Initial Placing and Offer for Subscription for a target issue of 250 million Ordinary Shares at US$1.00 per Ordinary Share

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1 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the action you should take, you are recommended to seek your own financial advice immediately from an independent financial adviser who is authorised under the Financial Services and Markets Act 2000 (as amended) ( FSMA ) if you are in the United Kingdom, or from another appropriately authorised independent financial adviser if you are in a territory outside the United Kingdom. This document, which comprises a prospectus relating to Sirius Aircraft Leasing Fund Limited (the Company ) prepared in accordance with the Prospectus Rules has been approved by the Financial Conduct Authority (the FCA ) and has been delivered to the FCA in accordance with Rule 3.2 of the Prospectus Rules. This document has been made available to the public as required by the Prospectus Rules. Applications will be made to the UK Listing Authority and the London Stock Exchange for all of the Ordinary Shares (issued and to be issued) in connection with the Initial Issue to be admitted to the premium segment of the Official List and to trading on the premium segment of the London Stock Exchange s main market. Applications will be made for all of the Shares of the Company issued pursuant to each Subsequent Placing under the Placing Programme to be admitted to the premium segment of the Official List and to trading on the premium segment of the London Stock Exchange s main market. It is expected that Initial Admission of the Ordinary Shares to be issued under the Initial Issue will become effective and that unconditional dealings will commence in the Ordinary Shares at 8.00 a.m. on 21 November It is expected that Admissions pursuant to Subsequent Placings under the Placing Programme will become effective and dealings will commence between 21 November 2018 and 1 November No application has been made or is currently intended to be made for the Shares to be admitted to listing or trading on any other stock exchange. The Company and each of the Directors, whose names appear on page 53 of this document, accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Company and the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information. Prospective investors should read the entire document and, in particular, the section headed Risk Factors on pages 20 to 43 of this document when considering an investment in the Company. SIRIUS AIRCRAFT LEASING FUND LIMITED (a closed-ended investment company limited by shares incorporated under the laws of Guernsey with registered number 65540) Initial Placing and Offer for Subscription for a target issue of 250 million Ordinary Shares at US$1.00 per Ordinary Share Placing Programme for up to 300 million Ordinary Shares and/or C Shares Admission to the premium segment of the Official List and to trading on the premium segment of the London Stock Exchange s main market Investment Adviser SIRIUS AVIATION CAPITAL HOLDINGS LIMITED Sponsor, Joint Financial Adviser and Joint Placing Agent LIBERUM CAPITAL LIMITED Joint Financial Adviser and Joint Placing Agent J&E DAVY Liberum Capital Limited ( Liberum ), which is authorised and regulated in the United Kingdom by the FCA, is acting exclusively as sponsor, joint financial adviser and joint placing agent for the Company and for no one else in relation to Admission of any Shares, the Initial Issue, the Placing Programme and the other arrangements referred to in this document. Liberum will not regard any other person (whether or not a recipient of this document) as its client in relation to Admission of any Shares, the Initial Issue, the Placing Programme and the other arrangements referred to in this document and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing any advice in relation to Admission of any Shares, the Initial Issue, the Placing Programme, the contents of this document or any transaction or arrangement referred to in this document. J&E Davy ( Davy ), which is regulated in Ireland by the Central Bank of Ireland, is acting exclusively as joint financial adviser and joint placing agent for the Company and for no one else in relation to the Initial Issue, the Placing Programme and the other arrangements referred to in this document. Davy will not regard any other person (whether or not a recipient of this document) as its client in relation to the Initial Issue, the

2 Placing Programme and the other arrangements referred to in this document and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing any advice in relation to the Initial Issue, the Placing Programme and the contents of this document or any transaction or arrangement referred to in this document. Apart from the responsibilities and liabilities, if any, which may be imposed on Liberum by FSMA or the regulatory regime established thereunder, Liberum does not make any representation, express or implied, in relation to, nor accepts any responsibility whatsoever for, the contents of this document or any other statement made or purported to be made by it or on its behalf in connection with the Company, the Shares, Admission of any Shares, the Initial Issue or the Placing Programme. Liberum (and its affiliates) accordingly, to the fullest extent permissible by law, disclaims all and any responsibility or liability (save for statutory liability), whether arising in tort, contract or otherwise which it might otherwise have in respect of the contents of this document or any other statement made or purported to be made by it or on its behalf in connection with the Company, the Shares, Admission of any Shares, the Initial Issue or the Placing Programme. Apart from the responsibilities and liabilities, if any, which may be imposed on Davy by the Central Bank of Ireland, FSMA or the regulatory regime established thereunder, Davy does not make any representation, express or implied, in relation to, nor accepts any responsibility whatsoever for, the contents of this document or any other statement made or purported to be made by it or on its behalf in connection with the Company, the Shares, Admission of any Shares, the Initial Issue or the Placing Programme. Davy (and its affiliates) accordingly, to the fullest extent permissible by law, disclaims all and any responsibility or liability (save for statutory liability), whether arising in tort, contract or otherwise which it might otherwise have in respect of the contents of this document or any other statement made or purported to be made by it or on its behalf in connection with the Company, the Shares, Admission of any Shares, the Initial Issue or the Placing Programme. The Offer for Subscription will remain open until 1.00 p.m. on 15 November 2018 and the Initial Placing will remain open until 2.00 p.m. on 16 November Persons wishing to participate in the Offer for Subscription should complete the Application Form set out in Appendix 1 to this document. To be valid, Application Forms must be completed and returned with the appropriate remittance by post to the Receiving Agent, Computershare Investor Services plc, Corporate Actions Projects, Bristol BS99 6AH so as to be received no later than 1.00 p.m. on 15 November Investors should rely only on the information contained in this document. No person has been authorised to give any information or make any representations in relation to the Company other than those contained in this document and, if given or made, such information or representations must not be relied upon as having been so authorised by the Company, the AIFM, the Investment Adviser, the Asset Manager, Liberum or Davy. Without prejudice to the Company s obligations under the Prospectus Rules, the Listing Rules, the Disclosure Guidance and Transparency Rules and MAR, neither the delivery of this document nor any subscription for or purchase of Shares pursuant to the Initial Issue and/or the Placing Programme, under any circumstances, creates any implication that there has been no change in the affairs of the Company since, or that the information contained herein is correct at any time subsequent to, the date of this document. Liberum and its affiliates and/or Davy and its affiliates may have engaged in transactions with, and provided various investment banking, financial advisory and other services for, the Company, the AIFM and/or the Investment Adviser for which they would have received customary fees. Liberum and its affiliates and/or Davy and its affiliates may provide such services to the Company, the AIFM and/or the Investment Adviser and any of their respective affiliates in the future. In connection with the Initial Issue and/or Subsequent Placings, Liberum and any of its affiliates and/or Davy and any of its affiliates, acting as investors for its or their own accounts, may subscribe for or purchase Shares and in that capacity may retain, purchase, sell, offer to sell or otherwise deal for its or their own account(s) in the Shares and other securities of the Company or related investments in connection with the Initial Issue and/or Subsequent Placings or otherwise. Accordingly, references in this document to Shares being issued, offered, acquired, subscribed or otherwise dealt with, should be read as including any issue or offer to, acquisition of, or subscription or dealing by Liberum and any of its affiliates and/or Davy and any of its affiliates acting as an investor for its or their own account(s). Neither Liberum, its affiliates, Davy or its affiliates intends to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so. In addition, each of Liberum and Davy may enter into financing arrangements with investors, such as share swap arrangements or lending arrangements in connection with which Liberum or Davy, as the case may be, may from time to time acquire, hold or dispose of shareholdings in the Company. The contents of this document are not to be construed as legal, financial, business, investment or tax advice. Investors should consult their own legal adviser, financial adviser or tax adviser for legal, financial, business, investment or tax advice. Investors must inform themselves as to: (a) the legal requirements within their own countries for the purchase, holding, transfer, redemption or other disposal of Shares; (b) any foreign exchange restrictions applicable to the purchase, holding, transfer or other disposal of Shares which they might encounter; and (c) the income and other tax consequences which may apply in their own countries as a result of the purchase, holding, transfer or other disposal of, or subscription for Shares. Investors must rely on their 2

3 own representatives, including their own legal advisers and accountants, as to legal, financial, business, investment, tax, or any other related matters concerning the Company and an investment therein. None of the Company, the AIFM, the Investment Adviser, the Asset Manager, Liberum or Davy nor any of their respective representatives is making any representation to any offeree or purchaser of Shares regarding the legality of an investment in the Shares by such offeree or purchaser under the laws applicable to such offeree or purchaser. Notice to U.S. and other overseas investors This document may not be used for the purpose of, and does not constitute, an offer or solicitation by anyone in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised or to any person to whom it is unlawful to make such offer or solicitation. This document is not being sent to investors with registered addresses in the United States, Canada, Australia, the Republic of South Africa or Japan, and does not constitute an offer to sell, or the solicitation of an offer to buy, Shares in any jurisdiction in which such offer or solicitation is unlawful or would impose any unfulfilled registration, qualification, publication or approval requirements on the Company, Liberum or Davy. In particular, this document is not for release, publication or distribution in or into the United States, Canada, Australia, the Republic of South Africa or Japan. The Shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the U.S. Securities Act ) or with any securities regulatory authority of any state or other jurisdiction of the United States and the Shares may not be offered, sold, exercised, resold, transferred or delivered, directly or indirectly, within the United States or to, or for the account or benefit of, U.S. Persons (as defined in Regulation S under the U.S. Securities Act), except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction in the United States. There will be no public offer of the Shares in the United States. The Shares are being offered or sold solely: (i) outside the United States to non- U.S. Persons in offshore transactions in reliance on Regulation S under the U.S. Securities Act ( Regulation S ); and (ii) in the United States only to qualified institutional buyers ( QIBs ), as defined in Rule 144A under the U.S. Securities Act ( Rule 144A ) that are also qualified purchasers ( QPs ) as defined in Section 2(a)(51) of the U.S. Investment Company Act of 1940, as amended (the U.S. Investment Company Act ), who deliver to the Company, Liberum and Davy a signed Investor Representation Letter, in transactions that are exempt from, or not subject to, the registration requirements of the U.S. Securities Act. The Company has not been and will not be registered under the U.S. Investment Company Act and investors will not be entitled to the benefits of the U.S. Investment Company Act. The Shares have not been approved or disapproved by the U.S. Securities and Exchange Commission, any state securities commission in the United States or any other U.S. regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of Shares or the accuracy or adequacy of this document. Any representation to the contrary is a criminal offence in the United States and any re-offer or resale of any of the Shares in the United States or to U.S. Persons may constitute a violation of U.S. law or regulation. Any person in the United States who obtains a copy of this document is requested to disregard it. In relation to each member state in the EEA that has implemented the AIFM Directive, no Shares have been or will be directly or indirectly offered to or placed with investors in that member state at the initiative of or on behalf of the Company, the AIFM or the Investment Adviser other than in accordance with methods permitted in that member state. The Company is a registered closed-ended collective investment scheme pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended (the POI Law ) and the Registered Collective Investment Schemes Rules 2018 issued by the Guernsey Financial Services Commission. Neither the Guernsey Financial Services Commission nor the States of Guernsey take any responsibility for the financial soundness of the Company or for the correctness of any statements made or opinions expressed with regard to it. This document has not been reviewed by the Guernsey Financial Services Commission and, in granting registration, the Guernsey Financial Services Commission has relied upon specific declarations provided by the Administrator. Copies of this document will be available on the Company s website ( and the National Storage Mechanism of the FCA at and hard copies of the document can be obtained free of charge from the Company Secretary. Without limitation, neither the contents of the Company s, the AIFM s or the Investment Adviser s website (or any other website) nor the content of any website accessible from hyperlinks on the Company s, the AIFM s or the Investment Adviser s website (or any other website) is incorporated into, or forms part of this document. Investors should base their decision whether or not to invest in the Shares on the contents of this document alone. Dated: 2 November

4 CONTENTS Page SUMMARY 5 RISK FACTORS 20 IMPORTANT INFORMATION 44 EXPECTED TIMETABLE 50 INITIAL ISSUE AND PLACING PROGRAMME STATISTICS 51 DEALING CODES 52 DIRECTORS, MANAGEMENT AND ADVISERS 53 PART 1 INFORMATION ON THE COMPANY 55 PART 2 THE GLOBAL AVIATION MARKET, THE INVESTMENT OPPORTUNITY AND THE INVESTMENT PROCESS 63 PART 3 DIRECTORS, MANAGEMENT AND ADMINISTRATION 83 PART 4 THE INITIAL ISSUE 91 PART 5 THE PLACING PROGRAMME 96 PART 6 TAXATION 101 PART 7 GENERAL INFORMATION 106 PART 8 AIFM DIRECTIVE ARTICLE 23 DISCLOSURES 134 PART 9 DEFINITIONS AND GLOSSARY 144 PART 10 TERMS AND CONDITIONS OF INITIAL PLACING AND PLACING PROGRAMME 151 PART 11 TERMS AND CONDITIONS OF APPLICATION UNDER THE OFFER FOR SUBSCRIPTION 163 APPENDIX 1 APPLICATION FORM 175 4

5 SUMMARY Summaries are made up of disclosure requirements known as Elements. These elements are numbered in Sections A-E (A.1-E.7). This summary contains all the Elements required to be included in a summary for this type of securities and issuer. Some Elements are not required to be addressed which means there may be gaps in the numbering sequence of the Elements. Even though an Element may be required to be inserted into the summary because of the type of securities and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the summary with the mention of Not applicable. Section A Introduction and warnings Element Disclosure Requirement Disclosure A.1. Warning This summary should be read as an introduction to this document. Any decision to invest in Shares should be based on consideration of this document as a whole by the investor. Where a claim relating to the information contained in this document is brought before a court, the plaintiff investor might, under the national legislation of the Relevant Member State, have to bear the costs of translating this document before the legal proceedings are initiated. Civil liability attaches only to those persons who have tabled the summary including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of this document or it does not provide, when read together with the other parts of this document, key information in order to aid investors when considering whether to invest in such securities. A.2. Subsequent resale or final placement of securities through financial intermediaries Not applicable, the Company is not engaging any financial intermediaries for any resale or final placement of securities after publication of this document. Element B.1. B.2. Disclosure Requirement Legal and commercial name Domicile and legal form Disclosure Section B Issuer Sirius Aircraft Leasing Fund Limited The Company was incorporated and registered in Guernsey on 27 September 2018 with registered number as a closed-ended investment company limited by shares under the laws of Guernsey. The principal legislation under which the Company operates is the Companies Law. B.5. Group description Not applicable. As at 1 November 2018 (the latest practicable date prior to the publication of this document) the Company is not part of a group. 5

6 B.6. Major shareholders The Directors intend to subscribe for the following Ordinary Shares pursuant to the Initial Issue: Ordinary Shares Luke Cairns 15,000 Bertrand Grabowski 15,000 Jason Sherwill 15,000 Howard Millar and Edward Hansom of the Investment Adviser intend to subscribe for the following number of Ordinary Shares pursuant to the Initial Issue: Ordinary Shares Howard Millar 250,000 Edward Hansom 250,000 As at 1 November 2018 (the latest practicable date prior to the publication of this document) insofar as known to the Company, there are no parties known to have a notifiable interest under English law in the Company s capital or voting rights. All Shareholders have the same voting rights in respect of the shares of the same class in the share capital of the Company. Pending the allotment of Ordinary Shares pursuant to the Initial Issue, the Company is controlled by Howard Millar, Edward Coughlan, Edward Hansom and Kieran Ryan. The Company and the Directors are not aware of any other person who, directly or indirectly, jointly or severally, exercises or could exercise control over the Company. B.7. B.8. Key financial information Key pro forma financial information Not applicable. No key financial information is included in this document as the Company is yet to commence operations and no financial statements have been drawn up at the date of this document. Not applicable. No pro forma financial information is included in this document. B.9. Profit forecast Not applicable. No profit forecast or estimate is included in this document. B.10. B.11. Description of the nature of any qualifications in the audit report on the historical financial information Qualified working capital Not applicable. There are no audit reports in this document. Not applicable. The Company is of the opinion that, on the basis that the Minimum Net Proceeds are raised, the working capital available to it is sufficient for its present requirements, that is, for at least the next 12 months from the date of this document. B.34. Investment policy Investment Objective The Company s investment objective is to provide investors with an attractive level of regular income and capital returns through investing in used aircraft. Investment Policy In order to achieve the investment objective, the Group will acquire, lease and, where appropriate, sell aircraft. 6

7 The Group will at all times invest and manage its assets in a manner which is consistent with the objective of diversifying investment risk across its portfolio. The Company may invest directly or through holdings in special purpose vehicles. The Company may from time to time invest through vehicles which are not, directly or indirectly, wholly owned by it. In such circumstances, the Company will seek to secure controlling rights over such vehicles through shareholder agreements or other legal arrangements. Investment restrictions The Group will observe the following investment restrictions calculated, where relevant, at the point of investment: * single-aisle aircraft will make up at least 80 per cent. of Gross Asset Value; * no more than 20 per cent. of the Group s portfolio of aircraft by Gross Asset Value will be exposed to one lessee; * no more than 20 per cent. of the Group s portfolio of aircraft by Gross Asset Value will be exposed to lessees domiciled in a single country; * the maximum weighted average fleet age of the Group s portfolio of aircraft by Net Book Value shall be 15 years; * the Group will not acquire an aircraft with a remaining lease of less than 24 months; * no more than 20 per cent. of the Group s portfolio of aircraft by Net Book Value will be leased under non U.S. Dollar leases; and * the Group will not invest in other closed ended investment companies. Borrowing and gearing policy The Group will seek to use gearing to enhance equity returns. The aggregate level of borrowings will not exceed 55 per cent. of Gross Asset Value, calculated at the time of draw down but is typically expected to be around 50 per cent. of Gross Asset Value. Debt will be secured at asset level, whether over a particular portfolio of aircraft or a holding entity or entities for a particular portfolio of aircraft, without recourse to the Company. Short term borrowing may be utilised at the Company level for working capital purposes and to fund the market purchases of Shares. Hedging and derivatives The Group will not employ derivatives for investment purposes. Derivatives may however be used for efficient portfolio management, including for interest rate and currency hedging. Cash management The Company will hold cash on deposit from time to time, which may be invested in cash or cash equivalents, money market instruments, bonds, commercial paper or other debt obligations with banks or other counterparties, in line with prudent cash management guidelines agreed by the Board and the AIFM. Changes to the investment policy Any material change to the Company s investment policy set out above will require the approval of Shareholders by way of an ordinary resolution at a general meeting and the approval of the UK Listing Authority. 7

8 In the event of a breach of the investment policy set out above, the Company, upon the Board becoming aware of the same, and if the Board considers the breach to be material, will make a notification to a Regulatory Information Service. B.35. Borrowing limits The Group will seek to use gearing to enhance equity returns. The aggregate level of borrowings will not exceed 55 per cent. of Gross Asset Value, calculated at the time of draw down but is typically expected to be around 50 per cent. of Gross Asset Value. Debt will be secured at asset level, whether over a particular portfolio of aircraft or a holding entity or entities for a particular portfolio of aircraft, without recourse to the Company. Short term borrowing may be utilised at the Company level for working capital purposes and to fund the market purchases of Shares. B.36. Regulatory status The Company is regulated in Guernsey by the Commission as a registered closed-ended collective investment scheme pursuant to the POI Law and is required to comply with the RCIS Rules issued by the Commission. The Company is not regulated or authorised by the FCA. However, from Initial Admission, it will be subject to the Listing Rules, the Prospectus Rules, the Disclosure Guidance and Transparency Rules, the Market Abuse Regulation and the rules of the London Stock Exchange. B.37. Typical investor The typical investors for whom an investment in the Company is appropriate are institutional investors, professionally-advised private investors and non-advised retail investors who understand and are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses (which may equal the whole amount invested) that may result from such an investment. Such investors may wish to consult an independent financial adviser who specialises in advising on the acquisition of shares and other securities before making an investment. Furthermore, an investment in the Company should constitute part of a diversified investment portfolio. B.38. Investment of 20% or more of gross assets in single underlying asset or collective investment undertaking B.39. Investment of 40% or more of gross assets in another collective investment undertaking Not applicable. Not applicable. B.40. Applicant s service providers AIFM The Company has appointed Carne Global AIFM Solutions (C.I.) Limited as the Company s AIFM. The AIFM is responsible for the portfolio and risk management of the Company s assets in accordance with the terms of the AIFM Agreement and the AIFM Directive, subject to the overall supervision and control of the Directors. The AIFM is legally and operationally independent of the Company, the Investment Adviser, the 8

9 Asset Manager and the Administrator. Under the terms of the AIFM Agreement, the AIFM is entitled to receive from the Company an annual fee of 100,000. The AIFM Agreement is terminable on either party giving 3 months written notice, provided such notice may not be given prior to the first anniversary of Initial Admission. The AIFM Agreement shall also terminate automatically if the Investment Adviser Agreement is terminated for whatever reason. Investment Adviser The Company has appointed Sirius Aviation Capital Holdings Limited to provide investment advice to the Company and the AIFM regarding the aircraft assets of the Group pursuant to the Investment Adviser Agreement which is summarised at paragraph 6.3 of Part 7 of this document. The Investment Adviser is entitled to receive from the Company in respect of its services provided under the Investment Adviser Agreement, an investment advisory fee which is paid quarterly in advance equal to 1.0 per cent. per annum of the Net Asset Value at the end of the previous quarter. The Investment Adviser is also entitled to receive from the Company a performance fee in respect of a Calculation Period provided that the Total Return per Ordinary Share at the end of the Calculation Period is greater than the High Watermark per Ordinary Share (being the higher of US$1.00 increased by 10 per cent. compounded annually from Initial Admission and the Total Return per Ordinary Share at the end of the Calculation Period when the performance fee was last paid). The performance fee due to the Investment Adviser is an amount equal to 15 per cent. of the excess in Total Return per Ordinary Share over the High Watermark per Ordinary Share multiplied by the time weighted average number of Ordinary Shares in issue during the Calculation Period. No performance fee will be payable in respect of any C Shares prior to their conversion into New Ordinary Shares. The performance fee will accrue daily. The Investment Adviser will receive 50 per cent. of the performance fee in cash. Subject at all times to compliance with relevant regulatory and tax requirements, the remaining 50 per cent. will: * where the Ordinary Shares are trading at, or at a premium to, the latest published Net Asset Value per Ordinary Share; be satisfied by the issuance of new fully paid Ordinary Shares by the Company to the Investment Adviser (rounded down to the nearest whole number of Ordinary Shares) (including the reissue of treasury shares) at the latest published Net Asset Value per Ordinary Share applicable at the date of issuance; and * where the Ordinary Shares are trading at a discount to the latest published Net Asset Value per Ordinary Share; be satisfied in cash and the Investment Adviser shall, as soon as reasonably practicable following receipt of such payment, use such performance fee payment to make market purchases of Ordinary Shares (rounded down to the nearest whole number of Ordinary Shares) within four months of the date of receipt of such performance fee payment. Pursuant to the terms of the Investment Adviser s Lock-In Deed, the Investment Adviser has agreed that it will not sell, grant options over or otherwise dispose of any interest in such Ordinary Shares prior to the first anniversary of the date of acquisition of the relevant Ordinary Shares. 9

