2005* embraer day financial presentation (disponível apenas em inglês)
TRANSCRIPT
CorporateGovernance
Bovespa19.2%
BrazilianGovt.* 0.8%
European Group20%
ControllingShareholders
60%
October, 2005
0.8% Brazilian Govt.* 20% European GroupDassault Aviation 5.67%Thales 5.67%EADS 5.67%Snecma 3%
60% Controlling ShareholdersPREVI (Banco do Brasil Pension Fund) 20%SISTEL (Former Telebrás Pension Fund) 20%Bozano Group 20%
19.2% Bovespa
Ordinary Shares: 242,544,448 (34.0%)
* Includes one golden share
Embraer Voting Capital
October, 2005
NYSE59.8%
Bovespa31.2%
BNDES9.0%
Preferred Shares: 478,290,684 (66.0%)
Embraer Preferred Shares
• Board of Directors Composition:
Six representatives indicated by the Controlling Shareholders, plus the CEO;
Two representatives indicated by the Employees;
Two representatives of the minority shareholders;
Two governament representatives.
• Active Board of Directors & Permanent Fiscal Board acting as an Audit Commitee.
Corporate Governance
Audit Comitee – Conselho Fiscal
• Composed of five independent members including one financial expert
• Elected in a annual general shareholders’ meeting
• Makes financial reporting recommendations to management and the board
• Responsible for handling whistleblower complains
• Oversees the relationship between managers and external auditors
Corporate Governance
QCorporate Governance ActionsTrading policyDisclosure PolicyRisk managementCode of Ethics & ConductDisclosure Comitee
AccountabilityBrazilian Gaap & US Gaap Simultaneously
Corporate Governance
Dividends
US$ Million
10468
204
139
47%
54%
47%
50%
2002 2003 2004 9M05
Dividends Pay-Out Ratio
5.47 4.58 3.79 4.00Yield (Gross)
Differences between Brazilian GAAP
& US GAAP
Commercial Airline & Corporate SegmentsRevenues are generally recognized as deliveries are made
DefenseDefense segment operates in a business environment that differs from the Airline and Business Jet market segments. The main differences are:
• Long-term contracts • Products are customized according to customer needs• Quantities and selling prices are generally fixed at the
beginning of the program• Revenues are recognized under percentage-of-
completion method.
Revenue Recognition – BR Gaap & US Gaap
Commercial Aircraft & Executive Aircraft Segments
BR GAAPR&D capitalized as a deferred assetAmortization based on total serial production
US GAAPNo program accountingCost as incurred
Cost Recognition – BR Gaap & US Gaap
Defense contract accounting
Long-term contract accounting requires management to estimate the total contract cost. These costs consist of designing, engineering, manufacturing and entryinto service.
Total estimated contract costs include:Raw materialSupplier componentsDirect Labor, including engineeringManufacturing overhead
Estimated total Revenue topercent of complete x price = be recognized to date
Revenue to be - Revenue recognized = Current periodRecognized to date in prior periods revenue
Defense Revenue and Costs
Defense Revenue and CostsDefense contract accounting
Contract monitoring and related adjustments:
Review is made on a quartely basis
As part of these reviews, additional revenues arising from changeorder requests and additional cost from over spending are identifiedand reflected in a revised contract margin.
