Wachovia FleetHandbook_7Sept05

Please see the disclosure appendix of this publication for certification and disclosure information

This report is available on WachoviaResearch.com and on Bloomberg WSPR

Executive Summary

Although the year started under dark clouds of uncertainty—United and US Airways in bankruptcy and at risk of liquidating—the North American aircraft fleet has persevered so far without shock. Air travel demand has been breaking new records, while financial distress at airlines has constrained their ability to add new aircraft. The number of aircraft in storage has continued to decline and firm demand around the world has meant that lease rates made significant gains.

If only all the news was good news. Significant uncertainties still loom, including potential bankruptcy filings at other legacy carriers, and the risk of a macro economic slowdown. These risks have been further exacerbated by Hurricane Katrina and its effects on fuel prices and the broader economy.

The North American Fleet Handbook is an overview of the recent climate in the North American aircraft market as well as the fleets and recent aircraft transactions of major airlines. On page 11, we look back at the United Airlines bankruptcy in an attempt to get closure on the topic.

Structured Products Research September 7, 2005

Commercial ABS

North American Fleet Handbook

Mark Heberle [email protected]

(704) 383-1936

Chris van Heerden [email protected]

(704) 715-8321

Contents Page Executive Summary 1 State of the Region 2 Composition of the Fleet 4 Lease Rates and Values Trend Up 4 Types under Stress 5 American Airlines 7 Continental Airlines 8 Delta Air Lines 9 Northwest Airlines 10 United Airlines 11 US Airways 14 Air Canada 15 America West 16 Independence Air 16 Southwest Airlines 16

North American Fleet Handbook September 7, 2005 STRUCTURED PRODUCTS RESEARCH

2

State of the Region Macro fundamentals for the North American aircraft market have been solid: aircraft values and lease rates are getting a boost from healthy GDP growth and unprecedented levels of passenger traffic. The 66.9 million revenue passenger miles traveled in July was the highest monthly level achieved in U.S. history while GDP expanded 3.6% year over year at June 30, 2005. Discounted air fares have been a significant demand driver. Exhibit 1: Yearly U.S. Passenger Air Traffic (revenue passenger miles)

500

520

540

560

580

600

620

640

660

680

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

mill

ion

Source: Air Transportation Association.

At the same time, new aircraft deliveries have been contained (Exhibit 2). By necessity, airlines have had to use capacity more efficiently, leading to the highest utilization levels ever seen in the U.S. when systemwide load factors reached 85% in July (Exhibit 3, page 3). To serve rocketing demand with limited new capacity coming on line, North American airline planes in storage have continued to decline (Exhibit 4, page 3). Exhibit 2: Aircraft Deliveries to North American Airlines

0

10

20

30

40

50

60

70

80

8/01

10/0

1

12/0

1

2/02

4/02

6/02

8/02

10/0

2

12/0

2

2/03

4/03

6/03

8/03

10/0

3

12/0

3

2/04

4/04

6/04

8/04

10/0

4

12/0

4

2/05

4/05

6/05

Source: Airclaims CASE database.

The 66.9 million revenue passenger miles traveled in the U.S. in July is the highest on book.

Fifty-six percent of 2005YTD deliveries have been RJs.


3

Exhibit 3: Load Factors—New Levels of Efficiency

55%

60%

65%

70%

75%

80%

85%

90%

Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec.

2000 2003 2004 2005

Source: Air Transportation Association.

Exhibit 4: North American Airline Jets in Storage Decline

0

100

200

300

400

500

600

700

8/02

10/0

2

12/0

2

2/03

4/03

6/03

8/03

10/0

3

12/0

3

2/04

4/04

6/04

8/04

10/0

4

12/0

4

2/05

4/05

6/05

8/05


With limited new capacity being added, airlines are maximizing asset use.

Few in-production types are in storage.


4

Composition of the Fleet The North American fleet is slimming. In-service widebodies have stayed flat over the past 15 years, whereas the number of narrowbodies has gained 23% and regional jets (RJs) expanded more than tenfold. Turboprops have declined by 37%. Exhibit 5: Trends in the North American Fleet Composition

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1990 1995 2000 2005

Widebodies Narrowbodies RJ Turboprop

Source: Airclaims CASE database and Wachovia Securities.

Lease Rates and Values Trend Up Lease rates have registered significant gains in the course of the past year for in-production types (Exhibit 6, page 5). The biggest gains have been made by long-range widebodies. In particular, the 767-300ER has registered a 45% improvement in one year, as the mid-vintage monthly rental went to $387,000 from $266,000.

The number of narrowbodies and RJs has increased significantly over the past 15 years.


5

Exhibit 6: Lease Rates Upward Bound

June 2005Monthly 3-Mo. 6-Mo. 12-Mo.

