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Contents Page
Overview 1
Historical Background to the Aircraft-Backed Debt Market 2
The Market for Aircraft-Backed Securities 5
Basic Comparison between EETCs and Pooled Lease ABS 8
The Changing View of Pooled Aircraft ABS versus EETCs 9
Typical ABS Deal Structures 11
Our Basis Approach to Aircraft Cash Flow Modeling 12
Data Quality and Model Risks 13
Relative Value Analysis in Pre-9/11 Pooled Aircraft ABS 15
Worldwide Market for Commercial Aircraft 18
Commercial Aircraft Leasing Companies 18
Lease Rate Update 20
Aircraft Demand Forecasts 21
What Makes a Good Leasing Asset? 22
The Impact of Fuel on Aircraft Operating Expenses 25
Appendicies
1 Useful Web Sites for Additional Data 30
2 Airline Monitor Forecast of Aircraft Requirements 31
3 Aviation Forecasts from FAA and IATA 32
4 Current Order Book for Large Commercial Aircraft 33


Overview

Debt backed by commercial aircraft and aircraft-related assets is making a
resurgence in the new issue market. Hedge funds and private equity groups are
investing in the aircraft sector in record numbers, and some recent high-profile deals
highlight the potential in the sector:

Cerberus Capital, a $13 billion private equity group, purchased debis
AirFinance in June and has used the securitization market to source term
Structured Products Research September 7, 2005
Commercial ABS
Background to Aircraft-Backed
Debt Securities

Mark Heberle
mark.heberle@wachovia.com
704-383-1936

Chris van Heerden
chris.vanheerden@wachovia.com
704-715-8321

Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH

2
financing for the transaction. The recently priced $1 billion Aircraft Lease
Securitization (AERLS 2005-1A) was met by strong investor demand.
Earlier this summer, UBS brought an unwrapped securitization of aircraft
engine leases for Willis Engine Lease Finance. The $200 million split-rated
Baa1 Moodys/single-A Fitch Class A1s priced to yield LIBOR plus 153 bps.
This was seen as a strong print for unwrapped aircraft-related risk.
Aviation Capital Group purchased Boullioun Aviation from West LB in
July 2005 for $2.65 billion and is likely to be returning to the securitization
market with at least one and possible two transactions to finance this
acquisition.
Private investment firm Oaktree Capital Management of Los Angeles has
teamed up with Pegasus Aviation in a joint venture to purchase additional
aircraft for this three-time issuer in the pooled aircraft ABS market.
Morgan Stanley has announced it will be selling AWAS, its commercial
aircraft leasing business. AWAS, the former Ansett Worldwide Aviation
Services, is a stand-alone leasing company with a portfolio of 155
commercial aircraft with a market value of approximately $2.5 billion. Likely
buyers will probably look for term financing in the pooled aircraft
ABS market.

In addition, a number of opportunity funds have started up in recent years to
purchase aircraft from airlines under extraordinary stress. This expected new
issuance should revive the sector with newly structured debt based on the current
reality for lease rates. This should also create new interest in the sector from
investors that have been out of the market for a number of years since the market
peaked prior to 9/11.

Historical Background to the Aircraft-Backed Debt Market

Before deregulation of the airline industry, which started in the United States in
1978, the industry was financed primarily by the banking sector with a combination
of loans and mortgages on aircraft. A few large carriers maintained monopoly
pricing in protected markets. Service levels were high with hot meals and drinks
provided. Air travel remained the domain of business travelers and only wealthy
individuals and their families used airlines to travel on vacations. Systemwide load
factors were near 50% in the early 1970s; fully half of the seats were unoccupied.

Deregulation allowed airlines to compete directly by letting market forces determine
routes and fares, while allowing for an influx of new entrants. Prices dropped and
airlines were forced to focus on cost containment. During the 1980s, airlines were
able to remain relatively profitable by developing a system of yield management to
maximize revenue on a particular flight. In effect, passengers were charged different
amounts for similar service. Price-insensitive business travelers were charged
significantly higher prices for the convenience of last-minute bookings, which
subsidized the lower cost being charged to vacation travelers with the flexibility of
booking travel farther in advance, and load factors increased.

Before deregulation,
the industry was
financed primarily by
the banking sector.
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH


3
By the 1990s, the largest U.S. airlines had developed huband-spoke networks to
more efficiently provide service to their extensive route structures when the first
Persian Gulf War sent the sector into a three-year downturn. As airline credit
deteriorated, traditional sources of financing that relied heavily on corporate credit
dried up and new structures evolved that migrated to a higher reliance on asset
value and structure for the repayment of debt.

Exhibit 1: The Movement from Credit Risk to Asset Risk

Source: Wachovia Securities.

Exhibit 1 depicts the various alternatives available to finance aircraft, as they range
along a continuum from reliance on corporate credit risk at one end to reliance on
assets and structure at the other. Early forms of finance in the sector, such as bank
loans, leveraged leases and mortgages, relied primarily on the airline credit for
repayment. Equipment trust certificates (ETCs) and pass-through certificates (PTCs)
were rudimentary forms of structured finance where airlines would finance
individual aircraft in stand-alone structures.

These structures gave way to enhanced equipment trust certificates (EETCs;
pronounced double-E TCs). The enhancement to these securities came from adding
larger pools of aircraft, with more than one aircraft type, then issuing several
tranches of debt. A final enhancement over the ETCs was the addition of a liquidity
facility that would continue to service interest payments for 18 months in the event
of default by the airline.

As banks withdrew from direct lending to airlines, the void was partially filled by
specialized leasing companies with the expertise to maximize the value of
commercial aircraft through active management of their aircraft portfolios. These
operating lease companies were able to diversify the credit risk across a large
number of operators in diverse geographic locations, and they had the asset-specific
expertise to be able to move aircraft out of low-growth markets and redeploy them
in high-demand areas of the world.

Many of these operating lease companies are owned by profitable parent companies
that can use the valuable depreciation expense associated with aircraft ownership.
They have grown rapidly through sale/leaseback transactions as heavy losses by
carriers have made them inefficient holders of these assets.

New structures
evolved that migrated
to a higher reliance on
asset value and
structure for the
repayment of debt.
Aircraft financing
alternatives range
along a continuum
from reliance on
corporate credit risk
to reliance on assets
and structure.
Credit Risk Asset Risk / Structure
Bank Loans Mortgages ETCs / PTCs EETCs Pooled ABS
Leveraged Leasing Bankrupt EETCs (UAL)
Wrapped Tranches
Credit Risk Asset Risk / Structure
Bank Loans Mortgages ETCs / PTCs EETCs Pooled ABS
Leveraged Leasing Bankrupt EETCs (UAL)
Wrapped Tranches
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH

4
In Exhibit 2 on page 4, we have used the Airclaims CASE database to break down
the market for Western-built jet aircraft in use by airlines to show the changing
pattern of ownership and management in the commercial jet aircraft market since
1990. Both EETCs and pooled aircraft ABS are structured financings that use special
purpose vehicles (SPVs) to hold ownership of the aircraft being financed. These
SPVs are grouped under the category of Broker, Bank or Manufacturer within the
CASE database. Therefore, aircraft financed in a EETC will show up as owned by
Broker, Bank or Manufacturer but managed by an airline. Similarly, aircraft that
are financed in a pooled aircraft ABS transaction will show up as owned by Broker,
Bank or Manufacturer but managed by an operating lease company.

We have looked at changes in both ownership as well as management and made the
following observations:

In 1990, airlines owned 59% of the aircraft in standard airline usage. That
number dropped to 45% by January 2005. Over that same period, airlines
went from managing 76% of their aircraft down to 64%.
Operating lease companies increased their share of aircraft managed from
17% in 1990 to 30% by January 2005. Their direct ownership percentage only
increased from 13 to 16%, as much of their recent growth has been financed
in the pooled aircraft ABS market.

Exhibit 2: Changing Ownership of Commercial Aircraft
Aircraft Market by Manager Category Aircraft Market by Ownership Category
Year
A
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C
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T
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1990 76% 6% 17% 1% 100% 59% 26% 13% 2% 100%
1991 73% 7% 20% 1% 100% 55% 29% 15% 2% 100%
1992 71% 7% 21% 1% 100% 53% 30% 15% 2% 100%
1993 70% 7% 22% 1% 100% 51% 30% 16% 2% 100%
1994 70% 7% 22% 1% 100% 51% 31% 16% 2% 100%
1995 71% 6% 22% 1% 100% 50% 33% 15% 2% 100%
1996 71% 6% 22% 1% 100% 51% 32% 15% 2% 100%
1997 72% 5% 22% 1% 100% 51% 32% 15% 2% 100%
1998 71% 4% 23% 1% 100% 50% 33% 15% 2% 100%
1999 71% 4% 23% 1% 100% 50% 33% 15% 2% 100%
2000 71% 4% 24% 1% 100% 49% 34% 14% 2% 100%
2001 71% 4% 25% 1% 100% 49% 34% 14% 2% 100%
2002 68% 4% 27% 1% 100% 49% 34% 15% 2% 100%
2003 66% 4% 29% 1% 100% 46% 34% 16% 3% 100%
2004 65% 4% 29% 1% 100% 46% 35% 16% 3% 100%
2005 64% 5% 30% 2% 100% 45% 34% 16% 4% 100%
Source: Airclaims Ltd.


As a result of deregulation, air service for consumers has vastly expanded at lower
prices. Airlines are using assets significantly more efficiently than they did prior to
deregulation, however, fierce competition in a high-operating-margin business
means airline credit remains vulnerable, and we expect aircraft ownership to
continue moving into the hands of operating lessors. Capital markets funding for
these aircraft will mean continued growth for the pooled aircraft ABS sector.
Operating lessors
increased their share
of aircraft managed
from 17% in 1990 to
30% by January 2005.
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH


5
The Market for Aircraft-Backed Securities

Exhibit 3: Aircraft-Backed Debt Issuance
0
2
4
6
8
10
12
14
16
18
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
$
b
i
l
l
i
o
n
s
ABS EETC Other
Source: Wachovia Securities.


The first pooled ABS transaction was done in 1992, whereas the earliest EETC
transactions were done in 1994 (Exhibit 3). Issuance peaked in 2000 with a total of
$15.1 billion from 30 transactions. In 2001, issuance in the sector appeared headed
toward record levels until the terrorist attacks of 9/11 halted issuance of pooled
aircraft lease ABS.