The effect of any revision is accounted for by way of a cumulativecatch-up adjustment to margin
Physical progress
Percent of complete = Costs incurred to dateMost recent estimate of total cost
BR GAAPü Non monetary items no longer indexed by the UFIR (adjusted to
current purchasing power)ü There is no functional currency concept
US GAAPü Functional Currency is the US$ (SFAS 52)ü Non Monetary items (Assets and Liabilities) are accounted in
historical US$ values
Translation Effects (R$ x US$)
BR GAAPü Assets revaluation at market value is allowedü Since 1996 interest capitalization is not accounted
US GAAPü Interest capitalization over Long-term assets construction
(SFAS 34)ü Capitalization of assets acquired through capital leases
(SFAS 13)
PP&E
BR GAAPüCapitalization of expenses will be amortized over futurefiscal yearsüDeferral of pre-operation costs
US GAAPüR&D expense accounted as incurred in the incomestatement üPre-operation costs are not deferred
Deferred Assets
BR GAAPüOperating leases are accounted as rent
US GAAPüOperating lease concept explained by SFAS 13
Operating Lease for capital goods
BR GAAP
ü No CVM or IBRACON specific rule
ü Accounted by the accrual method
US GAAP
ü SFAS 133 in use since 2001
üGains and losses recognized during the period
ü Fair value of derivatives is mandatory
Derivatives
BR GAAPü Differences between accounting and fiscal records
US GAAPü All BR GAAP and US GAAP accounting diferences are considered
to calculate the deferred income tax
13.8%
27.4%
9M05
20.8%29.8%26.6%30.6%24.2%BR GAAP
45.6%
2002
25.8%
2003
22.7%40.3%26.8%US GAAP
200420012000
Effective Tax Rates
Effective Tax Rate
R$ thousands 9M05Income before taxes 685,828
Nominal expense 34% tax rate 233,182
Permanent additions 64,879
Permanent exclusions (1,526)
Interest on Shareholders Equity (34%) (112,817)
Other items 3,863
Total expenses 187,581
Effective tax rate 27,4%
Effective Tax Rate – BR GAAP
US$ thousands 9M05Income before taxes 344,678
Nominal expense 34% tax rate 117,191
Permanent additions 1,660
Permanent exclusions (1,123)
Interest on Shareholders Equity (34%) (47,362)
Other items (22,836)
Total expenses 47,530
Effective tax rate 13,8%
Effective Tax Rate – US GAAP
2,069 - 200
-18
-456
-10 -15 155 12
1,508
-29
-
500
1,000
1,500
2,000
2,500
BR GAAP TranslationEffects
Inventories Deferred Assets(R&D)
Derivatives fairValue
Fin 45 OperacionalLease
Adjusments
Deferred IncomeTaxes
Others USGAAP
Shareholders Equity(09/30/05)US$ Million
Period end exchange rate
Reconciliation between BR & USGAAP
- 196
290 11 -12 -94
- 134 -36 392
-
50
100
150
200
250
300
350
400
BR GAAP Exchanges rateeffect
TranslationEffects
Inventories Deferred Assets(R&D)
Derivatives fairValue
Deferred IncomeTaxes
Others USGAAP
Net Income(9M05)
US$ MillionAverage exchange rate
Reconciliation between BR & USGAAP
BR GAAP
ü No specific rule applies
ü Disclosure under notes to consolidated financial statements is mandatory
US GAAP
ü Since 01/01/2003 guarantees given to third parties are measuredat fair value and recognized on income (FIN 45)
ü In both Gaaps, IBNR (incurred but not reported) accounts for problable losses through the ECC Insurance
Financial Guarantees
Some of the sales transactions are structured financings through which an SPE purchases the aircraft, pays the full purchase price on delivery or at the conclusion of the sales financing structure, and leases the related aircraft to the ultimate customer.
BR GAAP
•New CVM 408/2004 rule to be applied in 2004
• Standartization towards IASB international rules and FIN 46
•US GAAP
•Accounted as collateralized accounts receivable and non-recourse and recourse debt
•Starting in 2004 FIN 46 and FIN 46R becomes effective and basic consolidation conditions were maintained
•Before 2004 other rules were used for SPE consolidation
SPEs Consolidation
Source: 20 F note 8
Off-Balance Sheet Exposure
(98)(67)Provisions & Liabilities Recorded(418)(392)Mutually Exclusive Exposure*
2,0301,397Off Balance Sheet Exposure
2,0381,650Estimated proceeds from performance guarantees and underlying assets
836627RVGs1,7101,230Maximum Financial Guarantees
20042003US$ million
The maximum potential payments represent the “worst-case scenario,” and do not necessarily reflect the expected results by the Company.
