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An Introduction to Investment in
Commercial Aircraft
December 2019
™Copyright © 2019 EnTrust Global
www.entrustglobal.com
• Actively seeking attractive alternatives to traditional fixed income and equity allocations
• Pursuing strategies that perform well in downturns and have proven resiliency in the past
• Favoring income-oriented investments that provide stable, attractive current yields
• Preference for strategies that require specialist knowledge and relationships creating alpha
• Also prefer strategies that offer diversification and that are uncorrelated to other allocations
Current Investor Market Trends
An investment in any strategy described herein is speculative and involves a high degree of risk. Statements regarding current conditions, trends or expectations in connection with the financial markets or the global economy are based on subjective viewpoints and may be incorrect. For
illustrative purposes only and subject to change.
1
™Copyright © 2019 EnTrust Global
www.entrustglobal.com
Aviation is an Attractive Opportunity for Investment Allocation5
An Alternative to Traditional Fixed Income & Other Real Assets
2
Investor Allocation Strategy
• Offers investors the ability to diversify away from traditional fixed income in an uncertain market environment and allocate toward a strategy that can provide stable, attractive returns that are uncorrelated to financial markets
WHY AVIATION?• Strong risk-adjusted returns compared with other alternatives
• Liquidity profile between traditional fixed income and real estate /
infrastructure
• History of value-retention and solid downside protection • Inflation protection with hard assets that retain value• Low correlation to equity markets or airline sector
WHERE DOES THE OPPORTUNITY FIT?• Private Debt/Private Markets, Opportunistic Credit, Alternative
Assets, Real Assets, Fixed Income
Higher Yields with Strong Assets and Limited Downside Risk
CharacteristicAviation
Investments
U.S. High
Yield Bonds
Bank
Loans
U.S.
Investment Grade
Bonds
Target Net
Yield 10%1 5.75%2 6.3%3 3.7%4
Maturity ~5-7 years 5-10 years 5-7 years 3-10 years
Underlying Collateral
Security in
Commercial
Aircraft
Unsecured Senior Secured Unsecured
Attractive Allocation Strategy for Growth, Stable Returns and Resiliency
• Direct lending and leasing provides a number of attractive return
characteristics not found in traditional fixed income investments
• Combination of fixed and floating rate products
• Steady, predictable cash flows
• Downside protection from valuable assets
• The aviation industry shares many benefits with conventional real assets
such as infrastructure and real estate
• Inflation protection that is not available in conventional fixed-income
investments
• Similar to real estate and infrastructure, aviation assets are long-lived,
with typical useful lives of 25-30 years, but are also portable
Equities Fixed Income Alternative Investments
Forecast Average Total Returns (per year) over the next 5 years (in%)
7.80%
6%
4.45% 4.40%3.95%
2.40%
0.80%
8%
7.10%
6.20%5.80%
4.15%
3.35%
2.05% 1.90%
10%
0%
2%
4%
6%
8%
10%
12%
1 Net of management fees. Based on the mid-point of the target range for net returns post fees and expenses. Targeted returns or investment objectives my not be achieved and investment losses may occur. An investment in any strategy described herein is speculative and involves a high degree of risk. 2 Bloomberg Barclays Global High Yield (LHMN0039) March 2018. 3 Source: J.P. Morgan Asset Management, S&P, Bloomberg, Dow Jones, St. Louis Fed; data as of August, 2017 4 Source: Bloomberg Barclays Investment Grade (3-10Y), Jan 2019 5 Credit Suisse Investment Outlook 2018
™Copyright © 2019 EnTrust Global
www.entrustglobal.com
• Many categories of traditional fixed income investments - including leveraged loans, middle market
lending, mezzanine funds and other direct lending strategies - pose more downside risk to investors
compared with specialist hard-asset strategies
(1987-2010)
Lien Position Recovery Rates
Loans 80.3%
Bonds
Sr. Secured 63.5%
Sr. Unsecured 49.2%
Sr. Subordinated 29.4%
Subordinated 29.3%
Jr. Subordinated 18.4%
Investors Should Benefit from Reallocating to Stable Income-Oriented Strategies
Loss and Recovery Rates for
Enhanced Equipment Trust
Certificates (“EETCs”)1
Seniority
Approx
Cumulative
Loss Rate
Cumulative
Recovery
Rate
First Lien 0.1% 99.9%
Second
Lien1.4% 98.6%
Third Lien /
Mezz3.0% 97.0%
1Source: Kroll, “EETC Historical Recoveries and Current Outlook”, September 28, 2015. 2 Data from January 1, 1995 to May 31, 2018. 3 Source: FlightAscend Consultancy. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS.
