Investor Presentation

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Executive Summary

Guardian Holdings is seeking to raise $[xxx]mm equity to capitalise the first large used aircraft lessor (Newco)
Guardian owns [ 100]% of Seraph Aircraft Management (SAM), a leading independent aircraft management company, which will act as servicer to Newco
Guardian is owned by the Stellwagen Group and SAM management

Guardian believe select used single-aisle aircraft types will provide superior returns
Macro environment is moving to benefit values
Current acquisition prices represent historic low compared to replacement cost
Current lease rates represent compelling value opportunity for airlines
Strong future spare parts demand means break-up values backstop returns

Guardian will leverage the equity raised to acquire up to $[x.x] billion of mid life single-aisle aircraft (A320 family and B737NG) over a 3-5 year ramp-up period
Guardian business model is innovative and hard to imitate
Many large aircraft lessors have significant fleet rollover requirements to maintain target fleet age

Aircraft ABS market will allow significant leverage (c. 80% LTV) and equity cash flow to facilitate additional purchases after initial capital deployment

Multiple exit strategy opportunities

Asset liquidation, IPO or trade sale

Introduction to Seraph Aircraft Management

Aircraft Under Management
3

2
A319
A320
A321
B737-800

22

Leading independent aircraft manager serving global investor base

28 aircraft valued at c. $[600]mm
Experienced and respected management team total experience 100+ years
Common ownership with Aviation Finance Company and other Stellwagen Group companies
Future servicing income from leasing joint ventures
Additional income stream and enhanced airline relationships through transaction origination on behalf of AFC
Much deeper understanding of capital markets than aircraft management competitors

SAM Management Team

Management

Pedigree

Industry Experience

Eugene OReilly
Chief Executive Officer

COO Volito: Aergo; Icelease; Sunrock; Pegasus Airlines

23 years

Edward Hansom
Chief Investment Officer

CFO AerFi/GPA Group; RBS/SMBC Aviation Capital; Aergo ; Scotiabank; Schroders

27 years

Edward Coughlan
Chief Commercial Officer

SVP Commercial Volito; Aero Turbine (AerCap); Lufthansa Technik

22 years

Stephen Coyle
Chief Technical Officer

CTO Volito; AerCap; UPS; Aer Lingus

25 years

Catherine Power
General Counsel

GC Volito; Harrisons Solicitors (Dublin)

4 years

Highly experienced and widely respected management team

Most members of management team have worked together since 2011 for Volito Aviation Services (Ireland)
Key team achievements include sale of VGS fleet and development of management services business

SAMs Investor Customers

Profile

Inception of
Relationship

Services Provided

Volito Goldman Sachs (VGS) was established in 2007 by Volito AB

(a diversified holding company based in Malmo, Sweden) and
Goldman Sachs. At its peak in [2010] VGS owned [50] aircraft
valued at $[1.0]bn.

2007

Full aircraft lease management

China Aircraft Leasing Group is a Hong Kong-based aircraft lessor

founded 2006 and taken public in 2014. Fleet consists of 49
aircraft valued at c. $1.9bn . Main focus is domestic Chinese
market.

2012

Corporate management of non Chinese leased assets

plus projects on a case by case basis

Aircraft leasing subsidiary of Fifth Street Finance Corp., a publiclytraded business development company with over $3 billion in
committed capital. Owns 8 aircraft and uses SAM as its exclusive
aircraft servicer on all new deal.

2013

Full aircraft lease management

SEC-registered investment advisor specialising in real assets.

Affiliate of MassMutual Life Insurance Company and Babson
Capital Management. Owns over 50 aircraft and has over $2.7
billion in committed capital under management

2015

Full aircraft lease management

Guardian: Leveraging the Stellwagen Group

SAM
Management

Stellwagen Finance
Company

Aviation Finance
Company
(US, Ireland)

Ittihad JV
Companies (UAE)

Blue Horizon
Leasing (UAE)

Guardian Holdings
(Ireland)

Seraph Aviation
Management
(Ireland)

January 2013: Douglas

Brennan/Stellwagen Finance Company
founds Aviation Finance Company, a
dedicated aviation investment bank

December 2013: AFC

completes $1 billion of
financings; MSD Capital
invests in AFC

July 2014: SFC agrees joint

venture with Ittihad
Investment in Abu Dhabi
(Ittihad |AFC) to develop
Middle East financing and
leasing platform

October 2014: Guardian

purchases25% of Volito
Aviation Services (VAS).
VAS specializes in aircraft
management and leasing

2015: AFC surpasses $3

billion in financings; Blue
Horizon formed to take
delivery of 5 Emirates
Aircraft; Guardian
purchases remaining
shares in VAS