10 No performance fee is payable on termination if the Investment Adviser s appointment is terminated for cause. The Investment Adviser Agreement is for an initial term of 4 years from the date of Initial Admission and thereafter subject to termination on not less than 12 months written notice by the Company or the Investment Adviser. The Investment Adviser Agreement can be terminated at any time in the event of the insolvency of the Company or the Investment Adviser. Save where a replacement AIFM is being appointed, the Investment Adviser Agreement shall also terminate automatically if the AIFM Agreement is terminated for whatever reason. Asset Manager Sirius Aircraft Management Limited, a member of the same group as the Investment Adviser, will be appointed by the Company to provide certain services in connection with the Company s portfolio of aircraft, including leasing aircraft, collecting rents, monitoring the performance of lessees of aircraft including maintenance and insurance obligations of lessees, periodic aircraft inspections, accepting delivery and redelivery of aircraft under lease, the safe-keeping of original documents of title relating to the Group s aircraft assets and assisting with due diligence processes. From time to time, it may also enforce rights against lessees under the leases, re-market aircraft for re-lease or sale, and perform various other aircraft related services. It is intended that the Asset Manager will receive an asset management fee equal to 3 per cent. of the rents collected (or credited against the purchase price of aircraft acquired by the Group) under the aircraft leases in relation to which it provides services. It is proposed that the asset management agreement, when entered into, will be for an initial term ending 4 years after the date of Initial Admission and thereafter subject to termination on not less than 12 months written notice by either party. It is further proposed that the asset management agreement will be terminable at any time in the event of insolvency of the Company or the Asset Manager. The agreement shall also terminate automatically if the Investment Adviser Agreement is terminated for any reason. Administrator, Company Secretary and Custodian BNP Paribas Securities Services S.C.A. (Guernsey Branch) (the Administrator ) has been appointed by the Company to provide custody, administrative and secretarial services to the Group in accordance with the Administration Agreement. The Administrator will provide day-to-day administrative services to the Group and is also responsible for the Group s general administrative and secretarial functions such as the calculation of the Net Asset Value and maintenance of the Group s accounting and statutory records as well as providing custody services to the Group in respect of cash and liquid short term market tradable securities (if relevant). Under the terms of the Administration Agreement, the Administrator is entitled to an initial set-up fee of US$20,000, a fixed annual fee of US$40,000 in respect of administration services, an annual fee of US$62,500 in respect of company secretarial services and additional ad-hoc fees in respect of administration, company secretarial, and custodian services provided to the Company. Registrar Computershare Investor Services (Guernsey) Limited has been appointed as the Company s registrar. The Registrar is entitled to an initial set-up fee of 2,000 and a fixed annual fee of 7,500 in respect of the services provided in relation to the Ordinary Shares. In the event that C Shares are issued pursuant to the Placing Programme, the Registrar 10

11 B.41. B.42. Regulatory status of the AIFM and the Administrator Calculation of Net Asset Value will be entitled to an additional fixed fee of 2,000 in respect of such C Shares. The Registrar is also entitled to an additional fee calculated on the basis of the number of Shareholders and the number of transactions processed (exclusive of any VAT). Receiving Agent The Company has appointed Computershare Investor Services plc to provide receiving agent services in connection with the Offer for Subscription. The Receiving Agent is entitled to receive a fee of 5,500 in connection with these services. Auditor KPMG Channel Islands Limited has been appointed auditor of the Company. The Auditor will be entitled to an annual fee from the Company, such fee will be agreed with the Board each year in advance of the Auditor commencing audit work. The AIFM is authorised and regulated by the Jersey Financial Services Commission. The Administrator is licensed and regulated by the GFSC under the POI Law. The unaudited Net Asset Value will be calculated in U.S. Dollars by the Administrator on a quarterly basis, as described below and on the basis of information provided by the AIFM and the Investment Adviser and will then be presented to the Board for approval and adoption. The Net Asset Value per Ordinary Share (and Net Asset Value per C Share, where applicable), calculated by dividing the relevant Net Asset Value by the number of Shares in issue of the relevant class (excluding Shares held in treasury), will be published both on a cum-income and ex-income basis, via a Regulatory Information Service and made available on the Company s website as soon as practicable thereafter. The Net Asset Value for each class of Shares is the value of all assets of the Company attributable to that class of Shares less its share of liabilities to creditors, each determined in accordance with IFRS and also reflecting the valuations of the Group s aircraft by the Company s independent expert valuers in the manner set out in the paragraph below. Comprehensive valuations of the Group s aircraft will be conducted annually at the end of each financial year. The Company will engage three independent expert valuers and will take into account the average of the three valuations provided. The Company expects that, in performing their valuations, the independent expert valuers will have regard to factors such as the condition of the assets, the prevailing market conditions (which may impact on the resale value of the assets), the leases of the aircraft (including the scheduled rental payments and remaining scheduled term of the leases) and the creditworthiness of the relevant lessees. Accordingly, any early termination of one or more leases may impact on the valuation of the assets. The above list of factors is illustrative only and is not intended to be exhaustive or binding on the Company or any independent expert valuers. Any suspension in the calculation of the Net Asset Value will be notified via a Regulatory Information Service as soon as practicable after any such suspension occurs, though the Directors do not currently envisage any circumstances in which valuations will be suspended. 11

12 B.43. Cross liability Not applicable. The Company is not an umbrella collective investment undertaking and as such there is no cross liability between classes or investment in another collective investment undertaking. B.44. No financial statements have been made up The Company has not commenced operations and no financial statements have been made up as at the date of this document. B.45. Portfolio Not applicable. The Company is newly incorporated and does not currently hold any assets as at the date of this document. B.46. Net Asset Value Not applicable. The Company has not commenced operations. Section C Securities Element C.1. Disclosure Requirement Type and class of securities Disclosure The Company is targeting an issue of 250 million ordinary shares of no par value at an Issue Price of US$1.00 per ordinary share pursuant to the Initial Issue. The Company also intends to issue ordinary shares of no par value and/or C Shares of no par value pursuant to the Placing Programme. The ISIN of the Ordinary Shares is GG00BGHFCV48 and the SEDOL of the Ordinary Shares is BGHFCV4. The ticker for the Ordinary Shares is SALF. The ISIN of the C Shares is GG00BGHFCW54 and the SEDOL of the C Shares is BGHFCW5. The ticker for the C Shares is SALC. C.2. Currency U.S. Dollars. C.3. C.4. Details of share capital Description of the rights attaching to the securities The Company is targeting an issue of 250 million Ordinary Shares pursuant to the Initial Issue. The maximum number of Ordinary Shares available under the Initial Issue is 300 million. The actual number of Ordinary Shares to be issued pursuant to the Initial Issue, and therefore the Initial Gross Proceeds, are not known as at the date of this document but will be notified by the Company via a Regulatory Information Service announcement prior to Initial Admission. If the Minimum Gross Proceeds (or such lesser amount as the Company and Liberum may agree) are not raised, the Initial Issue will not proceed. The issued share capital of the Company as at the date of this document is one redeemable share of no par value. The sole share in issue is held by Ogier Global Nominee (Jersey) Limited as nominee on behalf of each of Howard Millar, Edward Coughlan, Edward Hansom and Kieran Ryan. The Directors have authority to issue, in aggregate, up to an additional 300 million Ordinary Shares and/or C Shares pursuant to the Placing Programme. The holders of the Ordinary Shares and C Shares shall only be entitled to receive, and to participate in, any dividends declared in relation to the relevant class of Shares that they hold. On a winding-up or a return of capital by the Company, if there are C Shares in issue, the net assets of the Company attributable to the C Shares shall be divided pro rata among the holders of the C Shares. For so long as C Shares are in issue, and without prejudice to the 12

13 C.5. Restrictions on the free transferability of the securities Company s obligations under the Companies Law, the assets attributable to the C Shares shall at all times, be separately identified and shall have allocated to them such proportion of the expenses or liabilities of the Company as the Directors fairly consider to be attributable to any C Shares in issue. The holder of Ordinary Shares shall be entitled to all of the Company s remaining net assets after taking into account any net assets attributable to the C Shares (if any) in issue. The Ordinary Shares and the C Shares (if any) shall carry the right to receive notice of, attend and vote at general meetings of the Company. The consent of either the holders of Ordinary Shares or the holders of C Shares will be required for the variation of any rights attached to the relevant class of Shares. There are no restrictions on the free transferability of the Shares, subject to compliance with applicable securities laws and regulations. C.6. Admission Applications will be made to the UK Listing Authority and to the London Stock Exchange for all of the Ordinary Shares issued and to be issued pursuant to the Initial Issue to be admitted to the premium segment of the Official List and to trading on the premium segment of the London Stock Exchange s main market. Applications will be made to the UK Listing Authority and to the London Stock Exchange for all of the Shares issued pursuant to the Placing Programme to be admitted to the premium segment of the Official List and to trading on the premium segment of the London Stock Exchange s main market. It is expected that Initial Admission will become effective, and that dealings in the Ordinary Shares will commence at 8.00 a.m. on 21 November It is expected that any further Admissions under Subsequent Placings will become effective and dealings will commence between 21 November 2018 and 1 November All Shares to be issued pursuant to a Subsequent Placing under the Placing Programme will be allotted conditionally upon the relevant Admission occurring. C.7. Dividend policy The Company intends to pay dividends on a quarterly basis with dividends typically declared in respect of the quarterly periods ending 31 March, 30 June, 30 September and 31 December and paid in May, August, November and February respectively. The first interim dividend is expected to be declared in respect of the period to 31 March 2019 and paid in May The Company will target an annualised dividend yield of 6 per cent. (on the Issue Price) in respect of the Company s first financial period to 31 December 2019, rising to a target dividend yield of 8 per cent. (on the Issue Price) in respect of each financial year thereafter. The Company will target an IRR of 10 per cent. per annum (net of expenses and fees) on a NAV basis on the Issue Price over the long term. Investors should note that the target dividend yield and target IRR are targets only and not profit forecasts and there can be no assurance that either of such targets will be met. 13

14 Although there is no current expectation that they will exercise such power, the Directors will have the power to pay dividends in relation to the C Shares (if issued) in the event that the assets that are attributable to the C Shares generate material income while the C Shares are in issue. C.22 Information about the Shares In the event that any C Shares are issued under the Placing Programme, the investments which are attributable to the C Shares following Conversion will be merged with the Company s existing portfolio. The New Ordinary Shares arising on Conversion of the C Shares will, subject to the Articles, rank pari passu with the Ordinary Shares then in issue. The Ordinary Shares carry the right to receive all dividends declared by the Company or the Directors, subject to the rights of any C Shares in issue. On a winding-up, provided the Company has satisfied all of its liabilities and subject to the rights conferred by any C Shares in issue at that time to participate in the winding up, the holders of Ordinary Shares will be entitled to all of the surplus assets of the Company. Holders of Ordinary Shares and C Shares (if any) will be entitled to attend and vote at all general meetings of the Company and, on a poll, to one vote for each Ordinary Share or C Share held. The consent of either the holders of Ordinary Shares or the holders of C Shares will be required for the variation of any rights attached to the relevant class of Shares. The Ordinary Shares and the C Shares are of no par value. The Ordinary Shares will be in registered form, will be admitted to the premium segment of the Official List and will be traded on the premium segment of the London Stock Exchange s main market. The Company will use its reasonable endeavours to procure that, upon Conversion, the New Ordinary Shares thereby arising are admitted to the premium segment of the Official List and to trading on the premium segment of the London Stock Exchange s main market. There are no restrictions on the free transferability of the Ordinary Shares, subject to compliance with applicable securities laws and regulations. Element D.1. Disclosure Requirement Key information on the key risks that are specific to the Company or its industry Disclosure Section D Risks * The Company has no operating results, and it will not commence operations until it has obtained funding through the Initial Issue. As the Company lacks an operating history, investors have no basis on which to evaluate the Company s ability to achieve its investment objective and provide a satisfactory investment return. * The past performance of other investments managed by or in relation to which the investment professionals of the Investment Adviser and the Asset Manager have advised cannot be relied upon as an indicator of the future performance of the Company. * There can be no assurance that suitable investment opportunities will materialise, prove attractive or be sufficient in quantity or size to permit the Company to be fully invested within 6 months of Initial Admission and as at the date of this document the Company has not committed to make any pipeline investments. Accordingly, 14

15 failure to invest the net proceeds of the Initial Issue in full or at all could have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. * The Company cannot guarantee that the due diligence investigation carried out by the Investment Adviser with respect to any opportunity to invest in aircraft or the Asset Manager in respect of re-leasing opportunities will reveal or highlight all relevant facts that may be necessary or helpful in evaluating such investment opportunity or re-leasing opportunity. Any failure by the Investment Adviser or the Asset Manager to identify relevant facts through the due diligence process may lead to unsuccessful investment decisions or leasing, which may have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. * The future ability of the Company to pursue successfully its investment policy may depend on the ability of the Investment Adviser and Asset Manager to retain their existing key personnel and/or for each to recruit in good time individuals of similar experience and calibre, of which there can be no guarantee. Whilst the Investment Adviser and Asset Manager have endeavoured to ensure that their personnel are suitably incentivised, the retention of key personnel cannot be guaranteed. * In the event of adverse conditions in the supply and demand of aircraft, the Group may not be able to sell or re-lease its investments on favourable terms or at all which could have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. * The market values of aircraft and market lease rates for aircraft could fall which could have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. * Concentration of lessees in geographical regions which suffer from an economic downturn or factors which adversely impact aircraft leasing in that region could have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. * Lessees may default on their leases and repossession and releasing of aircraft may be costly and time consuming which could have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. * Failure to perform required maintenance or maintain records on the part of a lessee could impact the value of an aircraft or the Group s ability to re-lease or sell an aircraft or require the Company to seek to remedy such situation which could require the Company to incur costs, which in turn could have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. * Any change in the Group s tax status, or in taxation legislation or practice (in particular in relation to any obligation to withhold tax in respect of payments to the Group or on portfolio investments) in either Guernsey or any jurisdiction in which the Group invests, or in the Group s tax treatment, may affect the value of the investments held by the Group or the Company s ability to pursue successfully 15

16 D.3. Key information on the key risks that are specific to the Shares and achieve its investment objective and investment policy, or alter the after-tax returns to Shareholders. * Whilst the use of borrowings should enhance the total return on the Shares where the return on the Group s portfolio of investments exceeds the cost of borrowing, it will have the opposite effect where the return on the Group s portfolio of investments is lower than the cost of borrowing. The use of borrowings by the Group may increase the volatility of the Net Asset Value per Share. The Directors intend to secure borrowing facilities to finance and/or part-finance acquisitions of aircraft in accordance with the Company s investment policy. However, there can be no guarantee that any such facilities will be available to the Group on commercially acceptable terms or at all, which would adversely affect the Company s investment returns and may have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. * The value of an investment in the Company, and the returns derived from it, if any, may go down as well as up and an investor may not get back the amount invested. * The market price of the Shares may fluctuate independently of their underlying net asset value and may trade at a discount or premium to net asset value at different times. * The Directors are under no obligation to effect repurchases of Ordinary Shares. Shareholders wishing to realise their investment in the Company will therefore be required to dispose of their Ordinary Shares through the secondary market. * It may be difficult for Shareholders to realise their investment and there may not be a liquid market in the Shares. Element E.1. Disclosure Requirement Net proceeds and costs of the issue Disclosure Section E Offer The Initial Issue The Company is targeting an issue of 250 million Ordinary Shares pursuant to the Initial Issue. The net proceeds of the Initial Issue are dependent on the level of subscriptions received. Assuming the gross proceeds of the Initial Issue are US$250 million, the net proceeds of the Initial Issue will be approximately US$245 million. The costs and expenses of, and incidental to, the formation of the Company and the Initial Issue are not expected to exceed approximately US$5 million, equivalent to two per cent. of the Initial Gross Proceeds, assuming Initial Gross Proceeds of US$250 million. The costs will be deducted from the Initial Gross Proceeds. It is expected that the starting Net Asset Value per Ordinary Share will be US$0.98, assuming Initial Gross Proceeds of US$250 million. The Placing Programme The net proceeds of any Subsequent Placing under the Placing Programme are dependent, inter alia, on, the level of subscriptions received, the price at which such Shares are issued and the costs and expenses of the Subsequent Placing. 16

17 E.2.a. E.3. Reason for issue and use of proceeds Terms and conditions of the offer The costs and expenses of issuing Ordinary Shares pursuant to any Subsequent Placing will be covered by issuing such Ordinary Shares at the prevailing published Net Asset Value per Ordinary Share at the time of issue together with a premium to at least cover the costs and expenses of the relevant Subsequent Placing of Ordinary Shares (including, without limitation, any placing commissions). The costs and expenses of any issue of C Shares under the Placing Programme will be paid out of the gross proceeds of such issue and will be borne by holders of those C Shares only. The Initial Gross Proceeds will be utilised in accordance with the Company s investment policy and to meet the costs and expenses of the Initial Issue. It is currently expected that the Net Proceeds will be deployed in accordance with the Company s investment policy within a period of 6 months after Initial Admission. The Directors intend to utilise the net proceeds of any Subsequent Placing under the Placing Programme to acquire investments in accordance with the Company s investment policy. Initial Issue The Company is targeting an issue of 250 million Ordinary Shares pursuant to the Initial Issue comprising the Initial Placing and the Offer for Subscription. The Initial Issue has not been underwritten. The maximum number of Ordinary Shares to be issued under the Initial Issue is 300 million. Ordinary Shares will be issued pursuant to the Initial Issue at an Issue Price of US$1.00 per Ordinary Share. The Offer for Subscription will remain open until 1.00 p.m. on 15 November 2018 and the Initial Placing will remain open until 2.00 p.m. on 16 November If the Initial Issue is extended, the revised timetable will be notified via a Regulatory Information Service announcement. The Initial Issue is conditional, inter alia, on: * Initial Admission having become effective on or before 8.00 a.m. on 21 November 2018 or such later time and/or date as the Company and Liberum may agree (being not later than 8.00 a.m. on 31 December 2018); * the Placing and Offer Agreement becoming wholly unconditional in respect of the Initial Issue (save as to Initial Admission) and not having been terminated in accordance with its terms at any time prior to Initial Admission; and * the Minimum Gross Proceeds (being US$100 million) and the Minimum Net Proceeds (being US$98 million) of the Initial Issue (or such lesser amount as the Company and Liberum may agree) being raised. Placing Programme Shares which may be made available under the Placing Programme will, subject to the Company s decision to proceed with an allotment and issue at any given time, be issued at the Placing Programme Price. The Placing Programme will open on 21 November 2018 and will close on 1 November 2019 (or any earlier date on which it is fully subscribed or as otherwise agreed between the Company and Liberum). 17

18 The minimum price at which Ordinary Shares will be issued pursuant to the Placing Programme, which will be in U.S. Dollars, will be equal to the prevailing published Net Asset Value per Ordinary Share at the time of issue together with a premium to at least cover the costs and expenses of the relevant Subsequent Placing of Ordinary Shares (including, without limitation, any placing commissions). The issue price of any C Shares issued pursuant to the Placing Programme will be US$1.00 per C Share. The costs and expenses of issuing Shares pursuant to a Subsequent Placing are not expected to exceed two per cent. of the gross proceeds of such Subsequent Placing. The Placing Programme is not being underwritten. Each issue of Shares pursuant to a Subsequent Placing under the Placing Programme is conditional, inter alia, on: * Admission of the relevant Shares occurring by no later than 8.00 a.m. on such date as the Company, and Liberum may agree from time to time in relation to that Admission, not being later than 1 November 2019; * a valid supplementary prospectus being published by the Company if such is required by the Prospectus Rules; and * the Placing and Offer Agreement being wholly unconditional as regards the relevant Subsequent Placing (save as to Admission) and not having been terminated in accordance with its terms prior to the relevant Admission. E.4. Material interests Not applicable. There is no material interest in respect of the Initial Issue. E.5. Name of person selling securities and lock-up agreements Not applicable. No person or entity is offering to sell Ordinary Shares as part of the Initial Issue. Pursuant to the Investment Adviser s Lock-in Deed, the Investment Adviser has agreed that it will not sell, grant options over or otherwise dispose of any interest in any Ordinary Shares acquired by it in satisfaction of its entitlement (if any) to receive a performance fee (save in certain circumstances) prior to the first anniversary of the date of acquisition of the relevant Ordinary Shares. The Investment Adviser has agreed that, where the Investment Adviser directs that any such Ordinary Shares be issued to any person other than the Investment Adviser, it shall procure that such person accedes to the terms of the Investment Adviser s Lock-In Deed as a condition precedent to any such issue. E.6. Dilution No dilution will result from the Initial Issue. If 300 million Shares were to be issued pursuant to Subsequent Placings, and assuming the Initial Issue had been subscribed as to 250 million Ordinary Shares, there would be a dilution of approximately per cent. in Shareholders voting control of the Company immediately after the Initial Issue (and prior to any conversion of C Shares). The voting rights may be diluted further on conversion of any C Shares depending on the applicable conversion ratio. However, it is not anticipated that there would be any dilution in the Net Asset Value per Ordinary Share as a result of the Placing Programme. E.7. Estimated expenses The costs and expenses of, and incidental to, the formation of the Company and the Initial Issue are not expected to exceed approximately US$5 million, equivalent to two per cent. of the Initial Gross Proceeds, assuming Initial Gross Proceeds of US$250 million. The costs and expenses will be deducted from the Initial Gross Proceeds. It is expected 18

