International Airlines

1
International Airlines

• Presented By
• Zaki Kasmani
• David Tran
• Laurence Wong
• Cecilia Fan

• Spring 2006

Business 417
2
Industry Outlook
Just Kidding!
OR??
3
Basic Definitions

• ATK (Available Tonne Kilometres)
• Used to measure available total capacity
  (combined passenger and cargo)
• ASK (Available Seat Kilometers)
• The number of seats an airline has available
  multiplied by the number of kilometers they are
  flown
• Used to measure airline capacity
• RPK (Revenue Passenger Kilometers)
• The number of passengers multiplied by the number
  of kilometers they are flown
• Used to measure actual passenger traffic
• PLF (Passenger Load Factor)
• of ASK used
• FTK (Freight Tonne Kilometers)
• Used to measure actual freight traffic
• UNIT COST
• The average operating cost incurred per ATK
• YIELD
• The average amount of revenue received per RPK,
  net of taxes
• Revenue divided by RPK
• Represents an aggregate of all the airfare and
  airline charges and measured on a per kilometer
  basis
• LOAD FACTOR

4
Types of Airlines

• Legacy International National traditional
  airlines (ie British Airways, Delta Airways)
• Discount Regional (Europe) or National (US) (ie
  Easyjet, Southwest)
• Cargo

5
Airline Characteristics

• Capital intensive industry (highly leveraged)
• Largest operating costs Labour Fuel
• Historically low labour productivity
• Very sensitive to global business cycles
• Very competitive
• Sensitive to geopolitical events ie 9-11, SARS,
  etc

6
Types of Routes

• Point to point (linear) direct flight to
  destination (low-cost/discount model)
• Hub and spoke connection flight (traditional
  model)
• Hub airport that is used as a transfer point
• Spoke routes that airplanes take

7
Past Present Injuries

• Deregulation (October 28, 1978)
• Terrorist attacks (Sept 11, 2001)
• The collapse of the dotcom bubble (late 1990)
• The war in Iraq (2003 - present)
• The SARS epidemic in Asia (start November 2002)
• Fiercer competition from new low-cost carriers
• High taxation
• Rise in oil price

8
Future Threats

• Additional terrorist attacks
• Future price of oil
• Further competition from regional airlines
• Security impact on cost and travel convenience
• Decrease in consumer confidence
• World economy
• Business cycle
• Debt (airline industrys debt load exceeds the US
  industry average)
• Aircraft cost maintenance

9
Bankruptcy Protection

• 2002-2005 Majority of US legacy airlines entered
  emerged from Chapter 11 some still working
  through restructuring (Delta)
• Focus was cost reduction reduced labour costs,
  pension restructuring, capital restructuring
  (fleet overhaul to cheaper, more fuel efficient
  aircraft avoid the Jetsgo predicament)
• Airlines include Delta, American Airlines,
  Northwest, United

