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SKYLINK AIRWAYS INC.

BUSINESS PLAN BOEING PLATFORM

APRIL 2004

WASHINGTON DULLES INTERNATIONAL AIRPORT

44965 AVIATION DRIVE, SUITE 205 DULLES, VIRGINIA 20166-7519

(703) 661-6901 OFFICE (703) 661-6889 FAX

VERSION 5.0 April 2, 2004

Index Executive Summary _________________________ 1

Background _____________________________ 3

Key Challenges and Solutions ________________ 4

Route Development Summary _______________ 5

Management Summary _____________________ 6

Financing Requirements ____________________ 7

The Opportunity ___________________________ 8

Market Incumbents & Market Fares ___________ 11

Phase I Competitors _______________________ 11

Phase II and III Competitors ________________ 12 US Flag Carriers _______________________ 12

Competition: Major US-Flag Carriers __________ 13

Conclusions: US-Flag Carriers _______________ 19

International Carriers ______________________ 19

Other Carriers ____________________________ 23

Conclusions: Non-US Carriers _______________ 23

Market Fares _____________________________ 24 Business Class Analysis __________________ 24 American Express Study: Business-Class Fares 26

SkyLink Product Definition __________________ 28

Aircraft Configuration _____________________ 28

Cabin Configuration: Specifics _______________ 29

Specific Service Components ________________ 32

Main Deck Bunks _________________________ 34 More Bunks, Less Seat Pitch ______________ 36

Hotel Partnership & Rewards Program _________ 37

Routes ____________________________________ 39

Introduction _____________________________ 39

Background: Worldwide Traffic Flows _________ 40

Destinations: International Cities & Traffic to the United States _____________________________ 41

Origins: US Cities _________________________ 43

US-Originating Markets for International Travel__ 45

DOT Certification: Route Choices ____________ 46

Planned Phase II and III Routes ______________ 47

Sample Route Analysis: Los Angeles to London/Stansted _________________________ 48

Impact of Connecting Passengers from LCCs ____ 50 Market Size Analysis With & Without LCC Connectivity __________________________ 50 Baltimore/Washington to Brussels _________ 52

LCC Partnership Structure __________________ 54

Commission Structure ____________________ 55

Fares, Distribution & Competitive Response ____ 56

Discount & Incentive Programs ______________ 58

Fare Survey: Connecting vs. Originating Tickets __ 58

Competitive Response _____________________ 61

Cost Advantage vs. Competitors ______________ 61

Ticket Distribution ________________________ 64

Web Site Functionality _____________________ 64

Route Authorities___________________________ 65

Open Skies Bilateral Agreements _____________ 65

Restrictive Bilaterals _______________________ 65

Limited-Entry Bilaterals ____________________ 65

Operations Strategy & Plan __________________ 68

Aircraft Options __________________________ 68

Nationality Options _______________________ 70

Training Infrastructure _____________________ 71

Key Hires and Startup Costs _________________ 71 Startup Costs __________________________ 72

Corporate Information & SPV Structures _______ 74

Total Capital Requirements __________________ 74

Corporate Structure _______________________ 74

Financing: Leveraged Lease Structure __________ 75

Questions and Answers ______________________ 78

Management & Support Team ________________ 82

Key Officers & Positions ___________________ 82

Detailed Biographies _______________________ 82

Risk Factors _______________________________ 86

Financial Summary and Operating Assumptions _ 89

Financial Appendix _________________________ 94

Market Fares & Passenger Revenues ___________ 95

Competitors’ Block Hour & CASM Costs ______ 99

Aircraft Utilization Table __________________ 100

2004 Projected Operating Expenses, By Quarter 100

2005 Quarterly Summary __________________ 102





Sample Fares: Competition vs. SkyLink Airways _ 112

Sample Profitability Analysis ________________ 115

P A G E 1

Executive Summary SkyLink Airways will be a point-to-point international carrier, using a high comfort, low-cost model optimized for global long-haul flying. SkyLink has the opportunity to become the first, and eventually dominant, low-cost carrier (“LCC”) in international markets with an industry-leading cost structure, and with a business model that captures both premium and economy travelers. The SkyLink operating and cost advantage can be summarized by:

- Industry-low labor and overhead costs, due to an international workforce with moderate wages and without burdensome pensions; minimal airport and “hub” infrastructure; and lean corporate overhead. Competitors’ block-hour1 operating costs will be at least 16% higher than SkyLink’s on very long-haul routes and 55% higher on shorter routes (including trans-Atlantic flights).2 SkyLink’s per-passenger operating costs on Atlantic routes will average 40% below legacy competitors’ per-passenger costs.

- Widebody aircraft financed at attractive rates, with high utilization and outsourced

maintenance. High utilization will drive efficient crew scheduling and maintenance and reduce overall costs.

- Lean marketing and distribution costs, through an Internet-based sales model, an

international call center, and partnership agreements with other low-cost carriers. The SkyLink product can be summarized by:

- An innovative business-class service that emphasizes seat comfort over in-flight services, catering to value-minded business and wealthy leisure customers. SkyLink is contemplating offering staterooms or sleeping berths on every flight (staterooms on the main deck on Boeing aircraft; bunks under the main deck, in converted crew-rest facilities, on Airbus aircraft) offering a unique business product comparable to other airlines’ First Class suites, yet delivered at low cost and reasonable fares.

- A premium economy section in competitive markets, featuring wider seats and

more legroom (38” pitch) to lure higher-fare economy travelers. SkyLink will offer in-flight entertainment and meals for purchase. While the seats will be different, services offered in Premium and Standard Economy will be identical.

- A standard economy-class service, with comfortable 34” seat pitch.

- A fare strategy designed to capture value-driven frequent international travelers,

with understandable fare structures and systems, transferable tickets, and “ticket-books” that allow small businesses to lock-in low fares through bulk advance purchases.

- An aircraft strategy designed to match available seats to individual markets.

SkyLink will commence operations in 2005 with a fleet of five Boeing 767-200ER aircraft, but will conduct an aircraft competition in late 2004 to determine SkyLink’s

1 The ATA defines “block hours” as the time an aircraft moves under its own power, although some airlines measure block time from engine start to engine stop, and others measure from the time the parking brake is released to the time it is set. Block hours are used for aircraft and crew scheduling and to calculate utilization. 2 See Cost Advantage vs. Competitors, starting p58. SkyLink A330-300, 299 seats, vs. competition.

P A G E 2

permanent fleet type. To maximize crew training, maintenance, and marketing advantages, SkyLink will establish a single fleet platform by 2008 with multiple derivatives, using common aircraft of different lengths (777-200 vs. 777-300; A330-200 vs. A330-300) to satisfy different market requirements. Until this single fleet is established, SkyLink will deploy its first 767-200ER aircraft in new markets to develop traffic, and deploy new deliveries of permanent 300-seat aircraft in established markets during peak seasons.

EXHIBIT ONE: REPRESENTATIVE SEAT CONFIGURATIONS

BOEING 767-200ER (INTERIM LIFT CONFIGURATION), 202 SEATS TOTAL

30 BUSINESS (18 SEATS @ 48”, 12 IN 3 STATEROOMS), 172 ECONOMY CLASS (34”)

AIRBUS A330-300 (PERMANENT FLEET CONFIGURATION), 298 SEATS TOTAL 48 BUSINESS (48” PITCH, UNDER-DECK BUNKS), 116 PREMIUM ECONOMY, 134 STANDARD ECONOMY)

SkyLink’s substantial cost advantage is driven by four major factors:

- Substantially lower labor costs, driven by reasonable pay scales and defined contribution plans. SkyLink’s legacy competitors fly widebody aircraft on long-haul routes, with crews at the highest end of seniority and pay scales, boosting labor costs disproportionately for competitors. SkyLink’s flight crew cost will average $305 per block hour (for a Captain, first-officer and reserve pilot on long-haul flights) compared to $800 to $1,600 per block hour for competitors. Productivity will be driven by high utilization and straightforward point-to-point network design. SkyLink will staff fewer cabin attendants than legacy competitors, with a target of one attendant per forty passengers.

- Lower aircraft rental, driven by utilizing less expensive aircraft at higher utilization rates

than legacy competitors. SkyLink will invest in new interiors on used aircraft, preserving

P A G E 3

comfortable pitch in both business and economy while achieving a high-density configuration.

- Aggressive use of technology to minimize overhead and distribution expense, especially

in foreign markets. SkyLink will distribute the majority of its tickets via the Internet, will utilize portable in-flight entertainment (IFE) solutions to avoid costly interior wiring, and will invest in airport technology to cut passenger handling costs.

- Outsourcing of heavy maintenance and other non-core functions to keep indirect costs

under tight control. SkyLink will manage available seat inventory through online sales and call-center bookings. Business-class seats will be priced by easily-understandable fare buckets (full-fare or discounted business class seat with an add-on bunk option) on a one-way basis. Business class fares will likely range from $599 to $1,249 on Atlantic routes, reflecting up to a 60% discount off median corporate fares on legacy carriers and up to 75% off published fares. Economy-class seats will also be priced on a one-way basis to appeal to value-minded business travelers. Using the Internet, SkyLink will establish differential pricing for less- and more-desirable seats. The least expensive seats will be middle seats in the rear of the cabin; the most expensive seats will be bulkhead aisles in the Premium Economy section. Economy class fares will likely range from $79 to $199 on Atlantic routes, with Premium Economy from $199 to $399, representing a 50% to 75% discount off median market fares. Clear value-for-money and an understandable fare structure will be the hallmarks of the SkyLink product. Background As the low-cost carrier model has developed around the world, traditional legacy airlines (including United, American, British, and others) have come under severe financial and strategic pressure. New low-cost carriers like Southwest, jetBlue, Ryanair, EasyJet, and Virgin Blue have been limited to regional markets by their equipment, operational strategies, and staffing. Aircraft optimized for quick-turn, high-utilization operating models do not have the range or equipment for long-haul (6+ hour) international markets.3 So while legacy carriers have been attacked at home, international routes continue to be the exclusive domain of high-cost, high-fare legacies. What are the key differences between low-cost carriers and high-fare legacies? LCCs typically have no employee unions (where unions do exist, relationships are often cooperative and productive) and design their networks to achieve high aircraft and crew utilization rates. LCCs embrace technology for online booking and have minimal customer services. Some LCCs (primarily outside of Europe) operate hub-and-spoke networks, while others (especially in Europe) operate pure point-to-point networks around key metropolitan airports.4 Most LCCs operate single-class aircraft, though AirTran, America West, Spirit and now ATA also offer affordable business-class sections too. Most

3 Throughout this Business Plan we refer to short-haul, single- and multi-country regional markets as “domestic” and long-haul (6+ hour) international markets as “international.” 4 US-flag hub-and-spoke low-cost carriers include AirTran, Frontier, Independence and America West Airlines. JetBlue and Southwest operate hub-like systems from key focus cities, with increasing connectivity for passengers in their systems. European LCCs are predominantly point-to-point carriers, with focus cities in major metropolitan areas (and often from secondary airports).

P A G E 4

LCCs offer food for purchase on-board. The LCC business model has been proven in the domestic and regional spheres. No LCC has yet attempted long-haul international operations. International flight operations for any carrier are significantly different from domestic operations. International competition now is a function of on-board service and price competition that is largely limited to the economy-class cabin and hidden discount programs for premium seats. Aircraft choice, asset utilization, crew staffing, and reservations all differ significantly from domestic to international flights. Several factors have converged to create the opportunity for SkyLink Airways. Business travelers in the US and Europe are familiar with the price and service advantages of low-cost carriers at home, but have few if any options for obtaining everyday low fares in economy and discounted premium seating for international flights. Aircraft purchase prices are at all-time lows for most aircraft models. The capital markets reward airlines with strong profit margins. And the legacy carriers are vulnerable, in both the premium and economy cabins – under attack at home, and with bloated cost structures on international routes, they have created an environment where a new low-cost international airline can thrive. Key Challenges and Solutions The SkyLink management team, with collective experience in over twenty successful airlines, has developed the first international carrier with a true low-cost model. SkyLink’s business model is designed to overcome the three main roadblocks to starting a low-cost international carrier:

- New widebody aircraft are expensive and have long delivery lead-times. SkyLink will raise sufficient equity to (1) purchase an initial fleet of five Boeing 767-200ER aircraft plus spares, (2) place a follow-on, ten-aircraft order from either Boeing or Airbus for delivery in 2006 and 2007, and (3) retain capital to reach profitability with a significant reserve. The initial 767-200ER fleet will allow SkyLink to enter the Atlantic market with scale, critical to securing a long-term foothold against competition. By placing a large aircraft order, SkyLink will have leverage in negotiating the aircraft purchase price, financing terms, configuration and delivery schedule. SkyLink will minimize heavy maintenance costs and maximize aircraft utilization and reliability.5

- Acquiring route authorities can be complex.

There is a significant first-mover advantage in securing route authorities to operate international service. Route authorities are licenses to operate scheduled service between international points; licenses are allocated in a straightforward fashion according to bilateral air-service treaties among governments. SkyLink’s management has experience in bilateral agreements and will move quickly to secure authorities on key routes, creating time barriers to entry against copycat startups and legacy airlines. SkyLink will overcome obstacles to route authorities by three means. (1) The SkyLink management team has the relationships and experience to obtain route authorities, providing a significant head-start. (2) The SkyLink corporate structure will eventually include both American and European subsidiaries to leverage citizenship rights for both

5 New aircraft are free from heavy maintenance expenses (“D”-type checks and expensive structural and corrosion inspections) for a significant number of years. They are also generally far more reliable than older planes, allowing tighter scheduling and less maintenance downtime.

P A G E 5

the US and the EC. (3) SkyLink will enlist local low-cost carriers, which will provide supplemental connecting traffic to international SkyLink segments, to help prevent legacy carriers from trying to block new authorities.

- Single-class services can be attacked by incumbents.

Previous economy-class LCCs across the Atlantic were met with harsh price competition by the legacy carriers in the 1980s. Several factors combine to suggest that SkyLink will be able to avoid and, where necessary, withstand harsh competitive responses:

o Incumbent legacy carriers are far weaker today than they were during the 1980s,

when Laker, and to a limited extent, PeopleExpress, tried international widebody service;

o SkyLink’s route development strategy is calculated to avoid direct

confrontation with legacy carriers, particularly in SkyLink’s early operations.

Where possible, SkyLink’s earlier flights will fill unserved routes or be positioned against foreign rather than US-flag carriers, giving SkyLink some competitive advantage in attracting US-originating passengers.

SkyLink will defer direct competition against US-flag and strong foreign

flag carriers until it has sufficient scale to withstand any short-term efforts to price-match.

Finally, SkyLink will also seek to reduce the perception of head-to-head

competition by flying where possible to less established but equally convenient airports (like Stansted in the United Kingdom) where other low-cost carriers have established service, and by selling a discounted business class product with limited cabin staff and catering.

o SkyLink’s operating costs will be far below incumbents’, so that unprofitable

fares for incumbents will still be breakeven or better for SkyLink; and o SkyLink will compete for premium and economy passengers, providing

insulation against economy-class competition. While incumbent carriers have consistently been willing and able to price-match in the economy-class cabin to try and drive out new entrants, they have been able to sustain such economy pricing by avoiding substantial discounts in premium fares. Incumbent carriers’ cost structure will not easily be able to support price matching against SkyLink in both cabins at the same time.

Route Development Summary SkyLink will be a point-to-point service, connecting cities whose airports have both business traffic and established low-cost carriers. As a point-to-point carrier, SkyLink will pick individual markets that will support both premium and economy passengers, and will form partnerships with other airlines to feed connecting traffic and expand network scope.

P A G E 6

SkyLink’s corporate structure and operating strategy will give the airline “first-mover” position. Secured route authorities, significant equity financing, widebody aircraft and key partnerships with low-cost carriers in the US and abroad will be difficult to duplicate by existing or future “copycat” airlines. The SkyLink service will be introduced in three phases, due to the unique certification and market entry requirements for an international carrier. In Phase I, upon certification by the FAA and DOT in December 2004, SkyLink will introduce

single-aircraft, scheduled-charter service between the US and Africa on routes where major oil corporations will purchase significant seat blocks, reducing risk. SkyLink’s first route may be Washington-Lagos-Johannesburg. During this period, SkyLink will debug its systems and operation, build international crew bases and partner with a maintenance company.

In Phase II, starting on April 15, 2005, SkyLink will introduce daily service between US and

international cities with significant high-margin traffic but no existing nonstop service. Initial Phase II routes presented to the Department of Transportation include Baltimore/Washington International Airport to London/Stansted, Paris Charles de Gaulles, and a city in Germany to be determined. These routes will permit single-aircraft daily operations at high levels of utilization. These routes will be operated in part with flow from LCCs both in the US and abroad. During Phase II, SkyLink will also explore longer-haul noncompetitive routes to Africa and Asia that are suited for low-cost carrier operations, including Baltimore-Madrid-Johannesburg, defining these routes as aircraft capabilities are determined.

In Phase III, starting in 2006, SkyLink will enter competitive markets with significant existing

business and leisure traffic. With a developed business and economy class product, new deliveries of larger aircraft, and economies of scale, SkyLink can be profitable even in direct competition with incumbent carriers. SkyLink will establish service from key US cities (such as Boston, New York, Washington, Miami, Dallas, Los Angeles, San Francisco, and Seattle) to key cities worldwide (such as London, Paris, Rio de Janeiro, Taipei, Frankfurt, and Madrid).

Management Summary SkyLink’s management team has significant airline startup and management experience. Ken Carlson, CEO, has founded four successful carriers, including Midway and New York Air. Josh Marks, President, is an industry expert on airline partnerships and finance, was the Associate Director of the GWU Aviation Institute, and has worked with seven of the ten major carriers on strategy, finance and operations. Bill Kutzke, SVP and General Counsel, was Assistant General Counsel at the DOT in the 1970s, where he worked on the Bermuda II bilateral agreement between the US and the United Kingdom, as well as a number of other air transport agreements. He then served as VP, Planning at Northwest Airlines, EVP Operations at Midway Airlines, and SVP & General Counsel at Gemini Air Cargo before joining SkyLink. SkyLink’s five Vice Presidents have international wide-body experience at United Airlines, Gemini Air Cargo and Continental.

P A G E 7

Financing Requirements SkyLink is raising $175MM, of which up to $72.5MM will be used as equity for aircraft purchases (which will generate significant tax benefits for investors). The balance will be used for working capital and to meet DOT reserve requirements:

CATEGORY FUNDING REQUIRED STARTUP CAPITAL (CERTIFICATION & PHASE I)

$16,000,000

INTERIM FLEET CAPITAL REQUIREMENTS

$30,000,000

PERMANENT FLEET EQUITY REQUIRED (PRE-IPO)

$42,500,000

AIRPORT FACILITIES AND IMPROVEMENTS

$9,500,000

WORKING CAPITAL THROUGH PROFITABILITY

$32,000,000

DOT RESERVE REQUIREMENT & BUFFER

$45,000,000

TOTAL CAPITAL REQUIRED $175,000,000 SkyLink expects consistent profitability with seven aircraft in mid-2006 with an IPO in 2007.

P A G E 8

The Opportunity SkyLink aims to be the first and the dominant international low-cost carrier, seizing a unique market opportunity. Eleven factors drive SkyLink’s ability to form, grow and capture a leading position:

1.) Low-Cost Carriers (LCCs) have demonstrated the viability of one- and two-class services in domestic environments, capturing market share through simple fare structures, single aircraft types and low cost structures. Investor appetite for low-cost airlines has been whetted by high margins and explosive growth of new LCCs.

2.) As LCCs have grown in domestic markets in the US, Canada, Europe, South America,

Africa, Asia and Australia, legacy carriers (the incumbent state- and flag-airlines that dominated both domestic and international traffic from each country) have found their domestic routes under attack. Legacy carriers have boosted business-class fares internationally, making international routes the last bastion of high fares even while demand has dropped since 2000.6 American Express estimates that long-haul business class fares will rise by 2-3% for travel originating in North America, 5-6% for travel originating in Asia-Pacific, and 2-3% for travel originating in Europe during 2004, on top of gains of 1.5% to 5.6% in 2003.7

3.) LCCs globally operate small aircraft (primarily Boeing 737s and Airbus A320s, both

single-aisle aircraft with limited range) that cannot fly long-haul, intercontinental routes. LCCs can capture a high percentage of domestic travelers but cannot capture international traffic or offer broad international networks without costly fleet and operational changes.

4.) An international LCC can launch scheduled service with new widebody aircraft

purchased at attractive prices. New and used aircraft are available at discounted prices, and an international LCC with sufficient capital can exert significant leverage in the purchase process, reducing costs for both the aircraft themselves and for associated services, such as training and aircraft maintenance.

5.) While some legacy carriers have restructured their labor agreements, international routes

continue to be the highest labor-cost flights in their networks. Seniority systems and bidding processes usually put senior flight deck and cabin crews on key international routes; since pay scales are a function of seniority, legacy carriers have limited ability to cut labor costs internationally. A low-cost entrant today can hire highly experienced crews with type experience for a fraction of legacy labor costs.

6.) Business traffic has been steadily rebounding since the terrorist attacks and economic

recession of 2001. Businesses in the US and Europe have reshaped corporate travel policies to emphasize the lowest-cost option; for domestic travel, LCCs are capturing an ever-increasing number of business travelers.

6 IATA reports that for international flights only, passengers carried declined by 3.8% between 2000 and 2001 and rose by 2.0% between 2001 and 2002. World Air Transport Statistics, AGM Edition, 3 June 2003. 7 http://home3.americanexpress.com/corp/latestnews/global_travel_trends.asp

P A G E 9

One in three global premium business travelers polled by American Express in November 2003 expects to travel more on LCCs in 2004 than in 2003.8 LCC market share now exceeds 28% in Europe and 24% in the United States.9 LCCs are expanding, by 77% in Europe during 2003. Internationally, where business travelers have no LCC options, corporations continue to authorize travel on premium fares, though many have become more selective about which executives are permitted to fly on the highest first-class fares.

7.) Recent changes (in 2003 and 2004) to mileage accrual and elite status qualification on

major airlines’ frequent flyer programs make the discounted fares typically purchased by corporations and economy class passengers far less valuable to loyal travelers.10 American, Delta, Continental, Northwest, Singapore, British, Virgin and others now credit only 50% of actual miles flown on most discounted economy fares to elite status, making business travelers more willing to try alternative services.

8.) US-flag carriers have ceded increasing market share to foreign flag carriers for US-

originating passengers. Today, over two-thirds of passengers flying from the eastern US to Europe take non-US carriers. US flag carriers have reduced in-flight amenities without discounting published fares. A low-cost international carrier could offer equivalent business-class services at a dramatically lower fare, or offer services comparable to foreign flag carriers with high profit margins. An international LCC could compete on cost, service, or both.

9.) Code-sharing and alliance partnerships are increasingly replacing competitive nonstop

service to secondary cities, opening new opportunities for market stimulation through new point-to-point nonstop flights. A low-cost carrier could not only capture significant market share on high-volume routes (Washington to London, for example) but also use its low-cost structure to pioneer daily frequencies on routes with no current nonstop service (Washington to Madrid).

10.) As the European Union grows to include Eastern Europe, an opportunity exists to tap

low-cost cabin crews and reservations teams. An international LCC could operate as a US flag carrier but have an operating subsidiary in Europe that provides support and staffing to the carrier. The European subsidiary could also provide EU-flag aircraft if required to take advantage of EU bilateral agreements, allowing tight code-shares and alliances with European partner airlines.

11.) There is relatively little congestion in the certification process today. Certifying a new

carrier – especially a flag-carrying, widebody-flying international low-cost airline – is a 8 http://home3.americanexpress.com/corp/latestnews/int_biz_survey.asp 9 American Express and Lehman Brothers 10 Recent program changes by major carriers have reduced elite qualification miles earned on discounted fares, making priority status and upgrades harder to earn. Delta now credits only 50% of miles flown in L, U and T classes to elite qualification – but “deeply discounted” L-class fares are still $568 (for example) between Atlanta and London. A Delta ticket from ATL to LGW that qualifies 100% for elite starts at over $800. Continental now credits only 50% to elite status for all tickets bought through retail outlets in Q, I, S, W, T, X, and L classes (the discounted, non-refundable inventory). American Airlines credits 50% towards elite status for all non-refundable fares, giving 100% credit for only refundable Y and B classes. American now gives no credit for consolidator fares and some Internet fares.

P A G E 1 0

complex process that can take between nine and fifteen months. As of January 2004, there are few certificate applications in the system, making it an ideal time to take an airline through certification.

SkyLink Airways will take advantage of these opportunities:

1.) By building a low-cost, low-fare international carrier that connects business destinations worldwide in a point-to-point network with daily widebody service, attracting both business and leisure passengers.

2.) By partnering with low-cost carriers in at SkyLink cities to provide economy-class feed

from secondary destinations onto international routes, as well as with high-cost carriers with limited route systems (Emirates, South African, Air India, etc.) to provide feed in the business-class cabin.

a. Two-class LCCs have emerged (AirTran, Spirit and ATA in the US; Jet Airways in

India) but are rare in domestic markets where competition is fare-driven. b. While no LCCs have entered into formal partnerships with other airlines, both

Southwest and AirTran have entered into interlining agreements with international carriers in the past.

3.) By raising sufficient capital to place a significant aircraft order from Boeing or Airbus

and using scale to negotiate highly favorable aircraft purchase and support terms. SkyLink will determine the optimal buy/lease ratio based on available terms and financial partners, but will raise startup equity to purchase the first ten aircraft.

4.) By keeping costs as lean as possible. SkyLink will use European cabin crews, outsource

heavy maintenance to FAA Part 145-licensed repair stations with Airbus and/or Boeing endorsements, and make incremental economy-class services (food, entertainment, Internet, etc.) available for purchase on-board.

5.) By developing an innovative business-class product that emphasizes comfort while

reducing unnecessary costs. SkyLink will invest in comfortable seats but keep in-flight catering simple. SkyLink will aim for a 1:15 flight attendant-to-passenger ratio in business class, compared to 1:5 (Virgin) or 1:10 (United) on legacy carriers – but will have economy-class attendants assist in catering up-front to maximize passenger service. All SkyLink flights will offer at least six private bunks for passengers (through staterooms or through existing under-deck crew rest compartments converted for passenger use) and SkyLink is investigating alternative cabin configurations that offer additional sleeping quarters for passengers on night and 10+ hour flights.

6.) By first building scale “under the radar,” commencing service on non-competitive routes

where risk can be reduced (through charter or revenue banks) and then by gradually entering competitive markets as scale is achieved.

7.) By pricing with an understandable fare structure modeled after domestic LCCs. All fares

will be one-way, with discounted fare buckets available for advance purchase. All economy class fares will be non-refundable, but transferable for a fee. Business class fares will offer advance purchase discounts.

P A G E 1 1

Market Incumbents & Fares In this section, we first discuss and analyze potential competitors. • During Phase I, SkyLink will be operating primarily as a charter carrier. Obtaining

revenue guarantees and other incentives from corporations to fly charters will be the indicator that scheduled service is either insufficient or non-existent for the route. It is impossible today to project with which airlines SkyLink might “compete” for charter service to Africa, but many scheduled competitors offer connecting service to Africa via Europe.

• During Phases II and III, competitors will be legacy international carriers. What will

differ between Phases II and III is whether SkyLink has the only nonstop service in the market.11 During Phase II, SkyLink will enter markets where US-flag competitors offer only connecting service via a hub, making the SkyLink service superior in terms of trip time. During Phase III, SkyLink will enter markets where competitors offer nonstop service as well, resulting in direct competition.

After reviewing a subset of potential competitors, focusing on the trans-Atlantic portions of our potential route map, we describe how business-class fares have changed in recent years, especially after September 11th. Phase I Competitors Typical Phase I charter and early scheduled routes could include Washington to Lagos, New York to Bahrain, or the US to India nonstop, depending on the aircraft type chosen for interim lift. These routes will be selected based on demand from tour operators and corporate travel departments, and will be opened on a charter basis only. Where sufficient, consistent demand exists, SkyLink will introduce scheduled service on the route. Phase I direct competitors are limited to charter operators with widebody equipment; indirect competitors include legacy international carriers who connect passengers via distant hubs (Lufthansa is an indirect competitor on Dulles – Lagos, as LH offers connecting service via Frankfurt. Lufthansa’s itinerary adds between five and ten hours to the trip). Widebody charter aircraft have been constrained for two years, as the military has had most US-flag charter DC-10s and 767s on long-term contract shuttling troops to Iraq. There are three US-flag charter operators that can offer widebody equipment to corporations that require long-haul service: World Airways. Based in Atlanta, World operates DC-10 and MD-11 aircraft in one-

and two-class configurations. World runs primarily military charters but is currently flying certain US-Africa services for oil companies. Dissatisfaction with the World Airways costs (circa $9,000 per block hour) and service levels led to initial discussions between oil companies and SkyLink for Phase I routes.

11 A “market” can include different airports (i.e. SkyLink could serve the Washington – London market by flying from BWI to Stansted, where British might serve Dulles to Heathrow). Even though both carriers might have nonstop service in the city-pair market, each is likely to attract different passengers based on airport locations and products; we do think, however, that a low-cost premium SkyLink service BWI-STN will attract some IAD-LHR passengers. The trick will be to entice some “transfers” without triggering IAD-LHR price reductions.

P A G E 1 2

Omni Air International. Omni operates a fleet of five DC-10-30 widebody aircraft, which it has assigned to the military for Iraq charters.

North American Airlines. Based in New York, NAA operates a fleet of five 757-200s

and two 767-300s. North American is a profitable charter company that has its widebody aircraft assigned to military charters. NAA operates narrowbody 757s on limited scheduled services between JFK and the Dominican Republic. NAA aircraft do not have the range to operate from Nigeria to the US mainland nonstop.

SkyLink expects to sell charter services on a block-hour basis, with rates around $4,000 ACMI for a 202-seat Boeing 767-200ER or $5,500 with fuel and passenger services. These rates would reflect a 25-50% discount off available rates from comparable widebody charter operators. SkyLink expects to sell between 150 and 250 hours per month of charter service per aircraft during Phase I. Phase II and III Competitors The international market today is dominated by approximately twenty legacy carriers, each facing common operating or strategic challenges over the next ten years.

Atlantic Pacific Air France

American Airlines British Airways

Continental Delta Air Lines

KLM Lufthansa Northwest

United Airlines US Airways

Virgin Atlantic Airways

ANA China Airlines

Continental Airlines EVA

Japan Airlines Korean Air

Northwest Airlines Qantas

Singapore Airlines Thai Airways

United Airlines A detailed analysis of US-flag carriers is presented first, followed by a summary of foreign competition. US Flag Carriers To characterize existing US-based airlines serving key international routes, analysis of the following five criteria is helpful: Local-market dominance. Does the airline have a commanding position in its home

market? Does it hold special slots or gates at home that a new competitor could not access? How significant is the airline’s domestic operation?

Cost structure. Does the airline have a competitive cost structure? Do its unions

prevent substantial cost improvements? How quickly can the airline reduce costs? Network scope. How broad is the airline’s network? Are international routes primarily

fed by local-market traffic (Kennedy to Heathrow for Virgin Atlantic) or do they extend from hubs to secondary destinations (Frankfurt – Portland [Oregon] for Lufthansa)?

P A G E 1 3

Onboard service & revenue premium. How competitive is the airline’s on-board service? Is the airline a pioneer in services offered on board? Does the airline sell more tickets at higher fares because of its onboard services?

Loyalty. How loyal are the airlines’ frequent passengers? How locked-in are passengers?

For each of the following airlines, these five factors have been ranked as follows:

RATING LOCAL

MARKET DOMINANCE

COST STRUCTURE

NETWORK SCOPE

ONBOARD SERVICE & REVENUE

PREMIUM LOYALTY

1 (BEST)

HIGHLY DOMINANT

(#1 CARRIER, NO

COMPETITION)

INDUSTRY-LEADING (LOWEST COSTS IN

THE MARKET, FLEXIBLE

LABOR ALLOWING FOR QUICK CHANGES)

EXTREMELY BROAD

NETWORK FLOWN BY

OWN AIRCRAFT;

GOOD FLOW TO THIRD-COUNTRY

CITIES.

MARKET-LEADING INNOVATOR.

INNOVATIVE CABIN CONFIGURATIONS

AND SERVICE OFFERINGS.

HIGHLY LOYAL

FREQUENT FLYER BASE,

WITH SUBSTANTIAL

LOCAL-MARKET TRAFFIC.

2

DOMINANT (LEADING

CARRIER BUT COMPETITION EXISTS IN KEY

MARKETS)

GOOD COST STRUCTURE

(BELOW AVERAGE)

BROAD NETWORK,

EITHER THROUGH

OWN AIRCRAFT OR CODE-SHARES.

AHEAD OF THE CURVE;

INNOVATIVE SERVICE.

LOYAL TRAVELERS THROUGH

CODE-SHARING.

3

PLAYER (ONE OF SEVERAL CARRIERS

WITH ESTABLISHED

SERVICE)

RELATIVELY HIGH COST STRUCTURE

(LOWER-COST

AIRLINES IN MARKET

RELATIVELY SMALL

NETWORK WITHOUT

SIGNIFICANT CODE-

SHARING.

AVERAGE CARRIER; ON-BOARD SERVICES

TRADITIONAL AND STRAIGHTFORWARD.

LIMITED LOYALTY.

4 (WORST)

WEAK (MINOR

AIRLINE IN MARKETS

DOMINATED BY OTHER AIRLINES)

HIGH COST STRUCTURE; DIFFICULT

TO CHANGE.

NARROW FOCUS ON

KEY MARKETS.