19 that the starting Net Asset Value per Ordinary Share will be US$0.98, assuming Initial Gross Proceeds of US$250 million. The costs and expenses of issuing Ordinary Shares pursuant to any Subsequent Placing will be covered by issuing such Ordinary Shares at the prevailing published Net Asset Value per Ordinary Share at the time of issue together with a premium to at least cover the costs and expenses of the relevant Subsequent Placing of Ordinary Shares (including, without limitation, any placing commissions). The costs and expenses of any issue of C Shares under the Placing Programme will be paid out of the gross proceeds of such issue and will be borne by holders of those C Shares only. The costs and expenses of issuing Shares pursuant to a Subsequent Placing are not expected to exceed two per cent. of the gross proceeds of such Subsequent Placing. 19

20 RISK FACTORS Any investment in the Company involves a degree of risk, including, but not limited, to the risks in relation to the Company and the Shares referred to below. If any of the risks referred to in this document were to occur this could have a material adverse effect on the Company s business, financial position, results of operations, business prospects and returns to Shareholders. If that were to occur, the trading price of the Shares and/or their respective Net Asset Values and/or the level of dividends or distributions (if any) received from the Shares could decline significantly and investors could lose all or part of their investment. Prospective investors should note that the risks relating to the Group, its investment strategy, the aviation industry, the Investment Adviser, the Asset Manager, regulation and the Shares summarised in the section of this document headed Summary are the risks that the Board believes to be the most essential to an assessment by a prospective investor of whether to consider an investment in the Shares. However, as the risks which the Company faces relate to events and depend on circumstances that may or may not occur in the future, prospective investors should consider not only the information on the key risks summarised in the section of this document headed Summary but also, among other things, the risks and uncertainties described below. The risks referred to below are the risks which are considered to be material but are not the only risks relating to the Company and the Shares. There may be additional material risks that the Company and the Board do not currently consider to be material or of which the Company and the Board are not currently aware. It should be remembered that the price of securities and the income from them can go down as well as up. RISKS RELATING TO THE COMPANY The Company is a newly formed company with no operating history The Company is a newly formed company incorporated in Guernsey on 27 September The Company has no operating results and it will not commence operations until it has obtained funding through the Initial Issue. As the Company lacks an operating history, investors have no basis on which to evaluate the Company s ability to achieve its investment objective and provide a satisfactory investment return. The Company s returns will depend on many factors, including the performance of its investments, the availability and liquidity of investment opportunities within the scope of the Company s investment objective and policy and the Company s ability to successfully operate its business and successfully pursue its investment policy. There can be no assurance that the Company s investment policy will be successful. Reliance on third party service providers The Company has no employees and the Directors have all been appointed on a non-executive basis. The Company is and the Group will be reliant upon the performance of third party service providers for its executive function. In particular, the AIFM, the Investment Adviser, the Asset Manager, the Administrator and the Registrar will be performing services which are integral to the operation of the Company and its Group. Failure by any service provider to carry out its obligations to the Group in accordance with the terms of its appointment could have a materially detrimental impact on the operation of the Group or administration of its investments. The termination of the Group s relationship with any third party service provider or any delay in appointing a replacement for such service provider, could disrupt the business of the Company and have a material adverse effect on the Company s performance. Past performance cannot be relied upon as an indicator of the future performance of the Company The past performance of other investments managed by or in relation to which the Investment Adviser, the Asset Manager or any of their respective investment professionals have advised cannot be relied upon as an indicator of the future performance of the Company. Investor returns will be dependent upon the Company successfully pursuing its investment policy. 20

21 RISKS RELATING TO THE COMPANY S INVESTMENT STRATEGY AND INVESTMENT IN AIRCRAFT General risks Availability and identification of suitable aircraft and lessees The Company s business strategy is dependent on the ability of the Investment Adviser and the Asset Manager to identify and secure appropriate aircraft and lessees respectively in accordance with the Company s investment policy. While the Investment Adviser believes there to be a strong supply of suitable investment opportunities as at the date of this document, there can be no guarantee that such opportunities will continue to be available at the time of investment. Aircraft acquisitions are also subject to influences from a broad range of market and financing factors, which could decline from current conditions and negatively affect the ability of the Investment Adviser to source suitable investment opportunities. The ability of the Investment Adviser and Asset Manager to source investment opportunities and lessees respectively will also be in part dependent on the industry relationships of its key personnel. The Company cannot be sure that the Investment Adviser s and Asset Manager s relationships will be maintained (whether as a result of changes in key personnel of the Investment Adviser or Asset Manager or otherwise), or that these relationships will assist the Group in making suitable investments and entering into suitable lease transactions on financially attractive terms. The Company currently expects to be fully invested within 6 months of Initial Admission. However, there can be no assurance that suitable investment opportunities will materialise, prove attractive or be sufficient in quantity or size to permit this to occur and as at the date of this document the Company has not committed to make any pipeline investments. Accordingly, there can be no assurance that the Company will be able to identify attractive investments and therefore invest the net proceeds of the Initial Issue in full or at all, which could have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. Competition may have an adverse effect on the Company s business The Group faces competition from various competitors and/or owners of aircraft in its business of purchasing, leasing, re-leasing, and selling aircraft including: other aircraft leasing companies; aircraft manufacturers, including their vendor financing divisions or subsidiaries; financial investors, including banks, hedge funds and other funds and private equity firms; and airlines, both as potential purchasers of aircraft and, where relevant, through their own captive aircraft leasing operations as lessees, in all cases from both existing and potential new market participants. In each potential lease transaction, the Group may compete with others on the overall economic attributes of the transaction, the availability, specification and delivery dates of the aircraft types that meet a customer s needs, lease rates, terms and conditions of the lease and security deposits, maintenance reserves, delivery and redelivery conditions and technical conditions, amongst other factors. The Company s business, financial position, results of operations and prospects are affected by these competitive factors and its success is dependent on its ability to react to the dynamic business environment posed by these and other factors. In addition, some competing aircraft lessors may provide inducements to potential airline customers that the Group cannot match. Certain of the Group s competitors, including new entrants to the market, may have significantly greater financial resources than the Group and/or a lower overall cost of capital or other competitive advantages or may be able to provide other inducements to potential airline customers that could place the Group at a cost and/or price disadvantage. The Group s failure to effectively compete and the strategy of some of its competitors could have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. The potential returns are targets only, are based on estimates and assumptions that are inherently subject to significant business and economic uncertainties and contingencies, and the actual rate of returns may be materially lower than such targets The returns expressed in this document are targets only and are based on financial projections which are themselves based on estimates and assumptions about a variety of factors, including in relation to market conditions and the economic environment and the ability of the Company to implement its investment policy. There can be no guarantee that the target returns of the Company can be achieved at the level set out in this document or that its NAV will not decrease. A variety 21

22 of factors, including changes in financial market conditions, interest rates, exchange rates, government regulations, the global economic environment or the occurrence of risks described elsewhere in this document could adversely impact the Company s performance and its ability to achieve its target returns. Investors should not place any reliance on the target returns in deciding whether to invest in the Company and should make their own determination as to whether the target returns are reasonable or achievable in deciding whether to invest in the Company. A failure by the Company to achieve its target returns or increase its NAV could adversely impact the value of the Shares and result in a loss of all or part of an investor s investment. The due diligence processes that the Investment Adviser and/or the Asset Manager intends to undertake in evaluating specific opportunities to invest in or lease aircraft for the Company may not reveal all facts that may be relevant in connection with such investment opportunities The objective of the due diligence process to be undertaken in relation to specific opportunities to invest in aircraft is to identify issues for consideration by the AIFM which might affect an investment decision. When conducting due diligence and making an assessment regarding an opportunity to acquire or lease aircraft, the Investment Adviser and/or the Asset Manager (as applicable) will be required to rely on the resources available to it, including internal sources of information, information provided by any counterparties which the Group is engaging with, and independent sources. The due diligence process may at times be required to rely on limited or incomplete information. Investments in aircraft will be selected in part on the basis of third party information and data, which may or may not include information filed with regulatory bodies. Although the Investment Adviser will evaluate all such information and data and seek independent corroboration where it considers it appropriate and reasonably available, the Investment Adviser may not be in a position to confirm the completeness, genuineness or accuracy of such information. In particular, the Investment Adviser may be dependent in part upon the integrity of the management of the entities filing such information with government regulators and such reporting processes in general. Further, investment analysis and decisions may be undertaken on an expedited basis in order to make it possible for the Company to take advantage of short-lived investment opportunities. In such cases, the available information at the time of an investment decision may be limited, inaccurate and/or incomplete. Furthermore, the Investment Adviser and the AIFM may not have sufficient time to evaluate fully such information even if it is available. The value of the investments made by the Group may be affected by fraud, misrepresentation or omission. Such fraud, misrepresentation or omission may increase the likelihood of a default in payment by counterparties, or may adversely affect the ability of the Group to enforce its contractual rights in respect of an aircraft, or may have an adverse effect on the residual value of an aircraft. Accordingly, due to a number of factors, the Company cannot guarantee that the due diligence investigation carried out by the Investment Adviser and/or the Asset Manager with respect to any acquisition or lease of aircraft will reveal or highlight all relevant facts that may be necessary or helpful in evaluating such opportunity. Any failure by the Investment Adviser and/or the Asset Manager to identify relevant facts through the due diligence process (for consideration by the AIFM in relation to investments) may lead to unsuccessful investment and/or leasing decisions, which may have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. Worldwide operations and geopolitical risk The Group intends to acquire aircraft and enter into leases that allow for worldwide operation of aircraft on a medium to long term basis. The aircraft will land at airports, and the lessees will be located in various countries around the world, including emerging markets. The Group s business is therefore subject to political, economic and social conditions of the countries where these airports and lessees are located. For example, the Group may be exposed to risks of political unrest, war and economic and other forms of instability, such as natural disasters, epidemics, widespread transmission of communicable or infectious diseases, natural disasters, terrorist attacks, changes in government policies, taxation, restrictions on foreign investment and currency repatriation, currency fluctuations and other developments in the laws and regulations of the countries in which the aircraft owned by the Group operate and other events beyond its control which may adversely 22

23 affect local economies, infrastructures and livelihoods. These events could result in a reduction in demand for aircraft, disruption to the Group s operations and seizure of, or damage to, lessees assets, or could give rise to difficulties to the Group in protecting its assets, including by enforcing its rights, in these jurisdictions. These events could also cause the partial or complete closure of particular airports and flight paths, potentially resulting in higher costs, aircraft delays and cancellations on some flight paths. Furthermore, these events could lead to reductions in the growth rate of world trade, which could reduce demand for aircraft. The political, economic or social conditions in any of these countries may have an effect on lessees businesses and financial conditions which may affect the creditworthiness of such lessees, and increase the risk of default by lessees, which could adversely impact lease income under the Group s aircraft lease agreements and, consequently, affect the stability of income flow to the Group. Use of borrowings The Company may use borrowings for multiple purposes, including for investment purposes. While the use of borrowings should enhance the total return on the Shares, where the return on the Group s portfolio of investments exceeds the cost of borrowing, it will have the opposite effect where the return on the Group s portfolio of investments is lower than the cost of borrowing. The use of borrowings by the Group may increase the volatility of the NAV per Share. To the extent that a fall in the value of the Group s investments causes gearing to rise to a level that is not consistent with the Company s borrowing and gearing policy, borrowing limits or loan covenants, the Group may have to sell investments in order to reduce borrowings. Such investments may be difficult to realise and therefore the market price which is achievable may give rise to a significant loss of value compared to the book value of the investments, as well as a reduction in income from investments. Any amounts that are secured under a bank facility will rank ahead of Shareholders entitlements and accordingly, should the Group s investments not grow at a rate sufficient to cover the costs of establishing and operating the Group, on a liquidation of the Company, Shareholders may not recover all or any of their initial investment. Interest will be paid on any borrowings. As such, the Group is exposed to interest rate risk due to fluctuations in the prevailing market rates to the extent that it has borrowed funds outstanding. The Directors intend to secure borrowing facilities to finance and/or part-finance acquisitions of aircraft in accordance with the Company s investment policy. However, there can be no guarantee that any such facilities will be available on commercially acceptable terms or at all, which would adversely affect the Company s investment returns and may have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. Currency and interest rate risks and hedging risks If an investor s currency of reference is not U.S. Dollars, currency fluctuations between the investor s currency of reference and U.S. Dollars may adversely affect the value of an investment in the Company. A proportion of the Company s investments may be denominated in currencies other than U.S. Dollars, or the Company may acquire investments or receive revenue in currencies other than U.S. Dollars. The Company will maintain its accounts and intends to pay dividends in U.S. Dollars. Accordingly, fluctuations in exchange rates between U.S. Dollars and the relevant local currencies and the costs of conversion and exchange control regulations may directly affect the value of the Company s investments and the ultimate rate of return realised by investors. Whilst the Company may seek to hedge the currency risk, there can be no assurance that any currency hedging arrangements will be sufficient to cover the relevant risk. The revenues of the Company will be generated primarily from lease payments. Lease payments may be either fixed or floating for the term of the lease. In general, an interest rate exposure arises to the extent that the Company s interest obligations under any borrowing facilities to which it is party as obligor do not correlate to either or both of the mix of fixed and floating rate lease payments for different periods and the timing of those payments. This interest rate exposure can be managed through the use of interest rate hedge agreements, including interest rate swaps and other derivative instruments. There can be no assurance, however, that the Company s interest rate risk management strategies will be effective in this regard. 23

24 Hedging may also be costly and the Group may incur losses on a hedged position which will reduce the Company s earnings and funds available for distribution to Shareholders. The Group may also be exposed to the risk that the counterparties with which the Group trades may cease making markets and quoting prices in such instruments, which may render the Group unable to enter into an offsetting transaction with respect to an open position. Further, although the Company will select the counterparties with which it enters into hedging arrangements with due skill and care, the residual risk that the counterparty may default on its obligations remains. Cash management and credit risk of bank deposits To the extent the Group has cash balances (including any un-invested proceeds of the Initial Issue or any Subsequent Placing), these may be held on deposit with banks or financial institutions. Returns on cash or cash-equivalents may be materially lower than those available on the Company s target investments and material cash balances may materially and adversely affect the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. To the extent the Group holds material cash balances it will be subject to the credit risk of the banks or financial institutions with which they are deposited. If any such bank or financial institution were to become insolvent, or default on its obligations, the Group would be exposed to the potential loss of the sum deposited. This may materially and adversely affect the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. Risks relating to the Company s proposed investment in aircraft The Group may not be able to re-lease or sell its investments on favourable terms, or at all The Company s business strategy requires the Group to re-lease or dispose of aircraft as its leases expire to generate revenue. The Group s ability to re-lease or sell aircraft, its ability to obtain favourable lease rates and terms and its ability to sell assets on favourable terms, may be impaired by the supply and demand for a given aircraft model at any point in time, the economic condition of the passenger airline, freight airline and aircraft industries, cyclical changes in interest rates and the availability of credit, fluctuations in the cost of fuel and other materials, the supply of competing aircraft, competition from other aircraft lessors and other alternative sources of capital, airline bankruptcies and insolvencies, the effects of terrorism and war, the ability to repossess aircraft from a defaulted lessee; the ability to export aircraft from or import aircraft to a given jurisdiction, and other factors affecting the demand and lease rates for aircraft generally and for particular aircraft. Any or all of these factors may have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. The market value and/or market lease rates for aircraft could decline The respective values of aircraft and market lease rates have at various times experienced sharp declines due to a number of factors including, but not limited to, decreases in demand for passenger travel and air cargo transportation services, sudden increases in jet fuel costs, changes in or new government and supra-national regulation, changes in interest rates, acts of terrorism, wars, epidemics and other natural or man-made calamities and/or sudden deteriorations in the global economy. In addition, the aviation industry has experienced periods of aircraft oversupply and undersupply. Since only a portion of an aircraft s value is covered by the contracted cash flows payable by the airline customer under a lease, aircraft operating leases place the risk of realising the residual value of an aircraft upon the sale or partout of the aircraft with the operating lessor. In addition, factors linked to the airline industry generally, along with many other factors, may affect the value of the Group s aircraft and the market rates for the Group s leases, including: manufacturer, type and model of aircraft or engines, including the number and geographical profile of operators using that type of aircraft; whether the aircraft is subject to a lease, and if so, whether the lease terms are advantageous for the lessee; decreases in the creditworthiness of the relevant lessee; aircraft age; the production of newer models of such aircraft or aircraft types competing with such aircraft; the regulatory authority under which the aircraft is operated and regulatory actions, including mandatory grounding of the aircraft; the particular maintenance, damage, technical operating history and inadequate or incomplete documentary records for the aircraft and its engines; any renegotiation of an existing lease on less favourable terms; any tax, customs, regulatory and/or legal requirements that must be satisfied before the aircraft can be purchased, sold or re-leased; 24

25 and compatibility of aircraft configurations or specifications with other aircraft in the airline customer s existing or anticipated prospective fleet. In addition, aircraft appraisers play a significant role in shaping market perception of aircraft market values. Each appraiser s valuation is based on that appraiser s professional opinion. Appraisals are subjective to the extent they are based on various assumptions with regard to the specific aircraft appraised, an assessment of general macroeconomic conditions and outlooks, as well as an assessment of conditions affecting the airline industry generally, and the appraisal data may not accurately reflect values available in the market. A decrease in the valuation of the Group s aircraft by independent appraisers could adversely affect its ability to sell its aircraft on favourable terms, or at all, or could decrease amounts available to the Group or to its prospective aircraft buyers under existing and future debt financing arrangements in respect of which such aircraft serve as collateral. In addition, the Group may be required to incur impairment charges or fair value adjustments to the extent that the appraiser s valuation of the Group s aircraft is less than the depreciated book value of the aircraft on its balance sheet. Any or all of these factors may have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. The aviation industry has experienced periods of aircraft oversupply during which lease rates and aircraft values have declined, and any future oversupply could have a material adverse effect on the Company s business Historically, the aviation industry has experienced periods of aircraft oversupply. The oversupply of a specific type of aircraft is likely to depress the lease rates for, and the market and appraised value of, that type of aircraft. The supply and demand for aircraft is affected by various cyclical and non-cyclical factors that are outside of the Company s control, including for example demand for passenger travel and air cargo transportation services, operating costs (including jet fuel costs), the availability of credit, geopolitical events, manufacturer production levels and technological innovation and the reintroduction into service of parked aircraft. During recent years, the aviation industry has ordered a significant number of aircraft from the manufacturers. Airbus and Boeing have publicly indicated that they intend to increase production rates for single-aisle aircraft. The increase in these production levels could result in an oversupply of aircraft if growth in demand for passenger travel and air cargo transportation services does not meet industry expectations. An oversupply of new aircraft could also adversely affect the lease rates for, and market values of, used aircraft. In addition, airlines may not continue to acquire or operate the same types of aircraft, meaning that there is no assurance that the Group s aircraft will continue to be in demand by airline customers. Any or all of these factors may produce sharp and prolonged decreases in aircraft lease rates and values, or may have a negative effect on the Group s ability to lease, release or sell its investments. Any or all of these factors could materially and adversely affect the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. Sustained periods of financial strength and stability for certain airline customers may result in their purchasing their own aircraft or future aircraft deliveries, entering into fewer aircraft leases with the Group and/or competing with the Group, which may have an adverse effect on its business In addition to facing competition from other aircraft operating leasing companies, aircraft manufacturers, financial investors (including hedge funds, other funds and private equity firms) and airlines, the Company is also exposed to the risk that, during periods of strong demand for passenger travel and air cargo transportation services which typically lead to sustained periods of financial strength and stability for certain airline customers, it may face a reduction in demand for leasing of its aircraft as certain airline customers seek to purchase their own aircraft rather than entering into aircraft leasing arrangements. In addition, airline consolidation, sustained low interest rates, low jet fuel prices, industry liberalisation or deregulation, removal of visa or travel restrictions and growth in new airline business models may also lead to periods of stronger financial performance by the Group s airline customers. Airlines or other aircraft owners may also seek to lease out their own aircraft, thereby leading to increased competition for the Group s aircraft. Any or all of these factors could adversely affect the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. 25