Aviation Finance Company selective track record

$121,450,210

$30,554,926

$206,250,000

$120,193,500

$160,258,000

$181,425,000

$45,767,832

$36,285,000

$195,000,000

European
Airline

European
Airline

European
Airline

International
Airline

PDP Financing

PDP Financing

PDP Financing

PDP Financing

PDP Financing

Long-Term
EETC Financing

Long-Term
EETC Financing

Long-Term
EETC Financing

Long-Term
EETC Financing

A330

A330

Challenger 605

Global 6000

Global 6000

737-800

737-800

737-800

737-800

June 2013

December 2013

December 2013

May 2014

August 2014

January 2014

October 2014

April 2014

June 2014

$64,000,000

$350,000,000

$90,000,000

$570,000,000
Operating Lease to

$525,000,000
Operating Lease to

Private
Placement Loans
737-800 /
A320-200

Private
Placement Loans
787-8

PDP Financing
787-8

Debt & Equity

Financing
A380

Debt & Equity

Financing
777-300ER

October 2014

April 2015

July 2015

Q3/4 2015

Q3/4 2015

$86,900,000

$90,000,000

European
Lessor

Business Jet
Operator

Business Jet
Operator

Private
Placement Loans
Helicopters

PDP Financing

PDP Financing

G450, G500, G650

Challenger 350

July 2014

October 2014

March 2015

Macro Environment is Moving in Favour of Used Aircraft

Interest Rates and Fuel Prices (1)

16%

Airbus and Boeing Deliveries (2)

200

1,400

Great
Recession

180

14%
12%

160

1,200

140

1,000

10%

120

8%

100

6%

80

600

60

400

4%

9/11
2nd Gulf

1st
Gulf War

800
Energy
Crisis

US
Recession

40

2%

200

20

0%

0
1978

1983

1988

1993

5yr Treasury Yield

1998

2003

2008

2013

1970

1975

1980

1985

1990

1995

2000

Jet Fuel US Gallon (Cst. US)

Last 10 years have seen reversal of normal relationship between fuel prices and interest rates to benefit of new aircraft
Low interest rates have reduced relative ownership cost of new aircraft
Expensive fuel has led to record backlogs as airlines and lessors seek to acquire new technology models e.g. A320 NEO and B737 MAX
Airbus and Boeing increased production through the last downturn because of macro environment
In previous recessions, aircraft deliveries have slumped by as much as 50%
Fuel price has fallen dramatically and next significant move in interest rates will be up improving relative demand for used aircraft
1.
2.

US Federal Reserve, Airline Monitor

Ascend

2005

2010

Focused Asset Strategy To Drive Long-Run Success

Leasing Market Shares by Aircraft Type as of December 2014 (1)

Forecast Single-Aisle Aircraft Fleets (2)

35,000

Aircraft Type

Number on Operating
Lease

Leasing Market
Share

A320 Family

3,010

50%

B737 NG

2,295

46%

Other Single-Aisle

1,426

27%

929

37%

7,660

41%

Twin-Aisle
Total

30,000
25,000
20,000
15,000
10,000
5,000
2015

2020
A320CEO

2025
B737NG

Aircraft lessors show a clear preference for popular single-aisle aircraft

Low exposure to impact of new technology
Deep primary and secondary customer base
Low redeployment costs due to standardized configurations
Current technology A320s and B737s will be a core part of the world fleet for the foreseeable future
NEO and MAX forecast to overtake CEO and NG fleets only in 2029
High delivery volumes in final years of production will underpin spare parts demand and break-up values for earlier models
1.
2.

Source: Ascend. Passenger types only.

Source: Airline Monitor June 2015

10

2030
A320NEO

B737MAX

2035

Used Aircraft Values Are At Historic Lows vs Replacement Cost

(percentages in charts are relative to new aircraft value)

A320-200 Constant Age Values ($mn) (1)

B737-800 Constant Age Values ($mn) (1)

50

50

45

45

40
35
30

40
74%
65%
56%

25

35

74%

30

64%

59%

25

20

36%

15
2000

2002

2004
New

2006

2008

10 Years Old

2010

2012

40%

20
15

2014

2000

15 Years Old

2002

2004

New

Used aircraft values have fallen relative to new aircraft

Relative earning power has declined
Interest rates are a bigger part of lessor costs for new aircraft and are at historic lows
Post credit-crunch debt and equity investors have demanded higher risk premiums on older aircraft

(1) Source: Airline Monitor Average of Three Appraisers, December 2014. Some B737-800 used values are hypothetical as this aircraft type only entered production in 1998.