POOR; LAGGING OTHER AIRLINES.

LITTLE LOYALTY;

OTHER CARRIERS IN

MARKETS ARE

DOMINANT.

Competition: Major US-Flag Carriers

P A G E 1 4

AMERICAN AIRLINES Atlantic Hubs: JFK, O’Hare, London Heathrow, Dallas, Boston Pacific Hubs: Dallas, O’Hare (limited)

American Airlines has access to serve London Heathrow from the United States under Bermuda II, along with Virgin Atlantic, British Airways and United Airlines (Kuwait Airways, Air India and Cathay Pacific serve JFK-LHR as continuing service on flights to Europe). American has a dated business class product but a new first-class product on Boeing 777 aircraft. While American has cut costs dramatically since 2002, their cost structure is still higher than some other US-flag carriers for international routes.

American’s loyal fliers are concentrated at Chicago O’Hare and Dallas/Fort Worth, although the impact of recent elite frequent flyer qualification changes is yet to be seen. JFK passengers have been defecting to jetBlue, where jetBlue now exceeds American in passenger enplanements. American’s network scope is significant through code-shares with oneworld partner British Airways; however, British Airways’ extensive network captures many US-originating passengers who would otherwise take American. American Airlines block-hour cost disadvantage to SkyLink:12 69% (777-200 vs. SkyLink A330-300)

AA LOCAL MARKET DOMINANCE

COST STRUCTURE

NETWORK SCOPE

ONBOARD SERVICE & REVENUE PREMIUM

LOYALTY

RATING 3 3 2 3 2

EXPLANATION

A MAJOR PLAYER TO LATIN AMERICA AND

LONDON/HEATHROW FROM JFK AND ORD;

LITTLE TRAFFIC FROM OTHER CITIES.

IMPROVED PROFITABILITY

AFTER RENEGOTIATIONS BUT STILL ABOVE

OTHER US LEGACIES.

BROAD NETWORK VIA CODE-SHARING

WITH BRITISH

AIRWAYS AND

OTHER ONEWORLD PARTNERS.

BUSINESS CLASS

PRODUCT LAGS; FIRST-

CLASS PRODUCT IS

COMPETITIVE.

LOYAL BUSINESS BASE IN KEY US CITIES

(CHICAGO, DALLAS,

NEW YORK)

UNITED AIRLINES Atlantic Hubs: Washington, Chicago, New York Pacific Hubs: Los Angeles, San Francisco, Chicago (also limited operation in Seattle) United Airlines also has access to London Heathrow through Bermuda II, and has a route network across the Atlantic fed by a broad domestic network at Chicago O’Hare and Washington/Dulles. United offers First Class service on all transatlantic routes, although product on 777 and 747 aircraft is far superior to that offered on older 767 planes. Business class seat is not lie-flat, although United has recently increased legroom dramatically.

12 A full table of SkyLink’s costs versus competitors’ can be found starting on Page 58.

P A G E 1 5

Pacific route network is very strong, with a major presence at Tokyo Narita and in Hong Kong. Large hubs in Los Angeles and San Francisco feed flights to Asia from secondary American origins. United’s cost structure has been reduced significantly in bankruptcy but is still significantly higher than a new entrant’s would be. United Airlines block-hour cost disadvantage to SkyLink: 49% (777-200 vs. SkyLink A330-300)

UA LOCAL

MARKET DOMINANCE

COST STRUCTURE

NETWORK SCOPE


LOYALTY

RATING 2 3 2 3 2

EXPLANATION

MAJOR NETWORKS IN ASIA, EUROPE

AND LATIN AMERICA.

IMPROVED, BUT SENIOR WORKFORCE AND LARGE AIRCRAFT

KEEP BLOCK-HOUR COSTS

HIGH.

VERY BROAD NETWORK, BUT ONLY

FIVE MAJOR US

ORIGINATING CITIES (IAD,

JFK, ORD, LAX, SFO)

COMPETITIVE FIRST-CLASS PRODUCT; AVERAGE BUSINESS

CLASS PRODUCT.

HIGHLY LOYAL

FREQUENT FLYER BASE;

STAR ALLIANCE

PARTNERSHIP OFFERS WIDE

NETWORK.

CONTINENTAL AIRLINES Atlantic Hubs: Newark, Houston Pacific Hubs: Guam The closest cost competitor to an entrant LCC, Continental has industry-leading operating costs on its Atlantic routes. Focused on Newark Liberty International, Continental’s Atlantic route network provides connecting traffic to KLM’s Amsterdam hub with limited nonstop service to other destinations. Continental has limited transatlantic service from Houston and Cleveland. Continental’s pacific route network is built around its Continental Micronesia subsidiary, which operates a wide-body and narrow-body network around Guam. Continental flies nonstop from New York/Newark to Hong Kong and Tokyo, but offers connections to those flights from the northeast, Florida and Latin America.

Continental serves Hong Kong and other secondary cities in Asia, it does so with 737-800 aircraft. Passengers flying from west of the Mississippi River to Hong Kong on Continental would have to connect three times: in Houston or Los Angeles, in Honolulu, and then in Guam. Therefore, while Continental’s route network spans Asia, it is not a formidable competitor in most US mainland-to-Asia markets, except for New York and Houston.

A significant portion of Continentals’ cost advantage over other legacy carriers is a flexible labor agreement with relatively low wages. Continental also packs more passengers onto a 777-200 than other carriers, driving down seat-mile costs.

P A G E 1 6

Continental’s business-class product, BusinessElite, is a decade old and has lagged other carriers’ premium cabins. Continental has introduced a refined seat (pictured above) with incremental improvements, but general seat attributes (width, pitch, recline) remain the same. Continental Airlines block-hour cost disadvantage to SkyLink: 33% (777-200 vs. SkyLink A330-300)

CO LOCAL

MARKET DOMINANCE

COST STRUCTURE

NETWORK SCOPE


LOYALTY

RATING 3 2 3 3 2

EXPLANATION

WIDE TRANSATLANTIC

NETWORK FROM NEWARK;

LIMITED ELSEWHERE.

ASIAN

NETWORK FOCUSED ON

GUAM.

BEST OF THE US-MAJORS;

STILL ABOVE A NEW

ENTRANT’S

LIMITED IN BOTH

PACIFIC AND ATLANTIC;

FOCUSED ON LOCAL-

MARKET TRAVELERS IN NEWARK,

LA, MICRONESIA

BUSINESS-CLASS

PRODUCT IS GOOD BUT LAGGING; ECONOMY

CLASS IS STANDARD.

LOYAL FLYERS,

ESPECIALLY IN NEWARK,

HOUSTON AND

MICRONESIA.

US AIRWAYS Atlantic Hubs: Philadelphia Pacific Hubs: None US Airways may exit its Atlantic operation as it enters the Star Alliance in the second half of 2004. Lufthansa has already begun service from Frankfurt to Charlotte and Philadelphia and may begin seasonal service to Pittsburgh should US Airways keep their hub. US Airways does not serve Asian destinations, but will connect traffic to Asia on United, Singapore, Thai and ANA if they join the Star Alliance in late 2004 as planned. US Airways operates Airbus A330-300 equipment across the Atlantic, configured with 261 seats. US Airways A330-300 aircraft feature an updated Envoy Class premium product with near lie-flat seats. US Airways dominates only the Philadelphia-Europe market (with a 74% market share in 2002) but is losing Philadelphia market share in general as passengers defect to LCCs and other carriers. Concerns about US Airways’ long-term viability have driven away business in the past six months. US Airways block-hour cost disadvantage to SkyLink: 56% (US Airways A330-300 vs. SkyLink A330-300)

US LOCAL

MARKET DOMINANCE

COST STRUCTURE

NETWORK SCOPE

ONBOARD SERVICE & REVENUE

LOYALTY

P A G E 1 7

PREMIUM

RATING 3 3 4 3 3

EXPLANATION

DOMINATES PHILADELPHIA

ONLY. NO ASIAN

PRESENCE.

REDUCED IN BANKRUPTCY,

BUT STILL HIGH

VERY LIMITED;

PHL-EUROPE ONLY.

ENVOY CLASS IS

COMPETITIVE WANING

NORTHWEST AIRLINES Atlantic Hubs: Minneapolis, Detroit Pacific Hubs: Tokyo Northwest has the strongest Asian network of any US-flag carrier, with a hub at the tightly-controlled Tokyo Narita airport. Northwest’s Atlantic operation is focused on connecting traffic at Amsterdam to KLM’s extensive worldwide operation. Traditionally a follower in in-flight services, Northwest dominates the Minneapolis and Detroit to Europe market. Northwest has little to no presence in other east-coast markets, except to Amsterdam (where KLM flies its own aircraft with a NW code-share). Northwest has introduced a new business class product with its new Airbus A330-300 aircraft, but the product will not be consistent across the fleet for three to four years. Northwest Airlines block-hour cost disadvantage to SkyLink: 42% (NW DC-10-30 vs. SkyLink A330-300)

NW LOCAL

MARKET DOMINANCE

COST STRUCTURE

NETWORK SCOPE

ONBOARD SERVICE

& REVENUE PREMIUM

LOYALTY

RANK 2 3 2 4 2

EXPLANATION

LOCK ON DETROIT,

MINNEAPOLIS, AMSTERDAM

HAS NOT RESTRUCTURED

THROUGH BANKRUPTCY OR WORK-OUT

ASIAN NETWORK IS EXTENSIVE. ATLANTIC

NETWORK IN PARTNERSHIP

WITH KLM

IMPROVING BUT STILL

FAR BEHIND

THE OTHER US-FLAG

CARRIERS.

STRONG THROUGH CO,

KLM PARTNERSHIPS

DELTA AIR LINES Atlantic Hubs: Atlanta, JFK Pacific Hubs: None Delta has a broad Atlantic network, purchased from Pan Am, served from both New York and Atlanta. Delta’s Asian network is uneven; the carrier has service to Tokyo/Narita from Los Angeles and Atlanta, but does not serve other key Asian cities (Hong Kong, Taipei, etc.). Delta’s partnership with Air France in SkyTeam extends its reach via code-share to Africa and the Middle East.

P A G E 1 8

Delta is struggling with very high labor and equipment costs. Pilots have recently been unwilling to renegotiate a contract that becomes amendable later this year, though Delta’s losses have been accelerating. Delta is unlikely to stay in markets that are consistently unprofitable, as demonstrated by recent market shifts from JFK and ATL.

Delta Air Lines block-hour cost disadvantage to SkyLink: 58% (Delta 767-300 vs. SkyLink A330-300) 65% (Delta 777-200 vs. SkyLink A330-300)

US LOCAL

MARKET DOMINANCE

COST STRUCTURE

NETWORK SCOPE


LOYALTY

RANK 1 4 2 3 2

EXPLANATION

DOMINANT US-FLAG AT JFK,

ATL FOR EUROPEAN

FLIGHTS.

VERY HIGH LABOR COSTS (20%+ HIGHER RELATIVE TO

INDUSTRY)

STRONG ATLANTIC NETWORK;

LIMITED PACIFIC

NETWORK.

SOLID BUSINESS

CLASS; BASIC ECONOMY

CLASS

SKYTEAM ALLIANCE RETAINS

CUSTOMERS.

P A G E 1 9

Conclusions: US-Flag Carriers Because US-flag carries focus European flights from key hubs, each tends to be dominant from a specific city with spokes to primary and secondary cities. Many major markets in the United States (Boston, Baltimore, Orlando, Ft. Lauderdale, New Orleans, St. Louis, etc.) are not legacy hubs, and therefore have very limited nonstop US-flag service to Europe. Some cities (like Boston and Orlando) are served by multiple foreign carriers, which capture the vast majority of US-originating traffic. Others (New Orleans, St. Louis, etc.) have little or no nonstop service from any carrier, and traffic to Europe connects over legacy hubs. In general, the following conclusions can be drawn about US-flag carriers: Hubs where incumbents have 60% or higher market share (London/Heathrow, Chicago

O’Hare, Newark/Liberty, Atlanta/Hartsfield, and Tokyo/Narita) will be difficult to attack for an upstart without significant flow and available slots/gates. To avoid head-to-head competition with a legacy carrier, the new entrant must select other airports in major metropolitan areas (Kennedy instead of Newark/Liberty; Stansted instead of London/Heathrow; Baltimore instead of Washington/Dulles) or serve markets with traffic but limited nonstop service (Geneva, Manila, St. Louis, New Orleans, Salt Lake City, etc.).

Shorter-haul transatlantic flying will be competitive, requiring a new-entrant LCC to have as

low a cost base per passenger as possible. Fare competition could be intense on congested routes where both nonstop and connecting itineraries exist, especially during the slower winter season when legacies have excess inventory. By maintaining a cost structure 33% or more below legacies, a startup could turn a profit even if legacy incumbents dump inventory onto the market to retain market share.

US-flag carriers have lagged in product innovation in Business and Economy classes. Both

United and American have introduced First Class suites to compete with British, Cathay and other premium carriers; however, business-class offerings lag significantly behind the flat-bed offerings of Virgin, British and Singapore Airlines. US-flag in-flight service is poor compared to foreign flag carriers.

International Carriers

BRITISH AIRWAYS PRIMARY HUB: LONDON/HEATHROW

THE STRONGEST COMPETITOR IN THE ATLANTIC MARKET, AND LIKELY THE TOUGHEST COMPETITOR THAT SKYLINK WILL FACE. BRITISH AIRWAYS HAS A FORTRESS HUB AT HEATHROW, AND WITH A NEW TERMINAL UNDER CONSTRUCTION WILL CONTINUE TO EXPAND WHERE IT CAN FIND SLOTS. BRITISH WILL ADAMANTLY DEFEND HEATHROW AGAINST NEW ENTRANTS. THE BRITISH NETWORK FROM HEATHROW SPANS EVERY CONTINENT WITH FORMIDABLE DENSITY. BRITISH HAS PARTICULAR STRENGTH IN

P A G E 2 0

BUSINESS CLASS CONFIGURATION

ALL LIE-FLAT BEDS (NEW SEAT DESIGN)

CONNECTING AMERICAN PASSENGERS TO EASTERN EUROPE, THE MIDDLE EAST AND AFRICA. BRITISH AIRWAYS OPERATES A FLEET OF OVER 360 AIRCRAFT TO 550 DESTINATIONS IN 133 COUNTRIES. IT HOLDS EQUITY STAKES IN AUSTRALIAN, QANTAS, AND IBERIA, ALL MEMBERS OF THE ONEWORLD ALLIANCE. BRITISH’S TWO MAJOR WEAKNESSES ARE COST AND UTILIZATION. BRITISH AIRWAYS’ AVERAGE AIRCRAFT UTILIZATION IS 8.91 HOURS PER DAY (2003).13 MOST AMERICAN CARRIERS AVERAGED AT LEAST NINE HOURS PER DAY FOR WIDEBODY AIRCRAFT, AND SKYLINK TARGETS FOURTEEN HOURS OR MORE OF DAILY UTILIZATION. AVERAGE OPERATING COSTS REPORTED FOR 2003 WERE 4.87 PENCE PER AVAILABLE SEAT KILOMETER, OR $0.11 PER AVAILABLE SEAT MILE.14 WHILE BRITISH AIRWAYS’ REVENUE PER AVAILABLE SEAT MILE IS STILL HIGHER THAN ITS COST ($0.115) BRITISH HAS A SIGNIFICANT COST DISADVANTAGE RELATIVE TO RESTRUCTURED AMERICAN CARRIERS. WITH INCREASED UTILIZATION, BRITISH COULD CLOSE SOME OF ITS COST GAP, BUT RESTRICTIVE LABOR CONTRACTS BIND MANAGEMENT’S FLEXIBILITY TO IMPROVE OPERATING COSTS IN A COMPETITIVE ENVIRONMENT. BRITISH HAS ELECTED TO PULL OUT OF MARKETS WHERE THEY ARE NONCOMPETITIVE (FOR EXAMPLE, IN 2002 BRITISH PULLED OUT OF SAN DIEGO, ELECTING TO SERVE SAN VIA CODE-SHARE WITH AMERICAN) AND RELY ON CONNECTING TRAFFIC FROM OTHER ONEWORLD CARRIERS.

VIRGIN ATLANTIC AIRWAYS PRIMARY HUB: LHR

THE QUIRKY BRITISH AIRLINE HAS SECURED SOLID SECOND POSITION AT HEATHROW, ALTHOUGH STILL A DISTANT SECOND TO BRITISH AIRWAYS. VIRGIN ATLANTIC HAS CONCENTRATED ON UNTRADITIONAL ROUTE DEVELOPMENT IN RECENT YEARS, INCLUDING NEW ROUTES TO LAGOS AND PORT HARCOURT IN NIGERIA. VIRGIN ATLANTIC IS 51% OWNED BY

13 BA Annual Report 2003, p64 14 BA Annual Report 2003, p64, converted at $1.50 to the pound (2003 average rate).

P A G E 2 1

VIRGIN ATLANTIC

UPPER CLASS SUITE

THE VIRGIN GROUP AND 49% BY SINGAPORE AIRLINES. THE AIRLINE TURNED A £15.7MM PROFIT IN 2003 AFTER A £108MM LOSS IN 2002 AS ATLANTIC LOAD FACTORS RECOVERED. LIKE BRITISH AIRWAYS, VIRGIN IS WEAK ON OPERATING COSTS, BUT FOCUSES ON A SELECT GROUP OF HIGH-MARGIN PASSENGERS TO STAY CONSISTENTLY PROFITABLE. BECAUSE VIRGIN ATLANTIC IS A SUBSIDIARY OF A PRIVATELY HELD FIRM, NO CONCRETE COST INFORMATION IS AVAILABLE FOR THE AIRLINE. WHILE VIRGIN’S AVERAGE WAGES ARE LIKELY LOWER THAN BRITISH’S, VIRGIN STAFFS AS MANY OR MORE FLIGHT ATTENDANTS PER AIRCRAFT (FIFTEEN ON TRANSATLANTIC FLIGHTS) TO DELIVER THEIR HIGH-SERVICE BUSINESS MODEL. VIRGIN OPERATES A MUCH SMALLER FLEET THAN BRITISH, WITH JUST 26 AIRCRAFT. VIRGIN OPERATES 12 747-400S, USED FOR LONG-HAUL US AND SOUTH AFRICA FLIGHTS, 10 AIRBUS A340-300S USED FOR ASIAN AND US FLIGHTS, AND NEW A340-600S USED ACROSS THE NETWORK. VIRGIN HAS ORDERS AND OPTIONS FOR TWELVE A380 AIRCRAFT. VIRGIN RESPONDS QUICKLY TO SERVICE INNOVATIONS AND WOULD LIKELY BE THE FIRST TO COPY THE BUNK CONCEPT. VIRGIN HAS JUST INTRODUCED ITS NEW UPPER CLASS SUITE PRODUCT, A $6,000+ PER SEAT SERVICE AIMED AT BUSINESS EXECUTIVES ON OVERNIGHT FLIGHTS. POTENTIAL BLOCK-HOUR COST DISADVANTAGE TO SKYLINK: 60% (ESTIMATED A340-300 VS. SKYLINK A330-200)

LUFTHANSA PRIMARY HUB: FRANKFURT

LUFTHANSA IS THE KEYSTONE OF THE STAR ALLIANCE IN EUROPE AND HAS A GLOBAL NETWORK. WITH A LARGE FLEET OF 71 INTERNATIONAL AIRCRAFT (30 B747-400S, 4 A340-600S, 30 A340-300S, 5 A330-200S AND 2 B767-300ERS) LUFTHANSA’S NETWORK SPANS BOTH NORTH AND SOUTH AMERICA, AFRICA AND ASIA. ONE OF EUROPE’S STRONGEST CARRIERS, LUFTHANSA HAS REPORTED STRONG OPERATING RESULTS FOR 2002. 2003 RESULTS ARE EXPECTED

P A G E 2 2

NEW LH BUSINESS CLASS

A340-600

TO SHOW AN INCREMENTAL IMPROVEMENT OVER 2002. FOR 2002, LUFTHANSA REPORTED REVENUE PER AVAILABLE SEAT KILOMETER OF €0.141, OR $0.088 PER AVAILABLE SEAT MILE. LUFTHANSA’S COSTS WERE $0.084 PER ASM, ON PAR WITH THE US CARRIERS AND BELOW BRITISH.15 LUFTHANSA HAS RECENTLY INTRODUCED A NEW BUSINESS CLASS PRODUCT WHICH WILL REPLACE FIRST CLASS ON MANY LONG-HAUL FLIGHTS. THE NEW BUSINESS CLASS PRODUCT FEATURES A FLAT (BUT NOT LEVEL) BED WITH PERSONAL ENTERTAINMENT. POTENTIAL BLOCK-HOUR COST DISADVANTAGE TO SKYLINK: 55% (ESTIMATED LH A330-300 VS. SKYLINK A330-200)

AIR FRANCE PRIMARY HUB: PARIS

AIR FRANCE BUSINESS CLASS

(AIR FRANCE, CONTINUED)

AIR FRANCE OPERATES THE LARGEST MEDIUM-HAUL NETWORK FROM EUROPE TODAY IN TERMS OF DAILY FLIGHTS, WITH OVER 1,715 DAILY FLIGHTS TO 91 COUNTRIES. AIR FRANCE OPERATES A FLEET OF 237 AIRCRAFT, INCLUDING THE BOEING 777-200 AND AIRBUS A340-300. FOR 2003, AIR FRANCE POSTED NET INCOME OF €120MM, WITH A COST-CUTTING TARGET OF AN ADDITIONAL €60MM FOR 2004. APPROXIMATELY 25% SMALLER THAN LUFTHANSA AND BRITISH, AIR FRANCE IS HIGHLY LEVERAGED. AIR FRANCE’S NETWORK IS FOCUSED ON AFRICA, EUROPE AND ASIA. IT OPERATES TRANSATLANTIC SERVICE TO ATLANTA, NEW YORK, WASHINGTON, CHICAGO, BOSTON, AND OTHER US AND CANADIAN CITIES. ATLANTIC PASSENGERS REPRESENT APPROXIMATELY 1/3 OF AIR FRANCE’S TOTAL TRAFFIC, WHILE THE €1,966MM IN ATLANTIC REVENUES REPRESENTS ABOUT 25% OF AIR FRANCE’S GROUP TOTAL. AIR FRANCE HAS A COST STRUCTURE SIGNIFICANTLY HIGHER ON A SEAT-MILE BASIS THAN OTHER EUROPEAN CARRIERS, AND ON-PAR WITH US-FLAG CARRIERS.

15 http://eul0300081.eu.verio.net/en/html/ueber_uns/kennzahlen/index.html

P A G E 2 3

POTENTIAL BLOCK-HOUR COST DISADVANTAGE TO SKYLINK: 60% (ESTIMATED AF A340-300 VS. SKYLINK A330-200)

Other Carriers Singapore Airlines Asian powerhouse with the highest reputation for in-flight

service. Member of Star Alliance. Network centered on Singapore with routes to Europe, Asia and the United States. Relatively low labor costs with modern equipment; routinely offers business class fares under $0.25 per mile from the US to Asia (versus $1.00 per mile on BA/VS/UA/AA to Heathrow from the US). Exposed to the European market through 49% ownership in Virgin Atlantic, purchased for $1 billion in early 2000.

Singapore is known for its modern cabins, comfortable

configurations and attentive cabin crews. While Singapore suffered during 2003 due to SARS, it has rebounded significantly and returned to profitability.

Iberia Profitable Spanish carrier with strong Latin American route

network. Member of oneworld alliance. Network to the US is limited, but operates a base in Miami with narrowbody flights to Central America and the Caribbean. Relatively low labor costs but expensive equipment.

KLM Major European carrier merging with Air France, strongest to

Africa and Asia on high-density routes. KLM operates high-density 747, 777 and MD-11 aircraft on long-haul routes to West and South Africa, India, Asia and the United States. KLM and Northwest operations are tied together; KLM aggregates traffic over Amsterdam and connects to Northwest’s network in Detroit and Minneapolis.

KLM is currently renewing its fleet with new Airbus A330-200 and

Boeing 777-200ER aircraft. KLM’s labor and equipment costs are on-par with other European carriers, but the high number of seats per aircraft drop per-passenger costs significantly.

Conclusions: Non-US Carriers Cost and revenue data is more difficult to obtain for European carriers, because they are not

subject to the same public reporting requirements as US carriers. However, European carriers have significantly higher cost structures than a new entrant would have for three reasons:

o Lower utilization, caused by hub-and-spoke networks around key European cities. o Higher labor costs, caused by European employment regulations and unions. o Marginal short-haul networks, under attack from European low-cost carriers.

P A G E 2 4

British Airways is the most formidable international competitor to SkyLink, because its

broad route network, deep market penetration into the US, and high-service product offer a “status” product for US-originating corporate travelers. British is able to command revenue premiums for its First and Business-class products, giving it the most flexibility to dump economy-class seats onto the market.

Market Fares There is evidence that (1) the growth of low-fare competitors has had a significant impact on domestic economy/coach-class fares, (2) the impact of these competitors has been more pronounced since September 11th, and (3) legacy carriers have not reduced published fares on average for long-haul, international business-class fares since September 11th. There is also evidence that fares are stable and rising in all markets but economy-class travel inside the EC, where fast-growing LCCs continue to drive down market fares. A recent study by American Express16 analyzing current fares in business and economy travel made the following projections about Premium and Economy-Class fares for 2004:

AMERICAN EXPRESS’ REGIONAL FORECASTS FOR CORPORATE TRAVEL PRICES IN 2004

ORIGINATING REGION

AIR HOTEL

DOMESTIC/SHORT HAUL (ECONOMY)

INTERNATIONAL (BUSINESS CLASS) MID RANGE UPPER RANGE

NORTH AMERICA 1 TO 2% 2 TO 3% 0 TO 1% 0 TO1%

ASIA PACIFIC 3 TO 4% 5 TO 6% 1 TO 2% 2 TO 3%

EUROPE -2 TO -3% 2 TO 3% 0 TO 1% 0 TO 1%

SOURCE: AMERICAN EXPRESS CONSULTING, OCTOBER 2003

In general, the American Express study concluded that (1) international economy-class fares have hit bottom and are now rising as demand returns; (2) international business-class fares will rise significantly in 2004, following marginal but positive increases in 2002 and 2003; and (3) that LCC adoption by businesses will continue to increase in 2004 and beyond. Business Class Analysis Competition in international business class can be characterized as follows: Carriers have high published business-class fares, often $0.25 per mile or more for travel

into key airports or from key hubs. These are the only fares offered to small and mid-size businesses, to individuals and to travel agencies through Web sites and reservations systems. Published fares can vary even on the same route, depending on the originating city. Virgin Atlantic’s round-trip business-class fare from Washington to London is priced at

16 http://home3.americanexpress.com/corp/latestnews/global_travel_trends.asp

P A G E 2 5

$8,320.53 for IAD-LHR-IAD, but travel on the same route starting in London is priced at £4,217.20 (approximately $7,300) for LHR-IAD-LHR.

Carriers extend blanket discounts to key corporate customers, ranging from 10% for

medium-size businesses17 to 40% or more for major corporate customers (Fortune 500 companies, investment banks, etc.).

o An IATA survey estimated that, on average, approximately 60% of business class

seats were sold by each airline (both for published fares and with non-retail discounts). 40% of business and 65% of first-class seats were either given away as frequently flyer upgrades or sold by consolidators.18

o Of the average 60% of business-class seats sold, the percentage sold at a discount

(and the magnitude of the discount) varies widely by airline. In general, European carriers sell significantly more seats at published fares than US-flag carriers.

The general public can access discounted business-class seats from two legitimate but

non-standard sources: consolidators and differential price experts.

o Consolidators purchase or pre-negotiate pricing for business class inventory from airlines and distribute it via the Internet or retail agencies. Differential price experts (i.e. 1st-Air) maintain complex databases of fares and exchange rates and find arbitrage opportunities for passengers.

o Bulk tickets purchased from consolidators generally carry a 20-50% discount

depending on the route and quantity of excess inventory. They almost always do not earn frequent flyer or elite status credit, and in many cases passengers traveling on bulk fares are not permitted to use lounge, limo or other amenities provided to published-fare business class passengers. However, bulk inventory can be sold at the last minute by consolidators.

o Differential pricing experts use proprietary reservations systems to identify

different prices on outbound and return flights, and then aggregate the legs into a complete itinerary, as in the Virgin Atlantic example IAD/LHR above. These experts are not distributing discounted inventory – they’re arbitraging different fares in different markets and finding opportunities to leverage exchange rates. Tickets purchased through these agents – because they are usually published fares – will carry mileage and elite credit but often be at a substantial discount to standard round-trip prices quoted through the Internet or agencies. Because 1st Air and other pricing experts cannot purchase last-minute fares (bookings and currency exchanges require several days’ advance purchase), because they have limited reach and marketing resources, and because airlines want control over fares and distribution where possible, the reach of differential pricing experts is limited to the general public. Most advertise via the Internet and direct mail.

17 United PerksPlus Program 18 Study funded by 1st Air in 2000. Figured quote in multiple locations – International Herald Tribune, August 2, 2000; MSNBC News November 21, 2001. http://www.1st-air.com.sg/press/prs_msn01.html.

http://www.1st-air.com.sg/press/prs_msn01.html

P A G E 2 6

American Express Study: Business-Class Fares The 2003 American Express study reached several conclusions about business-class fares in four key markets: travel originating in the US, in Europe, in Latin America, and in the Asia-Pacific region. American Express found that overall air travel costs continue to rise in the business class long-haul sector in every international market. American Express found that published fares for international business-class on long-haul flights originating in the US, SkyLink’s key market, rose by 5.54% from Q2 2002 to Q2 2003. American Express made the following regional conclusions about business-class fares:

European Conclusions

Published fares for business-class on long-haul flights

originating in Europe rose by 1.7% (Q2 2003 vs. Q2 2002), on top of a 5.6% increase in 2002. France, Germany and the

United Kingdom all posted business-class, long-haul published fare increases. British-originating business class fares continue

to be the highest in the world.19

Japan and Asia-Pacific Conclusions

Australia, Singapore and Hong Kong have shown the biggest

increase in business class, long-haul published fares, consistent “with the recent offering of sleeper-bed product” from

British, Qantas, Cathay and Singapore. In 2004, a 5-6% jump in international business-class fares is expected in Asia-Pacific.

Latin America Conclusions

Latin America continues to strengthen with good passenger

growth and steady fares. Traffic is forecast to grow by 1.5% in 2003, 4.8% in 2004 and 6.8% in 2005. Published airfares have also increased; first and business-class fares from Argentina

rose 15% (in USD) between Q2 2002 and Q2 2003.

The following general conclusions can be offered about business-class airfares.

1.) Last-minute travelers and the majority of independent travelers (doctors, attorneys, and non-Fortune 500 passengers) cannot easily and predictably access significant discounts.

2.) Consolidators and differential pricing experts offer relief, with restrictions, but airlines are

driving up premium fares and will continue to do so in the future. Consumer acceptance of consolidator fares for business-class travel has been slow, as airlines restrict available consolidator inventory to retain control over ticket distribution and premium passengers have been generally unwilling to buy non-published fares.

19 Business class costs per mile to the US were €0.46/mi from Germany, €0.46 from Italy, €0.47 from Spain, and €0.92 from the United Kingdom (impacted by slot restrictions at London/Heathrow). The European average was €0.56 per mile.

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3.) With airlines moving already high fares higher, the opportunity exists for an international LCC to enter key markets with a discounted product and attract significant high-margin passengers who cannot or do not access discounted fares today.

[Case Study Redacted for General Public] Conclusions SkyLink will be able to price its business-class fares to undercut even what sophisticated travelers could find through consolidators and corporate channels. SkyLink’s marketing will be able directly to contrast SkyLink’s simple retail structure – “value pricing everyday” – against the high published fares and limited inventories of competitors. Easy access and the confidence that will come from buying directly from SkyLink will provide a comparative advantage against secondary sources of discounted premium tickets.

P A G E 2 8

SkyLink Product Definition SkyLink will balance a low-cost structure with an innovative product, creating a value-driven experience for international travelers that will be attractive to price-sensitive leisure and business travelers. Aircraft Configuration SkyLink has carefully considered offering a single-class service and has determined offering both Business and Economy Classes is optimal for long-haul operations.

- Significant business demand exists for a premium-class service on long-haul routes. Most Fortune 500 travel policies permit premium-class travel for senior management on flights over six hours. Especially on overnight flights, corporate travelers will pay a premium for a good night’s sleep in a comfortable seat. Existing under-floor crew rest bunks can be converted for passenger use and sold as an add-on to business class passengers, who would value the privacy and comfort of a true bed with a curtain on international night flights.

- Profitability on international routes is driven by balancing the profitability of business

and economy cabins. There are few (if any) routes that could support an all-business configuration from the US to Europe with a widebody aircraft. Legacy carriers therefore design their cabins to capture as much high-margin premium revenue as possible, and fill the rest of the aircraft with breakeven economy-class passengers. Legacy carriers can enter a price-war in the economy cabin with little overall impact on profitability; they cannot sustain a prolonged price-based defense of their business class products without significant changes to their cabins, services and fare structures. Legacy carriers have configured their aircraft to attract high-fare business traffic. Without those high fares, each flight is acutely unprofitable.20

- A two- or three-class seating configuration opens additional partnership opportunities

with corporations, existing high-service carriers and low-cost carriers. A single flight could have business-class passengers traveling to Europe on corporate discount programs, business-class passengers flying to Europe to connect on Emirates or Singapore to Asia, and economy-class passengers connecting on either end from or to partner LCCs for travel to and from secondary destinations.

o Partnering with Low-Cost Carriers will require having a substantial number of

discounted seats available per flight to carry price-sensitive travelers. o Adding premium sections to the cabin allows SkyLink to capture higher-margin,

last-minute passengers in local markets while keeping a distinct product available for LCC transfers.