26 Concentration of the lessees in certain geographical regions could pose a risk to the Group s financial position Local economic and political conditions can influence the performance of lessees located in a particular region. The effect of these conditions on payments to the Group will be more or less pronounced depending on the concentration of the lessees in that region. Although the Company s investment policy provides that no more than twenty per cent. of the Group s investments (by Gross Asset Value) shall be exposed to one lessee and/or lessees in a single country, there can be no assurance that such limitation will protect the Group from being adversely affected by an economic downturn or other adverse factors in a particular country or region. A variety of events can adversely affect the market and economy in a particular country or region, including natural disasters such as earthquakes, hurricanes, floods and volcanic eruptions, political instability or unrest, civil disturbances, acts of war and terrorist actions. Such regional factors may also include deregulation and aggressive competition from low cost carriers, stricter environmental regulations, adverse regional economic conditions with decreased discretionary travel and lower regional political stability. A recession or other worsening of economic conditions, political instability or a terrorist attack in one or more countries or regions, particularly if combined with either or both of high fuel prices and declining local currencies, may have a material adverse effect on the ability of lessees in particular regions to meet their financial and other obligations under their leases, which in turn may have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. The Company s intended focus on particular aircraft types in the Group s proposed investment portfolio could harm the Company s financial position, if any difficulties particular to those types of aircraft occur The Company is intending to invest in primarily single-aisle aircraft (in particular the A320 and B737NG families of aircraft). If the market demand for these models or aircraft declines the Company s financial position would be adversely affected. Likewise, if either of these aircraft types encounter technical or other difficulties, the affected aircraft types may be subject to grounding or diminution in value and the Group may be unable to lease or sell the affected aircraft types on favourable terms or at all. In addition, the bankruptcy or shut down of any airline operating a large fleet of an aircraft type may result in an oversupply of such aircraft type being re-leased into the market or available for sale, which could depress the prevailing lease rates and the market value of such aircraft. Any of these outcomes may materially and adversely affect the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. Aircraft have finite economic lives, depreciate over time and become more expensive to operate as they age, all of which could adversely affect the Company, particularly given the Company s stated strategy of acquiring pre-owned aircraft By acquiring pre-owned assets, the Group has greater exposure to rapid obsolescence of its portfolio of investments, particularly if there are unanticipated events shortening the life cycle of such investments, such as government regulation or changes in lessee preferences. This may result in a shorter life cycle for the investments and, accordingly, declining lease rates, impairment charges, increased depreciation expense and storage costs. Unlike new aircraft, pre-owned aircraft typically do not carry warranties as to their condition. As a result, the Group may not be able to claim any warranty-related expenses on pre-owned aircraft. Although the Group s advisers may inspect pre-owned aircraft and their documented maintenance, usage, lease and other records prior to acquisition, those advisers may not discover all defects during such inspections. In general, the costs of operating an aircraft, including maintenance and modification expenditures, increase with the age of the aircraft. While older passenger aircraft may be converted to freighter aircraft, the costs of doing so are substantial. Older aircraft typically are less fuel-efficient than newer aircraft. Variable expenses such as fuel or aging aircraft corrosion control programs and related airworthiness directives could make the operation of aircraft less economically feasible because the margins may decrease as such older aircraft tend to earn lower lease rental rates. These increased costs could also result in increased lessee defaults and renegotiation of lease terms and also could cause the Group to incur some of these increased maintenance expenditures and regulatory costs. By way of mitigation, the Company will maintain a maximum weighted average fleet age of 15 years (by Net Book Value). 26

27 Risk relating to the leases and lessees Reliance on lessees continuing performance of their lease obligations The ability of each lessee to perform its obligations under its lease will depend primarily on such lessee s financial condition. It is possible that lessees of the Group s aircraft will be in poor financial condition or experience financial difficulties, which could result in delayed or missed payments under the leases. Business, operational or financial difficulties experienced by the lessees could lead to payment defaults or defaults in performance under the leases that could materially adversely affect the Company s financial position. There can be no assurance that lessees will be able to perform their financial and other obligations under the leases in the future. A lessee s financial condition may be affected by various factors beyond the Company s control, including, competition, fare levels, fuel prices, air freight rates, passenger and freight air demand, ability to borrow or raise capital, political and other events, including war, acts of terrorism, civil unrest, outbreaks of epidemic diseases and natural disasters, increases in operating costs, including the availability and cost of jet fuel and labour costs, labour difficulties and labour costs, airline bankruptcies, economic and financial conditions and currency fluctuations in the countries and regions in which the lessee operates, and governmental regulation of, or affecting, the air transportation business, including noise and emissions regulations, climate change and environmental laws and initiatives and age limitations. In addition, defaults and amounts in arrears may occur or increase significantly if the market for aircraft subject to operating lease experiences a cyclical downturn. Any payment defaults under the leases may adversely affect the Company s financial position. In addition, from time to time the Group may have disputes with the lessees as to the nature or amount of obligations under the leases. Any such material default on the part of a lessee may have a material adverse effect on the Company s financial condition, and in turn the Company s Net Asset Value and the value of the Shares. It may be difficult and costly to enforce the Group s rights in the event of a default under a lease The Group s remedies in the event of a default under each lease will include lease termination and repossession. If, however, a defaulting lessee contests such termination and repossession or is bankrupt or under court protection, enforcement of the Group s rights under the relevant lease may be difficult, expensive and time-consuming. As a result, the relevant aircraft may be off-lease or not generating revenue for a prolonged period. In addition, the Group may incur direct costs associated with repossessing an aircraft. These costs may include legal and similar costs, the direct costs of storing the aircraft and ultimately returning the aircraft to an appropriate jurisdiction and costs associated with necessary maintenance to make the aircraft available for re-leasing or sale, including mandatory aircraft modifications, all of which may be significant. The Group may also incur costs associated with the failure of lessees to pay air navigation or emission charges, taxes, including property taxes, operating taxes and value added tax, the costs of licensing, exporting or importing an aircraft and penalties and costs associated with the failure of lessees to obtain required governmental licenses, consents and approvals. Even if the Group is able to repossess an aircraft, it may not necessarily be able to profitably redeploy the aircraft. In addition, in connection with the repossession of the aircraft, the Group may also find it necessary to pay debt secured by outstanding liens or taxes to the extent not paid by the lessee or other operator. Significant costs may also be incurred in retrieving or recreating aircraft records and obtaining evidence of airworthiness for the aircraft. The Group may suffer other adverse consequences as a result of a lessee default, the termination of the related lease and the repossession of the related aircraft. The Group s rights upon a lessee default also may be subject to the limitations of applicable law or treaty, including the need to obtain a court order for repossession of the aircraft and/or consents for export of the aircraft. When a defaulting lessee is in bankruptcy, protective administration, insolvency or similar proceedings, additional limitations may apply. Certain jurisdictions will give rights to the trustee in bankruptcy or a similar officer to assume or reject the lease or to assign it to a third party, or will entitle the lessee or another third party to retain possession of the aircraft (without paying rentals or performing the obligations under the relevant lease). Additionally, certain of the lessees are or may in the future be owned, in whole or in part, by government-related entities, which could complicate efforts to repossess aircraft in that lessee s domicile. Accordingly, the Group may be delayed in, or prevented from, enforcing certain of its rights under a lease and in re-leasing the affected aircraft. Even if the Group is able to repossess the aircraft, it may not necessarily be able to export or deregister and profitably redeploy the aircraft. The Group may also incur significant costs in retrieving or recreating aircraft records required for registration of the aircraft, and in obtaining a 27

28 certificate of airworthiness for an aircraft. Delays resulting from repossession proceedings would increase the period during which an aircraft would be grounded and would not generate rental revenues and cash flows. Notwithstanding the impact of the Cape Town Convention (defined below), which mitigates some of these risks, the occurrence of any of the costs or delays described above may in turn adversely affect the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. The Group may be required to restructure some of its leases, which may result in leases on less favourable terms Under certain circumstances, including when a lessee is late in making payments or fails to make payments in full under its lease, the Group may elect to restructure such lease. Lease restructuring involves a renegotiation of certain obligations of the lessee, and may range from a simple rescheduling of payments to the termination of a lease without receiving all or any of the past due amounts. If any requests for restructurings are made and granted in the future, reduced or deferred rent payments could be payable over all or some part of the remaining term of the lease, or the applicable lessee may take on the responsibility for certain maintenance costs, each of which could affect cash available to the Group. The Group may be unable to agree upon acceptable terms for some or all of the requested restructurings and as a result may exercise its remedies under those leases. If the Group, in the exercise of its remedies, repossesses the aircraft, there can be no assurance that it will be able to re-lease the aircraft promptly or at favourable rates. The terms and conditions of possible lease restructurings may result in significant reductions of rent payments. This, in turn, could adversely affect the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. Failure by lessees to perform required maintenance or to maintain records relating to the aircraft could result in the Group incurring additional maintenance and other expenses or could result in a diminution in value of the aircraft The value and income producing potential of an aircraft is dependent on it being maintained in accordance with an approved maintenance schedule and being in compliance with all governmental directives and manufacturer requirements applicable to the relevant aircraft, including, without limitation, operational and maintenance requirements and airworthiness directives. Any failure by a lessee to maintain an aircraft or to keep records of its maintenance will likely require the Group to incur costs, which could be substantial, in order to restore such aircraft to an acceptable maintenance condition and to recreate the required records prior to sale or re-leasing. If aircraft are required to remain off-lease for a significant period of time, due to required maintenance, or if the Group is required to fund substantial maintenance and/or records-related costs, this may have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. Failure to pay certain potential additional operating costs could result in the grounding of the aircraft and prevent their re-lease, sale or other use As in the case of maintenance costs, the Group may incur other operational costs upon a lessee default or where the terms of the lease require the Group to pay a portion of those costs. Such costs, which can be substantial, include, the costs of licensing, exporting or importing an aircraft, costs of storage and operating an aircraft, airport taxes, customs duties, air navigation charges, landing fees, emissions charges and similar governmental or quasi-governmental impositions, penalties and costs associated with the failure of lessees to keep the aircraft registered under all appropriate local requirements or obtain required governmental licenses, consents and approvals, and all other costs of holding an aircraft, including storage, maintenance, ferry flights and crews. The failure to pay some of these costs can result in liens on the aircraft or a loss of insurance. Any of these events could result in the grounding of aircraft and prevent the re-lease, sale or other use of aircraft. This could have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. Liens on aircraft may make it difficult for the Group to lease/sell its assets In the normal course of business, liens that secure the payment of airport fees and taxes, custom duties, air navigation charges, emission charges, landing charges, crew wages, maintenance charges, salvage or other obligations are likely, depending on the laws of the jurisdictions where the aircraft operate, to attach to the aircraft (or, if applicable, to the engines separately). The liens may secure substantial sums that may, in certain jurisdictions or for limited types of liens 28

29 (particularly fleet liens), exceed the value of any particular aircraft to which the liens have attached. Until they are discharged, the liens described above could impair the Group s ability to repossess, lease or sell the aircraft. If the lessees fail to fulfil their financial obligations, liens may attach to the aircraft. In some jurisdictions, aircraft liens or separate engine liens may give the holder thereof the right to detain or, in limited cases, sell or cause the forfeiture of the aircraft (or, if applicable, the engines separately). Such liens may have priority over the security interest of the Group in the aircraft, either because they have such priority under applicable local law or because such security interests are not registered or filed in the lessee jurisdictions or such jurisdictions are located in countries that are not parties to the Cape Town Convention on International Interests in Mobile Equipment ( Cape Town Convention ). If any of the Group s aircraft are or become subject to such liens, and as a result the Group s ability to repossess, lease or sell its aircraft is impaired, this may have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders The lessees may have inadequate insurance coverage or fail to fulfil their respective indemnity obligations under the leases, which could result in the Group not being covered for claims asserted against it The Group s ownership of aircraft could give rise, in some jurisdictions, to strict liability for losses resulting from their operation. Lessees will be required to indemnify the Group for, and insure against, liabilities arising out of use and operation of the relevant aircraft, including third party claims for death or injury to persons and damage to property for which the Group may be deemed liable. Lessees are also required to maintain hull insurance on the aircraft at agreed upon levels and liability insurance. If a lessee does not maintain this level of coverage, the Group will be required to obtain adequate insurance coverage. Any insurance maintained by the Group with respect to any aircraft not subject to a lease is required to be substantially consistent with the commercial practices of leading international aircraft operating lessees regarding similar aircraft. There can be no assurance that one or more catastrophic events will not exceed coverage limits. Further, there can be no assurance that lessees insurance will cover all types of claims that may be asserted against the Group or that a lessee will fulfil its obligation to make payments to the Group if the lessees insurance does not cover all or most of a claim. In addition, the insurance is typically subject to standard market deductibles based on aircraft type that generally range from US$1,000,000 for twin-aisle aircraft to US$750,000 for single-aisle aircraft. These deductibles may be lower in some leases. Any inadequate insurance coverage, high deductible payment or default by lessees in fulfilling their indemnification or insurance obligations will affect the proceeds that would be received upon an event of loss under the respective leases or upon a claim under the relevant liability insurance. While the Group will endeavour to maintain certain insurance coverage, such coverage may not be available in circumstances where the coverage of the lessee is not sufficient. In addition, if a lessee is not obligated to maintain insurance in a sufficient amount, the Group may incur the costs of additional insurance coverage while a lease is in effect. Following the terrorist attacks of September 11, 2001, aviation insurers significantly reduced the amount of insurance coverage available to airlines for liability to persons other than passengers for claims resulting from acts of terrorism, war or similar events. At the same time, they significantly increased the premiums for such third party war risk liability insurance. Some countries have government war risk insurance programs available in which they currently participate. These government schemes filled the gap in availability of such types of insurance policies in the market by making war risk insurance available at a commercially reasonable cost. It is not known at this time whether such third party war risk liability insurance will be available in the future from governments. There can be no assurance that such war risk insurance will continue to be available or, if such insurance ceases to be available, that the Group could obtain additional war risk insurance at an acceptable cost. In late 2005, the international aviation insurance markets introduced exclusions for physical damage to aircraft hulls caused by dirty bombs, bio-hazard materials, electromagnetic pulsing and similar causes of loss. Although it is not known when or whether exclusions for the same type of perils will be introduced into liability insurance policies, revised clauses implementing such exclusions were published in 2006; in addition, existing exclusions for detonation of nuclear weapons already apply. As a result, the scope of war risk insurance that is available at any time may be below the scope required under the leases, which may result in the lessees having inadequate insurance to cover their indemnification obligations to the Group or result in the lessees 29

30 being in default under the leases and required to ground the relevant aircraft. Lessees generally are not required to maintain political risk insurance, i.e., insurance covering the risk of seizure by a local government or a failure of local government agencies to enforce the lease against a local lessee. Any inadequate insurance coverage or default by lessees in fulfilling their indemnification or insurance obligations, as well as the lack of available insurance, could have a materially adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. Lessees are dependent on banks and the capital markets to provide working capital and to refinance existing indebtedness The global financial markets can be highly volatile and available credit from the capital markets and financial institutions can be significantly constrained. Lessees depend on banks and the capital markets to provide working capital, to fund aircraft acquisitions, expansion or operating losses and to refinance existing indebtedness. To the extent such funding is unavailable or available only at high interest costs or on unfavourable terms, and if the capital markets or the lessee s owners do not allow or consider equity raising as an alternative, lessee s operations and operating results may be adversely affected and they may be unable to comply with their respective payment obligations to the Group. This may have a material adverse effect on the Group s cash flows and therefore adversely affect the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. A new standard for lease accounting which may impact the Group s airline customers was issued on 13 January 2016, effective from financial reporting periods beginning on or after 1 January 2019 Following a detailed consultation period which ultimately began in July 2006 the International Accounting Standards Board ( IASB ) released on 13 January 2016 a new standard ( IFRS 16 Leases ) on lease accounting which will replace IAS 17 Leases and which will, broadly, bring the majority of leases on balance sheet for airline customers. The IASB has confirmed that IFRS 16 Leases will be effective from financial reporting periods beginning on or after 1 January Early adoption of this new leases standard will be permitted, provided a reporting company has adopted IFRS 15 Revenue from Contracts with Customers. It is anticipated that IFRS 16 Leases will not have a significant impact upon the way in which lessees account for the leases, using IAS 17 s dual classification approach. The main changes reflected in IFRS 16 Leases will affect the Group s airline customers. Under IFRS 16 Leases an airline customer will be required to recognise a right-of-use asset and a lease liability. The right-of-use asset is treated similarly to other non-financial assets and depreciated accordingly and the liability accrues interest. Adoption of IFRS 16 Leases may require certain airline customers to alter the way in which their operating leases are treated in their accounting records, requiring them to recognise the financial impact (both in terms of a right-of-use asset, on the asset side, and a lease liability, on the liability side, of their balance sheets) of operating leases entered into with the Group. The application of this new accounting standard may adversely affect the demand from airline customers for aircraft operating leases and their desire to enter into mid to longer-term leases. This could in turn materially and adversely affect the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. The Group s advisers may not effectively manage maintenance compensation which will adversely impact financial performance and as a result will not generate enhanced returns In addition to paying basic rent, lessees separately compensate aircraft lessors for the cost of major overhauls based on their utilisation of the aircraft. These overhauls relate to major components i.e. airframe, engines, landing gear and auxiliary power unit. In some cases, this compensation is paid through an End of Lease Adjustment ( EOLA ). Under this arrangement the maintenance status at the end of lease is compared with the start of the lease and compensation is paid by the lessee for any deterioration in the maintenance condition of the aircraft. In other cases, compensation is paid by way of supplemental rents, often described as maintenance reserves. Supplemental rents are paid monthly in arrears based on aircraft utilisation and are available by way of refund (up to the actual cost of the overhaul) to the lessee when the overhaul occurs. Because they are paid in respect of future overhauls supplemental rents can provide credit protection as well as maintenance compensation. In some cases, lessees provide alternative 30

31 security to cash payments such as a letter of credit with final settlement by way of an EOLA as described above. The relative economic importance of maintenance compensation increases as aircraft age, because the cost of overhauls increases, while the value of the aircraft depreciates. Amounts paid by way of maintenance compensation can enhance a lessor s financial performance by providing a costfree cash float and can sometimes be retained if an overhaul is not required e.g. at the end of an aircraft s economic life. The Company s advisers will seek to maximise its cash proceeds from maintenance compensation by having a high proportion of leases with supplemental rents rather than EOLAs, and by working with airlines to seek economically efficient alternatives to overhauls. If the Company s advisers are not successful in implementing these strategies this could materially and adversely affect the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. RISKS RELATING TO THE AVIATION INDUSTRY A deterioration in the financial condition of the commercial airline industry would have an adverse impact on the Group s ability to lease aircraft and sustain its revenue and cash flows The Group will lease its aircraft to commercial airlines. As a result, the financial condition and growth of the commercial airline industry affects the Group s lease portfolio and, in turn, its cash flows. The Company s ability to achieve its investment objective also depends on the financial strength of its lessees and its lessees ability to manage their respective risks. To the extent that lessees are adversely affected by these risk factors, the Group may experience downward pressure on demand for its aircraft, reduced market lease rates and effective lease margins and decreased aircraft values on sale; a higher incidence of lessee defaults, lease restructurings, repossessions, airline bankruptcies and airline restructurings, increased costs due to maintenance, insurance, storage and legal costs associated with any repossession or restructuring, as well as lost revenue for the time the aircraft are off-lease, increased aircraft transition costs to new lessees (including refurbishment and modification of the relevant aircraft to fit the specifications of new lessees) and possibly lower lease rates from the new lessees; an inability to lease aircraft to lessees on commercially acceptable terms or at all, resulting in lower lease margins due to aircraft not earning revenue and resulting in storage, insurance and maintenance costs; a loss if the aircraft are damaged or destroyed by an event specifically excluded from an insurance policy such as dirty bombs, bio-hazardous materials and electromagnetic pulsing. Any or all of these factors may have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders A negative change in economic conditions in Asia and emerging markets may lead to a significant drop in global demand thereby affecting lease rates and aircraft values Currently, Asia and other emerging market economies are the key driving forces behind the increase in aircraft travel in certain aviation segments and the demand for aircraft transportation and logistics as they are some of the world s fastest growing economies in terms of GDP. It cannot be assumed that such growth will be sustained or that Asia and other emerging market economies will not experience a material decline from current levels in the future. A downturn in Asia and key emerging market economies could translate into reduced demand for aircraft and lower lease rates industry wide, thereby adversely affecting the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. Terrorist attacks or the fear of such attacks or civil unrest, even if not made directly on the airline industry, could negatively affect lessees and the airline industry As a result of recent terrorist attacks, notably in the US, Middle East, Southeast Asia and Europe, increased security restrictions have been imposed on air travel. Costs for aircraft insurance and security measures have increased and operators have faced increased difficulties in acquiring war risk and other insurance at reasonable costs. Additional terrorist attacks, even if not made directly on the airline industry, or the fear of or any precautions taken in anticipation of such attacks, including elevated national threat warnings, selective cancellation or reduction of flights or restrictions on traveling with certain electronic devices such as laptop computers, could materially adversely affect the lessees and the airline industry. Among other things, such attacks could result in significant disruptions to airline operations, reductions in air travel demands and the incurrence of additional security-related costs. Any additional terrorist attack may cause certain aviation 31

32 insurance to become available only at significantly increased premiums, for reduced amounts of coverage that are insufficient to comply with the levels of insurance coverage required by aircraft lenders and lessees or by applicable government regulations or to not be available at all. Conflicts in Iraq and Afghanistan, the Israeli/Palestinian conflict, the civil war in Syria, the conflict between Russia and Ukraine, and other countries in the Middle East and related uncertainty, escalation of hostilities or political crises, in each case may lead to further instability in these regions. Future terrorist attacks, war or armed hostilities in Europe, the Middle East and North Africa, Asia or elsewhere, or the fear of such events, and any related sanctions or prohibitions on the use of certain airspace could also have a material adverse impact on lessees financial condition, liquidity and results of operations. Lessees financial resources might not be sufficient to absorb the adverse effects of any future terrorist attacks or other international hostilities, which could result in significant decreases in aircraft leasing transactions and/or lease restructurings, thereby materially adversely affecting the Company s ability to lease and/or sell its aircraft thereby adversely affecting the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. High fuel prices or volatility in the prices of fuel can adversely affect the profitability of the airline industry and lessees ability to meet their lease payment obligations to the Company Fuel costs represent a major expense to airlines, and fuel prices fluctuate widely depending primarily on international market conditions, political and environmental events, regulatory changes, including those related to greenhouse gas emissions and other environmental matters and currency exchange rates. As a result, fuel costs are not within the control of the lessees and significant changes in fuel prices may materially and adversely affect their operating results. Fuel prices have a significant impact on airline profitability. Due to the competitive nature of the airline industry, airlines may not be able to pass on increases in fuel prices to their customers during times of high fuel prices by increasing fares. If they pass on the higher costs, it may adversely affect demand for air travel, which would reduce revenues and cash flow to the lessees. In addition, airlines may not be able to manage this risk by appropriately hedging their exposure to fuel price fluctuations. Swift movements in fuel prices when airlines have hedged their fuel costs can adversely affect profitability and liquidity as airlines are required to post cash collateral under hedge agreements. During periods of depressed fuel prices, airlines which have put fuel hedging in place may incur higher fuel costs compared to competing airlines which have unhedged fuel positions resulting in a higher cost base which may result in financial losses. Although fuel prices have declined recently, there can be no assurance that prices will remain at current levels and prices may increase significantly in the future. During periods of high fuel prices, lessees will incur higher costs and may experience reduced profitability. This could have an adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. Epidemic diseases may hinder airline travel The 2003 outbreak of Severe Acute Respiratory Syndrome ( SARS ) was linked to air travel early in its development and had a severe impact on the aviation industry which was evidenced by a sharp reduction in passenger bookings, cancellation of many flights and employee layoffs. In addition, since 2003 there have been several outbreaks of avian influenza, or bird flu, beginning in Asia and spreading to certain parts of Africa and Europe. Although human cases of avian influenza have, so far, been limited in number, the World Health Organization has expressed serious concern that a human influenza pandemic could develop from the avian influenza virus. In such an event, numerous responses, including travel restrictions, might be necessary to combat the spread of the disease. In May 2014, an outbreak of the Ebola virus struck several countries in West Africa, and subsequently spread to Spain, the United Kingdom, Italy and the United States. To prevent further spread of the epidemic, several countries and airlines have imposed travel restrictions to and from affected areas, such as requiring passengers originating from affected countries in West Africa to fly via U.S. airports with screening procedures in place. Most recently, international travel has been negatively affected as a result of the Zika virus, affecting in particular South American, Central American and Caribbean travel. Additional outbreaks of SARS, Ebola, H1N1, Zika or other epidemic diseases such as avian influenza, swine flu or the fear of such events, may prompt additional restrictions and precautionary measures to be put in place, which could negatively affect passenger demand for air travel. Even if such restrictions are not implemented, it is likely that passengers would voluntarily choose to 32

