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Global Airlines Presented by IrisJonathanCarolineSean

Contents  Industry Analysis - Iris  American Airlines -  British Airways -  Singapore Airlines - Global Airlines

Industry Outlines 1. ASIA and CENTRAL EUROPE hold the greatest revenue potential 2. Divergent regional financial performances 3. Alliances between airlines: rationale & benefits 4. Regional low-cost carriers

Current market environment 1. Traffic Recovery 2. Focus on Costs 3. Globalization Traffic Recovery Traffic rebounded strongly in 2004Traffic rebounded strongly in 2004 Recovery strongest in AsiaRecovery strongest in Asia Freight traffic led the recoveryFreight traffic led the recovery Passenger traffic to grow 5.3%Passenger traffic to grow 5.3% ASK - available seat-kilometersASK - available seat-kilometers (a measure of airline capacity) (a measure of airline capacity) RPK – Revenue passenger-kilometersRPK – Revenue passenger-kilometers Focus on Costs Higher Fuel price Fuel price Labor cost More challenge to become a low cost industry The need to cut costs Re-engineering processes Improve fuel efficiency 1. Traffic Recovery Globalization Emerging economies International tourism  Hubs key to new routes success  Expansion through both fragmentation and consolidation 2. Focus on Costs 3. Globalization

Demand-Air Travel

Demand- Cargo -Higher growth than the passenger market -Significant future demand -Asian freighter fleet to grow the quickest -Large demand for new large freighters

Profitability

Costs Management  The challenge of living with a high oil price  Labour costs remain a major challenge

Forecast highlights

North America Economic growth in North America is driven by strong increases in productivity and continuing population growth. Air travel growth or the region's carriers should average 4.1% annually through % of deliveries to North American airlines over the next 20yrs are forecast to be in regional jet and single-aisle airplanes. The international market will continue to fragment as more point-to-point service and additional city pairs and frequencies are added.

Europe  Europe is a blend of smaller developing economies and larger mature ones.  The rise of low-cost carriers continues to generate new travel growth in Europe.  Mainline network carriers will growth their international networks largely operating hub-and-spoke systems.  More than ¾ of the European fleet will continue to be regional jets and other single-aisle airplanes.  The share of midsize twin-aisle airplanes will increase from 15% to 20% over the nest 20yrs.

 GDP growth in Northeast Asia is forecast at 1.8% over the next 20 yrs.  Airline deregulation in Japan, gradual liberalization, and globalization stimulate traffic.  Travel is often distant, for example, to Europe, North America, and Oceania.  The % of the Northeast Asia fleet consisting of midsize twin-aisle airplanes will rise from 40 % to nearly 50% over the next 20yrs. Northeast Asia- Japan & Korea

Current Stock Infromation As of November 4, 2005 Stock Price: $14.19 Symbol: AMR Exchange: NYSE 52-week Range: 7.83 – Avg Vol: 4,643,270 Market Cap: 2.374B Shares Outstanding: 164M Div Date: 15 March 2005

1-Year Performance

5-Year Performance Sept 11 SARS

Company Information AMR is the parent company of American Airlines and A merican Eagle Airlines. American Airlines is the world's largest carrier. AMR serves more than 250 cities in more than 40 count ries and territories with approximately 3,900 daily flights The combined network fleet numbers more than 1,000 aircraft. Major Shareholders:

Management Team Gerard J. Arpey – Chairman, President & CEO of AMR and American CEO since 2003, Chief Operating Officer from 02-03, Executive Vice President o f Operations from , CFO from 95-00, Senior Vice President of Planning 92-95, various management positions since Daniel P. Garton – Executive Vice President of Marketing Executive Vice President of Customer Service from , Senior Vice Presid ent of Customer Service from 98-00, various management positions since James Beer – Senior Vice President of Finance & CFO Vice President of American from and various management positions since Gary F. Kennedy – Senior Vice President & General Council Vice President of Corporate Real Estate from 96-03, attorney and various mana gement positions since Charles D. MarLett – Corporate Secretary Joined American as an attorney in 1984.

Qualitative Analysis: Recent Developments and AMR Specifics COMPETITION Intense competition domestic and international. Increased competition from low cost carriers. –“Indefinite” reduction in pricing power. –Weak revenues have resulted in persistent large operating losses in rec ent years. Competing carriers reorganizing in or out of Chapter 11 may be succ essful in lowering operating costs through renegotiated labor, supply, and financial contracts. Founding member of the oneworld alliance with British Airways. –Aim is to enhance customer service and smooth connections.