- Maintaining a low-cost, low-fare structure is compatible with multiple seating classes, as

long as services are kept simple (and value-oriented) in each cabin. SkyLink envisions

20 For more detail about the economics of legacy aircraft configuration and its impact on discounts, see our FAQs beginning on Page 73.

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three classes of service with two service levels – a distinct business class with unique seats/bunks and catering, and an economy-class service with a premium and standard seating configuration. AirTran, JetBlue, America West, Spirit, ATA and other LCCs have used multiple seating configurations successfully on their fleets.

Cabin Configuration: Interim Fleet SkyLink’s interim aircraft fleet will likely be Boeing 767-200ER aircraft configured to deliver low per-passenger costs while giving business travelers a unique product. With only five to ten interim aircraft in its fleet, SkyLink will not make major investments in cabin engineering, but will invest in new interiors, seat covers and carpeting to create a visually pleasing environment. SkyLink is considering a business-class configuration with eighteen standard business-class seats and three unconventional staterooms. The standard business-class seats would have 48-50” of pitch, comparable with legacy business class, and significant seat recline. Each stateroom would have up to four seats and a table for daytime use, and would convert at night into two seats and two bunks. Economy class on the 767-200ER would feature 172 standard seats in a seven-abreast configuration, with 34” of pitch and portable IFE systems.

Boeing 767-200ER: Interim Fleet Configuration

Cabin Configuration: Permanent Fleet SkyLink intends to operate its permanent fleet in two configurations. Each aircraft will use the same cabin crews, catering equipment, and interior furnishings, and each will require similar maintenance programs and spare part inventories. SkyLink is evaluating different cabin options, but final cabin configurations will be set only after aircraft and route selections have been made.

For long-haul flights above ten hours, SkyLink is contemplating an aircraft configuration which offers a seat and a main-deck bunk to almost all premium passengers. Six to twelve premium passengers could purchase only a seat. The bunk will attract older passengers, business travelers wanting a full night’s sleep, and those attracted by the privacy of the curtain. The seat will offer reasonable pitch (40”) and large work areas for productive daytime use. Main-deck bunks will be inserted (on standard seat tracks) behind the second boarding door; economy class in a single configuration, eight-abreast with 33” pitch, will be installed in the rear of the airplane.

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Business-class passengers will purchase a seat and a bunk. A limited number of discounted business class seats will be available for purchase without a bunk. Six to eight bunks on Airbus aircraft will be located under the main deck, accessible by a staircase in front of the third door. SkyLink expects to operate up to 60% of its fleet in this configuration (as approximately 60% of SkyLink’s routes will be over 10 hours). For shorter flights, SkyLink will compete against established incumbents by offering a better product at a lower fare. In these competitive markets – eastern US to Europe, US to Latin or South America, Europe to Africa – having the lowest per-seat cost is essential. SkyLink will therefore operate a denser configuration on its shorter-haul aircraft, which will comprise 40% or more of the fleet. SkyLink expects to equip all A330-300 or 767-300ER aircraft in the following configuration:

The 116 Premium Economy seats allow SkyLink to position a more comfortable seat (equivalent to domestic business-class seats in width and recline) against a standard economy seat on established carriers.21 On competitive routes, SkyLink will position its product against the majors’ as follows: SkyLink Business Class: a business-class seat at a full-fare economy price. SkyLink

Business will offer equivalent seat width to international business class on the legacies, with less pitch (40” vs. 50” on most majors). SkyLink has determined that new seat designs offer competitive seat comfort and legroom with a 40” pitch, where bulkier (older) designs require 45” or more for equivalent comfort. SkyLink will offer this seat at no

21 SkyLink may use one row of Premium Economy as crew rest facilities on 10+ hour flights.

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more than $2,500 round-trip, equivalent to the highest published international economy-class fares for business travelers.22

SkyLink Premium Economy: a superior seat at a discounted economy price. SkyLink

Premium Economy will offer a wider seat and generous seat pitch at a fare equivalent to discounted economy fares on the legacy carriers. SkyLink will offer the majority of these seats at between $400 and $600 round-trip and use the Internet to illustrate the superiority of the seat through 3-D views of the cabin.

SkyLink Standard Economy: a discounted seat at an industry-leading price. SkyLink

Standard Economy will be tailored for the price-sensitive traveler, offered year-round at prices below the legacies’ economy. SkyLink will sell a significant number of these seats through consolidators and in partnership with other LCCs. Most seats will be sold between $250 and $400 round-trip, with some seats as low as $175 round-trip to Europe in the winter months.

SkyLink will use the Internet to offer less-desirable inventory (middle seats, limited-recline seats) at even lower fares. Catering and in-flight entertainment will be offered at two levels: a premium product with complimentary meals and IFE in the Business Class cabin, with limited catering and IFE-for-sale in the two Economy cabins.

Cabin Seat Configuration Description

Business

(48 seats)

Six-Abreast (2x2x2) with 40-48” Pitch

Target Fare: $750-$1,500 each way, up to $1,999 with main-deck bunk.

Comfort-oriented Business Class product.

Superior (seat/bunk) or Comparable (seat only) to true Business Class on legacy widebody aircraft. 22” seat

width, 40”+ legroom, 50 degree recline.

Complimentary meal service (tray-based, sourced from major restaurant partner). Emphasis on quality meals that don’t

require significant reheating (fresh salads, sandwiches, etc.) with hot entrée only for dinner service. Complimentary liquor.

Basic amenity kits; focus on give-aways. In-flight entertainment and Complimentary Internet.

Bunks: at least six bunks (reconfigured crew rest areas)

available as add-on to standard business class fare. Each bunk configured with hotel-quality linens, comfortable mattress, etc.

Premium business class service that compares favorably

with legacy business class (or first class for bunk product) but undercutting legacy fares by 50% or more.

Premium Economy

(116 seats

where offered)

Seven-Abreast (2x3x2)

with 37” Pitch

Comfort-oriented Economy Class for high-fare passengers.

Comparable seat dimensions to domestic business class or

international business on Boeing 767 aircraft (21” seat width, 40-50 degree recline) but with less pitch (37” vs. 40”).

22 A survey of available fares in economy class from major US cities to Europe is provided in the Appendix.

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Target Fare: $200-$400 each way

Standard Economy Class services. Complimentary snacks and

light meals (sandwich boxes) with hot entrees available for purchase from flight attendants.

In-flight entertainment: individual DVD players available for

rent from flight attendants per flight. Internet service available for purchase.

Low-density Economy seats that compare with Business Class seats on legacy carriers but priced against 14-day

advance economy fares.

Economy (Standard)

(134 to 190

seats)

Eight-Abreast (A330/340) or Nine-Abreast (777-200)

with 33” Pitch

Target Fare: $100-$200 each way

Standard Economy Class product.

Comparable to legacy domestic economy class.

Standard Economy Class services. Complimentary snacks and light meals (sandwich boxes) with hot entrees available for

purchase from flight attendants.

In-flight entertainment: individual DVD players available for rent from flight attendants per flight. Internet service available

for purchase.

High-density, low-fare product aimed at vacation, leisure travelers. Significant inventory can be sold via

consolidators, vacation deals.

Price leader in market.

Specific Service Components The SkyLink experience will be defined by specific services that are differentiated from other carriers. Lounges

In high-focus airports, SkyLink will lease space in key airports for lounges. In remote stations, SkyLink will partner with existing facility operators to share lounge space. SkyLink will operate lounges for two key reasons: (1) sophisticated catering infrastructure will be limited to lounges, giving business class passengers the opportunity to enjoy a full meal but saving in-flight galley space, and (2) providing business and high-fare economy passengers with a place to work during longer LCC-SkyLink connections. As security complexity forces passengers to check in earlier for flights, the value of lounges increases dramatically.

Catering

SkyLink will partner with notable restaurants to develop quality in-flight meals available for purchase in the Economy Class cabin and complimentary in the Business cabin. SkyLink will provide two quality snacks per flight in the economy cabin (basic cold sandwich or fresh fruit/yoghurt/juice depending on flight) with a projected cost of $10 per passenger.

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Inventory and inventory risk will be managed by SkyLink’s restaurant partner. (Legacy carriers have proven this business model in similar arrangements with LSG SkyChefs and other vendors.) SkyLink will receive a commission on sales in-flight. SkyLink will develop billing infrastructure on-board to process credit cards and cash payments. SkyLink will also encourage passengers to purchase meals at time of ticket purchase via the Internet. Business class passengers will be served hot meals in SkyLink-operated lounges at origin airports. Business class passengers will be encouraged to eat at the lounges prior to boarding – onboard cuisine will be kept simple.

On-Board Internet Access

SkyLink will invest in on-board Internet capabilities, with functionality for email and Web browsing offered to customers. While not required to meet regulations, SkyLink will also invest in on-board Internet to connect the aircraft to SkyLink’s dispatch and billing systems, facilitating the transfer of information between SkyLink HQ and the aircraft. Passengers in the business-class cabin will receive complimentary Internet service. Passengers in the economy-class cabin can purchase Internet service for a nominal fee. SkyLink is currently evaluating Internet options from Boeing, Airbus, and home-built systems.

In-Flight Entertainment

Exact IFE configuration will be determined as part of the aircraft purchase and subsequent interior design, but the IFE portfolio will consist of the following: o For Business Class passengers, in-seat video. o For Economy Class passengers, cabin video screens will

show movies, while DVD players will be available for rental at minimal fees.

SkyLink will allow passengers to reserve a DVD unit at the time of ticket purchase at a nominal fee ($5 per flight) or on-board for a higher fee (~$10 per flight). DVD players will be standard 5” LCD models with ten hours of battery life. SkyLink estimates the purchase cost per DVD player at approximately $200 and estimates each DVD player will last for approximately two months of use (driving up to $1000 in revenue for the airline). SkyLink will design recharging carts that charge DVD players using aircraft power systems. SkyLink will equip each aircraft with a DVD rental cart, stocked with popular titles. Passengers will be allowed to check out one DVD at a time from the library.

http://www.aerospace-technology.com/contractors/interiors/recaro/recaro3.html�

P A G E 3 4

On-Board Billing

SkyLink is designing an in-flight billing and customer identification system that will facilitate billing for food and movies. Each boarding pass will be equipped with a bar code tied to a pre-authorized credit card (either the card used for booking or defined by the customer) or a prepaid “account” funded by the passenger at the departure airport. Missing inventory (DVD player or titles, etc.) can be tied directly to passengers based on these bar codes, and systems required to read bar codes are readily available and portable. SkyLink will also utilize the broadband Internet connection between the aircraft and HQ to conduct real-time billing and verification on passenger payments.

Main Deck Bunks Most long-haul Airbus aircraft come with between six and eight bunks, located on the lower-deck behind the wing, and accessed via a staircase from the main cabin. Boeings offer similar bunks either in the aircraft attic (on 777 aircraft) or at the front of the aircraft (on 767s). While SkyLink intends to offer these bunks for passenger sale, SkyLink is also planning a quick-remove modular bunk system that can be attached in-cabin to seat tracks on the main deck of SkyLink’s long-haul aircraft. Sleeping bunks will be sold as an add-on to a standard business-class seat; SkyLink projects at least a $500 per bunk, per flight premium for a bunk/seat combination over a standard, reclining business class seat. True “bed” comfort levels and privacy will be key selling points. SkyLink is not required to provide crew rest berths on long-haul flights. Bunks were introduced based on negotiations between airlines and unions through the 1960s and 1970s. SkyLink will provide flight and cabin crews with rest areas in Premium Economy seats on the main deck. Converted crew rest areas provide passengers with between two (767-200ER) and eight (Airbus A330/340) bunks on board without any customization or aircraft changes. No additional certification is required. Additional bunks would require space on the main deck, necessitating a reconfiguration of a segment of the aircraft cabin to contain bunks. SkyLink would likely locate main-deck bunks in front of the wing, behind the second boarding door. SkyLink is at an early stage of evaluating possible bunk configurations. We are investigating bunks on the main deck for several reasons: a. We believe that bunks could provide a differentiated product that can establish luxury and

value attributes behind the SkyLink brand name. Offering private bunks will create media buzz and excitement in the general public.

b. We believe that bunks would provide a better cabin configuration that traditional lie-flat

business class seats. To have truly lie-flat seats, at least 70” of pitch (forward distance between seats) is required. We have designed a bunk configuration that allows passengers to buy a seat and a bunk and provides the same number of seats with far more passenger comfort.

Figure 1: Under-Deck Bunk

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c. We believe that the seat/bunk configuration provides a superior product to international

first-class seats, allowing SkyLink to charge dramatically higher fares on longer flights than with a simple business-class product. Having a comfortable seat and a dedicated bed, with a mattress, linens, pillows and a curtain, would trump convertible seat designs in both comfort and privacy.

SkyLink is evaluating two cabin configurations for main-deck bunks on its permanent fleet: One configuration (pictured below in renderings) has seats along the side of the cabin with

bunks in the center. The other configuration (pictured in the seating configuration diagrams) has a standard

business-class cabin with a segment of bunks behind the second boarding door. Bunks in this section would be mounted along the sides of the cabin as well.

Figure 2: Early Renderings of Possible Main-Deck Bunk Configuration (Single-Seat Variant, B767)

View One: Lower Bunk from Aisle

View Two: Upper Bunk with Stair

View Three: Seats Along Windows

View Four: Central Bunk Module

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In either configuration, bunks would have the following attributes: a. Each bunk would be an enclosed and removable module (with an open side for entry and

exit) made of lightweight materials, with dimensions approximately 75” long by 30” wide by 36” high. Each module would enter the cabin through a cabin door.

b. Lower bunks would be mounted on a platform base (18” high, 75” long by 30” wide) and

upper bunks would snap to mounting brackets located on the lower bunks and pillars dropped from the ceiling. Overhead consoles would be removed. Mounting to existing seat tracks and ceiling fixtures eliminates certification issues, since those mounting points are already engineered for strength.

c. Upper bunks would have no “cap” so that passengers could use existing oxygen and lighting

systems in the ceiling of the aircraft. Lower bunks would access oxygen and electrical systems through a conduit from the upper bunk.

d. Each triplet (base, lower bunk and upper bunk) would be mounted to existing seat tracks.

Each triplet would be spaced approximately 20” apart to create “aisles”, with a stair module in every other “aisle” to access the upper bunks from a raised platform.

More Bunks, Less Seat Pitch By introducing bunks, SkyLink’s 48 business class seats could have a denser configuration, since lie-flat recline would not be necessary. Each seat could also be customized for daytime use, with larger tray tables, power outlets, etc. The revenue advantage of bunks is considerable; on routes where sufficient business traffic exists, SkyLink can target front-cabin revenues of $69,000 versus $45,000 for a standard lie-flat seat. In markets where significant business traffic does not exist, bunk space would be used for Premium Economy.

Airbus A330-300 / A340-300 Option One: Seats & Bunks Longitudinal Configuration

40” Pitch, Six-Abreast Business

Class Seats for Daytime Use 6’ 3” Private Bunks with Stair

Access for Top Berths

48 Seats, 42 Bunks (6 below)

$1,500 Average Revenue per Available Seat w/Bunk

$1,000 Average per Seat without Bunk

$69,000 Target Revenue

C

C

Single Bunk

Single Bunk Single Bunk

Long-Haul Configuration 48 Business Class Seats @ 40” Pitch

36 Main-Deck Bunks 6 Below-Deck Bunks

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Airbus A330-300 / A340-300 Option Two: Lie-Flat Business

Seats

72” Pitch Required for True Flat No Privacy or Curtains

36 Seats

$1,250 Average Revenue per Available Seat

$45,000 Target Revenue

Alternate Long-Haul Configuration 36 Lie-Flat Business Class Seats

72” Pitch, Six-Abreast Configuration

Hotel Partnership & Rewards Program To help build brand recognition and a reputation for quality, SkyLink is investigating a partnership with a major luxury hotel company to serve two functions:

- To provide branding and design assistance in the business-class cabin, specifically in the below-deck bunks. The hotel partnership will encompass (1) the layout and design of seats, common areas (open spaces in the premium cabin) and bunk areas, (2) linens and amenities provided to business class passengers, and (3) service training for premium-class cabin personnel.

- To develop an uncommon “frequent flyer” program that rewards frequent flyers

with hotel points instead of upgrades or free seats. With dozens of ways to earn frequent flyer points on legacy carriers without flying (through credit card affinity programs, car rentals, etc.) earning free stays at hotels remains more difficult.

SkyLink is investigating whether the bunk service could be joint-branded with a hotel partner. In exchange for design and service assistance, SkyLink offers key advantages to its hotel partner:

- SkyLink can provide highly discounted Business- and Economy-Class inventory to hotel partners, enabling hotel companies to offer integrated flight/stay packages at favorable prices.

- SkyLink can market hotel properties to passengers through its Web site, offering

passengers the opportunity to book flights and hotels at the same time. SkyLink can introduce a “code-share” model, where the hotel room is sold under the same ticket stock and a pro-rate is paid to the hotel partner at time of sale.

- By participating in an existing hotel rewards program, SkyLink brings new participants

to the program and creates additional loyalty to the hotel. The hotel partner brings design and service expertise to the partnership; SkyLink brings a powerful marketing vehicle and new revenue stream. Possible candidates for the hotel partnership include the Orient Express hotel chain, Marriott (and its Ritz Carlton subsidiary), or Starwood (specifically the Westin and W divisions).

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SkyLink is also evaluating whether forming an independent rewards program is a better option than joining an existing hotel loyalty program. If SkyLink established an independent program, the airline would need to invest in marketing and operating infrastructure to build the program and establish reward partnerships with key hotels, car rental programs, and others. The program could then drive commission revenue for SkyLink through affinity credit card programs and other affiliations. Alternatively, SkyLink could join an established program (Marriott, Starwood Preferred, etc.). These programs are known to business travelers, so establishing the program’s value would not be difficult. However, SkyLink would have comparatively little control over how points were used, and would not be able to take advantage of commission-based revenue streams from other affiliate partners down the road. Joining another program would impose far lower costs on the airline than starting a new program. Like the legacy carriers, the SkyLink program will have clearly defined elite status levels, and SkyLink personnel on the ground and in-flight will be trained to recognize and pamper VIP elite travelers. In addition to hotel points, SkyLink’s program will offer free travel on SkyLink’s flights. However, SkyLink will not offer free upgrades as part of the frequent flyer program. SkyLink’s economic model projects Elite flyers and VIPs being able to upgrade from Standard to Premium Economy for $99 on short flights and $199 on long-haul flights, or from Premium Economy to Business Class for $499 or less, subject to space availability. SkyLink does not expect its loyalty program to be the primary factor in attracting business passengers, but does believe that a program is necessary to compete in the long-haul market. SkyLink aims to derive significant revenues from repeat flyers. Every low-cost carrier in the US has established a loyalty program to entice frequent and business travelers.

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Routes Market conditions have created a favorable environment to start an international carrier. International traffic to the US dropped 21% after September 11, 2001, but has steadily increased through 2003 and traffic growth is expected in 2004 and beyond. IATA projects worldwide growth in international traffic to be 6.9% in 2004 growing to 7.2% in 2005, recovering to pre-September 11th levels.23 An international LCC makes sense today without market stimulation; with market stimulation, the returns for an international LCC can be very significant. Even without significant stimulation, sufficient routes exist for SkyLink to grow to a 50+ aircraft airline by 2010 with over $2 billion in annual revenues. SkyLink continues to evaluate potential markets and route data. Initial route data and analysis has been performed by SH&E, an international aviation consultancy, in an engagement for SkyLink paid for and endorsed by the Baltimore-Washington International Airport. SkyLink will build its internal planning team immediately after closing its next financing round. Introduction SkyLink’s market opportunity can be defined as:

- International routes with significant point-to-point traffic, bolstered by low-cost carrier connectivity on at least one end.

- International routes with significant business traffic where corporations or authorities

are willing to sign revenue agreements to reduce risk.

- International leisure routes where aircraft can be allocated during off-peak periods (infrequent charter or scheduled service) with a revenue guarantee or other protection against risk.

To summarize SkyLink’s market entry strategy, the airline’s growth will be divided into three phases:

- In Phase I, SkyLink will operate a limited number of charter and corporate-focused flights while certification is completed, crew bases are staffed and crew members trained, and a small pool of aircraft are delivered from the factory. Phase I will run from December 1, 2004 through April 15, 2005.

- In Phase II, SkyLink will begin scheduled service in key nonstop markets where the

SkyLink service will be the only US-flag nonstop in the market, and where low-cost carriers on at least one end can provide passenger feed. SkyLink will develop focus cities (London/Stansted; Baltimore/Washington) where LCC connectivity can be built. Phase II will run from April 15, 2005 through April 15, 2006. During this phase SkyLink will focus on achieving consistent profitability and set the stage for entry into competitive markets by opening new stations in key cities (New York, Miami, Paris, Madrid, etc.).

23 http://www.iata.org/pressroom/pr/2003-12-30-01.htm

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- In Phase III, SkyLink will enter competitive markets, competing against both US- and non-US-flag carriers. Phase III will begin in the Spring of 2006.

Operating long-haul, international flights on widebody aircraft introduces financial risk to the airline, and makes flawless operating execution mandatory. Each international SkyLink flight will cost between $40,000 (for most transatlantic flights) and $80,000 (for 14-hour long-haul flights) to operate – the average domestic Southwest flight costs the airline $5,000 to operate. Of course, each international SkyLink flight can drive significant profits – revenue per flight is expected to be $60,000 to $120,000 – but the revenue risk from operational failure is high. As a result, SkyLink’s route development must be carefully staged during Phases I and II to minimize risk and allow the operation to work out any problems in computer systems, maintenance relationships, or airport staffing. SkyLink believes that during Phase I and II, the airline can work through these early stages with minimal risk. Background: Worldwide Traffic Flows US travel to international destinations is heavily weighted towards Europe, but the Far East and Central America remain important markets for carriers. While travel dropped 20% between 2000 and 2002 and continued flat through the first half of 2003, traffic has picked up significantly since. IATA estimates 2004 traffic will be up 6.9% over 2003.

JULY 2001 – JUNE 2002 US TO INTERNATIONAL NONSTOP PASSENGER DATA

BY WORLD AREA SOURCE: DOT T-100 SEGMENT DATA, PUBLISHED OCTOBER 2003

REGION TOTAL TRAFFIC

SCHEDULED US AIRLINES

SCHEDULED FOREIGN AIRLINES

US CHARTER

FOREIGN CHARTER

AFRICA 622,661 32,332 576,517 13,812 0

AUSTRALIA 2,875,503 753,527 2,040,614 31,512 49,850

CANADA 16,064,031 8,279,311 7,549,837 124,305 110,578

CARIBBEAN 13,125,081 8,911,508 2,970,925 1,146,480 96,168

CENTRAL AMERICA 18,882,818 10,221,309 6,419,941 1,586,568 655,000

EUROPE 42,086,423 17,417,483 23,584,253 106,170 978,517

FAR EAST 19,117,734 7,706,265 11,367,519 17,173 26,777

MIDDLE EAST 1,078,777 248,196 826,391 4,190 0

SOUTH AMERICA 7,257,384 4,643,472 2,604,011 7,758 2,143

TOTAL 121,110,412 58,213,403 57,940,034 3,037,968 1,919,033 There are several factors to note. T-100 Segment Data collected by the DOT includes all traffic arriving at US airports and

departing from US airports on nonstop commercial international flights. Based on this data set, American carriers dominate traffic to the Caribbean, Central America and South America. European, Asian and African carriers dominate traffic to the US from their home countries.

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US and foreign air carriers transported 121.1 million passengers from the US to the rest

of the world for the twelve months ended June 2002. This represented a decrease of 15.8% over the previous year on a capacity decrease of 13.3%.

Because T-100 data measures nonstop passengers to the US, it ignores where passengers

originated. European numbers therefore contain significant numbers of African- and Asian-originating passengers who connect through major European hubs to travel to the United States.

The largest international market opportunities continue to be in Europe and the Far

East. Comparing YE June 2001 to YE June 2002, traffic to Europe declined 18% while traffic to the Far East declined 19%, demonstrating the impact of airspace closures and terrorism threats in Q4 2001.

Destinations: International Cities & Traffic to the United States Phase I routes will be determined by specific charter contracts or corporate operating agreements.

We have focused on analyzing Phase II and Phase III markets from the US to worldwide destinations that have significant existing traffic. The latest data from the Department of Transportation, published in October 2003 and covering traffic data for the year ending 6/30/2002, lists the following foreign cities as the largest origin points for traffic to the continental US. These cities are important potential destinations for SkyLink, as they reflect locations where significant existing traffic leaves for American destinations. Potential SkyLink cities are listed in bold; potential SkyLink cities which may be difficult to access due to bilaterals and/or slot availability are listed in bold italics.

Top 40 Intl Passenger Gateways to the US Scheduled Service, Nonstop Service Only

Source: US DOT T-100 Segment Data, October 2003 (Data 6/2002)

City Airport Passengers US Share Foreign Share

1 London Heathrow LHR 9,247,441 36% 64%

2 Tokyo Narita NRT 8,143,263 59% 41%

3 Toronto Pearson YYZ 7,035,339 39% 61%

4 Paris De Gaulle CDG 5,224,543 50% 50%

5 Frankfurt FRA 5,142,471 40% 60%

6 London Gatwick LGW 4,471,614 51% 49%

7 Amsterdam AMS 4,019,926 59% 41%

8 Mexico City MEX 3,907,791 50% 50%

9 Vancouver YVR 3,460,721 62% 38%

10 Seoul ICN/SEL 2,362,714 2% 98%

11 Montreal Dorval YUL 2,264,633 57% 43%

12 Taipei TPE 2,085,861 12% 88%

13 Cancun CUN 2,055,399 82% 18%

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14 Osaka KIX 2,008,538 37% 63%

15 Nassau NAS 1,687,538 80% 20%

16 Montego Bay MBJ 1,608,466 33% 67%

17 Sao Paulo GRU 1,592,442 54% 46%

18 Santo Domingo SDQ 1,557,366 93% 7%

19 Guadalajara GDL 1,445,960 35% 65%

20 Zurich ZRH 1,405,703 28% 72%

21 Madrid MAD 1,354,866 40% 60%

22 Hong Kong HKG 1,299,449 46% 54%

23 Calgary YYC 1,287,652 69% 31%

24 San Jose, CR SJO 1,121,113 70% 30%

25 Sydney SYD 1,116,979 32% 68%

26 Caracas CCS 1,086,721 76% 24%

27 San Jose Del Cabo SJD 1,075,258 83% 17%

28 Manchester UK MAN 1,064,010 51% 49%

29 Milan MXP 1,027,085 34% 66%

30 San Salvador SAL 983,623 45% 55%

31 Rome FCO 933,564 63% 37%

32 Guatemala GUA 906,752 64% 36%

33 Nagoya NGO 900,691 50% 50%

34 Lima LIM 872,457 68% 32%

35 Bogota BOG 827,687 53% 47%

36 Puerto Vallarta PVR 819,988 86% 14%

37 Brussels BRU 794,614 63% 37%

38 Auckland AKL 780,737 25% 75%

39 Munich MUC 773,099 45% 55%

40 Shannon SNN 768,887 21% 79% Three factors are clear from the numbers above:

- London is by far the most significant gateway to the United States, with over 13MM passengers per year. Foreign carriers (specifically British and Virgin) dominate London service to the US, although traffic is evenly split from Gatwick. Heathrow traffic includes a significant number of passengers originating in Europe, Asia and Africa and connecting at Heathrow for the United States.

o London Stansted (a new facility located 30 miles northeast of London, but

accessible via a nonstop train from Liverpool St. Station directly to the Stansted terminal) is considered a separate market. Stansted is dominated by European LCCs.

o London Luton (the fourth London airport, located 30 miles north but connected by

train as well) has a runway too short for routine widebody transatlantic operations. There are nonstop seasonal charters with Airbus A330s from Luton to Florida.

P A G E 4 3

- The key worldwide destinations for SkyLink are all major business centers, and many are

hub cities for other low-cost carriers.

- American carriers are dwarfed by foreign carriers in many key markets. There is a strong opportunity to build an American carrier that can compete on both service and price against foreign carriers, but specifically targeted at American passengers.

Why will SkyLink target foreign-dominated routes? Since American carriers focus their international operations on key east-coast hubs (ATL for Delta; EWR for Continental; DTW for Northwest; IAD and ORD for United), American passengers must often travel through a major hub to transit to European cities and beyond. Foreign carriers, often part of global alliances and in code-share partnerships with US-flag carriers, dominate nonstop European service into key US cities. The major reason SkyLink will focus on foreign-dominated routes in Phase II is to stay out of direct competition with domestic carriers as long as possible, building operating scale that can be used to capture market share in Phase III and beyond. There are also marketing advantages (“buy-American” corporate contracts, local-market focus) and security advantages (operation optimized for American security requirements) to focusing on foreign-dominated routes in the beginning. Origins: US Cities The following DOT information captures the largest US gateways to foreign destinations. These are the key originating points for worldwide flights in the US for the twelve months ending 6/30/2002. Probable SkyLink cities (most LCC focus cities) are listed in Bold.

Top 40 US Passenger Gateways to the World, Scheduled Service, Nonstop Service Only Source: US DOT T-100 Segment Data, October 2003 (Data 6/2002)

City Airport Passengers US

Share Foreign Share

Dominant LCC (Entering LCC)

1 Los Angeles, CA LAX 14,427,345 21% 79% Southwest (Frontier)

2 New York, NY JFK 13,957,590 36% 64% JetBlue

3 Miami, FL MIA 13,870,652 55% 45% AirTran

4 Chicago, IL ORD 8,325,202 51% 49% Southwest, ATA

(at Midway)

5 Newark, NJ EWR 6,894,325 62% 38% None

6 San Francisco, CA SFO 6,868,407 44% 56% ATA, Southwest

(at SJC)

7 Atlanta, GA ATL 5,751,122 78% 22% AirTran

8 Houston, TX IAH 5,116,870 80% 20% Southwest

9 Honolulu, HI HNL 3,920,340 21% 79% Aloha

10 Washington, DC IAD 3,702,869 44% 56% Independence,

AirTran

11 Dallas/Fort Worth DFW 3,624,894 83% 17% AirTran

12 Boston, MA BOS 3,167,408 31% 69% None

13 Detroit, MI DTW 2,905,319 91% 9% Spirit

14 Philadelphia, PA PHL 2,545,846 74% 26% (Southwest)

P A G E 4 4

15 Guam, MI24 GUM 2,183,270 54% 46% None

16 San Juan, PR SJU 2,051,236 83% 17% None

17 Minneapolis, MN MSP 1,993,255 91% 9% None

18 Seattle, WA SEA 1,953,299 68% 32% Southwest

19 Orlando, FL MCO 1,565,577 6% 94% Southwest, AirTran

20 New York, NY LGA 1,072,026 37% 63% None

21 Phoenix, AZ PHX 1,007,626 60% 40% Southwest,

America West

22 Charlotte, NC CLT 917,846 93% 7% None

23 Denver, CO DEN 896,511 46% 54% Frontier

24 Ft. Lauderdale, FL FLL 861,707 18% 82% Spirit, Southwest, AirTran, jetBlue

25 Cincinnati, OH CVG 738,299 93% 7% None

26 Saipan, MI SPN 732,526 38% 62% None

27 Pittsburgh, PA PIT 604,668 97% 3% None

28 Las Vegas, NV LAS 568,540 13% 87% Southwest, America

West

29 Anchorage, AK ANC 448,852 3% 97% None

30 Baltimore, MD BWI 416,454 8% 92% Southwest, AirTran

31 San Jose, CA SJC 318,011 62% 38% Southwest

32 St. Louis, MO STL 316,259 88% 12% Southwest

33 Tampa, FL TPA 314,131 14% 86% Southwest, AirTran

34 San Diego, CA SAN 291,586 22% 78% Southwest

35 Memphis, TN MEM 244,041 34% 66% None

36 Raleigh, NC RDU 193,624 52% 48% None

37 Cleveland, OH CLE 178,736 92% 8% Southwest

38 Washington, DC DCA 129,670 0% 100% AirTran

39 San Antonio, TX SAT 123,920 17% 83% Southwest

40 Ft. Myers, FL RSW 91,454 1% 99% Southwest, AirTran In each of the key origin cities on the short-list for SkyLink during Phases II and III, two of three factors must be present:

- Either American-originating traffic is dominated by foreign carriers, or

- The incumbent US-flag legacy is weak or in bankruptcy, or

- There is substantial feed from a major low-cost carrier. Foreign carrier dominance indicates an opportunity to capture local, US-originating business travelers with corporate discount programs and other incentives to capture high-margin market share.

24 Reported gateway traffic for both Guam and Saipan is predominantly vacation traffic from Japan and the Far East.

P A G E 4 5

LCC feed reduces the operating risk of the leg by filling economy-class seats with connecting passengers. LCC focus cities with significant nonstop service to key business destinations offer a strong connecting base of traffic to an international flight. US-Originating Markets for International Travel The most recent information published by the DOT (October 2003) indicates several routes that SkyLink may enter in its first three years of growth. Potential SkyLink routes are indicated in bold; routes which would require difficult route authorities, slots, or would pose other challenges are indicated in bold italics.

