Air Lease Corporation

Wu Qianwen (Joven)Xu Wenqiang (Wayne)

Presented 10-29-2013

Agenda

• Introduction & Current Holding• Macroeconomic Factors & Industry

Overview• Company Overview• Management Outlook• Financial Analysis• Valuation• Conclusion & Recommendation

Introduction: Air Lease Corp. is an aircraft leasing company

• Business: Principally engaged in purchasing

commercial aircraft which the Company, in turn, lease to airlines around the world

98% of revenue is rental income• Fleet:

174 aircraft as of Jun, 2013 132 single-aisle narrowbody jet

aircraft, 30 twin-aisle widebody jet aircraft and 12 turboprop aircraft

Weighted average age of 3.5 years Net book value grew by 11.7% to

$7.0 billion as of June 30, 2013 compared to $6.3 billion as of December 31, 2012

• Employees: 52 in 2012, far fewer than

competitors• Financials:

2012 annual sales: $ 645.853 million

2012 net income: $ 131.919 million

Source: 2012 Annual Report, Jun 30 2013 10-Q P15

RevenueMillion $

Net IncomeMillion $

Current Holding: We bought 400 shares at $ 22.32 on Dec 18, 2012• Cost basis = $

8,928

• Closed @ $ 30.47 on Oct 28, 2013

• Market value = $ 12,188

• Gain = 36.51%

Source: Yahoo Finance

Industry & Macro: International airline industry demands drive aircraft leasing industry historically

• Late 1960s and early 1970s, airlines generally own all of their aircraft

• Airlines outsourced ownership of many of their airplanes through leases as fleets expanded and fixed costs grew

• Leasing companies can provide airlines with a diversity of aircraft types, capacities, as well as economic flexibility

Aircraft Operating Leases as a Percentage of Total WorldwideAircraft Fleet

Source: Air Lease Prospectus P75

Industry & Macro: Aircraft leasing industry was expected to grow in 2010...

• Number of aircraft on operating lease in 2010: 6,800

• Expected number of aircraft on operating lease in 2015: 8,500

• Implied CAGR: 4.56%

• This increase will be driven by both new aircraft deliveries as well as sale-leaseback transactions

Aircraft Lease vs. Other Ownership-History and Extrapolation

Source: Air Lease Prospectus P76

Industry & Macro: ... And the story doesn’t change much today

Country Group Name 2012 2013 2014 2015

World 3.177 2.871 3.588 3.964

Euro area -0.641-0.437 0.961 1.352

Major advanced economies (G7)

1.747 1.225 1.992 2.452

European Union -0.302 0.022 1.251 1.6

Emerging market and developing economies

4.915 4.549 5.074 5.348

ASEAN-5 6.161 4.963 5.416 5.538

Latin America and the Caribbean

2.934 2.681 3.111 3.53

Middle East and North Africa 4.608 2.146 3.774 4.174

Source: IMF World Economic Outlook Database, AVITAS, Boeing and Airbus 2013 Market Outlook, AYR 2012 Annual Report

IMF GDP Growth Forecast%, Oct, 2013

World RPK1 Growth Projection%, By Major Regions

Region 2012 20132012-2031

World 5.90 4.00 5.10North America 1.70 3.00 3.70Europe 4.40 1.30 4.00Asia Pacific 8.20 6.60 6.20Latin America 7.90 6.10 6.60Middle East 16.60 6.60 7.10Africa 8.30 5.10 6.90

Footnote: 1. revenue passenger kilometers (RPKs) are measures of traffic for an airline flight, bus, or train calculated by multiplying the number of revenue-paying passengers aboard the vehicle by the distance traveled

Global New Aircraft Deliveries2013-2032

Commercial air travel and air freight activity are broadly correlated with world economic activity and expanding at a rate of 1 to 2 times the rate of global GDP growth.