10
Growth Projections
11
Global Traffic Outlook
12
Historical Data
13
Historical Data
14
Fuel Costs
15
Fuel Costs
16
Labour Costs
Average Wages and Salary Accruals per Full-Time Equivalent Employee by Transportation Industry (Current ) Average Wages and Salary Accruals per Full-Time Equivalent Employee by Transportation Industry (Current ) Average Wages and Salary Accruals per Full-Time Equivalent Employee by Transportation Industry (Current ) Average Wages and Salary Accruals per Full-Time Equivalent Employee by Transportation Industry (Current ) Average Wages and Salary Accruals per Full-Time Equivalent Employee by Transportation Industry (Current ) Average Wages and Salary Accruals per Full-Time Equivalent Employee by Transportation Industry (Current ) Average Wages and Salary Accruals per Full-Time Equivalent Employee by Transportation Industry (Current ) Average Wages and Salary Accruals per Full-Time Equivalent Employee by Transportation Industry (Current ) Average Wages and Salary Accruals per Full-Time Equivalent Employee by Transportation Industry (Current ) Average Wages and Salary Accruals per Full-Time Equivalent Employee by Transportation Industry (Current ) Average Wages and Salary Accruals per Full-Time Equivalent Employee by Transportation Industry (Current ) Average Wages and Salary Accruals per Full-Time Equivalent Employee by Transportation Industry (Current ) Average Wages and Salary Accruals per Full-Time Equivalent Employee by Transportation Industry (Current )  
  1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Cumulative Growth Cumulative Growth Cumulative Growth
All industries 27,326 28,672 29,444 30,177 31,034 32,087 33,490 35,201 36,754 38,846 42.16 42.16 42.16
Transportation, total 30,018 31,575 31,392 31,946 32,283 33,074 34,407 35,907 37,178 38,484      
Air 34,487 36,058 35,852 36,257 36,419 36,989 38,691 40,441 42,523 43,820 27.06 27.06 27.06
Trucking and warehousing 26,921 28,336 28,293 29,112 29,605 30,342 31,754 32,949 34,007 35,024      
Local and interurban passenger transit 18,064 18,950 18,955 19,504 19,980 20,648 21,219 22,008 22,792 23,745      
Railroad 45,893 50,267 50,440 51,719 50,465 55,299 57,235 60,632 60,623 62,673      
Water 34,703 36,311 36,833 37,357 37,769 38,857 40,329 42,317 43,436 44,980      
Pipelines, except natural gas 47,000 51,526 50,421 54,647 58,186 54,782 58,881 64,991 65,379 66,540      
Transportation servicesc 27,169 28,534 28,792 29,588 30,801 31,511 32,794 34,603 36,204 38,602      
Aggregate Economy 24,565 25,646 26,374 26,936 26,998 27,789 28,808 29,744 30,618 31,949 30.06 30.06 30.06
SOURCE U.S. Department of Commerce, Bureau of
Economic Analysis, National Income and Products
Accounts, tables 6.6b and 6.6c, Internet site
http//www.bea.doc.gov/bea/dn1.htm available as
of Feb. 17, 2004 AGGREGATE ECONOMY DATA SOURCE
US Bureau of Labour Statistics
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Labour Costs
Career/Industry Group Minimum Salary   Average Salary   Maximum Salary  
Airport 25,000.00 25,000.00 43,722.70 43,722.70 79,200.00 79,200.00
AP Mechanic 14,137.20 14,137.20 44,504.22 44,504.22 75,000.00 75,000.00
Avionics 18,000.00 18,000.00 48,191.44 48,191.44 150,000.00 150,000.00
Computer 35,322.00 35,322.00 52,957.83 52,957.83 70,543.00 70,543.00
Dispatch 25,000.00 25,000.00 32,000.00 32,000.00 55,000.00 55,000.00
Engineering and Aerospace 20,000.00 20,000.00 67,484.60 67,484.60 115,000.00 115,000.00
Executive 60,000.00 60,000.00 72,500.00 72,500.00 80,000.00 80,000.00
Flight Attendant 16,800.00 16,800.00 17,099.00 17,099.00 24,000.00 24,000.00
Ground-Ramp 50,000.00 50,000.00 57,500.00 57,500.00 65,000.00 65,000.00
Management 16,476.00 16,476.00 62,024.21 62,024.21 120,000.00 120,000.00
Office and Administrative 14,137.20 14,137.20 33,479.23 33,479.23 64,728.00 64,728.00
Other 20,000.00 20,000.00 36,950.00 36,950.00 56,800.00 56,800.00
Pilot 14,137.10 14,137.10 52,061.39 52,061.39 110,000.00 110,000.00
Sales-Marketing 30,000.00 30,000.00 52,750.00 52,750.00 80,000.00 80,000.00
Source Aviation Career Salary Ranges -
Aviation Jobs (www.avjobs.com)
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Labour Cost Implications