An investment in any strategy described herein is speculative and involves a high degree of risk. For illustrative purposes only and subject to change.
Low Correlation of Aviation Assets to Equity
and Fixed Income, Airline Industry and
Other Real Asset Investments
Index
Correlation to
the ALRI2
(1995-2018)
Sharpe
Ratio
Ascend Leasing
Returns Index3 1.00 3.19
DJ Brookfield
Global Infra. TR.13 2.54
Barclays US Corp
High Yield TR.06 1.64
S&P 500 Airlines Index .10 1.55
S&P Global REIT
(Total Return).02 1.34
S&P/LSTA Leveraged
Loan TR Index.11 1.10
MSCI World Index .08 0.91
3
™Copyright © 2019 EnTrust Global
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Aviation is a Resilient Sector With a Growing Need for Capital
Attractive Industry Fundamentals and Limited Historical Downside Risk
4
1 IATA, 2 Airbus Global Market Forecast (GMF) 2017, 3 Boeing Current Market Outlook 2017, 4 World Bank, 5 Brookings: The Unprecedented Expansion of the Global Middle Class, Feb. 2017. PAST PERFORMANCE IS NOT AN INDICATION OF
FUTURE RESULTS. An investment in any strategy described herein is speculative and involves a high degree of risk. Statements regarding current conditions, trends or expectations in connection with the financial markets or the global economy
are based on subjective viewpoints and may be incorrect. For illustrative purposes only and subject to change.
Industry Features: Solid Growth
• Air travel is a vital industry to the global economy, supporting nearly 63 million
jobs and over $2.5 trillion of annual economic activity1
• The commercial aviation industry is served by more than 33,000 aircraft
operated by more than 700 scheduled airlines carrying more than 4 billion
passengers per year1
• Air Traffic has persistent resilience, having grown 68% in the last ten years and
over 110% since 9/112
• Over the past 20 years, the world fleet has doubled while the operating
lease fleet has quadrupled3
World Air Traffic Growth2
Pric
e (
$B
illio
n)
Glo
ba
l R
PK
s (t
rillio
n)
(Re
ve
nu
e p
ass
en
ge
r K
ilo
me
ter)
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
0
1
2
3
4
5
6
7
Oil
CrisisGulf
CrisisAsian
Crisis 9/11 SARS
Financial
CrisisOil
Crisis
60+% Growth
100+% Growth
Resiliency through shock events
World Traffic and Real GDP Growth (Indexed to 1990 levels)1,4
Anticipated Industry Performance
• Over the next 20 years, it is estimated that 35,000 aircraft worth $5 trillion will be
delivered globally2
• Approximately 160 million people enter the global middle class each year,
driving air travel and aircraft demand5
• Airbus and Boeing forecast 20-year traffic growth at 4.4% and 4.7%
respectively, well above the forecast of real GDP growth at 2.8%2,3
• Revenue Passenger Kilometers (RPKs) grew 7.5% in 20171
• Annual volume of nearly $50 billion in secondary market trading that is
currently underserved by capital providers
100
150
200
250
300
350
400
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
RPK GDP
Air traffic growth
expanding at faster
rate than global GDP
across market cycles
™Copyright © 2019 EnTrust Global
www.entrustglobal.com5
0%
4%
8%
12%
16%
20%
0
400
800
1,200
1,600
2,000
197
0
197
2
197
4
197
6
197
8
198
0
198
2
198
4
198
6
198
8
199
0
199
2
199
4
199
6
199
8
200
0
200
2
200
4
200
6
200
8
201
0
201
2
201
4
201
6
Commercial Aircraft Deliveries1
Deliveries Deliveries % of fleet
1Source: CAPA – Centre for Aviation, “Aircraft manufacturers embrace the consumer society's values of built-in obsolescence”, June 20, 2017
PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS. For illustrative purposes only and subject to change.
