PMA Parts & Leasing in International Markets With a Focus on Latin America

Jason CaldwellEVP Global Sales and Marketing

March 31, 2011

PMA Parts & Leasing in International MarketsWith a Focus on Latin America

Wencor Group Confidential 2

Why Use PMAs?

• Cost Savings• Availability• Product Improvements• Bottom Line:

– More choice, more savings, better efficiency


Objections to PMA Use

• “I don’t have the engineering staff to approve PMAs”

• “The OEM says my warranty will be voided and my aircraft will fall out of the sky”

• “My lease does not allow the use of PMAs”


The Lessor Argument

• The use of PMA Parts ‘Devalues’ the A/C or Engine The available lease market is diminished due to the quantity of

airlines who do not want to utilize PMA PMA parts have a lower cost, therefore, they reduce the value of

the commodity

• Regulatory authorities are unclear on PMA legitimacy

• PMA parts impact aircraft reliability• Standard contract language cannot change


Objections to PMA Use

• “My lease does not allow the use of PMAs”• Impact to the operators

– Must weigh the higher cost of OEM replacement parts

– Higher cost and inefficiencies of a dual stocking strategy

– Possible monetary consequence of ignoring the prohibitive terms of the lease


Pushing PMAs in Leased Aircraft• Level I– Change the contract: Use purchase

leverage to assure lowest total cost of ownership, not just lowest lease rate. Use groups or alliances to add negotiating power.

• Level II– Know the real terms: What are the restrictions? All PMAs? Critical parts? LLPs? Components? Airframe? Interiors? License PMAs? Educate the decision makers!

• Level III– Use PMAs for the interim, until lease expires. When lease is up, go to level I.


PMA Users With Leased AircraftA Few Examples


PMA Users With Leased AircraftA Few Examples


•AAR Aircraft Sales & LeasingGECAS•AWAS

Macquarie AirFinance•Babcock & Brown Aircraft Management LLCORIX Aircraft Corp•Banc of America Leasing & Capital LLCORIX Aviation Systems •CIT AerospacePembroke Group

•First Greenwich Kahala LtdQ Aviation LLC

United Airlines•Banc of America Leasing & Capital LLCILFC•CIT AerospaceJet Trading And Leasing

•GECASPacific AirFinance

•Global Knafaim Leasing LtdSky Holding LLC•Global Principal Finance Company LLCSkyWorks Leasing LLC•Guggenheim Aviation PartnersVx Capital Partners

Delta Air Lines

•AerCapMacquarie AirFinance

•AWASPacific AirFinance

•Banc One Capital CorpPembroke Group

•Boeing Capital CorpRBS Aviation Capital

•RPK Capital Management Group LLCGECAS•Global Knafaim Leasing LtdVolito Aviation AB•Jetscape Inc

American Airlines

Lessors Allowing PMA UseA Few Examples

Wencor Group Confidential

ECONOMIC CLIMATE AND AIR TRAVELLATIN AMERICAN AIRLINE FLEETSTRATEGY FOR LEASING COMPANIES

Latin America & Caribbean vs World

10


Size Comparison

World Latam & Carib. %

Passengers 2.4 billion 148 million 6.1%

Fleet 25,000 1,254 5.0%

Revenues 480 billion 21 billion 4.3%

Airlines 1,500 80 5.4%

Population 6.9 billion 589 million 8.5%

GDP 60,587 billon 4,247 billion 7.0%

Source: World Bank, ALTA airlines

11


Regional Comparisons

Source: IMF, ALTA, U.S. DOT, AEA

12


Latin America Growth Outpaced US and Europe

Source: ALTA, U.S. DOT, AEA

RPK

CA

GR

200

4-20

09

13


2010 Industry Growth

Source: IATA (except LatAm (ALTA) data point)

14

M. East Africa LatAm (ALTA)

APAC LatAm (IATA)

Industry N. America Europe0%

5%

10%

15%

20%

25%

20.1%

13.2%11.5% 10.5% 10.2%

7.9%5.9%

3.3%

2010

YTD

inte

rnati

onal

traffi

c gro

wth


Consolidation

15

15 Years Ago vs. Today


Latin American Airline Fleets

0 20 40 60 80 100 120 140 160

Aerogal

Conviasa

LIAT (1974) Ltd.

Passaredo Transportes Aereos S/A

Aerocaribbean

VRG Linhas Aereas S.A.

Interjet

Webjet Linhas Aereas S.A.

