well how to push the necessary change"

“1BHG guys are implementation -oriented and their cooperationwith my people is very good "

“1BHG Practice has very qualified people who really know a lot about our industry"

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

"In each project step, we could clearly identify 1BHG's added value and improve the overall bottom line"

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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Published books and decisive management theories that facilitate critical dialogue and support 1BlueHorizon creation

A short selection of inescapable aviation related books

“Baseline”(Philosophy)

“Low Cost Carriers”

“Courier services”“Various”Airlines’

Turnaround“Air Transport Management”

Source: © 1BlueHorizon Group | Recommended bibliography (non exhaustive)

Partners Network – Aviation Sector

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