• More median salaries above average than below
  higher overall salary cost than for economy in
  general
• Wide range in salaries, unionized labour senior
  international route pilots can earn up to
  190,000 USD per year
• Majority of pensions are defined benefit higher
  salaries significantly higher pension
  obligations

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Barriers to Operations
Gate access at airports can be a significant
barrier

• Airports generally locally owned authorities,
  lease out gates to airlines for long terms
• Exclusive use, preferential use, or common use
• Signatory airlines receive preferential rates vs.
  non signatory (most new entrants). ie Pittsburgh
  Intl Airport non signatory rates min. 20 higher
• FAA mandates that gate access be granted in a
  fair and non-discriminatory manner. Regulations
  should only maintain safety, not encourage
  dominance

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Barriers to Operations

• In practice, established airlines can exercise
  significant dominance gates are usually assigned
  via non market practices (bidding). Ability to
  bid depends on access. Large airlines can make
  contributions to/lobby municipal governments to
  restrict competing airlines access to airport
• Majority in Interest (MII) clauses grant airlines
  rights to approve airport capital improvement
  plans (can restrict expansion to maintain
  monopoly access to a hot airport)

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Barriers to Operations
Therefore, a carriers ability to grow may not be
determined by its cost efficiency but rather by
its ability to land at high traffic destinations

• FAA is currently reviewing gate lease practices
  in an attempt to make access more equitable.
  However, oversight still lies with the airport
  owner (local authority)

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Bottom Line

• Airlines MUST reduce costs to achieve a return to
  sustained profitability.

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Cost Minimization Strategies

• Oil price forecasted to drop to 45-55 per barrel
  range in 2007 (March 22 WTI spot60.82)

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Cost Minimization Strategies

• 1a) Acquire more fuel efficient aircraft
• Current Long Range Aircraft Fuel Consumption
• Boeing 747-400 3.5 L/100 passenger KM (Average)
• New Long Range Aircraft Fuel Consumption
• Boeing 787 2.4 L/100 passenger KM
• Airbus A380 3.0 L/100 passenger KM
• Airbus A350 3.0 L/100 passenger KM

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Cost Minimization Strategies

• 1b) Acquire more regional jets
• Regional Jets
• Bombardier CRJ 200 (50 seat) 3.12L/100
  passenger KM
• Bombardier CRJ 700 (78 seat) 2.60L/100
  passenger KM
• All Russian aviation companies now under one
  banner United Airplane Company. Focus will now
  be on Regional Jets, which will be of great
  demand in Russia.

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Cost Minimization Strategies

• 1b) Acquire more regional jets
• cost savings Flights at capacity, lower cost
  (less people required to maintain and fly
  aircraft)

SOURCE Bombardier
SOURCE Bombardier
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Cost Minimization Strategies

• 2) Reduce Labour Costs
• Increase labour productivity through additional
  training, performance monitoring
• Decrease salary/pension costs by
• hiring non-union workers where possible (new
  divisions)
• renegotiating existing salary contracts
• phasing out defined benefit pension plans in
  favour of defined contribution pension plans

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Cost Minimization Strategies

• 3) Refine Business Model
• Legacy airlines can employ 2 models
• point to point low cost model on domestic routes
• traditional hub model on international routes.

Thus far, traditional airlines (especially US
based ones) have been entering bankruptcy
protection to enable a restructuring that
encompasses all 3 strategies. However, this is
not exactly conducive to increasing consumer and
investor confidence
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Growth Projections
30
China Traffic Growth
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Growth Strategies
Focus on regions that are expected to yield the
highest rate of RPK growth

• China India
• burgeoning middle class now has resources to
  travel.
• Increased trade and foreign investment means
  increased number of foreign business people
  visiting, and increased frequency of visits

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Investment Criteria
Given the investors current distaste for
airlines, bargains could (?) be found

• Cost efficiency
• fuel efficient fleet, appropriate business model,
  reasonable labour costs (non union, or balanced
  union power)
• well funded pension obligations (defined
  contribution superior)
• Exposure, or plans to operate in future high
  growth areas (China, India, Latin America)
• Healthy financial structure should not be overly
  leveraged, reasonable CAPX
• Enough market power to secure additional airport
  access ability to withstand competition from
  other carriers at high traffic airports
  (dominate?)