11

2006

2008

10 Years Old

2010

2012

15 Years Old

2014

Used Aircraft Offer Compelling Economics For Airlines

(figures $K unless otherwise stated)

Aircraft
Type

Build
Year

Purchase
Cost

Monthly
Rent

Annual
DOC (1)

DOC Change
per $1.00
Increase in Cost
of Jet Fuel

DOC Change
per 1.00%
Increase in
Cost of Debt

Annual Used Aircraft Saving vs. New Technology Replacement ($K)

2,000

A320

1,500

A320 CEO (2)

2003

20,000

240

15,167

2,619

109

A320 CEO (2)

2015

43,000

344

16,405

2,520

260

A320 NEO (2)

2015

49,000

392

16,380

2,191

296

B737-800

2003

22,000

265

15,239

2,631

120

B737-800

2015

45,000

359

16,579

2,631

272

-500

B737-8

2015

51,000

407

16,691

2,295

323

-1,000

B737

1,000

500
$2.00

$3.00

$4.00

$5.00

$6.00

Jet Fuel Price per US Gallon

Guardian has commissioned Leeham & Co. to prepare an authoritative independent study of used and new A320-200 / B737-800 operating costs
Guardian provided purchase costs and aircraft rents based on our up-to-date market intelligence
Used aircraft provide a DOC benefit of 7-9% at todays $2.00 jet fuel and remain competitive up to between $5.00 - $6.00 ($190-$230 $/BBL equivalent)
Major benefit given airline EBITDAR margins are typically 10%-20%
Increased interest rates will likely improve relative economics as well
Airlines of all types (IAG, United, Pegasus etc.) are adapting their fleet strategies to take advantage of used aircraft economics

1.
2.

Direct Operating Cost including fuel, rent, crew, maintenance, navigation and landing fees and insurance assuming $2.00 jet fuel per US gallon, 3,500 block hours p.a. and 1,000 nautical mile stage length. Calculations assume 0% airframe deterioration: in
reality all operators will incur slightly higher costs over a typical 8-12 year holding period, on average $150K-$200K per annum.
Both A320 CEOs costs are calculated on average of CFM and IAE engine variants. A320 NEO costs are calculated on average of CFM and PW engine variants. Used A320 CEO does not have sharklets, new A320 CEO does.

12

Maximizing The Value of Used Aircraft

Comparison of Used Aircraft and Engine Values($mn) (1)

DCF Analysis of A320 Manufactured 2003, Acquired 2015 ($K)

(Aircraft Manufactured 2000, Constant Half-Life Engines)

45
40

Item

Gross
Cash

PV @
12%

Assumptions

Rent

23,280

13,494

Avitas Base Rents inflated at 1.5% p.a. - $190K

to 2020, $150K 2020-2025, $120K 2025-2027

Maintenance
Reserves Cash

21,450

11,135

$120K per month inflated at 5% p.a. for engine

LLPs and 3% p.a. for other components

Overhaul Costs

(8,673)

(5,359)

2 x Engine PR, 2 x APU, 1 x Landing Gear

Carcass

7,129

1,830

$5mn in 2015$ inflated at 3% p.a.

Total

43,186

21,100

Avitas Maintenance Adjusted BV is $20.7mn

35
30
25
20
15
10

5
2000

2002
A320-200

2004

2006

IAE V2500-A5 x 2

2008

2010
B737-800

2012

2014

CFM56-7B x 2

Value of engines and other marketable spare parts has risen significantly faster than new aircraft since 1990s because of new spare part pricing by OEMs
Provided aircraft type retains a strong installed base OEMs are price setters once fleet starts to reduce OEMs lose control
Guardians target aircraft types will have a strong installed base through c. 2030
Illustrative analysis of 12 year old A320 through assumed break-up date in 2027 (24 years old) shows that less than 2/3rds of present value comes from rent
Percentage of value provided by maintenance reserves net of overhaul cots plus carcass will increase as aircraft ages
Aggregate PV of $21.1mn compares with Avitas Base Value of $18.3mn plus opening $2.4mn positive half life adjustment
Good managers can add a lot of value by trading, managing maintenance cash and lease restructuring

1. Source: Avitas

13

Risk Management
World Passenger Traffic (RPM BNs) (1)

Airline and Aircraft Lessor Profitability

4,000

(2)

4.0%

3,500

3.0%

3,000

2.0%

2,500
2,000

1.0%

1,500

0.0%

1,000

-1.0%

500

-2.0%

1970

1975

1980

1985

1990

1995

2000

2005

Aggregate Lessor ROAA

Airline Industry Net Margin

-3.0%

2010

2004

2005

2006

2007

2008

2009

Air travel has recovered strongly since 2009 and the industry is now likely through the mid-point of the traffic cycle
Lessor profitability is much more stable than airline profitability as proven risk management techniques offset short-term traffic shocks
Contracted income streams
Geographical diversification of lessees
Spread of lease expiry dates
Experience of recent years has shown no correlation between traffic growth and aircraft values
Biggest risk to future aircraft values is discounting by airframe OEMs very unlikely given record backlogs
Spares pricing is not cyclical as engine OEMs have a monopoly until in-service fleet is in long-term decline
Traffic slowdown will not materially impact business performance
1. Source: Airline Monitor
2. Source: Airline Monitor, company reports