Type Lease Rate Change Change Change

Narrowbodies A310-300 $183,929 0% 0% 13%A320-200 $220,556 0% 8% 20%A321-100 $200,556 0% 8% 8%B737-300 $139,375 7% 12% 18%B737-400 $148,750 0% 3% 12%B737-500 $125,455 0% 0% 14%B737-700 $253,889 4% 12% 23%B737-800 $305,556 0% 7% 18%

Widebodies A330-200 $600,000 0% 8% 24%A340-300 $628,571 4% 12% 27%B747-400 $647,500 0% 0% 20%B747-400F $855,000 0% 4% 4%B767-200ER $196,667 0% 0% 13%B767-200ER $196,667 0% 0% 13%B767-300ER $386,750 12% 33% 45%

Out of Production B737-200A $25,500 0% 2% 2%B757-200 $154,348 3% 3% 10%B757-200PF/SF $257,778 0% 15% 15%DC-10-30 $70,000 0% 0% 0%DC-9-30 $15,000 -25% -25% -25%Fokker 100 $69,000 0% 0% 1%MD-11F $455,000 0% 12% 12%MD-82 $48,471 0% -15% -15%MD-83 $69,313 0% -13% -13%

Note: Lease rates and comparisons are average across all vintages.Source: Airclaims and Wachovia Securities. Types under Stress Lease rates have slipped mainly for those aircraft types at or near the end of their useful lives. This includes DC-9-30s, which were produced from 1966 to 1981, as well as 737-200s and 767-200s. MD-80s are a notable exception, as this type has seen declines even for late 1990s production models. For example, a 1998 MD-83 went from $110,000 in June 2004 to $90,000 a year later.

Double-digit gains have been the rule rather than the exception for in-production types.

MD-80s have underperformed.


6

Exhibit 7: Major Fleets as of August 2005 In Service Stored Current Total On Order Grand Total Average Age

American Airlines 708 36 744 56 800 12Delta Air Lines 487 44 531 55 586 12Southwest Airlines 436 1 437 74 511 8Northwest Airlines 430 52 482 50 532 19United Airlines 409 28 437 42 479 11Continental Airlines 340 26 366 53 419 9US Airways 267 12 279 52 331 11Air Canada 199 25 224 60 284 11

3,276 224 3,500 442 3,942Source: Airclaims CASE database. Major North American airlines have continued to trim their fleets, with total in-service aircraft declining to 3,276 in August 2005 from 3,370 a year earlier. So far in 2005, the biggest changes have been at United Airlines, which has phased out 37 active aircraft, and US Airways, which has eliminated 13 aircraft. On the other hand, Southwest continues to expand, adding 20 planes in eight months.


7

American Airlines American Airlines booked net income of $58 million in Q2 2005 as price increases offset higher fuel cost. Changes in the fleet are focused on outgoing aircraft, as there were no new deliveries in 2004, none scheduled for 2005 and only two 777s coming in 2006. So far in 2005, a leased MD-83 has been returned and seven 767-200s and two 767-200ERs were sold out of storage. The two sold 767-200ERs went to cargo conversions and the one remaining in storage is scheduled for sale and conversion in 2007. Exhibit 8: American Airlines Fleet

Variant In Service Stored Current Total On Order Grand Total Option Average Age

Airbus A300 600R (GE) 34 - 34 - 34 - 15Boeing (McDonnell-Douglas) MD-80 82 (MDC) 241 26 267 - 267 - 18Boeing (McDonnell-Douglas) MD-80 83 (MDC) 89 1 90 - 90 - 11Boeing (McDonnell-Douglas) MD-80 83 (SAIC) 5 - 5 - 5 - 12Boeing 737 (NG) 600/700/800 0 - - - 0 376Boeing 737 (NG) 800 77 - 77 47 124 - 5Boeing 757 200 (P&W) 19 - 19 - 19 - 7Boeing 757 200 (RR) 124 - 124 - 124 - 10Boeing 767 200 (GE) 0 2 2 - 2 - 21Boeing 767 200ER (GE) 16 1 17 - 17 - 18Boeing 767 300ER (GE) 58 - 58 - 58 - 11Boeing 777 200ER (RR) 45 - 45 9 54 - 4Fokker 100 0 6 6 - 6 - 13

708 36 744 56 800 376 12As of Aug. 11, 2005.Source: Airclaims CASE database. Exhibit 9: American Airlines Regional Service Providers

The majority of American Airlines’ regional service is provided by wholly owned subsidiaries, American Eagle and Executive Airlines, which fly 86% of the 352 active regional aircraft. Feeder lift is also provided by inde-pendents RegionsAir, Trans States Airlines and Chautauqua.

American Eagle Airlines

75%

Executive Airlines

11%

RegionsAir1%

Chautauqua Airlines

4%

Trans States Airlines

9%



8

Continental Airlines Continental registered net income of $100 million for Q2 2005 as the airline benefited from fuller planes and higher yields. Continental took delivery of a 737-800 in July, and six more are scheduled for the remainder of 2005. Also in the year, eight leased ex-ATA 757s are scheduled to be integrated beginning in Q3. The airline has retired its last two MD-82s with 24 MD-80s remaining in storage. Continental has placed a firm order for 10 787 aircraft with delivery starting in 2009.

