NAVIGATING 360° Rolland Vincent Associates, LLC June 2010 Fractions of airlines

Despite current market conditions,

the significance of fractional ownership, jet card, and branded charter providers in the business aviation industry is difficult to underestimate. According to JETNET, fractional program holders, jet card companies, and large charter operators (10 or more aircraft) currently operate a fleet of 1,129 aircraft (see below). Annual utilization rates typically exceed the industry average by a factor of 2-3X or more.

The formidable business

combination of NetJets and Marquis Jet, by far the largest industry player, is firmly positioned as a price and service leader. Despite recent disclosures of losses and write-downs, NetJets remains the global brand of reference and preference against which competitors publicly and privately gauge themselves. The competition is fierce, and pricing pressure is intense. With margins and cash flows under on-going pressure, we remain convinced that multiple consolidation opportunities exist.

Customers care about many variables that differentiate competitors - fleet, age, model mix; operating experience, safety standards, and network coverage; upfront and on-going prices; brand and service features; on-time performance; personal relationship with salesperson; etc. For some, bigger is truly better. As other customers have come to realize, however, size does not in itself ensure service quality. Some of the most innovative service providers are in fact smaller, regionally concentrated programs with relatively young aircraft and fewer fleet types. These companies provide their customers with an elixir of value, peace-of-mind, and friendly yet professional service. In some same-day-return cases, customers can enjoy the convenience of having their pilots and aircraft remain with them during the entire day.

Experienced business jet operators

are adept at weaving together the complex, hyper-busy work schedules and lifestyles of their customers. While many customers take solace in flying with the largest providers, other factors can be just as important to a customer purchase decision. In our view, one of the most differentiating features driving long-term loyalty is how well a company performs during times when aircraft, systems and people are under maximum stress. Some of these dates are pre-identified each year as ‘Peak Days’, when demand is at a predictable maximum (see table below).

Interestingly, most pre-determined

peak days have little directly to do with business operations. Holidays, sporting and entertainment events, and cultural

INSIGHTS In aviation, we are accustomed to flipping a switch, pressing a keypad, or using our BlackBerry or iPhone to make things happen. Now, almost 2 years into the current industry downturn, business and government leaders continue to grapple with new realities, unpredictable cause-and-effect relationships, and stubborn uncertainty. Amidst this turbulence, it is clear to us that the wise never stopped flying. Rather, they adjusted their priorities, eliminated tasks with inadequate returns, and leaned their operations for better performance. While many have temporarily reduced their consumption across all product and service categories, the most entrepreneurial continue to seize opportunities in the relative competitive vacuum. Recessions end when we collectively decide that the rewards for creating a future outweigh the risks of caution. We will be months beyond a recession before it will be officially announced as over. Rather than wait, the wise are experimenting with ways to fill the intriguing gap between business and commercial aircraft services. Value is also being rediscovered in technologies already designed and certified. In a time of reduced travel and capital budgets, unlocking value in adjacent markets and in known technologies – while competitors remain hunkered in their bunkers – is a recipe for success. It’s time to fly.

Rolland Vincent, President Rolland Vincent Associates, LLC

CitationAir Jet Card's 10 Peak Days in 2010Day Date Event

Saturday January 2 New Years DayFriday February 12 Valentines DayMonday February 15 Valentines DaySunday April 4 EasterSunday April 11 EasterTuesday November 23 Thanksgiving DayWednesday November 24 Thanksgiving DaySunday November 28 Thanksgiving DaySaturday December 25 Christmas DaySunday December 26 Christmas Day

Program Holder - Jets Fleet SizeNetJets, Inc. 448NetJets Europe 157Flight Options 83Flexjet 78CitationAir 59Aerolineas Ejecutivas 12Executive AirShare 10Total 847

Program Holder - Turboprops Fleet SizeAvantair 55Alpha Flying, Inc. - PlaneSense 34Total 89

Charter Operator - Jets Fleet SizeKalitta Charters, LLC 28Sierra American Corporation 25Royal Air Freight, Inc. 22AirNet Systems, Inc. 21VISTAJET Luftfahrt.GmbH 21Phoenix Air Group, Inc. 16DC Aviation GmbH 14Pel-Air Aviation Pty. Ltd. 13XOJET, Inc. 12FAI rent-a-jet AG 11SIRIO Executive Srl 10Total 193

2

festivals are periods of higher demand on business aviation (e.g. football, horse racing, Formula 1, Olympics, Art Basel). Innovations like Flexjet 25’s 355-day card and CitationAir’s re-launched Jet Card provide customers with savings for avoiding peak-day flying. For customers of either the Citation XLS or Sovereign, the all-in hourly cost difference for non-peak flying is 15-16% lower than the competition, according to CitationAir and based on January 2010 information. For individuals and organizations who primarily need access to their aircraft during the Monday-to-Friday workweek, this represents real value.