LABOR Reduced workforce by 20,000 since Reduced operating expenses by 1.8 billion in 2003 through a co mbination of changes in wages, benefits, and work rules Wages, salaries and benefits currently represent about 36% of o perating expenses down from 41% in Average full-time equivalent number of employees for the year e nded Dec 31, 2004 was 92,100. Majority of employees are represented by labor unions and cove red by collective bargaining agreements. –Current agreements with AMR’s three major unions do not become amendable until 2008.

REGULATIONS Liability for numerous suspected and confirmed cases of environ ment contamination (approximately $150 million). Security: imposed minimum $2.5 per enplanement security servi ce fee to pay for enhanced security measures. –Proposed increase to $5.50 with no assurance that fees may be pa ssed on to consumers. FREQUENT FLYER PROGRAM American established AAdvantage to develop customer loyalty b y offering awards to travelers for continued patronage. –Members earn mileage credits for flights on participating airlines or by using services of other program participants, including hotels an d car rental companies. –American reserves the right to change the program at any time with out notice and may end the program with six months notice. –Company believes this program is “one of its competitive strengths. ”

FUEL Fuel price increase negatively impacted expenses by $1.1 billion during Fuel hedging program reduced expense by approximately $99 million in Liquidity problems are expected to negatively impact hedging ab ilities in the future. INSURANCE The U.S. government no longer provides commercial war-risk in surance to U.S. based airlines covering losses to employees, p assengers, third parties, and aircraft. –Liability of $1.9 billion for Terrorist Attacks (September, 2001) and $ 500 million related to flight 587 (November 2001). –One of the Company’s insurance carriers that covers approximately 5 per cent of the Company’s coverage has entered liquidation.

Quantitative Analysis: Financial Statements Operating Statistics Earnings Cash Flow Analysis Balance Sheet Profitability Historical Multiples Intrinsic Value

Operating Statistics

Earnings

2004 Revenue Breakdown

Operating Expenses

2004 Operating Expense Breakdown

Cash Flow Analysis

Balance Sheet Summary

Balance Sheet Summary: Trend Lines

Financial Leverage Examined

Future Debt Obligations

Profitability

Historical Multiples

Intrinsic Value

Management Discussion and Analysis (2004 Annual Report) “It will be very difficult, absent continued restructuring of i ts operations, for the Company to continue to fund its op erations on an ongoing basis or for the Company to beco me profitable if the overall industry revenue environment does not improve and fuel prices remain at historically hi gh levels for an extended period.”

AMR Summary Historically weak revenues and high operating costs High fuel prices Reduced credit rating (significantly below investment grade) Significant debt and severe liquidity problems Negative impact on firms ability to sustain operations over the long term. Recommendation: Sell

Current Stock Information As of November 4, 2005 Price: pence Symbol: BAB & BAY (ADR) Exchange: LSE & NYSE Exchange rate: ₤1 = CAD$ week range: pence Average vol: 13,606,800 Share outstanding: 1,082,903,000 Market capitalization: ₤3,316,683,180

Company History 1919 – Aircraft Transport & Travel 1924 – Imperial Airways 1939 – British Overseas Airways Corp – British European Airways 1974 – British Airways 1987 – Privatization of British Airways

Company Information BA is the leading international airline Main activity: operation of international & domestic scheduled passenger airline services Operating bases: Heathrow & Gatwick Extensive international route networks: 149 destinations in 72 countries (as of March 31, 2005) Major institutional shareholders: –Barclays Global Investors (UK) – 9.59% –Franklin Templeton Investment Management – 5.68% –Fidelity Investment Services – 3.91% Subsidiary: BA CitiExpress Franchises: Comair, GB Airways, British Mediterranean, Loganair and Sun-Air of Scandinavia

Management Team Martin Broughton - Chairman Non-executive director since May 2000, Deputy Chairman from November 2003 becoming Chairman in July 2004 Willie Walsh - Chief Executive Designate Executive Board Member from May 2005 John Rishton - Chief Financial Officer Executive Board member since September 2001 Martin George – Commercial Director He joined British Airways in 1987 and was appointed Commercial Director in August 2004

Alliances & Partnerships

Qualitative Analysis Competition Market dynamics Regulations Firm strategy Risks

Competition Lufthansa Air France-KLM Small domestic & European carriers Delta United Alliances