Exhibit 10: Continental Airlines Fleet Variant In Service Stored CurrentTotal On Order Grand Total Option Average Age

Boeing (McDonnell-Douglas) DC-10 30 - 1 1 - 1 - 27Boeing (McDonnell-Douglas) MD-80 81 - 1 1 - 1 - 24Boeing (McDonnell-Douglas) MD-80 82 (MDC) - 20 20 - 20 - 19Boeing (McDonnell-Douglas) MD-80 83 (MDC) - 3 3 - 3 - 18Boeing 737 (CFMI) 300 51 - 51 - 51 - 18Boeing 737 (CFMI) 500 63 - 63 - 63 - 9Boeing 737 (NG) 700 31 - 31 15 46 23 6Boeing 737 (NG) 700 Winglets 5 - 5 - 5 - 6Boeing 737 (NG) 800 50 - 50 28 78 6 5Boeing 737 (NG) 800 Winglets 34 - 34 - 34 - 2Boeing 737 (NG) 900 12 - 12 3 15 - 3Boeing 757 200 (RR) 37 - 37 - 37 - 8Boeing 757 200 Winglets (RR) 4 - 4 - 4 - 10Boeing 757 300 (RR) 9 1 10 - 10 - 2Boeing 767 200ER (GE) 10 - 10 - 10 - 4Boeing 767 400ER (GE) 16 - 16 - 16 - 3Boeing 777 200ER (GE) 18 - 18 2 20 - 5Boeing 787 -8 (Engines Unannounced) - - - 10 10 -

340 26 366 53 419 34 9As of Aug. 11, 2005.Source: Airclaims CASE database.

Exhibit 11: Continental Airlines Regional Service Providers

Continental has been divesting its ownership in ExpressJet, its largest regional service provider, to fund its retire-ment plan. The active regional fleet totals 333 air-craft. All RJ flying (259 Embraer air-craft) is done by ExpressJet, while other partners operate a variety of turboprops.

Commutair7%

ExpressJet Airlines

77%

SkyWest Airlines

2%

Colgan Air5%

Gulfstream International

Airlines9%



9

Delta Air Lines Delta reported a $383 million net loss for the June 2005 quarter as the carrier missed out on the yield gains experienced by competitors. Liquidity relief from the sale of Atlantic Southeast Airlines may be less meaningful in the light of a $625 million holdback on a new credit card processing agreement and high early pilot retirement numbers. We believe recent changes give some insight to Delta’s long-term fleet strategy. Specifically, 737-200s are at the top of the list for elimination as seven have been moved out of service thus far in 2005. These planes, which are mostly leased and average 20 years in age, are still powered by dated JT8D engines. Also on the way out are 737-300s when leases expire—five of these, all GE managed, expire in 2005 and these will transition back to the lessor. The 767-200s at 22 years average age and only 13 in active service are another candidate for elimination, and one was retired from service in Q2. These three types alone highlight 79 aircraft for elimination, while replacement lift would be difficult to finance. This leads us to conclude that Delta’s MD-88s, which make up a quarter of the airline’s fleet, are not in any near-term danger. Exhibit 12: Delta Air Lines Fleet

Variant In Service Stored CurrentTotal On Order Grand Total Option Average Age

Boeing (McDonnell-Douglas) MD-11 Passenger (P&W) - 3 3 - 3 - 13Boeing (McDonnell-Douglas) MD-80 88 120 - 120 - 120 - 15Boeing (McDonnell-Douglas) MD-90 30 16 - 16 - 16 - 9Boeing 737 (CFMI) 300 23 2 25 - 25 - 18Boeing 737 (JT8D) 200 Adv. (Stage 3 Hushkits) 43 7 50 - 50 - 20Boeing 737 (NG) 800 71 - 71 50 121 60 4Boeing 757 200 (P&W) 85 - 85 - 85 - 16Boeing 767 200 (GE) 13 2 15 - 15 - 22Boeing 767 300 (GE) 24 - 24 - 24 - 16Boeing 767 300 (P&W) 4 - 4 - 4 - 9Boeing 767 300ER (GE) 28 - 28 - 28 16 7Boeing 767 300ER (P&W) 31 - 31 - 31 - 10Boeing 767 400ER (GE) 21 - 21 - 21 22 4Boeing 777 200ER (RR) 8 - 8 5 13 25 5Fairchild/Dornier 328JET - 30 30 - 30 - 4

487 44 531 55 586 123 12As of Aug. 11, 2005.Source: Airclaims CASE database. Exhibit 13: Delta Air Lines Regional Service Providers

Regional service to Delta has been provided by wholly owned subsidiaries, Atlantic Southeast Airlines and Comair along with independents Chautauqua and SkyWest. In August 2005, Delta announced the sale of Atlantic Southeast Airlines to SkyWest. Republic Airlines will also join the group, operating 12 ERJ-170s when these are delivered.

