Revival of an Aging and Bankruptcy Airline

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              Bulletin                                                                            May 2010

              Outlook 2010-2011: Insights                       As bank lending remained tight in ’09, the
                                                                ECAs filled the financing gap with an
              from the 30th Annual New                          unprecedented amount of ECA deals.
              York Airfinance Conference                        However, ECA volume is predicted to
                                                                gradually decrease with the re-entry of
              Euromoney Seminars held their seminal             traditional lenders. As a counterbalance,
                                                                panelists expected that new ECA entrants

              New York Airfinance Conference on April
              26th & 27th, 2010. The conference once again      from Russia, China and Japan will join the

              brought together leaders from different           market in coming years. ECAs may also
              sectors of the aviation market to assess the      finance more helicopters, freighters and
              state of aircraft finance and forecast future     corporate aircraft in 2010 than in prior years.
              trends. This Bulletin captures the highlights
              and recurring themes.                             After a lull in capital market transactions,
                                                                2009 saw a resurgence of deals from
              Finance                                           corporate debt issuances to EETCs. The
              The conference covered the main pillars of        consensus was that trend would continue,
              aircraft finance: (i) commercial banks, (ii)      though there was debate over whether there
              lessors, (iii) capital markets, and (iv) export   would be structural changes, such as shorter
              credit agencies (“ECAs”).                         EETC maturities. There was also debate
                                                                whether new U.S. government regulations, if
              While most panelists agreed that capital          any, would be a boon or impediment for the
              markets are resurging and ample equity is         ABS market. Some panelists discussed EETC
              available, a recurrent theme was insufficient     alternatives such as secured term loans,
              commercial bank debt. The insufficiency of        which, though more expensive, can offer
              bank debt was predicted to persist in 2010 as     greater operational flexibility and a shorter
              few deals will offer attractive-enough            time frame to complete. Finally, panelists
              returns to lure back lenders. At least one        agreed that 2010 will see a revival of some
              banker noted a potentially permanent shift        lease portfolio securitizations which were
              away from arranged loans with buy and hold        virtually absent from capital markets in 2009.
              banks towards bilateral deal making based
              on entrenched client-banking relationships.       On the lessor front, leasing companies noted
              While others noted the new comforts               their relative profitability, and their
              afforded lenders by the Cape Town                 perseverance during the downturn despite
              Convention which helps minimize cross-            the misfortunes of some of their parent
              border     risk.    Despite    the    relative    companies. Panelists predicted more leasing
              insufficiency of secured lending in the North     with U.S. airlines due to continued
              American aviation market for the near             constriction in other available finance
              future, commercial banks noted that               sources. Historically, foreign carriers
              financing was still available for A-credit        predominated in the lease market as
              borrowers and deals from certain regions,         domestic carriers took advantage of
              such as China.                                    accessible and affordable capital markets,
                                                                and lessors looked abroad due to exit
                                                                difficulties posed by U.S. bankruptcy laws.
              Airline Status & Strategies                      consumer protection, safety and security,
Forsyth llp
              Senior airline officials discussed the           and environmental matters. The European
              response to the recent downturn and market       Union continues to press for greater foreign
              volatility. Most airlines want to build          ownership in the U.S. aviation market. The
              liquidity and hold costs by cutting capacity,    panel on carbon emissions predicted
              assessing fleet growth and fuel hedging, all     continued debate in the form of future
              while aiming to boost revenue with the de-       regulatory regimes against the backdrop of
              bundling of services and other “innovations”     Congress rejecting the U.S. Climate Bill that
              in customer experience. Some airlines are        same day.
              also monetizing non-aircraft assets from
              gates to future receivables and real estate.     In closing, despite the pain in the aviation
              While the merger of Continental and United       industry from the recent global downturn,
              loomed, most panelists talked more about         there was a general sense of revival,

              the benefits of code sharing and strategic       survival, and of lessons learned from the
              alliances. The low cost carriers touted their    past 30 years since the first New York

              culture as a key component of their              Airfinance Conference. Panelists noted that
              continued success, while at least one airline    the industry has benefited from the financial
              entrant advocated an operating model             innovation over the past 30 years, and there
              somewhere between low cost carrier               was more willingness to restructure and
              operations and traditional legacy distribution   negotiate resulting in fewer major airline
              and services. Fleet assessment trends were       bankruptcies than in prior recessions.
              toward slightly more seat capacity and fewer
              freighter conversions as new products come       If you have any questions or would like any
              to market.                                       further information, please contact:

              NextGen Aircraft & Engines
              The manufacturers were ready to meet
              increased seating demands and offered                    John D. Horenstein, Esq.
              products particularly in the 100-150 seater              Allison H. Schifini, Esq.
              market, positioning to replace aging aircraft             Condon & Forsyth LLP
              such as the MD-80 being retired by U.S                      Times Square Tower
              carriers. The catch-word of the day was                        7 Times Square
              “nextgen” for the new generation of aircraft               New York, NY 10036
              and engines coming to market in the next                     Tel: (212) 894-6778
              few years which are more fuel efficient and                 Fax: (212) 370-4483
              more environmentally friendly. There was            E-mail:
              an impressive technological presentation by          E-mail:
              CFM on the Leap-X engine, while airline
              customers were cautiously optimistic, citing
              the inevitability of change but the need to
              “wait and see”.

              Regulatory Environment
              The conference was rounded out by panels
              on the regulatory environment. U.S. and
              European officials discussed lessons in
              coordination from the recent disruptions in
              air traffic from volcanic ash in Europe, and
              commended the second stage of the Open
              Skies agreement enhancing transatlantic
              civil aviation cooperation in competition,

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