Market Perspectives

Robert Martin

Managing Director & Chief Executive Officer

Growth Frontiers Asia Pacific Conference

31st October 2017

Disclaimer

This presentation contains general background information about the activities of BOC Aviation Limited (“BOC Aviation”), current as at the date hereof. This document does notconstitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of BOC Aviation or any of its subsidiariesor affiliates in any jurisdiction or an inducement to enter into investment activity.

The information contained in this document has not been independently verified and no representation or warranty, expressed or implied, is made as to, and no reliance should beplaced on, the information or opinions contained herein. The information set out herein may be subject to revision and may change materially. BOC Aviation is not under anyobligation to keep current the information contained in this document and any opinions expressed in it are subject to change without notice. None of BOC Aviation or any of itsaffiliates, advisers or representatives (including directors, officers and employees) shall have any liability whatsoever for any loss whatsoever arising from any use of this documentor its contents or otherwise arising in connection with this document (whether direct, indirect, consequential or other).

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Any securities or strategies mentioned herein (if any) may not be suitable for all investors. Recipients of this document are required to make their own independent investigation andappraisal of the business and financial condition of BOC Aviation, and any tax, legal, accounting and economic considerations that may be relevant. This document contains datasourced from and the views of independent third parties. In replicating such data in this document, BOC Aviation does not make any representation, whether express or implied, asto the accuracy of such data. The replication of any views in this document should not be treated as an indication that BOC Aviation agrees with or concurs with such views.

The information contained in this document is provided as at the date of this document and is subject to change without notice.

2

3

Summary

The BOC Aviation Journey

Reflections On The Last Year

Looking Forwards – What Are We Thinking About?

Private & Confidential

The BOC Aviation Journey

4

1993

1997

SALE established with 50:50

joint ownership between

Singapore Airlines and

Boullioun Aviation Services

Temasek and GIC each

became 14.5% shareholders

2006 Bank of China acquired 100%

of SALE on 15 Dec 2006

2016Listed on HKEx on 1 June

- 70% by Bank of China

- 30% by public float

Ownership

2009 >US$5B

2006

>US$10B

2000 >US$1B

2013

>US$3B

1997 >US$0.5B

Total Assets

Jun-2017 US$14.4B

2018 will be our Company’s 25th anniversary!

Core Competencies of a Leasing CompanyBOC Aviation Performs on Every Measure

5

Sales

Transitions

Repossessions2

Procurement

Leasing

Debt financing1

280 aircraft sold

More than 60 transitions

33 aircraft in 13 jurisdictions

740 aircraft purchased totaling more than US$37 billion

More than 750 leases executed with more than 140 airlines in 52 countries

More than US$20 billion in debt raised since 1 January 2007

US$2.7 billion1 in cumulative net profit after tax generated since inception

All data as at 30 September 2017, since inception unless otherwise indicated

Notes:

1. As at 30 June 2017

2. Includes repossessions and consensual early returns

3. Average value over last 10 years since 1 January 2008

Fleet Utilization3

Cashflow Collection3

Average 99.8%

Average 99.6%

6

Reflections on the Last Year

7

The Operating Leasing Industry Today

5 key airframe manufacturers

3 key engine manufacturers

10,000+ supply chain partners

c.800 airlines globally

46,950 new aircraft required over

the next 20 years1

200+ active banks

1000+ capital market investors 350+ aircraft lessors

SuppliersCustomers

Funding Investors

Aircraft

Leasing

Industry

Notes:

1. Boeing CMO 2017-2036

Airline Demand – Macro Environment

8

• Trump

• North Korea

• Middle East

• Turkey

• China CPC meeting last week

• Brexit

• French and German elections

• Catalonia

Notes:

1. Based on World Bank Global Economic Prospect Report, as at June 2017

2. Source: IATA (August 2017)

What made the headlines?

But…

• Expected global GDP growth for 2017: 2.7%1

• Airline traffic growth of close to 8%2

9/11 &

Second

Gulf

War

Global

Economic

Crisis

First

Gulf

War

Underlying Traffic Growth

Source: IATA (August 2017)

Source: Airbus Global Market Forecast, Boeing Capital Market Outlook

20-year fleet growth rate, %

Asia: ~x2

Asia: ~x2

Source: Euromonitor

Source: Ascend Flightglobal Fleet Forecast 2015, Oxford Economics, Boeing Current Market

Interactive Forecast 2017-2036

Note:

1.Defined as number of households with yearly income between US$25,000 and

US$150,000

Air traffic is

estimated to

grow by 2.5x by

2036

1990-2016 2017-2036

Air Traffic +5.3% +4.7%

Global

GDP+2.9% +2.8%

Above-trend passenger demand growthGrowth in the middle classes1 to be driven by

emerging economies

Air traffic estimated to grow by 150% in the next

two decades…Fleet expected to double in the next 20 years

Middle class households (million)