The EETC market remained open after 9/11 as Delta Air Lines, Inc., came to market
just days after the attacks with a $1.4 billion EETC transaction. In the fourth quarter
of 2001, the EETC market remained open to American Airlines, Inc., and Southwest
Airlines Co. as they brought to market deals of $1.7 billion and $614 million,
respectively. Issuance across the aircraft-backed market dropped dramatically in
2002, with only eight deals pricing for a total of just $4.3 billion.

2003 marked the return of pooled aircraft ABS to the market post 9/11 with the
Wachovia Securities-led Aviation Capital Group 2003 transaction. The deal featured
a supplemental rental facility, which helped provide cash flow to the transaction in
the event that lease rentals dropped below a threshold amount. 2003 also marked the
emergence of the repacked transaction of existing securities and the use of monoline
wraps to increase liquidity. In Exhibit 4 on page 6, we highlight the repackaged and
wrapped transactions that have been brought to market since 2003.

The Bear Stearns-led Aircraft Certificate Owner Trust 2003 is the largest repackaged
transaction at $1.3 billion. The deal was a repackaging of the guaranteed portions of
US Airways EETCs. This was also the only repackaging of EETC collateral to date.
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH

6
The most popular securities for wrapped transactions have been the senior securities
of the LIFT transaction that was initially brought to market in 2001. These securities
appealed to the monoline wrap providers, because they had been rated by S&P and
were investment grade at the time the transactions were wrapped.

Exhibit 4: Repackaged and /or Wrapped Secondary Aircraft Securities
Date Deal
Amount
($mm)
Credit Enhancement Underlying Security Lead
4/22/2003 ACBN 2003-1 1,365 MBIA A Classes of US Air EETCs BS
9/23/2003 CSTLE 2003-1W 75 MBIA CSTLE 2003-1 A1s LB
11/13/2003 LIFT 1W A3s 47 Ambac LIFT A3s WS
12/4/2003 CRABS 2003-1 200 Subordination AIRPT A9s / Zero CPN MS
1/14/2004 CSTLE 2003-2W 125 MBIA CSTLE 2003-2 A1s LB
3/31/2004 ARTS 2004-1 312 Subordination/ MBIA $156mm LIFT A1s/A2s MS
4/15/2004 ARTS 2004-2 60 Subordination/ MBIA $30mm LIFT A1/A2s MS
5/17/2005 UCAT 2005-1 203 Ambac $145mm LIFT A1s/A2s UCM
2,387
Source: Bloomberg LP, Rating Agency websites, Wachovia Securities


There were no pooled aircraft ABS deals brought to market in 2004 with a total
issuance of a mere $2.8 billion. With the recent pricing of the AERLS transaction that
financed the Cerberus Capitals acquisition of debis AirFinance, the pooled aircraft
ABS market is again active with new issue activity.

Exhibit 5: Total Issuance of Aircraft Backed Debt
In terms of total market
size, there has been
total issuance of
$72 billion in securities
backed by aircraft since
1992, of which there
is approximately $51
billion outstanding
(Exhibit 5). The EETC
market represents 54%
of the securities issued
but 61% of the
securities outstanding.
The next largest segment of the market is pooled lease ABS, which represents 37% of
total issuance but only 28% of the current market.

The greater contraction of the ABS market is partially explained by the fact that in
2001 Morgan Stanley called its entire MSAF program, which had been a major issuer
in this market. The EETC market has benefited from greater liquidity with a current
market size of $34 billion versus approximately $13 billion in the ABS sector. The
other category of aircraft-backed securities consists of the funded portions of
synthetic transactions and deals backed by loans on corporate jets.







$72 billion in aircraft-
backed securities have
been issued since 2005.
Other
9%
EETC
54%
ABS
37%
Source: Bloomberg LP and Wachovia Securities estimates.
Total Issuance: $71.72 billion
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH


7
Exhibit 6: Estimated Current Outstanding Aircraft-Backed Debt
Continental Airlines,
Inc., represents 22%
of the EETC market
with $9.1 billion
in issuance from
20 transactions
(Exhibit 7), whereas
United Airlines is
second with 13%.
American, Northwest
and Delta account for
approximately 11%
market share each.
These top five issuers
represent 68% of the
market. Investors interested in evaluating cross-sector opportunities between pooled
aircraft ABS and the EETC market need to understand that moving from EETCs into
ABS requires giving up liquidity for structure.

Exhibit 7: EETC Issuance by Airlines
Continental Airlines
22%
United Airlines
13%
American Airlines
11%
Northwest Airlines
11%
Delta Air Lines
11%
US Airways
10%
Other
22%
Source: Bloomberg L.P. and Wachovia Securities, LLC.






Continental Airlines,
Inc., represents 22% of
the EETC market with
$9.1 billion in issuance
from 20 transactions.
Other
11%
EETC
61%
ABS
28%
Source: Bloomberg LP and Wachovia Securities estimates.
Total Outstanding: $51.45 billion
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH

8
Basic Comparison between EETCs and Pooled Lease ABS

Aircraft-backed debt securities follow along a continuum based on a reliance on
corporate credit from the unsecured debt and ETCs at one end of the spectrum to a
reliance on structure and collateral in the EETC and ABS markets on the other.
EETCs are corporate debt securities with certain characteristics of securitized assets.
In the current environment, the corporate credit component has weakened and the
securities are trading more on the reliance on their structural support and the quality
of their aircraft.

EETCs and pooled aircraft ABS are being affected by weakening airline credit
quality and LTV levels that are being eroded due to the assumed reduction in
aircraft values post 9/11. To address the ramifications of these stresses, we compare
EETCs with aircraft lease ABS based on diversification, re-leasing risk and risk due
to the erosion of aircraft values.

Diversification. Aircraft pools diversify the risks to lessees, aircraft and
geographic regions. As aircraft become available from either normal lease
maturities or default by an individual airline, the aircraft can be marketed in
other regions. Meanwhile, EETCs have concentrated exposure to an individual
lessee and a narrow range of aircraft types. On the other hand, EETCs are
typically backed by newer aircraft and the credit quality of the individual lessee
is usually higher in a EETC than the overall credit quality in a pooled
transaction. However, U.S. airlines have been the most drastically affected by the
terrorist attacks, and most EETCs are issued by U.S. airlines, highlighting the
primary strength of regional diversification.

Re-leasing risk. Pooled aircraft ABS have come under stress due to lessee credit
weakness and, to varying degrees, the number of aircraft types coming on the
market due to U.S. and foreign fleet reductions. EETCs, on the other hand, are
generally fully amortizing corporate obligations over the life of the security. In
other words, the aircraft lease securitizations have re-leasing risk, whereas the
EETCs have individual credit risk and the risk that, in the event of default, the
aircraft will have to be marketed in a distressed market. In the current
environment, the binary credit risk of the EETC transactions has become more
pronounced and therefore these transactions have greater risk to the net
realizable value of the underlying aircraft.

Risk of aircraft valuations. Protection is provided to pooled aircraft ABS deals
and EETCs in the form of overcollateralization. As discussed earlier, the typical
LTVs of the EETCs are lower than those of a pooled aircraft lease securitization
for a given rating level. Although both asset classes are exposed to the risk of
declining aircraft values, the structure of the pooled aircraft lease securitizations
is more resilient to short-term shocks and recessions. To understand why, we
need to take a closer look at aircraft valuation methods.

Within the context of airline finance, valuations are described as being either base
value or market value. The base value of an aircraft is an appraisers opinion of the
underlying economic value of an aircraft in an open, unrestricted, stable market
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH


9
environment with a reasonable balance of supply and demand. These values assume
that aircraft can be marketed under stable market conditions. Market value, on the
other hand, is the appraisers opinion of the most likely trading price for the aircraft
in the then-current economic environment. Differences between base values and
market values become important in times of severe stress such as these. Base values
will be more stable than market values.

Aircraft lease securitizations will generally have annual reviews to update their base
values. To the extent that base values drop more than 5% below the expected base
values in the deal, the scheduled amortization of senior classes is generally
accelerated at the expense of the junior classes to bring LTVs in the deal back into
balance. EETC securities, on the other hand, do not have annual appraisals, and
investors need to take this into account when looking at cross-sector opportunities.

EETCs are more exposed to market value risk, whereas pooled aircraft lease
securitizations are more exposed to base value risk. Although EETCs are structured
with liquidity reserves that can cover interest payments for 18 months while an
aircraft is being marketed for sale, the risk in the current environment is that the
stress on aircraft values will keep market values below base values for an extended
period. For EETCs, this effect is partially offset by newer collateral and lower LTVs.
Many investors have mistakenly assumed that these lower LTVs are a sign of more
conservative structuring of EETCs. This is not so; the lower LTVs associated with
EETCs are warranted due to the reliance of these structures on realizable asset value.

The Changing View of Pooled Aircraft ABS versus EETCs

Exhibit 8: Pooled Aircraft ABS versus EETCs

EETCs Pooled Aircraft ABS
At time of
issuance
Pros
Cons
No lessee diversification
No geographic diversification
No servicer
Generally unrated lessee base
Aircraft generally older than in EETCs
In the Current
Market
Pros
Cons
Major U.S. airlines in trouble
Structures not working as
contemplated in bankruptcy
Some deals have older aircraft types
All deals are suffering from lower
lease rates
ABS: Asset-backed securities; EETCs: Enhanced equipment trust certificates.
Source: Wachovia Securities.
Newer aircraft
Generally core to airline fleets
Low investment-grade lessee
Diversified by aircraft, geography and
lessee
Actively managed pool
Newer aircraft
Most managers have been able to
keep aircraft flying, albeit at lower
lease rates


EETCs are more
exposed to market
value risk, whereas
pooled aircraft lease
securitizations are
more exposed to base
value risk.
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH

10
We have summarized the changing view of the pooled aircraft ABS market versus
the EETC market in Exhibit 8. When these deals were first being done, one positive
feature of EETCs was that they were backed by newer aircraft that were core to the
issuing airlines fleet. EETCs were almost all issued by the major U.S. carriers, which
was viewed as a good thing until the downturn in the U.S. market that was
exacerbated by the events of 9/11. The downside of the EETC was that there was no
diversification in credit exposure and there was little diversification among aircraft
types.

