A Lessor’s Experience

4th EASA Industry Meeting

Cologne, November 17, 2005

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Agenda

Today’s Objectives Introduction to AerCap Lessors and Aviation Our Concerns Case Example The Essence Conclusive Summary Our Request

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Today’s Objectives

To introduce the Aircraft Lessor Community as a significant stakeholder in Aviation

To highlight the Lessor Community’s concerns with respect to the impact of EASA Commission Regulation 2042/2003 entry into force

NOT to discuss the details of such regulations, but,

To achieve an awareness by EASA for the Lessor Community’s wishes:

o To be granted the opportunity to discuss its specific issues (and suggestions for possible solutions) in dedicated meetings with appropriate EASA staff

o To be granted the opportunity to be represented during formal discussions between regulators and the Aviation Industry

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Introduction to AerCap

Formerly known as debis AirFinance; established November ’95

Core business: operating leasing and full service management of large securitization portfolios of aircraft

Largest operating Lessor in Europe, one of the largest worldwide

Fleet of 238 commercial aircraft (owned/managed) 1

Over 90% of the fleet on operating lease

Forward order of 31 A320 family aircraft, 21 units due for delivery in 05/07

Aims at expansion (additional forward orders / portfolio purchases) Customer base: 82 Operators in 46 countries 2

Shareholder: Cerberus Capital Management, L.P.

(1) of which 30 % in EASA member states(2) of which 33 % in EASA member states

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Lessors and Aviation

Lessors play an essential role in the development of European Aviation, both in manufacturing and operations:

o Owning up to 40% (1,400 airplanes) of the commercial transport category of airplanes in the EASA member states

o Owning up to 26% (3,700 airplanes) of the commercial fleet in the rest of the world

o Currently have assumed purchase obligations of over 600 aircraft from Airbus and Boeing on a speculative basis

Lessors play a significant role in the continued operation and development of the European operators:

o Providing opportunities for business flexibility in answer to Industry up- and downward economic trends and access to new markets

o For majority of (European) LCC’s initial start-up of their operation would not be possible without Lessor’s involvement

o Long term: providing continued opportunities for fleet renewal and expansion

Lessors strive for highest Airworthiness Standards observing the combination of global Aviation Authorities rules and regulations in order to achieve flexible and maximum remarketability

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Our Concerns (1)

Administrative and nearly impossible burden to assess and provide the EASA approval status of used airplanes to be leased to EU operators:

o Basic certification basis, SB status, listing of approved/non-approved changes, repairs, STC’s,......

Challenging task to obtain EASA approval for (older, pre 2003) STC’s and (non-OEM) repairs (the more if STC holder does not exist anymore)

Leadtime to obtain approvals 4 - 8 months The administrative consequences of Annex 1 (part M), in particular the

differences in interpretation by the member states:o Alternative compliance (opt-out procedures) at the discretion of national

authorities The contradiction of Annex 1 (part M) versus JAR-OPS Subpart M in respect

of (component) record keeping:o At least 24 mths after release TO service (JAR-OPS) versus at least 24 mths

after permanent withdrawal FROM service (EASA part M) And more...?

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Our Concerns (2)

Resulting in additional high aircraft transfer cost:o Physical expenditures: Modifications, Approvals, Component re-certifications

and repairs: conservative exposures estimated between USD 250k and USD 1,500k for typical single Aisle aircraft in growing size

o Internal resources: Lessors currently not prepared or catered for such tasks – limited engineering resources

Resulting in significant delays in the deliveries of aircraft to airlines:o 2-6 months loss in lease rental income (average single aisle aircraft: USD 175k

per month)o Liability for damages incurred by customerso Dis-satisfaction of customers

All in all exposing a severe aircraft remarketability risk into Europe; a risk which, based on recent experience is rather fact than risk

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Case Example – summer 2005

Aircraft: Fokker 100, average aircraft transfer cost: USD 450,000 Re-delivering Lessee: South America region Aircraft to be transferred to Europe (EASA member state EU-1) Accepting Lessee: Europe, EASA member state (EU-2) Lessor takes measures to achieve required airworthiness standard in accordance

with OEM’s instructions and EU-1 CAA approved procedures for import into Europe Aircraft exported into EU-1; working party modifies the Aircraft to required standard Post transfer maintenance, Aircraft delivered to Accepting Lessee in compliance

with EASA regulations and with EU-1 issued Certificate of Airworthiness Accepting Lessee accepts Aircraft and applies for AOC with EU-2 CAA EU-2 CAA, based on own inspection revokes the CofA on basis of concerns with

continuing airworthiness of the aircraft or any component fitted. Result:

o Additional delay of 2 months in delivery (160 K in rentals)o Additional Aercap expenditure: in excess of USD 350k over and above

average transfer cost for this type of airplane into Europeo Additional Accepting Lessee’s damages: unknown (> USD 1 million)o Aircraft still not in operation....

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The Essence

Aircraft transfer cost are the sum of physical expenditures on the aircraft, and the loss of lease rentals due to extended downtime

A severe and sudden increase in future perceived aircraft transfer cost negatively impacts the remarketability and consequently the residual value of aircraft

A decrease in EU remarketability and/or residual value affects the availability of aircraft, which consequently will;

Affect the competitiveness of EU Operators through either a higher cost to lease, or, a decreased flexibility by not being able to make full use of aircraft leasing opportunities.

In addition: Lessor owned aircraft are financed by a large cross section of (major)

commercial and investment banks The cost associated with transferring aircraft from one airline to the other

affects the risk profile for these banks, and as such the cost of funding, and as such the cost to lease aircraft

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Conclusive Summary

The EASA requirements are disrupting the flexibility based on which the EU operators can continue to lease used airplanes

It creates additional administrative and costly obstacles that are seriously hindering the (timely) placement of these airplanes at the EU operators

Severe additional aircraft transfer cost to be considered, negatively affects the availability of funding at reasonable cost, and as such the Lessors’ capability to offer aircraft to EU operators

Leasing companies are not represented in the formal discussions between the EASA and Aviation Industry, despite the significance of their role in European commercial aviation

Leasing companies are currently not participating in the drafting of the fundamental EASA regulations

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We ask you to.....

Engage with us in detailed and seperate series of discussions, with the aim:

o To further achieve mutual understanding of the background, added value and implications of the amended and newly introduced regulations

o To define possible solutions allowing effective implementation of such regulations while limiting the potential damage it may incur on the industry on the short term

To invite us, as formal industrial representatives, to participate in the committees dealing with the evaluation and design of existing respectively new regulations

To assist us in our continuous support and promotion of airworthiness improvement intentions as depicted in our leases

THANK YOU FOR YOUR ATTENTION

Eric P. Vermeulen

Fleet ManagerAerCap Aviation SolutionsEmail: evermeulen@aercap.comTel.: +31 20 655 9687

www.aercap.com

Cologne, November 17, 2005