Market Dynamics 1997 – to launch low-fare, no-frills airline May 2001 – e-ticketing Post 9/11 –Business Response Scheme –Heavy promotions –Club World seat / flat bad –Cut European air fairs Feb 2002 – implemented the FSAS program Dec 2002 – switched to Airbus Oct 2003 – withdrew Condorde 2008 – new Terminal 5 at Heathrow

Regulations IATA –Single European sky –Regulation of monopoly suppliers –Equal treatment of air and rail –Elimination of outdated regulations EU & US –Transatlantic air treaty BA & AA –Codesharing

Strategy “We will continue to simplify and modernise our business. New technology is key to simplifying processes for our customers.” (Rod Eddington, CEO) Simplification of the business –Cost structures –Network operation –Fleet & network strategy –Achieve 10% operating margin

Risks Government regulation Fluctuations in the fuel price Terrorism Insurance market failure Epidemics Political restrictions Employment law Environmental regulation

Quantitative Analysis Income statement analysis Balance sheet analysis Cash flow analysis Operating statistics Performance measures

Income Statement

Revenue Breakdown 2005 Revenue Composition 83.0% 0.2% 6.2% 10.6% Scheduled Non-scheduled Cargo Other revenue 2005 Revenue by Area of Original Sale 50.2% 15.0% 17.7% 9.6% 7.4% UK Continental Europe The Americas Africa, Middle East & Indian sub-continent Far East & Australasia

Revenue Breakdown

Geographic Revenue

Operating Expenses Summary Trend in Major Contributors to Operating Expenses ,000 1,500 2,000 2, Employee costs Fuel & oil costs Handling charges, catering & other operating costs Selling costs

Engineering & other aircraft costs 7.4% Landing fees & en route charges 7.2% Handling charges, catering & other operating costs 14.6% Selling costs 12.8% Accomodation, ground equipment costs & currency differences 8.3% Fuel & oil costs 12.4% Aircraft operating lease costs 2.5% Depreciation & amortization 8.0% Employee costs 26.7% 2005 Operating Expenses

Earnings Highlights -1,000 1,000 3,000 5,000 7,000 9, Total revenue Operating expenses Net income (loss)

Balance Sheet

Fixed Assets

Debt & Shareholders’ Funds

Balance Sheet Summary

Cash Flow Statement

Cash Flow Summary (US GAAP)

Operating Statistics

Ratio Analysis

Stock Performance 9/11 SARS

NYSE: BAB vs. AMR

Recommendation Attractive among the European network airlines Growing premium traffic Fuel prices, terrorism, labour costs No dividend Recommendation  HOLD

As of November 4, 2005 Price: S$11.50 Exchange rate: 1S$=0.5876$ 52-week range: S$ Market cap: S$ billion Share outstanding: 920 million Current Stock Information

Background Found in Oct – Separated from Malaysian Airways Spans over 110 cities globally with about 90 aircrafts (Average age 5yrs) Singapore government owned 57% of shares through Temasek holdings

Background Con’t Awards and accolades in Skytrax ranked SIA as one of the only three Five Star Airlines – OGA(UK) voted SIA the Best airline based in Asia – Business Traveller (USA) also voted SIA Best Airline for International Travel, as well as having the Best First and Economy Classes

Background Con’t Alliance Partners: – Singapore Airlines joined the Star Alliance in April 2000 – Outside of the Star Alliance, cooperation with Virgin Atlantic Airways, and Malaysian Airlines (MAS)

Background Con’t Subsidiaries of SIA –Silk Air –SIA Engineering Co. –SIA Cargo –SATS (Singapore Airport Terminal Services Ltd)

Group Finance Review

Net Debt Equity Ratio

Group Finance Review

Operating Performance

Cost Structure

Profitability-Conclusion Four engines of profit growth: 1 Capacity (ASK): ↑18.6% Higher than expectation 2 Load factor: ↑ 1.4% Lower than expectation 3 Yield: (Rev/RPK) ↑ 2.3% Higher than expectation 4 Cost: CASK (cost per available seat kilometer ) Fuel CASK ↑ 23% Non-Fuel CASK ↓ 11% Better than expectation Three of them higher than expectation to lead earnings growth (expectations are from JP Morgan's Analysis)

Market Information

5-Year Performance Sept 11 SARS

One-Year Performance

Major Shareholders Total 88.91%

Market Ratios

Cash Flow Analysis Net cash from operation activities 2, ,760.5 Net cash used in investing activities (1,009.9) (606.8) Net cash used in financing activities (394.7) (413) Total cash inflow 1, Ending Cash 2, , Cash per share ( in million)

Recommendation Long-term  Hold