Aerogaviota

Aires Colombia

Volaris

Aeronaves TSM

Searca S.A.

Austral

Cubana Airlines

Azul Linhas Aereas Brasileiras S.A.

TACA International Airlines, S.A.

Aerolineas Argentinas

Trip Linhas Aereas

Copa Airlines

Avianca

Aeromexico

LAN Airlines

Gol Linhas Aereas Inteligentes

TAM Linhas Aereas S.A.

Leased vs Owned Aircraft - Top 25 Latin American Operators

Owned

Leased


Latin American Airline Fleets

0 50 100 150 200 250 300

B777

B757

A318

A340

EMB 195

CRJ

A330

MD-80

Dash 8

ERJ-145

B767

B737-200

EMB 190

ATR 42

B737 300-500

B737 NG

A320 Fam

By Aircraft Model

Owned

Leased


Top Leasing Companies for Latin American Fleets

Leasing CompanyLeased Aircraft

Allow PMA

GECAS 141 YESILFC 57 YESCIT Aerospace 35 YESAviation Capital Group 34Aviation Leasing Inc 32RBS Aviation Capital 30 YESAWAS 29 YESATR 24BBAM LLC 19 YESMacquarie AirFinance 19 YESAergo Capital Ltd 18Nordic Aviation Capital 17AerCap 14 YESAircastle Advisor LLC 14Sky Holding LLC 14 YES


Latin American Market

560 580 600 620 640 660 680 700 720

Delta Air Lines, Inc.

United-Continental

Top 8 Latin America Operators

American Airlines, Inc.

Active Fleet

Delta Air Lines, Inc.

United-Continental

Top 8 Latin America Operators

American Airlines, Inc.


Actions Airlines Can Take• Meet with Lessors to discuss the importance of PMA use

• New Agreements• Existing Agreements

• Utilize the arguments provided

• PMA suppliers would be glad to also participate in discussions

• Engage the assistance of alliance partners• Use existing agreements as leverage• Meet with Lessors together as a group


Engage The Leverage of Alliances

http://www.tam.com.py/


Leveraging the AllianceALTA

MemberOperator

Number of Leased Aircraft

Average Age of Leased Aircraft

Use PMAs

YES TAM Linhas Aereas S.A. 81 8.3 YESYES Aeromexico 73 8.7 YESYES Gol Linhas Aereas Inteligentes 63 9.1 YESYES Avianca 48 13.5YES Aerolineas Argentinas 34 15.1 YESYES Volaris 26 4.3 YESYES VRG Linhas Aereas S.A. 21 9.3 YESYES Copa Airlines 20 5.4 YESYES TACA International Airlines, S.A. 20 5.6

Trip Linhas Aereas 19 12.1 YESLineas Aereas del Estado 17 35.4Webjet Linhas Aereas S.A. 17 17.2

YES* Aires Colombia 16 9.8 YESYES Aerogal 15 17.3 YESYES LAN Airlines 15 10.6 YES


Conclusion• Airlines view cost savings to be a major driver of PMA usage• Other benefits include:

• Improved part performance or reliability• Just in time delivery

• Airlines agree that safety, reliability, or ‘bogus parts’ are not an issue • Most don’t have safety/technical concerns, but also don’t want to be early adopters

of engine hot section PMA parts• OEM/MRO and Lessor contract restrictions are cited to be major factors limiting PMA use• Airlines and PMA community can focus on three levels of PMA acceptance on leased

Aircraft:1. Change lease contracts to accept PMA– use leverage of new lease, and of alliances

2. Use PMA where contract restrictions allow (non-critical, components and airframe, license)

3. Use PMA until leases expire

• Latin America case study shows some success


APPENDIX


Lessor Top Concernswith Use of PMA Parts

Source: SH&E Survey


Exceptions• Nearly every lessor’s default policy

is to not allow permit PMA parts; however, exceptions are made, depending upon:– Lessee Credit Quality and Lease

Return Conditions– Fleet Size (bargaining power)– Desired PMA Penetration

• Other exceptions are made if the transaction makes financial sense, and are more inclined to include:– Sale/leasebacks– Long-term leases– Older aircraft– Instances where the next lessee

is known to accept the alternate parts

• Some lessors perceive lessees to have increasing leverage to utilize PMA parts due to:– Increased acceptance of

the safety and testing standards of PMA parts

– Shift in the supply/demand dynamic for aircraft (operators have more negotiating strength)

PMA Parts & Leasing in International Markets With a Focus on Latin America

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