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Southwest Airlines
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Company Snapshot

• Listed on NYSE
• Symbol LUV
• Industry Regional Airlines
• Market Cap 14.14B
• Stock Price 17.65 (Closing 03/24/06)
• Dividend Yield .02 (0.10)
• P/E 26.23
• Shares Outstanding 804,661,597

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Background

• 1967 Incorporated in Texas (Rollin King and Herb
  Kelleher)
• 1971 Commenced service with 3 Boeing 737s
  serving Dallas, Houston, and San Antonio
• Short to medium-haul point-to-point regional
  carrier
• Today 448 Boeing 737s, 61 cities, 31 states
• 31,729 employees as of January 1, 2006
• Posted 33rd consecutive year of profits in 2005
• Largest US carrier based on originating US
  passengers boarded and scheduled US departures

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Mission

• Dedication to the highest quality of customer
  service delivered with a sense of warmth,
  friendliness, individual pride, and company
  spirit.
• to provide our employees a stable work
  environment with equal opportunity for learning
  and personal growth.

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Key Officers

• Herbert Kelleher
• Position Founder / Executive Chairman
• Age 74
• Years of Service 28
• Gary Kelly
• Position CEO
• Age 50
• Years of Service 20
• Colleen Barrett
• Position President
• Age 61
• Years of Service 28

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Quick Facts

• Average passenger airfare is 93.68
• Average passenger trip is 775 miles
• Ranked first in customer satisfaction
• Adopted the first profit sharing plan in US
  airline industry in 1973
• Employees own at least 10 of stock
• Member of fortune 500
• Received 260,109 resumes and hired 2,766 new
  Employees in 2005

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Destinations
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Strengths Weaknesses

• Strengths
• Known for superior customer service
• Low-cost, no-frills
• Direct one-way travel
• Point-to-point efficiency
• Largest carrier for domestic service
• One fleet type
• Hedge against exposure to fuel prices
• Only airline rated investment grade

• Weaknesses
• Point-to-point creates excessive expenditure
• Too many locations, administrative costs
• Risk to shocks in US economy, since it is a
  domestic carrier

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Operating Expenses
42
Fuel Costs
43
Fuel Strategies

• Consumed 1.3B gallons of jet fuel in 2005
• Hedge on short and long term basis
• 2005 85 at 26/barrel crude oil
• Savings of 892 Million
• 2006 65 at 32
• 2007 45 at 31
• 2008 30 at 33
• 2009 24 at 35

44
Competition and Challenges

• Increasing low fare and lower cost competition
• Rising fuel costs
• Competition from surface transportation in
  short-haul markets

45
Risk Factors

• Business very sensitive to price of fuel
• Business is labour intensive
• 82 of employees are unionized
• Relies heavily on technology for daily operations
• Changes in government regulation can have a major
  impact on business
• Airline industry is very competitive

