AIG AFRICAN INFRASTRUCTURE FUND

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AIG AFRICAN INFRASTRUCTURE FUND
 Management in crisis situations 
Vincent LE GUENNOU - Emerging Markets Partnership
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AIG African Infrastructure Fund (AAIF)

• 407 mm private equity fund sponsored by the
  American International Group (AIG)
• Major Investors include the International
  Finance Corporation (IFC), the African
  Development Bank (ADB), El Paso Energy
• Established in March 2000 with a 10-year life
• Invest in infrastructure and related industries
  in Africa
• Principal Advisor Emerging Markets Partnership.

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All Africa Airways (AAA)
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AAAs 1st investment
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AAAs 1st investment
AAIF
AIR FRANCE
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GOCI
ALL AFRICA AIRWAYS
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AIR IVOIRE
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Air Ivoire background and context

• Air France awarded the privatization of Air
  Ivoire following tender in August 2000
• Previous state owned Air Ivoire in liquidation,
  stopped operating in December 1999
• Military coup in December 1999 after 40-years of
  stability
• 10 months of military transition followed by
  tumultuous presidential elections in October
  2000
• Negotiation with newly formed Government as of
  February 2001.

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Air Ivoire background and context

• Concession contract signed in October 2001
• Provision of airline service on domestic routes
  (6) and regional routes (10 destinations
  according to BP)
• Exclusivity period of 5 years renewable one time
• Board constituted of 10 members, 3 appointed by
  GOCI (including Chairman), 3 appointed by AAIF
  and 4 appointed by Air France.
• Fast changing market conditions
• Long-haul routes (Europe, US,) exclusivity of
  Air Afrique a troubled multinational airlines on
  the verge of bankruptcy
• Liberalization of intra African States Air
  Transport with implementation of an open sky
  policy.

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Pre-crisis summary of operations

• Operations on regional routes began on March 31,
  2002 with 2 F-28 third F-28 arrived in May 2002
  (on 3 years lease)
• Domestic service started in July 2002 with
  turbo-Propeller (Short-360 on 1 year lease)
• Air Ivoire captured 38 market share in 5 months,
  turned EBITDA positive in August 2002 with
  average load factor of 66
• Anticipation of expansion plans under review
• Total investment by AAA 6.6 mm.

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September 2002 the Crisis

• September 19, 2002 rebel forces attack Abidjan,
  Côte dIvoires economic hub and Bouaké, the 2nd
  largest city
• After two days of confusion, coup has failed,
  loyalists regain control of Abidjan while rebels
  control the northern part of the country
• French troops rapidly deployed on the ground, in
  Yamoussoukro and other strategic points, avoiding
  a total collapse of the country
• Cote dIvoire split in two parts.

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The Crisis
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Immediate decisions

• Traffic dropped by 40 at Abidjan Airport, Bouaké
  Airport closed
• Early October, load factor on Air ivoire flight
  down to 45 from 66 in August
• Board meeting of October 14, 2002 focused on
  costs reduction
• Program reorganized to meet curfew hours
• Place domestic operations on stand-by for a
  period of time and negotiate termination of
  1-year lease contract
• Flight schedule reduced dramatically, from 431
  hours flown in August to 378 hours in November
• Reduction of commercial expenses (advertising)
• Reduction of salaries

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Review of shareholders' options

• Board meeting February 2002
• 2002 numbers 6.6 mm net loss (2.2 mm of
  pre-operating expenses) versus budget loss of 4
  mm
• Scenario 1 temporary shut-down at a maximum cost
  of 2.5 to 3 mm including lease payments, pilot
  training and aircraft maintenance (assuming no
  alternative use of aircrafts found)
• Scenario 2Liquidation at a cost above 2 mm,
  including lease payments and termination of all
  current contracts (personnel)

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Review of shareholders' options

• Scenario 3 Status quo. 2003 forecast called for
  a 1.6 mm loss using conservative assumptions
  based on latest weeks of observation.
• Shareholders voted for
• continuation of operations but agreement to
  review scenario 12 again should the situation
  worsen dramatically
• Further cash contribution by all shareholders,
  (including GOCI) to support the company.

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Positive political and military evolution

• Ceasefire signed between parties in January 2002
• Strengthen presence of international forces
  (Ecowas and France) to impose a strict respect
  of ceasefire
• Political agreement signed between all parties in
  Paris at the end of February 2002
• New Government formed in March 2002 open to all
  parties.

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Post crisis stabilization

• Strong correlation between perception of
  political situation and traffic, on the rise
  again as of April 2003
• Net Income breakeven in second semester of 2003,
  positive in Q4 2003.
• Net loss for the year of 0.9mm versus 1.6mm in
  scenario 3.
• Decision taken to progressively restore more
  ambitious flight program as of December
  (objective 20 of hours flown).

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Post crisis stabilization
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2004 perspectives

• 2004 budget calls for a small net profit
• Q1 2004 online with budget
• Company was awarded traffic rights to fly
  long-haul route at no extra cost
• Service to be started by October 2004 between
  Paris and Abidjan
• 5 mm required to finance expansion.

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Lessons

• Importance of strong and experienced strategic
  partner and management,
• Board of Directors reactivity and flexibility,
• Lower the breakeven point,
• Keep options open as long as you can,

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