Additional unofficial ‘peak days’

occur throughout the year, driven by uncontrollables such as weather, natural disasters, national security, and other so-called Acts of God. Predictable events that tend to arrive unpredictably, these days are the true tests for aviation service providers. Repeated, efficient situation recovery – with minimal inconvenience to customers while protecting a company’s bottom line – is a competitive differentiator. In these cases, size and experience truly matter.

Bridges over the Oceans

With executive appointments from outside the industry, and shareholder pressures to improve margins and cash flow, business aviation providers of all sizes are undergoing transformations aimed at lowering their costs of doing business. Fleet management decisions (disposition, acquisition, and deployment) are front-and-center in these strategic reviews. From the perspective of a business owner or investor, we remain convinced of the cost advantages of operating larger fleets from fewer manufacturers. From a customer perspective, we see a marked tendency to seek better value for the investment. Acting in concert, these two forces are creating an environment of change and opportunity in the business aviation industry.

Borrowing from the airline

playbook, strategies to grow top-line revenues are being deployed. Lufthansa, formerly partnered with NetJets Europe, recently celebrated the 5-year anniversary of Lufthansa Private Jet. The company manages a European

fleet of Citation aircraft, and is seeking expansion opportunities in the U.S. and Asia. Echoing the experience of its former alliance, about 70% of Lufthansa Private Jet travelers fly point-to-point, off-network routes. The company reports that it flies up 15 flights a day at peak times, a small but lucrative super-premium yield business. Similarly, Delta AirElite, with 45 owned and managed aircraft, is the wholly-owned executive aviation business of the world’s largest airline. Delta AirElite’s professed strategy is to “offer differentiated products and services and best-cost options to its high-value customers”.

In Asia, Singapore Airlines,

Korean Air, and Cathay Pacific deploy business jets not as executive transports but as flight training platforms. Trans-Atlantic and trans-Pacific alliances by Flexjet and Jet Solutions with VistaJet and Korean Air, respectively, mirror developments at global brand-building in the international airline industry.

With more than 100 business jets

currently in use with commercial airlines, and more than 600 4-abreast+ airliners serving as executive and head-of-state transports, there is every reason to expect that more bridges will

be built between seemingly disparate segments of the air transportion business.

For customers, it’s a no-brainer.

For airlines and their investors unsatisfied with 12-cent yields, and business jet operators seeking a return to growth, we might humbly suggest that these opportunities represent a ‘Go Get’.

Improving on a Legend For most of the last 100 years,

progress in civil aerospace technology was described by superlatives: newer, larger, faster, further, better, safer. In business aviation, the latest generation of high-end jets is being designed to span 7,000+ nautical miles (13,000 km), and fly at speeds near Mach 1. This same trend is echoed in commercial aviation, where the longest range jets - Boeing’s 777-200LR and Airbus’ A340-500 - can now fly 9000+ nm (about 17,000 km) with a full passenger load. The Airbus A380, with 202 firm orders to date from 17 customers and just 27 aircraft in service, is already the largest commercial aircraft yet flown.

With non-stop range capability to

connect almost any two points on the globe, it is fair to say that, as an industry, the ‘Range’ box on engineering’s To-Do list is clearly checked. So, what’s next?

In the 1980s and 1990s,

commercial airliners began for the first time to ‘shrink’ – four-engine designs were largely displaced by new-generation twinjets, driven by market

!"#$%&'()'

!*$&'+&%$,%'-.)'

/0#123'.4)'

51#63#'718$39':;$1;'()'

<&=;'!63#$%&'>'?&#$@@3&;'

A)'

B$CCD3'/&*9'.E)'

F1#9G'!63#$%&'--)'

!"#$%&'()*+"',-%.&)%/)*01$&"11)2"31)%4"+'3"-)*5)6%77"+6$'()

'$+($&"1)

3

forces. Primary amongst these were deregulation, fortress hubs, and increased competition. Twin-engine families from Boeing, Airbus, Bombardier and Embraer now account for the vast majority of manufacturer backlogs by number and value. Promising new designs such as Bombardier’s CSeries are expected to deliver unprecedented operating cost advantages to operators through next-generation Pratt & Whitney GTF engines and light-weight materials. Boeing, Airbus, Embraer, Mitsubishi, and other manufacturers are also evaluating their next moves in this large, global market.

