Aviation Finance from an Operating Lessor (and Airline!) Perspective

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1 Aviation from an Operating Lessor (and Airline!) Perspective Robert Lamoureux Vice President & Senior Regional Director Asia Pacific *The opinions contained in this presentation are my own and do not necessarily represent the opinions or position of CIT Group

2 CIT Group About CIT Founded in 1908, CIT (NYSE: CIT) is a financial holding company with more than $35 billion in financing and leasing assets. It provides financing, leasing and advisory services to its clients and their customers across more than 30 industries. CIT maintains leadership positions in middle market lending, factoring, retail and equipment finance, as well as aerospace, equipment and rail leasing. CIT operates CIT Bank (Member FDIC), its primary bank subsidiary, which, through its Internet bank BankOnCIT.com, offers a suite of savings options designed to help customers achieve a range of financial goals. cit.com About CIT Bank Founded in 2000, CIT Bank (Member FDIC) is the U.S. commercial bank subsidiary of CIT Group Inc. (NYSE: CIT). It provides lending and leasing to the small business, middle market and rail sectors. Through its online bank, BankOnCIT.com, CIT Bank offers a suite of savings options designed to help customers achieve a range of financial goals. It is regulated by the Federal Deposit Insurance Corporation and the Utah Department of Financial Institutions. As of December 31, 2013, it had $12 billion of deposits and $16 billion of assets. CIT Bank makes loans without regard to race, color, religion, national origin, sex, handicap, or familial status. 2

3 Providing Financial Solutions to Small and Middle Market Companies Corporate Lending, leasing, advisory and other financial services to small and middle market companies Financing and Leasing Assets (1) Total $36 Billion Trade Transportation Vendor Factoring, lending, receivables management and trade finance to companies in retail supply chain Lending, leasing and advisory services to the transportation industry, principally operating leases in commercial aerospace (~9B) and rail (~5B) Financing and leasing solutions to manufacturers and distributors around the globe Vendor $5 Consumer $3 Trade $2 $15 Corporate $10 Transportation Consumer Liquidating pool of governmentguaranteed student loans that has been transferred into assets held for sale. (1) Financing and Leasing assets include loans, operating lease equipment and assets held for sale; data as of 12/31/13. Totals may not foot due to rounding. 3

4 Commercial Air Portfolio CIT Aerospace Assets Commercial Aerospace Portfolio Assets ($B) $8.7 $8.9 $8.9 $8.3 $8.2 $7.7 $7.3 $7.1 $6.2 $5.4 $5.0 $4.4 $3.5 Operating Leases vs Others* 12% 3% Op Lease Loan Capital Lease 85% Activity and Fleet Statistics Total of 172 agreements signed 63 aircraft delivered More than 110 customers in 50 countries Portfolio of over 300 aircraft on operating lease, loans and capital leases on order Fleet average age of 5 years CIT s Fleet Share* Based on operating lease fleet only 6% 32% 62% Airbus Boeing Other *Data as of 12/31/2013 * Based on number of aircraft 4

5 CIT Aerospace Core Activities and Competencies Acquire aircraft from OEMs, through SLB s and in the secondary market Buy Tailor made financial solutions for our Customers and for us Lease Competitive operating leases Sell Manage Maintain a low average fleet age and exploit sale opportunities Superior technical knowledge that supports the platform 5

6 Operating Lease Fundamentals BUT we try to do it Differently Airlines must first define their fleet requirements - we can assist Airlines have a choice buy or lease but some don t and we are there for them If they buy, they must source financing and cover PDP s; if they lease, they don t WE do If they buy, they assume residual disposal/remarketing risks; if they lease, they don t WE do Leasing offers reasonable monthly cash flows longer amortization than conventional loans Lessors represent a separate distribution channel for aircraft access early delivery positions Lessors take asset risk, help airlines lower theirs and let them focus on operational/commercial risks Lessors can help to keep Airline s average fleet age low or right size the fleet up gauging or downsizing 6

7 Other sources of Aircraft Source: Boeing Estimates 2014 Boeing Deliveries only 7

8 Historical Aircraft Sources Source: Boeing Estimates

9 Aircraft outlook in 2014 and beyond Source: Boeing Estimates

10 Evolution of Funding Models for Operating Lessors Source: Boeing & Bloomberg Estimates

11 Interest rates and Jet Fuel price key drivers for Airline Success Creating different opportunities for Lessors 10 Y T-rates (%) Feb-04 May-04 Aug-04 Nov-04 Feb-05 May-05 Aug-05 Nov-05 Feb-06 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov Jet Fuel (US$/gallon) 10Y US Treasury Note Changing landscape Interest rates have been at historical lows but have started to slowly edge back up Fuel price has stabilized but remains near historical highs Moving sweet-spot between ownership cost and fuel savings Jet Fuel (USD/Gallon) If fuel price falls (Iran, fracking) and interest rates rise, demand for used aircraft will remain robust However, if fuel price remains at current level (high) and interest rates remain within current low levels, demand for new aircraft will increase to take advantage of the operational savings 11

12 General Trends in Aviation affecting Lessors Role change in the business model Traditionally, lessors have existed to manage residual value risk and minimize capital expenditures, PDP s, etc. and to keep some assets off balance sheet Go-to source for new technology aircraft with valuable early slots as well as used aircraft. Growth - speculative orders versus sale and lease backs important to use both Air finance market slowly being dominated by aircraft lessors Purchase vs Lease global ratio at about 60/40 - expected to reach 50/50 before 2020 New entrants, consolidation and emergence of the airline operating lessor Is portfolio size important? Aircraft Financing Capital markets vs. Debt markets Clear upsurge in Capital Market as a source of financing Export Credit Agency (ECA/EXIM) financing has reduced New ASU rules impact. Funding gap has disappeared Was it ever present? New sources of financing emerging China, Japan, Middle East Huge aircraft financing requirements going forward but no immediate liquidity concerns Leasing as a source of finance remaining dominant lower risk for ultimate financiers/investors 12

13 CIT - a Global Provider of Financial Solutions to the Aerospace Industry Leading aircraft lessor Modern, fuel efficient fleet Global operating platforms Full financial product offering Strong customer, manufacturer and industry relationships Differentiate from the competition via value added but most importantly intellectual capital 13

14 THANK YOU 14