Top 50 Scheduled Passenger Routes, International Source: US Department of Transportation T-100 Segment Data Rank Origin Destination 2002 Pax US % Foreign %

1 JFK LHR 2,284,944 33% 67% 2 HNL NRT 1,500,368 41% 59% 3 LAX NRT 1,368,249 33% 67% 4 LAX LHR 1,307,053 26% 74% 5 ORD LHR 1,243,086 69% 31% 6 LAX TPE 1,088,177 0% 100% 7 JFK CDG 925,507 43% 57% 8 SFO LHR 885,116 40% 60% 9 IAD LHR 879,673 45% 55%

10 SFO NRT 846,297 68% 32% 11 BOS LHR 823,723 36% 64% 12 ORD YYZ 796,216 74% 26% 13 JFK NRT 772,583 50% 50% 14 LAX MEX 762,298 21% 79% 15 MCO LGW 739,013 0% 100% 16 GUM NRT 730,382 68% 32% 17 LAX AKL 727,618 27% 73% 18 LAX ICN 726,250 0% 100% 19 MIA CCS 825,682 67% 33% 20 LAX SYD 721,732 25% 75% 21 LAX YVR 705,356 57% 43% 22 EWR LHR 704,614 28% 72% 23 DTW AMS 700,667 96% 4% 24 ORD FRA 679,345 58% 42% 25 ORD NRT 653,895 64% 36% 26 JFK FRA 639,482 16% 84% 27 LGA YYZ 629,544 29% 71% 28 MIA NAS 620,343 62% 38% 29 HNL KIX 615,484 26% 74% 30 SFO TPE 613,275 31% 69% 31 LAX GDL 608,227 21% 79% 32 MIA GRU 570,894 46% 54% 33 SFO HKG 567,187 37% 63% 34 SFO YVR 565,766 58% 42%

P A G E 4 6

35 MIA SJO 562,801 55% 45% 36 IAD FRA 561,204 51% 49% 37 IAH MEX 558,628 68% 32% 38 MIA LHR 532,006 28% 72% 39 ATL CDG 509,405 61% 39% 40 ATL LGW 505,980 75% 25% 41 MIA MAD 493,345 22% 78% 42 MIA BOG 483,345 46% 54% 43 GUM KIX 477,955 17% 83% 44 MIA MEX 477,669 50% 50% 45 MIA PAP 460,468 82% 18% 46 SJU SDQ 458,964 79% 21% 47 JFK SDQ 447,353 100% 0% 48 MIA CUN 438,672 55% 45% 49 IAD CDG 437,297 48% 52% 50 DFW MEX 429,705 76% 24%

Each daily SkyLink frequency would add around 91,000 seats per year to the market. SkyLink would offer double-daily service in key competitive markets in Phase III, stimulating traffic flow where possible with additional frequencies. DOT Certification: Route Choices As part of applying for a certificate to operate as a US-flag carrier, SkyLink must disclose to DOT and FAA (on public record) which routes the airline intends to serve. We have listed four representative routes which will be part of the SkyLink network: Baltimore/Washington to London/Stansted. Baltimore/Washington to Paris/Charles de Gaulle. Baltimore/Washington to Munich/Strauss. Baltimore/Washington to Brussels.

These routes were chosen for the following reasons: They represent routes with LCC connectivity on either end, illustrating how our

business model will be reflected in our market selections. They represent routes that are not competitive today for Maryland residents (London,

Paris, Munich and Brussels are all served from Washington/Dulles; Paris and London are served from Philadelphia) but have sufficient traffic flows to justify additional service.

They do not signal to competitors our multi-phase strategy and intention to compete for

Business Class passengers on long-haul routes. Our final route selection will be a function of our aircraft purchase and available interim lift as we await new aircraft deliveries. Once we have selected our aircraft type and routes, we will notify DOT and FAA of our final intentions.

P A G E 4 7

Planned Phase II and III Routes In terms of route length, to maximize aircraft utilization, SkyLink contemplates focusing on two categories of routes during Phases II and III:

- Especially in Phase II, long-haul routes (12+ hours) where no nonstop service exists on any carrier, and where significant business-class traffic exists. Examples: New York -Taipei, New York - Mumbai, Houston/Washington - Lagos, Los Angeles - Stansted.

o Very long-haul routes permit 3x weekly service with a single aircraft or daily service

with two aircraft (allowing for maintenance and turn times). o Very long-haul routes place a high value on innovative business class arrangements

(i.e. bunks) and are less competitive. Aircraft on these routes would be configured with main-deck bunks and smaller tourist-economy section.

o Route authorities tend to be noncompetitive and easier to obtain.

o Service can be expanded into routes where foreign carriers offer the only nonstop

services (Los Angeles - Taipei, New York - Johannesburg, etc.)

- Especially in Phase III, routes with block time less than nine hours each way, where a single aircraft can be assigned to fly daily service with very high utilization.

o This includes markets where no nonstop service exists (Washington - Madrid,

Washington - Geneva, New York - Bratislava) and markets that are highly competitive (New York - London, Washington - London, etc.).

o These routes are higher volume and more price competitive. Utilization must drive

rock-bottom CASM (cost per available seat mile) on these routes. o All service on these routes would be at least daily frequency, 2x daily on peak routes.

Based on the DOT data above, we are analyzing several potential routes that could fit into SkyLink’s three-phase strategy:

Phase I and II: Long-Haul Routes

(Start Date, Equipment to be flown, Sample LCC Feed)

Phase II and III: Competitive Routes (Start Date, Equipment to be flown,

Sample LCC feed)

Houston/Baltimore-Lagos-Johannesburg Charter Service through Winter 2005

(January 1, 2005, Airbus A340, AirTran)

New York – Bahrain – Bangalore Charter Service through Winter 2005

(May 1, 2005, Airbus A340, tbd.)

Los Angeles – London Stansted (June 1, 2005, Airbus A340, tbd.)

New York – London Stansted

(December 1, 2005; Airbus A330, tbd US feed, easyJet, Air Europe, etc. European feed)

Miami – London Stansted

(March 1, 2006; Airbus A330; Euro LCCs)

Miami – Madrid (April 1, 2006; Airbus A330; Euro LCCs)

Balt/Wash – London Stansted

P A G E 4 8

New York – Mumbai (August 1, 2005, Airbus A340, Jet Airways/Sahara)

New York – Tel Aviv

(October 1, 2005, Airbus A340, tbd.)

Los Angeles – Paris (April 1, 2006, Airbus A340, Southwest/Frontier)

Balt/Wash - Rio de Janeiro - Johannesburg

(June 1, 2006, Airbus A340, Southwest/AirTran)

Los Angeles – Munich (July 1, 2006, Airbus A340, Southwest/Frontier US,

germanwings/dba/Air Berlin Germany)

Balt/Wash – Cairo – Delhi (October 1, 2006, Airbus A340,

Southwest/AirTran/Frontier US, Jet Airways/Sahara India)

(May 1, 2006; Airbus A330; multiple LCCs at either end.)

Balt/Wash – Paris

(May 1, 2006; Airbus A330; multiple LCCs)

Balt/Wash – Munich (June 1, 2006; Airbus A330; multiple LCCs)

Miami – Paris – Cape Town

(June 1, 2006; Airbus A330; tbd.)

Dallas – Paris (June 1, 2006; Airbus A330; multiple LCCs)

Based on aircraft availability, SkyLink may choose to promote key routes from 2006 to the 2005 calendar year. Likely targets for promotion include New York, Miami and Baltimore/Washington to London/Stansted, allowing SkyLink to develop Stansted as a key alternative to London/Gatwick and London/Heathrow. SkyLink is negotiating with Boeing and Airbus for deliveries of twin-engine aircraft that would be optimal for these routes. SkyLink’s routes and entry timing will be chosen with three factors in mind:

- That a fast pace in introducing new services will create a national buzz, allowing SkyLink to cherry-pick the highest-yielding routes with efficient advertising for route introductions. SkyLink will also use the Internet to advertise new service directly to ethnic communities.

- That route authorities will determine the sequence of routes introduced. Applying

for route authorities is covered in the following section. SkyLink expects a three to six month effort to obtain new route authorities. However, each new route authority becomes a barrier to entry for copycats.

- That markets with significant business traffic but low overall passenger numbers

(New York – Bahrain, Washington – Cairo) can be profitable by providing continuing service to markets with substantial economy-class traffic (New York – Bangalore). A thrice-weekly New York – Bahrain – Bangalore round trip could drive significant yields in both Business and Economy classes, where JFK-Bahrain or JFK-Bangalore nonstop flights would be unprofitable.

Sample Route Analysis: Los Angeles to London/Stansted SkyLink has identified Los Angeles to London/Stansted as a potential Phase II route. While several carriers (American Airlines, United Airlines, British Airways, Virgin Atlantic and Air New Zealand) serve Los Angeles to London/Heathrow nonstop, there is no service to either Manchester or

P A G E 4 9

Stansted. Nonstop service to Stansted could attract new passengers to the market, as well as capture existing traffic into Heathrow. The following traffic data is confidential and may not be distributed to foreign air carriers under DOT regulations. In 2002, US-flag carriers carried 271,080 local-market passengers from Los Angeles to London. The carriers flew an additional 14,954 connecting passengers from other US cities, for a total on-board passenger count of 286,034, split between American and United Airlines. Foreign flag airlines flew 1,025,157 passengers; assuming a similar ratio between local-market and connecting passengers, 971,561 of those would have been local Los Angeles to London passengers. We therefore estimate the total O&D market from Los Angeles to London at 1,242,641 passengers. There are 1,589,249 seats each year between Los Angeles and London on the five carriers serving the route nonstop. SkyLink would place a 238-seat A340-300 on this route, or an equivalent configuration 777-200ER long-range aircraft. SkyLink would have a seat share of 9.71%, and should capture 120,602 passengers per year for a load factor (before stimulations, connections, etc.) of 70.6%.

Figures in BOLD are reported numbers for 2002

Local O&D passengers carried on US Airlines 271,080 271,080

Onboard passengers on US airlines 286,034nonstops to London 14,954

O&D as a % of onboard 94.80%

Passengers on foreign airlines 1,025,157

Estimated local O&D passengers on foreign airlines 971,561 Estimated total O&D market 1,242,641

Estimated competitve seats in market 1,589,249170,820

Skylink seat share 9.71%Estimated SkyLink O&D 120,602

Skylink load factor before connections, 70.60%traffic growth, stimulation

Connections from other cities (6% of trafficfrom SAN, LGB, ONT) 67,070 6.0% 4,024Price stimulation estimated at 20% 20.0% 24,120

SkyLink traffic with connections and stimulation 148,747Estimated Load Factor 87.08%

SkyLink Market

Skylink seats in market with daily service (48/190 configuration, A340-300)

Onboard Pax

In 2002 the average load factor for the year for all carriers was 84.3%

O&D Pax

Los Angeles - London

LAX-LON is served non-stop by AA (1-777), UA (1-777), BA (2-747), Virgin (2-747, code shares with CO) and Air New Zealand (1-777)

We estimate that 6% of passengers originating from other Southern California airports could be captured by a new LAX-STN service, adding 4,024 passengers per year to the market. With 20%

P A G E 5 0

price stimulation (typical for a low-fare entrant in an established market) adding 24,120 passengers per year, we project our total traffic with connections and stimulation to be 148,747 passengers per year. Since an A340-300 with 238 seats adds 170,820 available round-trip seats per year to the market, we could expect a load factor of 87.1%. With an Airbus A330-300 in a dense configuration with 298 seats, our load factor would be 84.4%. A contribution and profitability analysis is provided in the Appendix for Los Angeles to Stansted with 70% load factors. With business class fares ranging from $699 to $1,999 each way, and with Standard Economy fares ranging from $149 to $299 each way, SkyLink could expect total revenue per flight of $81,000 and total operating costs of $59,000. On the route, SkyLink’s breakeven load factor would be 51.2%. Impact of Connecting Passengers from LCCs As discussed, SkyLink anticipates entering into partnership agreements with LCC partners in the US, Europe and elsewhere to provide network flow, from LCCs to SkyLink and vice versa. In the following section, we illustrate the volume of connecting traffic that LCC partners can have on SkyLink flights. LCC partnerships can help manage SkyLink’s risk, especially in the economy-class cabin. Market Size Analysis With & Without LCC Connectivity From the lists above, we have picked fifteen potential international routes from key US gateways to key foreign gateways. Local-market traffic is given in the first column. For the Washington to Amsterdam

(WAS-AMS) route, 66,070 passengers traveled on US-flag carriers and traveled only from Washington to Amsterdam (i.e. didn’t connect to another flight on either end).

Potential US connecting are given in the second column. For WAS-AMS, potential

US connecting passengers represent those who could travel on LCCs from interior cities (Dallas, Chicago, etc.) and connect to the international segment to Amsterdam. Where a “0” is indicated, no connecting traffic could viably flow onto that flight (there are no LCCs, LCC flights operate at the wrong time for SkyLink connections, or the airport is not geographically suited to connecting flow). For WAS-AMS, there are 257,740 passengers on US-flag carriers each year who travel from Dallas, Chicago, and other cities to Amsterdam and could connect via Washington.

International connecting passengers are given in the third column. For WAS-

AMS, potential connecting passengers reflect (1) Washington-originating passengers who (2) travel on US-flag carriers to secondary European cities that (3) are served by European LCCs from Amsterdam. Because the DOT does not collect foreign flag carrier information and few US-flag carriers serve secondary cities in Europe, this data is dramatically underreported. Where no reliable data exists, or where foreign flag carriers provide exclusive service to secondary cities, a “0” is entered.

US Flag % of ASMs is given in the fourth column. An ASM is an Available Seat

Mile, the standard for comparing inventory across carriers. An estimated 40% US-flag ASM share for WAS-AMS indicates that American carriers provide roughly 40% of available seats on the route. Market traffic numbers must therefore be scaled to accommodate traffic carried on foreign carriers, for which no published data is available.

P A G E 5 1

SkyLink Target Connecting % is given in the fifth column. This column indicates

the percentage of connecting passengers who might connect through an intermediate city. This is an arbitrary number but reflects that passengers traveling from Chicago to Amsterdam have two nonstop services from which to choose, and are reasonably unlikely to choose a connection through Washington at market prices. Based on analysis by SH&E, we have chosen 8% as an arbitrary number for international LCC feed and 10% for domestic LCC feed until further analysis route-by-route is completed.

Total Route Traffic is given in the sixth column; it is calculated by:

o Adding contestable US Connecting and International Connecting passengers, o Adding that sum to Local Traffic, o And then scaling to include foreign flag ASMs.

The final column indicates the share of market that SkyLink would have with a 70% load factor and a daily frequency. The table assumes SkyLink adds a dense-configuration A330 to each market, with 298 seats. Adding an A340 with 238 seats would reduce the market share projection. A daily service with 298 seats adds 217,500 round-trip seats to each market.

Local Traffic, Domestic

Pax Connects from US Origins

Pax Connects to Int’l Cities

US-flag ASM Share (% of

total)

Domestic % Pax

Contestable

International % Pax

Contestable

Total Route Traffic

w/Foreign, Connecting

SkyLink Market Share if 70% LF on

daily svc.WAS-AMS 66,070 257,740 0 40% 10% 8% 229,610 40%JFK-AMS 152,260 198,250 0 25% 10% 8% 688,340 18%ATL-BRU 27,750 22,510 83,920 80% 10% 8% 45,893 77%ATL-CDG 63,160 85,570 0 60% 10% 8% 119,528 56%ATL-LON 120,790 123,760 18,820 60% 10% 8% 224,453 40%WAS-BRU 45,880 119,840 113,530 50% 10% 8% 133,893 53%WAS-CDG 102,210 462,550 0 25% 10% 8% 593,860 20%WAS-GIG 20,720 93,630 30,610 50% 10% 8% 65,064 70%

WAS-LGW* 23,900 594,430 11,240 10% 10% 8% 842,422 15%WAS-MAD 28,700 116,840 0 20% 10% 8% 201,920 43%WAS-MEX 84,480 477,960 0 75% 10% 8% 176,368 46%JFK-CDG 341,070 429,480 0 30% 10% 8% 1,280,060 11%LAX-CDG 101,310 0 0 25% 10% 8% 405,240 27%JFK-MAD 84,790 104,820 0 40% 10% 8% 238,180 39%LAX-SYD 52,170 103,850 0 25% 10% 8% 250,220 38%

ANNUAL ESTIMATED LOCAL & CONNECTING MARKET PASSENGERSFOR POTENTIAL INTERNATIONAL ROUTES

SOURCE: SH&E PROPRIETARY DATA & SKYLINK ANALYSIS, DOT DATA COLLECTED 2003

NOTE: TOTAL ROUTE TRAFFIC = (LOCAL + CONTESTABLE US CONNECTS + CONTESTABLE INT'L CONNECTS) / (US FLAG ASM SHARE) For example, based on the chart above, to calculate the total market traffic for Baltimore/Washington to Brussels, one would start with the local-market traffic on US-flag carriers (45,880). One would sum the total contestable connecting traffic pools in the United States (119,840 * 10%) and Europe (113,530 * 8%) and add to local market passengers to determine the approximate number of passengers who could flow over the BWI-BRU segment on US-flag carriers. To determine the total market size, one would then scale this to add foreign-flag passengers based on ASM share (50%) to yield total market size of 133,893.

P A G E 5 2

Connecting traffic allows SkyLink to enter new markets and place a larger aircraft on routes, which lowers operating costs per passenger and reduces the breakeven fare. Without connecting traffic, markets like Washington-Brussels and Los Angeles – Sydney would be marginal for an American carrier. With feed, they produce substantial traffic. Network feed from low-cost carriers will come from a variety of origins and destinations, and that LCC partners should be chosen by key markets they can connect to the SkyLink international segment. Baltimore/Washington to Brussels In the following chart, more information is given about the previous example of service from BWI to BRU. Network feed information is given for the potential route. As the table above indicates, the approximately 90,000 passengers (45,880 US-flag passengers divided by 50% US Share) currently flying on the route would not be enough to sustain independent service on the route without LCC feed. However, when partnered with Virgin Express at Brussels (connecting to Lisbon, Copenhagen, Florence, Athens, Rome, Milan, Geneva, Nice, Barcelona, and Palma) to connect passengers to onward European destinations, and with AirTran, Frontier and other LCCs at Baltimore to connect passengers nonstop from Atlanta, Boston, Chicago, Denver, Houston, San Jose, and other major cities, the universe of potential travelers expands dramatically:

PROJECTED MARKET SIZE, BALTIMORE-BRUSSELS

SINGLE CONNECTIONS ONLY / NO DOUBLE CONNECTS WITH CONNECTING TRAFFIC (AIRTRAN/BWI; VIRGIN EXPRESS/BRU)

DATA COLLECTED BY SH&E, OCTOBER 2003

ORIGIN PASSENGERS, 2002 DESTINATION

TARGET %, EUROPEAN

TRAFFIC

TARGET %, US

TRAFFIC

TOTAL TRAFFIC PER YEAR

LISBON 7,060 BALTIMORE (BWI) 8% 565

COPENHAGEN 4,610 BWI 8% 369

FLORENCE 6,210 BWI 8% 497

ATHENS 10,750 BWI 8% 860

ROME 37,310 BWI 8% 2,985

MILAN 21,750 BWI 8% 1,740

GENEVA 10,850 BWI 8% 868

NICE 5,240 BWI 8% 419

BARCELONA 9,420 BWI 8% 754

PALMA 330 BWI 8% 26

BRUSSELS (BRU) 45,880 BWI 45,880

BRU 12,900 BOSTON 10% 1,290

BRU 1,140 DAYTON 10% 114

P A G E 5 3

BRU 13,560 ORLANDO 10% 1,356

BRU 4,690 FORT LAUDERDALE 10% 469

BRU 6,130 TAMPA 10% 613

BRU 1,500 FT. MYERS 10% 150

BRU 940 MILWAUKEE 10% 94

BRU 1,260 ROCHESTER 10% 126

BRU 1,160 BUFFALO 10% 116

BRU 4,380 RALEIGH 10% 438

BRU 2,670 SAN JOSE 10% 267

BRU 28,560 CHICAGO 10% 2,856

BRU 8,150 DENVER 10% 815

BRU 3,430 INDY 10% 343

BRU 4,730 SALT LAKE 10% 473

BRU 9,440 DALLAS 10% 944

BRU 7,520 HOUSTON 10% 752

BRU 7,680 SAN DIEGO 10% 768

ROUTE TRAFFIC, US CARRIERS 66,946

DOMESTIC ASM SHARE, BRU (FROM ABOVE TABLE) 50%

PROJECTED MARKET SIZE BWI-BRU WITHOUT STIMULATION 133,893

Therefore, without stimulating the market, LCC partnerships allow SkyLink to introduce nonstop service and capture sufficient traffic to support high load factors. In addition, the LCCs benefit in the partnership from expanded networks:

- AirTran, Frontier and others add European cities to their networks (Brussels, Lisbon, Copenhagen, Florence, Athens, Rome, Milan, Geneva, Nice, and Barcelona) with one-stop connecting service from US cities currently served nonstop from BWI.

- Virgin Express adds key American cities to its network (Washington, Boston, Dayton,

Orlando, Ft. Lauderdale/Miami, Tampa, Ft. Myers, Milwaukee, Rochester, Buffalo, Raleigh, San Jose, Chicago, Denver, Indianapolis, Salt Lake City, Houston, Dallas, and San Diego).

SkyLink is currently evaluating its final route plan, and will not make final decisions until the following six events have occurred.

- A final aircraft order is placed with either Boeing or Airbus, determining the final capabilities and operational economics of the fleet.

- A detailed route analysis is completed, with updated market numbers, competitive fares

and capacity, etc.

- Corporate travel banks and other revenue support programs are investigated.

P A G E 5 4

- Negotiations have occurred with local authorities over airport gates, slots and route

authorities.

- Phase I opportunities are firmly identified.

- Initial agreements are reached with potential LCC partners. LCC Partnership Structure SkyLink’s first priority after financing and placing an aircraft order will be to forge partnerships with US LCCs and foreign carriers. These agreements will take one of three forms:

- Partnership agreements with little integration between the carriers. SkyLink will act as a travel agent for partner carriers, allowing SkyLink passengers to purchase LCC-partner tickets through SkyLink’s Web site at retail prices. At key airports, SkyLink will provide baggage interlining, but passengers will check in again when connecting between airlines. (Re-checking is mandatory for all inbound passengers regardless of the partnership structure, since all passengers must clear immigration and customs.) This is the likely form of partnership with Southwest Airlines, which has had similar arrangements with Icelandair and Aer Lingus at Baltimore.

- Formal interlining agreements with integration. Partner carriers will be able to issue

boarding passes for SkyLink travel and baggage will be interlined when checked through to the passenger’s final destination. SkyLink and its partners may exchange discounted inventory to be resold on partner Web sites. This would allow AirTran to sell a ticket from Dallas to Stansted via Baltimore and have the passenger check a bag all the way through, flying DFW-BWI on AirTran and BWI-STN on SkyLink. This structure may involve joint marketing efforts. This is the likely form of partnership with carriers using OpenSkies as their reservations systems, including AirTran, Frontier and potentially jetBlue, since common OpenSkies architectures between SkyLink and partners would be relatively simple to implement.

- Formal code-sharing with joint revenue management. This is the long-term

objective, where carriers share the SkyLink code in the same way that major carriers code-share through alliances. Ticketing and baggage checking would be seamless between the carriers. Carriers would work together to price fares and manage inventories. SkyLink would reserve daily inventory for partner carriers, who could price and distribute the seats. This form of partnership will develop over time and is not expected in Phases I-III.

Potential LCC partners in the US include AirTran, Frontier, jetBlue, Southwest, and ATA. Secondary partnerships could include Alaska, Midwest, Independence, and Great Plains Airlines. Potential foreign LCC partners include Ryanair, easyJet, Volare, germanwings, Virgin Express, Virgin Blue, Sahara, Jet Airways, Nationwide, Kulula.com, SkyMark, Air Asia, GOL, and others.

P A G E 5 5

Similar partnership opportunities exist with foreign “high-cost carriers” – international airlines that focus on high-end business travelers. Foreign HCCs (Emirates, Singapore, etc.) will provide SkyLink with network scope as well. SkyLink can provide HCCs with connecting service to US cities, giving foreign carriers code-shares on SkyLink to broaden their networks. SkyLink will focus on high-service international carriers that are not key members of global alliances. Potential foreign HCCs partners for business-class traffic could include Emirates and Qatar Airways. Other foreign partners (which cannot access the US market due to fleet or route authority limitations) include Kuwait Airways, Biman, Air India, Aeroflot, Kenya Airways, EgyptAir, El Al, TACA, Lan Chile, Saudi Arabian Airlines, EVA, Philippines, and Garuda. Commission Structure The SkyLink operating plan makes the following assumptions about LCC partnerships:

Business with Bunk

Standard Business

Advance Purchase Business

Walk-Up Premium Economy

Advance Purchase Premium Economy

Walk-Up Standard Economy

Advance Purchase Standard Economy

“Worst-case”

Percent of SkyLink Pax in fare bucket Connecting to/from

LCC

10% 20% 30% 20% 30% 40% 50%

Commission Paid to

LCC Partner

8% 6% 4% 10% 8% 6% 5%

SkyLink will structure commissions with LCCs to provide increasing commissions for higher fares, paralleling the profitability of each passenger to SkyLink. All SkyLink financials are built to include ground handling costs for passenger transfer, including baggage transfer and boarding pass issuance. SkyLink will investigate whether LCCs in key cities can provide some ground handling services for SkyLink flights as part of a partnership deal, reducing overhead and variable costs for SkyLink. SkyLink has budgeted for its own ground equipment, since LCCs’ tugs and gate equipment is unlikely to handle a widebody aircraft. SkyLink aims to have at least two domestic LCC partnerships in place by the start of scheduled service in 2005.

P A G E 5 6

Fares, Distribution & Competitive Response SkyLink’s fare structure will be: Simple and easy to understand. Tailored for Internet distribution but compatible with existing CRS systems.

Limited to four fare buckets in Economy Class, two for discount economy and two for

premium economy. Limited to three fare buckets in Business Class: an advance-purchase, discounted fare, a

standard, walk-up fare, and a “premium” fare for a seat and bunk. The following sample fare structure for SkyLink’s service from Washington to London represents the Southwest Airlines strategy of “filling the plane” with highly discounted fares, especially during the summer months. SkyLink expects to be able to charge Business and Economy fares substantially higher than the fares listed below, and expects higher load factors than those given. Except for discounted standard economy, fares listed below are between 20% and 60% lower than published and corporate fares offered by competitors on the route. While British, United and other carriers offer highly-discounted economy-class fares during winter months ($99-199 each way, requiring a Saturday night stay) the lowest fares in summer months are often 50% to 100% higher. Inventory levels are based on the capacity of an Airbus A330-300, one of two equipment types to be used by SkyLink on “short-haul” transatlantic operations.

SAMPLE FARES & PROFITABILITY, BALTIMORE/WASHINGTON TO LONDON/STANSTED, 2007 2007 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07

Chosen Equipment Airbus A330-300 Basic Configuration (6 Under-Deck Bunks Only) Business Class Seats 48 48 48 48 48 48 Prem + Std Economy 250 250 250 250 250 250 Weekly Frequencies 7 7 7 7 7 7

Business with Bunk $1,499 $1,499 $1,499 $1,499 $1,499 $1,499 # of Seats Booked 4 4 4 5 5 6

Business Standard $999 $999 $999 $999 $999 $999 # of Seats Booked 8 8 8 8 9 9

Discounted Business $599 $599 $599 $699 $699 $749

# of Seats Booked 20 20 20 22 22 25

Upgrade Cost (at Gate) $299 $299 $299 $299 $299 $299 # of Seats 3 3 3 2 2 1

Premium Economy $399 $399 $399 $399 $399 $399 # of Seats Booked 10 10 10 15 15 15

P A G E 5 7

Discounted Premium Econ. $249 $249 $259 $269 $289 $299 # of Seats Booked 15 15 15 18 20 22

Standard Economy $199 $199 $199 $199 $199 $199 # of Seats Booked 20 20 20 20 20 20

Discounted Standard Econ. $89 $89 $99 $129 $139 $149

# of Seats Booked 115 100 110 120 140 150

2007 Average C Pax/Day 32 32 32 35 36 40 2007 C Load Factor 66.7% 66.7% 66.7% 72.9% 75.0% 83.3%

2007 Y Pax/Day 160 145 155 173 195 207 2007 Y Load Factor 64.0% 58.0% 62.0% 69.2% 78.0% 82.8%

Total Business Revenue $25,968 $25,968 $25,968 $30,865 $31,864 $36,710 Total Flight Upgrade Revenue $897 $897 $897 $598 $598 $299

Total Economy Revenue $21,940 $20,605 $22,745 $30,287 $35,205 $38,893 Commissions/Flight Paid LCCs $808 $775 $828 $1,059 $1,193 $1,336

Total Revenue per Flight $47,997 $46,695 $48,782 $60,691 $66,474 $74,566 Direct Operating Cost $25,552.85 $25,477.85 $25,527.85 $25,677.85 $25,807.85 $25,947.85

Indirect Operating Cost $12,067.90 $13,360.89 $11,781.39 $12,063.94 $11,674.79 $12,063.94 Contribution $10,376 $7,856 $11,472 $22,949 $28,992 $36,554

Notes on Sample Fares Table Our highest Business Class fare will be priced between competitors’ walk-up

economy and business-class fares, at 25-33% less than discounted corporate business class fares. We expect our highest fares to top out at around $200 per flight hour ($1,500 each way to Europe; $2,500 for uncompetitive 14-hour nonstops).

Upgrades will be made available to priority passengers (frequent flyers, VIPs, etc.) who

will be permitted to upgrade on a space-available basis from full-fare standard to premium economy.

Our fares reflect seasonality in traffic. The first quarter will require price stimulation

from rock-bottom economy-class fares. Fares and loads in June are representative of the third quarter. The second and fourth quarters have similar traffic levels.

All fares are tax-exclusive. Economy-class taxes can be as much as $80 round-trip

depending on the destination. We therefore expect round-trip fares on SkyLink to start around $240 for Standard Economy purchased at least a month in advance, and range to $3,200 for a walk-up Business Class seat and bunk. We expect the bulk of tickets to be purchased at our lowest fare levels – around $250 round-trip in Standard Economy, $750 in Premium Economy, and $1900 in Business Class. Average fares will be higher as some passengers purchase premium or walk-up fares.

Our Premium Economy fares will be comparable to Standard Economy 7- and 14-day

advance purchase fares on the major carriers, but will be substantially under the $2,000+ walk-up economy fares offered on United, American, and others.

P A G E 5 8

Discount & Incentive Programs The fares above are “list price,” designed to be purchased over the Internet or via phone call to the reservations center. SkyLink will offer a corporate purchase program, recognizing that corporate travel programs play a strong role in premium fare purchases for long-haul markets. SkyLink will offer minor discounts to corporations of 5-10% for published fares. SkyLink will also offer corporations the opportunity to pre-purchase in bulk advance-purchase tickets for use at any time, and will make these tickets assignable and transferable within the bounds of current security regulations. For example, a business will be offered the opportunity to purchase blocks of ten business class tickets at the lowest advance-purchase business class fare ($899) but will be able to assign those tickets for last-minute travel by key employees. The corporations will receive a discount; SkyLink will receive cash up-front to help meet reserve requirements and drive float interest. SkyLink will offer similar programs to economy-class passengers as well. Targeting the expatriate market and students, SkyLink will offer bundles of five or ten round-trips, which can be used with 72 hours advance notice over 12 calendar months. For example, a doctor who frequently travels from Washington to London could purchase a five-pack of Premium Economy tickets up-front for $3,000, and be able to travel five times (in the next year) in a confirmed seat with 72 hours notice or on a stand-by basis anytime. SkyLink will also offer financing packages for these purchased bundles, changing the way passengers and corporations think about travel expenses. Small businesses doing business in England could purchase a ten-trip pack of Standard Economy vouchers for $250 a month with tax and be able to travel abroad on the spur of the moment instead of facing exorbitant walk-up economy fares. These fare structures make sense for SkyLink because (1) seat availability can be controlled based on ambient demand, (2) SkyLink is able to collect large amounts of cash up-front, and (3) SkyLink becomes isolated from short-term fare wars or the impact from terrorist threats. Fare Survey: Connecting vs. Originating Tickets SkyLink’s fares will appeal the most to two groups of travelers: those leisure or vacation travelers interested in the most discounted fare available, and those business passengers interested in a midweek trip without a Saturday night stay. While SkyLink will have a fare advantage over competitors, the differential will be most pronounced for advance-purchase leisure fares and midweek business passengers. Using Orbitz.com, we collected available Economy Class fares on major carriers for a variety of business and leisure trips. All trips were priced on January 18, 2004. Short-Notice Business Trips were for departures on Tuesday, January 20, 2004, with

return travel on Thursday, January 22, 2004. Monday through Thursday is considered “off-peak” with more discounted seats available on the major carriers.

Short-Notice Leisure Trips were for departures on Tuesday, January 20th and return flights

on Tuesday, January 27th. A Saturday night stay was added, triggering lower fares for many carriers.

P A G E 5 9

Medium-Notice Business Trips were for departures on Tuesday, January 27th, with return travel on Thursday, January 29th. This combination caught the seven-day advance purchase business fares.

Medium-Notice Leisure Trips were for departures on Tuesday, January 27th, with return

travel on Tuesday, February 3rd. These dates triggered the seven-day, Saturday night stay fares.