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Labour Unions
Employee Group Union CBA Expiry
CSRs AFL-CIO November 2008
Flight Attendants TWU June 2008
Field agents TWU June 2008
Pilots SWPA September 2006
Plane Technicians AMFA February 2009
Mechanics AMFA August 2008
Flight simulator technicians Teamsters November 2011
Flight instructors SWPIA December 2012
Flight dispatchers SWEA December 2009
Stock clerks Teamsters August 2008
47
Aircraft Data
737 Type Seats Average Age (Yrs) of Aircraft Owned Leased
300 137 14.7 194 110 82
500 122 14.7 25 16 9
700 137 3.8 229 224 2
Totals 9.1 448 352 93
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Operating Data
(s in millions) 2005 2004 2003 2002 2001
RPM (000s) 60,223,100 53,418,353 47,943,066 45,391,903 44,493,916
ASM (000s) 85,172,795 76,861,296 71,790,425 68,886,546 65,295,290
Load factor 70.07 69.50 66.78 65.89 68.14
49
Financials
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Revenue Composition
51
Income Statement
Income Statement (Millions) Income Statement (Millions) Income Statement (Millions) Income Statement (Millions) Income Statement (Millions) Income Statement (Millions)
  2005 2004 2003 2002 2001
Operating Revenues          
Passenger 7,279 6,280 5,741 5,341 5,379
Freight 133 117 94 85 91
Other 172 133 102 96 85
Total operating revenues 7,584 6,530 5,937 5,522 5,555
Operating Expenses          
Salaries and benefits 2,702 2,443 2,224 1,993 1,856
Fuel and oil 1,342 1,000 830 762 771
Maintenance materials and repairs 430 457 430 390 398
Agency commissions  - -  -  55 103
Aircraft rentals 163 179 183 187 192
Landing fees and other rentals 454 408 372 345 311
Depreciation and amortization 469 431 384 356 318
Other operating expenses 1,204 1,058 1,031 1,017 976
Total operating expenses 6,764 5,976 5,454 5,105 4,925
Operating income 820 554 483 417 630
Net interest and other 54 (65) 225 (24) 197
Income before taxes 874 489 708 393 827
Taxes 326 176 266 152 317
Net Income 548 313 442 241 510
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Income Statement Highlights

• Profits increase 75 from 2004
• 33rd consecutive year for profits
• effective cost control measures
• Successful fuel hedging program
• Net income fairly erratic

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Balance Sheet (1/2)
Assets (Millions) Assets (Millions) Assets (Millions) Assets (Millions) Assets (Millions) Assets (Millions)
  2005 2004 2003 2002 2001
Current Assets          
Cash and cash equivalents 2,280 1,048 1,865 1,815 2,279
Short-term investments 251 257  - -  - 
Accounts receivables 258 248 132 175 71
Inventories of parts and supplies 150 137 93 86 70
Deferred income taxes  -  -  - -  46
Fuel hedge contracts 641 428 164 113  -
Prepaid expenses and other current assets 40 54 59 43 52,114
Total current assets 3,620 2,172 2,313 2,232 2,520
Non-current assets          
Flight equipment 10,999 10,037 8,646 8,025 7,534
Ground property and equipment 1,256 1,202 1,117 1,042 899
Deposits on flight equipment purchase contracts 660 682 787 389 468
Less depreciation and amortization (3,488) (3,198) (3,107) (2,810) (2,456)
Total non-current assets 9,427 8,723 7,443 6,646 6,445
Other assets 1,171 442 122 76 31
Total Assets 14,218 11,337 9,878 8,954 8,997
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Balance Sheet (2/2)
Liabilities and Stockholder's Equity Liabilities and Stockholder's Equity Liabilities and Stockholder's Equity Liabilities and Stockholder's Equity Liabilities and Stockholder's Equity Liabilities and Stockholder's Equity
  2005 2004 2003 2002 2001
Current liabilities          
Accounts payable 524 420 405 362 505
Accrued liabilities 2,074 1,047 650 529 548
Air traffic liability 649 529 462 412 450
Aircraft purchase obligations  - -  -  -  222
Short-term borrowings  -  -  - -  475
Current maturities of long-term debt 601 146 206 131 40
Total current liabilities 3,848 2,142 1,723 1,434 2,240
Long-term debt less current maturities 1,394 1,700 1,332 1,553 1,327
Deferred income taxes 1,896 1,610 1,420 1,227 1,058
Deferred gains from sale and leaseback of aircraft 136 152 168 184 192
Other deferred liabilities 269 209 183 134 166
Total Liabilities 7,543 5,813 4,826 4,532 4,983
Stockholder's equity          
Common stock 802 790 789 777 767
Capital in excess of par 424 299 258 136 50
Retained earnings 4,557 4,089 3,883 3,455 3,228
Accumulated other comprehensive income 892 417 122 54 (32)
Treasury stock  - (71) -  -  - 
Total stockholders equity 6,675 5,524 5,052 4,422 4,013
Total liabilities and equity 14,218 11,337 9,878 8,954 8,996
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Cash Flow Statement (1/2)
Cash flow from operations (millions) 2005 2004 2003 2002 2001
           