33 reduce travel, which could negatively affect passenger demand for air travel and, the financial condition of the aviation industry, as a whole, and consequently adversely impact the Group s ability to lease and/or sell its portfolio of aircraft. Natural disasters and other natural phenomena may disrupt air travel Air travel can be disrupted, sometimes severely, by the occurrence of natural disasters and other natural phenomena. Any such disruption in the airline industry may adversely affect a lessee s ability to make payments under a lease or leases and, in turn, have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. Cyber-attacks may negatively affect lessees and the airline industry Cyber-attacks on information technology ( IT ) security systems that affect the operations of lessees, or the airline industry generally, including attacks that affect reservation, navigation and air traffic control systems, could have a material adverse effect on lessees operations, financial condition, liquidity and ability to meet their lease payment obligations, which could materially adversely affect the Group s cash flows and therefore adversely affect the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. Airline reorganisations could impair lessees ability to comply with their lease payment obligations to the Company Over the past decade, multiple airlines have sought to reorganize and seek protection from creditors under their local laws. Bankruptcies have led to the grounding of a number of aircraft which resulted in revised lease rentals. In 2017 alone, Alitalia, Air Berlin and Monarch Airlines all filed for bankruptcy protection with both Monarch Airlines and Air Berlin ceasing operations. Additional reorganizations or liquidations by airlines under applicable bankruptcy or reorganization laws or further rejection or abandonment of aircraft and aircraft leases by airlines in bankruptcy proceedings may result in large numbers of aircraft becoming available for lease or purchase at reduced lease values or acquisition prices and reduce the number of potential lessees and operators of particular models of aircraft, either of which may result in inflated supply levels and consequently depress aircraft values for any such models and aircraft lease rates in general. Additional grounded aircraft and lower market values would also adversely affect the Group s ability to sell, or to sell at favourable prices, its aircraft or re-lease aircraft at favourable rates, all of which could adversely affect the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. The Group depends on aircraft and engine manufacturers remaining financially stable and producing aircraft The supply of commercial aircraft is dominated by a few airframe manufacturers, including Boeing, Airbus, Embraer, ATR and Bombardier, and a limited number of engine manufacturers, such as GE Aircraft Engines, Rolls Royce plc, Pratt & Whitney, IAE International Aero Engines AG and CFM International, Inc. Airbus recently acquired a majority stake in the Bombardier C Series aircraft programme and Boeing announced that it intends to acquire an 80 per cent. stake in a joint venture with Embraer. As a result, the Group will be dependent on the success of these manufacturers in remaining financially stable, producing products and related components which meet the airlines demands, providing customer support and fulfilling any contractual obligations they may have to the Group. Dislocations in the capital markets may impair the ability of manufacturers to finance their operations or increase the costs of such financing, which could adversely affect their ability to meet airlines demands or provide support to their customers, including the Group. Further, competition between the manufacturers for market share is escalating and may cause instances of deep discounting for certain aircraft types. Such discounting may have a negative impact on the Group s ability to compete effectively when it sells or leases its aircraft. Should the manufacturers fail to respond appropriately to changes in the market environment or fail to fulfil any contractual obligations they might have to their customers, the Group may experience an inability to acquire components for aircraft on terms which allow the leasing of the aircraft to lessees at a profit, resulting in lower growth rates or a contraction in the overall value of the Group s investments; poor customer support from the manufacturers of the aircraft and components resulting in reduced demand for a particular manufacturer s product; a market environment with too many aircraft available, potentially creating downward pressure on demand for the aircraft and 33

34 reduced market lease rates and sale prices for those aircraft, a reduction in its competitiveness due to deep discounting by the manufacturers, which may lead to reduced market lease rates and aircraft values and may affect the value of the aircraft and the Group s ability to re-lease or sell some of the aircraft at a profit or at all; and/or poor customer support from the manufacturers of associated components resulting in disruption to the lessees operations and consequent loss of revenue for the lessees. Any or all of the foregoing may have a material adverse effect on the Group s cash flows and therefore adversely affect the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. Advent of advanced aircraft technology Over time, when new and more advanced aircraft models are introduced, existing aircraft of a particular type may experience declining demand by airlines and investors or a reduction in economic viability due to government regulation, introduction of more fuel-efficient technology and/ or lighter and stronger construction materials, increased range and payload capabilities, technological obsolescence, changing airline preferences or a combination of these or other factors. For example, the demand for a particular aircraft type may be affected by the expected introduction of a new aircraft type using new technology to lower direct operating costs such as the availability of new engine variants for the Airbus A320 family of aircraft (known as the A320NEO or New Engine Option ), the new engine variant of the Boeing 737 family (known as the 737 MAX 8), the new engine variant of the A (known as the A330 NEO) and by a completely new aircraft family, such as the 787 or A350. These particular new-technology models are expected to deliver improvements in fuel efficiency, airframe maintenance costs, emissions and external noise, amongst other benefits, and the introduction of these models may have an adverse impact on demand for, and the value of, the aircraft models they replace. Demand for certain aircraft types may also be adversely affected by the introduction of more stringent regulations such as noise or emissions standards. In addition, demand for existing aircraft types may be impacted by the development of new aircraft programmes by new market entrants. Such factors may have a negative impact on the demand and lease rates for certain aircraft types and the value of such aircraft may be permanently impaired. Any or all of these factors could materially and adversely the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. Airworthiness Directives and Service Bulletins can result in substantial costs, which the Company may have to bear In addition to the general civil aviation authority regulations and requirements regarding maintenance of aircraft, the Group s aircraft may be subject to further maintenance or modification requirements imposed by airworthiness directives issued by aviation authorities ( Airworthiness Directives ) or in mandatory service bulletins issued by aircraft manufacturers ( Service Bulletins ). Airworthiness Directives and Service Bulletins typically set forth particular special maintenance actions or modifications to certain aircraft types or series of specific aircraft that must be implemented if the aircraft is to remain in service. Alternatively, the Airworthiness Directive may require the lessee to make more frequent inspections of the asset or particular parts. The costs of compliance with Airworthiness Directives and Service Bulletins, particularly those requiring replacement of limited life parts, can be substantial. Generally, each lessee is responsible for complying with Airworthiness Directives and Service Bulletins with respect to its aircraft and is required to maintain the aircraft s airworthiness. To the extent that a lessee fails to comply with Airworthiness Directives or to take other actions required to maintain its certificate of airworthiness or other manufacturer requirements in respect of an aircraft or if an aircraft is not subject to a lease at the time such modifications are required, the Group may have to bear the cost of such compliance (it should be noted that Airworthiness Directives and Service Bulletins are more common in the early life cycle of an aircraft and used aircraft are less prone to such issuances). This could have a material adverse effect on the Group s cash flows and therefore adversely affect the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. 34

35 The operation of aircraft is subject to various laws and regulations, which may in turn adversely affect the Group s business The operation of aircraft and the airline industry are subject to international regulatory controls as well as additional laws and regulations that the various national or federal civil aviation authorities may impose within the local jurisdiction, which include the introduction of Airworthiness Directives on aircraft operated by airlines within the jurisdiction of such authorities. Regulatory authorities are entitled to suspend or revoke the airworthiness certification for any of the Group s aircraft or the licence granted to its airline customers to operate any aircraft for failure to comply with these regulations, resulting in the grounding of aircraft. If the business activities of the Group s airline customers are disrupted by a failure to meet regulatory requirements, the ability of such airline customers to meet their lease obligations towards the Group may be materially and adversely affected. Many jurisdictions also require regulatory approvals for the import, re-export, deregistration or registration of aircraft from various jurisdictions. In certain jurisdictions, there are regulations as to the maximum age of aircraft which may be imported and registered. Subsequent changes in applicable laws may modify such requirements or approvals previously granted may be withdrawn. These regulations and any modifications may adversely affect the Group s ability to lease, repossess, re-lease or sell aircraft and may impair the values of aircraft and thus have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. The effects of various environmental laws and regulations may negatively affect the airline industry Many aspects of commercial airlines operations, including aircraft and engine emissions levels, are subject to federal, state, local and foreign environmental, health and safety laws and regulations relating to the discharge of materials into the air, water and ground, the generation, storage, handling, use, transportation and disposal of hazardous materials, and the health and safety of employees. Environmental laws and regulations are subject to change and have tended to become more stringent over time. Future regulatory developments could adversely affect operations and increase operating costs in the airline industry. A violation of these laws and regulations or permit conditions can result in substantial fines, permit revocation or other damages. In addition, some of these regulations impose additional taxes on airlines and/or their passengers. Many jurisdictions have imposed stringent limits on air emissions such as nitrogen oxide, carbon monoxide and carbon dioxide emissions from engines, consistent with current International Civil Aviation Organization ( ICAO ) standards. Additionally, the United States Environmental Protection Agency ( EPA ) issued an endangerment finding in June 2016 that triggers a legal mandate for the EPA to take regulatory action to cut carbon dioxide emissions from aircraft. In addition, European countries generally have stricter environmental laws and regulations that can restrict operational flexibility and decrease aircraft productivity. For example, the European Parliament introduced the cap and trade Emissions Trading Scheme ( EU ETS ) in October 2003 to limit industrial greenhouse gas emissions. The EU ETS requires the monitoring and reporting of fuel consumption and carbon dioxide emissions data and the purchasing of emissions allowances. In November 2008, a directive was passed to apply the EU ETS to the aviation industry starting in 2012 for intra-eu flights and in 2014 for extra-eu flights. This legislation has been amended so that only emissions from flights within the EU, plus Iceland, Liechtenstein and Norway, must comply with the EU ETS to allow time for agreement to be reached on a global framework for tackling aviation emissions. On October 6, 2016, 191 member states of the ICAO adopted the Carbon Offset and Reduction Scheme for International Aviation ( CORSIA ) which calls for a global market based measure to help the aviation industry meet its goal of carbon-neutral growth after Baseline emissions levels will be measured in , after which airlines will purchase offsets for any increase in emissions from that level. The plan starts with a voluntary phase-in from 2020 through 2026, during which only routes between countries that choose to participate will be covered. A route will not be covered by the scheme if one or both countries connecting the route are not voluntarily participating in the scheme. At least 65 countries have indicated that they will participate in the voluntary phase, including the United States, Canada, China and all 28 EU countries. Beginning in 2027, participation in the scheme will be mandatory for all countries that have an individual share of international aviation activities in Revenue tonne Kilometres ( RTKs ) over 0.5 per cent. of total RTKs or whose cumulative share in the list of countries from the highest to the lowest amount of 35

36 RTKs reaches 90 per cent. of total RTKs, except small island developing states, least developed countries, and landlocked developing countries unless such countries volunteer to participate in this phase. Regardless of the phased implementation or exemptions under the CORSIA, all countries with aircraft operators undertaking international flights are requested to compile and transmit aggregated emissions information of their operators to ICAO, as part of the activities included in each country s implementation of a monitoring, reporting and verification system. The credits will come from alternative energy installations, forest conservation programs, and other projects that prevent greenhouse gas emissions. The technical rules of the measure will be developed by ICAO over the next two years. Costs for compliance are not yet determined. Concerns over climate change and the level of greenhouse gas and other air emissions into the environment could continue to result in more stringent limitations on the operation of aircraft powered by older, non-compliant engines, as well as newer engines. Future regulatory actions that may be taken in the future by governments or the ICAO to address concerns about climate change, noise and emissions from the aviation sector are still largely unknown at this time. In addition, future developments with respect to the enforcement and implementation of the CORSIA are uncertain. Such actions may have a materially adverse impact on the airline industry, particularly if regulators were to conclude that emissions from commercial aircraft cause significant harm to the upper atmosphere or have a greater impact on climate change than other industries. Potential actions may include the imposition of requirements to purchase emission offsets or credits, which could require participation in emission trading (such as is required in the EU and by the CORSIA), substantial taxes on emissions and growth restrictions on airline operations, among other potential regulatory actions. These regulations could limit the economic life of the aircraft, reduce their value, limit the Group s ability to lease or sell the non-compliant aircraft or, if engine modifications are permitted, require the Group to make significant additional investments in the aircraft to ensure they are compliant. In addition, compliance with current or future regulations, taxes or duties imposed to deal with environmental concerns could cause the lessees to incur higher costs and to generate lower net revenues, resulting in an adverse impact on their financial positions. Consequently, such compliance may affect the lessees ability to make rental and other lease payments and reduce the value received for the aircraft upon any disposition, which could have an adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. Noise regulations could adversely affect the Company and the value of its investments Jurisdictions throughout the world have adopted noise regulations which require all aircraft to comply with noise level standards. Compliance with current or future noise laws and regulations, taxes or duties could have a negative effect on lessees ability to make rental and other lease payments and reduce the value received for aircraft upon any disposition, which could have an adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. Trade wars could adversely affect the airline industry Any changes in trade policy could trigger retaliatory actions by affected countries, resulting in trade wars. This may result in reduced air travel between the relevant countries and/or reduced demand for/ability to sell aircraft in or into a particular jurisdiction. RISKS RELATING TO THE SHARES General risks affecting the Shares The value of an investment in the Company, and the returns derived from it, if any, may go down as well as up and an investor may not get back the amount invested. The market price of the Shares, like shares in all investment companies, may fluctuate independently of their underlying net asset values and may trade at a discount or premium to net asset value at different times, depending on factors such as supply and demand for the Shares, market conditions and general investor sentiment. There can be no guarantee that any discount control policy will be successful or capable of being implemented. The market value of a Share may vary considerably from its Net Asset Value. 36

37 It may be difficult for Shareholders to realise their investment and there may not be a liquid market in the Shares The Company will apply for the Shares to be admitted to the premium segment of the Official List and to trading on the premium segment of the London Stock Exchange s main market. However, there can be no guarantee that an active secondary market in the Shares will develop or be sustained or that the Shares will trade at prices close to their underlying Net Asset Value per Ordinary Share or Net Asset Value per C Share (as the case may be). The number of Shares to be issued pursuant to the Initial Issue and the Placing Programme is not yet known and there may be a limited number of holders of Shares. Limited numbers and/or holders of Shares may mean that there is limited liquidity in such Shares which may affect: (i) a Shareholder s ability to realise some or all of their investment; (ii) the price at which a Shareholder can effect such realisation; and/or (iii) the price at which such Shares trade in the secondary market. While the Board retains the right to effect repurchases of Ordinary Shares in the manner described under the subheading Repurchase of Ordinary Shares in Part 1 of this document, they are under no obligation to use such powers at any time and Shareholders should not place any reliance on the willingness of the Directors to do so. Shareholders wishing to realise their investment in the Company will otherwise be required to dispose of their Shares through the secondary market. Accordingly, Shareholders ability to realise their investment at Net Asset Value per Ordinary Share or Net Asset Value per C Share (as the case may be) is dependent on the existence of a liquid market for the Shares. There can be no guarantee that a liquid market in the Ordinary Shares or C Shares will develop or that the Ordinary Shares or C Shares will trade at prices close to their underlying Net Asset Value. Accordingly, Shareholders may be unable to realise their investment at such Net Asset Value or at all. The Company may issue additional Shares that dilute existing Shareholders Following the Initial Issue, subject to legal and regulatory requirements, the Company may issue additional Shares pursuant to the Placing Programme. Any additional issuances by the Company, or the possibility of such issuances, may cause the market price of the existing Ordinary Shares to decline. Furthermore: (i) the relative voting percentages of existing holders of Ordinary Shares who cannot, or choose not to participate will be diluted by further issues of Shares; and (ii) the voting rights of holders of Ordinary Shares may be diluted further on conversion of any C Shares depending on the applicable conversion ratio. The Shares will be subject to significant transfer restrictions for investors in certain jurisdictions as well as forced transfer provisions The Shares have not been registered and will not be registered in the United States under the U.S. Securities Act or under any other applicable securities laws. Moreover, the Shares are only being offered and sold outside the United States to non-u.s. Persons (as defined in Regulation S under the U.S. Securities Act), except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction in the United States. If at any time the holding or beneficial ownership of any shares in the Company by any person (whether on its own or taken with other shares), in the opinion of the Directors: (i) would or might cause the assets of the Company to be treated as plan assets of any benefit plan investor under section 3(42) of ERISA or the U.S. Tax Code; or (ii) would or might result in the Company and/or its shares and/or any of its appointed investment manager or investment advisers being required to register or qualify under the U.S. Investment Company Act, and/or U.S. Investment Advisers Act of 1940 and/or the U.S. Securities Act and/or the U.S. Securities Exchange Act 1934, as amended and/or any laws of any state of the U.S. or other jurisdiction that regulate the offering and sale of securities; or (iii) may cause the Company not to be considered a Foreign Private Issuer under the U.S. Securities Exchange Act 1934, as amended; or (iv) may cause the Company to be a controlled foreign corporation for the purpose of the U.S. Tax Code; or (v) may result in the Company losing or forfeiting or not being able to claim the benefit of any exemption under the Commodity Exchange Act or the rules of the CFTC or analogous legislation or regulation or becoming subject to any unduly onerous filing, reporting or registration requirements; or (vi) creates a significant legal or regulatory issue for the Company under the U.S. Bank Holding Company Act 1956, as amended or regulations or interpretations thereunder; or (vii) would cause the Company adverse consequences under the foreign account tax compliance provisions of the U.S. Hiring Incentives to Restore Employment Act of 2010, including the Company becoming subject to any 37

38 withholding tax or reporting obligation (including by reason of the failure of the Shareholder concerned to provide promptly to the Company such information and documentation as the Company may have requested to enable the Company to avoid or minimise such withholding tax or to comply with such reporting obligations); or (viii) may cause the Company (including for such purposes, its subsidiaries) to lose the benefit of, or suffer pecuniary disadvantage as a result of not being able to take advantage of, any applicable withholding tax treaty or similar arrangement, the Directors may require the holder of such shares to transfer such shares and, if the Shareholder does not transfer such shares, may sell such shares on their behalf. These restrictions may make it more difficult for a U.S. Person to hold and Shareholders generally to sell the Shares and may have an adverse effect on the market value of the Shares. Local laws or regulations may mean that the status of the Company and/or the Shares is uncertain or subject to change, which could adversely affect investors ability to hold Shares For regulatory and tax purposes, the status and treatment of the Company and/or the Shares may be different in different jurisdictions. For instance, in certain jurisdictions and for certain purposes, the Shares may be treated as units in a collective investment scheme. Furthermore, in certain jurisdictions, the regulatory and tax status of the Company and/or the Shares may be uncertain or subject to change, or it may differ depending on the availability of certain information or as a result of disclosures made by the Company. Changes in the status or treatment of the Company and/or the Shares for regulatory and/or tax purposes may have unforeseen effects on the ability of investors to hold Shares or the consequences to investors of doing so. RISKS RELATING TO THE INVESTMENT ADVISER AND ASSET MANAGER The Company is dependent on the expertise of the Investment Adviser and the Asset Manager and their key personnel to evaluate investment opportunities and to assist in the implementation of the Company s investment objective and investment policy In accordance with the Investment Adviser Agreement, the Investment Adviser is responsible for sourcing, conducting due diligence on and advising generally in respect of the Company s underlying investments in aircraft. The Asset Manager will be responsible for ongoing asset management of aircraft acquired by the Group. The Company does not have employees and its Directors are appointed on a non-executive basis. Subject to the overall supervision and control of the Directors, the AIFM will be responsible for assessing the suitability of any investment opportunity for the Company. However, the Investment Adviser will have responsibility, inter alia, for the identification of suitable investment opportunities that are in accordance with the Company s investment policy, the conduct of appropriate due diligence and advising on the general conduct of the acquisition process in respect of the relevant aircraft. The Asset Manager will be responsible for identifying suitable lessees and advising on the lease terms with them. Accordingly, the success of the Company will somewhat depend on the respective abilities of the Investment Adviser and the Asset Manager to carry out their respective roles. The future ability of the Company to pursue successfully its investment policy may depend on the ability of the Investment Adviser and Asset Manager to retain their existing key personnel and/or for each to recruit in good time individuals of similar experience and calibre, of which there can be no guarantee. Whilst the Investment Adviser and Asset Manager have endeavoured to ensure that their personnel are suitably incentivised, the retention of key personnel cannot be guaranteed. Events impacting but not entirely within the Company s, the Investment Adviser s or the Asset Manager s control, such as financial performance, being acquired or making acquisitions or changes to internal policies and structures could in turn affect the ability to retain key personnel. In addition, the Company is subject to the risk that the Investment Adviser Agreement and/or the asset management agreement to be entered into with the Asset Manager may be terminated and that no suitable replacement will be found. If the Investment Adviser Agreement and/or the asset management agreement to be entered into with the Asset Manager is terminated and a suitable replacement is not secured in a timely manner, the ability of the Company to execute its investment objective and investment policy may be adversely affected. 38