Advance-Notice Business Trips were for departures on Tuesday, February 10th, with

return travel on Thursday, February 12th. Advance-Notice Leisure Trips were for departures on Tuesday, February 10th, with return

travel on Tuesday, February 17th. Distant Leisure Trips were for departures on June 10th and return travel on June 17th,

simulating a summer vacation fare. Because fares were priced for wintertime travel, they represent below-market-average fares on a year-round basis. No significant fare sales were offered during the January/February period on international routes at the time fares were collected. Some American Airlines fares included code-share travel on British Airways. Some Continental fares included code-share travel on Virgin Atlantic. Some Northwest fares included code-share travel on KLM. Some Delta fares included nonstop code-share service on Air France. United Airlines was not included in this fare survey because they do not serve London/Gatwick; their fares into Heathrow are comparable to other legacies’ fares.

Washington Dulles (IAD) to Paris Charles de Gaulle (CDG) (Economy Class Travel) US CO NW DL AA SkyLink Fare

Short-Notice Business Trip $2,448 $2,307 N/A $2,448 $2,462 $680 Short-Notice Leisure Trip $2,448 $2,307 N/A $2,448 $2,462 $680

Medium-Notice Business Trip $2,596 $2,449 $2,616 $2,596 $2,616 $400 Medium-Notice Leisure Trip $384 $516 $746 $505 $509 $400

Advance Notice Business Trip $2,448 $2,307 $2,454 $2,455 $2,462 $260 Advance Notice Leisure Trip $562 $516 $2,454 $505 $509 $260

Distant Leisure Trip $1,299 $923 $1,140 $1,179 $1,029 $260 As the fare schedule above indicates, for flights where SkyLink competes directly against other carriers with one-stop and nonstop service, SkyLink’s fares should be significantly lower than current market fares. The difference is most significant for business trips, where SkyLink will not require a Saturday-night stay. Where major carriers’ fares for Washington to Paris range from $384 to $2,616, SkyLink’s fares might range from $260 ($89 each way plus tax) to $680 ($299 each way plus tax). What about flights for which SkyLink will require passengers to fly one leg on a partner LCC, then connect to the SkyLink international flight? For all business fares and most leisure fares, the sum of available LCC fares to the gateway and the SkyLink international fare will still be less than the best available fares on legacy carriers. For short-notice business fares, the difference is considerable. This difference is largely because LCC carriers in the US have capped last-minute fares at $299 each way, with most last-minute fares far less.

P A G E 6 0

Orlando (MCO) to London (LGW) (Economy Class Travel)

US CO NW DL AA LCC

Sector SkyLink Sector

Total Fare

Short-Notice Business Trip $1,608 $2,795 $1,617 $1,664 $1,617 $330 $680 $1,010 Short-Notice Leisure Trip $1,126 $816 $1,656 $1,611 $1,617 $248 $680 $928

Medium-Notice Business Trip $1,608 $1,605 $1,617 $1,664 $1,617 $167 $400 $567 Medium-Notice Leisure Trip $536 $621 $547 $545 $535 $167 $400 $567

Advance Notice Business Trip $1,608 $1,605 $1,617 $1,664 $1,617 $167 $260 $427 Advance Notice Leisure Trip $536 $531 $529 $545 $535 $167 $260 $427

Distant Leisure Trip $886 $1,382 $925 $935 $895 $167 $260 $427 From Orlando to London – one of the most competitive leisure markets in the country – the aggregate LCC/SkyLink fare is significantly less than available legacy fares for all but one category, the medium-notice leisure trip. Relatively low fares for travel in the last week of January (with a tight band of fares) suggest a focused sale for seats during that period across carriers. This can also be seen on a more business-oriented route:

New Orleans (MSY) to London (LGW) (Economy Class Travel)

US CO NW DL AA LCC

Sector SkyLink Sector

Total Fare

Short-Notice Business Trip $2,049 $2,354 $2,578 $2,043 $2,616 $497 $680 $1,177 Short-Notice Leisure Trip $2,049 $2,354 $2,578 $1,990 $2,616 $442 $680 $1,122



Distant Leisure Trip $933 $971 $1,060 $1,030 $1,060 $180 $260 $440 Less seat availability on the partner LCC (AirTran) forces up the aggregate LCC/SkyLink fare, but SkyLink’s fares are either comparable or below competitors’. A full fare survey of multiple routes can be round in the Appendix, including Orlando – London, Tampa – London, Las Vegas – London, New Orleans – London, Richmond – London, Milwaukee – London, Dayton – London, DFW – London, St. Louis – Lambert and Washington – Paris. Total fares for travel on an aggregate itinerary, with travel to a gateway on a partner LCC and

then to Europe on SkyLink, will be significantly below competitors’ fares, especially for business travelers.

SkyLink expects to negotiate discounted fares in the future for LCC partner travel, allowing

aggregate itineraries to be priced lower than the sum of available fares. Because carriers rarely publish discounted fares for business class travel, the difference

between published Business Class fares on legacies versus SkyLink will be even more significant.

P A G E 6 1

Competitive Response We expect that even with substantial equity financing and a fast roll-out schedule, domestic and foreign flag carriers will engage in competitive activity on SkyLink routes. We believe that SkyLink will face heavy competition during the winter months in the Economy Class cabin, but competition in the Business Class cabin will be limited year-round. We believe that the dilutive impact of business class discounts will discourage competitors from competing directly with SkyLink. Our target passengers – US nationals who travel abroad at the last minute, and business-class passengers with a preference for value over pampering – are markets undeveloped by other long-haul airlines. Cost Advantage vs. Competitors Our low-cost structure will be the first major determinant against price- and inventory-matching. Not only will SkyLink have a substantial equity structure that will allow the airline to “out-last” any competitors, but SkyLink will also have an ongoing cost structure that permits the airline to be profitable where other carriers will be highly unprofitable. Our major areas of cost advantage include: Lower crew costs (401(k) pension plans, lower base wages, lower reserve wages, and

high-utilization schedules).

High aircraft utilization (amortizes fixed costs over many flight hours).

Fewer cabin attendants vs. legacy carriers.

Scheduling efficiency (crews dedicated to international flying; foreign crew bases to minimize overnights).

Aircraft cost (advantageous aircraft purchase environment).

Lower on-board costs (minimal catering, entertainment – customers purchase on board).

Reservations costs (Internet distribution)

Maintenance costs (new aircraft with outsourced maintenance)

Overhead costs (startup carrier with lean management, operating overhead) Cost Advantage: Interim Lift Aircraft

Boeing 767-200/-300ER Comparison SkyLink

767-200ER Delta

767-300ER American

767-300ER United

767-300ER Crew Cost $305 $1,037 $783 $841 Fuel & Oil $1,369 $1,330 $1,549 $1,582

Rental $308 $915 $797 $695 Insurance $151 $107 $98 $105

Direct Maintenance $395 $311 $530 $680 Indirect Maintenance $407 $226 $481 $497

Total Block Hour Operating Cost $2,934.51 $3,925.30 $4,237.30 $4,399.40 BH Operating Cost per Avail. Seat $14.53 $18.43 $21.62 $20.95

Breakeven RT Average Fare, BWI-STN $225.17 $285.64 $335.09 $324.72

P A G E 6 2

SkyLink’s per passenger operating cost for interim-lift Boeing 767-200ER aircraft will be $60 per passenger less than the closest legacy carrier. Against United’s 767-300ER aircraft used for European service from Washington/Dulles, SkyLink’s 767-200ER aircraft will have a $100 per passenger cost advantage.

United, American and Delta have higher per-passenger seat costs for larger equipment

used across the Atlantic, including Boeing 777-200 aircraft. The 767-300ER is the most competitive long-haul aircraft in the Delta, United and American fleets.

SkyLink’s significantly lower trip cost ($24,000 BWI-STN vs. $36,000 BWI-STN for

United, were they to fly the route) gives SkyLink a considerable cushion to withstand direct price and inventory competition. Even if SkyLink sold every business seat on an interim 767-200ER for $299 and every economy seat for $99, SkyLink would still clear $2,000 on the trip. Assuming United price-matched and inventory-matched, it would lose $10,000 on the same flight.

Low trip costs, low per-passenger operating costs and availability of aircraft make the

767-200ER the ideal market-opening fleet type for SkyLink. Cost Advantage, Permanent Fleet: Premium, Long-Haul Configuration SkyLink Aircraft The following chart indicates the difference in seat-mile operating cost between major US-flag competitive carriers and SkyLink’s permanent fleet in the “comfort” configuration on-board – with bunks in Business Class on the main deck. Putting bunks on the main deck cuts the number of seats on-board from 298 to 238. Furthermore, we assume the Premium configuration is installed only on the A340-300 fleet, which will be used for very long-haul flying, and that all A330-300s will be equipped in the Basic, three-class, 298-seat configuration. SkyLink would not use this configuration in competitive markets, only in unique long-haul routes with significant business traffic.

Long-Haul Premium Routes, SkyLink CASM vs. Competitors

$0.046$0.047

$0.042

$0.044

$0.049

$0.045

$0.039

$0.030

$0.035

$0.040

$0.045

$0.050

Delta 777-200

American777-200

United 777-200

United 747-400

Northwest747-200

Northwest747-400

SkyLink A340Prem (2007)

CA

SM

0

50

100

150

200

250

300

350

400

450

Seat

s

INCLUDES DIRECT + INDIRECT OPERATING COSTS ONLY, NO SG&A

This business-oriented configuration is designed to tap markets where substantial front-end traffic exists; if twenty or more business passengers can be captured daily, this configuration drives substantially higher profitability than the 298-seat basic configuration. However, it brings higher costs. Cost per available seat-mile in the 238-seat configuration is 3.9 cents, still below the competition by 7% or more:

P A G E 6 3

LONG-HAUL ROUTES (10+ HR)

CASM PAX DISADVANTAGE

DELTA 777-200 $0.046 276 18% AMERICAN 777-200 $0.047 233 21% UNITED 777-200 $0.042 277 7% UNITED 747-400 $0.044 347 12% NORTHWEST 747-200 $0.049 364 25% NORTHWEST 747-400 $0.045 403 14% SKYLINK A340 PREMIUM $0.039 238 DATUM

SkyLink aims for a 20% or higher operating margin on each route. SkyLink would deploy four-engine A340-300s in the Premium Configuration in markets where average yields were at least 5 cents per mile (for an average round-trip fare of $400 on a 4,000 mile flight). Cost Advantage: Dense Configuration (Volume Target) for SkyLink Aircraft When configured with a basic business class cabin (48 seats) and two classes of Economy seating (250 seats), the operating cost differential per seat mile becomes significantly more pronounced, especially when A330-300 twin-engine aircraft are used. SkyLink would employ this dense A330 configuration to replace 767-200ER aircraft on competitive Atlantic routes (New York to London; Washington to Paris) and on vacation routes in the future. SkyLink would deploy this configuration in competitive routes. Competitors on Atlantic routes must charge, on average, 56% more than SkyLink to break even:

Short-Haul Competitive Routes, SkyLink CASM vs. Competitors

$0.044$0.048

$0.037

$0.048

$0.044$0.040

$0.028

$0.020

$0.025

$0.030

$0.035

$0.040

$0.045

$0.050

$0.055

$0.060

Delta 767-300

American767-300

Continental777-200

United 767-300

US AirwaysA330-300

NorthwestDC-10-30

SkyLink A330Basic (2007)

CA

SM

0

50

100

150

200

250

300

350

Seat

s

INCLUDES DIRECT + INDIRECT OPERATING COSTS ONLY, NO SG&A

SkyLink would use this dense configuration in highly competitive markets dominated by leisure traffic, where capturing additional coach passengers is important. Routes from the US mainland to competitive European cities could drive substantial profitability for SkyLink at marginal fares for competitors.

P A G E 6 4

SHORT-HAUL ROUTES (<9 HRS)

CASM PAX DISADVANTAGE

DELTA 767-300 $0.044 213 58% AMERICAN 767-300 $0.048 196 72% CONTINENTAL 777-200 $0.037 283 33% UNITED 767-300 $0.048 210 71% US AIRWAYS A330-300 $0.044 261 56% NORTHWEST DC-10-30 $0.040 273 42% SKYLINK A330 BASIC (2007)

$0.028 298 0%

The operating cost disadvantage for other carriers, even against SkyLink’s premium configuration for long-haul routes, is significant. The following chart illustrates that SkyLink is competitive with a lower seat count than most competitors – and will be significantly more competitive in a denser configuration. Ticket Distribution SkyLink will maintain a reservations call center internationally (in Ireland, South Africa or a similar English-language country) but SkyLink’s Web site will be the primary point of booking and customer contact. SkyLink will participate in CRS systems for certain fares only (premium business and economy fares); commissions are built into SkyLink’s economic models. Web Site Functionality The SkyLink Web site will be designed as the primary point of contact with customers. Paralleling recent moves by European LCCs, SkyLink will offer full customer service functionality via the Internet, including: Schedule queries, online pricing (with full diagrams of available fares and dates) and

ticketing for all fare classes.

On-board services that can be purchased in advance (Internet Service, DVD Players, and Meal Services).

Flight arrival and departure information.

Reward program management tools.

Ticket transferability and other changes.

Bulk ticket purchases.

Corporate discount program management.

Partner LCC bookings.

SkyLink will build XML-based data exchange engines with partner airlines to facilitate online booking for partner flights. SkyLink intends to base its reservations systems on the Open Skies engine from Navitaire, and is investigating software from multiple vendors for the site.

P A G E 6 5

Route Authorities SkyLink Airways will need to secure route authorities in order to receive permission to fly international routes. Initially, route authority must be sought from the Department of Transportation. This authority is usually granted if the U.S. has an “Open Skies” Agreement with the foreign government. Once the authority is granted, a process that can take several months, SkyLink must then submit a request to DOT for a designation to operate the route. DOT conveys the request to the State Department for transmission to the foreign government. SkyLink must then process a request directly with the foreign government. This can take as little as one or two months, or as long as six to eight months. Availability of Route Authorities are an important reason why SkyLink is considering a European “parallel” airline. This parallel airline would be set up as a joint-venture with a local company, and would fly locally-registered aircraft otherwise identical to the SkyLink fleet. Cabin crews and in-flight services would be identical. This structure could allow SkyLink to take advantage of current and future European Union bilaterals with other countries, supplementing the available pool of authorities from the United States. Potential destination countries fall into three buckets related to the availability of route authorities: Open Skies Bilateral Agreements Examples: US with Germany, Netherlands, Switzerland, etc. An Open-Skies Agreement allows any carrier in either country to begin service to any destination to carry international passengers. While carriers still must follow diplomatic protocol of placing a request with its national government, the carrier is generally assured of receiving permission to fly the route. In some Open Skies countries, carriers can also secure traffic rights to carry local-market passengers to secondary destinations in third countries. In other words, an American carrier wishing to serve New York – Frankfurt, Germany would be able to enter the market under the Open Skies agreement. Under the US-German Open-Skies Agreement, the carrier may also be able to secure permission to serve Frankfurt-Delhi, and carry German passengers originating in Frankfurt to Delhi. The “Fifth Freedom” rights related to onward carriage vary by Open Skies Agreement.25 Restrictive Bilaterals Example: US with South Africa A restrictive bilateral agreement represents an agreement between the United States and a foreign country that requires permission from both governments for new service, but where new service (sometimes with a tradeoff determined through diplomacy) is sometimes possible to introduce. For example, the United States and South Africa have a bilateral agreement that requires approval from both countries if a new entrant wants to begin service from New York to Cape Town. Since US approval for an American carrier should be relatively automatic, the South Africans might hold out for a specific concessions before permitting the service. Limited-Entry Bilaterals Example: US with Japan, US with England (Bermuda II)

25 Fifth Freedom rights allow airlines to carry local passengers in a foreign country to a third country. Delta holds fifth-freedom rights to carry French passengers to India on their JFK-CDG-BOM flights.

P A G E 6 6

These bilaterals contain provisions that limit new entrants from starting service to specific airports. Changing these provisions requires extensive diplomatic exchanges. The US bilateral with Japan limits any new American carrier from entering the US-Japan market, and the US bilateral with the United Kingdom (called Bermuda II) limits any new American carrier from entering Heathrow. These bilaterals do not close off all service – a new entrant can start service to Manchester, Gatwick or Stansted in the United Kingdom – but make the largest, most desirable markets difficult to access for a low-cost carrier. Some of these restrictions are caused by limitations on operating slots at Heathrow and in Japan. Of the key markets SkyLink intends to serve in its first five years, bilateral agreements are not expected to be a significant obstacle to introducing service.

ENGLAND / UNITED KINGDOM

GOVERNED BY BERMUDA II. SERVICE TO STANSTED CAN BE STARTED WITH APPROVAL FROM BOTH

GOVERNMENTS.

FRANCE GOVERNED BY OPEN SKIES AGREEMENT; NO PROBLEMS.

GERMANY GOVERNED BY OPEN SKIES AGREEMENT; NO

SIGNIFICANT PROBLEMS, EXCEPT POSSIBLY SLOT AVAILABILITY AT FRANKFURT/FRA.

SPAIN GOVERNED BY OPEN SKIES AGREEMENT; NO PROBLEMS.

SWITZERLAND GOVERNED BY OPEN SKIES AGREEMENT; NO PROBLEMS.

NIGERIA GOVERNED BY BILATERAL. STRONG SUPPORT

EXPECTED FROM NIGERIAN GOVERNMENT FOR NONSTOP LINK TO THE UNITED STATES.

SOUTH AFRICA GOVERNED BY BILATERAL. EXPECT TO BE ABLE TO OBTAIN ROUTE AUTHORITY.

INDIA GOVERNED BY BILATERAL.

Having an EU flag for specific aircraft in the SkyLink Airways fleet may open a range of new bilateral options for SkyLink Airways. Establishing an associated subsidiary (which would chiefly handle reservations,

technology and crew staffing at extremely low cost) may permit adding aircraft under European Union flags in the future.

An EU-flag carrier would have unlimited traffic rights inside the EU. For example, an

aircraft operated under an EU Aircraft Operating Certificate (identical in every other way to a US-registered aircraft) would be able to fly within the EU, between countries with whom the EU has existing Open Skies agreements, and potentially use EU rules to

P A G E 6 7

access London/Heathrow. EU-operated aircraft would not be permitted to fly inside the United States, only to the gateway.

SkyLink continues to investigate new routes, and the availability of route authorities remains an important factor in new service schedules and decisions.

P A G E 6 8

Operations Strategy & Plan SkyLink’s operating strategy will be driven by three key objectives: To enter new markets quickly and build scale;

To emphasize low operating costs and high utilization;

To develop services and routes that are defensible but do not require substantial market stimulation to succeed.

Aircraft Options SkyLink is currently negotiating with both Boeing and Airbus for the purchase of widebody aircraft new from the factory. SkyLink has evaluated carefully its options in employing new or used aircraft, and has decided to employ new planes for five reasons: The strong customer preference for flying on new (or late-model) aircraft. The inherent economic advantages of new planes (lower maintenance costs, higher

comfort for passengers, and customizability of both aircraft engines and interior for each mission).

Extremely low interest rates and a competitive purchase environment, which reduce new

aircraft prices and ownership costs dramatically. The availability of modern aircraft families which allow multiple aircraft versions to be

operated by the same flight, cabin and maintenance crews. One-time tax advantages which allow accelerated depreciation of aircraft registered in

the US before January 1, 2007. SkyLink is evaluating the following aircraft types. Also listed is the aircraft weight, capacity, likely seating configuration, and approximate cost per month to rent:

Aircraft B767-200ER B777-200LR A330-300 C A340-300 P MLW 300,000 487,000 412,200 423,000 Configuration Interim Lift Premium Dense w/Bunks Premium First Seats 30 45 48 48 Seat Pitch 42 48 42 48 Standard Seats 172 255 250 190 Seat Pitch 34 34 34 34 Total Seats 202 300 298 238 Lease Payments Financed Price $7,400,000 $150,000,000 $110,000,000 $125,000,000 Monthly Lease Pmnt $139,647 $845,860 $620,297 $704,883 Sec Deposit / Down Payment $600,000 $1,691,719 $1,240,594 $1,409,766 Inspection, Ferry & Delivery $250,000 $250,000 $250,000 $250,000

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Insurance Rate (%, annual) 1.00% 1.00% 1.00% 1.00% Monthly Hull Insurance Rate $6,167 $125,000 $91,667 $104,167 Monthly Pax Liab Insurance $50,500 $75,000 $74,500 $59,500 Total Monthly Insurance $56,667 $200,000 $166,167 $163,667 Airframe Reserve $342 $450 $250 $250 Engine / Power by the Hour $407 $250 $150 $175 Line Maintenance Reserve $53 $75 $65 $65 Maintenance Reserve per BH $802 $775 $465 $490 Cabin Crew Required 5 8 8 8

The following chart provides sample trip operating costs for a leg from Atlanta to Munich on five different aircraft types:

Sample Route Economics, by Aircraft: Atlanta to Munich (4,797sm, 115K pax/year) Fuel per Gallon: $1.00

Boeing 767-200ER Boeing 767-300ER Airbus A330-300 Airbus A340-300 Boeing 777-200CONFIGURATION INTERIM INTERIM DENSE PREMIUM PREMIUMPremium (Business) Seats 30 36 48 48 45Economy (Standard) Seats 172 209 250 190 255Total Available Seats 202 245 298 238 300

Block Hours 9.25 9.25 9.25 9.25 9.25

Fuel Burn, Per Trip, Pounds 85,094 119,498 133,625 153,139 145,380Fuel Burn, Per Trip, Gallons 12,663 17,782 19,885 22,789 21,634Fuel Burn, Per Trip, Dollars $12,663 $17,782 $19,885 $22,789 $21,634Maintenance Cost, Airframe, Per Trip $3,160 $3,238 $2,313 $2,313 $4,163Maintenance Cost, Engines, Per Trip $3,763 $2,544 $1,388 $1,619 $2,313Maintenance Cost, Line, Per Trip $493 $925 $601 $601 $694Landing Fees $675 $720 $927 $952 $1,096Navigation Fees $2,339 $2,495 $3,214 $3,298 $3,797Total Direct Flight Costs $23,093 $27,704 $28,327 $31,571 $33,695

Cabin Crew per Flight 5 8 8 8 8Flight Deck, Salaries $1,913 $1,913 $1,913 $1,913 $1,913Cabin Crew, Salaries $912 $1,459 $1,459 $1,459 $1,459Total Salaries $2,825 $3,373 $3,373 $3,373 $3,373

Business Class Handling, Catering $307 $307 $307 $307 $307Economy Class Handling, Catering $690 $690 $690 $690 $690Total Onboard & Airport Services $997 $997 $997 $997 $997

Aircraft Rent / Ownership Allocation $2,847 $10,693 $11,497 $13,222 $17,246Total Insurance Cost $1,393 $1,990 $3,184 $3,184 $2,786Total Indirect Operating Cost $4,240 $12,683 $14,681 $16,406 $20,032

TOTAL OPERATING COST, PER TRIP $31,155 $44,756 $47,377 $52,346 $58,096Operating Cost per Available Seat $154 $183 $159 $220 $194DOC + IOC PER BLOCK HOUR $3,368 $4,838 $5,122 $5,659 $6,281CASM ex SG&A $0.032 $0.038 $0.033 $0.046 $0.040

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Financing Strategy: Aircraft SkyLink is contemplating a leveraged lease structure to finance a ten-aircraft order, discussed in detail in the following section. SkyLink would create a European financing subsidiary, which would take delivery of the aircraft from the manufacturer and lease the planes to SkyLink’s operating division(s). Using an off-shore SPV, SkyLink could (1) create a structure that flowed tax advantages back to equity investors, (2) allow the airline to place a larger aircraft order up-front, securing better prices and terms, and (3) create a risk-management tool for investors by allowing aircraft to be released in the future if SkyLink no longer needed the planes. Nationality Options In addition to having benefits for financing aircraft, an off-shore subsidiary or related entity can reduce other operating costs, especially if based in an Eastern European (EC) country. Slovakia, Poland, and 13 other countries join the EC in May 2004, but can offer corporations significantly lower cost structures than the US or Western European countries. There are many cost reasons that encourage formation of a subsidiary in a new member of the European Community:

1.) The cost of labor is substantially lower, while the quality of labor available is high. Flight attendants from the Czech Republic, Poland or Slovakia would be paid a fraction of domestic-US wages but would be multi-lingual, university educated and highly trained. Foreign cabin attendants would not be able to work domestic US flights; however, since SkyLink contemplates a limited number of domestic segments, this is not an issue.

2.) There are strong operational advantages in hiring a portion of crews in Europe and using

EU-citizen work rules to base some crews near key cities served. When these advantages are added to the potential strengths of having EU citizenship for a fleet of SkyLink aircraft – and being able to serve destinations where the EU has negotiated special traffic rights that the US does not enjoy – there is a compelling case for the parallel organization in Europe.

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Training Infrastructure Given the geographic diversity inherent in an international-only carrier, SkyLink expects to outsource a significant portion of its flight deck, cabin, maintenance, and reservations crew training. SkyLink will build a special training program specifically to manage customer service, and rely on partners for all other training. SkyLink will likely build flight deck and maintenance training into the aircraft order. Initial pilot training for Boeing 767-200ER aircraft is expected to be about $28,000 per crew, including training pay and simulator time. Key Hires and Startup Costs During the startup period, SkyLink expects to hire the following key members of the management team. Team members in bold have been identified and/or hired.

POSITION HIRE DATE COMMENTS CHIEF EXECUTIVE OFFICER 1/1/04 KEN CARLSON

PRESIDENT 1/1/04 MARKS SVP, FINANCE & CFO 4/1/04

VICE PRESIDENT, OPERATIONS & MD EUROPE 4/1/04 KOSIK SVP, MARKETING 6/1/04

SVP, GENERAL COUNSEL 1/1/04 KUTZKE VICE PRESIDENT, PARTNERSHIPS & SALES 6/1/04

VICE PRESIDENT, MAINTENANCE 4/1/04 JEFFERSON VICE PRESIDENT, COMMUNICATIONS 6/1/04

VICE PRESIDENT, CUSTOMER CONTACTS 7/1/04 VICE PRESIDENT, HUMAN RESOURCES 6/1/04

VICE PRESIDENT, SAFETY & SECURITY 9/1/04 ROBINSON DIRECTOR, TOUR GROUPS 7/1/04

CHIEF PILOT 6/1/04 SAUNDERS CHIEF TECHNOLOGY OFFICER 4/1/04

CONTROLLER 6/1/04 DIRECTOR OF MAINTENANCE 1/1/08

DIRECTOR OF BRAND MANAGEMENT 7/1/04 DIRECTOR OF QUALITY CONTROL / CHIEF

INSPECTOR 5/1/04 STODDART

DIRECTOR OF AIRCRAFT PROCUREMENT 4/1/04 DIRECTOR OF INFLIGHT SERVICES 6/1/04

DIRECTOR OF PURCHASING 3/1/05 DIRECTOR OF OPERATIONS 1/1/08

DIRECTOR OF FLIGHT DISPATCH 6/1/04 DIRECTOR OF STATIONS, US 11/1/04

DIRECTOR OF STATIONS, INTERNATIONAL 11/1/08 DIRECTOR OF RESERVATIONS 1/1/05

DIRECTOR OF FLIGHT ATTENDANTS 1/1/05 DIRECTOR OF WEB SITE & RESERVATIONS TECH. 9/1/04

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DIRECTOR OF PARTNER INTEGRATION 11/1/04 DIRECTOR OF GOVERNMENT AFFAIRS 12/1/04

DIRECTOR OF REV MANAGEMENT 1/1/05 MANAGER OF FLIGHT ATTENDANTS 2/1/05

MANAGER OF PURCHASING 2/1/06 MANAGER OF HUMAN RESOURCES 9/1/04

Startup Costs The startup period for SkyLink will last from January 1, 2004 through December 31, 2004, with the expectation of completing certification and starting charter operations around January 1, 2005. The actual start of charter operations is a function of the airline’s certification and may be substantially earlier or later. In the event the carrier is certified ahead of schedule, charter operations will operate in a very limited form through January 1, 2005. In the event that the carrier’s certification is delayed, charter operations will be limited to between one and three months before scheduled service begins. We will not be confident about the actual start date until the certification process has been underway for at least three to four months. Startup costs can be grouped into these categories: Salaries Salaries for executives and staff during 2004 will total $3,005,500 for management, $192,000 for the first reservations team members, and $148,000 for local mechanics and airport customer service staff. Advertising, Public Relations and Brand Development Advertising and PR costs will be $700,000 during 2004 as SkyLink designs a brand image, builds the marketing components of its Internet infrastructure, and begins advertisement design for the launch of scheduled service in 2005. Regulatory and Legal Costs The DOT certification process is estimated to cost around $900,000 in legal fees for 2004, including (1) all necessary legal work to apply for, and receive, DOT certification to operate as a scheduled carrier; (2) all route authority work both with the US and foreign governments to be able to operate scheduled service in 2005; and (3) corporate legal work related to the formation and operation of the airline. Manuals and Certification Costs In parallel to the DOT certification, SkyLink must obtain FAA certification to operate as a Part 121 carrier. This process involves the creation of manuals, the flying of proving runs, and qualification to operate two-engine aircraft over long distances overwater. Certification and FAA compliance activities are estimated to cost around $1,400,000 in 2004.

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Training Costs Training costs are estimated at $459,000 in 2004 to bring initial flight, cabin and maintenance crews up to speed on the equipment selected. The bulk of training expenditures will occur in the spring of 2005 as the organization ramps scheduled service. Technology Technology is the largest non-salary expenditure for the airline. Required development includes (1) reservations and operating infrastructure; (2) the Web site and customer relationship tools; (3) financial and other management systems; (4) integration with partner airlines; and (5) the development of the System Operation Center for the airline’s dispatchers. Technology costs are estimated at $2.25MM in 2004. Total SG&A expenses during the startup phase are estimated at $10.1MM, with an additional $8MM required during the first three months of 2005 as the organization ramps for scheduled service. Full month-by-month startup expenses can be found in the Financial Appendix.

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Corporate Information & SPV Structures Our capital and structural requirements are based on the following criteria:

- Maximum pace in rolling out our service, with aggressive aircraft deliveries starting in late 2004 and commencement of Phase II scheduled service in the summer of 2005. The start of scheduled service will coincide with certification and seasonal traffic upswings.

- A purchase commitment for ten aircraft with commissions, spares, maintenance

agreements and other services to provide aircraft for Phase II and III service. We expect to fill Phase I aircraft requirements with interim lift negotiated as part of our aircraft order. We expect to negotiate options for additional aircraft needed through the IPO (projected in 2007).

- A tax-advantaged leveraged lease structure using a Special-Purpose Vehicle (SPV) for

purchased Phase III aircraft. The SPV channels tax depreciation benefits back to equity investors as appropriate, and gives SkyLink leverage to negotiate an aircraft purchase at better pricing over standard operating leases.

Total Capital Requirements Our total capital requirements are $175MM. Working capital, slot purchase, startup capital and reserve requirements total $100MM, while equity to purchase interim and permanent aircraft totals $75MM.

o By mid-2004, we require $30,000,000 to prepare final aircraft purchase orders, complete certification and infrastructure development, and begin crew hiring and training.

o By late 2004, we require $40,000,000 as initial deposits on new aircraft and to meet

reserve requirements for the Department of Transportation.

o By early 2005, we require $50,000,000 to commence Phase I services and to begin marketing our scheduled service for Phase II flights.

o By mid-2005, we require $55,000,000 to complete aircraft financing requirements and to

“fill the tank” for our start of scheduled service. We are raising a single round of $175,000,000 from institutional and angel investors and expect to draw down the financing round over the next 15 months as above. Corporate Structure SkyLink Airways was incorporated in November 2003 as a Delaware C-Corporation. The company is based at Washington Dulles Airport. On November 30, 2003, SkyLink Airways conducted a seed round of financing from management and close contacts of the company. Seed investors purchased common shares and provided the required working capital to begin certification and conduct initial aircraft discussions.

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Financing: Leveraged Lease Structure SkyLink Airways, in conjunction with its financial advisors, is examining a leveraged-lease structure for its aircraft purchase. A leveraged-lease structure would employ a separate special-purpose vehicle for aircraft ownership, with provisions to flow tax depreciation from the SPV back to equity investors in SkyLink Airways. An SPV structure is attractive for three reasons:

- SkyLink has high capital requirements for aircraft. Scaling over the next five years to fifty or more wide-body aircraft requires equity and debt in excess of what other low-cost competitors have required or obtained. Not only are the aircraft themselves more expensive than other LCC aircraft, but the associated spare parts and maintenance services can also be more expensive. Isolating the aircraft in a special-purpose vehicle allows SkyLink to tap diverse investors to finance equipment and manage investor risk.

- Rapid expansion will require new aircraft. For both Boeing and Airbus aircraft, rapid

growth with a standardized fleet (identical configurations, cockpits, engines, etc.) will require deliveries new from the factory. Used aircraft will introduce significant differences in engine types, cockpit configurations, and interior fittings that will increase operating and maintenance costs significantly.

- Purchasing new widebody aircraft creates enormous tax and financial

advantages. If SkyLink were to lease aircraft in a standard operating lease from ILFC, GE Capital, CIT or Pembroke, the lessor would have sole benefit of the tax depreciation on the aircraft. Because new aircraft will drive substantial depreciation, the tax value to investors will outweigh the transaction costs of setting up a corporate structure to channel benefits.

o If SkyLink grows organically on an aggressive schedule, the airline will fly fifty or

more aircraft by 2010 with a total asset value of $3.8 billion at discounted prices. This $3.8 billion would be depreciated over between five and seven years depending on when the aircraft were delivered.

o Through 2006, the value of new aircraft deliveries can be written down over five

years. From 2007, the depreciation schedule returns to seven years. Our delivery plan drives net depreciation of around $2.4 billion through 2009.

o $2.4 billion of depreciation is worth close to $1 billion (at 40% tax rates) to potential

investors. Were SkyLink equity investors to invest 10% of each aircraft’s value in equity (with the balance from subordinated debt holders, the aircraft’s manager [ILFC/CIT/etc.], and commercial debt) and capture 50% of the tax benefits (with the balance to the aircraft manager and subordinated debt holders), they would invest $380 million through 2009 in exchange for a $1 billion in realized tax depreciation value over the same period.