Net Income 548 313 442 241 511
Adjustments to net income          
Depreciation and Amortization 469 431 384 356 318
Deferred income taxes 257 184 183 170 208
Amortization of sale and leaseback of aircraft (16) (16) (16) (15) (15)
Amortization of scheduled airframe inspections 49 52 49 46 43
Income tax benefit from stock options exercises 65 35 41 38 54
Changes in assets and liabilities          
Accounts and other receivables (9) (75) 43 (103) 67
Other current assets (59) (44) (19) (10) (9)
Accounts payable and accrued liabilities 855 231 129 (149) 203
Air traffic liability 120 68 50 (38) 73
Other (50) (22) 50 (16) 32
           
Net cash flow from operations 2,229 1,157 1,336 520 1,485
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Cash Flow Statement (2/2)
Cash flow from investing (millions) 2005 2004 2003 2002 2001
Purchases of property and equipment (1,210) (1,775) (1,238) (603) (998)
Change in short-term investment 6 124 (381) - -
Payment for assets of ATA airlines (6) (34) - - -
Debtor in possession loan to ATA airlines - (40) - - -
Other - (1) - - -
Net cash flow from investing (1,210) (1,726) (1,619) (603) (998)
Cash flow from financing          
Issuance of long-term debt 300 520 - 385 614
Proceeds from revolving credit facility - - - - 475
Proceeds from trust arrangement - - - 119 266
Proceeds from employee stock plans 132 88 93 57 44
Payments of long-term debt (149) (207) (130) (65) (111)
Payments of trust arrangement - - - (385) -
Payments of revolving credit facility - - - (475) -
Payments of cash dividends (14) (14) (14) (14) (13)
Repurchase of common stock (55) (246) - - -
Other (1) (8) 3 (4) (5)
Net cash flow from financing 213 133 (48) (382) 1,270
Net change in cash 1,232 (436) (331) (465) 1,757
Cash at beginning of period 1,048 1,484 1,815 2,280 523
Total cash at end of period 2,280 1,048 1,484 1,815 2,280
57
Cash Flow Analysis
(dollars in millions) 2005 2004 2003 2002 2001
Cash Flow From Operations 2,229 1157 1,336 520 1485
Free Cash Flow 1,019 (569) 98 (83) 487
58
Cash Flow Analysis

• Erratic free cash flow
• CF from operations increased 83
• increase in accounts payable
• Higher net income in 2005
• CF from investing used mainly to purchase new
  planes
• 33 new planes in 2005
• 300M in debt issued in 2005
• 520M in debt issued in 2004

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Stock Chart (1 Year)
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Stock Chart (5 Year)
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Price Comparison
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Profitability Comparison
Southwest Southwest Southwest Southwest Southwest Southwest
  2005 2004 2003 2002 2001
ROE () 8.21 5.67 8.75 5.45 12.71
ROA () 3.85 2.76 4.47 2.69 5.67
Profit Margin () 7.23 4.79 7.44 4.36 9.18
Discount Airlines Discount Airlines Discount Airlines Discount Airlines Discount Airlines Discount Airlines
  2005 2004 2003 2002 2001
ROE () 5.83 10.98 5.56 -10.09 24.73
ROA () -14.36 -54.38 -14.89 -11.66 -3.45
Profit Margin () 6.73 11.6 8.51 10.5 2.46
Industry Industry Industry Industry Industry Industry
  2005 2004 2003 2002 2001
ROE () -2.14 -3.37 0.74 27.03 -149.58
ROA () -14.36 -54.38 -14.89 -11.66 -3.45
Profit Margin () -4.46 1.64 -4.55 -5.82 0.06
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Other Ratios
Southwest Southwest Southwest Southwest Southwest Southwest
  2005 2004 2003 2002 2001
Current Ratio 0.94 1.01 1.34 1.55 1.13
Debt/Equity 0.21 0.31 0.26 0.35 0.33
Discount Airlines Discount Airlines Discount Airlines Discount Airlines Discount Airlines Discount Airlines
  2005 2004 2003 2002 2001
Current Ratio 1.53 1.81 1.74 1.62 1.33
Debt/Equity 98.33 86.96 97.69 -174.02 -29.77
Industry Industry Industry Industry Industry Industry
  2005 2004 2003 2002 2001
Current Ratio 1.15 1.22 1.15 1.18 1.09
Debt/Equity -77.15 86.72 234.36 -27.41 2,626.20
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Recommendation