Another drawback of these structures was the lack of a dedicated servicer. This was
not generally viewed as a major negative, however, because there was no
expectation of having to remarket the aircraft during the life of the deal.
Unfortunately, as a number of these transactions are tested by bankruptcy, the lack
of professional servicers has become an issue as creditors with limited industry
knowledge attempt to enforce their rights in these transactions.

The pooled lease transactions, on the other hand, were issued with a broad
diversification across lessees, aircraft and regions worldwide. The negatives for the
pooled lease deals were that their aircraft were older on average than the EETCs and
that their lessee base generally comprised unrated entities around the world.

In the current environment, many of those unrated companies have fared much
better than the major U.S. airlines that issued EETCs. However, due to the severity of
the decline in commercial aviation, some older aircraft types will be retired early and
the shorter expected useful lives of these aircraft have a greater effect on the pooled
lease deals than the EETC deals. In addition, the global nature of the downturn has
temporarily reduced the value of regional diversification.

One aspect of the pooled lease transactions that has become more valuable is the
value of active management. These transactions were structured with the full
knowledge that aircraft would have to be placed with more than one lessee over the
life of the transaction. The ability of these managers to repossess and release aircraft
has been severely tested over the past several years, and most have done a good job
of keeping their aircraft flying. As with the EETC market, relative value will hinge
on a thorough analysis of the aircraft backing the transactions and the structural
support given a particular security.

One aspect of the
pooled lease
transactions that has
become more valuable
is the value of active
management.
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH


11
Typical ABS Deal Structures

Exhibit 9: Typical Pre-9/11 Deal Structure
0
200
400
600
800
1,000
1,200
1,400
1,600
J
u
l
-
0
1
J
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0
3
J
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0
5
J
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0
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J
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9
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2
5
P
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i
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c
i
p
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(
$
m
i
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n
)
Source: Wachovia Securities.
A-Class
Second Pay
A-Class
Senior Amortizer


Pre-9/11 pooled aircraft ABS transactions were intended to pay down the liabilities
of the structure in advance of the projected depreciation of the underlying aircraft in
the portfolio. Generally, commercial aircraft are expected to fly in revenue service
for 2530 years with many examples flying for much longer.

Each transaction has its own set of assumptions related to useful life and
depreciation based on the particular makeup of the portfolio of aircraft with some
deals using 25-year useful lives and assumptions of residual value, while others
assumed 30-year useful lives and no residual value.

A typical pre-9/11 pooled aircraft ABS transaction was structured similar to the
example shown in Exhibit 9. The senior A classes in these deals would usually
represent 70%75% of the liabilities in the transaction and were generally issued on a
floating-rate basis. Subordinated tranches were generally amortizing securities with
fixed and floating coupons. Payment of principal was based on minimum principal
paydown curve as well as a scheduled principal paydown curve.

In Exhibit 9, there are two second-pay securities, originally structured as soft bullets,
that were projected to be refinanced 23 years from the time of issuance. Failure to
refinance these securities was to result in the payment of a step-up coupon of 50 bps.
Since the downturn in the aviation sector that followed the events of 9/11, none of
the pre-9/11 transactions have refinanced their soft-bullet securities. These deals
have all experienced reductions in lease rate cash flow and have therefore not had
sufficient funds available to pay the subordinated step-up coupons.

Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH

12
Given the low cost of funds represented by these original transactions, we do not
anticipate any of these transactions refinancing any of these existing structures.
Although severely distressed, these securities are very resilient to indenture events
of default. The most likely event of default in the current market is the failure to pay
senior class interest. Due to the resiliency of their structure and their prevalence in
the capital structure, many senior second-pay securities have extended out to their
minimum principal curves and, in many cases, trading at distressed level. Senior
second-pay securities represent the largest portion of the tradable supply of
securities in this sector.

In the first year or so after 9/11, trading activity in the sector used stress runs based
on parallel shifts in the cash flow from each deals offering memorandum. By early
2004, this method of evaluation had given way to a more detailed analysis based on
modeling of cash flow at the aircraft level. In the following section, we describe the
Wachovia Securities methodology for modeling asset cash flow in these pre-9/11
aircraft transactions.

Our Basic Approach to Aircraft Cash Flow Modeling

Modeling future cash flow on aircraft ABS transactions is a difficult undertaking.
The market has been changing rapidly, and estimates of aircraft values and lease
rates are in continuous flux. Our goal is to evaluate deals based more on consistency
in our approach rather than presenting these cash flows as our best guess of the
income stream likely to be experienced by the deals. These cash flows do not
represent our best guess of future cash flows; rather, they represent our conservative
estimate of cash flows with limited credit being given for the correlation of lease
rates and interest rates. Due to the static nature of these scenarios, they are not
appropriate for a full evaluation of subordinate tranches in this sector. Pricing on
subordinate tranches reflects significant option value and represents leveraged bets
on the recovery of this sector.

In the past several years, investors in this sector have taken conservative views on
cash flows and market values and then run those cash flows against forward LIBOR
to come up with conservative return assumptions. These calculated returns are
viewed as conservative, because the combined effect of running distressed and
declining cash flows against a steep forward curve is to mute the correlation of lease
rates and interest rates. This analysis continues to evaluate the universe of pooled
aircraft ABS transactions in this conservative manner. Our basic methodology in
evaluating pooled aircraft ABS transactions involves
estimating or using actual reported current lease cash flow for each aircraft in
the portfolio.
estimating or using actual lease rollover dates.
marking leases to market after the conclusion of the current lease using third-
party lease rate data from Airclaims.
making assumptions for new lease rate terms, downtime and rate decline
percentages.
making a reasonable assumption for collection of maintenance reserves as a
percentage of lease revenue.

Senior second-pay
securities represent the
largest portion of the
tradable supply of
securities in this
sector.
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH


13
running the resulting cash flow through the liability waterfall of the transaction
using forward LIBOR.
Our cash flow models have been enhanced through the creation of a centralized
database of our residual value assumptions for every aircraft type and year
combination in our universe of aircraft that back these deals. This centralization of
the residual value modeling is the key component of our revised asset models. In
our prior models, each aircraft would have its residual value modeled as a
percentage of its initial base value. Although we were standardizing the percentage
recovery for different aircraft types, the differences in initial base values created an
inconsistent dollar value of recovery for similar aircraft.

To gauge our models, we have to standardize our assumptions beyond just the
residual value of different aircraft types. Other significant assumptions that have to
be considered are terms of new lease rollovers, useful lives of aircraft and the roll
down of future lease rates as the aircraft age. Our generalized default assumptions
for cash flow modeling are as follows:
New lease rollover termsfive years
Lease rate decline for second-lease rollover10%
Useful lives of passenger aircraft are assumed to be 25 years, and freighters are
assumed to have useful lives of 15 years from time of conversion.
Residual values are calculated from the residual value database to ensure
consistency across various transactions.

Data Quality and Model Risks

Modeling risk can be associated with the data quality as well as simple bugs in your
calculation engine. The sector came of age at a time when the reporting requirements
were not very onerous. Some servicers, such as GECAS, have voluntarily increased
the amount of data that they report on their deals. In Exhibit 11 on page 14, we
summarize our views on the quality of inputs that we have for each deal. The grades
given for the data quality have the following general meanings: Ausually given
most relevant information on a monthly basis; Bmost rollover dates updated in
quarterly reports; and Conly minimal updates given for the lease rollovers of
aircraft. Estimates on these deals entail assumptions about when leases roll over.
Also, in most cases there is no breakdown of the current lease rate by aircraft and
lessee. EAST, PALS 1999 and PALS 2000 provide the most lease rate and rollover
data of any of the transactions in the market.

Our cash flow models
have been enhanced
through a centralized
database of residual
value assumptions.
Some servicers, such
as GECAS, have
voluntarily increased
the amount of data
that they report on
their deals.
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH

14
Exhibit 11: Cash Flow Models Summary Data
Data
Quality
Notes
ACAP 2000 C
Current lessees derived from Airclaims CASE database and
annual appraisal (August 2004); lease expirations estimated
except about 10 that have detail in CASE; lease rates
estimated. We have serious concerns over our ability to
predict lease rollovers.
Aerco B
Lessee data from the quarterly report; expirations are
estimated based on summary table in quarterly report; lease
rates are our estimates
AFT 1999 A
Lessee plus expiration data from monthly report; lease rates
estimated
AIRPT C
Lessee plus expiration from CASE and 10-Q; lease rates
estimated.
EAST 2000 A
Full lessee, lease rate and rollover data published monthly.
We grade the available data as an A.
LIFT A
Lessee plus expiration data from monthly report; lease rates
estimated
PALS 1999 A Lessee, expiration and rates from monthly report
PALS 2000 A Lessee, expiration and rates from monthly report
PALS 2001 B
Lessee data from monthly reports; some expiration given in
monthly reports; rates estimated
TAF B Lessee, expiration and rates from quarterly reports
Source: Wachovia Securities.


Investors in the aircraft ABS sector have to be diligent about doing the work to
become comfortable with the risks inherent in this asset class. Modeling aircraft lease
cash flow and then evaluating the corresponding liability waterfall is fraught with
potential modeling risks. Even though the focus of this discussion is on the asset-
side modeling of these deals, the resulting analytics that we will be evaluating at the
deal level will be greatly influenced by the assumptions being made in the liability
models. From this perspective, the biggest risks are those related to the modeling of
hedges in the deals. In Exhibit 12 on page 15, we show the swap notional amounts in
Wachovia Securities liability models as a percentage of the Class A balances
outstanding on each deal.



Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH


15
Exhibit 12: Liability Model Hedge Assumptions
Swap Balance
as % of Class A
Swap Data Source Balance
ACAP 2000 Estimate 30.6%
Aerco Mar 2005 quarterly report 85.4%
AFT 1999 Dec 2004 quarterly report 83.1%
AIRPT Dec 2004 quarterly report 88.8%
EAST 2000 Mar 2005 quarterly report 64.7%
LIFT Estimate 111.0%
PALS 1999 Fixed-rate deal, no hedging 0.0%
PALS 2000 Estimate 36.3%
PALS 2001 Estimate 103.7%
TAF Estimate 27.4%
Source: Wachovia Securities.


In addition, investors should avoid the pitfall of attributing too much predictive
power to even the most elegant models. The key from the investor viewpoint is to
evaluate opportunities in the sector in such a way as to gain comfort that model
error is skewed to the upside.