SkyWest Airlines

18%

Chautauqua Airlines

9%

Atlantic Southeast

Airlines34%

Comair39%



10

Northwest Airlines Northwest Airlines had a rough Q2, reporting a net loss of $217 million as an 11.3% gain in operating revenue did not keep pace with 15.5% higher operating expenses. An older fleet makes Northwest more vulnerable to high fuel prices. Thus far in 2005, Northwest has taken delivery of four A319s and two A330-320s with two A320s still to be delivered. The airline has announced plans to reduce its active DC-9 fleet by 30, eight of which will be permanent retirements. Also in Q2, Northwest announced an order for 18 787s with a delivery window opening in 2008.

Exhibit 14: Northwest Airlines Fleet Variant In Service Stored Current Total On Order Grand Total Option Average Age

Airbus A319 110 (CFM) 73 1 74 7 81 23 3Airbus A320 210 (CFM) 78 - 78 2 80 16 10Airbus A330 220 (P&W) 7 - 7 5 12 - 1Airbus A330 320 (P&W) 10 - 10 18 28 - 1Boeing (McDonnell-Douglas) DC-10 30 15 3 18 - 18 - 28Boeing (McDonnell-Douglas) DC-10 30ER 4 - 4 - 4 - 19Boeing (McDonnell-Douglas) DC-9 14 (Stage 3 Hushkits) - 7 7 - 7 - 39Boeing (McDonnell-Douglas) DC-9 15 (Stage 3 Hushkits) - 1 1 - 1 - 38Boeing (McDonnell-Douglas) DC-9 31 (Stage 3 Hushkits) 54 11 65 - 65 - 36Boeing (McDonnell-Douglas) DC-9 32 (Stage 3 Hushkits) 43 1 44 - 44 - 35Boeing (McDonnell-Douglas) DC-9 41 (Stage 3 Hushkits) 12 - 12 - 12 - 36Boeing (McDonnell-Douglas) DC-9 51 (Stage 3 Hushkits) 33 1 34 - 34 - 27Boeing 727 200 Adv (Stage 3 Hushkits) - 9 9 - 9 - 27Boeing 747 200B (P&W) 5 11 16 - 16 - 24Boeing 747 200F (P&W) 1 - 1 - 1 - 26Boeing 747 200F (SCD) (P&W) 9 - 9 - 9 - 24Boeing 747 200SF (P&W) 3 - 3 - 3 - 19Boeing 747 300 Combi (P&W) - 2 2 - 2 - 22Boeing 747 400 (P&W) 16 - 16 - 16 - 11Boeing 757 200 (P&W) 51 5 56 - 56 - 14Boeing 757 300 (P&W) 16 - 16 - 16 - 2Boeing 787 -8 (Engines Unannounced) - - - - 0 34Boeing 787 -8 (RR) - - - 18 18 16Bombardier (Canadair) CRJ Regional Jet 440 - - - - 0 9


Exhibit 15: Northwest Airlines Regional Service Providers

Regional service for Northwest is provided by Pinnacle and Mesaba. A former Northwest subsidiary, Pinnacle was spun off in November 2003. Pinnacle operates 139 CRJs and Mesaba operates 35 Avro RJs and 67 turboprops.

Pinnacle Airlines

58%

Mesaba Airlines

42%



11

United Airlines

United appears likely to pass its three-year anniversary in debtor rehab before potentially emerging in early 2006. Once the world’s second-largest airline, United has reorganized without creating a shock to aircraft values and lease rates that would have come from large-scale aircraft rejections. In evaluating risk to assets from airline bankruptcies, the United case provides a few pointers:

The airline’s fleet decisions were not influenced by type as much as by cost savings on each aircraft. As a result, the only types completely eliminated from the active fleet were 767-200s and 767-200ERMs, a total of 18 planes.

Planes that were treated more harshly (737-300s and 737-500s) were gradually taken out of United’s fleet from early 2003 through 2005. The fleet restructuring process has been slowed by the airline’s strategic planning process and negotiations with a diverse group of creditors, dampening the potential shock of a large number of planes looking for new homes at once.

By negotiating as a group, EETC and PTC holders were able to use desirable assets as negotiating leverage defending a large pool of aircraft. For example, when creditors repossessed four 767s out of the 1993A PTC and 1993C PTC, United was forced to cancel its Chicago to Buenos Aires service—the airline was dependent on long-range widebodies for higher-yielding international service.