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To summarize, the special-purpose vehicle mitigates equity investor risk by creating significant tax value. It also allows aircraft to be released by SPV managers to other airlines when SkyLink replaces its first aircraft with a next-generation fleet. Because the aircraft are “portable” to another airline when held by the SPV, commercial banks can finance the SPV with mortgages that last for the life of the aircraft, reducing the cost of debt capital. Equity partners can invest and receive a share of the deductions to mitigate investment risk in the airline itself. Over time, the SPV will require significantly more equity than the airline – up to $380MM or more for fifty aircraft. Leasing companies can share risk with other equity investors, receive ongoing management fees, and channel available tax write-offs back to parent companies (AIG, GE, etc.) who can utilize the deductions.

Startups have not utilized SPV structures to date because the value of the aircraft they proposed to utilize did not merit the transaction costs or create attractive depreciation streams for tax-oriented investors. Legacy carriers have used SPV structures routinely to finance large aircraft deliveries. The SPV would likely be financed as follows: Commercial banks (HSBC, RBS, RBC, etc. – any bank with sufficient assets to “hide”

aircraft assets on its balance sheet and ride out annual fluctuations in aircraft value) would extend debt for 70% of the capital required to the subsidiary, backed by the aircraft. The commercial bank would have the first mortgage and would likely mandate a loan-to-

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value ratio which the SPV would maintain. The lease rate of the aircraft to SkyLink Airways would be calculated to avoid a principal balance in significant excess of market value.

The Aircraft Lessors (ILFC, GECAS, CIT, Pembroke, etc.) would provide 20% of the debt

financing required in the form of a second mortgage. This subordinated debt would have relatively low cost. Subject to negotiations between SkyLink Airways, the lessor, and the aircraft manufacturer, a residual value guarantee26 could be provided by the manufacturer to the subordinated debt holders to protect the collateral for the second mortgage.

Investors in SkyLink Airways and Aircraft Lessors would provide equity required to

complete the purchase of the aircraft (10% in this scenario). Tax advantages would be divided as negotiated to equity investors in the venture. Should other investors (aircraft lessor; aircraft finance companies; etc.) participate in the equity financing of the SPV, it is likely they would negotiate tax benefits pari passu with SkyLink investors.

Overall, there are three reasons to use the SPV structure at this early phase.

1.) The tax advantages created are unique for our startup versus any other airline business plan to date. Our plan creates a credible expansion path to a multibillion dollar asset base. An SPV structure gives SkyLink Airways some control over how these benefits are allocated.

a. SkyLink can allocate some tax value to equity investors to mitigate the inherent risks

of investing in a startup. These advantages reduce debt and lease costs dramatically. b. Low interest rates, moderate aircraft prices and fierce competition among aircraft

manufacturers amplify the advantages of the SPV. 2.) The SPV structure creates a path to a larger equity investment that is backed by

aircraft. Investors can buy into aircraft assets financed at the bottom of the market. Investment funds that need to deploy larger amounts ($100MM+) can invest in the SkyLink deal.

3.) The SPV structure allows SkyLink to dispose of aircraft in the future with minimum

transaction costs, giving SkyLink control over when and how aircraft leave the fleet.

26 A residual value guarantee protects the subordinated debt holders in the event that the disposal value of the aircraft is less than the total debt (primary + subordinated) on the plane.

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Questions and Answers The following are typical questions asked about the SkyLink model and operating strategy.

1.) Has SkyLink identified a profitable niche that competitors can’t or won’t aggressively attack, thereby reducing profits for SkyLink?

There are three factors that make international flying less subject to competitive attack than domestic flying: route authorities, product positioning, and cost structures. The SkyLink team has considerable experience analyzing and dealing with the competitive challenges of the airline business and has crafted a plan that builds a long-term defensible position.

The first reason that international flying represents a more defensible niche is the route authorities and slots that are required to operate transoceanic frequencies. Bilateral agreements governing international service can restrict frequencies and operations, but our team has unique experience navigating route authority acquisition. Bill Kutzke wrote bilateral agreements during his tenure at DOT, and has been the responsible executive for working with international slot and route authority agreements for Northwest, JAL and Gemini Air Cargo. While we are confident in our ability to secure route authorities, the legal and diplomatic procedures required to secure additional authorities prevents new competitors from entering our markets or quickly flooding our routes with additional frequencies to “drown us out” of the market. We should have ample advance warning if one of our competitors chose to enter one of our markets. We expect to build a cache of route authorities in the months before we start Phase II of operations in 2005. We also expect to choose routes that can carry major business traffic but would not place us in direct, head-to-head competition with a US-flag competitor. The second reason that competitors won’t flood our markets is our emphasis on a two-class, comfort-oriented product. We will have both business and coach class seats. While competitors may price-match and inventory-match on our Standard Economy seats – offering transatlantic fares of $99 each way plus tax, for example – we can still be profitable on those fares while competitors cannot. We can also keep our Premium Economy seats on the market at undiscounted prices and position Premium Economy as a better product. Specifically on Atlantic routes during Phases II and III, we do not expect that British or Virgin Atlantic will price-match on their business class seats. They emphasize multiple dimensions to justify an $8,000 published round-trip fare, including seat comfort, catering, personal service, and amenities. Our product will emphasize seat comfort, but we will not match catering or have extra flight attendants in the premium cabin. Our target business travelers want sleep or productive work-time, not expensive meals or excessive pampering, and will happily pocket the price difference. The differences in routes served (SkyLink’s BWI-Stansted vs. British’s IAD-LHR) will deter price-matching as well. BWI to Stansted, while in the general Washington-to-London market alongside IAD-LHR service, caters to a different business community. Stansted provides good access to Eastern London (including the financial district) and the Cambridge area. Baltimore provides better access to companies in Maryland. Based on different airports served, there may be opportunities to peacefully co-exist with carriers in the same markets.

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It is Virgin’s and British’s ability to charge thousands for business- and first-class seats that allows them to offer highly discounted coach seats. Consider a flight on Virgin Atlantic from Washington to London: the published business-class fare is about $8,000, but only 60% of the 40 Upper Class seats are sold, and of those roughly 30% are likely to be sold through discounted corporate contracts. We estimate the average paid fare at $6,000. Virgin usually sells approximately 60% of the 60 Premium Economy seats on the aircraft at an average fare of $1000 round trip, and the balance of 200 coach seats are sold at an average fare of $400 round-trip with a 70% load factor. If Virgin’s operating cost from Washington to London is about $90,000 – 66% higher than SkyLink’s – then Virgin will ordinarily earn a 17% gross profit (not including SG&A overhead costs) on the flight.

Virgin Atlantic: Unprofitable Flights with Business-Class Fare Match B747-400 or A340-600 Cost per Flight $90,000 IAD-LHR (estimated) Revenue per Flight

Class Seats Load Factor Paid

RT Fare Revenue Upper Class 36 60% $6,000 $129,600

Premium Economy 24 60% $1,000 $14,400 Economy 190 70% $500 $66,500

Round-Trip Revenue $210,500 Segment Revenue $105,250 Profit, Segment $15,250 16.9%

Profitability Based on Different Upper-Class Fares Note that load factors rise as Upper Class fare is discounted. Discount Level, Upper Class Seats LF RT Fare Flight Profitability

Base 36 60% $6,000 $15,250 Low 36 65% $5,000 $8,950

Medium 36 70% $4,000 $850 High 36 80% $3,000 ($6,350)

SkyLink Match 36 90% $2,000 ($17,150) Competing in Business Class quickly eats away at the core profitability of transatlantic flights for major carriers. While at a $2,000 round-trip business-class fare SkyLink can be highly profitable, Virgin Atlantic will lose 20% or more on each flight, or significantly more counting SG&A overhead. $17,150 per flight translates to over $6MM per year, per route in direct operating losses for the carrier. We would therefore expect competitive response in the premium cabin to be primarily ervice-based, not price-based. Third, our lower cost structure and healthy balance sheet will be the key reason why airlines will not engage in predatory pricing against us. We can break even on $99 fares

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across the Atlantic in coach, where they cannot. If we make enough of a dent in business traffic to spark an aggressive response, it would signal that we had succeeded in establishing a high price point on our business services and had reached operational scale to withstand attack. Our model is built for $2000 average round-trip fares in business. Competitors are charging $4,000 to $10,000 for a more service-laden product. It’s easier for us to enhance our product if the market is there than for competitors to cut services to meet our prices.

2.) Why don’t Southwest, jetBlue and comparable LCC’s have the ability to quickly and easily start competing across the Atlantic or on other long-haul international routes?

Southwest Airlines and JetBlue have many differences in services they offer (in-flight entertainment, assigned seating, etc.) but have one common operational trait: they maximize utilization while keeping labor costs low. Both invest heavily in modern aircraft that are far more expensive than used ones, but spread those lease or debt costs across a high number of hours flown per month. Low-cost domestic carriers fly equipment that is optimized for quick-turn domestic flying. Narrowbody Airbus and Boeing aircraft do not have the range or systems aboard for long-haul oceanic flying. More fundamentally, the structures (aircraft, overhead, and operations) required for domestic and international flying are very different. The most successful airlines optimize for either regional, quick-turn flying (Southwest, Ryanair, JetBlue), or for long-haul (Virgin, Singapore, Gemini) routes. It is possible to build a low-cost structure for long-haul international flying, but it’s not a skill-set that airline novices know or a structure that is compatible with domestic LCC strategies. If Southwest, JetBlue or Ryanair decided to fly transatlantic routes, they would need to add considerable new infrastructure to handle navigation requirements, foreign ground-handling facilities, and introduce a new equipment type. Those costs would be prohibitive for a domestic carrier with a stratospheric valuation based on wide operating margins. As PeopleExpress and America West demonstrated, domestic carriers have a very difficult time adding simultaneous international operations. Both tried to add such service and retreated. Organizations should be built for one or the other, or significant excess costs are incurred. In addition to operating structures, though, there is another important reason why a Southwest-airlines type model wouldn’t work. If an airline offered a coach-only product, it would be subject to heavy competition from the majors who could subsidize discounted seats from profitable business and first-class cabins. Our coach-class cabin will have a cost structure that makes us profitable at rock-bottom fares that would cause the majors to lose money. But our high margins will come from also establishing a business-class cabin that is attractive to business customers. We also examined the prospects for all-business service across the Atlantic, as some other entrepreneurs have proposed recently. We are not confident that many competitive routes exist with more than 50 paid business flyers a day that would be willing to take our new service. The leverage from that business model does not justify the capital required to start the airline.

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3.) How do you know that the transatlantic market or other international markets won’t

change in the future?

We don’t, but we know that our cost structure across the Atlantic will be substantially lower than for established carriers. We have established why it is very difficult for existing low-cost carriers to enter the long-haul international markets. What we do expect is that LCCs in Europe, Africa, Asia and South America will continue to expand.

- LCC growth will be concentrated in key business markets that can drive substantial

profitability for the LCCs. - They will place increasing pressure on legacy incumbent carriers and force the

legacies to exit or reduce frequencies, raising prices for local passengers heading to international destinations.

- This LCC expansion therefore creates market opportunities for SkyLink.

Examples of this trend can already be seen in key cities in Europe (London/Gatwick, Cologne, etc.) where international service by legacy incumbents has been greatly curtailed as low-cost carriers have come to dominate each market. Flying the local spokes from these hubs for the legacies (Paris-Gatwick, for example) becomes very unprofitable for British Airways when EasyJet charges ten pounds for advance-purchase fares. If British can’t fly the feed profitably, it has a much harder time justifying the connecting flight to the US. This is a key reason why British Airways has consolidated international flying at Heathrow.

4.) Where does the SkyLink cost advantage come from? Low labor costs, high aircraft utilization, lean overhead, and marketing partnerships. Transatlantic costs for legacy carriers are a function of fixed-costs (aircraft, insurance, etc.) and variable costs (navigation, fuel, crew costs, and in-flight services). SkyLink will make as many costs as possible variable costs, and then will minimize those costs. Labor, catering, in-flight entertainment, and reservations infrastructure will use operating models pioneered by domestic LCCs but optimized for international flights.

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Management & Support Team The management team of SkyLink Airways has extensive experience in all sectors of the airline business, but has unique experience in the development, startup, and growth phases of young international carriers. The team meets FAA requirements for experience and expertise and has a proven track record in airline certification and safety management. Key Officers & Positions Kenneth T. Carlson Chief Executive Officer Joshua B. Marks President William A. Kutzke Senior Vice President & General Counsel Thomas Kosik Vice President, Flight Operations Charles Stoddart Vice President, Quality Assurance Sandy Saunders Chief Pilot Jim Carlson Vice President, Safety & Security Detailed Biographies Kenneth T. Carlson (Ken) Chief Executive Officer Ken Carlson has an unparalleled background in designing, starting, and managing airlines. As the most successful airline executive in the industry at certifying and launching new passenger carriers, Ken is the ideal leader for SkyLink during its inception and growth phases. Ken started his aviation career at Trans World Airlines, where he served as Manager of Domestic Strategy in the late 1960s. From TWA, Ken joined SH&E, the leading aviation consultancy, to build and lead the Washington, DC office. As an industry consultant, Ken played a key role in the deregulation of the airline business. In 1976 Ken left SH&E to found Midway Airlines, the first new airline in forty years and the first airline certificated after deregulation. Midway Airlines pioneered the low-cost, high-utilization model, bringing single-class, low-fare service to Chicago and the east coast. Ken built Midway, taking the company public with a $500MM market cap and consistent profitability. In late 1980 Ken joined Texas Air Corporation to create a new low-fare carrier based in New York City. Ken founded New York Air, certifying the carrier and launching one of the most successful startups of the post-deregulation era. New York Air went public in 1981 and was a subsidiary of Texas Air Corporation. During the mid-1980s, Ken started, certified and managed JetExpress, a regional carrier for Trans World Airlines and US Air based in Atlantic City and Virginia. In the early 1990s, Ken transformed JetExpress into Midway II – the original Midway having overexpanded in the late 1980s under new management. Ken purchased the Midway name and negotiated a substantial aircraft order for the Fokker 100, a new 100-passenger regional jet, which he deployed on key routes across the US. In 1994, Ken sold his stake in Midway II and retired to Virginia, becoming chairman of his local Republican party. Ken served on the Virginia Aviation Board under Governor George Allen while

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pursuing other non-airline interests. In the late 1990s he began searching for an airline to purchase and restructure, but held off during the turbulence of 2000-2003. Ken holds a BS from Louisiana State University and lives in Dallas, Texas. He commutes to Washington, DC. Ken is a full-time employee of SkyLink Airways. Joshua B. Marks (Josh) President Josh brings expertise in airline technology, operations and strategy, plus experience in starting, building and managing fast-growing organizations with demanding private-equity investors. Prior to joining SkyLink Airways, Josh was Associate Director of the George Washington University Aviation Institute, where he was a nationally-known expert in airline finance, operations, and competitive strategy. He has also served as a partner of Potomac Aviation and the Velocity Group, two airline consulting firms with representative clients including United, Delta, US Airways, Continental, Northwest, Lockheed, Boeing, and MITRE. Josh is a part-time member of the faculty of the School of Business and Public Management at GWU, where he lectures in airline finance and operations, and visiting faculty at Embry-Riddle Aeronautical University, where he lectures in airline technology and systems design. At GWU, Josh was responsible for rebuilding the airline operations research and training organization, which by 2003 had total enrolment of over 200 students annually. He was a frequent television commentator on airline finance and management with over fifty live appearances on NBC, CNBC, CNN, ABC, CBS, NPR and foreign channels in 2003. Prior to joining George Washington University, Josh built, financed and restructured two fast-growing technology and communications companies, both of which had technology contracts in the airline sector. As Chief Executive Officer of VelociGen, a San Diego-based integration software vendor that served the industrial, financial and aviation sectors, Josh rebuilt the company and management team, orchestrating three venture capital rounds and the sale of the company to Blue Titan Software two years later. Prior to VelociGen, Josh served as President and CEO of Silicon Planet, Inc., a non-profit software company, and as President and Partner of Virtualis Systems, Inc., a communications and Internet infrastructure firm acquired by Allegiance Telecom in an all-cash deal in late 2000. Josh currently serves on the board of directors of Giving Initiative, a 501(c)3 nonprofit organization that delivers donation infrastructure to Fortune 500 companies to facilitate employee giving through regular payrolls. Josh holds an MBA with Distinction from the Harvard Business School and a BA, magna cum laude, from Harvard College, where he was elected Phi Beta Kappa. Josh is an instrument-rated pilot with complex and high-performance endorsements. Josh is a full-time employee of SkyLink Airways. William A. Kutzke (Bill) Senior Vice President & General Counsel Bill Kutzke has over thirty years of active airline and regulatory experience, and is a nationally recognized expert on airline planning, market development, international route authorities, and long-haul widebody operations. As an early employee and key executive of Gemini Air Cargo, Bill Kutzke helped build a successful long-haul, international carrier acquired by the Carlyle Group in 1999.

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Bill’s aviation career started at the US Department of Transportation, where he held the positions of Assistant General Counsel for International Law, Assistant General Counsel for Litigation, and Trial Attorney between 1968 and 1978. In 1979 Bill left DOT for Northwest Airlines where he served as Vice President, Government Affairs and Vice President, Airline Planning, where he was responsible for all market planning, pricing, scheduling, government affairs and regulatory affairs after deregulation. Between 1986 and 1997 Bill was the senior partner of Kutzke & Associates, which provided consulting and legal services to the airline industry. The firm built significant expertise in code-share agreements, alliances, start-up airline planning, and international aviation negotiations. Representative clients included Japan Airlines, Midway Airlines, and the Air Line Pilots Association. Between 1992 and 1993 Bill served as the Executive Vice President of Midway Airlines during the transition from a regional carrier to the first regional jet operation in the United States. In early 1997 Bill joined the founding team of Gemini Air Cargo as Senior Vice President and General Counsel. Before joining SkyLink, Bill has served as an officer of Gemini, with responsibility for all legal matters, including DOT, FAA operating permits and route authorities from foreign governments, aircraft leases, aircraft purchase agreements, airport contracts, supplier contracts, maintenance contracts, labor agreements, personnel issues, interline agreements, tariff matters and all contracts related to the provision of cargo services. He was also responsible for the management and direction of the Safety Department. Bill holds a JD from the University of Minnesota Law School and a BS from the University of Wisconsin-Madison. He lives in Chevy Chase, MD and is a full-time employee of SkyLink Airways. Tom Kosik Vice President, Flight Operations Managing Director, SkyLink Europe Tom Kosik recently retired as a 777 pilot with United Airlines and will be responsible for flight operations at SkyLink Airways. Tom has a significant history of management at United, where he was a former manager at United’s training center in Denver and an officer of the Air Line Pilots Association’s United chapter. At United, Tom also served as Check Airman and Assistant Chief Pilot. Tom Kosik has had an active consulting practice in Eastern Europe on airline operations, and has key contacts with aviation authorities in several Eastern European countries. He is a long-haul expert with thousands of flight hours on key SkyLink routes. Should SkyLink create a European parallel or associated carrier to take advantage of additional financing opportunities or route authorities, Tom Kosik will also serve as Managing Director of European operations. Tom Kosik will be a full-time employee starting May 1, 2004. Sandy Saunders Chief Pilot Sandy Saunders joined SkyLink Airways from Gemini Air Cargo, where he was Chief Pilot of Gemini’s MD-11 and DC-10 fleet. He is a DC-10-30 pilot based in Washington, DC. A twenty-year

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veteran of the US Navy, Sandy was an F-14 pilot with carrier experience in multiple theaters. He has a deep knowledge of long-haul airline operations and pilot requirements. He is a graduate of the Naval Academy. Sandy is an employee of SkyLink Airways. Jim Carlson Vice President, Safety & Security Jim Carlson is the Director of Safety and Security at Gemini Air Cargo. He is a commercial pilot with thousands of flight hours in Part 121 operations, but also has built national recognition as an expert in airline safety, security and flight operations. As Director, Safety & Security at Gemini, Jim has dealt with security and operational risk management out of dozens of airports around the world. Jim formerly served as the Director of Operations Control with Midway II in the late 1990s, and held various management positions at other regional carriers in the 1980s and 1990s. Jim is currently a consultant to SkyLink Airways and will become a full-time employee in March 2004. Jim Carlson is Ken Carlson’s brother. Charles Stoddard (Charlie) Vice President, Quality Control Charlie is currently working in Quality Control at Atlantic Coast Airlines. He is a veteran of Gemini Air Cargo, Midway Airlines and JetExpress Airlines. Charlie is currently a consultant to SkyLink Airways and will become a full-time employee in March 2004.

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Risk Factors The international nature of SkyLink’s operation will introduce different risk factors than those faced by traditional low-cost carriers. The SkyLink business model must be designed to accommodate these risks and mitigate the airline’s exposure to fluctuations in traffic, fuel prices, and even weather. While each SkyLink long-haul flight can drive many times the profitability of a traditional LCC’s domestic flight, the impact of a cancellation or variance in input cost (fuel, labor, etc.) is severe. In this section, we outline some of the major risk factors that could impact SkyLink’s operation, and how the airline will manage this risk. Fuel Cost SkyLink projections are based on an average fuel cost of $1.00 per

gallon. During the past two quarters, the major airlines have paid between $0.80 and $1.00 per gallon of fuel. Our operating plan assumes reasonably stable fuel prices, facilitated by limited hedging. Should an international crisis precipitate a dramatic rise in fuel prices, there could be a measurable impact on SkyLink’s profitability. SkyLink will manage fuel price exposure by:

1. Employing fuel hedges where possible and appropriate to collar the cost of fuel both in the US and abroad.

2. Due to the long-haul nature of the SkyLink network,

SkyLink will tanker fuel where appropriate to reduce overall fuel costs.

3. SkyLink will design its route structure and block times to

allow for maximum-efficiency cruise speeds where and when appropriate.

War Risk Another conflict in the Middle East could have a measurable impact on traffic volumes across the Atlantic. During both the Gulf War of 1990-1991 and the Iraq War of 2003, transatlantic traffic dipped (dramatically in 1991 and briefly in 2003). SkyLink will manage war risk by designing a Phase II and III route network that manages the airline’s exposure in any one theater. SkyLink’s Phase II routes will stretch across the Pacific and the Atlantic on very long-haul, focused routes. The Phase III routes to Europe can be scaled down during another conflict and the aircraft allocated to more stable theaters.

Terrorism Terrorism is an ongoing problem for the worldwide airline industry; the traffic levels for each market presented in this plan include the significant impact of terrorism threats. Having a diverse route network from the United States allows SkyLink to pull individual routes should a terrorism threat impact traffic levels.

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SARS and other infectious diseases

Infectious diseases can create travel scares that have dramatic regional impacts on air travel. SkyLink will develop a broad route network to ameliorate the impact of a regional health crisis on overall profitability. SkyLink would be significantly impacted by a health crisis within the United States, as would all US-flag carriers.

Insurance Costs The insurance requirements for US-flag carriers have risen dramatically since September 11th, as it has for worldwide carriers in general. SkyLink may be subject to insurance rate fluctuations in the future due to terrorist attacks, wars, or other risks that may develop in coming years. SkyLink will work with multiple insurance vendors to negotiate a favorable insurance rate, but coverage requirements may change over time.

Homeland Security The introduction of the Department of Homeland Security has significantly changed how new policies and procedures for immigration are devised and issued. Airlines today must operate in an environment where DHS can rapidly and sometimes arbitrarily change entry requirements and procedures for foreign nationals visiting the United States. While DHS changes have not had a significant impact on US-originating travelers, the new challenges for foreign nationals wishing to enter the United States has had a significant impact on passenger traffic originating in countries SkyLink plans to serve. We have no way to predict whether entry requirements will ease or increase. Three factors impact potential SkyLink traffic: DHS has an unstated policy to restrict the issuance of

tourist visas to visit the United States. Fewer tourist visas are being issued to foreign nationals, and several countries, including China, have made a point of this in bilateral negotiations. Unavailability of tourist visas for foreign nationals has a significant impact on tourism and foreign-originating traffic for the airlines.

DHS has also changed the qualification standards for

business visas. DHS is making it more difficult for businesspeople (even those from visa waiver countries like Japan or the United Kingdom) to obtain extended business visas. DHS business visa policy may result in significant business shifts from the US to Europe and pressure air carriers serving the United States.

DHS security changes impact all passengers and may

deter travelers concerned with privacy. New fingerprinting and photographing procedures track all

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entrants to the United States. DHS procedures may contribute to a broad-based decline in passenger traffic from foreign countries to the United States. Because SkyLink will focus on American customers, these changes are more likely to impact foreign carriers than a US-flag carrier. If traffic does decline, SkyLink will be better able to adapt to new traffic levels with our dynamic cost structure.

Certification SkyLink will need to obtain both DOT operating authority and FAA certification as a Part 121 carrier. SkyLink filed its initial applications for certification on February 20, 2004 (DOT Docket Number OST-2004-17172-1) and expects the process to take between nine and fifteen months. The outcome of the certification process can never be predicted in advance, though we are confident that no problems will develop. It is conceivable that after spending $5,000,000 or more before reaching certification, we will be unable to continue with certification due to legislative changes. We are continually investigating the purchase of an existing certificate; while our preference is to start from scratch, building the manuals, procedures and standards that fit SkyLink’s objectives, we are prepared to purchase an existing certificate for less than $5,000,000 and begin operations.

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Financial Summary and Operating Assumptions The following section captures the financial assumptions for SkyLink Airways that have been used to determine cash flow, aircraft requirements, utilization, and route economics. A sample set of relevant data is presented in this document, and the full model is available in Microsoft Excel format for sensitivity analysis. Summary Data

1.) Key Aircraft Assumptions

Aircraft B767-200ER B777-200LR A330-300 C A340-300 P MLW 300,000 487,000 412,200 423,000 Configuration Interim Lift Premium Dense w/Bunks Premium First Seats 30 45 48 48 Seat Pitch 42 48 42 48 Standard Seats 172 255 250 190 Seat Pitch 34 34 34 34 Total Seats 202 300 298 238 Lease Payments Financed Price $7,400,000 $150,000,000 $110,000,000 $125,000,000 Monthly Lease Pmnt $139,647 $845,860 $620,297 $704,883 Sec Deposit / Down Payment $600,000 $1,691,719 $1,240,594 $1,409,766 Inspection, Ferry & Delivery $250,000 $250,000 $250,000 $250,000 Insurance Rate (%, annual) 1.00% 1.00% 1.00% 1.00% Monthly Hull Insurance Rate $6,167 $125,000 $91,667 $104,167 Monthly Pax Liab Insurance $50,500 $75,000 $74,500 $59,500 Total Monthly Insurance $56,667 $200,000 $166,167 $163,667 Airframe Reserve $342 $450 $250 $250 Engine / Power by the Hour $407 $250 $150 $175 Line Maintenance Reserve $53 $75 $65 $65 Maintenance Reserve per BH $802 $775 $465 $490 Cabin Crew Required 5 8 8 8

2.) Price of Fuel in Economic Model: $1.00 per gallon. 3.) Passenger Insurance Liablity: $3,000 per seat, per year

4.) Hull Insurance Rate: 1.0% of aircraft financed value, per year

5.) Navigation Cost: $0.84 per block hour, per 1,000lbs MLW.

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6.) Flight Deck Wages:

Hourly Cost to SkyLink Captain First Officer Flight

Attendants Year 1 $138.72 $63.77 $19.09 Year 2 $141.60 $66.66 $19.51 Year 3 $144.49 $69.54 $19.93 Year 4 $147.37 $72.42 $20.35 Year 5 $150.25 $75.30 $20.77

Salaries with Benefits Captain First Officer Flight

Attendants Year 1 $132,340 $60,840 $25,090 Year 2 $135,090 $63,590 $25,640 Year 3 $137,840 $66,340 $26,190 Year 4 $140,590 $69,090 $26,740 Year 5 $143,340 $71,840 $27,290

Take-Home Salaries Captain First Officer Flight


Variable Benefits Captain First Officer Flight


Fixed Benefits Captain First Officer Flight


SkyLink Benefits Calculation

Variable Benefits:

Payroll Tax 7.50% Medicare 1.75% Life Insurance 0.50% Unemployment Insurance 0.25%

Total Variable Benefits: 10.00%

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Fixed Benefits: Health Benefits $3,840 Other $2,000

Total Fixed Benefits $5,840

LINE ASSUMPTIONS

Captain Trips per Year 51 trips Average Block Length 9 hours BH Flown per Year per pilot 954 hours

Copilot/Reserve Trips per Year 51 trips Average Block Length 9 hours BH Flown per Year 954 hours

BH Flown per Month 79.5 hours

Captain Reserve Pay $100 per hour Captain Training Pay $50 per day Captain Block Hours Guaranteed 65 hours per month

Copilot Reserve Pay $50 per hour Copilot Training Pay $50 per day Copilot Block Hours Guaranteed $65 hours per month

RESERVE PERCENTAGES

Pilots F/As

2005 8% 5% 2006 8% 5% 2007 8% 5%

2008 8% 5%

2009 8% 5%

7.) Sequence of Market Entry, 2005-2009 Calendar Years

MARKET START DATE

MARKET START DATE

BWI-CDG 4/1/2005 JFK-CDG 4/1/2007 BWI-STN 4/1/2005 MIA-STN 4/1/2007 BWI-BRU 6/1/2005 ATL-STN 5/1/2007 BWI-MUC 8/1/2005 BWI-GIG 6/1/2007 BWI-YXX 10/1/2005 STN-BOM 10/1/2007 YXX-HNL 12/1/2005 STN-DEL 10/1/2007 BWI-LOS 1/1/2006 BWI-DEN 11/1/2007 BWI-MDE 3/1/2006 OAK-CDG 11/1/2007

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JFK-STN 4/1/2006 JFK-BRU 2/1/2008 LAX-CDG 4/1/2006 ATL-CDG 3/1/2008 JFK-MDE 5/1/2006 MIA-MAD 3/1/2008 LAX-STN 5/1/2006 MIA-MUC 3/1/2008 DFW-CDG 6/1/2006 DEN-STN 4/1/2008 JFK-LOS 6/1/2006 ATL-MUC 6/1/2008 LOS-JNB 6/1/2006 DEN-HNL 8/1/2008 MIA-CDG 6/1/2006 LAX-HNL 8/1/2008 OAK-STN 6/1/2006 OAK-HNL 8/1/2008 JFK-BOM 8/1/2006 STN-JNB 10/1/2008 JFK-BAH 9/1/2006 LAX-BRU 2/1/2009 BWI-CAI 10/1/2006 ATL-BRU 3/1/2009 CDG-JNB 11/1/2006 DFW-MUC 3/1/2009 JFK-CAI 1/1/2007 LAX-SYD 3/1/2009 DFW-STN 3/1/2007 LAX-MUC 4/1/2009 JFK-MAD 3/1/2007 LAX-GIG 6/1/2009 JFK-MUC 3/1/2007 OAK-SYD 8/1/2009 DEN-CDG 4/1/2007

8.) Schedule of Airport Landing Fees

AIRPORT NAME CODE LANDING FEES

TURN TIME (H.DEC)

BALTIMORE WASHINGTON INTERNATIONAL BWI $1.63 2

MEDELLIN, COLUMBIA MDE $2.00 2 LAGOS MOHAMMED INTERNATIONAL LOS $2.00 2

LONDON/STANSTED, ENGLAND STN $2.00 2 PARIS CHARLES DE GAULLES, FRANCE CDG $2.00 2

CAIRO, EGYPT CAI $2.00 2 DENVER INTERNATIONAL, CO DEN $2.25 2

LOS ANGELES INT'L, CA LAX $2.25 2 NEW YORK JFK, NY JFK $2.25 2 MUNICH, GERMANY MUC $2.25 2

BRUSSELS, BELGIUM BRU $2.25 2 MADRID BARAJAS, SPAIN MAD $2.25 2 RIO DE JANEIRO, BRAZIL GIG $2.25 2

VANCOUVER/ABBOTSFORD/BELLINGHAM YXX $2.25 2 HONOLULU, HAWAII HNL $2.25 2

OAKLAND, CA OAK $2.25 2 MIAMI, FLORIDA MIA $2.25 2

ATLANTA, GA ATL $2.25 2 SYDNEY, NSW, AUSTRALIA SYD $2.25 2

MUMBAI/BOMBAY, INDIA BOM $2.25 2 DELHI, INDIA DEL $2.25 2

JOHANNESBURG, SOUTH AFRICA JNB $2.25 2 MANAMA INTERNATIONAL, BAHRAIN BAH $2.25 2

DALLAS FORT WORTH, TEXAS DFW $2.25 2

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9.) Valuation after IPO

Valuation, 3 mo. After IPO June 30, 2007 Prior Twelve Months' Revenue $762,353,406 Prior Twelve Months' Expenses ($638,555,701) EBITDA, ptm $123,797,705 JetBlue Price/EBITDA, prior 12 months 39.4 AirTran Price/EBITDA, prior 12 months 14.8 Average Price/EBITDA, ptm 27.1 SkyLink Market Value High, 6/30/07 $4,871,439,690.31 SkyLink Market Value, Low 6/30/07 $1,827,254,125.26 SkyLink Market Value, Average $3,349,346,907.78