• HOLD

• Excellent management
• Proven business strategy
• 33 consecutive years of profit
• Steady dividends

• -
• Intense competition
• Low profit margins
• Erratic cash flow
• Seasonal industry

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Thank You Come Again!!
66
Singapore Airlines
67
Background

• Founded in 1972.
• National airline of Singapore.
• Second largest carrier by market value.
• Full member of global Star Alliance.
• Route network reaches out to over 90 destinations
  in close to 40 countries.
• Numerous awards.
• Trades in US as an ADR (Symbol SPAAF).

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Global Route Map
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Recent Awards

• TIME
• Readers' Travel Choice Awards 2005
• Preferred Airline
• Preferred First/Business Class
• Best Frequent Flyer Programme
• Business Traveller (China)
• Best Airline in the World
• Best Asian Airline Serving China
• Commonwealth Magazine (Taiwan)
• The Most Admired Company 2005 Awards
• Winner - Airline Industry Category  (8th year)
• Asia Risk Magazine (HK)
• Asia Risk Awards 2005
• Corporate Risk Manager of the Year
• TTG Asia Travel Awards

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Subsidiaries

• SIA Group consists over 50 subsidiaries and
  associates, including
• SilkAir
• SIA Engineering Company (SIAEC)
• Singapore Aero Engine Services Private Limited
  (SAESL)
• Singapore Aircraft Leasing Enterprise (SALE)
• Singapore Airlines Cargo (SIA Cargo)
• Singapore Airport Terminal Services (SATS)
• Singapore Flying College

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Ownership in Other Airlines

• Virgin Atlantic Airways (49)
• Operates long-haul routes between London and
  North America, the Caribbean, Africa, Asia and
  Australia.
• Tiger Airways (49)
• A low-cost airline based in Singapore.
• Singapore's first true low-cost carrier.
• Destinations encompass airports within a four
  hour flying radius of Singapore.

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Group Fleet
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List of Major Shareholders
75
Temasek Holdings

• Temasek Holdings
• Owns and manages the Singapore Government's
  direct investments, both locally and overseas.
• Singapore Ministry of Finance is the single
  shareholder of Temasek Holdings.

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DBS and Raffles

• DBS
• Set up in 1968 as a development financing
  institution led by the Singapore government.
• Major shareholders include DBS, Raffles, and
  Temasek.
• Raffles Holdings
• Owned by Temasek and CapitaLand (which in turn is
  owned by Temasek).
• Singapore Airlines is also a shareholder.

77
Objectives for Future Growth

• Re-engineer business to meet any challenger
  head-on.
• Develop a sustainable business position through
  careful cost management and planning.
• Continue to work hard to access the
  heavy-protected Trans-Pacific route between
  Australia and the USA.
• Launch the worlds largest aircraft, Airbus A380,
  in 2006.

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Airbus A380

• First to fly the A380 - experience the
  difference in 2006.
• Double-decker, four-engined airliner.
• Largest passenger airliner in the world, topping
  the Boeing 747, which was the largest for 35
  years.