Relative Value Analysis in Pre-9/11 Pooled Aircraft ABS

The senior amortizing securities in the pooled aircraft ABS sector have remained the
most liquid securities in the sector and currently trade in the context of LIBOR plus
200 bps area. These securities traded as wide as LIBOR plus 400 bps during the
worst of the downturn as large European structured investment vehicles (SIVs) were
liquidating their holding of these securities.

These securities are pro rata with regard to interest payments with the rest of the
A class securities but senior with regard to principal payments. However, in the
event of an indenture event of default, these securities would become pro rata and
pari passu with the rest of the A class securities for both principal and interest.
Active markets are made in most of these securities, but trading is most pronounced
for those securities with the largest outstanding balances.

In Exhibit 13 on page 16, we show the current outstanding balances of current-pay
senior amortizing classes in the sector. AIRPT A8s represent a full 25% of the
tradable supply in the sector. Along with the LIFT A3s, these are the most actively
traded senior amortizers.









The senior amortizing
securities in the pooled
aircraft ABS sector
have remained the
most liquid securities
in the sector.
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH

16
Exhibit 13: Current Pay Amortizing Securities in the Pooled Aircraft ABS Sector
Total Total %
Deal Tranche Coupon Moodys S&P Fitch Issued ($) Outstanding ($) Outstanding
ACAP 2000-1A A2 1-Month LIBOR + 48 bps A1 A A 150,200,000 47,463,716 2%
Aerco 1A A2 1-Month LIBOR + 32 bps Aa2 AA- BBB+ 290,000,000 44,141,671 2%
Aerco 2A A4 1-Month LIBOR + 52 bps A1 A BBB 235,000,000 122,077,301 6%
AFT 1999-1A A2 1-Month LIBOR + 50 bps Baa1 BBB+ 400,000,000 194,617,754 9%
AIRPT 1R A8 1-Month LIBOR + 37.5 bps Baa3 A BB 700,000,000 560,997,781 25%
ALPS 1996-1 A 1-Month LIBOR + 87 bps Baa3 BB 25,000,000 7,413,730 0%
ALPS 1996-1 AX 1-Month LIBOR + 87 bps Baa3 BB 160,673,000 47,647,446 2%
ALPS 1996-1 AXX 1-Month LIBOR + 87 bps Baa3 BB 60,000,000 17,792,951 1%
EAST 2000-A A2 1-Month LIBOR + 48 bps B3 BB B 175,000,000 101,573,151 5%
LIFT 1 A3 1-Month LIBOR + 48 bps Baa1 A BBB- 425,000,000 274,829,681 12%
PALS 1999-1A A1 6.30% Caa1 CCC 285,000,000 175,357,659 8%
PALS 2000-1 A1 1-Month LIBOR + 62.5 bps B3 B- 381,000,000 298,749,732 14%
PALS 2001-1A A3 1-Month LIBOR + 68 bps Ba1/*- B 376,000,000 257,469,636 12%
TAF 1A A2 1-Month LIBOR + 70 bps Ba1/*- BB+ BB 250,000,000 60,794,483 3%
Total Amortizers 3,912,873,000 2,210,926,691 100%
Source: Bloomberg L.P. and Wachovia Securities.
Rating


In our Aug. 1, 2005, issue of Aircraft ABS Analytics Sourcebook, we introduced our
IO/PO analysis of the second-pay senior securities in the pooled aircraft ABS sector.
This analysis provides investors with a handy reference with which to judge the
relative merits of the second-pay senior securities in the sector by comparing the
recent market prices to an intrinsic value that we have developed by separating the
interest and principal components of our base case cash flows and valuing them
separately.

In Exhibit 14 on page 17, we highlight the results of our analysis under our base case
cash flow assumptions from August 2005. In our base case for this analysis, we value
the more senior interest component at a discount margin (DM) of 100 bps and the
principal with a targeted 10% yield. We add these separate intrinsic value
components together and compare the total intrinsic value to the current market
price of the securities. The dollar price difference between the intrinsic value and the
current market price is in the highlighted column. The analysis is also calculated at a
DM of 150 bps and a yield of 15%.

Additional exhibits have been generated based on parallel shifts in our cash flow
projections with Exhibit 15 on page 17 based on 120% of base case cash flow and
Exhibit 16 on page 17 based on cash flow that is 80% of our base case. Under this
evaluation methodology, we are able to highlight the following interesting dynamics
taking place in the market for these senior second-pay securities:

Securities for which a principal window is opening soon trade at levels more
in line with their intrinsic value. The ACAP A1s are trading at only a point
lower than their intrinsic value, whereas deals with late principal windows
are trading at significant discounts to intrinsic value.
Second pays that are cuspy on the repayment of principal, such as the
AIRPT A9s, have a natural resistance in their trading levels as lower cash
flow may actually extend the IO cash flow. Thus, the A9s in our base case
have an IO value of 44 (Exhibit 14) and this increases to 50.86 at an 80% cash
flow scenario (Exhibit 16).
Recent activity in repackaging these senior second pays favor higher-rated
securities and those rated by S&P. This had been the reason for a number of
transactions that involved wrapping LIFT A1s and A2s (i.e., the UCAT and
AIRPT A8s and
LIFT A3s are the most
actively traded senior
amortizers.
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH


17
ARTS deals). The S&P rating is necessary for monoline insurance companies
to calculate their capital charges related to any secondary wrap transactions.
This becomes important for investors looking for an exit strategy related to
insured repackaged deals. While the ARTS deals did not have a monoline
wrap, it certainly helped that the LIFT A1s and A2s were rated investment
grade at the time the transactions closed.
The cheapest cash flows in the market are the distressed second pays off of
deals that are not expected to fully repay principal. The second-pay
securities off of the PALS deals all trade at levels substantially below their
intrinsic value.

Exhibit 14: IO/PO Analysis of Second-Pay Senior Pooled Aircraft ABS Securities
(100% of Base case)
Deal Tranche
Current
Price
IO @ 100 DM PO @ 10% Total Diff IO @ 150 DM PO @ 15% Total Diff
Begin Prin
window
Prin Writedown
%
Prin
WAL
ACAP 2000 A1 77.5 34.18 44.41 78.59 -1.09 33.33 33.17 66.50 11.00 2/15/2006 13.40% 7.30
Aerco A3 75.75 33.07 46.78 79.85 -4.10 32.35 33.49 65.85 9.90 7/15/2007 0.00% 8.25
AFT 1999 A1 64 49.91 24.11 74.02 -10.02 48.33 15.00 63.32 0.68 6/15/2009 0.00% 12.15
AIRPT A9 54.25 44.00 23.14 67.15 -12.90 42.83 14.81 57.65 -3.40 8/15/2012 40.73% 9.74
EAST A1 61.5 34.90 43.56 78.47 -16.97 34.02 32.18 66.20 -4.70 9/15/2007 14.08% 7.36
LIFT A1 69.5 44.52 32.30 76.81 -7.31 43.23 19.48 62.71 6.79 9/15/2010 0.00% 12.18
LIFT A2 69.5 44.86 32.30 77.16 -7.66 43.57 19.48 63.05 6.46 9/15/2010 0.00% 12.18
PALS 2000 A2 65 85.54 0.70 86.24 -21.24 82.74 0.41 83.15 -18.15 3/15/2015 97.88% 11.37
PALS 2001 A1 51 58.55 6.95 65.49 -14.49 56.32 4.21 60.53 -9.53 8/15/2011 78.88% 11.95
PALS 2001 A2 51 59.65 6.95 66.60 -15.60 56.32 4.21 60.53 -9.53 8/15/2011 78.06% 11.97
TAF A1 69 34.57 47.67 82.24 -13.24 33.82 34.61 68.43 0.57 9/15/2007 0.00% 8.15
Source: Wachovia Securities.


Exhibit 15: IO/PO Analysis of Second-Pay Senior Pooled Aircraft ABS Securities
(120% of Base Case)
Deal Tranche
Current
Price
IO @ 100 DM PO @ 10% Total Diff IO @ 150 DM PO @ 15% Total Diff
Begin Prin
window
Prin Writedown
%
Prin
WAL
ACAP 2000 A1 77.5 30.62 50.51 81.14 -3.64 29.98 37.77 67.75 9.75 2/15/2006 0.00% 7.57
Aerco A3 75.75 30.47 50.18 80.65 -4.90 29.86 37.03 66.89 8.86 7/15/2007 0.00% 7.50
AFT 1999 A1 64 40.17 38.63 78.80 -14.80 39.17 25.42 64.59 -0.59 6/15/2009 27.44% 10.34
AIRPT A9 54.25 33.77 45.92 79.69 -25.44 33.10 31.87 64.97 -10.72 8/15/2010 0.00% 8.13
EAST A1 61.5 26.35 55.88 82.23 -20.73 25.90 43.07 68.97 -7.47 9/15/2007 0.00% 6.28
LIFT A1 69.5 44.43 32.40 76.83 -7.33 43.15 19.57 62.72 6.78 9/15/2010 0.00% 12.15
LIFT A2 69.5 44.78 32.40 77.18 -7.68 43.49 19.57 63.06 6.44 9/15/2010 0.00% 12.15
PALS 2000 A2 65 91.29 6.41 97.70 -32.70 88.04 3.78 91.82 -26.82 3/15/2015 80.56% 11.47
PALS 2001 A1 51 49.60 27.19 76.79 -25.79 47.95 16.18 64.13 -13.13 8/15/2011 13.54% 12.45
PALS 2001 A2 51 49.60 27.19 76.79 -25.79 47.95 16.18 64.13 -13.13 8/15/2011 13.54% 12.45
TAF A1 69 27.18 56.76 83.93 -14.93 26.72 44.06 70.78 -1.78 3/15/2006 0.00% 6.09
Source: Wachovia Securities.