Estimated proceeds from performance guarantees and underlying assets represent the anticipated values of assets the Company could liquidate or receive from other parties to offset its payments under guarantees.
*The residual value guarantees can only be exercised if the financial guarantees have expired withouthaving been triggered and therefore have not been combined to calculate the maximum exposure
Source: 20 F note 34
Off Balance Sheet Exposure
Repurchase Options (Put Options)
• Provide the customer with the right to sell the aircraft back to the Company in the future according to defined pricing rules.
• These put options may become exercisable at various times • Can be exercised at the customer’s sole discretion. • The put price per aircraft is less than the original sales price of the
aircraft and less than management’s estimation for the future market value of the aircraft during the exercise period as assessed at the date of sale.
Put obligations:
As of December 2003 US$ 500 million
As of September 30, 2005 US$ 0 million
Off Balance Sheet Exposure
Trade-in options
Provide a customer with the right to trade-in existing aircraft upon the purchase of a new aircraft. The trade in price per aircraft is less than the original sales price of the aircraft and less than management’s estimation for the future market value of the relevant aircraft.
6 Commercial jets are subject to trade-in
§ Of the total 898 firm orders and 228 options signed for the ERJ 145 family since 1996, only 7 were trade-ins of EMB 120s (Brasilia).
§ Of the total 412 firm orders and 373 options signed for the EMBRAER 170/190 family since 1999, only 6 included trade-in options.
Off Balance Sheet Exposure
Provisioning of financial guarantees and RVGs
In order to cover the exposure related to financial guarantees, a provision is recorded at the time of the delivery.
Use of sophisticated models to measure the provision:
• External appraisals of expected aircraft value• Credit ratings of the airlines companies• Current and future market outlook• Aircraft expected availability level in the market
Financial Guarantees & RVGs
Sales Finance
A Complex and Time Consuming Operation
§ Airlines order aircraft in advance and take deliveries over several years.
§ Option Contract: Customer has the right to exercise option and is not required to purchase aircraft. Options may be exercised up to 18 months prior to delivery.
ãFirm Order
$ $ $ $ ...
Q1 ...+ + + +
Financing
Delivery
Time
<---------- 20 months --------> <-------------- 6 years (average) ------------>
Down-paymentä
Deposits
+ + +5%$ 5%$ 5%$
18m 12m 6m
Aircraft Financing
Amount Exported: US$ 17.79 billionAmount Financed by BNDES: US$ 7.67 billionRegional Aircraft Delivered: 1039*
Financing Source (1995 – 3Q 2005)
* Including Executive and Defense Market:• EMB 120: 55• ERJ 145 Family: 832• Legacy 600: 49• Defense: 12• EMBRAER 170/190 Family: 91
BNDES 43%
Market 57%
Total Regional Aircraft Delivered: 1039 (up to 3Q 2005)
Financing Methods
At Sight6%
Tax Lease46%
Bridge2%
Operating Lease5%
Finance Lease5%
Straight Finance36%
Ø Operating Lease (True Lease):
• It is a rental for a pre-settled period of time
• Purchase Option must be at market value at the end of the lease term• It is an off-balance sheet transaction to Lessee Commonly used by start-up and/or weak credit companies.