39 The resources of the Investment Adviser and the Asset Manager are not solely dedicated to activities in which the Company is engaged and both the Investment Adviser and the Asset Manager will allocate resources to activities in which the Company is not engaged, which might have a negative impact on the Company s ability to achieve its investment objective Neither, the Investment Adviser nor the Asset Manager is required to commit all of its resources, including key personnel, (or ensure continuity of any of its resources or that any of its resources are solely dedicated) to the Company s affairs and may allocate its resources to other business activities. Insofar as the Investment Adviser or the Asset Manager devotes resources to its responsibilities in relation to other business interests, its ability to devote resources and attention to the Company s affairs will be limited. This could adversely affect the Company s ability to achieve its investment objective, which could have a material adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. Potential conflicts of interest The Investment Adviser and the Asset Manager and their respective affiliates may provide advisory services to Other Accounts, being other funds/clients of the Investment Adviser, the Asset Manager or other members of their group. Such activities may give rise to conflicts of interests in the event that Other Accounts have a similar investment objective, policy and strategy to the Company. Conflicts may arise, in particular, where: i. an investment opportunity may meet the investment criteria for the Company and Other Accounts; ii. a disposal opportunity may be appropriate for the Company and one or more Other Accounts; and iii. a re-leasing opportunity may be suitable for the Company or one of more Other Accounts. The general approach to conflicts will be that each of the Investment Adviser and the Asset Manager will seek to reasonably avoid any conflicts of interests. However, where such conflicts cannot be avoided, each of the Investment Adviser and the Asset Manager (as applicable) will identify, manage and monitor such conflicts of interests in a fair and equitable manner. In any event, the allocation of any investment opportunities will be allocated amongst clients taking into account factors, including but not limited to, the relevant clients investment strategy, restrictions, term and objectives. Other than where it is in the interests of clients to do so, portfolios of aircraft will not be split into individual assets for allocation amongst clients and in such circumstances the fair allocation principles will be considered on a portfolio by portfolio basis. The Directors are also required by the RCIS Rules to take all reasonable steps to ensure that there is no breach of the conflicts of interest requirements of those rules. RISKS RELATING TO REGULATION, STRUCTURE AND TAXATION Changes in laws, government policy or regulations The Group will be subject to laws, government policy and regulations enacted by national and local governments. Any change in the law, regulation or government policy affecting the Group may have a material adverse effect on the value of its investments, its ability to carry on its business and pursue the Company s investment policy successfully and on the Company s earnings and returns to Shareholders. In particular, the Company will be required to comply with certain regulatory requirements that are applicable to listed closed-ended investment companies. The Company must comply with the Listing Rules, Prospectus Rules, the Disclosure Guidance and Transparency Rules, MAR and the rules of the London Stock Exchange. Any failure in future to comply with any future changes to such rules and regulations may result in the Shares being suspended from trading on the London Stock Exchange. Changes in the Group s tax status or tax treatment may adversely affect the Group and if the Company becomes subject to the UK offshore fund rules there may be adverse tax consequences for certain UK resident Shareholders Any change in the Group s tax status, or in taxation legislation or practice (in particular in relation to any obligation to withhold tax in respect of payments to the Group or on portfolio investments) in either Guernsey or any other jurisdiction in which the Group invests, or in the Group s tax 39

40 treatment, may affect the value of the investments held by the Group or the Company s ability to pursue successfully and achieve its investment objective and investment policy, or alter the aftertax returns to Shareholders. Statements in this document concerning the taxation of Shareholders are based upon current United Kingdom and Guernsey tax law and published practice, any aspect of which law and practice is, in principle, subject to change (potentially with retrospective effect) that may adversely affect the ability of the Company to pursue successfully its investment objective and investment policy and which may adversely affect the after-tax returns to Shareholders. Statements in this document in particular take into account the United Kingdom offshore fund rules contained in Part 8 of the Taxation (International and Other Provisions) Act Should the Company or any class of shares issued by the Company be regarded as being subject to the offshore fund rules this may have adverse tax consequences for certain UK resident Shareholders. In particular, the tax treatment of Shareholders on any return of cash to Shareholders will depend on the taxation legislation and practice in force at the relevant time. Tax law and practice can change frequently and there can be no guarantee that the discount control mechanisms set out in this document can be implemented in a way that is tax efficient for Shareholders. Potential investors are urged to consult their tax advisers with respect to their particular tax situations and the tax effect of an investment in the Company. Failure by the Company to maintain its non-irish tax resident status may subject the Company to additional taxes which may materially adversely affect the Company s business, results of operations and the value of shares The Investment Adviser and the Asset Manager are tax resident in Ireland. The Company intends to conduct its affairs to ensure that it will not be treated as Irish tax resident (or have a taxable presence in Ireland). There is a risk that the Company could be deemed Irish tax resident where it is managed and controlled in Ireland. As such, the location(s) in which the Board makes decisions on strategic and policy matters and significant business transactions will be important in determining and maintaining the non-irish tax residence of the Company. The Company also intends to monitor and actively manage the role and activities of the Investment Adviser and Asset Manager to minimise the risk of the services provided creating Irish tax residency or a taxable presence in Ireland for the Company. The EU Anti-Tax Avoidance Directive may result in less cashflow available to the Group The EU Council has implemented the EU Anti-Tax Avoidance Directive ( EU ATAD ), and the amending Directive ( EU ATAD 2 ). These directives seek to oblige all EU member states to introduce a number of anti-tax avoidance measures. Most of the measures contained in the EU ATAD are due to be implemented with effect from January 1, 2019, though certain measures may be deferred to 2024 in certain circumstances. The EU ATAD contemplates the introduction of a restriction on the deductibility of interest, measures in respect of certain hybrid transactions and instruments, an exit charge, a switch over rule, controlled foreign company rules as well as a general anti-avoidance rule. These measures could have an impact on the tax treatment of the Company s subsidiaries, depending on their jurisdiction of tax residence. EU list of non-cooperative tax jurisdictions On 5 December 2017 the EU Member States released their first agreed list of 17 non-cooperative tax jurisdictions as part of the EU s work to fight tax evasion and avoidance. The list aims to assess jurisdictions against agreed criteria for good governance, including in relation to tax transparency, fair taxation, the implementation of base erosion and profit shifting and substance requirements for zero-tax jurisdictions. The list was updated on: (i) 23 January 2018, when eight jurisdictions were removed from the list (following commitments made at a high political level to remedy EU concerns), and (ii) 13 March 2018, when three jurisdictions were removed, and three new jurisdictions were added, to the list. As at the date of this document, Guernsey is not on the EU common list of jurisdictions which have refused to engage with the EU or to address tax good governance shortcomings. At this stage it is unclear what the full implications of being on the common list will be, however, as a starting point (i) funds from the European Fund for Sustainable Development, the European Fund for Strategic Investment and the External Lending Mandate cannot be channelled through entities in countries on the common list (only direct investment in these countries (i.e. funding for projects on the ground) will be allowed, to preserve development and sustainability objectives); (ii) the list is referenced in other relevant legislative proposals (e.g. the public country-by-country reporting proposal includes stricter reporting requirements for 40

41 multinationals with activities in listed jurisdictions, and in the proposed transparency requirements for intermediaries a tax scheme routed through a listed country will be automatically reportable to tax authorities); and (iii) the European Commission has encouraged EU Member States to agree on coordinated sanctions to apply at a national level against the listed jurisdictions. There are also lists of jurisdictions who have agreed to commit to address various concerns by 2018 (the commitments list ), including Guernsey in relation to economic substance. Should Guernsey subsequently be placed on the common list, or if sanctions are imposed upon entities on the commitments list (or those who fail to meet their commitments), there is a risk that countermeasures could be applied against the listed countries. These could include measures such as increased monitoring and audits, withholding taxes, special documentation requirements and anti-abuse provisions. If countermeasures such as these were to be applied to any jurisdiction in which the Company is resident or operates there could be tax implications and/or additional compliance requirements for the structure which could reduce returns to investors in the Company or result in other adverse tax consequences. Withholding taxes on leases could result in less cash flow available to the Company In certain jurisdictions where the lessees of the Group s aircraft are located, rent may be subject to withholding taxes. Activities may be carried on by the Group that may be eligible for the benefits of various bilateral tax treaties. Such eligibility should in many cases mitigate withholding taxes on rental payments by lessees. Many of such treaties impose additional conditions on eligibility of the recipient of the rental payments for the benefits of such treaties. If these conditions are not satisfied, the Group may fail to be eligible for the benefits under such treaties. It is intended that most of the leases in respect of the Group s portfolio of aircraft will require the lessee to make additional payments to gross-up for such withholding taxes, but there can be no assurance that such protection will be available in all cases or that it will be provided in all future leases. The Group may be subject to taxation in jurisdictions in which any of the lessees of its aircraft are organised or by reason of the activities and operations of the lessees, which could result in less cash flow being available to the Group. The Company intends that it will not, by reason of the leases that the Group will enter into in respect of aircraft it acquires and activities incidental thereto or other anticipated activities, become subject to any material taxes in any of the jurisdictions in which any of the lessees of its aircraft are organised or operate under the present tax laws of such jurisdictions. However, no assurance can be given that the Group will not become subject to withholding or other taxes in these or other jurisdictions by reasons of changes in law, changes in where the lessees operate, re-leasing or sub-leasing of the aircraft, acquisition of additional aircraft, failure to qualify for treaty benefits or otherwise. In this regard the changes to be introduced to treaties under the Organisation for Economic Cooperation and Development Action Plan on Base Erosion and Profit Shifting Multilateral Instrument ( MLI ) could make accessing treaties more difficult. Changes under the MLI will include the insertion of a principal purposes test into most tax treaties which could disallow benefits under the treaty where the main purpose or one of the main purposes of the transaction is to obtain the benefits of the treaty. The Foreign Account Tax Compliance Act ( FATCA ) and other similar exchange of information regimes including the impact of the Organisation for Economic Co-operation and Development s Common Reporting Standard FATCA was enacted by the United States Congress in March 2010 and came into effect in 2013 (although implementation has been staggered). FATCA requires financial institutions to use enhanced due diligence procedures to identify U.S. Persons who have invested in either non-u.s. financial accounts or non-u.s. entities. Pursuant to FATCA, certain payments of (or attributable to) U.S.-source income, and (from 1 January 2019) the proceeds of sales of property that give rise to U.S.-source payments made to the Company, and (from the later of 1 January 2019 or the date of publication of certain final regulations) a portion of non-u.s.-source payments from certain non-u.s. financial institutions to the extent attributable to U.S.-source payments, will be subject to 30 per cent. withholding tax unless the Company agrees to certain reporting and withholding requirements, and certain Shareholders may themselves be subject to such withholding tax if they do not provide the Company with required information. 41

42 The Company intends to comply with Guernsey legislation implementing FATCA. As a result, Shareholders may be required to provide any information that the Company determines is necessary to allow the Company to satisfy its obligations under FATCA. However, under the intergovernmental agreement between the U.S. and Guernsey in relation to FATCA and Guernsey s implementation of that agreement, securities that are regularly traded on an established securities market, such as the London Stock Exchange s main market, are not considered financial accounts and are not subject to reporting. For these purposes, the Shares will be considered regularly traded if there is a meaningful volume of trading with respect to the Shares on an on-going basis. Notwithstanding the foregoing, a Share will not be considered regularly traded and will be considered a financial account if the holder of the Share (other than a financial institution acting as an intermediary) is registered as the holder of the Share on the Company s share register. Such Shareholder will be required to provide information to the Company to allow the Company to satisfy its obligations under FATCA, although it is expected that whilst a Share is held in uncertificated form through CREST, the holder of that Share will likely be a financial institution acting as an intermediary. Additionally, even if the Shares are considered regularly traded on an established securities market, Shareholders that own Shares through financial intermediaries may be required to provide information to such financial intermediaries in order to allow the financial intermediaries to satisfy their obligations under FATCA. Notwithstanding the foregoing, the relevant rules under FATCA may change and, even if the Shares are considered regularly traded on an established securities market, Shareholders may, in the future, be required to provide information to the Company in order to allow the Company to satisfy its obligations under FATCA. Failure by the Company to comply with FATCA, either pursuant to FATCA legislation or any applicable intergovernmental agreement could mean that the Company would become subject to a 30 per cent. withholding tax on certain U.S. source payments to the Company, which may have an adverse effect on the Company s performance. Guernsey, along with approximately 100 jurisdictions, has implemented the Organisation for Economic Co-operation and Development s Common Reporting Standard ( CRS ). Certain disclosure requirements will be imposed in respect of certain Shareholders in the Company falling within the scope of the CRS. As a result, Shareholders may be required to provide any information that the Company determines is necessary to allow the Company to satisfy its obligations under such measures. Shareholders that own the Shares through financial intermediaries may instead be required to provide information to such financial intermediaries in order to allow the financial intermediaries to satisfy their obligations under the CRS. The Company has not and will not register as an investment company under the U.S. Investment Company Act The Company is not, and does not intend to become, registered as an investment company under the U.S. Investment Company Act and related rules and regulations. The U.S. Investment Company Act provides certain protections to investors and imposes certain restrictions on companies that are registered as investment companies. As the Company is not so registered and does not plan to register, none of these protections or restrictions is or will be applicable to the Company. In addition, to avoid being required to register as an investment company under the U.S. Investment Company Act, the Board may, under the Articles and subject to certain conditions, compulsorily require the transfer of Shares held by a person to whom the sale or transfer of Shares may cause the Company to be classified as an investment company under the U.S. Investment Company Act. The assets of the Company could be deemed to be plan assets that are subject to the requirements of ERISA or Section 4975 of the U.S. Tax Code, which could restrain the Company from making certain investments, and result in excise taxes and liabilities Under the current United States Plan Asset Regulations, if interests held by Benefit Plan Investors are deemed to be significant within the meaning of the Plan Asset Regulations (broadly, if Benefit Plan Investors hold 25 per cent. or greater of any class of equity interest in the Company) then the assets of the Company may be deemed to be plan assets within the meaning of the Plan Asset Regulations. After the Initial Issue, the Company may be unable to monitor whether Benefit Plan Investors or any other investors acquire Shares and therefore, there can be no assurance that Benefit Plan Investors will never acquire Shares or that, if they do, the ownership of all Benefit Plan Investors will be below the 25 per cent. threshold discussed above or that the Company s assets will not otherwise constitute plan assets under the Plan Asset Regulations. If the 42

43 Company s assets were deemed to constitute plan assets within the meaning of the Plan Asset Regulations, certain transactions that the Company might enter into in the ordinary course of business and operation might constitute non-exempt prohibited transactions under the Employee Retirement Income Security Act of 1974, as amended ( ERISA ) or the U.S. Tax Code, resulting in excise taxes or other liabilities under ERISA or the U.S. Tax Code. In addition, any fiduciary of a Benefit Plan Investor or an employee benefit plan subject to Similar Law that is responsible for the benefit plan s investment in the Shares could be liable for any ERISA violations or violations of such Similar Law relating to the Company. Significant developments stemming from the recent Brexit vote and delivery of the Article 50 Notice in the United Kingdom could have a material adverse effect on the airline industry and on world financial markets generally A referendum was held on 23 June 2016 to decide whether the UK should remain in the EU. A vote was given in favour of the UK leaving the EU ( Brexit ) and Article 50 of the Treaty on European Union was triggered on 29 March The extent of the impact on the Company will depend in part on the nature of the arrangements that are put in place between the UK and the EU following the eventual Brexit and the extent to which the UK continues to apply laws that are based on EU legislation. The macroeconomic effect of an eventual Brexit on the value of investments is unknown. The UK s exit from the EU could also create significant uncertainty in the UK (and potentially global) financial markets, which may materially and adversely affect the performance of the Company, the Net Asset Value, the Company s earning and returns to Shareholders. It could also potentially make it more difficult for the Company to raise capital in the EU and/or increase the regulatory compliance burden on the Company. This could restrict the Company s future activities and thereby negatively affect returns. As such, it is not possible to state the impact that Brexit will have on the Company and its investments. The United Kingdom s exit from the EU could also potentially result in significantly increased restrictions on travel between Europe and the United Kingdom or the termination of open-skies agreements, which could lead to a significant reduction in the level of airline travel between mainland Europe and the United Kingdom. This may have an adverse effect on lessees, and the ability of the Company to lease its aircraft on favourable terms, which would in turn have an adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. The AIFM Directive may prevent the marketing of the Shares in the European Union, which may adversely affect liquidity in the Shares and the ability of Shareholders to realise their investment The Alternative Investment Fund Managers Directive (No. 2011/61/EU) (the AIFM Directive ) seeks to regulate alternative investment fund managers and imposes obligations on alternative investment fund managers in the EEA or who market shares in such funds to EEA investors. As such, the marketing of the Shares to EEA investors is restricted and will need to be undertaken in accordance with the relevant national private placement regimes of any EEA member states in which marketing takes place. The AIFM has filed a notification with the FCA and an application has been made to the Central Bank of Ireland pursuant to Article 42 of the AIFM Directive to market the Shares in the UK and Ireland under their respective national private placement regimes. Any regulatory changes arising from the AIFM Directive (or otherwise) that limits the Company s ability to market future issues of Shares may materially adversely affect the Company s ability to carry out its investment policy successfully and to achieve its investment objective, which may in turn have an adverse effect on the performance of the Company, the Net Asset Value, the Company s earnings and returns to Shareholders. 43

44 IMPORTANT INFORMATION GENERAL No person has been authorised by the Company to issue any advertisement or to give any information or to make any representations in connection with the offering or sale of Shares other than those contained in this document and, if issued, given or made, such advertisement, information or representation must not be relied upon as having been authorised by the Company, the AIFM, the Investment Adviser, Liberum or Davy. Without prejudice to the Company s obligations under the Prospectus Rules, the Listing Rules, the Disclosure Guidance and Transparency Rules and MAR, neither the delivery of this document nor any subscription for or purchase of Shares pursuant to the Initial Issue and/or the Placing Programme, under any circumstances, creates any implication that there has been no change in the affairs of the Company since, or that the information contained herein is correct at any time subsequent to, the date of this document. Prospective investors should not treat the contents of this document as advice relating to legal, taxation, investment or any other matters. Prospective investors should inform themselves as to: (a) the legal requirements within their own countries for the purchase, holding, transfer or other disposal of Shares; (b) any foreign exchange restrictions applicable to the purchase, holding, transfer or other disposal of Shares which they might encounter; and (c) the income and other tax consequences which may apply in their own countries as a result of the purchase, holding, transfer or other disposal of, or subscription for Shares. Prospective investors must rely upon their own legal advisers, accountants and other financial advisers as to legal, tax, investment or any other related matters concerning the Company and an investment in the Shares. This document should be read in its entirety before making any application for Shares. All Shareholders are entitled to the benefit of, and are bound by and are deemed to have notice of, the provisions of the Articles. This document does not constitute, and may not be used for the purposes of, an offer or solicitation to anyone in any jurisdiction: (i) in which such offer or solicitation is not authorised; or (ii) in which the person making such offer or invitation is not qualified to do so; or (iii) to any person to whom it is unlawful to make such offer or solicitation. The distribution of this document and the offering of Shares in certain jurisdictions may be restricted and accordingly persons into whose possession this document is received are required to inform themselves about and to observe such restrictions. GUERNSEY REGULATORY INFORMATION The Company is a registered closed-ended investment scheme registered pursuant to the POI Law and RCIS Rules. The Directors have taken all reasonable care to ensure that the facts stated in this document are true and accurate in all material respects, and that there are no other facts the omission of which would make misleading any statement in the document, whether of facts or of opinion. All the Directors accept responsibility accordingly. If you are in any doubt about the contents of this document you should consult your accountant, legal or professional adviser or financial adviser. Each of the Administrator, the Registrar and the Receiving Agent has certain responsibilities under the AML Legislation to verify the identity of investors. Failure to provide the necessary documentation may result in applications being rejected or in delays in the dispatch of documents under the Initial Issue or the Placing Programme. FOR THE ATTENTION OF UNITED STATES RESIDENTS The Shares have not been and will not be registered under the U.S. Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States and the Shares may not be offered, sold, exercised, resold, transferred or delivered, directly or indirectly, within the United States or to, or for the account or benefit of, U.S. Persons (as defined in Regulation S under the U.S. Securities Act), except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction in the United States. There will be no public offer of the Shares in the United States. The Shares are being offered or sold solely: 44

45 (i) outside the United States to non-u.s. Persons in offshore transactions in reliance on Regulation S; and (ii) in the United States only to QIBs, as defined in Rule 144A that are also QPs as defined in Section 2(a)(51) of the U.S. Investment Company Act, who deliver to the Company, Liberum and Davy a signed Investor Representation Letter, in transactions that are exempt from, or not subject to, the registration requirements of the U.S. Securities Act. The Company has not been and will not be registered under the U.S. Investment Company Act and investors will not be entitled to the benefits of the U.S. Investment Company Act. The Shares have not been approved or disapproved by the U.S. Securities and Exchange Commission, any state securities commission in the United States or any other U.S. regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of Shares or the accuracy or adequacy of this document. Any representation to the contrary is a criminal offence in the United States and any re-offer or resale of any of the Shares in the United States or to U.S. Persons may constitute a violation of U.S. law or regulation. Any person in the United States who obtains a copy of this document is requested to disregard it. FOR THE ATTENTION OF PROSPECTIVE INVESTORS IN CANADA, JAPAN, AUSTRALIA OR THE REPUBLIC OF SOUTH AFRICA The offer and sale of Shares has not been and will not be registered under the applicable securities laws of Canada, Japan, Australia or the Republic of South Africa. Subject to certain exemptions, the Shares may not be offered to or sold within Canada, Japan, Australia or the Republic of South Africa or to any national, resident or citizen of such territories. FOR THE ATTENTION OF PROSPECTIVE INVESTORS IN THE EUROPEAN ECONOMIC AREA In relation to each Relevant Member State which has implemented the Prospectus Directive, no Shares have been offered or will be offered pursuant to the Initial Issue or the Placing Programme to the public in that Relevant Member State prior to the publication of a prospectus in relation to the Shares which has been approved by the competent authority in that Relevant Member State, or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that offers of Shares to the public may be made at any time under the following exemptions under the Prospectus Directive, if they are implemented in that Relevant Member State: (a) (b) to any legal entity which is a qualified investor as defined in the Prospectus Directive; to fewer than 100, or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive (as defined below), 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) in such Relevant Member State; or (c) in any other circumstances falling within Article 3(2) of the Prospectus Directive or Article 1(3) or (subject to the Relevant Member State having implemented the provision) Article 3 of the Prospectus Regulation 2017, provided that no such offer of Shares shall result in a requirement for the publication of a document pursuant to Article 3 of the Prospectus Directive or any measure implementing the Prospectus Directive in a Relevant Member State and each person who initially acquires any Shares or to whom any offer is made under the Initial Placing or the Placing Programme will be deemed to have represented, acknowledged and agreed that it is a qualified investor within the meaning of Article 2(1)(e) of the Prospectus Directive. The expression an offer to the public in relation to any offer of Shares in any Relevant Member State means a communication in any form and by any means presenting sufficient information on the terms of the offer and any Shares to be offered so as to enable an investor to decide to purchase or subscribe for the Shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression Prospectus Directive means Directive 2003/71/EC (and the amendments thereto and related regulation, including Directive 2010/73/EU) (the 2010 PD Amending Directive ), to the extent implemented in the Relevant Member State and includes any relevant implementing measure in each Relevant Member State. In addition, Shares will only be offered to the extent that the Shares: (i) are permitted to be marketed into the relevant EEA jurisdiction pursuant to the AIFM Directive (if and as implemented 45