While much of the focus and

attention is on these high-profile developments, other segments of the market are also ripe with investment opportunities. With more than 100 years of powered flight, the industry has already created a rich heritage of innovative designs, some of which – by today’s standards – were clearly ahead of their time. Pilots, flight department managers, dispatchers, A&P mechanics, CFOs, COOs, and business owners may recognize value in different ways. Nevertheless, they can probably agree that practical, reliable technologies and designs never really go out of style, and are very much in tune with these times.

Look Back to Look Forward

In the current environment, we are

pleased to note that entrepreneurs and investors are already benefiting from the wisdom of looking back to see their way forward. The revival of the venerable Twin Otter and the decision to produce the innovative Seastar amphibian are two recent examples. de Havilland and Dornier, pioneers of rugged, reliable, go-anywhere, haul-anything, fly-anytime aircraft, are renowned brand names with long, productive bloodlines. Now, with new manufacturing processes, composite construction, glass cockpits, upgraded Pratt & Whitney PT6 turboprop engines, and other features, Viking Air and Dornier Seaplane Company are poised to deliver value to a new

generation of owners and operators. And their success formula? Lighter-weight and non-corrosive materials. New and upgraded engines with longer maintenance intervals and lower operating costs. Digital cockpits. Quieter, more comfortable, and productively-equipped interiors. Higher speeds. More payload. Longer ranges. Lower operating costs. Less maintenance. New talent. Innovative local suppliers. Welcoming communities and development agencies. Equity partners with a long-term view. Leaders who accept the challenge and responsibility to preserve – and enhance –

their family’s heritage. Viking Air and Dornier Seaplane Company are just the most recent examples of companies that have come to the realization that, in aerospace, it’s possible to improve on a legend.

Despite oft-heard rumors of the

demise of turboprop-powered aircraft,

demand for classic models like the Cessna Caravan – a Land Rover with wings and the fuel burn of a Honda Civic – continues unabated. By the end of 2010, Cessna will have delivered 2,000 Caravans to businesses, individuals, and government agencies worldwide since initial deliveries began in 1985. Cessna shipped 19 Caravans

in Q1 2010, essentially unchanged year-over-year. As measured by new shipments to customers, demand for the more capable C208B Grand Caravan throughout the 2008-2009 Great Recession was 74% higher than during the last industry slowdown in 2003-2004 - and higher, in fact, than at any 2-year period in the model’s history.

Much like the Twin Otter and the

soon-to-be-available Seastar, customers appreciate the Caravan’s rugged and forgiving design, hefty payload, high-wing for easy loading and protection

!"

#!"

$!"

%!"

&!"

'!!"

'#!"

'((&" '(((" #!!!" #!!'" #!!#" #!!)" #!!$" #!!*" #!!%" #!!+" #!!&" #!!("

!"#$"%&'()"*+,'-+.+/

"

*+,'-+.'+)"#$"01.1-1&)"

,-.-/-0"#!&1%+*" ,-.-/-0"#!&2"

BEACONS !  Gulfstream reported its 4th consecutive quarter of positive net business jet orders in Q1 2010; operating margin was 16.1%, up 2.4% points YOY ! Bombardier reported 6 net business jet orders for the quarter ending April 30, 2010 (vs. -41 for the same period last year); book-to-bill ratio (net orders divided by deliveries, in units) grew from -1.0 to 0.2 YOY in Q1 2010 !  Worldwide pre-owned fleet available for sale fell to 15.6% of the fleet in Q1 2010 !  Canada’s real GDP growth in Q1 2010 was 6.1% (annualized) !  U.S. real GDP growth was in Q1 2010 was 3.2% (annualized); 2010 forecast is 3.4% !  Brazil has rebounded strongly from a brief 2-quarter recession; real GDP growth was -0.2% year-over-year in 2009; in Q4 2009, real GDP grew at 8.4% (annualized) !  Real GDP growth in China is forecast to be 10.0% in 2010; in India, 8.0%

4

from FOD damage, and remove-the-chocks-and-fly reliability. Recent C208 enhancements improve cabin comfort, icing protection, runway distance, and time-to-climb. Blackhawk’s Caravan STC package – including the 850 SHP PT6A-42A engine, new cowling, and 4-bladed Hartzell propeller – also enables speeds approaching 200 knots. With numbers like these, and OEMs and STC providers ready to do business, new or upgraded aircraft like the Caravan can do wonders for the bottom-line performance of business and government. We remain particularly impressed with the fuel burn advantages of turboprop-powered aircraft - on shorter-haul missions, slightly longer block-to-block times to move large amounts of payload at 40% lower fuel burns is a trade-off that is certainly in tune with these times.