Ø Finance Lease (Capital Lease):
• It is a finance transaction (full pay-out structure)
• The purchase option is a guaranteed residual value• It is an on-balance sheet transaction to Lessee (USGAAP)
Ø Straight Loan:
• Financing provided by the lender direct to the airline
Type of financing
Ø Leveraged Lease (Tax Lease)
• Involves at least three parties: Lessor, Lessee, Lender
• Non-recourse debt against lessor
• Equity investor contributes 20% of a/c value
• Transfer of fiscal benefits to the lessee, resulting in lower monthlypayments
• Equity Investor benefits from 100% accelerated depreciation and deduction of interest expense
Type of financing
EETC – Enhanced Equipment Trust Certificate• Type of financing used by airlines to capture resources by issuing
bonds backed by the aircraft
• Bonds are issued in tranches (A, B, C...);
• Each tranche has a specific Loan to value, and different liquidationguarantees (aircraft) in case of default
• Tranches B, C...have higher interest rates and carry on more risk
• Bonds are backed by the aircraft
• EETC’s give airlines with lower credit rates an opportunity to capture resources at lower cost
• EETC’s can be optmimized and combined with other financingstructures such as leveraged leases
Type of financing – Capital Markets
FONTE: Citigroup
Amount US$ Billion
Source: Citigroup
EETC issuance increased steadily from the first transaction in 1994 through the peak in 2001 before dropping off in 2002 & 2003
0 , 5 1 0 , 4 7 0 , 4 9 0 , 3 10 , 7 50 , 7 6 0 , 9 9
1 , 6 1
2 , 6 9
3 , 7 2
5 , 0 1
8 , 1 3
1 0 , 3 7
3 , 2 8
1 , 3 1 1 , 2 8
3 , 2 5
1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 F
U S A i r l i n e sN o n - U S A i r l i n e s
EETC – Annual volume of new issues (1994~2005)
Risk Management
EMBRAER Capital (ECC) - Structure
ECC Leasing Co. Ltd.(Ireland)Leasing
ECC Insurance & Financial Co. Ltd.(Cayman Islands)Captive Insurance
ECC Investiment Switzerland, AG(Switzerland)
Holding
Embraer Spain Holding Co. SL(Spain)Holding
EMBRAER S.A.(Brazil)
Manufacturer
EFL – Embraer Financial Limited.(Cayman Islands)
ECC Insurance Company
ECC Leasing Co. Ltd.(Ireland)Leasing
ECC Insurance & Financial Co. Ltd.(Cayman Islands)Captive Insurance
ECC Investiment Switzerland, AG(Switzerland)
Holding
Embraer Spain Holding Co. SL(Spain)Holding
EMBRAER S.A.(Brazil)
Manufacturer
Mission:• Assures the payment of contingent losses that Embraermay face related to Embraer’s financial guarantees;
ECC Insurance & Financial Co. Ltd.(Cayman Islands)Captive Insurance
Insurance Outline:
• IRB transaction approval:
• $ 406 MM premium payments over the next five
years covering all financial guarantees associated with
deliveries within such period
• Regulated by Cayman Islands Monetary Authority
• Initial Capital in Insurance $ 2,6 MM
• Insurance policy issued associated with aircraft
deliveries up to Sept.05:• $ 168.5 MM premium payments for obligations• $ 70,5 MM in IBNR losses• New declarations and endorsements quarterly (new premiums)
ECC Leasing Company
ECC Leasing Co. Ltd.(Ireland)Leasing
ECC Insurance & Financial Co. Ltd.(Cayman Islands)Captive Insurance
ECC Investiment Switzerland, AG(Switzerland)
Holding
Embraer Spain Holding Co. SL(Spain)Holding
EMBRAER S.A.(Brazil)
ManufacturerMission:• Manage and remarket a portfolio of aircraft that Embraer acquires through trade-ins and exercised put options;• Remarketing service provider for third-parties in connection with sales campaign.
ECC Leasing Co. Ltd.(Ireland)Leasing
• Embraer is NOT allowed to lease NEW aircraft without specific Board approval for such transactions;• Business sense: any transaction has to
accomplish a set of tests and rules, as follows:• Gross margin test;• Net margin test• Cash flow test; and• Title transfer rule.
• All new sale that may involve a TRADE-IN transaction in the
Commercial and Executive Aviation sectors shall be driven through
ECC Leasing/DAA for negotiations purposes.