5.3% 5.2%5.9%

6.5% 6.3%

7.9%

2012 2013 2014 2015 2016 Aug-2017

RPK growth (YTD) 20-year RPK trend growth

75 83 91 96127 150 168 18916 26 40 5660

99199

338

2000 2010 2020E 2030ENorth America Europe LATAM Asia

Asia: ~x2

Asia: ~x2

Middle class households (million)

3.7% 3.5%

2017

Airbus Boeing

9

7.4%

10.2%

8.7%7.5% 7.0%

4.5%

Africa Asia Pacific Europe

Latin America Middle East North America

Passenger Load Factor

YoY change, %

Source: IATA (Airline Industry Economic Performance – June 2017)

Source: IATA (August 2017)

Positive Environment with Airline Profitability near Records

Aggregate net profit

US$ billion

Source: IATA (August 2017)

RPK growth, YTD

Passenger Load Factor

%

Elevated airline profitability sustainedEmerging markets continue to record high air

traffic growth

High load factors suggest well-managed capacity

Aggregate net profit

US$ billionRPK growth, YTD

50

60

70

80

90

(5)

0

5

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Passenger Load Factor YoY % Change (LHS) Passenger Load Factor (RHS)

Passenger Load Factor 12M Mov. Avg (RHS)

10

Jet Fuel Price Movements Over The Last Six Years

11

0

20

40

60

80

100

120

140

7/2011 1/2012 7/2012 1/2013 7/2013 1/2014 7/2014 1/2015 7/2015 1/2016 7/2016 1/2017 7/2017

US$/BBL

US$67.27

Is BRIC back?

12

CountryLatest GDP

Growth Rate1

Domestic Airline Traffic

Growth2

(RPKs based on YoY %

change)

Size of Domestic

Market as % of Total

Brazil 0.7% 5.5% 1.2%

Russia 1.8% 8.3% 1.3%

India 6.7% 16.0% 1.3%

China 6.8% 10.0% 8.7%

USA 2.2% 6.4% 15.0%

Japan 1.5% 9.0% 1.1%

WORLD 3.6% 7.6% -

Notes:

1. Source: International Monetary Fund, October 2017

2. Source: IATA Air Passenger Market Analysis (August 2017)

BRICS are now four of the five largest domestic markets

Large Airlines & Relative Market Share

13

The largest 128 airlines today operate 75% of aircraft in the market

Source: Ascend, by number of airlines and aircraft, as at 30 September 2017

Our

Addressable

Market

Largest 10 airlines have a combined

aircraft market share of 26%

Largest 43 airlines have a combined

aircraft market share of 50%

Largest 128 airlines have a combined

aircraft market share of 75%

% of Aircraft

Operated

Airlines (#)0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 100 200 300 400 500 600 700 797

14

143 airlines, 18%

43, 5%

64, 8%56, 7%

84, 11%

407, 51%

Structure of the Airline Market

797 airlines in service today

Source: Ascend, as at 30 September 2017

Airline Segmentation by Credit

Score and Fleet Size

Our Target 143 Airlines Operate 74%

of the Current In-service Aircraft

Credit above minimum,

fleet >20 aircraft

Credit above minimum,

fleet 10-20 aircraft

Credit above minimum,

fleet < 10 aircraft

Credit below minimum,

fleet >20 aircraft

Credit below minimum,

fleet 10-20 aircraft

Credit below minimum,

fleet < 10 aircraft

14,948 aircraft,

72%15213 aircraft,

73%15,914 aircraft,

74%

643, 3%

302, 1%

2,289, 11%

1,142, 5%

1,347, 6%

c.90% of

BOC Aviation’s

portfolio

Inter-Airline Investments

15

• In the past year, we have seen the following equity investments:

• Delta & Air France & Virgin Atlantic & China Eastern

• Delta bought 10% of Air France

• China Eastern bought 10% of Air France

• Air France bought 31% of Virgin Atlantic alongside Delta

• American invested US$200m into China Southern

• Scoot merger with Tiger Air

• HNA Group continued airline investments

• Qatar bought 49% stake in Italy’s Meridiana

• Israel’s El Al acquired Israir

• Adria Airways acquired Darwin Airlines

• Etihad discontinued support for Air Berlin and Alitalia

16

Predominantly Smaller Airlines Have Exited The Market

Source: FlightGlobal & various public sources for 100+ seats commercial aircraft, as at 30 September 2017

Number of airlines

Number of Airlines that Left the Market, By Year

298 airlines left the market across 2000 to 2017, but less than 10% had more than 20 aircraft in their fleet