46 into local law); or (ii) can otherwise be lawfully offered or sold (including on the basis of an unsolicited request from a professional investor). NOTICE TO PROSPECTIVE INVESTORS IN GUERNSEY The Shares may only be promoted in or from within the Bailiwick of Guernsey by persons regulated by the Commission as licensees under the POI Law. Persons appointed by the Company and not licensed may not promote the Company in Guernsey to private investors and may only distribute and circulate any document relating to the Shares in Guernsey to persons regulated as licensees under the Protections of Investors (Bailiwick of Guernsey) Law, 1987 (as amended), the Banking Supervision (Bailiwick of Guernsey) Law, 1994, the Insurance Business (Bailiwick of Guernsey) Law, 2002 or the Regulation of Fiduciaries, Administration Business and Company Directors, etc. (Bailiwick of Guernsey) Law, 2000, and provided that the provisions of Section 29(1)(cc) of the POI Law are satisfied. Promotion of the Shares in Guernsey may not be made in any other way. NOTICE TO PROSPECTIVE INVESTORS IN JERSEY The circulation in Jersey of an offer of the Shares shall only be made with the consent of the Jersey Financial Services Commission pursuant to Article 8(2) of the Control of Borrowing (Jersey) Order 1958 as amended. The Jersey Financial Services Commission is protected by the Control of Borrowing (Jersey) Law 1947, as amended, against liability arising from the discharge of its functions under that law. NOTICE TO PROSPECTIVE INVESTORS IN THE REPUBLIC OF IRELAND Interests in the Company referenced in this document may not be offered or sold in Ireland and this document may not be distributed in Ireland other than: (a) to qualified investors within the meaning of the Prospectus (Directive 2003/71/EC) Regulations 2005 of Ireland (the Irish Prospectus Regulations ); or (b) in any other circumstances which, pursuant to Regulation 9 of the Irish Prospectus Regulations, do not require the publication by the Company of a prospectus. This document shall only be marketed to professional investors in Ireland, as defined in the European Union (Alternative Investment Fund Managers) Regulations 2013 (the Irish AIFMD Regulations ). This document shall not be marketed to retail investors in Ireland, as defined in the Irish AIFMD Regulations. Neither the Company nor investment in it has been authorised by the Central Bank of Ireland. This document does not, and shall not be deemed to, constitute an invitation to the public in Ireland to purchase interests in the Company. The offer for sale of interests in the Company shall not be made by any person in Ireland otherwise than in conformity with the provisions of the European Union (Markets in Financial Instruments) Regulations 2017 (as amended), the Irish AIFMD Regulations and any other law or enactment relating to the invitation or offer of shares or interests and in accordance with any codes, guidance or requirements imposed by the Central Bank of Ireland thereunder. The Company has notified the Central Bank of Ireland of its intention to market shares and other interests in the Company to professional investors in Ireland in accordance with Regulation 43 of the Irish AIFMD Regulations. NOTICE TO PROSPECTIVE INVESTORS IN OTHER JURISDICTIONS The distribution of this document in other jurisdictions may be restricted by law and therefore persons into whose possession this document comes should in inform themselves about and observe any such restrictions. INFORMATION TO DISTRIBUTORS Solely for the purposes of the product governance requirements contained within: (a) EU Directive 2014/65/EU on markets in financial instruments, as amended ( Directive 2014/65/EU ); (b) Articles 9 and 10 of Commission Delegated Directive (EU) 2017/593 supplementing Directive 2014/65/EU; and (c) local implementing measures (together, the MiFID II Product Governance Requirements ), and disclaiming all and any liability, whether arising in tort, contract or otherwise, 46

47 which any manufacturer (for the purposes of the MiFID II Product Governance Requirements) may otherwise have with respect thereto, the Shares have been subject to a product approval process, which has determined that the Ordinary Shares to be issued pursuant to the Initial Issue and any Shares which may be issued pursuant to any Subsequent Placing are: (i) compatible with an end target market of retail investors and investors who meet the criteria of professional clients and eligible counterparties, each as defined in Directive 2014/65/EU; and (ii) eligible for distribution through all distribution channels as are permitted by Directive 2014/65/EU (the Target Market Assessment ). Notwithstanding the Target Market Assessment, distributors should note that: the price of the Shares may decline and investors could lose all or part of their investment; the Shares offer no guaranteed income and no capital protection; and an investment in the Shares is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the Initial Issue and any Subsequent Placing. Furthermore, it is noted that, notwithstanding the Target Market Assessment, Liberum and Davy will only procure investors who meet the criteria of professional clients and eligible counterparties. For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of Directive 2014/65/EU; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to the Shares. Each distributor is responsible for undertaking its own target market assessment in respect of the Shares and determining appropriate distribution channels. PRIIPS REGULATION In accordance with the PRIIPs Regulation, the Investment Adviser has prepared a key information document in respect of the Ordinary Shares and, if issued, will prepare a Key Information Document in respect of the C Shares (the KID or KIDs ). The PRIIPs Regulation requires the Investment Adviser to ensure that the KIDs are made available to retail investors prior to them making an investment decision in respect of the Shares at Accordingly, if you are distributing Shares, it is your responsibility to ensure the relevant KID is provided to any relevant clients. The Investment Adviser is the only manufacturer of the Shares for the purposes of the PRIIPs Regulation and none of the Company, Davy nor Liberum is a manufacturer for these purposes. None of the Company, Davy nor Liberum makes any representation, express or implied, or accepts any responsibility whatsoever for the contents of the KIDs prepared by the Investment Adviser nor accepts any responsibility to update the contents of the KIDs in accordance with the PRIIPs Regulation, to undertake any review processes in relation thereto or to provide such KIDs to future distributors of Shares. Each of the Company, Davy, Liberum and their respective affiliates accordingly disclaim all and any liability whether arising in tort or contract or otherwise which it or they might have in respect of the KIDs or any other key information documents prepared by the Investment Adviser from time to time. Prospective investors should note that the procedure for calculating the risks, costs and potential returns in the KIDs are prescribed by laws. The figures in the KIDs may not reflect actual returns for the relevant class of Shares and anticipated performance returns cannot be guaranteed. DATA PROTECTION The information that a prospective investor in the Company provides in documents in relation to a subscription for Ordinary Shares and/or C Shares or subsequently by whatever means which relates to the prospective investor (if it is an individual) or a third party individual ( personal data ) will be held and processed by the Company (and any third party in Guernsey or the United Kingdom to whom it may delegate certain administrative functions in relation to the Company) in compliance with: (a) the relevant DP Legislation and any related regulatory requirements applicable in Guernsey and/or the United Kingdom as appropriate; and (b) the Company s privacy notice, a copy of which is available for consultation on the Company s website at ( Privacy Notice ) (and if applicable any other third party delegate s privacy notice as set out in the Company s Privacy Notice). 47

48 Without limitation to the foregoing, each prospective investor acknowledges that it has been informed that such information will be held and processed by the Company (or any third party, functionary, or agent appointed by the Company, which will include, without limitation, the Registrar) in accordance with and for the purposes set out in the Company s Privacy Notice which include: * verifying the identity of the prospective investor to comply with statutory and regulatory requirements in relation to anti-money laundering procedures; * carrying on the business of the Company and the administering of interests in the Company; and * meeting the legal, regulatory, reporting and/or financial obligations of the Company in Guernsey, the United Kingdom or elsewhere or any third party functionary or agent appointed by the Company. The foregoing processing of personal data is required in order to perform the contract with the prospective investor, to comply with the legal and regulatory obligations of the Company or otherwise is necessary for the legitimate interests of the Company. Where necessary to fulfil the purposes set out above and in the Company s Privacy Notice, the Company (or any third party, functionary, or agent appointed by the Company, which may include, without limitation, the Registrar) will: * disclose personal data to third party service providers, affiliates, agents or functionaries appointed by the Company or its agents to operate and/or administer the Company; and * transfer personal data outside of Guernsey to countries or territories which do not offer the same level of protection for the rights and freedoms of prospective investors as Guernsey, provided that suitable safeguards are in place for the protection of such personal data, details of which shall be set out in the Privacy Notice or otherwise notified from time to time. Prospective investors are responsible for informing any third party individual to whom the personal data relates of the disclosure and use of such data in accordance with these provisions. Individuals have certain rights in relation to their personal data; such rights and the manner in which they can be exercised are set out in the Company s Privacy Notice. PRESENTATION OF FINANCIAL INFORMATION The Company is newly formed and as at the date of this document has not commenced operations. Therefore, no financial statements have been prepared as at the date of this document. All future financial information for the Company will be prepared under IFRS. PRESENTATION OF MARKET AND OTHER DATA Market and economic data used throughout this document is sourced from various independent sources. The Company and the Directors confirm that such data has been accurately reproduced and, so far as they are aware and are able to ascertain from information published from such sources, no facts have been omitted which would render the reproduced information inaccurate or misleading. CURRENCY PRESENTATION Unless otherwise indicated, all references in this document to US$, USD or U.S. Dollars are to the lawful currency of the United States, all references in this document to Euro or e are to the lawful currency of the EU and all references in this document to, pence or GBP are to the lawful currency of the UK. REFERENCE TO CREDIT RATINGS (REGULATION (EC) NO 1060/2008 The credit rating agencies providing ratings to securities referred to in this document (if any) are each established in the EU and registered under Regulation (EC) No. 1060/2008 (as amended). As such, each such credit rating agency is included in the list of credit rating agencies published by the ESMA on its website in accordance with the CRA Regulations. DEFINITIONS A list of defined terms used in this document is set out at pages 144 to

49 GOVERNING LAW Unless otherwise stated, statements made in this document are based on the law and practice currently in force in England and Wales and/or the law and practice of Guernsey and are subject to changes therein. FORWARD LOOKING STATEMENTS This document contains forward looking statements, including, without limitation, statements containing the words believes, estimates, anticipates, expects, intends, may, might, will or should or, in each case, their negative or other variations or similar expressions. Such forward looking statements involve unknown risks, uncertainties and other factors which may cause the actual results, financial condition, performance or achievement of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Given these uncertainties, prospective investors are cautioned not to place any undue reliance on such forward looking statements. These forward looking statements speak only as at the date of this document. Subject to its legal and regulatory obligations (including under the Prospectus Rules), the Company expressly disclaims any obligations to update or revise any forward looking statement contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based unless required to do so by law or any appropriate regulatory authority, including FSMA, the Listing Rules, the Prospectus Rules, the Disclosure Guidance and Transparency Rules and MAR. Nothing in the preceding two paragraphs or otherwise in this document should be taken as limiting the working capital statement in paragraph 8 of Part 7 of this document. 49

50 EXPECTED TIMETABLE Expected Initial Issue Timetable Publication of this document and Initial Placing and Offer for Subscription open Latest time and date for applications under the Offer for Subscription Latest time and date for receipt of commitments under the Initial Placing 2 November p.m. on 15 November p.m. on 16 November 2018 Announcement of the results of the Initial Issue 8.00 a.m. on 19 November 2018 Initial Admission and dealings in the Ordinary Shares issued pursuant to the Initial Issue commence Crediting of CREST stock accounts in respect of the Ordinary Shares issued pursuant to the Initial Issue Where applicable, definitive share certificates despatched in respect of the Ordinary Shares 8.00 a.m. on 21 November November 2018 approximately two weeks following Initial Admission Expected Placing Programme Timetable Placing Programme opens 21 November 2018 Announcement of the results of each Subsequent Placing Admission and crediting of CREST stock accounts in respect of each Subsequent Placing Share certificates despatched in respect of Shares issued pursuant to each Subsequent Placing (if applicable) Placing Programme closes and last date for Shares to be issued pursuant to the Placing Programme as soon as practicable after the closing of each Subsequent Placing pursuant to the Placing Programme as soon as practicable after the closing of each Subsequent Placing pursuant to the Placing Programme approximately one week after the Admission of Shares pursuant to a Subsequent Placing 1 November 2019 The dates and times specified are subject to change subject to agreement between the Company and Liberum. All references to times in this document are to London time unless otherwise stated. Any changes to the expected timetable will be notified by the Company via a Regulatory Information Service. 50

51 INITIAL ISSUE AND PLACING PROGRAMME STATISTICS Initial Issue Statistics Issue Price Initial Gross Proceeds* Estimated Net Proceeds* Estimated Net Asset Value per Ordinary Share at Initial Admission* US$1.00 US$250 million US$245 million US$0.98 * Assuming Initial Gross Proceeds of US$250 million. The Company is targeting Initial Gross Proceeds of US$250 million subject to a maximum of US$300 million. The Minimum Gross Proceeds are US$100 million. The number of Ordinary Shares to be issued pursuant to the Initial Issue, and therefore the Initial Gross Proceeds and the Net Proceeds, is not known as at the date of this document but will be notified by the Company via a Regulatory Information Service prior to Initial Admission. If the Initial Issue does not proceed (because the Minimum Gross Proceeds (or such lesser amount as the Company and Liberum agree) are not raised or otherwise), subscription monies received will be returned without interest at the risk of the applicant to the applicant from whom the money was received, within 14 calendar days. Placing Programme Statistics Maximum size of the Placing Programme Minimum Placing Programme Price 300 million Shares in aggregate in respect of the Ordinary Shares, Net Asset Value per Ordinary Share plus a premium intended to at least cover the costs and expenses of the relevant Subsequent Placing (including, without limitation, any placing commissions) or US$1.00 per C Share for any issue of C Shares 51

52 DEALING CODES The dealing codes for the Ordinary Shares will be as follows: ISIN SEDOL Ticker GG00BGHFCV48 BGHFCV4 SALF The dealing codes for the C Shares will be as follows: ISIN SEDOL Ticker GG00BGHFCW54 BGHFCW5 SALC LEI DIPZ3A7P6J1W69 52

53 DIRECTORS, MANAGEMENT AND ADVISERS Directors (all non-executive) Registered Office Investment Adviser AIFM Asset Manager Administrator, Company Secretary and Custodian Sponsor, Joint Financial Adviser and Joint Placing Agent Joint Financial Adviser and Joint Placing Agent Solicitors to the Company as to English Law Legal Advisor to the Company as to U.S.Law Legal Advisor to the Company as to Guernsey Law Luke Cairns (Chairman) Bertrand Grabowski Jason Sherwill all of the registered office below: BNP Paribas House St Julian s Avenue St Peter Port Guernsey GY1 1WA Sirius Aviation Capital Holdings Limited Clarendon House 2 Church Street Hamilton HM 11 Bermuda Carne Global AIFM Solutions (C.I.) Limited Channel House Green Street St Helier Jersey JE2 4UH Sirius Aircraft Management Limited Riverside One Sir John Rogerson s Quay Dublin 2 BNP Paribas Securities Services S.C.A. (Guernsey Branch) BNP Paribas House St Julian s Avenue St Peter Port Guernsey GY1 1WA Liberum Capital Limited Ropemaker Place 25 Ropemaker Street London EC2Y 9LY J&E Davy Davy House 49 Dawson Street Dublin 2 Ireland Gowling WLG (UK) LLP 4 More London Riverside London SE1 2AU Travers Smith LLP 10 Snow Hill London EC1A 2AL Ogier (Guernsey) LLP Redwood House St. Julian s Avenue St Peter Port Guernsey GY1 1WA 53

54 Solicitors to the Sponsor, Joint Financial Advisers and Joint Placing Agents Registrar Receiving Agent Reporting Accountant Auditor Principal Bankers Stephenson Harwood LLP 1 Finsbury Circus London EC2M 7SH United Kingdom Computershare Investor Services (Guernsey) Limited 1st Floor Tudor House St Peter Port Guernsey GY1 1DB Computershare Investor Services plc The Pavilions Bridgwater Road Bristol BS13 8AE KPMG Ireland 1 Stokes Place St. Stephen s Green Dublin 1 Ireland KPMG Channel Islands Limited Glategny Court Glategny Esplanade St Peter Port Guernsey GY1 1WR BNP Paribas Securities Services S.C.A. (Guernsey Branch) BNP Paribas House St Julian s Avenue St Peter Port Guernsey GY1 1WA 54

55 PART 1 INFORMATION ON THE COMPANY 1. INTRODUCTION The Company was incorporated with limited liability in Guernsey under the Companies Law on 27 September 2018 as a closed-ended company limited by shares. The Company s investment objective is to provide investors with an attractive level of regular income and capital returns through investing in used aircraft. The Company is targeting an issue of 250 million Ordinary Shares pursuant to the Initial Issue comprising the Initial Placing and the Offer for Subscription to invest in accordance with the Company s investment objective and policy. The Company has an independent board of non-executive directors and has appointed Carne Global AIFM Solutions (C.I.) Limited as its AIFM. Subject to the overall supervision and control of the Directors, the AIFM will be responsible for the portfolio and risk management of the Group s assets. The Company has appointed Sirius Aviation Capital Holdings Limited to provide investment advice in respect of the Group s portfolio of aircraft. Further information on the AIFM and the Investment Adviser and its investment team is set out in Part 3 of this document. The Investment Adviser was recently established to advise on the acquisition and leasing of aircraft, in particular, by funds operating in that sector. The individuals comprising the senior management team within the Investment Adviser collectively have over 82 years experience in the aviation industry, holding both executive and non-executive positions at airlines, aircraft leasing operators and companies operating in the aircraft asset backed securities market. The team is supported by a chief financial officer with over 25 years of capital markets experience. Applications will be made to the UK Listing Authority and to the London Stock Exchange for all of the Ordinary Shares (issued and to be issued pursuant to the Initial Issue) to be admitted to the premium segment of the Official List and to trading on the premium segment of the London Stock Exchange s main market. It is expected that Initial Admission will become effective, and that dealings in the Ordinary Shares issued pursuant to the Initial Issue will commence, at 8.00 a.m. on 21 November INVESTMENT OBJECTIVE The Company s investment objective is to provide investors with an attractive level of regular income and capital returns through investing in used aircraft. 3. INVESTMENT POLICY In order to achieve the investment objective, the Group will acquire, lease and, where appropriate, sell aircraft. The Group will at all times invest and manage its assets in a manner which is consistent with the objective of diversifying investment risk across its portfolio. The Company may invest directly or through holdings in special purpose vehicles. The Company may from time to time invest through vehicles which are not, directly or indirectly, wholly owned by it. In such circumstances, the Company will seek to secure controlling rights over such vehicles through shareholder agreements or other legal arrangements. Investment restrictions The Group will observe the following investment restrictions calculated, where relevant, at the point of investment: * single-aisle aircraft will make up at least 80 per cent. of Gross Asset Value; * no more than 20 per cent. of the Group s portfolio of aircraft by Gross Asset Value will be exposed to one lessee; * no more than 20 per cent. of the Group s portfolio of aircraft by Gross Asset Value will be exposed to lessees domiciled in a single country; * the maximum weighted average fleet age of the Group s portfolio of aircraft by Net Book Value shall be 15 years; * the Group will not acquire an aircraft with a remaining lease of less than 24 months; 55

56 * no more than 20 per cent. of the Group s portfolio of aircraft by Net Book Value will be leased under non U.S. Dollar leases; and * the Group will not invest in other closed ended investment companies. Borrowing and gearing policy The Group will seek to use gearing to enhance equity returns. The aggregate level of borrowings will not exceed 55 per cent. of Gross Asset Value, calculated at the time of draw down but is typically expected to be around 50 per cent. of Gross Asset Value. Debt will be secured at asset level, whether over a particular portfolio of aircraft or a holding entity or entities for a particular portfolio of aircraft, without recourse to the Company. Short term borrowing may be utilised at the Company level for working capital purposes and to fund the market purchases of Shares. Hedging and derivatives The Group will not employ derivatives for investment purposes. Derivatives may however be used for efficient portfolio management, including for interest rate and currency hedging. Cash management The Company will hold cash on deposit from time to time, which may be invested in cash or cash equivalents, money market instruments, bonds, commercial paper or other debt obligations with banks or other counterparties, in line with prudent cash management guidelines agreed by the Board and the AIFM. Changes to the investment policy Any material change to the Company s investment policy set out above will require the approval of Shareholders by way of an ordinary resolution at a general meeting and the approval of the UK Listing Authority. In the event of a breach of the investment policy set out above, the Company, upon the Board becoming aware of the same, and if the Board considers the breach to be material, will make a notification to a Regulatory Information Service. 4. INVESTMENT OPPORTUNITY The Board, as advised by the AIFM and the Investment Adviser, believes that single-aisle, mid-life aircraft are an attractive asset class. Single-aisle aircraft can be more economical and have a broader market than twin-aisle aircraft. Mid-life aircraft, typically between 8 to 15 years old, can be acquired at attractive prices with good yields. Other key features of this asset class which, in the Board s view, make this an attractive investment opportunity are as follows: * Steady supply of assets there is a liquid market for single-aisle, used aircraft as traditional lessors need to dispose of older aircraft to, inter alia, maintain the average age profile of their fleets. This leads to a steady supply of suitably diverse portfolios in terms of lessees and lease maturities from this source. For example, the major publicly quoted lessors have announced that they have sold in excess of 300 aircraft in 2017 for an aggregate value of c.us$8 billion; * Demand for lessees there can be significant cost savings in leasing used single-aisle aircraft compared to new aircraft. The growing demand for used aircraft has contributed to a liquid secondary leasing market with large airline operators such as International Airlines Group and Deutsche Lufthansa AG active operators of these older aircraft; * Engine Values Underpin Future Aircraft Values engine manufacturers have a de facto monopoly on spare parts and increase prices annually which in turn underpins the value of the engines and the associated aircraft types; and * Maintenance Profits the effective management of the aircraft maintenance compensation relating to the maintenance condition of the airframe and engines can deliver enhanced returns. Please see Part 2 (The Global Aviation Market, The Investment Opportunity and The Investment Process) of this document for further details. 56