– AYR 2012 annual report

Industry & Macro: Emerging markets are driving the future growth of the industry

Source: Airbus 2013 Market Outlook, IHS Global Insight

Emerging Economies 2013 VS. 2032

Industry & Macro: Overall, aircraft leasing is a highly competitive market

Rivalry Competition

•Strong (4)1

Competition from aircraft manufacturers, banks, financial institutions, other leasing companies, aircraft brokers and airlinesSimilar productsInternationalized marketFragmented market with 100 lessors in 2010, top 5 control 50%+ number of aircraft and 60%+ of aircraft value

Suppliers’ Bargaining Power

•Strong (4.5)Only a few huge suppliers in the market such as Airbus and Boeing

Source: AL Prospectus, AL Annual Reports

Buyers’ Bargaining Power•Medium (3), emerging market (2.5) and mature market (3.5)Large numbers of relatively smaller airlines in emerging market, with few financing channels for aircraft and weak pricing powerRelatively concentrated airline market in mature economies, with larger and more mature airline companies

Footnote: 1. Number in the brackets is the overall rating for this factor, larger number means stronger power

Threat of New Entrants

•Weak (2)The industry requires expertise and customer relationshipsSmaller companies tend to own more aged aircraft, which is not a very direct threat to the large players

Substitutes

•Medium (3)Only substitute is for airlines to own aircraft themselves, which is common but not as efficient as leasingOften airlines enter into “Sale and Lease Back” contract with lessorsOperating leasing is the trend

Company Overview: As a relatively young company, AL business is growing fast...

Net IncomeMillion $

RevenueMillion $

Fleet Size and Age

Planned Aircraft AcquisitionAs of Dec 31, 2012

Source: AL 2012 Annual Report

Planned 2013-2023 total acquisition number is 325, as of the end of 2012

98% of revenue is rental income

Company Overview: ... With an increasing focus on emerging markets

Percentage of Net Book Value of Fleet by Region%

Percentage of Rental Revenues by Region%

Source: AL 2012 Annual Report

Management Outlook

• Increasing Percentage of Unsecure Debt Borrowing

• Consistently adding new aircraft to the portfolio

• Owned 155 aircrafts as of December 31, 2012

• Operating in 49 countries • Net income increases 148% from 2011

to 2012

Source: AL 2012 Annual Report, Air Lease Website

SWOT Analysis

Strengths Weaknesses•Young Fleet with average age of 3.5 years•High percentage of unsecured financing•Diversified markets, especially its focus on the emerging markets•Small number of employees•Highly skilled management team with established networks

•Stringent requirements to fulfill in order to secure financing from the bank (restricted cash)•Highly dependence on few aircraft manufacturers

Opportunities Threats•Economy recovery•GDP growth in the emerging market

•Rising interest environment, 40% of the debt is on floating terms•Inflation, with most of the rental stated as a fixed amount•Exchange rate fluctuation

Source: AL 2012 Annual Report

SWOT Analysis

Financial Analysis (1)

Liquidity Ratios

　 2010 2011 2012Current Ratio 11.22 3.49 1.75Quick Ratio 11.22 3.49 1.75Cash Ratio 0.31 0.09 0.05　 　 　 　

Profitability Ratios

　 2010 2011 2012Operating Profit Margin -104.37% 24.60% 31.11%Net Profit Margin -89.16% 15.81% 20.12%ROA -2.29% 1.03% 1.79%ROE -4.25% 2.45% 5.66%Cash Return on Equity1 -2.68% 7.61% 14.92%　 　 　 　

Solvency Ratios

　 2010 2011 2012Debt/Assets 46% 58% 68%Debt/Equity 86% 137% 215%Interest overage 1.13 5.84 4.45

Source: AL 2012 Annual Report

Footnote: 1. Cash Return on Equity=(Net Income + Depreciation)/Equity, this is to take the large depreciation into account when evaluating investor return

Financial Analysis (2)

Activity Ratios　 2010 2011 2012Fixed Assets Turnover 4% 8% 10%Total Assets Turnover 3% 7% 9%　 　 　 　

DuPont Analysis

　 2010 2011 2012Tax Burden 85% 64% 65%Interest Burden 1 1 1Operating Profit Margin

-104% 25% 31%

Asset Turnover 3% 7% 9%Leverage 1.86 2.37 3.15ROE -4% 2% 6%

Source: AL 2012 Annual Report

DCF Analysis-Discount Rate

CAPM

Risk Free Rate 3%Market Risk Premium

7%

Beta 1.35Cost of Equity 12.45%

Weighted Average Cost of CapitalShare Price 30.47shares outstanding (thousands) 101,247 Market Capitalization 3,085,006 Market value of debt 4,384,732 Weight of Equity 0.41 Weight of Debt 0.59 Cost of equity