• Prospective customers shall be jointly approached by Sales Team and
ECC Leasing/DAA in order to construct a trustful relationship with
Embraer and ECC Leasing.
ECC Leasing involvement in Embraer’stransactions
Asset Management (DAA) is responsible for all administration and technical issues related to Embraer’s portfolio of pre-owned aircraft.
ECC Leasing Company Ltd (ECC Leasing) was incorporated in Dublin(Ireland) on September 19th, 2002.
Main goal :• Manage the asset of Embraer pre-owned aircraft.• Acquire pre-owned aircraft in trade-in to support the new aircraft sales.• Repossess pre-owned aircraft in events of default by Lessee.• Manage remarketing obligations assumed by Embraer before lenders or
leasing companies.• Search for potential airlines on the market to acquire or lease the aircraft
from ECC Leasing portfolio.• Manage activities of appraisal, acquisition, leasing and remarketing of
pre-owned aircraft.
ECC Leasing main goal
• The purchase price of a pre-owned aircraft (“trade-in”) shall not be higher than the gross margin amount of the new aircraft sold by Embraer.ü If there is any positive difference, it shall be carried by the new aircraft
sales as an additional concession.ü It is prohibited cash flow shortage.
• New aircraft shall only be purchased by ECC Leasing/DAA if there is a substantive, specific and unanimous Board approval for such purchase or if such purchase is done through a third party company partnership.
• ECC Leasing/DAA can purchase “pre-series” aircraft, model EMBRAER 170, 175, 190 and 195 from Embraer for 70% its market price.
General Directives from ECC Leasing Board
Asset Management Remarketing Activities
7 ex-RioSul EMB 120sold to FAB
based on FMV in 2004/05
4 Legacy 600 leased to Flight OptionsBased on FMV in 2003
4 ex-RioSul ERJ 145 sold to FAB basedon FMV in 2004
2 ex-INDIGO ERJ 135 converted into 37pax and leased toChautauqua based on FMV in 2004
2 ex-Bral ERJ 145leased to TSA
based on FMV in 2003
Asset Management Remarketing Activities
2 ex-LOT ERJ 145 leased to FlyAir
based on FMV in 2005
2 EMBRAER 170 Pre-Seriesleased to Paramount
based on FMV in 2005
1 ex-LOT ERJ 145Advanced negotiations
with potential customers
2 ex-RioSul ERJ 145On-going negotiations
2 ERJ 145 Pre-Series leased to TSA
based on FMV in 2004
Asset Management Remarketing Activities
3 ex-RioSul ERJ 145sold to FAB
based on FMV in 2005
5 ex-RioSul ERJ 145Leased to Aerolitoral
based on FMV in 2005
1 ex-RioSul ERJ 145sold to DPF
based on FMV in 2005
Financial Results
Jet Deliveries
40 42
30 30
41
3Q04 4Q04 1Q05 2Q05 3Q05
Net Revenue by Segment
9M05
Defense Aviation 12%
Airline Market 72%
Business Jet Market 6%
Customer Services and Others 10%
Customer Services and Others 7%Business Jet
Market 4%
Airline Market 78%
Defense Aviation 11%
9M04
937 954763 812
1,064
33.2%28.1%
31.4%35.1%37.6%
3Q04 4Q04 1Q05 2Q05 3Q05
US$ million
2,144
3,4412,640
2,5262,9272,762
1837.31,353.5
38%34%
31%32.0% 32%
40% 39%
28.2%
1998 1999 2000 2001 2002 2003 2004 9M05
Net Revenues and Gross Margin – US GAAP
2,434
1,9352,036
2,734 2,647
32.2% 33.5%30.8%
24.5%
18.6%