0

5

10

15

20

25

30

35

40

45

50

Airlines with fleet >20 aircraft Airlines with fleet <20 aircraft

17

Larger Airlines Show Greater Resilience

Airlines (Fleet >20 Aircraft) That Left the Market, By Year

No more than 4 large airlines (fleet >20 aircraft) per year left the market

Number of airlines

with fleet >20 aircraft

0

1

2

3

4

5

Airlines with fleet >20 aircraft

Source: FlightGlobal & various public sources for 100+ seats commercial aircraft, as at 30 September 2017

18

Airline Bankruptcies Tend to Affect Smaller Airlines –

Until Market Disruption Occurs

0

50

100

150

200

250

300

350

400

0

10

20

30

40

50

60

2000 2002 2004 2006 2008 2010 2012 2014 2016

No. of opr No. of ac

Total airline bankruptcies and the total number of aircraft repossessed per annum

No. of airline

operators

No. of aircraft

repossessed9/11 effect –

impacted US carriers

most; few airlines but

many aircraft

Weaker airlines hit by high fuel

price followed by financial crisis;

many airlines and many aircraft

Source: Ascend, Innovata, BOC Aviation Risk Management, based on 100+ seat operators, as at 30 September 2017

European

consolidation

Liquidity Cycle

19

• Liquidity remains very strong and stock markets high

• USD interest rates – still remain low

• Re-emergence of the CNY bond market

• Chinese MOF returns to USD bond markets

• T+15bp for 5 year and T+25bp for ten year USD Bonds

• 10x oversubscribed

• Investment grade leasing issuance high

• Unsecured debt issuance by lessors

• ABS issuance by lessors

• EETC issuance by airlines

• No IPOs from leasing companies in the past year

• Three M&A transactions in leasing market

• Airline IPOs – only Azul

Liquidity is still very strong

US Dollar Interest Rates Remain Low

20

0

1

2

3

4

5

6

7

8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

6-Month LIBOR US 10-Year Swap Rates

(%)

6-month LIBOR

(Oct 2017):

1.56%

US 10-Yr Swap

Rates (Oct 2017):

2.43%

Bloomberg, as at 27 October 2017

The Manufacturer Cycle

21

• Balance of Widebody versus Narrowbody aircraft deliveries

• Supply-chain challenges have resulted in delayed deliveries

• Unprecedented levels of new technology aircraft entering market

• Challenge of certification of new aircraft types by

individual countries

• Emergence of big data and predictive data technology

Narrowbody vs. Widebody Aircraft Deliveries in 2017

22

More widebody CAPEX

• Annual aircraft capex is equivalent to 15% of global airline revenues

US$70B in Aircraft CAPEX in 2017

Narrowbody Aircraft

45%

Widebody Aircraft

55%

Looking Forwards, More Choices But Supply Chain Strained?

23

B787-8

Superjet

B747-8

B787-9

A350-900

ARJ21

A320NEO (PW)

A320NEO (CFM)

CS100

CS300

A321NEO (CFM)

A321NEO (PW)

B737 MAX 8

Irkut MC-21

A350-1000

B737 MAX 9

B787-10

E190-E2

A330-900

E195-E2

B737 MAX 7

A330-800

A319NEO

B777-9

B737 MAX 10

MRJ

E170-E2

B777-8

C919

B737 MAX 8 (200 seat)

50

100

150

200

250

300

350

400

450

2010 2011 2012 2013 2014 2016 2017 2018 2019 2020 2021 2022

As at October 2017

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

The Operating Lessor Market

24

• Leasing market continues to grow in proportion to overall aircraft global fleet growth

• Consolidation in the aircraft leasing space:

• Century Tokyo investment in ACG

• DAE acquisition of AWAS

• Avolon acquisition of CIT

• Response of international lessors to new competition: JV vehicles with lower cost of

equity

• Aggregate of all aspirations for balance sheet growth is significantly higher than the

actual balance sheet growth

• Could drive purchases of portfolios and M&A activity

• Narrowbody SLB yields to lessors under pressure due to limited supply of

narrowbody SLBs relative to demand from leasing companies

• Direct manufacturer orders by airlines with limited capital providing some SLBs

Aircraft Operating Leasing Drivers

Source: Ascend, 30 September 2017

Number of aircraft

Number of aircraft

41,030

46,950

Source: Boeing CMO 2017-2036

Demand driven by market growth and

replacement of old aircraft New aircraft demand led by Asia Pacific

Predominantly single aisle aircraft Share of operating lessors now stable

Source: Boeing CMO 2017-2036

Source: Boeing CMO 2017-2036

41,030

46,950

Number of aircraft

25

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 6

12

18

24

30

36

42

48

54

60

66

72

78

84

90

96

102

108

114

120

126

132

138

144

150

156

162

168

174

180

186

192

198

204

210

216

222

228

234

240

246

252

258

264

270

276

282

288

294

300

2015 2017 YTD

26

Whilst M&A has occurred in top 10, largest two lessors didn’t grow

Aircraft owned /

managed (%)