Exhibit 16: IO/PO Analysis of Second-Pay Senior Pooled Aircraft ABS Securities
(80% of Base case)
Deal Tranche
Current
Price
IO @ 100 DM PO @ 10% Total Diff IO @ 150 DM PO @ 15% Total Diff
Begin Prin
window
Prin Writedown
%
Prin
WAL
ACAP 2000 A1 77.5 41.28 24.86 66.14 11.36 40.12 18.79 58.91 18.59 2/15/2006 53.23% 6.86
Aerco A3 75.75 48.91 20.32 69.24 6.51 47.27 14.14 61.41 14.34 4/8/2008 54.84% 8.49
AFT 1999 A1 64 58.75 6.43 65.18 -1.18 56.60 4.21 60.82 3.18 6/15/2009 82.93% 10.82
AIRPT A9 54.25 50.86 0.00 50.86 3.39 49.30 0.00 49.30 4.95 NA NA NA
EAST A1 61.5 44.38 20.93 65.31 -3.81 43.04 15.69 58.73 2.77 9/15/2007 60.68% 6.69
LIFT A1 69.5 57.13 14.06 71.19 -1.69 54.93 7.86 62.79 6.71 10/15/2011 48.15% 14.07
LIFT A2 69.5 57.13 14.06 71.19 -1.69 54.93 7.86 62.79 6.71 10/15/2011 48.15% 14.07
PALS 2000 A2 65 75.40 0.00 75.40 -10.40 73.19 0.00 73.19 -8.19 NA NA NA
PALS 2001 A1 51 54.04 0.57 54.61 -3.61 52.17 0.35 52.52 -1.52 9/15/2011 98.47% 10.22
PALS 2001 A2 51 54.04 0.57 54.61 -3.61 52.17 0.35 52.52 -1.52 9/15/2011 98.47% 10.22
TAF A1 69 50.16 18.64 68.79 0.21 48.57 13.31 61.88 7.12 9/15/2007 60.71% 8.22
Source: Wachovia Securities.


The cheapest cash
flows are distressed
second pays not
expected to fully
repay principal.
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH

18
Worldwide Market for Commercial Aircraft

Exhibit 17: Worldwide Fleet of Aircraft in Airline Usage

Worldwide Fleet of Aircraft in use by Airlines
Source: Airclaims, CASE Database
Aircraft in Airline Usage worldwide
(28,059 Aircraft)
Jets
(Western
built)
65%
Jets (Eastern
Built)
7%
Turboprops
(Western
Built)
20%
Business
Jets
1%
Turboprops
(Eastern
Built)
7%
Western built Jet market by
Manager Category (18,289 Aircraft)
Airline
64%
Other
6%
Operating
Lease
Company
30%


Commercial aircraft leasing companies market aircraft to airlines around the world.
The vast majority of the aircraft managed by these operating lease companies are
Western-built jets. At this point, it is worth a few moments to look at how this
market relates to the broader world market for commercial aircraft. In the left pie
chart in Exhibit 17, we summarize the total worldwide fleet of 28,059 aircraft being
flown in standard airline usage, either passenger or cargo aircraft flown by airlines
as of August 2005.

Sixth-five percent of the world airline fleet is made up of Western-built jets, the vast
majority of which are built by Boeing, Airbus, Embraer and Bombardier. Boeing and
Airbus are the primary Western manufacturers of large commercial aircraft (LCAs)
and Bombardier and Embraer are the main Western manufacturers of regional
jets (RJs).

The pie chart on the right side of Exhibit 17 breaks down the world fleet of Western-
built jets by manager category. Of the 18,289 world fleet of Western-built jets, 30%
are managed by leasing companies, whereas 64% are managed by the airlines. This
equates to 5,408 Western-built jets managed by the leasing companies.

Commercial Aircraft Leasing Companies

Leasing companies control a large and growing percentage of the world fleet of
commercial jet aircraft. GE Commercial Aviation Services (GECAS) and
International Lease Finance Corp. (ILFC) are the two largest lessors in the market
(Exhibit 18, page 19). A number of hedge funds and private equity firms have been
actively investing in the leasing market recently with implications for issuance in the
pooled aircraft ABS sector:

Cerberus Capital, a $13 billion private equity group, purchased debis
AirFinance in June and has used the securitization market to create term
financing for the transaction. The recently priced $1 billion Aircraft Lease
Securitization (AERLS 2005-1A) was met by strong investor demand.
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH


19
Aviation Capital Group purchased Boullioun Aviation from West LB in
July 2005 for $2.65 billion. Aviation Capital is likely to be returning to the
securitization market with at least one and possible two transactions to
finance this acquisition.
Private investment firm Oaktree Capital Management of Los Angeles has
teamed up with Pegasus in a joint venture to purchase additional aircraft for
this three-time issuer in the pooled aircraft ABS market.
Morgan Stanley has announced it will be selling AWAS, its commercial
aircraft leasing business. AWAS, the former Ansett Worldwide Aviation
Services, is a stand-alone leasing company with a portfolio of
155 commercial aircraft with a market value of approximately $2.5 billion.
Likely buyers will probable look for term financing in the pooled aircraft
ABS market.

Exhibit 18: Top Lessors by Total Aircraft Managed and On Order

After several years of inactivity, leasing companies are again placing orders for new
aircraft with the manufacturers. According to Airclaims CASE database, lessors have
a total of 574 aircraft on order (Exhibit 18). The vast majority of these orders for new
aircraft are coming from ILFC and GECAS with current orders for 298 and 147
aircraft, respectively.

Much of the recent investment comes as private equity funds look to capitalize on
the recovery taking place in the industry. Lease rates for commercial aircraft hit
bottom in mid-2003 in the wake of the SARS epidemic and the active portion of the
Gulf War. At that time, the monthly lease rate for a mid-1990s 757 had dropped from
a pre-9/11 level of $300,000 a month to around $100,000. In the current market we
have heard of individual aircraft being placed between $175,000 and $200,000. In the
next section, we look at the changes in lease rates across a wider cross section of
aircraft that are relevant to pooled aircraft ABS investors.
After several years of
inactivity, leasing
companies are again
placing orders for new
aircraft with the
manufacturers.
Manager In Service Stored Current Total %Total On Order Grand Total %Total
1 GECAS 1,488 50 1,538 28% 147 1,685 28.2%
2 ILFC 821 9 830 15% 298 1,128 18.9%
3 Boeing Capital Corp 214 15 229 4% 0 229 3.8%
4 Aviation Capital Group 206 6 212 4% 11 223 3.7%
5 CIT Aerospace 180 5 185 3% 35 220 3.7%
6 Pegasus Aviation Inc 155 59 214 4% 0 214 3.6%
7 debis AirFinance BV 165 19 184 3% 24 208 3.5%
8 GATX Air 170 2 172 3% 2 174 2.9%
9 AWAS 152 3 155 3% 0 155 2.6%
10 RBS Aviation Capital 152 1 153 3% 0 153 2.6%
11 Babcock & Brown Aircraft Management LLC 136 5 141 3% 0 141 2.4%
12 BAE SYSTEMS Regional Aircraft Asset Management 87 29 116 2% 0 116 1.9%
13 Pembroke Group 96 11 107 2% 0 107 1.8%
14 Singapore Aircraft Leasing Enterprise Pte Ltd 61 1 62 1% 28 90 1.5%
15 Jetran International Ltd 26 40 66 1% 0 66 1.1%
16 FINOVA Capital Corp 45 17 62 1% 0 62 1.0%
17 World Star Aviation 48 7 55 1% 0 55 0.9%
18 ORIX Aviation Systems Ltd 54 0 54 1% 0 54 0.9%
19 Sumisho Aircraft Asset Management BV 43 0 43 1% 0 43 0.7%
20 Tombo Aviation Inc 40 0 40 1% 0 40 0.7%
All Others 662 128 790 15% 29 819 13.7%
Total 5,001 407 5,408 100.0% 574 5,982 100.0%
Source: Airclaims Ltd. Case database and Wachovia Securities
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH

20

Lease Rate Update

Exhibit 19: Summary of Lease Rate Changes by Aircraft Type

June 2005
Monthly 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.
Lease Rate Summary


Lease rates have registered significant gains in the course of the past year for
in-production types (Exhibit 19). Lease rates shown in this exhibit are the simple
averages of lease rate across all years of build for specific aircraft types. In effect,
these can be thought of as mid-production-range lease rates.

Many popular narrowbody aircraft have shown lease rate increases of 15%20%. The
biggest gains, however, 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. On the other hand, 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.
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH


21
Aircraft Demand Forecasts
Exhibit 20: Forecast Growth in Worldwide Revenue Passenger Miles (billion)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1
9
9
0
1
9
9
2
1
9
9
4
1
9
9
6
1
9
9
8
2
0
0
0
2
0
0
2
2
0
0
4
2
0
0
6
2
0
0
8
2
0
1
0
2
0
1
2
2
0
1
4
2
0
1
6
2
0
1
8
2
0
2
0
2
0
2
2
2
0
2
4
RPMs (bill.) Forecast
Source: The Airline Monitor and Wachovia Securities.


Growth in the market for commercial aircraft has historically been highly correlated
to growth in worldwide GDP. World demand for air travel in terms of revenue
passenger miles peaked in 2000 and finally recovered to record levels by 2004. The
Airline Monitor provides a closely watched independent industry forecast of demand
for both revenue passenger miles and growth in the world fleet of aircraft in airline
usage. The current Airline Monitor estimate of growth for air travel calls for revenue
passenger miles to return to their long-term trend averages of 4%5% per year
through 2025.

Exhibit 21: Forecast Growth in Commercial Aircraft
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
1
9
9
0
1
9
9
2
1
9
9
4
1
9
9
6
1
9
9
8
2
0
0
0
2
0
0
2
2
0
0
4
2
0
0
6
2
0
0
8
2
0
1
0
2
0
1
2
2
0
1
4
2
0
1
6
2
0
1
8
2
0
2
0
2
0
2
2
2
0
2
4
Total World Airline Fleet Forecast
Source: The Airline Monitor and Wachovia Securities.


Growth in the market
for commercial aircraft
has historically been
highly correlated to
growth in worldwide
GDP.
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH

22
In Appendix 1 on page 30, we have included a listing of Web sites that can be used
to find additional data on the sector. Included in this listing are a number of
manufacturers and industry groups that provide their own forecasts of aircraft
demand. Web sites that contain industry forecasts are noted with an asterisk. Over
the next 20 years, the number of aircraft in service is widely expected to double and
require financing of more than $2 trillion in aircraft investment by the worlds
airlines.

What Makes a Good Leasing Asset?