CAPM return 12.45%Realized return 2.39%Weighted cost of equity 9.93%

Composite cost of debt 3.94%Effective tax rate 35.5%WACC 5.59%Other Business risk premium* 2%Adjusted WACC 7.59%

*Note: Rising interest rate risk and emerging market risk, sales volatility, and etc.

Source: AL 2012 Annual Report, Stock Price

DCF Analysis

Air Lease Discounted Cash Flow Analysis (in thousands of dollars)

　 2013E 2014E 2015E 2016E 2017ETerminal

ValueNet CFO 797,691 668,489 564,030 715,007 758,219 - Interest*(1-t) 131,139 169,448 208,155 225,008 263,860

Capital Expenditure -1,386,833 -

1,362,593

-1,013,10

8 -628,104 -553,686

Free Cash Flow -458,003 -524,656 -240,923 311,911 468,394 11,270,77

2 Present Value -425,682 -453,218 -193,431 232,753 324,857 7,816,893 　 　 　 　 　 　 　Implied Enterprise Value

7,302,173

　 　 　 　 　

Less Debt 4,384,732

　 　 　 　 　

　 Terminal Growth Rate

3.30% 　 　

Implied Market Cap 2,917,441

　 WACC 7.59%

　 　

Shares Outstanding 101,247 　 　 　 　 　Implied Share Price 28.81 　 　 　 　 　

Source: AL 2012 Annual Report, Stock Price

DCF Analysis-Sensitivity Test

Source: AL 2012 Annual Report, Stock Price

Comps Analysis-Stock Performance

Source: Google Finance

Comparable Analysis

Target Company

Ticket SymbolPrice as of 10/25/2013

Shares Outstanding

Enterprise Value

Price/Book

Price/ETEV/Sales

PEG

Air Lease AL (NYSE) 30.23 101.25 8070 1.26X 13.68X 4.02X .61X

Comparable Ticket SymbolPrice as of 10/25/2013

Shares Outstanding

Enterprise Value

Price/Book

Price/ETEV/Sales

PEG

AerCap Holdings N.V.

AER (NYSE) 20.68 113.4 8210 1.02X 7.95X 2.38X .66X

Aircastle LTD AYR (NYSE) 19.15 80.78 4660 .9X 10.24X 2.2X .48XFLY Leasing

LimitedFLY (NYSE) 14.71 28.16 2330 .71X 10.66X 1.1X -.56X

Comparable Statistics

Price/Book

Price/ETEV/Sales

PEG

High 1.02X 10.66X 2.38X .66X

Median .9X 10.24X 2.2X .48X

low .71X 7.95X 1.1X -.56X

Mean .88X 10.45X 1.89X .2X

　 Multiples Implied Value 　 　 　 　

　 AL High Median low Mean HighMedia

nlow Mean 　 　 　 　

PEG 22 .66X .48X -.56X .2X 32 23 -27 9 　 　 　 　P/B 23.99 1.02X .9X .71X .88X 24.47 21.59 17.03 21.03 　 　 　 　P/E 2.21 10.66X 10.24X 7.95X 10.45X 23.56 22.63 17.57 23.09 　 　 　 　P/S 7.52 2.38X 2.2X 1.1X 1.89X 17.90 16.54 8.27 14.24 　 　 　 　

Air Lease Corporation Comparable Company Analysis, Millions $

Source: AL 2012 Annual Report

Decision Drivers

• Strengths– Young fleet: 3.5 years– Diversified portfolio of airlines lessees– High percentage of unsecure debt–Management expertise and established

network• Concerns:– Rising interest rate environment– Emerging market economy volatility

Recommendation

• Valuation Summary– Current Stock Price: $30.47 – DCF Valuation: $28.81– Comps Valuation: $23

• Recommendation– Hold

Q&A

Thank you ,any questions?