In an age of value, where

individuals, business, and governments need better ROI, faster time to results, and lower life-cycle costs, aviation and aerospace technology are good friends. Off-the-shelf turboprop platforms like the Cessna Caravan, Twin Otter, and Beechcraft King Air are at work from Anchorage to Altenrhein to Abu Dhabi – where short or unimproved runways abound. In Asia, where most of the world’s airport investment is currently focused, we can also envisage runways without concrete. Protected saltwater coastal areas – providing access to communities, resorts, and natural resources – are set to flourish. With far lower facility construction costs and minimal environmental impacts, a network of aeromarine facilities and the era the Flugboot – envisaged by the Dornier family almost 100 years ago – may well be dawning.

Aerospace Industry Financial Highlights

Sources: Reuters, Forbes, ADVFN – May 28, 2010. (‘Industry’ includes both civil and defense.) Industry Summary: • The 52-week average P/E ratio of 6.5 for the aerospace industry has dropped year-over-year from 10.5 in May 2009. • The industry’s 5-year dividend growth rate of 4.5% is down significantly from 11.6% of one year ago. • Five-year average operating margins have improved over the past 12 months, with the current 5-year margin of 12.9% up 55% from last May’s 8.3%.

Rolland Vincent Associates, LLC is an aviation consulting firm. Drawing from over 25 years of aviation experience, we deliver trusted insights in market research, strategy, business and product development, industry analysis and financial modeling. We are here to help you understand customer needs and preferences, design products and services to delight your customers, and discover and seize business opportunities. We provide you with practical, intelligent solutions to unleash the power of your business and navigate for global aviation leadership.

Rolland Vincent Associates, LLC 7000 Independence Parkway, Suite 160-3, Plano, Texas 75025 USA

Tel: 972-439-2069 (U.S. Central Time) rvincent@rollandvincent.com www.rollandvincent.com

- 5 10 15 20 25 30 35 40 45

ROLLS ROYCE

FINMEC

L3

GEN DYN

BOMBARDIER

AAR

SPIRIT

HONEYWELL

UTC

EMBRAER

GE

ROCKWELL COL

CAE

PREC CAST

BE AERO

INDUSTRY

S&P 500

DASSAULT

BOEING

P/E RATIOS - trailing 12 months

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

BAE

DASSAU

LT

BO

MBARD

IER

S&

P 5

00

EAD

S

GO

OD

RIC

H

IND

USTRY

FIN

MEC

BO

EIN

G

HO

NEYW

ELL

CAE

UTC

GEN

DYN

RO

LLS R

OYCE

L3

RO

CKW

ELL

CO

L

EM

BRAER

GE

PREC C

AST

SPIR

IT

BE A

ERO

TEXTRO

N

AAR

CURRENT AND QUICK RATIOS - most recent quarter

Current Ratio Quick Ratio

-20% -10% 0% 10% 20% 30% 40% 50% 60% 70% 80%

BOMBARDIER L3

EADS GOODRICH

SPIRIT INDUSTRY

AAR GEN DYN BOEING

TEXTRON ROLLS ROYCE

EMBRAER HONEYWELL

UTC ROCKWELL COL

S&P 500 PREC CAST

BE AERO GE

DASSAULT FINMEC

GROSS AND OPERATING MARGINS - trailing 12 months

Operating Margin Gross Margin

-20%

0%

20%

40%

60%

80%

100%

120%

EAD

S

GO

OD

RIC

H

TEXTRO

N

BAE

DASSAU

LT

AAR

GE

BE A

ERO

FIN

MEC

EM

BRAER

CAE

SPIR

IT

S&

P 5

00

L3

PREC C

AST

GEN

DYN

UTC

IND

USTRY

BO

MBARD

IER

HO

NEYW

ELL

RO

CKW

ELL

CO

L

RO

LLS R

OYCE

BO

EIN

G

RETURN ON EQUITY AND ASSETS - trailing 12 months

Return on Equity (TTM) Return on Assets (TTM)