Less than 150 seats
150 + Seat Aircraft
Market Overview & Opportunity Set
Limited Supply & Strong Demand: 150+ Seat Market is a Duopoly
Production is tightly controlled, highly regulated and subject to very high barriers to entry
• Boeing and Airbus have an effective duopoly in the market; together they account for ~80% of aircraft supply by number of units, and
~90% by asset value
• Aircraft are manufactured based on contracted orders, which are typically placed several years ahead of their delivery date
• Despite the massive growth in the global fleet, deliveries have consistently been between ~4-8% of the outstanding fleet
• The sub-150 seat aircraft are more limited in their applications and are often concentrated in their country/region of production,
limiting their ability to materially impact the stable state of the global aircraft market
™Copyright © 2019 EnTrust Global
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• We refer to commercial aviation as “flying real estate,” as it is mobile and can be efficiently redeployed if
something goes wrong in a particular airline or country
• This is one of the main reasons the profitability of leasing aircraft has been entirely uncorrelated to airline
profits over time: as an airline faces difficulty or goes away, the assets that are critical to airline fleets
globally get absorbed and maintain profitability
• Focus on mainstream, in-production aircraft that are used by hundreds of aircraft globally
• While the value of real estate is typically in the location of the asset, the value of commercial aircraft is in the asset and depth of the operator base worldwide
• We view these aircraft as having lower volatility and reduced likelihood of technological obsolescence because over 25% of the commercial fleet is out of production
• This includes:
― 472 Airbus A300 & A340 aircraft
― 1,100 Boeing Classics
― 644 McDonnell Douglas aircraft
Location, Location, Location vs. Asset, Asset, Asset
In Production
23,899
74%
Out of
Production
8,466
26%
Aircraft Leasing & Airline Profit Margins1
-5%
0%
5%
10%
15%
20%
25%
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Airlines Aircraft Lessors
Lessor profitability has
been strong through
market cycles and
well above airline
profit levels
1 Source: Boeing, IATA, ICAO, IBA, Company filings, Factset. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS. An investment in any strategy described herein is speculative and involves a high degree of risk.
Statements regarding current conditions, trends or expectations in connection with the financial markets or the global economy are based on subjective viewpoints and may be incorrect. For illustrative purposes only and subject to change.
6
™Copyright © 2019 EnTrust Global
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Even through massive global disruptions, aircraft values have shown remarkably little volatility. This is in large part due to:
• Resilient global air traffic demand fueling the need for
additional commercial aircraft
• Air traffic that roughly doubles every 15 years
• A “Duopoly” between Airbus and Boeing that limits supply
side capacity
• Stable commercial aircraft backlog that represents 4-8 years
of production, based on asset type
• The continual need to replace older aircraft as they “age
out” of the system and are uneconomical to operate
Chart source: Flight Ascend Consultancy, October 2018 JP Morgan Investor presentation
For illustrative purposes only and subject to change. Statements regarding current conditions, trends or expectations in connection with the financial markets or the global economy are based on subjective viewpoints and may be incorrect.
.
Target narrowbody aircraft saw estimated declines of ~13-15%
immediately following 9/11 and the global financial crisis
(“GFC”). These decreases recovered quickly and post-GFC
values have been stable for over a decade.
Target widebody aircraft saw similar estimated declines of ~7-
14% following the GFC. Values also recovered quickly, with
stability observed since 2009.
A320 & 737 | Narrowbody
A330 & 777 | Widebody
Investment Process Overview
Stable Values Proven Over Time
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Market Overview & Opportunity Set
Commercial Market Demand Outlook: Deliveries 2018-2037
7%
8,800
3,040
8,490
1,190
2,990
1,290
16,930
42,730Deliveries
$6.3TMarket Value
4.7%Traffic Growth
Source: Boeing 2018 Current Aircraft Financing Market OutlookPAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS. For illustrative purposes only and subject to change.