When United filed for bankruptcy in December 2002, it operated 567 aircraft, 463 of which were financed through leases or mortgages and 95 that were owned outright and subsequently pledged to DIP lenders. Of the 463 financed aircraft, 158 were funded through public debt, including pass-through certificates and EETC transactions. This group of debt holders negotiated jointly as the public debt holders. Within 60 days of its bankruptcy filing, United agreed to perform on 51 of the public debt aircraft, operating the remaining 124 unprotected under Section 1110(c). In February 2004, the airline and the public debt holders agreed to a restructuring agreement covering all the aircraft, under which some aircraft were rejected, but when the ATSB refused an exit loan guaranty, United decided not to perform on this settlement. When negotiations broke off in November 2004, trustees for three transactions (JETS 1995-A, 1993A PTC and 1993C PTC) terminated adequate protection stipulations and demanded the return of 14 aircraft. Initially, the court interfered with creditors’ access to collateral, but finally allowed creditors to exercise their Section 1110 rights in May 2005. By this time, United had already rejected six of the 14 aircraft. Four more were repossessed (767s out of the 1993 deals), and four were bought by the airline (767s out of the 1995 deal). Going into the summer of 2005, creditors stepped up the pressure on United, aided by a court ruling approving repossession, an improving aircraft market and a desire to reduce credit exposure to United. Better market values for the aircraft lowered loan-to-value ratios in the transactions and made repossession a credible threat. In July 2005, creditors demanded return of a further 15 aircraft (eight 747s and seven 767s from eight transactions). One of these 747s was subsequently repossessed by the creditors. Negotiations have led the public debt group and United to revise


12

termsheets for all the deals (except for the 1997-1 deal, which the airline will buy). These could be finalized in a Sept. 27, 2005, hearing.

Exhibit 16: United Airlines Current Fleet Variant In Service Stored Current Total On Order Grand Total Average Age

Airbus A319 130 (IAE) 55 - 55 23 78 5Airbus A320 230 (IAE) 50 - 50 19 69 9Boeing 737 (CFMI) 300 64 2 66 - 66 16Boeing 737 (CFMI) 500 29 2 31 - 31 13Boeing 737 (JT8D) 200 Adv. (Stage 3 Hushkits) - 2 2 - 2 27Boeing 747 400 (P&W) 31 4 35 - 35 10Boeing 757 200 (P&W) 97 - 97 - 97 13Boeing 767 200 (P&W) - 7 7 - 7 22Boeing 767 200ERM (P&W) - 6 6 - 6 23Boeing 767 300ER (P&W) 31 5 36 - 36 10Boeing 777 200 (P&W) 19 - 19 - 19 8Boeing 777 200ER (P&W) 33 - 33 - 33 6

409 28 437 42 479 11As of Aug. 11, 2005.Source: Airclaims CASE database. Exhibit 17: United Airlines Fleet at Bankruptcy Filing (Dec. 9, 2002)

Variant In Service Stored Current Total On Order Grand Total

Airbus A319 130 (IAE) 55 - 55 23 78Airbus A320 230 (IAE) 98 - 98 19 117Boeing (McDonnell-Douglas) DC-10 30 - 1 1 - 1Boeing (McDonnell-Douglas) DC-10 30F (M) - 1 1 - 1Boeing 727 200 Adv. (Stage 3 Hushkits) - 50 50 - 50Boeing 737 (CFMI) 300 101 - 101 - 101Boeing 737 (CFMI) 500 57 - 57 - 57Boeing 737 (JT8D) 200 Adv. (Stage 3 Hushkits) - 21 21 - 21Boeing 747 400 (P&W) 34 5 39 - 39Boeing 757 200 (P&W) 97 - 97 - 97Boeing 767 200 (P&W) 10 - 10 - 10Boeing 767 200ERM (P&W) 8 - 8 - 8Boeing 767 300ER (P&W) 37 - 37 - 37Boeing 777 200 (P&W) 22 - 22 - 22Boeing 777 200ER (P&W) 38 - 38 1 39

557 78 635 43 678Source: Airclaims CASE database.

A few observations on fleet changes between Exhibits 16 and 17:

Forty-seven of the A320s moved out of United’s mainline fleet went to Ted, the airline’s low-cost subsidiary.

Two aircraft types were eliminated en masse, but these (50 727-200s and 19 737-200s) were already in storage at Chapter 11 filing and had served an average of 24 years.

The largest reductions out of United’s active fleet were 35 737-300s and 26 737-500s. These did not have an adverse effect on values or lease rates because of strong worldwide demand for narrowbodies and the gradual pace of the restructuring process.


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Out of the JETS deals (JETS 1994-A, JETS 1995-A and JETS 1995-B), United generally retained long-range widebodies that fit its new emphasis on international flights, while all the narrowbodies were rejected and many subsequently sold.

In the other EETC transactions, debt holders renegotiated lease rates to keep planes with United, with some exceptions. Five 777-200ERs out of three deals (UAL 2000-1, UAL 2000-2 and UAL 2001-1) and an A320 were taken out of the United fleet and put on operating lease.

Exhibit 18: United Airlines Regional Service Providers

United’s feeder service is provided by six independent regional airlines operating 365 aircraft under the United Express livery. SkyWest operates 39% of the regional fleet or 141 CRJs and Embraer turboprops. Air Wisconsin is the second-largest regional but is in process of transitioning its aircraft out of United to serve a merged US Airways–America West entity.