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Current Stock Information

• As of March 24, 2006
• Price 14.70
• 52-week range 11.00 - 14.90
• Shares outstanding 1.22 billion
• Market capitalization 17.93 billion
• Exchange rate 0.72 CAD/SGD
• Dividend yield 0.68

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Revenue Composition
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3-months Chart
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1-year Chart
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5-year Chart
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Key Ratios
Debt-to-Equity Profit Margin Return on Equity
SIA 48.42 10.30 8.56
Industry (International) 64.15 -4.46 -2.14
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Recommendations

• Dont Buy!

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AIR CANADA
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Background

• Began on April 10, 1937, called Trans-Canada
  Airlines, subsidiary of Canadian National Railway
• Changed name to Air Canada since January 1, 1965.
• In 1989, Air Canada was completely privatized.
• In January 2000, acquired Canadas second largest
  air carrier, Canadian Airlines.
• On April 1, 2003, filed for bankruptcy
  protection.
• On September 30, 2004, emerged from bankruptcy
  protection.
• ACE Aviation Holdings Inc. (ACE) is the new
  parent of Air Canada.

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ACE Aviation Holdings Inc. (ACE)

• Operating companies and partnerships
• Air Canada
• Air Canada Cargo
• ACGHS Limited Parternership
• Air Canada Jazz
• Air Canada Technical Services(ACTS)
• Touram Limited Partnership-(Air Canada Vacations)
• Aeroplan Limited Partership (85.6)

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Current Stock Information

• As of March 24, 2006
• Ticker symbol TSX ACE.RV.T
• Price 34
• 52-week range30.25-43.03
• Shares outstanding 76,852,830
• Market capitalization 2,612,996,220
• Dividend yield 0
• P/E Ratio 12.928

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2005 Operating Revenues
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2005 Operating Expenses
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Air Canada and Jazz

• They contribute to the passenger transportation
  revenue
• Purchases substantially all of Jazzs fleet
  capacity based on predetermined rates
• Jazz currently operates scheduled passenger
  service on behalf of Air Canada
• They linked their regional and mainline networks
  to serve connecting passengers more efficiently
• They provide direct passenger air transportation
  to 159 destinations

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Business Strategy

• Competitive cost structure
• Lower average salaries, sales and distribution
  costs
• Redesigned network to maximize efficiency and
  leverage international growth opportunities
• Increase used of large regional jet aircraft
• Customer Driven Revenue Model for Passenger
  Services
• Offer five simple fare types ranging from low
  one-way fares to Executive Class fares
• New corporate structure to maximize the value of
  subsidiaries

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Hubs

• Toronto Pearson International Airport is the
  largest hub.
• Montréal-Pierre Elliott Trudeau International
  Airport? European hub and Atlantic Canada hub
• Vancouver International Airport? hub for Pacific
  operations
• Calgary International Airport? focus city

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Air Canadas Fleet

• Air Canadas operating fleet, excluding Jazz
  aircraft, at December 31, 2005

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Air Canadas Future Fleet
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Available Seat Miles (ASMs)
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Revenue Passenger Miles (RPMs)
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Passenger Load Factor (PLF)
Canada Up 0.4 pp
US Transborder Up 2.7 pp
Other International Up 1.4 pp

• Compare Q4 2005 to Q4 2004

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Passenger Revenue per Revenue Passenger Mile
(Yield)
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Passenger Revenue per Available Seat Mile (RASM)
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Average Salary and Employees
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Hedges

• Fuel hedges 2005 to 2007
• Increase hedge position of approximately 4 per
  month to approximately 50 of anticipated jet
  fuel requirements
• Foreign currency contracts
• Forward contracts and option agreements on US521
  million of future purchase

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Financial Statements
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Financial Analysis
ACE North American Airlines All Airlines
Debt/Equity 914 63.72 64.15
Profit margin 2.62 -6.97 -4.46
ROE 22.09 -4.76 -2.14
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Stock Price 1 Year
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Stock Price Since Incorporation
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Recommendation

• SELL