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Financial Appendix

1. Market Fares & Passenger Revenues 2. Competitors’ Block Hour & CASM Costs 3. Aircraft Utilization Table, by month, 2005-2009 4. 2004 Projected Operating Expenses, by Quarter (Startup Costs) 5. 2005-2009 Quarterly Income Summary 6. Sample Fares: Competition vs. SkyLink Airways 7. Sample Profitability Analysis, Los Angeles to London 8. Scenario Analysis: Inventory Dumping by Competitors

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Market Fares & Passenger Revenues (Sheet One)

Market Start Walk-Up F # 7-Day F # 21-Day F # Walk-Up Y # 7-Day Y # 21-Day Y # 31-Day Y #Total F

Revenue PTotal Y

Revenue PTotal

Revenue PATL-BRU 3/1/2009 $1,449 3 $1,049 5 $899 5 $449 16 $349 24 $199 39 $139 79 $15,016 14 $34,096 157 $49,112 171ATL-CDG 3/1/2008 $1,449 5 $1,049 8 $899 7 $449 17 $349 26 $199 43 $139 86 $21,022 19 $37,357 173 $58,380 192ATL-MUC 6/1/2008 $1,449 4 $1,049 6 $899 6 $449 14 $349 21 $199 35 $139 71 $17,268 16 $30,686 142 $47,955 157YXX-HNL 12/1/2005 $1,099 5 $699 8 $499 7 $349 17 $299 26 $199 43 $129 86 $13,996 19 $33,522 173 $47,518 192ATL-STN 5/1/2007 $1,449 5 $1,049 8 $899 7 $449 18 $349 28 $199 46 $139 92 $22,524 21 $40,026 185 $62,550 205BWI-CAI 10/1/2006 $2,499 4 $1,999 7 $1,399 6 $699 16 $499 24 $399 40 $199 79 $33,638 18 $54,411 158 $88,049 176BWI-BRU 6/1/2005 $1,249 4 $899 6 $699 5 $399 13 $299 19 $199 32 $99 65 $13,179 14 $23,812 129 $36,990 144BWI-CDG 4/1/2005 $1,249 3 $899 5 $699 5 $399 12 $299 18 $199 31 $99 62 $12,551 14 $22,678 123 $35,229 137BWI-MUC 8/1/2005 $1,249 6 $899 10 $699 9 $399 14 $299 21 $199 35 $99 70 $22,592 25 $25,702 140 $48,294 164BWI-LOS 1/1/2006 $2,499 5 $1,999 8 $1,399 7 $699 17 $499 26 $399 43 $199 75 $36,696 19 $57,114 161 $93,809 180BWI-DEN 11/1/2007 $799 5 $599 9 $399 8 $199 20 $149 30 $149 49 $99 99 $12,704 22 $25,475 197 $38,179 219BWI-GIG 6/1/2007 $1,249 4 $999 7 $749 6 $399 16 $299 24 $179 40 $149 81 $17,512 18 $33,011 162 $50,523 180BWI-STN 4/1/2005 $1,249 3 $899 5 $699 5 $399 12 $299 18 $199 31 $99 62 $12,551 14 $22,678 123 $35,229 137MIA-MAD 3/1/2008 $1,699 4 $1,299 7 $949 6 $449 15 $349 23 $199 39 $139 77 $21,851 17 $33,355 154 $55,206 171BWI-YXX 10/1/2005 $1,099 3 $699 5 $499 5 $349 12 $299 18 $199 29 $129 59 $9,498 13 $22,747 117 $32,245 130BWI-MDE 3/1/2006 $1,499 5 $1,099 8 $749 7 $499 17 $399 26 $249 43 $199 86 $20,646 19 $46,863 173 $67,508 192CDG-JNB 11/1/2006 $999 4 $799 6 $599 6 $599 14 $499 21 $399 35 $299 71 $12,268 16 $54,427 142 $66,696 157DEN-CDG 4/1/2007 $1,449 4 $1,049 7 $899 6 $449 15 $349 7 $199 39 $139 77 $18,770 17 $27,732 138 $46,502 155LOS-JNB 6/1/2006 $499 4 $399 7 $299 6 $299 16 $249 24 $199 40 $149 79 $6,837 18 $30,290 158 $37,126 176DEN-HNL 8/1/2008 $1,099 5 $699 8 $499 7 $349 17 $299 26 $199 43 $129 86 $13,996 19 $33,522 173 $47,518 192DEN-STN 4/1/2008 $1,699 5 $1,299 8 $949 7 $449 17 $349 26 $199 43 $139 86 $24,473 19 $37,357 173 $61,831 192JFK-CAI 1/1/2007 $999 5 $799 8 $599 7 $599 17 $499 26 $399 43 $299 86 $14,935 19 $66,259 173 $81,195 192JFK-BRU 2/1/2008 $1,249 4 $899 7 $699 6 $399 15 $299 22 $199 37 $99 74 $15,061 16 $27,214 148 $42,275 164JFK-CDG 4/1/2007 $1,249 5 $899 8 $699 7 $399 19 $299 29 $199 48 $99 96 $19,454 21 $35,151 191 $54,605 212JFK-MUC 3/1/2007 $1,249 5 $899 8 $699 7 $399 14 $299 21 $199 34 $99 69 $18,042 20 $25,355 138 $43,397 157JFK-LOS 6/1/2006 $2,499 8 $1,999 12 $1,399 11 $699 18 $499 26 $399 44 $199 88 $59,631 31 $60,731 177 $120,362 208JFK-STN 4/1/2006 $1,249 5 $899 8 $699 7 $399 18 $299 28 $199 46 $99 92 $18,826 21 $34,017 185 $52,844 205

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Market Fares & Passenger Revenues (Sheet Two)

MarketAverage

Fare Comm.Direct Ops

$Indirect Ops $ Margin ($) Margin (%) Aircraft Distance F Seats Y Seats

Load Factor Yield RASM CASM

Rank (by RASM)

ATL-BRU $287 $962 $29,817 $11,036 $8,259 16.82% B763E 4,426 36 209 69.87% $0.065 $0.045 $0.038 45ATL-CDG $305 $1,103 $29,674 $10,711 $17,994 30.82% B763E 4,394 36 209 78.25% $0.069 $0.054 $0.038 27ATL-MUC $305 $906 $32,691 $12,010 $3,254 6.79% B763E 4,797 36 209 64.28% $0.063 $0.041 $0.038 49YXX-HNL $248 $993 $18,533 $2,496 $26,489 55.74% B762E 2,731 30 172 95.05% $0.091 $0.086 $0.038 5ATL-STN $305 $1,182 $30,553 $11,036 $20,960 33.51% B763E 4,229 36 209 83.84% $0.072 $0.060 $0.040 18BWI-CAI $501 $1,639 $41,417 $15,580 $31,051 35.27% B763E 5,798 36 209 71.73% $0.086 $0.062 $0.040 15BWI-BRU $257 $698 $22,137 $3,145 $11,708 31.65% B762E 3,850 30 172 71.18% $0.067 $0.048 $0.033 41BWI-CDG $257 $665 $22,191 $3,173 $9,865 28.00% B762E 3,818 30 172 67.79% $0.067 $0.046 $0.033 44BWI-MUC $294 $843 $23,865 $3,385 $21,043 43.57% B762E 4,221 30 172 81.35% $0.070 $0.057 $0.032 22BWI-LOS $520 $1,788 $32,601 $4,697 $56,511 60.24% B762E 5,400 30 172 89.33% $0.096 $0.086 $0.034 6BWI-DEN $174 $784 $15,083 $4,869 $18,228 47.74% B763E 1,491 36 209 89.56% $0.117 $0.105 $0.055 4BWI-GIG $281 $1,024 $27,081 $3,808 $19,634 38.86% B762E 4,780 30 172 89.01% $0.059 $0.052 $0.032 32BWI-STN $257 $665 $22,191 $3,173 $9,865 28.00% B762E 3,563 30 172 67.79% $0.072 $0.049 $0.035 39MIA-MAD $323 $1,018 $30,411 $11,036 $13,759 24.92% B763E 4,425 36 209 69.87% $0.073 $0.051 $0.038 35BWI-MEX $248 $674 $16,708 $2,327 $13,210 40.97% B762E 2,350 30 172 64.50% $0.105 $0.068 $0.040 10BWI-IAH $352 $1,406 $17,298 $5,843 $44,368 65.72% B763E 2,269 36 209 78.28% $0.155 $0.121 $0.042 2

CDG-JNB $424 $1,427 $36,482 $13,568 $16,646 24.96% B763E 5,410 36 209 64.28% $0.078 $0.050 $0.038 37DEN-CDG $300 $985 $33,490 $12,334 $678 1.46% B763E 4,880 36 209 63.29% $0.061 $0.039 $0.038 50LOS-JNB $211 $821 $18,071 $2,433 $16,622 44.77% B762E 2,803 30 172 87.00% $0.075 $0.066 $0.036 12DEN-HNL $248 $993 $23,885 $8,439 $15,194 31.98% B763E 3,365 36 209 78.36% $0.074 $0.058 $0.039 20DEN-STN $323 $1,140 $31,254 $11,361 $19,216 31.08% B763E 4,693 36 209 78.25% $0.069 $0.054 $0.037 29JFK-CAI $424 $1,737 $39,942 $14,931 $26,322 32.42% B763E 5,614 36 209 78.25% $0.075 $0.059 $0.040 19JFK-BRU $257 $798 $26,729 $9,738 $5,809 13.74% B763E 3,668 36 209 67.07% $0.070 $0.047 $0.041 43JFK-CDG $257 $1,031 $27,734 $10,062 $16,808 30.78% B763E 3,635 36 209 86.64% $0.071 $0.061 $0.042 16JFK-MUC $276 $786 $28,291 $10,387 $4,720 10.88% B763E 4,038 36 209 64.28% $0.068 $0.044 $0.039 47JFK-LOS $580 $2,066 $33,925 $4,866 $81,571 67.77% B762E 5,250 30 172 102.82% $0.110 $0.113 $0.037 3JFK-STN $257 $997 $26,916 $9,738 $16,190 30.64% B763E 3,470 36 209 83.84% $0.074 $0.062 $0.043 14

P A G E 9 7

Market Fares & Passenger Revenues (Sheet Three)

Market Start Walk-Up F # 7-Day F # 21-Day F # Walk-Up Y # 7-Day Y # 21-Day Y # 31-Day Y #Total F

Revenue PTotal Y

Revenue PTotal

Revenue PJFK-MAD 3/1/2007 $1,249 5 $899 8 $699 7 $399 17 $299 26 $199 43 $99 86 $17,571 19 $31,749 173 $49,321 192JFK-MDE 5/1/2006 $1,499 5 $1,099 8 $749 7 $499 19 $399 28 $249 47 $199 93 $22,366 21 $50,768 187 $73,134 208LAX-BRU 2/1/2009 $1,599 4 $1,199 7 $999 6 $499 12 $399 18 $229 30 $159 60 $20,197 16 $29,706 121 $49,903 137LAX-CDG 4/1/2006 $1,599 7 $1,199 12 $999 10 $499 17 $399 25 $229 42 $159 85 $36,817 30 $41,844 170 $78,661 200LAX-MUC 4/1/2009 $1,999 6 $1,499 9 $1,099 8 $499 13 $399 19 $249 32 $149 65 $33,786 23 $31,802 129 $65,588 152JFK-BOM 8/1/2006 $2,499 8 $1,999 12 $1,399 11 $699 18 $499 26 $399 44 $199 88 $59,631 31 $60,731 177 $120,362 208LAX-GIG 6/1/2009 $1,499 8 $1,099 12 $749 11 $499 18 $399 26 $249 44 $199 88 $33,549 31 $47,948 177 $81,497 208LAX-HNL 8/1/2008 $1,099 5 $699 8 $499 7 $349 17 $299 26 $199 43 $129 86 $13,996 19 $33,522 173 $47,518 192LAX-STN 5/1/2006 $1,599 5 $1,199 7 $999 6 $499 17 $399 25 $229 42 $159 83 $22,721 18 $41,015 166 $63,736 185JFK-BAH 9/1/2006 $2,499 7 $1,999 11 $1,399 9 $699 15 $499 22 $399 37 $199 75 $50,457 26 $51,388 149 $101,845 176LAX-SYD 3/1/2009 $2,499 10 $1,999 17 $1,399 15 $699 17 $499 25 $399 42 $199 83 $79,507 42 $57,159 166 $136,666 208STN-BOM 10/1/2007 $999 4 $799 7 $599 6 $599 15 $499 23 $399 39 $299 77 $13,335 17 $59,160 154 $72,495 171STN-DEL 10/1/2007 $999 4 $799 7 $599 6 $599 15 $499 23 $399 39 $299 77 $13,335 17 $59,160 154 $72,495 171STN-JNB 10/1/2008 $999 4 $799 7 $599 6 $599 15 $499 23 $399 39 $299 77 $13,335 17 $59,160 154 $72,495 171MIA-CDG 6/1/2006 $1,449 5 $1,049 8 $899 7 $449 18 $349 27 $199 45 $139 89 $21,773 20 $38,691 179 $60,465 199MIA-MUC 3/1/2008 $1,449 8 $1,049 13 $899 11 $449 13 $349 19 $199 31 $139 63 $34,537 31 $27,277 126 $61,813 157MIA-STN 4/1/2007 $1,449 5 $1,049 8 $899 7 $449 18 $349 28 $199 46 $139 92 $22,524 21 $40,026 185 $62,550 205

OAK-CDG 11/1/2007 $1,999 5 $1,499 7 $1,099 6 $499 17 $399 25 $249 41 $149 83 $27,266 18 $40,761 165 $68,028 184OAK-HNL 8/1/2008 $1,099 5 $699 8 $499 7 $349 18 $299 27 $199 45 $129 89 $14,496 20 $34,719 179 $49,216 199OAK-STN 6/1/2006 $1,999 5 $1,499 8 $1,099 7 $499 18 $399 27 $249 45 $149 90 $29,637 20 $44,306 180 $73,943 200OAK-SYD 8/1/2009 $2,499 9 $1,999 14 $1,399 13 $699 20 $499 31 $399 51 $199 102 $68,804 36 $70,075 204 $138,879 240DFW-CDG 6/1/2006 $1,449 4 $1,049 7 $899 6 $449 15 $349 23 $199 39 $139 77 $18,770 17 $33,355 154 $52,125 171DFW-MUC 3/1/2009 $1,449 8 $1,049 13 $899 11 $449 18 $349 27 $199 45 $139 90 $34,687 32 $38,810 179 $73,497 211DFW-STN 3/1/2007 $1,449 5 $1,049 7 $899 6 $449 17 $349 25 $199 42 $139 83 $20,272 18 $36,023 166 $56,295 185

P A G E 9 8

Market Fares & Passenger Revenues (Sheet Four)

MarketAverage

Fare Comm.Direct Ops

$Indirect Ops $ Margin ($) Margin (%) Aircraft Distance F Seats Y Seats

Load Factor Yield RASM CASM

Rank (by RASM)

JFK-MAD $257 $931 $26,907 $9,738 $12,676 25.70% B763E 3,590 36 209 78.25% $0.072 $0.056 $0.042 26JFK-IAH $352 $1,523 $19,064 $6,492 $47,578 65.06% B763E 2,372 36 209 84.80% $0.148 $0.126 $0.044 1

LAX-BRU $364 $916 $33,388 $12,334 $4,180 8.38% B763E 5,640 36 209 55.90% $0.065 $0.036 $0.033 51LAX-CDG $394 $1,379 $35,405 $12,983 $30,273 38.49% B763E 5,670 36 209 81.51% $0.069 $0.057 $0.035 23LAX-MUC $432 $1,108 $43,026 $15,905 $6,657 10.15% B763E 5,989 36 209 61.95% $0.072 $0.045 $0.040 46JFK-BOM $580 $2,066 $65,966 $36,067 $18,329 15.23% B772 7,799 45 255 69.23% $0.074 $0.051 $0.044 33LAX-GIG $392 $1,578 $40,212 $14,866 $26,419 32.42% B763E 6,294 36 209 84.80% $0.062 $0.053 $0.036 31LAX-HNL $248 $993 $19,862 $6,816 $20,840 43.86% B763E 2,556 36 209 78.36% $0.097 $0.076 $0.043 8LAX-STN $345 $1,209 $36,738 $13,633 $13,365 20.97% B763E 5,480 36 209 75.46% $0.063 $0.047 $0.038 42JFK-BAH $580 $1,748 $54,247 $29,304 $18,293 17.96% B772 6,613 45 255 58.58% $0.088 $0.051 $0.042 34LAX-SYD $658 $2,195 $60,251 $32,610 $43,805 32.05% B772 7,488 45 255 69.23% $0.088 $0.061 $0.041 17STN-BOM $424 $1,551 $30,411 $11,036 $31,049 42.83% B763E 4,475 36 209 69.87% $0.095 $0.066 $0.038 11STN-DEL $424 $1,551 $30,411 $11,036 $31,049 42.83% B763E 4,183 36 209 69.87% $0.101 $0.071 $0.040 9STN-JNB $424 $1,551 $38,308 $14,282 $19,905 27.46% B763E 5,595 36 209 69.87% $0.076 $0.053 $0.038 30MIA-CDG $305 $361 $30,509 $11,036 $18,920 31.29% B763E 4,589 36 209 81.05% $0.066 $0.054 $0.037 28MIA-MUC $393 $299 $34,507 $12,659 $14,648 23.70% B763E 5,007 36 209 64.28% $0.078 $0.050 $0.038 36MIA-STN $305 $373 $30,553 $11,036 $20,960 33.51% B763E 4,440 36 209 83.84% $0.069 $0.058 $0.038 21

OAK-CDG $370 $1,249 $35,941 $13,308 $18,779 27.60% B763E 5,573 36 209 74.99% $0.066 $0.050 $0.036 38OAK-HNL $248 $1,029 $18,253 $6,167 $24,795 50.38% B763E 2,409 36 209 81.16% $0.103 $0.083 $0.041 7OAK-STN $370 $1,358 $36,045 $13,308 $24,590 33.26% B763E 5,381 36 209 81.51% $0.069 $0.056 $0.037 25OAK-SYD $580 $2,384 $59,880 $32,347 $46,651 33.59% B772 7,428 45 255 79.88% $0.078 $0.062 $0.041 13DFW-CDG $305 $311 $35,069 $12,983 $4,072 7.81% B763E 4,948 36 209 69.87% $0.062 $0.043 $0.040 48DFW-MUC $349 $392 $38,725 $14,282 $20,490 27.88% B763E 5,329 36 209 86.08% $0.065 $0.056 $0.041 24DFW-STN $305 $336 $32,947 $12,075 $11,273 20.02% B763E 4,764 36 209 75.46% $0.064 $0.048 $0.039 40

P A G E 9 9

Competitors’ Block Hour & CASM Costs DOT Form 41 Data, Adjusted SkyLink Proprietary Analysis

Summary, 4Q 2003 Crew Fuel Maint. Total DOC Rent Insurance Total IOC Form 41 CASM

Com

petit

ors

(For

m 4

1 A

djus

ted)

Delta 767-300 $1,037 $1,330 $537 $2,904 $915 $107 $1,022 $0.044 Delta 777-200 $1,641 $2,075 $887 $4,603 $1,277 $138 $1,415 $0.046 Delta MD-11 $1,474 $2,162 $1,557 $5,193 $1,402 $131 $1,533 $0.055 American 767-300 $783 $1,549 $1,134 $3,466 $797 $98 $895 $0.048 American 777-200 $895 $2,082 $810 $3,787 $1,386 $117 $1,503 $0.047 Continental 777-200 $671 $2,162 $743 $3,576 $1,402 $142 $1,544 $0.037 United 767-300 $841 $1,582 $1,230 $3,653 $695 $105 $800 $0.048 United 777-200 $1,253 $2,203 $1,458 $4,914 $511 $139 $650 $0.042 United 747-400 $1,253 $3,378 $1,379 $6,009 $1,494 $174 $1,668 $0.044 US Airways A330-300 $1,332 $1,853 $588 $3,773 $1,068 $131 $1,199 $0.044 Northwest DC-10-30 $1,054 $2,355 $1,015 $4,424 $781 $137 $918 $0.040 Northwest 747-200 $1,573 $3,398 $1,962 $6,934 $1,240 $182 $1,422 $0.049 Northwest 747-400 $1,677 $3,278 $1,921 $6,876 $1,843 $202 $2,045 $0.045

SkyL

ink

SkyLink A330 Basic (2005) $433 $1,717 $465 $2,616 $1,478 $326 $1,804 $0.029 SkyLink A330 Basic (2007) $444 $1,717 $465 $2,626 $1,276 $326 $1,602 $0.028 SkyLink A330 Prem (2005) $433 $1,716 $775 $2,924 $1,404 $307 $1,711 $0.033 SkyLink A330 Prem (2007) $444 $1,716 $775 $2,935 $1,212 $307 $1,519 $0.031 SkyLink A340 Prem (2005) $433 $2,002 $490 $2,926 $1,699 $321 $2,020 $0.041 SkyLink A340 Prem (2007) $444 $2,002 $490 $2,936 $1,467 $321 $1,788 $0.039

P A G E 1 0 0

Aircraft Utilization Table

Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05

System Block Hours 0 0 0 930 961 1,401 1,447 1,959 1,896 2,284 2,211 2,622 Total Aircraft 0 0 0 2 2 3 3 4 4 5 5 6

Days in Month 31 28 31 30 31 30 31 31 30 31 30 31 Daily Utilization No Svc No Svc No Svc 15.5 15.5 15.6 15.6 15.8 15.8 14.7 14.7 14.1


System Block Hours 2,929 2,646 3,052 3,965 4,934 7,083 7,319 7,747 7,838 8,422 8,802 9,095 Total Aircraft 7 7 8 10 12 17 17 18 19 20 21 21

Days in Month 31 28 31 30 31 30 31 31 30 31 30 31 Daily Utilization 13.5 13.5 12.3 13.2 13.3 13.9 13.9 13.9 13.8 13.6 14.0 14.0










P A G E 1 0 1

2004 Projected Operating Expenses, By Quarter STARTUP EXPENSE SUMMARY

SG&A AND OVERHEAD 2004 Q1 2004 Q2 2004 Q3 2004 Q4 2004 Total Salaries Management $162,500 $594,500 $1,052,000 $1,196,500 $3,005,500 Reservations $0 $0 $0 $192,000 $192,000 Local Mechanics & Airport Staff $0 $0 $12,000 $136,000 $148,000 Advertising & Public Relations $0 $0 $0 $700,000 $700,000 Brand Development & Design $15,000 $130,000 $300,000 $200,000 $645,000 Regulatory & Legal $0 $100,000 $150,000 $300,000 $550,000 Manuals $10,000 $125,000 $150,000 $150,000 $435,000 Certification and proving runs $0 $0 $0 $1,000,000 $1,000,000 Travel $20,000 $85,000 $105,000 $120,000 $330,000 Training Mechanics $0 $0 $35,000 $40,000 $75,000 Reservations Agents $0 $0 $0 $24,000 $24,000 Flight Deck $0 $0 $0 $0 $0 Cabin Crew $0 $0 $0 $0 $0 Technology $263,300 $650,000 $300,200 $978,600 $2,192,100 Administrative Offices $37,500 $165,000 $200,000 $217,500 $620,000 Hangar Space $0 $0 $25,000 $75,000 $100,000 Airport & Gate Rental $0 $0 $0 $0 $0 Total SG&A $508,300 $1,849,500 $2,329,200 $5,329,600 $10,016,600 TOTAL REVENUES $0 $0 $0 $0 $0 TOTAL EXPENSES $508,300 $1,849,500 $2,329,200 $5,329,600 $10,016,600 EBITDA ($508,300) ($1,849,500) ($2,329,200) ($5,329,600) ($10,016,600) Extraordinary Items $0 $0 $0 $0 $0 EBITDA after Items ($508,300) ($1,849,500) ($2,329,200) ($5,329,600) ($10,016,600) Cumulative Cash Burn ($508,300) ($2,357,800) ($4,687,000) ($10,016,600) ($10,016,600)

P A G E 1 0 2

2005 Quarterly Summary

SkyLink Airways Quarterly Profit & Loss, 2005 REVENUES 2005 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Total Business Class Revenues $0 $5,540,243 $10,434,353 $13,248,720 $29,223,315 Upgrade Revenues $0 $241,188 $267,456 $476,008 $984,652 Coach Class Revenues $0 $10,010,520 $16,921,560 $22,642,136 $49,574,216 Total Revenues $0 $15,791,951 $27,623,369 $36,366,864 $79,782,183 Less Commissions Paid $0 ($293,195) ($506,984) ($675,584) ($1,475,764) Net Revenues $0 $15,498,755 $27,116,384 $35,691,280 $78,306,419 DIRECT OPERATING COSTS 2005 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Total Fuel $0 $4,589,614 $7,381,205 $9,990,092 $21,960,910 Maintenance (Airframe) $0 $1,124,442 $1,811,053 $2,431,230 $5,366,725 Maintenance (Engine) $0 $1,339,147 $2,156,861 $2,895,457 $6,391,464 Maintenance (Line) $0 $175,305 $282,351 $379,039 $836,695 Landing Fees $0 $233,118 $378,468 $526,590 $1,138,176 Navigation Fees $0 $832,288 $1,340,502 $1,799,544 $3,972,333 Salaries, Flight Deck $0 $682,295 $1,154,970 $1,539,383 $3,376,648 Salaries, Cabin Crew $0 $314,246 $506,131 $679,451 $1,499,828 Flight & Cabin Crew Reserve Pay $0 $169,000 $325,000 $435,500 $929,500 Hotels, Local Accom. & Per Diems $0 $480,000 $624,000 $744,000 $1,848,000 Catering, Business Class $0 $120,900 $227,700 $303,600 $652,200 Catering, Coach-Class $0 $272,025 $459,825 $611,100 $1,342,950 Total Direct Operating Costs $0 $10,332,380 $16,648,065 $22,334,985 $49,315,430 DOC % of Net Revenues 66.7% 61.4% 62.6% 63.0% INDIRECT OPERATING COSTS 2005 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Total Aircraft Leases $279,294 $1,117,177 $1,815,413 $2,513,648 $5,725,532 Insurance (Hull + Liability) $113,333 $453,333 $736,667 $1,020,000 $2,323,333 Total Non-Capitalized Improvements $500,000 $250,000 $500,000 $500,000 $1,750,000 Total Indirect Op Costs $892,628 $1,820,510 $3,052,079 $4,033,648 $9,798,866 IOC % of Net Revenues #DIV/0! 11.7% 11.3% 11.3% 12.5% SG&A AND OVERHEAD 2005 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Total Salaries Management $1,545,000 $1,760,500 $2,135,500 $2,185,500 $7,626,500 Reservations $184,800 $237,600 $264,000 $343,200 $1,029,600 Local Mechanics & Airport Staff $180,000 $1,036,000 $1,158,000 $1,402,000 $3,776,000 Advertising & Public Relations $4,200,000 $3,100,000 $1,700,000 $1,700,000 $10,700,000 Brand Development & Design $75,000 $75,000 $45,000 $30,000 $225,000 Regulatory & Legal $300,000 $300,000 $300,000 $300,000 $1,200,000 Manuals $225,000 $75,000 $75,000 $75,000 $450,000 Certification and proving runs $250,000 $0 $0 $0 $250,000 Travel $120,000 $110,000 $105,000 $120,000 $455,000

P A G E 1 0 3

Training Mechanics $0 $10,000 $10,000 $10,000 $30,000 Reservations Agents $12,000 $0 $12,000 $15,000 $39,000 Flight Deck $1,420,000 $2,240,000 $1,600,000 $1,620,000 $6,880,000 Cabin Crew $220,000 $125,000 $200,000 $150,000 $695,000 Technology $872,200 $893,200 $731,100 $873,500 $3,370,000 Administrative Offices $505,000 $480,000 $480,000 $480,000 $1,945,000 Hangar Space $137,500 $187,500 $300,000 $300,000 $925,000 Airport & Gate Rental $0 $1,269,428 $1,371,622 $1,449,103 $4,090,153 Total SG&A $10,246,500 $11,899,228 $10,487,222 $11,053,303 $43,686,253 SG&A % of Net Revenues #DIV/0! 76.8% 38.7% 31.0% 55.8% TOTAL REVENUES $0 $15,498,755 $27,116,384 $35,691,280 $78,306,419 TOTAL EXPENSES $11,139,128 $24,052,118 $30,187,367 $37,421,937 $102,800,548 EBITDA ($11,139,128) ($8,553,362) ($3,070,983) ($1,730,657) ($24,494,129) Extraordinary Items $0 $0 $0 $0 $0 EBITDA after Items ($11,139,128) ($8,553,362) ($3,070,983) ($1,730,657) ($24,494,129) % Before-Tax Margin #DIV/0! -55.19% -11.33% -4.85% -31.28% Cumulative Cash Burn ($21,155,728) ($29,709,090) ($32,780,073) ($34,510,729) ($34,510,729) KEY OPERATIONAL DATA 2005 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Total Total Aircraft, EOQ 0 3 4 6 6 Systemwide Passengers, Quarter 0 60,450 103,350 137,400 301,200 Revenue Passenger Miles 0 224,598,000 397,075,500 483,719,400 1,105,392,900 Available Seat Miles 0 318,017,084 521,456,132 695,867,780 1,535,340,996 Systemwide Load Factor #DIV/0! 70.6% 76.1% 69.5% 72.0% Block Hours Flown 0 3,292 5,301 7,117 15,710 Average Utilization per Day 0.00 15.52 15.72 14.52 11.44 RASM #DIV/0! $0.049 $0.052 $0.051 $0.051 CASM (fully loaded) #DIV/0! $0.076 $0.058 $0.054 $0.067 Revenue per Block Hour #DIV/0! $4,709 $5,115 $5,015 $4,985 Cost per Block Hour #DIV/0! $7,307 $5,694 $5,258 $6,544

P A G E 1 0 4


SkyLink Airways Quarterly Profit & Loss, 2006 REVENUES 2006 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Total Business Class Revenues $18,286,774 $39,557,556 $60,250,077 $63,125,862 $181,220,269 Upgrade Revenues $501,082 $1,153,006 $1,348,936 $1,838,476 $4,841,499 Coach Class Revenues $32,149,830 $66,801,307 $98,931,376 $105,185,653 $303,068,166 Total Revenues $50,937,686 $107,511,869 $160,530,389 $170,149,991 $489,129,935 Less Commissions Paid ($966,757) ($1,916,878) ($2,731,082) ($2,901,122) ($8,515,838) Net Revenues $49,970,929 $105,594,991 $157,799,307 $167,248,869 $480,614,096 DIRECT OPERATING COSTS 2006 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Total Fuel $12,169,456 $25,939,765 $38,871,786 $45,738,686 $122,719,693 Maintenance (Airframe) $2,947,978 $5,516,469 $8,046,543 $9,354,852 $25,865,842 Maintenance (Engine) $3,493,445 $5,607,833 $7,658,183 $8,568,834 $25,328,295 Maintenance (Line) $465,186 $1,168,195 $1,768,378 $2,081,505 $5,483,264 Landing Fees $635,237 $1,186,098 $1,684,255 $1,900,362 $5,405,952 Navigation Fees $2,183,339 $4,155,436 $6,166,666 $7,247,018 $19,752,459 Salaries, Flight Deck $1,909,707 $3,730,422 $5,602,872 $6,619,120 $17,862,120 Salaries, Cabin Crew $837,901 $1,931,102 $2,966,192 $3,535,968 $9,271,162 Flight & Cabin Crew Reserve Pay $87,750 $100,750 $149,500 $191,750 $529,750 Hotels, Local Accom. & Per Diems $888,000 $1,584,000 $2,088,000 $2,424,000 $6,984,000 Catering, Business Class $392,650 $777,875 $1,127,475 $1,122,950 $3,420,950 Catering, Coach-Class $812,963 $1,563,206 $2,239,531 $2,225,438 $6,841,138 Total Direct Operating Costs $26,823,610 $53,261,150 $78,369,382 $91,010,482 $249,464,624 DOC % of Net Revenues 53.7% 50.4% 49.7% 54.4% 51.9% INDIRECT OPERATING COSTS 2006 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Total Aircraft Leases $5,030,471 $14,505,055 $21,111,530 $25,104,212 $65,751,268 Insurance (Hull + Liability) $1,501,667 $3,052,917 $4,477,917 $5,145,417 $14,177,917

Total Non-Capitalized Improvements $750,000 $1,750,000 $750,000 $500,000 $3,750,000

Total Indirect Op Costs $7,282,138 $19,307,972 $26,339,446 $30,749,628 $83,679,184 IOC % of Net Revenues 14.6% 18.3% 16.7% 18.4% 17.4% SG&A AND OVERHEAD 2006 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Total Salaries Management $1,993,500 $2,040,000 $2,100,000 $2,140,000 $8,273,500 Reservations $784,000 $1,120,000 $1,428,000 $1,512,000 $4,844,000 Local Mechanics & Airport Staff $1,768,000 $2,500,000 $3,171,000 $3,354,000 $10,793,000 Advertising & Public Relations $2,850,000 $3,650,000 $2,850,000 $2,650,000 $12,000,000 Brand Development & Design $75,000 $75,000 $75,000 $75,000 $300,000 Regulatory & Legal $600,000 $600,000 $600,000 $600,000 $2,400,000 Manuals $150,000 $150,000 $150,000 $150,000 $600,000 Certification and proving runs $0 $0 $0 $0 $0 Travel $225,000 $225,000 $225,000 $225,000 $900,000