Shuttle America5%


5%

SkyWest Airlines

39%Great Lakes

Airlines9%

Chautauqua Airlines

7%

Mesa Airlines11%

Air Wisconsin23%

GoJet1%



14

US Airways Despite a net loss of $62 million, US Airways’ Q2 2005 results showed significant progress made on the cost side as CASM decreased 5.3% amid high fuel prices. US Airways’ fleet planning has been a function of an agreement with GE, its largest creditor. On the fleet side, GE agreed to the early return of 10 leased A319s and 15 737s, while leasing 31 RJs to the airline. Not all of these aircraft have been returned yet. Otherwise, US Airways’ fleet has remained intact.

Exhibit 19: US Airways Fleet Variant In Service Stored Current Total On Order Grand Total LoI Option Average Age

Airbus A319 110 (CFM) 60 1 61 - 61 - - 5Airbus A320 210 (CFM) 24 - 24 6 30 - - 5Airbus A321 210 (CFM) 28 - 28 13 41 - - 3Airbus A330 220 (P&W) - - - 10 10 - -Airbus A330 320 (P&W) 9 - 9 - 9 1 - 4Airbus A350 800 (GE) - - - - 0 20 -Boeing 737 (CFMI) 300 62 6 68 - 68 - - 18Boeing 737 (CFMI) 400 43 2 45 - 45 - - 15Boeing 757 200 (RR) 31 - 31 - 31 - - 14Boeing 767 200ER (GE) 10 - 10 - 10 - - 16Bombardier (Canadair) CRJ Regional Jet 200LR - - - - 0 45 50Bombardier (Canadair) CRJ700 Regional Jet 701ER - - - 23 23 45 50Embraer 170 LR - - - - 0 - 45Embraer ERJ-145 LR - - - - 0 - 140Fokker 100 - 3 3 - 3 - - 13

267 12 279 52 331 111 285 11As of Aug. 11, 2005.Source: Airclaims CASE database.

Exhibit 20: US Airways Regional Service Providers

US Airways’ feeder service is provided by eight companies that fly 303 aircraft. Three are wholly owned subsidiaries (MidAtlantic, Pied-mont and PSA). Together, these subsidiaries fly 48% of the regional aircraft.


6%

Piedmont Airlines

23%

Colgan Air9%

Air Midwest7%

MidAtlantic Airways

8%

Chautauqua Airlines

11%

Mesa Airlines20%

PSA Airlines16%



15

Air Canada ACE Aviation June quarter net income totaled $138 million as revenue gained 11%, while per seat cost remained flat in a challenging environment. In Q2, Air Canada ordered 32 777 and 787 aircraft, then canceled the order after failing to reach a cost-cutting agreement with its pilots’ union.

Exhibit 21: Air Canada Fleet

Variant In Service Stored Current Total On Order Grand Total Optionage Age

Airbus A319 110 (CFM) 48 - 48 - 48 - 6Airbus A320 210 (CFM) 48 - 48 - 48 - 12Airbus A321 210 (CFM) 10 - 10 - 10 - 3Airbus A330 340 (RR) 8 - 8 - 8 - 4Airbus A340 310 (CFM) 10 - 10 - 10 - 8Airbus A340 540 (RR) 2 - 2 - 2 - 2Airbus A340 640 (RR) - - - 3 3 -Boeing (McDonnell-Douglas) DC-9 32 (Stage 3 Hushkits) - 12 12 - 12 - 34Boeing (McDonnell-Douglas) MD-11 Freighter (M) (GE) 1 - 1 - 1 - 14Boeing (McDonnell-Douglas) MD-11 Freighter (M) (P&W) 2 - 2 - 2 - 12Boeing 737 (JT8D) 200 Adv. (Stage 3 Hushkits) - 2 2 - 2 - 23Boeing 747 200B Combi (P&W) - 3 3 - 3 - 28Boeing 767 200 (P&W) 3 6 9 - 9 - 22Boeing 767 200EM (P&W) 3 2 5 - 5 - 21Boeing 767 200ER (P&W) 7 - 7 - 7 - 16Boeing 767 300ER (GE) 22 - 22 - 22 - 12Boeing 767 300ER (P&W) 10 - 10 - 10 - 11Bombardier (Canadair) CRJ 100ER 22 - 22 - 22 - 9Bombardier (Canadair) CRJ 200ER - - - - 0 15Bombardier (Canadair) CRJ700 705LR - - - - 0 45Embraer 175 LR 3 - 3 12 15 - 0Embraer 190 LR - - - 45 45 -



16

America West America West generated $13.9 million in net income on 2.7% higher capacity and a four-point increase in load factor, but overall cost was 20% higher. Three new additions were made to the fleet during Q2, all five-year operating leases on Airbus narrowbodies. The airline also monetized an A320 and two engines through sale-leaseback transactions. The last 737-200 was phased out of operation in Q1.