™Copyright © 2019 EnTrust Global
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Market Overview & Opportunity Set
Fleet Expansion Capital Requirements: Aviation Opportunity
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
2018 2019F 2020F 2021F 2022F 2023F
Fle
et
Gro
wth
($
B)
Insurance Cash Capital Markets Bank Debt Export Credit
Expanding capital demands will need to be met with
specialized lending structures
• Over the next 5 years there will be an average of
over $157B in new aircraft deliveries made per year
• This requires a significant amount of new capital to
enter the market in the near future
• Lessors are increasingly looking away from traditional
bank debt to other sources of financing – in fact,
traditional bank debt financing has fallen from 44% of
market share in 2017 to an expected 34% in 2019
• Increased fragmentation from the rise of boutique
lessors, coupled with constrained traditional banks,
presents significant opportunity for aviation investors
seeking opportunities across the capital stack
An estimated $6T of capital is needed to support over
40,000 new aircraft entering the market over the next 15
years
Source: Boeing Capital Corporation - Current Aircraft Finance Market Outlook 2019
PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS. For illustrative purposes only and subject to change. An investment in any strategy described herein is speculative and involves a high degree of risk.
™Copyright © 2019 EnTrust Global
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1Source: Boeing Capital Corp. 2Source: Flightglobal. 3Source: Aercap.
PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS. For illustrative purposes only and subject to change. An investment in any strategy described herein is speculative and involves a high degree of risk.
Why do Airlines Lease?
• Since 1980, as the global fleet has expanded by ~4x,
the share which is leased has grown by ~25x, from <2%
to over 40% of the total market. The proliferation of
commercial aircraft leasing has been driven by a
variety of factors, including:
- Financial flexibility: Leasing minimizes the initial capital outlay that is necessary by the airline,
which allows carriers to conserve cash in what is a
capital-intensive business
- Fleet planning: Airlines may transition to new/different aircraft type more easily, and can
better adjust capacity to match changes in
demand
- Reduce residual value risk: Airlines are not well suited to maximize the value of these assets, and it
is a distraction from their everyday business
- Access to delivery positions: Order slots for the newest aircraft programs are currently sold out for
several years. If an airline has not ordered a
sufficient quantity (or any) aircraft, it cannot
otherwise access the equipment25%
41%
41%
44%
51%
55%
58%
86%
0% 20% 40% 60% 80% 100%
Cathay Pacific
China Southern
British Airways
American
Air France
KLM
Spirit
Virgin Atlantic
Leased Share of Major Airlines' Fleets2,3
1%
leased
19704,039 aircraft
2%
leased
19807,586 aircraft
12%
leased
199010,873 aircraft
50%
leased
2020Forecast
38%
leased
201522,566 aircraft
22%
leased
200015,656 aircraft
Growth of Operating Leasing1,2
Market Overview & Opportunity Set
The Appeal and Growth of Operating Leasing
American Airlines
Spirit Airlines
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Aircraft Leasing and Financing Strategy – Illustrative Portfolio
Diverse Portfolio Characteristics1
• Illustrative Portfolio intends to provide exposure to various aircraft types and vintages, airline operators, and different geographies
and jurisdictions to ensure a balanced and uncorrelated portfolio
Portfolio Characteristics
• Portfolio of 20-50 fixed and floating rate loans and leases
• Investment terms will range from 2-10 years with 5-7 year
hold period
70%
30%
Investment Allocation
Op Lease Loan
70%
25%
5%
Asset Exposure
Narrowbody Widebody Regional Jet
40%
20%
20%
10%
10%
Regional Exposure
Asia Pacific Europe
North America Latin America
Middle East
Yield Characteristics
• Cash profile of underlying lease/loan contracts typically pay current
cash yields of 6-8% to investors
• In addition, aircraft can be sold with or without lease attached to
recover investment with upside
• Targeted Net IRR Range for Lease Equity Investments between 10-14%
• Targeted Net IRR Range for Debt Investments between 7-10%
• Target Weighted Net IRR to Investors: 10%+
1 For illustrative purposes only and subject to change. Actual portfolios and allocations may vary. Targeted returns or objectives may not be achieved and investment losses may occur. Distributions are subject to performance and are notguaranteed. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS. Statements regarding current conditions, trends or expectations in connection with the financial markets or the global economy are based on subjectiveviewpoints and may be incorrect.