57 5. PIPELINE The AIFM and the Investment Adviser are currently assessing a pipeline of investment opportunities which, subject to the completion of satisfactory due diligence, the Company would seek to acquire as soon as practicable following Initial Admission. The pipeline consists of portfolios of aircraft which meet the Company s investment policy. Given the pipeline of opportunities the Board, as advised by the Investment Adviser and the AIFM, believes that the Net Proceeds will be substantially invested within 6 months of Initial Admission DIVIDEND POLICY AND TARGET RETURNS The Company intends to pay dividends on a quarterly basis with dividends typically declared in respect of the quarterly periods ending 31 March, 30 June, 30 September and 31 December and paid in May, August, November and February respectively. The first interim dividend is expected to be declared in respect of the period to 31 March 2019 and paid in May The Company will target an annualised dividend yield of 6 per cent. (on the Issue Price) in respect of the Company s first financial period to 31 December 2019, rising to a target dividend yield of 8 per cent. (on the Issue Price) in respect of each financial year thereafter. The Company will target an IRR of 10 per cent. per annum (net of expenses and fees) on a NAV basis on the Issue Price over the long term. Investors should note that the target dividend yield and target IRR are targets only and not profit forecasts and there can be no assurance that either of such targets will be met. Although there is no current expectation that they will exercise such power, the Directors will have the power to pay dividends in relation to the C Shares (if issued) in the event that the assets that are attributable to the C Shares generate material income while the C Shares are in issue. 7. NET ASSET VALUE Publication of Net Asset Value per Share The unaudited Net Asset Value will be calculated in U.S. Dollars by the Administrator on a quarterly basis, as described below and on the basis of information provided by the AIFM and the Investment Adviser and will then be presented to the Board for approval and adoption. The Net Asset Value per Ordinary Share (and Net Asset Value per C Share, where applicable), calculated by dividing the relevant Net Asset Value by the number of Shares in issue of the relevant class (excluding Shares held in treasury), will be published both on a cum-income and ex-income basis, via a Regulatory Information Service and made available on the Company s website as soon as practicable thereafter. Valuation Methodology The Net Asset Value for each class of Shares is the value of all assets of the Company attributable to that class of Shares less its share of liabilities to creditors, each determined in accordance with IFRS and also reflecting the valuations of the Group s aircraft by the Company s independent expert valuers in the manner set out in the paragraph below. Comprehensive valuations of the Group s aircraft will be conducted annually at the end of each financial year. The Company will engage three independent expert valuers and will take into account the average of the three valuations provided. The Company expects that, in performing their valuations, the independent expert valuers will have regard to factors such as the condition of the assets, the prevailing market conditions (which may impact on the resale value of the assets), the leases of the aircraft (including the scheduled rental payments and remaining scheduled term of the leases) and the creditworthiness of the relevant lessees. Accordingly, any early termination of one or more leases may impact on the valuation of the assets. The above list of factors is illustrative only and is not intended to be exhaustive or binding on the Company or any independent expert valuers. Suspension of the calculation of the Net Asset Value The Directors may temporarily suspend the calculation of the Net Asset Value and the publication of the Net Asset Value per Share during a period when, in the opinion of the Directors: 1 The Company has not entered into a binding contractual commitment in respect of the acquisition of any aircraft and there can be no assurance that any of the pipeline of aircraft referred to above will be acquired or that the Net Proceeds will be substantially invested within six months of Admission. 57

58 * there are political, economic, military or monetary events or any circumstances outside the control, responsibility or power of the Board, and disposal or valuation of investments of the Company or other transactions in the ordinary course of the Company s business is not reasonably practicable without this being materially detrimental to the interests of Shareholders or if, in the opinion of the Board, the Net Asset Value cannot be fairly calculated; * there is a breakdown of the means of communication normally employed in determining the calculation of the Net Asset Value; or * it is not reasonably practicable to determine the Net Asset Value on an accurate and timely basis. Any suspension in the calculation of the Net Asset Value will be notified via a Regulatory Information Service as soon as practicable after any such suspension occurs, though the Directors do not currently envisage any circumstances in which valuations will be suspended. 8. REPORTS, ACCOUNTS AND MEETINGS The audited accounts of the Company will be prepared in U.S. Dollars under IFRS. The Company s annual report and accounts will be prepared up to 31 December each year, with the first accounting period of the Company ending on 31 December It is expected that copies of the report and accounts will be published by the end of April each year and copies sent to Shareholders. The Company will also publish an unaudited half-yearly report covering the six months to 30 June each year, which is expected to be published within the following three months. The first financial report and accounts that Shareholders will receive will be the half-yearly report for the period ending on 30 June 2019 (covering the period from incorporation of the Company). The financial report and accounts and unaudited half-yearly report once published will be available for inspection from the Company Secretary at the Company s registered office and on the Company s website ( All general meetings will be held in Guernsey. The Company will hold its first annual general meeting by the end of June 2019 and will hold an annual general meeting each year thereafter. Other general meetings may be convened from time to time by the Directors by sending notices to Shareholders. 9. SHARE CAPITAL MANAGEMENT The Board intends to seek to limit, as far as practicable, the extent to which the market price of the Ordinary Shares diverges from the Net Asset Value per Ordinary Share. Premium Management Once the proceeds of the Initial Issue have been fully invested, the Company intends to implement the Placing Programme. The Directors have authority to issue, in aggregate, up to 300 million Shares pursuant to the Placing Programme. Shareholders pre-emption rights over this unissued share capital have been disapplied so that the Directors will not be obliged to offer any new Shares under the Placing Programme to Shareholders pro rata to their existing holdings; this ensures that the Company retains full flexibility, following Initial Admission, in issuing new Shares to investors. The minimum price at which Ordinary Shares may be issued pursuant to this authority is the prevailing published Net Asset Value per Ordinary Share at the time of issue plus a premium intended to at least cover the costs and expenses of the relevant Subsequent Placing (including, without limitation, any placing commissions). C Shares (if any) issued pursuant to this authority will be issued at US$1.00 per C Share. Further details of the Placing Programme are set out in Part 5 of this document. Investors should note that the issuance of new Shares is entirely at the discretion of the Board, and no expectation or reliance should be placed on such discretion being exercised on any one or more occasions or as to the proportion of new Shares that may be issued. Life of the Company In accordance with the Articles, the Directors are required to propose an ordinary resolution at the annual general meeting in 2023 that the Company continues its business as presently constituted (the Initial Continuation Resolution ). In addition, the Articles provide that the Directors propose 58

59 an ordinary resolution that the Company continues its business as presently constituted at each fifth annual general meeting thereafter (a Continuation Resolution ). If the Initial Continuation Resolution or any Continuation Resolution is not passed, the Directors will put forward proposals for the reconstruction or reorganisation of the Company to Shareholders for their approval as soon as reasonably practicable following the date on which the Initial Continuation Resolution or any Continuation Resolution (as the case may be) is not passed. These proposals may or may not involve winding up the Company and, accordingly, failure to pass the Initial Continuation Resolution or any Continuation Resolution will not necessarily result in the winding up of the Company. Discount Management Repurchase of Ordinary Shares The Directors will consider repurchasing Ordinary Shares in the market if they believe it to be in Shareholders interests and as a means of correcting any imbalance between the supply of and demand for the Ordinary Shares. A special resolution has been passed granting the Directors authority to repurchase up to per cent. of the Company s issued Ordinary Share capital immediately following Initial Admission during the period expiring on the conclusion of the Company s first annual general meeting. Renewal of this buy-back authority will be sought at each annual general meeting of the Company or more frequently if required. Ordinary Shares purchased by the Company may be held in treasury or cancelled. The Company will only make such repurchases through the market at prices (after allowing for costs) below the relevant prevailing NAV per Ordinary Share under the guidelines established from time to time by the Board. The Directors will have regard to what they believe to be in the best interests of Shareholders and in compliance with the Articles, the Listing Rules, Companies Law and all other applicable legal and regulatory requirements. Under the Listing Rules, the maximum price (exclusive of expenses) which may be paid for an Ordinary Share must not be more than the higher of: (i) 5 per cent. above the average of the mid-market values of the Ordinary Share for the five Business Days before the repurchase is made; or (ii) the higher of the price of the last independent trade and the highest current independent bid for Ordinary Shares. Shareholders should note that the purchase of Ordinary Shares by the Company is at the absolute discretion of the Directors and is subject to the working capital requirements of the Company and the amount of cash available to the Company to fund such purchases. Accordingly, no expectation or reliance should be placed on the Directors exercising such discretion on any one or more occasions. The Company does not have (and does not intend to seek) any authority to buy back C Shares. Accordingly, the Directors will not be able to operate any discount management policy through the use of C Share buy-backs. Treasury Shares Any Ordinary Shares repurchased by the Company may be held in treasury. The Companies Law allows companies to hold shares acquired by way of market purchase as treasury shares, rather than having to cancel them. These shares may be subsequently cancelled or sold for cash. This would give the Company the ability to reissue Ordinary Shares quickly and cost efficiently, thereby improving liquidity and providing the Company with additional flexibility in the management of its capital base. No Ordinary Shares will be sold from treasury at a price less than the Net Asset Value per Ordinary Share at the time of sale unless they are first offered pro rata to existing Shareholders. 10. C SHARES If there is sufficient demand from potential investors at any time following Initial Admission, the Company may seek to raise further funds through the issue of C Shares pursuant to the Placing Programme. No C Shares will be issued pursuant to the Initial Issue. The issue of C Shares is designed to overcome the potential disadvantages for both existing and new investors, which could arise out of a conventional fixed price issue of further Ordinary Shares for cash. In particular: 59

60 * the C Shares will not convert into Ordinary Shares until at least 85 per cent. of the net proceeds of the C Share issue have been invested in accordance with the Company s investment policy (or, if earlier, 9 months after the date of their issue); * the assets representing the net proceeds of a C Share issue would be accounted for and managed as a distinct pool of assets until their conversion date. By accounting for the net proceeds of a C Share issue separately, holders of Ordinary Shares will not participate in a portfolio containing a substantial amount of un-invested cash before the conversion date; * the basis on which the C Shares would convert into Ordinary Shares is such that the number of Ordinary Shares to which holders of C Shares would become entitled will reflect the relative net asset values per share of the assets attributable to the C Shares and the Ordinary Shares. As a result, the Net Asset Value per Ordinary Share can be expected to be unchanged by the issue and conversion of any C Shares; and * the Net Asset Value per Ordinary Share would not be diluted by the expenses of the C Share issue, which would be borne by the C Share pool. The Articles contain the C Share rights, full details of which are set out in paragraph 4.21 of Part 7 of this document. The Directors have the authority to issue C Shares as set out in paragraph 9 above. 11. THE TAKEOVER CODE The Takeover Code will apply to the Company from Initial Admission. Given the existence of the proposed buyback powers described in the paragraphs above, there are certain considerations that Shareholders should be aware of with regard to the Takeover Code. Under Rule 9 of the Takeover Code, any person who acquires shares which, taken together with shares already held by him or shares held or acquired by persons acting in concert with him, carry 30 per cent. or more of the voting rights of a company which is subject to the Takeover Code, is normally required to make a general offer to all the remaining shareholders to acquire their shares. Similarly, when any person or persons acting in concert already hold more than 30 per cent. but not more than 50 per cent. of the voting rights of such company, a general offer will normally be required if any further shares increasing that person s percentage of voting rights are acquired. Under Rule 37 of the Takeover Code when a company purchases its own voting shares, a resulting increase in the percentage of voting rights carried by the shareholdings of any person or group of persons acting in concert will be treated as an acquisition for the purposes of Rule 9 of the Takeover Code. A shareholder who is neither a director nor acting in concert with a director will not normally incur an obligation to make an offer under Rule 9 of the Takeover Code in these circumstances. However, under note 2 to Rule 37 of the Takeover Code, where a shareholder has acquired shares at a time when he had reason to believe that a purchase by the company of its own voting shares would take place, then an obligation to make a mandatory bid under Rule 9 of the Takeover Code may arise. The proposed buyback powers could have implications under Rule 9 of the Takeover Code for Shareholders with significant shareholdings. Prior to the Board implementing any share buyback the Board will seek to identify any Shareholders who they are aware may be deemed to be acting in concert under note 1 of Rule 37 of the Takeover Code and will seek an appropriate waiver in accordance with note 2 of Rule 37. However, neither the Company, nor any of the Directors, nor the AIFM, nor the Investment Adviser will incur any liability to any Shareholder(s) if they fail to identify the possibility of a mandatory offer arising or, if having identified such a possibility, they fail to notify the relevant Shareholder(s) or if the relevant Shareholder(s) fail(s) to take appropriate action. 12. THE INITIAL ISSUE AND THE PLACING PROGRAMME The Initial Issue The target size of the Initial Issue is US$250 million (before expenses). The total number of Ordinary Shares to be issued pursuant to the Initial Issue, and therefore the Initial Gross Proceeds, are not known as at the date of this document but will be notified by the Company via a Regulatory Information Service announcement prior to Initial Admission. 60

61 Liberum and Davy have agreed to use their respective reasonable endeavours to procure Placees pursuant to the Initial Placing for Ordinary Shares at the Issue Price on the terms and subject to the conditions set out in the Placing and Offer Agreement and this document. The Company will make an offer of Ordinary Shares pursuant to the Offer for Subscription at the Issue Price, subject to the terms and conditions of the Offer for Subscription set out in this document. These terms and conditions should be read carefully before an application is made. Investors should consult their independent financial adviser if they are in any doubt about the contents of this document or the acquisition of Ordinary Shares. Further details about the Initial Issue are set out in Part 4 of this document. The Placing Programme In addition to any Ordinary Shares issued under the Initial Issue, the Company has authority to issue up to 300 million further Ordinary Shares and/or C Shares in aggregate pursuant to the Placing Programme. Any Ordinary Shares issued pursuant to the Placing Programme will be issued at a price calculated by reference to the prevailing published Net Asset Value per Ordinary Share at the time of issue together with a premium intended to at least cover the costs and expenses of the relevant Subsequent Placing (including, without limitation, any placing commissions). Any C Shares issued pursuant to the Placing Programme will be issued at a fixed price of US$1.00 per C Share. Ordinary Shares and/or C Shares issued under the Placing Programme may be issued under this document provided that it is updated by a supplementary prospectus (if required) under section 87G of FSMA. Further details about the Placing Programme are set out in Part 5 of this document. 13. TAXATION Potential investors are referred to Part 6 of this document for details of the taxation of the Company and Shareholders in Guernsey and the UK. Investors who are in any doubt as to their tax position or who are subject to tax in jurisdictions other than Guernsey and the UK are strongly advised to consult their own professional advisers immediately. 14. DISCLOSURE OBLIGATIONS The provisions of Chapter 5 of the Disclosure Guidance and Transparency Rules (as amended from time to time) ( DTR 5 ) of the Financial Conduct Authority Handbook apply to the Company on the basis that the Company is a non-uk issuer, as such term is defined in DTR 5. As such, a person is required to notify the Company of the percentage of voting rights it holds as a holder of Ordinary Shares and/or C Shares or holds or is deemed to hold through the direct or indirect holding of financial instruments falling within DTR 5 if, as a result of an acquisition or disposal of Ordinary Shares and/or C Shares (or financial instruments), the percentage of voting rights reaches, exceeds or falls below the relevant percentage thresholds being, in the case of a non-uk issuer, 5, 10, 15, 20, 25, 30, 50 and 75 per cent. However, pursuant to the Articles, DTR 5 is deemed to apply to the Company as though the Company were a UK issuer as such term is defined by DTR 5. As such, the relevant percentage thresholds that apply to the Company are 3, 4, 5, 6, 7, 8, 9, 10 per cent. and each 1 per cent. threshold thereafter up to 100 per cent., notwithstanding that in the absence of those provisions of the Articles such thresholds would not apply to the Company. 15. RISK FACTORS The Company s performance is dependent on many factors and potential investors should read the whole of this document and in particular the section entitled Risk Factors on pages 20 to 43 of this document. 16. DISTRIBUTION TO RETAIL INVESTORS AND MiFID II The Company notes the rules of the FCA on the promotion of non-mainstream pooled investments. The Company intends to conduct its affairs, so that the Shares will be excluded securities under the FCA s conduct of business sourcebook. This is on the basis that the Company, which is resident outside the EEA, would qualify for approval as an investment trust by the Commissioners for HMRC under sections 1158 and 1159 of the Corporation Tax Act 2010 if resident and listed in 61

62 the United Kingdom. Therefore, the Shares will not amount to non-mainstream pooled investments. Accordingly, promotion of the Shares will not be subject to the FCA s restriction on promotion of non-mainstream pooled investments. The Company intends to conduct its affairs so that its Shares can be recommended by financial advisers to retail investors in accordance with the rules on the distribution of financial instruments under the Markets in Financial Instruments Directive II ( MiFID II ). The Directors consider that the requirements of Article 57 of the MiFID II delegated regulation of 25 April 2016 will be met in relation to the Shares and that, accordingly, the Shares should be considered non-complex for the purposes of MiFID II. 62

63 PART 2 THE GLOBAL AVIATION MARKET, THE INVESTMENT OPPORTUNITY AND THE INVESTMENT PROCESS 1 BACKGROUND TO THE GLOBAL AVIATION MARKET AND THE INVESTMENT OPPORTUNITY Introduction Aviation is one of the largest sectors in the world economy and is an important part of global infrastructure. The world s airlines carry over three billion passengers a year and 50 million tonnes of freight. Providing these services generates 9.9 million direct jobs within the air transport industry and contributes US$664.4 billion to global GDP 2. The number of aircraft in operation has been steadily rising over many decades and there are approximately 23,480 commercial aircraft in operation across the world. Boeing estimates that the number of commercial aircraft will more than double from 23,480 to 46,980 by Over the next five years to 2022, Boeing estimates that new aircraft with a value of US$960 billion will be delivered 3. Global economic growth is a key driver of air travel, which in turn drives the demand for aircraft. Historically, global air traffic has doubled every 15 years and since 1980 global air traffic growth measured in Revenue Passenger Kilometres ( RPK s ) has risen at a compounded annual growth rate of 5.7 per cent. per annum. As demonstrated below, traffic growth has proven to be highly resilient despite the short term impact of the oil crisis, Gulf wars, pandemics, terrorism (in particular 9/11), and most recently the global financial crisis in 2007/08. While there was some decline in traffic volumes due to these events it quickly recovered and reverted to the long term trend increase. Figure 1: Global Long Term Air Traffic Growth RPK (Millions) RPKs Source: The Airline Monitor The growth in air traffic is primarily driven by rising global GDP. There is a strong correlation between the growth in air travel and rising global GDP and over the last 30 years it has typically grown by 1.5 times global GDP. The increase in GDP is also leading to a growing middle class, particularly in Asia. The chart below, based on 2016 data, highlights that historically rising GDP per capita has resulted in a greater propensity to travel more frequently. The United States leads the 2 Source: 3 Source: Boeing Current Aircraft Finance Market Outlook

64 world in terms of trips per capita per annum with just under 2 trips per annum and GDP per capita in excess of US$50,000 per annum. In contrast, GDP per capita is c.us$15,000 per annum in China and the population in China undertakes less than 0.5 trips per capita per annum. As global GDP per capita is rising (with the fastest region being the Asia/Pacific region), this is in turn driving the demand for aircraft. In addition to the demand for new aircraft to meet the increase in traffic, new aircraft are also required to replace older aircraft which are being retired. Figure 2: Rising GDP Drives Traffic Source: Airbus, Oxford Economics and the World Population Data Sheet Aircraft as an Asset Class Aircraft are hard assets with long economic lives and values have been stable over many years. There is a deep secondary market particularly in single-aisle aircraft. This reflects the number of airlines operating single aisle aircraft which at 31 December 2017 amounted to almost 725 operators with 18,168 single-aisle aircraft in service. This contrasts with the larger twin-aisle aircraft at the same date with only 234 operators and 4,682 aircraft in service. Aircraft are very mobile assets and the used aircraft market is highly liquid, as aircraft can be globally re-located and re-leased. The transition between lessees is relatively short and the cost of transiting compared to capital values is relatively low. Generally speaking, the current generation of 150+ seat commercial jets have an economic life of around 25 years. Certain aircraft types, notably the Boeing Next Generation and the Airbus A , are likely to have their economic life extended through conversion to cargo freighters. It is the Investment Adviser s belief that the amount of aircraft converted, in addition to freighter replacement requirements and growing global trade needs, will be influenced by the rise of online shopping. Due to their low utilisation rates these freighter aircraft could have a further 10 to 15 years of economic life following conversion. At present there is effectively a duopoly between Boeing and Airbus on the manufacture of 150+ seat commercial jets. This duopoly further underpins the stability of aircraft values. Aircraft are exposed to technological risks and obsolescence, however single-aisle aircraft are less impacted. At present there is a clear line of sight for new aircraft design and engine technology, and long lead times for the: (i) introduction of new aircraft types due to certification requirements; and (ii) scaling of new technology, which provides a substantial time buffer to enable these changes to be managed. Aircraft and related spare parts are denominated in U.S. Dollars and due to their long term stable values have a relatively low correlation with major U.S. Dollar asset classes, particularly the S&P 64