Source: Ascend, as at 30 September 2017. Fleet data includes in-service owned and managed aircraft, based on aircraft of 100+ seats

• Dec 2015: Largest 5 lessors managed 40%

• Oct 2017: Largest 5 lessors manage 37%

• Dec 2015: Largest 10 lessors managed 54%

• Oct 2017: Largest 10 lessors manage 52%

1

Lessor (#)

350

Less Concentration Now in the Market

Financing: Strong Credit Rating is Key

27

Source: Bloomberg, as at 5 October 2017

Note:

1. Dubai Aerospace completed its acquisition of the AWAS portfolio in August 2017

Credit ratings now prevalent amongst aircraft operating leasing companies

Lessor Fitch S&P Moody’s

BOC Aviation A- A- NR

SMBC Aviation Capital A- BBB+ NR

Aviation Capital Group BBB A- NR

Air Lease Corporation BBB BBB NR

Aercap BBB- BBB- Baa3

Avolon BB BB+ Ba2

Aircastle NR BB+ Ba1

Dubai Aerospace1 NR BB Ba2

FLY Leasing NR BB- B1

Bond Issuance by Lessors in 2017

28

Close to US$30B worth of bonds issued by lessors in 2017 so far

Source: Bloomberg, as at 26 October 2017

0

1

2

3

4

5

6

7

8

9

Avolon DAE AviationCapitalGroup

BOCAviation

ICBC ILFinance

CDBLeasing

AerCap Air LeaseCorp

SMBCAviationCapital

Aircastle CALC FlyLeasing

US$B

29

Looking Forwards – What Are

We Thinking About?

Airlines

30

• What new game changers are coming?

• Long haul LCCs?

• Australia-Europe direct flights have started

• The Asian markets are changing

• Impact of LCCs

• Mid-sized widebodies enabling more point-to-point flights to

Europe and US

• Consolidation

• Americas and Australasia have already consolidated

• Europe is consolidating

• When will Asian airline consolidation start?

• We are seeing startup activity in both Europe and the developing markets

• One key to success will be access to long term financial liquidity

Liquidity

31

• Overall financial liquidity

• When will the reductions in government balance sheets begin to

take effect?

• How quickly will USD interest rates rise?

• Regulatory changes

• Impact of BASEL IV on bank debt providers

• MIFID on the equity markets and analyst coverage

• Significant delivery growth will increase demand for PDP and post

delivery financing

• Presently small margin difference between investment grade and

non investment grade

• Why aren’t LCCs putting backstop liquidity in place?

• Don’t wait until after the Minsky moment….

The ‘Minsky’ Moment

32

0

1

2

3

4

5

6

7

8

9

1 2 3 4 5 6 7 8 9 10 11 12 Time

GDP

CREDIT

Hedge Finance

Speculative Finance

Ponzi Finance

Minsky Moment

Stylized “Minsky Cycle”

Supply

33

• New aircraft production

• How fast will single aisle production actually rise

• How solid is the overbooking?

• Proportion of aircraft coming through leasing channel

• Supply chain issues

• When will present engine delivery slippage finish?

• Can the supply chain effectively support further production increases?

• Supply chain consolidation

• Airbus acquisition of majority of C Series programme

• What next?

• Impact of big data – pros and cons for aircraft owners

• Used aircraft market

• Larger numbers of used aircraft could return to the market during rest of

decade when new aircraft supply high

• The flip side of 6 year leases…

Leasing Market

34

• Market depth

• No lack of demand for buying assets, issue is supply

• Lack of balance sheet growth for lessors without orderbooks

• This has driven new entrants to order aircraft directly from

manufacturers

• The new single aisle aircraft placement market will be highly

competitive from 2019

• Core competencies and deep stakeholder relationships then become

crucial

• For those without order books, more consolidation or acquisition of

portfolios as alternative growth?

35

• Airline market strong but reshaping in certain parts of world

• There are always new entrants and airlines leaving the market

• Moving aircraft is part of operating leasing

• Liquidity continues to be strong driving funding costs and aircraft trading

• The use of bond markets has significantly increased for lessors

• Margins between investment grade and non investment grade at

cyclical low for airlines and lessors

• Supply presently stable but we don’t need any rapid ramp up of production

rates

• Can supply chain support it?

• Competition in leasing is fierce

• Recent M&A hardly changes overall market concentration

Conclusions

36

www.bocaviation.com

BOC Aviation Limited 8 Shenton Way #18-01 Singapore 068811 Phone +65 6323 5559 Facsimile +65 6323 6962

Incorporated in the Republic of Singapore with limited liability

Company Registration No. 199307789K