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Blue Sky Portfolio Management Team
Adam Cooperstock, CFA – Senior Vice President, Investment Research (January 2018 – present)
Prior experience:
• 12 years of experience in Commercial Aircraft Analysis, Trading and Portfolio Management
• CIT Group Inc., Seabury Group
Matthew Eddy – Vice President, Investment Research (May 2019 – present)
Prior experience:
• 7 years in Investment Research, Pricing, and Airline Credit Analysis
• CIT Group Inc., JetBlue Airways Corp.
John Morabito – Managing Director, Portfolio Manager (January 2018 – present)
Prior experience:
• 18 years global experience in Financial Markets, specializing in Av iation & Transportation Finance
• Pioneered joint venture with Tokyo Century Corporation in 2014, managing $2bn in av iation investments
• Prev iously at CIT Group Inc. building up the Aviation Finance portfolio to $11bn
Ben Pughe-Morgan – Senior Vice President, Investment Research (June 2019 – present)
Prior experience:
• 18 years of experience in Airline / Lessor Originations and Deal Structuring
• DVB Bank SE / Deucalion Aviation Funds
Matthew Meissner – Vice President, Investment Research (September 2019 – present)
Prior experience:
• 10 years in Investment Research, Cloud-based Analytics, and Aviation Finance Modeling
• Blue Moon Analytics, CIT Group Inc.
1Data as of June 30, 2019; may be based on estimates and includes assets under advisement and $1.8 billion of mandates awarded but not yet funded. 2As of October 31, 2019.
EnTrust Global
at a Glance
• $19.1bn total assets1
• 11 offices worldwide• 156 employees, including 45 Investment
Professionals2
• Chairman & CEO – Gregg Hymowitz • Blue Sky Aviation Strategy expected to launch in Q4
2019
Blue Sky – Aircraft Leasing and Financing Strategy
Blue Sky Portfolio Management Team
Important Considerations
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Important Information
This document may contain confidential and private proprietary information and/or legally privileged information. Any further distribution, copying or other use of any contents of the information
contained herein is prohibited.
There is no guarantee that any investment objective or targeted returns will be achieved. No due diligence process conducted by EnTrust Global, no matter how thorough, can be an absolute
guarantee against losses. An investment in this Strategy is speculative and involves a high degree of risk.
The views expressed and information provided are as of the date given and are subject to change, update, revision, verification and amendment, materially or otherwise, without notice, as market or
other conditions change. Since these conditions can change frequently, there can be no assurance that the trends described herein will continue or that any forecasts are accurate. Neither EnTrust
Global, its affiliates, nor any of EnTrust Global or its affiliates' respective advisers, members, directors, officers, partners, agents, representatives or employees or any other person (collectively “EnTrust
Global Entities”) is under any obligation to update or keep current the information contained in this document.
Charts, tables and graphs contained in this document are not intended to be used to assist the reader in determining which securities to buy or sell or when to buy or sell securities.
Certain information contained in this document may constitute “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,”
“expect,” anticipate,” “project,” “estimate,” “intend” “continue,” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties,
actual events or results or the actual performance of any Strategy may differ materially from those reflected or contemplated in such forward- looking statements.
The information in this presentation and any materials referenced herein has not been provided in a fiduciary capacity, and it is not intended to be, and should not be considered as, impartial
investment advice.
This communication is for informational purposes only and its accuracy cannot be guaranteed. EnTrust Global Securities LLC is a broker-dealer and member of FINRA and SIPC that through its registered
representatives may introduce for compensation, prospective investors to investment vehicles or accounts managed by its investment advisory affiliates. EnTrust Global Securities LLC does not maintain
customer accounts or securities, nor does it execute or clear any trades. EnTrust Global Securities LLC reserves the right to monitor and archive all electronic communications sent from or received by its
network.
Copyright© EnTrust Global 2019. All rights reserved. This material is proprietary and may not to be reproduced, transferred or distributed in any form without prior written permission from EnTrust Global. Itis delivered on an “as is” basis without warranty or liability. All individual charts, graphs and other elements contained within the information are also copyrighted works, which may be owned by a partyother than EnTrust Global By accepting the information, you agree to abide by all applicable copyright and other laws, as well as any additional copyright notices or restrictions contained in theinformation.
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