The marketability of an aircraft is affected by a variety of factors. From a lessors
perspective, a good leasing asset is one in which, if I get this aircraft back, I want a
lot of people that I can talk to about the plane and I do not want a lot of competition
from other aircraft that are being actively marketed. In general, the following are
drivers of marketability of a commercial aircraft type:

Number of current operatorsA high number of current operators is
always preferable as lessors benefit when multiple carriers compete for a
limited number of available aircraft.
Number of aircraft in production runA long production ensures a solid
installed base of users and a broad market for used aircraft as well as spare
parts.
In-production status/backlogTwo of the most popular in-production
aircraft are the A230 and the 737-800 with current unfilled orders of 607 and
597, respectively (see Appendix 4 on page 33 for Airbus and Boeing order
book and backlog information). These large order backlogs ensure that the
aircraft will remain in production for years to come and that carriers in need
of these aircraft in the near term will likely be looking to the leasing market
for near-term lift. Conversely, when an aircraft goes out of production, late-
production cycle aircraft can be expected to depreciate at a significantly
faster rate than their mid-production cycle counterparts.
Existence of a cargo conversion programThe potential for cargo
conversion will act as a support to aircraft values and can extend revenue
service of an aircraft for as much as 1520 years after conversion.
Number of young aircraft on groundHigh numbers of available aircraft
hurt the lessors ability to capture attractive lease rates for their aircraft.
However, distinction must be made between newer vintages, which will
have a material negative impact on lease rates, whereas older vintages
approaching the end of their useful life will have less of an effect.

The combination of the first two of these drivers is referred to as the market mass for
the aircraft. Exhibits 22 and 23 on page 23 show the market mass for various aircraft
types. For the top 35 aircraft types, we have provided additional details of
marketability on Exhibit 24 on page 24. These drivers of marketability are for specific
aircraft types, individual aircraft marketability will also be affected by its age, engine
type and maintenance condition.

Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH


23
Exhibit 22: Narrowbody Aircraft Market

Narrowbody Market Mass (June 2005)
EMB170
ERJ-145
CRJ-100/200
717
A321-100
A321-200
737-600
MD-83
F100
737-700
737-500
737-400
A319
737-800
MD-82
757-200
A320-200
737-300
CRJ-701
A318
ERJ-135
737-900
757-300
0
25
50
75
100
125
0 300 600 900 1,200 1,500 1,800 2,100
Number of passenger aircraft in service and on order
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Source: Aviation Specialist Group, Inc.

Exhibit 23: Widebody Aircraft Market
Widebody Market Mass (June 2005)
767-400ER
MD-11
A300-600R
A340-300
767-200
A330-300
767-300
777-200
A330-200
767-200ER
DC-10-30
747-200
777-200ER
A310-300
747-400
767-300ER
777-300 A340-600
A340-500
777-300ER
0
15
30
45
60
75
0 75 150 225 300 375 450 525
Number of passenger aircraft in service and on order
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Source: Aviation Specialist Group, Inc.
The A320 has the
largest market mass of
all narrowbodies...
whereas the 767-
300ER has the largest
market mass among
widebodies.
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2
4


Aircraft Type Body Type In Service Stored CurrentTotal On Order Grand Total LoI Option Option LoI Average Age Operators
1 B737-300 (CFMI) Narrowbody 977 45 1022 1022 14 129
2 A320 210 (CFM) Narrowbody 728 10 738 214 952 53 122 52 8 106
3 A320 230 (IAE) Narrowbody 643 1 644 297 941 43 216 104 6 67
4 B737 (NG) 800 Narrowbody 593 2 595 385 980 81 162 208 4 76
5 Boeing MD-80 82 (MDC) Narrowbody 457 77 534 534 17 53
6 A319 110 (CFM) Narrowbody 485 5 490 159 649 29 182 12 4 47
7 B757 200 (RR) Narrowbody 455 15 470 470 11 70
8 B737 (CFMI) 400 Narrowbody 463 6 469 469 12 71
9 Bombardier CRJ 200LR Regional Jet 413 2 415 24 439 65 261 3 23
10 ERJ-145 LR Regional Jet 391 2 393 1 394 165 3 14
11 B737 (CFMI) 500 Narrowbody 364 17 381 381 11 54
12 B757 200 (P&W) Narrowbody 359 12 371 371 12 26
13 B737 (NG) 700 Winglets Narrowbody 334 2 336 134 470 35 217 3 18
14 Boeing 737 (JT8D) 200 Adv Narrowbody 237 96 333 333 23 103
15 B737 (NG) 700 Narrowbody 326 326 219 545 12 177 4 61
16 B737 (NG) 800 Winglets Narrowbody 293 5 298 237 535 231 50 3 44
17 Bombardier CRJ 200ER Regional Jet 281 8 289 32 321 15 15 4 19
18 B767 300ER (GE) Narrowbody 284 3 287 12 299 16 9 42
19 B737 (JT8D) 200 Adv Narrowbody 212 73 285 285 25 79
20 Boeing MD-80 83 (MDC) Narrowbody 236 39 275 275 13 49
21 Fokker 100 Narrowbody 176 86 262 262 13 52
22 Boeing 727 200F (M) Adv Narrowbody 201 25 226 226 27 44
23 A319 130 (IAE) Narrowbody 223 223 127 350 80 35 3 30
24 A340 310 (CFM) Narrowbody 209 209 5 214 16 7 29
25 B727 200 Adv Narrowbody 53 127 180 180 26 45
26 B767 300ER (P&W) Narrowbody 174 6 180 2 182 10 40
27 Bombardier CRJ 100ER Regional Jet 160 15 175 175 8 10
28 B747 400 (P&W) Widebody 155 15 170 170 6 10 19
29 Boeing MD-80 88 Narrowbody 154 3 157 157 14 8
30 B747 400 (GE) Widebody 150 150 6 156 10 18
31 Bombardier CRJ700 701ER Regional Jet 150 150 52 202 45 166 1 8
32 B717 200 Narrowbody 144 1 145 10 155 3 9
33 B777 200ER (RR) Narrowbody 145 145 28 173 34 49 4 11
34 B777 200ER (GE) Narrowbody 141 141 16 157 4 5 5 17
35 A321 210 (CFM) Narrowbody 125 1 126 34 160 12 4 25
Other 5509 1190 6699 1524 8223 606 1798 301 N/A
Total 16400 1889 18289 3518 21807 987 3694 999 12 1243
Source: Airclaims CASE Database August, 2005
Exhibit 24: Top 35 Aircraft Types
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH


25

The Impact of Fuel on Aircraft Operating Expenses

Exhibit 25: Airline Cost Index: Breakdown of Operating Expenses Q1 2005
ACI
(1982=100)
%
% Change
Yr/yr
LABOR 193.04 28.1% -3.62%
FUEL 134.41 19.2% 55.24%
AIRCRAFT OWNERSHIP 308.96 8.5% -4.26%
NON-AIRCRAFT OWNERSHIP 218.68 4.7% -6.51%
PROFESSIONAL SERVICES 330.70 9.0% 20.72%
FOOD & BEVERAGE 66.84 1.7% -12.82%
LANDING FEES 221.59 2.2% 0.18%
MAINTENANCE MATERIAL 101.23 1.6% -5.23%
AIRCRAFT INSURANCE 58.73 0.2% 18.42%
NON-AIRCRAFT INSURANCE 391.30 0.7% -18.39%
PASSENGER COMMISSIONS 23.49 1.3% -22.31%
COMMUNICATION 109.14 1.1% 2.39%
ADVERSTISING & PROMOTION 48.31 1.0% 4.70%
UTILITIES & OFFICE SUPPLIES 119.03 0.7% -0.79%
OTHER OP. EXPENSES 175.16 20.3% 3.14%
COMPOSITE 188.52 100.0% 2.87%
Source: ATA Airline Cost Index.


Fuel is the second largest component of operating expenses for airlines. In Exhibit 25,
we have highlighted the current airline cost index data from the Air Transport
Association, an industry organization that represents carriers that fly more than 95%
of U.S.-scheduled airline service. According to its data from Q1 2005, fuel represents
19.2% of the operating expense structure of the airlines, up 55.24% year over year.
This increase in fuel cost has come at a time when the carriers have been making
strides to reduce labor cost, which remains the largest component of an airlines
operating expense at 28.1%.

In the aftermath of Hurricane Katrina, there has been a lot of renewed discussion
regarding oil prices and the airline industry. Specifically, investors are worried
about the impact of higher fuel prices on the operating economics of older aircraft
types. Fuel is just one component of the operating cost of an aircraft, and we have
reported on a number of occasions that the lease rates on older aircraft types have
continued to fall for the older less efficient aircraft types, while lease rates on new
aircraft have been rebounding from their lows of last year.

The bottom line is that total cost per available seat mile will be an important driver
in decisions about which aircraft to use for a particular mission. However, we have
learned over the past several years that other factors can have as much or more
weight in the decision-making process. These other factors include the availability of
alternatives and the ability of a carrier to finance those alternatives. After all, we are
four years past 9/11, and there are a great many older fuel-inefficient aircraft flying
today because the carriers financial condition precludes replacing these aircraft with
newer models.

Fuel is the second
largest airline
operating expense.
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH

26
In a series of charts published in Aviation Daily from June 21July 8, 2005, Arlington,
Va.based Eclat Consulting, Inc., analyzed aircraft operating costs by aircraft type. In
this analysis, Eclat used DOT Form 41 data to evaluate the cost associated with
crews, fuel, insurance and maintenance for each operator of an aircraft. We took the
results of this analysis at the aircraft level and have extended it to evaluate the
relative burden of fuel prices on the operating costs of a variety of aircraft in terms of
cost per available seat mile.

The data analyzed is for the 12 months ended December 2004. The average jet fuel
price over this period was 82.7 cents per gallon and stood at 230.1 cents a gallon on
Aug. 30. While we cannot isolate the effects of hedging with any accuracy, the vast
majority of airlines have been underhedged and remain exposed to higher fuel
prices. The cost of fuel is up more than 84% (Exhibit 26).