P A G E 1 0 5

Training Mechanics $30,000 $40,000 $20,000 $0 $90,000 Reservations Agents $21,000 $28,000 $14,000 $0 $63,000 Flight Deck $3,120,000 $10,620,000 $4,100,000 $3,140,000 $20,980,000 Cabin Crew $365,000 $1,180,000 $500,000 $380,000 $2,425,000 Technology $1,415,600 $2,024,700 $1,507,000 $1,501,000 $6,448,300 Administrative Offices $907,500 $907,500 $907,500 $907,500 $3,630,000 Hangar Space $266,250 $266,250 $315,000 $315,000 $1,162,500 Airport & Gate Rental $1,778,372 $2,478,840 $2,911,270 $3,018,654 $10,187,136 Total SG&A $16,349,222 $27,905,290 $20,873,770 $19,968,154 $85,096,436 SG&A % of Net Revenues 32.7% 26.4% 13.2% 11.9% 17.7% TOTAL REVENUES $49,970,929 $105,594,991 $157,799,307 $167,248,869 $480,614,096 TOTAL EXPENSES $50,454,970 $100,474,412 $125,582,599 $141,728,264 $418,240,245 EBITDA ($484,042) $5,120,579 $32,216,708 $25,520,605 $62,373,851 Extraordinary Items $0 $0 $0 $0 $0 EBITDA after Items ($484,042) $5,120,579 $32,216,708 $25,520,605 $62,373,851 % Before-Tax Margin -0.97% 4.85% 20.42% 15.26% 12.98% Cumulative Cash Burn KEY OPERATIONAL DATA 2006 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Total Total Aircraft, EOQ 8 17 19 21 21 Systemwide Passengers, Quarter 182,225 351,535 504,280 501,235 1,539,275 Revenue Passenger Miles 638,024,950 1,387,151,780 2,117,138,465 2,178,624,880 6,320,940,075 Available Seat Miles 845,498,499 1,713,319,088 2,545,530,867 2,986,852,413 8,091,200,867 Systemwide Load Factor 75.5% 81.0% 83.2% 72.9% 78.1% Block Hours Flown 8,626 15,982 22,904 26,319 73,831 Average Utilization per Day 13.10 13.46 13.84 13.84 13.56 RASM $0.059 $0.062 $0.062 $0.056 $0.059 CASM (fully loaded) $0.060 $0.059 $0.049 $0.047 $0.052 Revenue per Block Hour $5,793 $6,607 $6,890 $6,355 $6,510 Cost per Block Hour $5,849 $6,287 $5,483 $5,385 $5,665

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SkyLink Airways Quarterly Profit & Loss, 2007 REVENUES 2007 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Total Business Class Revenues $67,265,963 $93,009,839 $100,918,173 $100,194,222 $361,388,198 Upgrade Revenues $2,158,866 $3,145,906 $2,942,243 $4,601,960 $12,848,975 Coach Class Revenues $116,727,423 $162,475,375 $175,872,485 $187,184,745 $642,260,028 Total Revenues $186,152,251 $258,631,120 $279,732,901 $291,980,927 $1,016,497,201 Less Commissions Paid ($3,192,755) ($4,285,387) ($4,676,559) ($4,961,665) ($17,116,366) Net Revenues $182,959,496 $254,345,734 $275,056,342 $287,019,262 $999,380,835 DIRECT OPERATING COSTS 2007 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Total Fuel $50,792,930 $69,191,119 $71,883,124 $81,296,212 $273,163,386 Maintenance (Airframe) $10,258,379 $13,632,014 $14,192,956 $15,895,819 $53,979,169 Maintenance (Engine) $9,252,258 $11,960,120 $12,504,839 $13,842,803 $47,560,019 Maintenance (Line) $2,352,510 $3,295,915 $3,420,691 $3,907,223 $12,976,339 Landing Fees $2,084,191 $2,834,482 $2,947,898 $3,344,984 $11,211,555 Navigation Fees $7,942,469 $10,539,375 $10,965,245 $12,277,505 $41,724,593 Salaries, Flight Deck $7,305,983 $9,755,534 $10,182,345 $11,460,530 $38,704,392 Salaries, Cabin Crew $3,978,828 $5,452,648 $5,659,508 $6,415,382 $21,506,366 Flight & Cabin Crew Reserve Pay $373,750 $484,250 $507,000 $555,750 $1,920,750 Hotels, Local Accom. & Per Diems $2,544,000 $3,232,800 $3,373,200 $3,853,200 $13,003,200 Catering, Business Class $1,224,300 $1,729,113 $1,880,625 $1,899,000 $6,733,038 Catering, Coach-Class $2,448,250 $3,533,822 $3,853,744 $3,937,050 $13,772,866 Total Direct Operating Costs $100,557,848 $135,641,191 $141,371,176 $158,685,458 $536,255,673 DOC % of Net Revenues 55.0% 53.3% 51.4% 55.3% 53.7% INDIRECT OPERATING COSTS 2007 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Total Aircraft Leases $30,873,385 $37,446,324 $38,634,911 $43,879,615 $150,834,235 Insurance (Hull + Liability) $6,002,500 $7,050,833 $7,263,333 $8,042,500 $28,359,167

Total Non-Capitalized Improvements $1,500,000 $500,000 $500,000 $500,000 $3,000,000

Total Indirect Op Costs $38,375,885 $44,997,157 $46,398,245 $52,422,115 $182,193,402 IOC % of Net Revenues 21.0% 17.7% 16.9% 18.3% 18.2% SG&A AND OVERHEAD 2007 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Total Salaries Management $2,304,000 $2,274,000 $2,354,000 $2,454,000 $9,386,000 Reservations $1,288,000 $1,764,000 $1,848,000 $1,932,000 $6,832,000 Local Mechanics & Airport Staff $3,415,000 $3,903,000 $4,086,000 $4,269,000 $15,673,000 Advertising & Public Relations $3,450,000 $2,650,000 $2,650,000 $2,650,000 $11,400,000 Brand Development & Design $75,000 $75,000 $75,000 $75,000 $300,000 Regulatory & Legal $750,000 $750,000 $750,000 $750,000 $3,000,000 Manuals $180,000 $180,000 $180,000 $180,000 $720,000 Certification and proving runs $0 $0 $0 $0 $0 Travel $225,000 $225,000 $225,000 $225,000 $900,000

P A G E 1 0 7

Training Mechanics $20,000 $20,000 $10,000 $0 $50,000 Reservations Agents $14,000 $14,000 $7,000 $0 $35,000 Flight Deck $7,980,000 $4,040,000 $3,140,000 $3,040,000 $18,200,000 Cabin Crew $485,000 $430,000 $430,000 $300,000 $1,645,000 Technology $2,726,525 $2,119,350 $2,297,250 $2,306,325 $9,449,450 Administrative Offices $1,147,500 $1,147,500 $1,147,500 $1,147,500 $4,590,000 Hangar Space $495,000 $495,000 $495,000 $495,000 $1,980,000 Airport & Gate Rental $3,248,995 $3,781,887 $3,913,560 $4,136,395 $15,080,837 Total SG&A $27,804,020 $23,868,737 $23,608,310 $23,960,220 $99,241,287 SG&A % of Net Revenues 15.2% 9.4% 8.6% 8.3% 9.9% TOTAL REVENUES $182,959,496 $254,345,734 $275,056,342 $287,019,262 $999,380,835 TOTAL EXPENSES $166,737,753 $204,507,085 $211,377,731 $235,067,792 $817,690,362 EBITDA $16,221,743 $49,838,648 $63,678,612 $51,951,470 $181,690,473 Extraordinary Items $0 $0 $0 $0 $0 EBITDA after Items $16,221,743 $49,838,648 $63,678,612 $51,951,470 $181,690,473 % Before-Tax Margin 8.87% 19.59% 23.15% 18.10% 18.18% Cumulative Cash Burn KEY OPERATIONAL DATA 2007 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Total Total Aircraft, EOQ 25 30 30 34 34 Systemwide Passengers, Quarter 550,865 793,220 864,780 882,360 3,091,225 Revenue Passenger Miles 2,405,418,120 3,459,518,635 3,777,082,190 3,783,626,780 13,425,645,725 Available Seat Miles 3,296,651,343 4,432,687,282 4,612,300,610 5,189,949,500 17,531,588,736 Systemwide Load Factor 73.0% 78.0% 81.9% 72.9% 76.6% Block Hours Flown 28,909 38,551 40,165 45,030 152,655 Average Utilization per Day 13.93 14.61 14.55 14.69 14.44 RASM $0.055 $0.057 $0.060 $0.055 $0.057 CASM (fully loaded) $0.051 $0.046 $0.046 $0.045 $0.047 Revenue per Block Hour $6,329 $6,598 $6,848 $6,374 $6,547 Cost per Block Hour $5,768 $5,305 $5,263 $5,220 $5,356

P A G E 1 0 8


SkyLink Airways Quarterly Profit & Loss, 2008 REVENUES 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Total Business Class Revenues $107,131,883 $128,681,043 $143,140,308 $134,276,662 $513,229,896 Upgrade Revenues $4,938,782 $5,066,938 $5,655,353 $7,081,330 $22,742,402 Coach Class Revenues $196,012,714 $230,317,848 $258,600,992 $250,699,605 $935,631,158 Total Revenues $308,083,378 $364,065,829 $407,396,652 $392,057,597 $1,471,603,456 Less Commissions Paid ($5,222,039) ($6,135,863) ($6,938,069) ($6,696,395) ($24,992,366) Net Revenues $302,861,339 $357,929,966 $400,458,583 $385,361,202 $1,446,611,090 DIRECT OPERATING COSTS 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Total Fuel $87,061,341 $97,762,354 $105,015,308 $110,897,936 $400,736,939 Maintenance (Airframe) $16,923,455 $18,868,143 $20,161,261 $21,223,826 $77,176,686 Maintenance (Engine) $14,635,522 $16,163,491 $17,194,222 $18,029,094 $66,022,330 Maintenance (Line) $4,207,730 $4,763,355 $5,125,921 $5,429,511 $19,526,517 Landing Fees $3,600,281 $4,030,921 $4,427,543 $4,686,583 $16,745,328 Navigation Fees $13,069,119 $14,567,734 $15,564,540 $16,383,374 $59,584,768 Salaries, Flight Deck $12,233,882 $13,700,997 $14,563,703 $15,319,003 $55,817,585 Salaries, Cabin Crew $6,932,620 $7,802,628 $8,374,123 $8,849,490 $31,958,861 Flight & Cabin Crew Reserve Pay $601,250 $672,750 $711,750 $750,750 $2,736,500 Hotels, Local Accom. & Per Diems $4,113,600 $4,462,800 $4,695,600 $4,935,600 $18,207,600 Catering, Business Class $2,035,563 $2,426,163 $2,741,925 $2,602,200 $9,805,850 Catering, Coach-Class $4,205,309 $4,955,559 $5,636,419 $5,381,250 $20,178,538 Total Direct Operating Costs $169,619,673 $190,176,895 $204,212,315 $214,488,617 $778,497,501 DOC % of Net Revenues 56.0% 53.1% 51.0% 55.7% 53.8% INDIRECT OPERATING COSTS 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Total Aircraft Leases $49,124,318 $52,795,611 $58,564,784 $59,613,725 $220,098,439 Insurance (Hull + Liability) $8,821,667 $9,367,083 $10,224,167 $10,380,000 $38,792,917 Total Non-Capitalized Improvements $1,250,000 $250,000 $1,000,000 $0 $2,500,000 Total Indirect Op Costs $59,195,985 $62,412,694 $69,788,951 $69,993,725 $261,391,355 IOC % of Net Revenues 19.5% 17.4% 17.4% 18.2% 18.1% SG&A AND OVERHEAD 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Total Salaries Management $2,751,000 $2,831,000 $3,031,000 $3,173,000 $11,786,000 Reservations $1,610,000 $1,932,000 $1,932,000 $1,932,000 $7,406,000 Local Mechanics & Airport Staff $4,269,000 $4,269,000 $4,269,000 $4,269,000 $17,076,000 Advertising & Public Relations $3,250,000 $2,450,000 $3,050,000 $2,250,000 $11,000,000 Brand Development & Design $75,000 $75,000 $75,000 $75,000 $300,000 Regulatory & Legal $750,000 $750,000 $750,000 $750,000 $3,000,000 Manuals $180,000 $180,000 $180,000 $180,000 $720,000 Certification and proving runs $0 $0 $0 $0 $0 Travel $225,000 $225,000 $225,000 $225,000 $900,000

P A G E 1 0 9

Training Mechanics $0 $0 $0 $0 $0 Reservations Agents $0 $0 $0 $0 $0 Flight Deck $6,340,000 $3,020,000 $3,740,000 $560,000 $13,660,000 Cabin Crew $0 $380,000 $645,000 $0 $1,025,000 Technology $3,070,700 $2,538,600 $2,799,750 $2,536,500 $10,945,550 Administrative Offices $1,147,500 $1,147,500 $1,147,500 $1,147,500 $4,590,000 Hangar Space $720,000 $720,000 $720,000 $720,000 $2,880,000 Airport & Gate Rental $4,260,429 $4,354,012 $4,432,116 $4,556,044 $17,602,601 Total SG&A $29,249,879 $25,544,862 $27,708,116 $23,124,794 $105,627,651 SG&A % of Net Revenues 9.7% 7.1% 6.9% 6.0% 7.3% TOTAL REVENUES $302,861,339 $357,929,966 $400,458,583 $385,361,202 $1,446,611,090 TOTAL EXPENSES $258,065,537 $278,134,452 $301,709,382 $307,607,137 $1,145,516,507 EBITDA $44,795,802 $79,795,514 $98,749,201 $77,754,066 $301,094,583 Extraordinary Items $0 $0 $0 $0 $0 EBITDA after Items $44,795,802 $79,795,514 $98,749,201 $77,754,066 $301,094,583 % Before-Tax Margin 14.79% 22.29% 24.66% 20.18% 20.81% Cumulative Cash Burn KEY OPERATIONAL DATA 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Total Total Aircraft, EOQ 38 40 43 44 44 Systemwide Passengers, Quarter 942,840 1,112,420 1,264,380 1,206,360 4,526,000 Revenue Passenger Miles 3,995,879,570 4,792,379,710 5,355,895,890 5,071,475,580 19,215,630,750 Available Seat Miles 5,545,090,528 6,227,756,288 6,690,134,830 7,068,890,130 25,531,871,777 Systemwide Load Factor 72.1% 77.0% 80.1% 71.7% 75.3% Block Hours Flown 47,971 53,527 57,217 60,253 218,968 Average Utilization per Day 14.94 14.96 14.82 14.88 14.90 RASM $0.055 $0.057 $0.060 $0.055 $0.057 CASM (fully loaded) $0.047 $0.045 $0.045 $0.044 $0.045 Revenue per Block Hour $6,313 $6,687 $6,999 $6,396 $6,606 Cost per Block Hour $5,380 $5,196 $5,273 $5,105 $5,231

P A G E 1 1 0


SkyLink Airways Quarterly Profit & Loss, 2009 REVENUES 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Total Business Class Revenues $140,025,007 $165,001,898 $179,415,586 $164,549,559 $648,992,050 Upgrade Revenues $6,890,858 $7,115,558 $6,663,543 $7,795,683 $28,465,642 Coach Class Revenues $257,290,484 $291,827,146 $314,098,183 $285,869,582 $1,149,085,395 Total Revenues $404,206,349 $463,944,601 $500,177,313 $458,214,824 $1,826,543,087 Less Commissions Paid ($6,901,134) ($7,845,239) ($8,503,503) ($7,722,241) ($30,972,117) Net Revenues $397,305,215 $456,099,362 $491,673,810 $450,492,582 $1,795,570,970 DIRECT OPERATING COSTS 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Total Fuel $113,523,424 $125,561,115 $129,789,897 $130,641,127 $499,515,563 Maintenance (Airframe) $21,697,597 $23,950,915 $24,765,943 $24,935,435 $95,349,890 Maintenance (Engine) $18,333,442 $20,044,133 $20,621,217 $20,715,379 $79,714,171 Maintenance (Line) $5,558,762 $6,157,145 $6,342,767 $6,371,016 $24,429,690 Landing Fees $4,775,302 $5,207,624 $5,360,202 $5,389,318 $20,732,446 Navigation Fees $16,771,533 $18,554,095 $19,230,446 $19,385,052 $73,941,125 Salaries, Flight Deck $15,730,026 $17,516,079 $18,145,640 $18,271,579 $69,663,325 Salaries, Cabin Crew $9,142,699 $10,147,357 $10,503,452 $10,577,736 $40,371,244 Flight & Cabin Crew Reserve Pay $760,500 $854,750 $880,750 $884,000 $3,380,000 Hotels, Local Accom. & Per Diems $5,124,000 $5,476,800 $5,620,800 $5,644,800 $21,866,400 Catering, Business Class $2,697,913 $3,083,763 $3,332,025 $3,021,525 $12,135,225 Catering, Coach-Class $5,552,972 $6,214,159 $6,668,894 $6,043,294 $24,479,319 Total Direct Operating Costs $219,668,168 $242,767,935 $251,262,033 $251,880,261 $965,578,397 DOC % of Net Revenues 55.3% 53.2% 51.1% 55.9% 53.8% INDIRECT OPERATING COSTS 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Total Aircraft Leases $65,501,207 $69,493,889 $72,555,939 $48,370,626 $255,921,661 Insurance (Hull + Liability) $11,403,333 $12,070,833 $12,748,750 $8,499,167 $44,722,083 Total Non-Capitalized Improvements $1,250,000 $250,000 $250,000 ($12,750,000) ($11,000,000) Total Indirect Op Costs $78,154,541 $81,814,723 $85,554,689 $44,119,792 $289,643,744 IOC % of Net Revenues 19.7% 17.9% 17.4% 9.8% 16.1% SG&A AND OVERHEAD 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Total Salaries Management $3,454,000 $3,604,000 $3,804,000 $3,804,000 $14,666,000 Reservations $1,638,000 $2,016,000 $2,016,000 $2,016,000 $7,686,000 Local Mechanics & Airport Staff $620,000 $636,000 $636,000 $636,000 $2,528,000 Advertising & Public Relations $3,250,000 $2,450,000 $2,450,000 $2,250,000 $10,400,000 Brand Development & Design $75,000 $75,000 $75,000 $75,000 $300,000 Regulatory & Legal $750,000 $750,000 $750,000 $750,000 $3,000,000 Manuals $180,000 $180,000 $180,000 $180,000 $720,000 Certification and proving runs $0 $0 $0 $0 $0 Travel $225,000 $225,000 $225,000 $225,000 $900,000

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Training Mechanics $10,000 $0 $0 $0 $10,000 Reservations Agents $7,000 $0 $0 $0 $7,000 Flight Deck $7,260,000 $3,060,000 $1,420,000 $0 $11,740,000 Cabin Crew $0 $370,000 $175,000 $0 $545,000 Technology $3,621,800 $2,966,850 $2,947,875 $2,904,675 $12,441,200 Administrative Offices $1,440,000 $1,147,500 $1,147,500 $1,147,500 $4,882,500 Hangar Space $810,000 $720,000 $720,000 $720,000 $2,970,000 Airport & Gate Rental $4,260,429 $4,354,012 $4,432,116 $4,556,044 $17,602,601 Total SG&A $27,601,229 $22,554,362 $20,978,491 $19,264,219 $90,398,301 SG&A % of Net Revenues 6.9% 4.9% 4.3% 4.3% 5.0% TOTAL REVENUES $397,305,215 $456,099,362 $491,673,810 $450,492,582 $1,795,570,970 TOTAL EXPENSES $325,423,937 $347,137,020 $357,795,212 $315,264,273 $1,345,620,443 EBITDA $71,881,278 $108,962,342 $133,878,598 $135,228,310 $449,950,527 Extraordinary Items $0 $0 $0 $0 $0 EBITDA after Items $71,881,278 $108,962,342 $133,878,598 $135,228,310 $449,950,527 % Before-Tax Margin 18.09% 23.89% 27.23% 30.02% 25.06% Cumulative Cash Burn KEY OPERATIONAL DATA 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Total Total Aircraft, EOQ 48 50 51 51 51 Systemwide Passengers, Quarter 1,247,250 1,402,630 1,506,320 1,365,015 5,521,215 Revenue Passenger Miles 5,250,721,860 6,112,766,575 6,633,291,150 5,999,827,350 23,996,606,935 Available Seat Miles 7,263,011,653 8,054,396,938 8,340,932,422 8,400,144,193 32,058,485,206 Systemwide Load Factor 72.3% 75.9% 79.5% 71.4% 74.9% Block Hours Flown 61,509 67,737 69,847 70,223 269,317 Average Utilization per Day 14.96 15.09 14.99 14.97 15.00 RASM $0.055 $0.057 $0.059 $0.054 $0.056 CASM (fully loaded) $0.045 $0.043 $0.043 $0.038 $0.042 Revenue per Block Hour $6,459 $6,733 $7,039 $6,415 $6,667 Cost per Block Hour $5,291 $5,125 $5,123 $4,489 $4,996

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Sample Fares: Competition vs. SkyLink Airways

Short-Notice Business Trip: Depart January 20th, Return January 22nd Short-Notice Leisure Trip: Depart January 20th, Return January 27th Medium-Notice Business Trip: Depart January 27th, Return January 29th Medium-Notice Leisure Trip: Depart January 27th, Return February 3rd Advance Notice Business Trip: Depart February 10th, Return February 12th Advance Notice Leisure Trip: Depart February 10th, Return February 17th Distant Leisure Trip: Depart June 10th, Return June 17th All Fares Priced on Orbitz.com, January 18th

Orlando (MCO) to London (LGW)

US CO NW DL AA LCC Sector SkyLink Sector Total Fare Short-Notice Business Trip $1,608 $2,795 $1,617 $1,664 $1,617 $330 $680 $1,010

Short-Notice Leisure Trip $1,126 $816 $1,656 $1,611 $1,617 $248 $680 $928 Medium-Notice Business Trip $1,608 $1,605 $1,617 $1,664 $1,617 $167 $400 $567

Medium-Notice Leisure Trip $536 $621 $547 $545 $535 $167 $400 $567 Advance Notice Business Trip $1,608 $1,605 $1,617 $1,664 $1,617 $167 $260 $427

Advance Notice Leisure Trip $536 $531 $529 $545 $535 $167 $260 $427 Distant Leisure Trip $886 $1,382 $925 $935 $895 $167 $260 $427

Tampa (TPA) to London (LGW)




Advance Notice Leisure Trip $532 $543 $530 $546 $536 $168 $260 $428 Distant Leisure Trip $882 $893 $926 $936 $896 $168 $260 $428

Las Vegas (LAS) to London (LGW)

US CO NW DL AA LCC Sector SkyLink Sector Total Fare Short-Notice Business Trip $2,472 $1,867 $1,984 $2,120 $2,551 $218 $680 $898



Advance Notice Leisure Trip $617 $565 $471 $626 $527 $218 $260 $478 Distant Leisure Trip $1,027 $1,011 $1,066 $1,116 $1,036 $218 $260 $478

New Orleans (MSY) to London (LGW)

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Short-Notice Leisure Trip $2,049 $2,354 $2,578 $1,990 $2,616 $442 $680 $1,122 Medium-Notice Business Trip $2,049 $2,094 $2,578 $1,907 $2,077 $380 $400 $780


Advance Notice Leisure Trip $593 $557 $540 $650 $650 $180 $260 $440 Distant Leisure Trip $933 $971 $1,060 $1,030 $1,060 $180 $260 $440

Richmond (RIC) to London (LGW)

US CO NW DL AA SkyLink "Limo" SkyLink Sector Total Fare Short-Notice Business Trip $1,666 $2,218 $2,183 $2,507 $2,429 $100 $680 $780


Medium-Notice Leisure Trip $619 $625 $722 $640 $688 $100 $400 $500 Advance Notice Business Trip $1,666 $2,218 $209 $2,001 $2,429 $100 $260 $360


Milwaukee (MKE) to London (LGW)

US CO NW DL AA LCC Sector SkyLink Sector Total Fare Short-Notice Business Trip $1,772 $1,854 $2,173 $1,885 $2,377 $277 $680 $957


Medium-Notice Leisure Trip $581 $593 $624 $636 $662 $127 $400 $527 Advance Notice Business Trip $1,723 $184 $1,998 $1,841 $2,377 $127 $260 $387


Dayton Ohio (DAY) to London (LGW)

US CO NW DL AA LCC Sector SkyLink Total Fare Short-Notice Business Trip $2,441 $1,942 $2,220 $2,038 N/A $272 $680 $952

Short-Notice Leisure Trip $2,441 $1,060 $2,405 $1,953 N/A $254 $680 $934 Medium-Notice Business Trip $1,726 $1,942 $2,071 $1,931 $2,890 $196 $400 $596

Medium-Notice Leisure Trip $584 $650 $737 $664 $766 $196 $400 $596 Advance Notice Business Trip $1,726 $1,942 $196 $1,897 $2,090 $196 $260 $456


Dallas/Fort Worth (DFW) to London (LGW)


Short-Notice Leisure Trip $1,897 $1,893 $1,906 $1,880 $1,892 $369 $680 $1,049 Medium-Notice Business Trip $1,897 $1,829 $1,906 $1,907 $1,892 $198 $400 $598


Advance Notice Leisure Trip $547 $543 $535 $556 $532 $198 $260 $458 Distant Leisure Trip $927 $923 $966 $976 $922 $198 $260 $458

St. Louis Lambert (STL) to London (LGW)

US CO NW DL AA LCC Sector SkyLink Sector Total Fare

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Short-Notice Business Trip $1,971 $2,027 $1,798 $1,748 $2,029 $330 $680 $1,010 Short-Notice Leisure Trip $1,971 $1,669 $1,798 $1,698 $2,029 $280 $680 $960



Distant Leisure Trip $1,293 $1,007 $1,056 $1,056 $1,013 $160 $260 $420

Washington Dulles (IAD) to Paris Charles de Gaulle (CDG)

US CO NW DL AA SkyLink Sector Total Fare Short-Notice Business Trip $2,448 $2,307 N/A $2,448 $2,462 $680 $680

Short-Notice Leisure Trip $2,448 $2,307 N/A $2,448 $2,462 $680 $680 Medium-Notice Business Trip $2,596 $2,449 $2,616 $2,596 $2,616 $400 $400

Medium-Notice Leisure Trip $384 $516 $746 $505 $509 $400 $400 Advance Notice Business Trip $2,448 $2,307 $2,454 $2,455 $2,462 $260 $260

Advance Notice Leisure Trip $562 $516 $2,454 $505 $509 $260 $260 Distant Leisure Trip $1,299 $923 $1,140 $1,179 $1,029 $260 $260

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Sample Profitability Analysis Los Angeles to London/Stansted April 2006, 70% load factor A340-300E, Premium Configuration

2006 Apr-06 2006 Apr-06 Days in Month 30 Active? Yes

Active? Yes Days in Month 30 Chosen Equipment A343 Monthly Frequencies 30

First Seats 48 Aircraft Assigned A343 Coach Seats 190 Distance 5,480

Weekly Frequencies 7 Block Time (h.dec) 10.50 Seats/Month 7,140 STN Turn Time 2.00

% of Aircraft Required 96% Business with Bunk $1,999 Total Fuel Used (lbs) 171,827 # of Seats Booked 22 Fuel Cost ($) $23,012.55

Maintenance (Airframe) $2,625.00 Business Standard $1,299 Maintenance (Engine) $1,837.50 # of Seats Booked 5 Maintenance (Line) $682.50

STN Landing Fee Rate $2.00 Discounted Business $699 Total Landing Fees $846.00

# of Seats Booked 6 Navigation Fees $3,743.59 Flight Crew Required 2

Upgrade Cost (at Gate) $299 Cabin Crew Required 8 # of Seats 7 Flight Crew Cost $1,773.33

Cabin Crew Cost $1,481.67 Premium Economy $499 First Class Catering $660.00 # of Seats Booked 0 Coach Class Catering $670.00

Total Direct Op Cost $37,332.14 Discounted Premium Econ. $329 Aircraft Lease Cost $16,895.01

# of Seats Booked 0 Insurance Cost $3,679.23 Total Indirect Op Cost $20,574.24

Standard Economy $299 Total Business Revenue $54,667.00 # of Seats Booked 30 Total Upgrade Revenue $2,093.00

Total Economy Revenue $24,466.00 Discounted Standard Econ. $149 Commissions Paid $1,082.77

# of Seats Booked 104 Total DOC $37,332.14 Total IOC $20,574.24

2006 Average C Pax/Day 33 Contribution $22,236.85 2006 C Load Factor 68.8% Monthly Contribution $667,105.36

2006 Y Pax/Day 134 RASM (gross) $0.062 2006 Y Load Factor 70.5% CASM (no SG&A) $0.044

Total Business Revenue $54,667 Total Flight Upgrade Revenue $2,093

Total Economy Revenue $24,466

Total Flight Revenue $81,226 Total Flight Costs $58,989

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Scenario Analysis:

Major carriers dump inventory into SkyLink markets

Example: Los Angeles to London SkyLink Equipment: A330-300, Standard Configuration

2005 Jun-05 Jul-05 Aug-05 2005 Jun-05 Jul-05 Aug-05

Chosen Equipment A333 A333 A333 Active? Yes Yes Yes Business Seats 48 48 48 Days in Month 30 31 31 Economy Seats 251 251 251 Monthly Frequencies 30 31 31

Weekly Frequencies 7 7 7 Aircraft Assigned A333 A333 A333 Distance 5,480 5,480 5,480

Business w/Bunk $999 $999 $999 Block Time (h.dec) 10.50 10.50 10.50 # of Seats Booked 6 6 6 STN Turn Time 2.00 2.00 2.00

% of Aircraft Required 96% 96% 96% Business Seat $799 $799 $799 Total Fuel Used (lbs) 149,931 149,931 149,931

# of Seats Booked 8 8 8 Fuel Cost ($) $20,080.06 $20,080.06 $20,080.06

Maintenance

(Airframe) $3,580.50 $3,580.50 $3,580.50 Business Seat (Discounted) $499 $499 $499 Maintenance (Engine) $3,339.00 $3,339.00 $3,339.00

# of Seats Booked 30 30 30 Maintenance (Line) $672.00 $672.00 $672.00

STN Landing Fee

Rate $2.00 $2.00 $2.00 Standard to Premium Upgrade $89 $89 $89 Total Landing Fees $824.40 $824.40 $824.40

# of Seats 10 10 10 Navigation Fees $3,648.01 $3,648.01 $3,648.01 Flight Crew Required 3 3 3

Premium Economy $399 $399 $399 Cabin Crew Required 8 8 8 # of Seats Booked 0 0 0 Flight Crew Cost $1,750.00 $1,750.00 $1,750.00

Cabin Crew Cost $1,458.33 $1,458.33 $1,458.33 Premium Economy (Discounted) $249 $249 $249 Business Catering $1,100.00 $1,100.00 $1,100.00

# of Seats Booked 25 25 25 Economy Catering $1,200.00 $1,200.00 $1,200.00 Total Direct Op Cost $37,652.30 $37,652.30 $37,652.30

Standard Economy $139 $139 $139 Aircraft Lease Cost $13,402.75 $12,970.41 $12,965.03 # of Seats Booked 100 100 100 Insurance Cost $3,695.77 $3,576.56 $3,575.07

Total Indirect Op Cost $17,098.53 $16,546.96 $16,540.11 Standard Economy (Discounted) $79 $79 $79 Business Revenue $27,356.00 $27,356.00 $27,356.00

# of Seats Booked 115 115 115 Upgrade Revenue $890.00 $890.00 $890.00 Economy Revenue $29,210.00 $29,210.00 $29,210.00

Average Business Passengers 44 44 44 Commissions Paid $1,014.42 $1,014.42 $1,014.42 Business Load Factor 91.7% 91.7% 91.7% Total DOC $37,652.30 $37,652.30 $37,652.30

Average Economy Passengers 240 240 240 Total IOC $17,098.53 $16,546.96 $16,540.11 Economy Load Factor 95.6% 95.6% 95.6% Flight Contribution $1,690.75 $2,242.32 $2,249.17

Total Business Revenue $27,356 $27,356 $27,356 Total Flight Upgrade Revenue $890 $890 $890 Monthly Contribution $50,722.56 $69,511.84 $69,724.36

Total Economy Revenue $29,210 $29,210 $29,210 RASM (gross) $0.035 $0.035 $0.035

Commissions/Flight Paid LCCs $1,014 $1,014 $1,014 CASM (no SG&A) $0.033 $0.033 $0.033

Average Business Fare: $622 $622 $622 Average Economy Fare: $122 $122 $122

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Scenario Analysis, Continued

Major legacies dump economy-class inventory into LAX-LON market while concurrently discounting business and first class services to rock-bottom levels.

Legacies lose between $3,000 and $30,000 on each flight depending on equipment chosen.

SkyLink is profitable.

CASM Pax Op Cost Revenue Profitability Disadvantage Delta 777-200 $0.046 276 $69,574.08 $53,036 -$16,538 $19,243

American 777-200 $0.047 233 $60,011.48 $44,773 -$15,238 $17,943 Continental 777-200 $0.037 283 $57,381.08 $54,381 -$3,000 $5,705

United 777-200 $0.042 277 $63,754.32 $53,228 -$10,526 $13,231 US Airways A330-300 $0.044 261 $62,932.32 $50,154 -$12,778 $15,484

Northwest 747-200 $0.049 403 $108,213.56 $77,441 -$30,773 $33,478

SkyLink A330-300 $0.033 298 $54,750.83 $57,456 $2,705

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SKYLINK AIRWAYS INC. - The MAXjet Archives · SKYLINK AIRWAYS INC. BUSINESS PLAN . ... Operations...

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