Exhibit 22: America West Fleet


Airbus A318 120 (P&W) - - - 15 15 16Airbus A319 130 (IAE) 34 - 34 8 42 - 4Airbus A320 230 (IAE) 59 - 59 10 69 - 8Boeing 737 (CFMI) 300 37 - 37 - 37 - 17Boeing 757 200 (RR) 13 - 13 - 13 - 18


Independence Air Independence Air reported a $98.5 million loss for Q2 2005 and ended with $19.4 million in cash. With regard to fleet planning, Independence agreed to the early termination on 24 leased CRJs from GE with the potential for the withdrawal of an additional eight CRJs by GE if certain financial milestones are not met. Further deliveries of A319s have been pushed back with new dates yet to be determined.

Exhibit 23: Independence Air Fleet

Variant In Service Stored Current Total On Order rand Total Option Average Age

Bombardier (Canadair) CRJ Regional Jet 200ER 72 2 74 - 74 - 4Airbus A319 130 (IAE) 12 - 12 16 28 49 0BAE SYSTEMS (Jetstream) Jetstream 41 - 30 30 - 30 - 10Fairchild/Dornier 328JET - 3 3 - 3 - 3


Southwest Airlines Southwest continues to be profitable, reporting net income of $159 million in Q2 2005. Fleet expansion continues at an aggressive pace, with the 25 737-700 deliveries through August 2005 to be followed by nine more during the rest of the year. In 2006, an additional 34 737s are scheduled for delivery and 25 in 2007. The only retirements in 2005 were the last five 737-200s that were phased out of service earlier in the year. Exhibit 24: Southwest Airlines Fleet


Boeing 737 (CFMI) 300 194 - 194 - 194 - 14Boeing 737 (CFMI) 500 25 - 25 - 25 - 14Boeing 737 (NG) 700 Winglets 217 1 218 74 292 34 3



17

DISCLOSURE APPENDIX Additional information is available on request About Wachovia Securities Wachovia Securities is the trade name for the corporate, investment banking, capital markets and securities research businesses of Wachovia Corporation and its subsidiaries, including Wachovia Capital Markets, LLC (WCM) and Wachovia Securities International Limited. Wachovia Securities is also the trade name for the retail brokerage businesses of WCM’s affiliates, Wachovia Securities, LLC, Wachovia Securities Financial Networks, LLC, Wexford Clearing, LLC, and First Clearing LLC. Wachovia Capital Markets, LLC, is a U.S. broker-dealer registered with the U.S. Securities and Exchange Commission and a member of the New York Stock Exchange, the National Association of Securities Dealers, Inc., and the Securities Investor Protection Corp. Wachovia Securities International Limited is a U.K. incorporated investment firm authorized and regulated by the Financial Services Authority. Important Information for Non-U.S. Recipients The securities and related financial instruments described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. For certain non-U.S. institutional readers (including readers in the EEA), this report is distributed by Wachovia Securities International Limited. For the purposes of Section 21 of the U.K. Financial Services and Markets Act 2000, this report has been approved by Wachovia Securities International Limited. This research is not intended for, and should not be relied on by, private customers. Please consult your Financial Advisor or the Wachovia Securities office in your area for additional information. U.S. residents are directed to wachovia.com for investment and related services. Important Disclosures Relating to Conflicts of Interest and Potential Conflicts of Interest WCM, or any of its affiliates, has beneficial ownership of 1% or more of any class of common stock of ACE Aviation Holdings Inc. WCM, or its affiliates, managed or co-managed a public offering for, or was an initial purchaser in an unregistered offering of securities pursuant to Rule 144A of, GE Corp. in the past 12 months. WCM may sell or buy the subject securities to/from customers on a principal basis. WCM does not compensate its research analysts based on specific investment banking transactions. WCM’s research analysts receive compensation that is based on and affected by the overall profitability of their respective department and the firm, which includes, but is not limited to, investment banking revenue. WCM Fixed Income Research analysts interact with the firm’s trading and sales personnel in the ordinary course of business. The firm trades or may trade as a principal in the securities or related derivatives mentioned herein. The firm’s interests may conflict with the interests of investors in those instruments. Analyst’s Certification The research analyst(s) principally responsible for the report certifies to the following: all views expressed in this research report accurately reflect the analysts’ personal views about any and all of the subject securities or issuers discussed; and no part of the research analysts’ compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research analyst(s) in this research report.

This report is for your information only and is not an offer to sell, or a solicitation of an offer to buy, the securities or instruments named or described in this report. Interested parties are advised to contact the entity with which they deal, or the entity that provided this report to them, if they desire further information. The information in this report has been obtained or derived from sources believed by Wachovia Capital Markets, LLC, to be reliable, but Wachovia Capital Markets, LLC, does not represent that this information is accurate or complete. Any opinions or estimates contained in this report represent the judgment of Wachovia Capital Markets, LLC, at this time, and are subject to change without notice. Wachovia Capital Markets, LLC, and its affiliates may from time to time provide advice with respect to, acquire, hold, or sell a position in, the securities or instruments named or described in this report. For the purposes of the U.K. Financial Services Authority’s rules, this report constitutes impartial investment research. Each of Wachovia Capital Markets, LLC, and Wachovia Securities International Limited is a separate legal entity and distinct from affiliated banks. Copyright © 2005 Wachovia Capital Markets, LLC.