Exhibit 26: Jet Fuel Price per Gallon
Date Price Change 9/10/01 Change 9/03/04
9/7/2004 125.36
12/31/2004 120.76
8/30/2005 230.09 147.59 104.73
Change 178.9% 83.5%
Source: Bloomberg (JETIGCAM Comdty).
45
65
85
105
125
145
165
185
205
225
245
9/7/2004 10/22/2004 12/10/2004 1/31/2005 3/18/2005 5/5/2005 6/22/2005 8/9/2005
Price on 9/10/01: 82.5
Price on 12/31/04: 120.76


In the wake of Hurricane Katrina in late August 2005, jet fuel spiked to $2.05 a
gallon. It is too early to say whether disruptions to refineries and distribution
channels will keep these prices elevated for an extended period, but we thought this
would be as good a time as any to refresh our analysis of cost per available seat mile
(CASM) for different aircraft types. We also calculate the fuel-related CASM
component of cost for each aircraft type. In this analysis, we group the aircraft types
analyzed by body type among large commercial aircraft and separately break out
regional jets and turboprops.

Over the past year, the
price of fuel is up more
than 84%.
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH


27

Narrowbody Aircraft

Exhibit 27: CASM for Selected Narrowbody Aircraft
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
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Source: Eclat Consulting and Wachovia Securities.


Exhibit 28: Fuel CASM for Selected Narrowbody Aircraft
Among narrowbody
aircraft, the clear
winner was the 757-300
with a CASM of 3.10
cents with fuel
accounting for 1.41
cents, or almost 45.6%
of the total cost. At the
other end of the
spectrum are the 737-
200s and the DC-9-30s
with fuel costs per seat
mile of 2.73 cents and
3.11 cents, respectively.

As a whole, the
narrowbody group
averaged 5.14 cents per
seat mile over the
period analyzed of
which 1.80 cents was
attributable to the cost of fuel. Narrowbody aircraft are generally a little more
expensive than widebody aircraft on a per seat mile basis and cheaper than both
regional jets and turboprops.

Fuel CASM
(Cents)
Total CASM
(Cents)
Fuel as % of
Total CASM
757-300 1.41 3.10 45.6%
A321 1.54 3.40 45.3%
737-900 1.48 3.60 41.0%
737-700LR 1.47 3.80 38.7%
A320 1.59 4.20 37.9%
737-800/900 1.51 4.60 32.9%
757-200 1.64 4.90 33.5%
A319 1.89 5.00 37.7%
737-300/700 1.79 5.80 30.9%
737-400 1.88 5.90 31.9%
717-200 2.12 6.10 34.8%
MD80 2.31 6.20 37.2%
737-500 2.22 7.00 31.7%
F100 2.52 7.20 34.9%
DC-9-50 3.07 7.40 41.5%
DC-9-30 3.11 9.00 34.6%
737-200 2.73 9.40 29.1%
Average 1.80 5.14 35.0%
Source: Eclat Consulting and Wachovia Securities.
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH

28
Widebody Aircraft

Exhibit 29: CASM for Selected Widebody Aircraft
-
1.00
2.00
3.00
4.00
5.00
6.00
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Source: Eclat Consulting and Wachovia Securities.



Exhibit 30: Fuel CASM for Selected Widebody Aircraft
Widebody aircraft as
a group are the most
efficient in terms of
CASM, averaging
only 4.60 cents. Of
that total, fuel
averaged 1.94 cents
per seat mile. The
A330 came out on top
with a CASM of only
3.60 cents, while the
A300-600 was the
least efficient with
5.40 cents CASM.

In terms of fuel efficiency, the widebody aircraft bested the narrowbody group by
0.54 cents per seat mile. Among widebodies, the 767-400s had fuel costs of only
1.68 cents, and the DC-10-30s were the least efficient at 2.4 cents per seat mile.


Fuel CASM
(Cents)
Total CASM
(Cents)
Fuel as % of
Total CASM
A330 1.72 3.60 47.8%
767-400 1.68 3.70 45.4%
747-400 2.08 4.40 47.2%
767-300 1.85 4.70 39.4%
777-200 1.98 4.70 42.2%
767-200 2.15 5.00 43.1%
DC-10-30 2.40 5.20 46.1%
A300-600 1.84 5.40 34.2%
Average 1.94 4.60 42.2%
Source: Eclat Consulting and Wachovia Securities.
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH


29

Regional Jets and Turboprops

Exhibit 31: Fuel CASM for Selected Regional Jets
Regional jets are ideally
suited to thinner routes that
cannot be economically
served by the larger
narrowbody aircraft.
However, that does not mean
that they are cheaper on a seat
mile basis. With an average of
9.09 cents per seat mile, this
group averages 3.95 cents a
seat mile more than the
narrowbody group.

In terms of fuel efficiency per seat mile, the RJs came in at 2.92 cents CASM versus
1.94 cents for widebodies and 1.80 cents for their narrowbody counterparts. Among
the RJ group, the larger (70 seat) CRJ-700s had the lowest overall CASM at 6.80 cents.
Surprisingly, the CASM for the CRJ-900s appear to be high at 10.4 cents per seat
mile. This relatively high cost was driven by lower average daily usage by the
airlines analyzed. The CRJ-900s averaged just 5.9 block hours of daily operations
versus 89 hours a day for the smaller aircraft.

Exhibit 32: Fuel CASM for Selected Turboprops
Turboprops came in slightly
more efficient as a group than
the RJs with an average fuel
CASM of 2.37 cents versus
2.67 for the RJs. However, in
terms of total costs, the
turboprops were significantly
more expensive than the RJs
with an average cost of
17.3 cents a seat mile.





Fuel CASM
(Cents)
Total CASM
(Cents)
Fuel as % of
Total CASM
CRJ-700 2.45 6.80 36.1%
ERJ-170 2.58 6.90 37.3%
ERJ-140 3.55 8.40 42.2%
ERJ145 2.30 8.70 26.5%
CRJ-200/ER 3.15 9.60 32.8%
CRJ-900 4.46 10.40 42.9%
ERJ-135 3.60 11.00 32.7%
BAE 146-300 3.68 11.60 31.7%
Do328RJ 5.29 18.00 29.4%
Average 2.92 9.09 32.1%
Source: Eclat Consulting and Wachovia Securities.
Fuel CASM
(Cents)
Total CASM
(Cents)
Fuel as % of
Total CASM
DHC8-400 2.26 9.50 23.8%
SAAB 340 2.00 13.50 14.8%
EMB 120 3.86 16.10 24.0%
ATR-72 2.16 18.50 11.7%
J41 3.89 18.80 20.7%
DHC8-100 4.64 20.30 22.9%
ATR-42 3.52 22.80 15.4%
DHC8-200 4.62 25.70 18.0%
Source: Eclat Consulting and Wachovia Securities.
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Websites Link
News and Industry Data Sources
Air Transportation Stabilization Board http://www.ustreas.gov/offices/domestic-finance/atsb/
ATA - Air Transport Association http://www.airlines.org/home/default.aspx
BTS - Bureau of Transportation Statistics http://www.transtats.bts.gov/
FAA - Federal Aviation Administration* http://www.faa.gov/
IATA - International Air Transport Association* http://www.iata.org/index.htm
International Civil Aviation Organization http://www.icao.org/
Monitor Daily - Leasing Industry News http://www.monitordaily.com/
Regional Airline Association http://www.raa.org/
SpeedNews - Aviation News and Information http://www.speednews.com/lists/lists.shtml
Manufacturers
Airbus* http://www.airbus.com/
Boeing Commercial Airplanes* http://www.boeing.com/commercial/flash.html
Bombardier http://www.aerospace.bombardier.com/
Embraer http://www.embraer.com/english/content/home/
Deal Specific Websites
Aerco http://www.aerco-group.com/
AFT http://www.aftreports.com/
Airplanes Pass Through Trust http://www.airplanes-group.com/
EAST http://www.eastreports.com/
LIFT http://www.liftreports.com/
Servicers
Aviation Capital Group http://www.aviationcapital.com/
debis AirFinance http://www.debisairfinance.com/
GATX Air http://www.gatx.com/air/index.asp
GECAS http://www.gecas.com/
ILFC http://www.ilfc.com/
Pegasus http://www.pegasusaviation.com/
World Star Aviation http://www.worldstaraviation.com/index.html
* These groups all have their own commercial aircraft forecasts available on their websites.
Source: Wachovia Securities.
Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH


31
Appendix 2: Airline Monitor Forecast of Aircraft Requirements

THE AIRLINE MONITOR COMMERCIAL AIRCRAFT MARKET FORECAST
WORLD AIRLINES - TRAFFIC FORECAST & AIRCRAFT REQUIREMENTS
WORLD AIRLINE TRAFFIC Divide
History & Projections ASMs by ASMs per day sum of Passenger Cargo Total
365 to get Aircraft Oper. Factors @ Aircraft Aircraft Aircraft
Traffic: Capacity ASMs Utiliz. Speed Seats in World in World in World
Year RPMs Pct. Load ASMs Pct. per Day /Hours per per Airline Airline to Airline
(bill.) Chg. Factor (bill.) Chg. now (bill.) then per Day Hour Aircraft gets Fleet add Fleet get Fleet
_____ _____ _____ _____ _____ _____ ______ _____ _____ _____ ______ ______ ______
History
1970 303 55.6 544 1.491 8.34 365 136 3,597 74 3,671
1980 647 62.3 1,039 2.847 8.18 384 164 5,529 222 5,751
1990 1,159 66.4 1,746 4.782 8.72 384 176 8,118 794 8,912
1991 1,121 (3.3) 65.3 1,717 (1.6) 4.704 8.25 384 176 8,467 859 9,326
1992 1,266 12.9 66.1 1,915 11.5 5.246 8.47 389 176 9,059 933 9,992
1993 1,297 2.5 65.6 1,976 3.2 5.413 8.28 392 176 9,469 1,045 10,514
1994 1,407 8.5 67.5 2,084 5.5 5.711 8.46 390 176 9,869 1,122 10,991
1995 1,563 11.1 67.9 2,300 10.4 6.303 # 9.12 392 174 10,136 1,241 11,377
1996 1,689 8.1 69.1 2,442 6.2 6.691 9.45 390 174 10,472 1,333 11,805
1997 1,767 4.6 69.8 2,532 3.7 6.936 9.32 389 175 10,913 1,419 12,332
1998 1,826 3.4 69.4 2,632 4.0 7.210 9.28 390 174 11,465 1,504 12,969
1999 1,911 4.6 69.8 2,738 4.0 7.500 9.08 392 174 12,131 1,582 13,713
2000 2,076 8.6 71.5 2,904 6.1 7.956 9.13 393 171 12,955 1,657 14,612
2001 2,023 (2.6) 69.9 2,895 (0.3) 7.931 8.83 394 169 13,516 1,599 15,115
2002 2,019 (0.2) 71.7 2,817 (2.7) 7.718 8.44 393 167 13,956 1,624 15,580
2003 2,057 1.9 71.9 2,859 1.5 7.834 8.45 391 163 14,495 1,637 16,132
2004 2,317 12.6 73.6 3,148 10.1 8.625 8.78 395 164 15,153 1,663 16,816
Forecast
2005 2,469 6.5 74.7 3,305 5.0 9.056 8.84 396 164 15,755 1,725 17,480
2006 2,615 5.9 74.7 3,502 5.9 9.595 8.90 397 164 16,520 1,799 18,319
2007 2,757 5.4 74.7 3,693 5.4 10.117 8.94 398 165 17,272 1,857 19,130
2008 2,897 5.1 74.6 3,882 5.1 10.635 8.98 399 165 18,009 1,919 19,928
2009 3,045 5.1 74.6 4,081 5.1 11.182 9.01 400 165 18,794 1,979 20,773
2010 3,199 5.1 74.6 4,289 5.1 11.751 9.05 401 166 19,566 2,085 21,651
2011 3,191 (0.3) 71.6 4,459 4.0 12.216 9.07 401 166 20,209 2,159 22,368
2012 3,399 6.5 72.5 4,686 5.1 12.839 9.09 402 167 21,066 2,239 23,306
2013 3,609 6.2 73.5 4,909 4.8 13.451 9.12 403 167 21,891 2,324 24,215
2014 3,828 6.1 74.5 5,139 4.7 14.079 9.14 403 168 22,716 2,435 25,151
2015 4,055 6.0 74.5 5,447 6.0 14.923 9.16 404 169 23,873 2,516 26,389
2016 4,276 5.4 74.4 5,746 5.5 15.742 9.18 405 170 24,977 2,600 27,577
2017 4,499 5.2 74.4 6,047 5.2 16.566 9.20 405 170 26,068 2,682 28,749
2018 4,734 5.2 74.4 6,365 5.3 17.438 9.22 406 171 27,213 2,770 29,983
2019 4,983 5.2 74.4 6,701 5.3 18.359 9.23 407 172 28,419 2,875 31,293
2020 5,218 4.7 74.3 7,020 4.8 19.234 9.25 407 173 29,536 2,991 32,527
2021 5,211 (0.1) 71.3 7,308 4.1 20.021 9.26 408 174 30,550 3,119 33,668
2022 5,529 6.1 72.3 7,650 4.7 20.958 9.28 408 174 31,729 3,243 34,972
2023 5,846 5.7 73.3 7,980 4.3 21.864 9.29 409 175 32,846 3,364 36,211
2024 6,158 5.3 74.2 8,296 4.0 22.730 9.31 409 176 33,890 3,482 37,372
2025 6,481 5.2 74.7 8,675 4.6 23.767 9.32 410 177 35,172 3,592 38,764
Average Annual Percent Rate of Change:
1971- 80 7.9 6.7 (0.2) 0.5 1.9 4.4 11.6 4.6
1981- 90 6.0 5.3 0.6 (0.0) 0.7 3.9 13.6 4.5
1991- 00 6.0 5.2 0.5 0.2 (0.3) 4.8 7.6 5.1
2001- 10 4.4 4.0 (0.1) 0.2 (0.3) 4.2 2.3 4.0
2011- 20 5.0 5.1 0.2 0.2 0.4 4.2 3.7 4.2
2021- 25 4.4 4.3 0.2 0.1 0.4 3.6 3.7 3.6
@ Utilization and Speed are per flight Hour.
# Adding CIS traffic (but only western, not Russian, aircraft) increases utilization from 1995.
Source: Airline Monitor July 2005


Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH

32
Appendix 3: Aviation Forecasts from FAA and IATA

FAA Aviation Forecast
FAA AVIATION FORECASTS
SELECTED AVIATION DEMAND MEASURES
CALENDAR YEAR 2005-2016
HISTORICAL FORECAST PERCENT AVERAGE ANNUAL GROWTH
SELECTED FORECASTS 2000 2003 2004 2005 2006 2016 00-04 03-04 04-05 05-06 04-16
U.S. Economy
GDP (Bil 2000$) 9,817.0 10,381.3 10,842.2 11,232.7 11,626.3 15,762.5 2.5 4.4 3.6 3.5 3.2
Oil & Gas Deflator (2000 = 100) 100.0 105.2 127.9 137.6 125.6 140.1 6.4 21.7 7.5 (8.7) 0.8
Total U.S. Commercial
Enplanements (Mil)
Domestic 644.1 593.1 637.7 652.6 686.0 942.5 (0.3) 7.5 2.3 5.1 3.3
Mainline Air Carriers 563.1 483.7 507.5 505.2 523.9 699.4 (2.6) 4.9 (0.5) 3.7 2.7
Regionals/Commuters 81.0 109.4 130.2 147.4 162.2 243.1 12.6 18.9 13.3 10.0 5.3
International 57.2 54.6 62.7 69.9 74.2 114.3 2.3 14.9 11.4 6.2 5.1
Mainline Air Carriers 54.0 51.0 58.5 64.6 68.6 105.6 2.0 14.8 10.3 6.3 5.0
Regionals/Commuters 3.2 3.6 4.2 5.3 5.6 8.7 6.7 16.7 27.1 4.4 6.3
System 701.4 647.7 700.4 722.5 760.2 1,056.8 (0.0) 8.1 3.2 5.2 3.5
Total U.S. Commercial
RPMs (Bil)
Domestic 517.4 500.3 550.6 564.7 597.4 867.1 1.6 10.1 2.6 5.8 3.9
Mainline Air Carriers 493.8 458.1 496.0 499.2 523.7 744.7 0.1 8.3 0.6 4.9 3.4
Regionals/Commuters 23.7 42.2 54.6 65.5 73.7 122.4 23.2 29.4 20.0 12.5 7.0
International 185.5 156.9 181.6 202.2 218.2 343.4 (0.5) 15.7 11.4 7.9 5.5
Mainline Air Carriers 184.6 155.7 179.9 200.0 215.8 339.5 (0.6) 15.5 11.2 7.9 5.4
Regionals/Commuters 0.9 1.2 1.6 2.2 2.3 4.0 16.7 37.2 36.9 5.4 7.7
System 702.9 657.2 732.2 766.9 815.5 1,210.5 1.0 11.4 4.7 6.3 4.3
Air Cargo RTMs (Bil)
Domestic 14.7 15.1 15.7 16.3 16.9 23.3 1.6 3.4 4.1 3.4 3.4
International 15.4 18.2 20.0 21.3 22.6 40.8 6.7 9.5 6.6 6.3 6.1
System 30.1 33.4 35.6 37.6 39.5 64.1 4.3 6.8 5.5 5.0 5.0
IFR Aircraft Handled (Mil)
Commercial 33.2 32.1 34.3 35.1 36.3 46.4 0.8 6.9 2.3 3.3 2.6
Non-Commercial 12.8 11.9 12.4 12.6 12.7 14.3 (0.7) 4.2 0.9 1.1 1.2
Total Aircraft Handled 46.1 44.0 46.7 47.7 49.0 60.7 0.4 6.2 2.0 2.7 2.2
Source: CY 2000-2004, Economic data, OMB; Air Carrier/Regional data, DOT; FAA Workload, FAA.
CY 2005-2016, FAA Forecasts


IATA International Cargo and Passenger Forecasts 2004 2008
AAGR AAGR
2004-2008 2004-2008
North Atlantic 7.70% 5.20% 8.50% 4.80%
Trans-Pacific 9.90% 5.90% 10.30% 4.60%
Europe Asia/Pacific 14.90% 7.10% 11.40% 7.00%
Europe Middle East 18.90% 7.70% 7.80% 6.10%
Europe Africa 7.20% 5.50% 7.40% 5.60%
Within Asia/Pacific 19.50% 8.30% 12.00% 6.10%
Within Europe 7.50% 4.80% 7.80% 5.70%
Within Latin
America/Caribbean
9.30% 5.40% 4.40% 3.70%
TOTAL
INTERNATIONAL
11.00% 6.00% 10.10% 6.00%
Total Domestic 5.90% 4.50% N/A N/A
Total International and
Domestic
7.60% 5.00% N/A N/A
Source: IATA
Summary Growth Data
Passengers Freight Tonnes
ROUTE AREA 2004 2004

Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH


33
Appendix 4: Airbus and Boeing Current Order Books

Boeing Current Order Book and Backlog for In-Production Aircraft
Type and Variant Orders Deliveries Unfilled
717s 717-200 155 144 11
737s 737-600 73 56 17
737-700 1030 661 369
737-800 1491 894 597
737-900 55 50 5
737-900ER 30 0 30
2679 1661 1018
Other 737 Variants 737-700BBJ 82 71 11
737-700C 11 10 1
737-800BBJ 13 11 2
106 92 14
747s 747-400 446 442 4
747-400F 110 95 15
747-400ERF 24 13 11
580 550 30
767s 767-200ER 121 116 5
767-300ER 520 505 15
767-300F 50 41 9
767-400 38 37 1
729 699 30
777s 777-200 92 87 5
777-200ER 421 358 63
777-200F 5 0 5
777-200LR 5 0 5
777-300 60 59 1
777-300ER 119 21 98
702 525 177
787s 787-3 43 0 43
787-8 100 0 100
787-9 0 0 0
143 0 143
TOTAL 5094 3671 1423
Source: Boeing Website 9/3/05

Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH

34
Appendix 4: Airbus and Boeing Current Order Books (continued)


Airbus Order Book and Backlog for In-Production Aircraft
Type and Variant Orders Deliveries Unfilled
A320 Family A318 71 23 48
A319 1075 733 342
A320 2021 1414 607
A321 446 333 113
3613 2503 1110
A300/310 A300 592 545 47
A310 260 255 5
852 800 52
A330/340 A330-200 303 192 111
A330-300 241 168 73
A340-200/300 244 239 5
A340-500 26 18 8
A340-600 115 48 67
929 665 264
A380 149 0 149
TOTAL 5543 3968 1575
Source: Airbus Website 9/3/05

Background to Aircraft-Backed Debt Securities
September 07, 2005 STRUCTURED PRODUCTS RESEARCH


35



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