14

2010

2011

2012

2013

Innovative Business Model Can Produce First Large Used Aircraft Lessor
Competitive Landscape (1)

Comparison of Management Capabilities

40
Fleet Value $bn

35
GECAS

30
25

AerCap

Buying Opportunity

Guardian

Used Aircraft Lessors

New Aircraft Lessors

Management
Structure

Strong team with all

key skill sets

Strong CEO weak

team

Strong team with all

key skill sets

Asset Focus

Most liquid aircraft

types only

No specific asset
focus

Varies

Systems

Structured consistent
approach

Very limited

Structured consistent
approach

Technical
Management

Key commercial
function

Key commercial
function

Quality assurance

Financing
Capabilities

Diversified including
capital markets

Hedge funds and

some bank debt

Diversified including
capital markets

20
Target Market

15
10

5
Boeing Capital

0
0

10

15

Average Fleet age Weighted By Value

Nearly all large lessors buy new aircraft

Only lessor with assets of over $1bn and average fleet age over 10 years is Boeing Capital

Increasing fleet rollover requirements of new aircraft lessors will require large used aircraft lessors as counterparties
Most existing used aircraft lessors have been unable to scale due to limited management capabilities
Guardian combines the best of new aircraft lessor approach with the more commercial approach to technical management required for used aircraft

1.

Source: Ascend October 2014: includes all lessors with greater than $1bn owned and managed aircraft

15

Aircraft Acquisitions
Target Aircraft By Owner Type Dec. 2014 (1),(2)

Target Aircraft Lessor Book Values Dec. 2014 (1),(3)

1,000
800

25,000
US Big Four
20,000

600

Lessors

$mn

Units

Other Airlines

400
200
0
1989

15,000
10,000
5,000

1994

1999

2004

2009

0
1989

2014

1994

1999

2004

2009

Year of Manufacture

Year of Manufacture

Population of target assets split 50/50 between lessors and airlines US big four rarely use operating leases but are not a big part of this market
Creating a diverse fleet suitable for ABS financing will normally require one or more initial bulk purchases from other lessors
Average lessor fleet age weighted by book value was 5.8 years at December 2014
New aircraft lessors are highly motivated to minimize fleet age to improve access to e.g. senior unsecured debt issuance
Main factor keeping average age under control recently has been increase in new aircraft purchases in line with higher Airbus/Boeing deliveries
As delivery increases tail off more used sales will be required maintaining static fleet age in 2015 by acquisitions alone requires increase in volume from
$22.5bn to $29.7bn
Purchases from lessors can be supplemented by used aircraft sale-leasebacks with airlines to diversify acquisition channels
1. Source: Ascend
2. Owners are managers per Ascend Online and owned aircraft may include finance-leased and managed aircraft providing the manager retains day to day control
3. Book values are based on Guardian estimates of historic new aircraft prices and industry standard accounting policy of 25 years straight line depreciation to 15% residual value

16

2014

Financing Strategy
Aircraft ABS Issuance History(1)

Select Recent Aircraft ABS Transactions

6,000
Wrapped

5,000

Unwrapped

3,000

Date

Amount

BBB LTV

Fleet
Age

A320/
B737NG %

Castlelake CLAST 2014-1

Feb 14

516

70.0%

17.5

7%

Apollo AASET 2014-1

Dec 14

556

72.5%

14.6

78%

Diamond Head DHAL 2015-1

Jul 15

261

70.7%

16.4

41%

Element ECAF 2015-1

Jun 15

1,210

[77.0]%

[6.5]

[??]%

($mm)

2,000
1,000
0

1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

$mn

4,000

Issuer (Ticker)

Aircraft ABS market will be key source of long-term debt

Attractive LTVs especially for used aircraft
Equity-friendly amortization profile allows for cash coupon and no default if expected repayment is delayed
Current market is very robust and is not subject to external disruption from e.g. demise of monoline insurers
Warehouse facility will allow Guardian to assemble aircraft fleets prior to ABS issuance
Indicative terms are attractive including term-out if required to address any capital markets disruption

1. Sources: Bloomberg, rating agency presale reports

17

Multiple Exit Strategies

Sale of assets
Equity interests in ABS transactions are marketable assets and are attractive to income-focused investment funds
Example transactions are E Note sales by AerCap to Guggenheim and Woodcreek

IPO

AerCap acquisition of ILFC has increased visibility of sector for equity capital markets

Ability to access public market effectively likely to depend on growth as smaller aircraft lessors have less attractive valuations

Sale of company
Aircraft lessors are attractive businesses for financial institutions
Institutional owners include SMBC, Pacific Life, CIT, ORIX
Preferred option to attract control premium

18