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SECURITIES: NOT FDIC-INSURED ● NOT BANK-GUARANTEED ● MAY LOSE VALUE

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Structured Products Research (704) 374-4784Brian P. Lancaster Managing Director Head of Structured Products Research (704) 715-1864

CMBS, CRE CDO and Real Estate Research (212) 909-0064 [email protected] Heberle Director ABS Research (704) 383-1936 [email protected] F. Kraft, Ph.D. Director ABS Research (704) 715-8345 [email protected] Butler, CFA Vice President CMBS and Real Estate Research (704) 383-0189 [email protected] Miller Vice President Quantitative Research (704) 374-6440 [email protected] W. Laughton Associate CMBS and Real Estate Research (704) 715-7685 [email protected] Mayeux Associate CMBS and Real Estate Research (704) 374-2298 [email protected] Whitworth Associate Quantitative Research (704) 715-7936 [email protected] Ray Analyst CDO Research (212) 451-9744 [email protected] van Heerden Analyst ABS Research (704) 715-8321 [email protected]

Fixed Income Market StrategyRichard Gordon Managing Director Fixed-Income Market Strategist (708) 246-3903 [email protected]

(704) 383-8758

Corporate Credit Research (800) 528-4570Tim Patrick Managing Director Head of Investment Grade & High Yield Research (704) 374-6198 [email protected] P. Dunn Jr., CFA Managing Director Basic Industries (704) 715-8377 [email protected] Golightly Managing Director Insurance (704) 383-4836 [email protected] D. Mulkey Managing Director Gaming & Lodging (212) 451-9751 [email protected] Sullivan Managing Director Real Estate Investment Trusts (704) 383-6441 [email protected] D. Brading, CFA, CPA Director Printing/Publishing, Building Products, Homebuilding (704) 383-6491 [email protected] Cheen Director Media and Entertainment (704) 383-0473 [email protected] L. Clark, CFA Director Specialty Finance, Banks, Brokers (704) 383-9919 [email protected]. Gary Garcia Director Utilities (704) 374-6452 [email protected] Green Director Defense & Aerospace, Wireless (704) 383-6606 [email protected] C. Hunt, CFA Director Food & Beverage, Supermarkets, Retail (704) 383-0728 [email protected] Hyde Director Industrials, Environmental Services (704) 383-0208 [email protected] M. Molitor Director Consumer Products (704) 383-0018 [email protected]. Ross Payne, CFA Director Energy, Pipelines (704) 383-3619 [email protected] J. Selle, CFA Director Automotive, Industrials (704) 383-4086 [email protected] Slaybaugh Director Basic Industries (704) 715-8318 [email protected] S. Stewart, CFA Director Consumer Products, Apparel, Soft-Line Retail (704) 383-9073 [email protected] Triantafyllides, CFA Director Cable, Telecom (704) 374-2307 [email protected] L. Highsmith, CFA Vice President Healthcare (704) 383-6384 [email protected] Jordan Vice President Theaters, Theme Parks, Resorts (704) 715-7022 [email protected] T. Kalamaras Vice President Energy, Refining, Midstream, Energy Services, Coal (704) 715-8319 [email protected] Newton Vice President Basic Industries (704) 715-8378 [email protected] Patrick Walsh, CFA Vice President Healthcare, Business Services, Technology (704) 715-1504 [email protected] B. Wilcox Vice President Consumer Products (704) 374-4413 [email protected] Bave Associate Defense & Aerospace, Wireless (704) 374-7148 [email protected] W. Burton Associate Printing/Publishing, Building Products, Homebuilding (704) 383-5599 [email protected] Chaney Associate Consumer Products, Apparel, Soft-Line Retail (704) 383-4030 [email protected] Crawford Associate Food & Beverage, Supermarkets, Retail (704) 715-7340 [email protected] Gates Associate Basic Industries (704) 374-7026 [email protected] Harris, CFA Associate Energy, Pipelines (704) 715-8466 [email protected] L. Hill Associate Specialty Finance, Banks, Brokers (704) 715-8358 [email protected] Hauff Associate Insurance (704) 374-4176 [email protected] Patel Associate Utilities (704) 715-8195 [email protected] Asik Analyst Cable, Telecom (704) 715-4126 [email protected] Brown Analyst Healthcare (704) 715-8332 [email protected] Hedspeth Analyst Specialty Finance, Banks, Brokers (704) 715-8336 [email protected] Jones Analyst Real Estate Investment Trusts (704) 715-7932 [email protected] Renegar Analyst Automotive, Industrials (704) 715-7038 [email protected] Wallace Analyst Energy, Refining, Midstream, Energy Services, Coal (704) 715-7409 [email protected]

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For copies of Structured Products Research reports, please contact Bonita Carroll at (704) 374-4784. To view reports online, access our Web site at wachoviaresearch.com

Wachovia FleetHandbook_7Sept05

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