3Q04 4Q04 1Q05 2Q05 3Q05
R$ million
1,570
3,347
5,099
6,8917,748
6,571
10,231
6,40628.3% 28.6%31.1%
41.6%44.6%
35.8%33.3%
24.2%
1998 1999 2000 2001 2002 2003 2004 9M05
Net Revenues and Gross Margin – BR GAAP
US$ Million
127 142 12599
167
13.6%14.9%
16.3%
12.2%
15.7%
3Q04 4Q04 1Q05 2Q05 3Q05
462651
470265
544390
17%
22%
19%
12%
16% 15%
2000 2001 2002 2003 2004 9M05
Income from Operations- US GAAP
462 465
328
141183
16.9%17.6%
16.1%
7.3% 7.5%
3Q04 4Q04 1Q05 2Q05 3Q05
R$ million
247 6251,027
1,9282,167
1,2431,740
652
10.1%
17.0%15.7%
18.7%20.1%
28.0% 28.0%
18.9%
1998 1999 2000 2001 2002 2003 2004 9M05
Income from Operations – BR GAAP
In US$ Millions 9M05 % of Sales % in US$*Net Sales 2,640 ~92%COGS 1,817 69% ~85%Gross Profit 822 45%Selling Expenses 178 22% ~80%SG&A 139 78% ~20%R&D 62 45% ~20%Other 18 29% ~20%
* Approximate amounts
Income Statement - Currency Breakdown
BR GAAP
The 21.3% Brazilian real appreciation against the U.S. dolar YoY impacted revenues and costs of goods sold as 95% of net revenues and 85% of COGS are denominated in U.S. dolars.
18.4%34,6%26,4% GROSS MARGIN(0,32)(0.03)(0.19)US$ DIFFERENCE
454 943511 GROSS PROFIT
2;64(1,980)2.97 (1,791)2.65(1.423) COGS
2.32
AverageUS$/R$
2,434
3T05
2.94
AverageUS$/R$
2,734
3T04
2.46
AverageUS$/R$
1,935
2T05
NET REVENUE
(R$ MM)
US GAAP
As only 15% of our COGS are denominated in reais and our functional currency is the US dolar, the impact of exchange rate fluctuations is much smaller.
Exchange Rate Impact – BR GAAP
Net Income – US GAAP
US$ Million
114
8397
83110
10.4%10.2%
12.6%12.1%
8.7%
3Q04 4Q04 1Q05 2Q05 3Q05
321 328
223
136
380
290
11%11%
6%
17%
11%
9%
2000 2001 2002 2003 2004 9M05
3 9 72 8 2 2 3 5
1 6 789
1 4 . 5 %
1 0 . 7 %1 1 . 5 %
8.6%
3 . 7 %
3Q04 4Q04 1Q05 2Q05 3Q05
R$ million
Net Income – BR GAAP
587 402
1.256
412132 6451,101 1,179
8.40%
15.2%
16.0%
12.6%12.3%
8.9%
12.3%
7.6%
1998 1999 2000 2001 2002 2003 2004 9M05
Balance Sheet
189 157250 251 302
514 529
607 654 488
3Q04 4Q04 1Q05 2Q05 3Q05
US$ MillionR$ million
US GAAP BR GAAP
Others Commercial Airl ine Market
575246
554 615
1,4771,444
1,451
695
1,584 1,182
3Q04 4Q04 1Q05 2Q05 3Q05
Outros Mercado de Aviação Comercial
Accounts Receivable Breakdown
US$ Million
Inventories
1,390 1,4281,570
1,7361,601
3Q04 4Q04 1Q05 2Q05 3Q05
R$ Million
US GAAP BR GAAP
4,1554,070
4,373
4,588
4,053
3Q04 4Q04 1Q05 2Q05 3Q05
US$ Million
Net Cash (Debt) Position
R$ Million
US GAAP BR GAAP
629
34180
-457 -552
3Q04 4Q04 1Q05 2Q05 3Q05
220
22
-167-229
97
3Q04 4Q04 1Q05 2Q05 3Q05
Total Debt of US$ 1,700.6 Million
• Average cost in R$ = 12.3%p/a
• Average cost in US$ =5.5% p/a
Loans
Long-Term Loan Average Maturity: 3 years and 3 months
Brazilian Currency
11%
Foreign Currency
89%
Long Term 66%
Short Term 34%
US$ million
2010
1,700
577
68340
279
203
127 108
Total Short Term 2006 2007 2008 2009 2010 Beyond
Loans Maturity
US$ 180 million Syndicated Loan
Proceeds to complete the end-stage launch program of
the EMBRAER 170/190 family. A Loan: US$35 million Final Maturity: 12 years Tranche B1: US$ 60 million Final Maturity: 10 years Tranche B2: US$ 85 million Final Maturity: 8 years Total B Loan: US$ 145 million
5 years and 5 months average maturity 6M libor + 2.9% weighted interest rate
IFC Syndicated Loan
Hedging Strategy
• Firm backlog of US$10.4 billion
• 92% revenues in US$
• 80% of R&D and PP&E investments in R$
• 37% of total cash disbursements in R$
Main Objective of the Hedging Strategy
Optimize the Natural Hedge of the Cash Flow
Balance Sheet
US GAAP
18% 18% 15% 16% 19% 14% 19%
82% 78% 82% 85% 84% 81% 86% 81%
22%
Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
12/31/2004 03/31/2005 06/30/2005 09/30/2005
R$ US$
Balance Sheet
US GAAPIncludes Derivatives
18% 18% 15% 16% 18% 14% 19%
82% 78% 82% 85% 84% 82% 86% 81%
22%
Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities
12/31/2004 03/31/2005 06/30/2005 09/30/2005
R$ Other Currencies
Investments
Investment Forecast
Defense investments are funded by their contracts and are notincluded in R&D expenses but in Cost of Sales and Services.
In US$ Millions
2007E
New Previous New Previous New
R&D Total 140 119 194 66 188Commercial Aviation 96 89 88 37 54Executive Aviation 15 11 70 12 87Others 29 19 36 17 47
Defense 31 88 18 38 21Productivity and PP&E 59 77 72 59 62
2005E 2006E
US$ Million
PP&E and R&D – Cash Flow
Gross R&D amounts
111
6450 59
726270
158173
153140
194 188
143
114100
2000 2001 2002 2003 2004 2005E 2006E 2007E
PP&E R&D
US$ million
-
246
11
1923
70
1081
14
Total
2001
2002
2003
2004
2005E
2006E
2007E
2008/2010E
Contributions from Risk Sharing Partners
Attachments
Financial Guarantees
• Provided in the form of guarantees of lease payments, to mitigate default-related losses.
• Mainly issued for the benefit of the customers financing agent.
• Exercised when customers do not meet their payment obligations during the term of the financing.
• Collateralized by the aircraft.
Upon an event of default, the Company usually is the agent for the guaranteed party for the refurbishment and remarketing of the underlying aircraft. The Company may be entitled to a fee for such remarketing services.Typically a claim under the guarantee shall be made only upon surrender of the underlying aircraft for remarketing
Financial GuaranteeA
/CV
AL
UE
/ R
emai
nin
gB
alan
ce
Debt or forecasted loss
Aircraft Value
(1 - % FLD) x RemainingBalance
Risk Exposure
BACK
Residual Value Guarantees (RVGs)
Provide a third party with a specific guaranteed asset value at the end of the financing agreement
In the event of a decrease in market value of the aircraft, the Company shall bear the difference between the specific guaranteed amount and the actual fair market value
In order to benefit from the guarantee, the guaranteed party has to make the aircraft meet tight specific return conditions
Financial Guarantees & RVGs
In the event both guarantees are issued for the same aircraft, the residual value guarantees can only be exercised if the financialguarantees have expired without having been triggered, and therefore, are mutually exclusive.
Financial Guarantees & RVGs
Time
Airc
raft
Val
ue
Aircraft MarketValue
RVG
% RVG x Aircraft Value
Exercise
window
Exposure
RVG Risk