ICF Residual Value Model

0icfi.com/aviation |
The ICF Residual Value Model
October 21, 2015 – New York, NY
Presented by:
Stuart Rubin
Principal ICF International
stuart.rubin@icfi.com

Today’s Objectives:
founded 2001,
joined ICF in 2011
founded 1963,
joined ICF in 2007May 2010–May 2014
Residual Value
Current Methodologies
ICF’s Approach to Residual Values
ICF’s Residual Value Model – Features

Residual Value

Aircraft Values Typically Decline with Age
 Aircraft, like most physical assets, exhibit a depreciation profile
whereby its current market value depreciates to an end of life
residual value over time due to…
• Aging structures that require increasing maintenance spend
• Growing obsolescence resulting from new technologies
and improvements in fuel efficiency
 An aircraft reaches the end of its economic life when it can
no longer generate a positive cash flow
• At this point, it is more economic to replace or scrap the aircraft,
rather than to continue operating it
THE ICF RESIDUAL VALUE MODEL

What are the drivers
of residual values?
Market drivers
- Aircraft financing environment
- Regulatory environment
- Market penetration (market mass)
- Strength of Secondary market
Aircraft performance also impacts residual values.
These factors are:
- Aircraft specification
- Aircraft economics
- Aircraft technology, and more importantly, proximity
to replacement technology

High Levels of Accuracy in Residual Value Forecasts is
Key for Industry Stakeholders
 Realized aircraft residual values determine the difference between
profit and loss in aircraft ownership and financing transactions
 For the investor, rigorous and accurate residual value forecasts
ensure that…
• The correct price is paid for the aircraft
• Financing is obtained at the least cost in a liquid market
• Overall financing risk is minimized
• The opportunity is presented for upside returns
 Successful investments require accurate forecasts of these
future values

In 1997, some 737-300 residual value forecasts were
bullish – Even though the 737NG was about to replace
the 737 Classic
1997 737-300 YOM Residual Value Forecast (@ 2.0%)
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
$ Millions

1997 737-300 YOM Residual Value Forecast (@ 2.0%)
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Reality did not align with the expectations
at the time
1997 RV Forecast
Actual CMVs
$ Millions

Two decades later, it is not clear many residual value
forecasts have incorporated lessons that should have
been learned
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
737-800 Residual Value Forecast, 2015 Build (@ 2.0%)
Age in Years
1997 737-300 YOM
Actual CMV
1997 737-300 YOM
RV Forecast
2015 737-800 YOM
RV Forecast
% of New
CMV

Other disconnects exist in some of the residual value
forecasting observed by ICF
737-600/CFM56-7B20 Residual Value Forecast (@ 2.0%)
$0
$2
$4
$6
$8
$10
$12
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
2X CFM56-7B20
Bare Engine
RV Forecast
1X 1998 YOM
737-600
RV Forecast
With the 737-600, the current and
future base values of two bare CFM56-7B20
engines are forecast to be higher than the
value of the whole aircraft
$ Millions

Some shortfalls are likely the result of utilizing traditional
methodology to project aircraft residual values
 Simply assign aircraft models into one of various “demand bands”, which
in turn is associated with a statistical residual value curve
 Each demand band is fixed, so the residual value forecast is solely
dependent upon the forecaster’s qualitative assignment of the aircraft
to a demand band
 They are not necessarily
adjusted to take into
account the timing of
the replacement cycle,
nor do they consider
the dynamics of the
components that drive
residual values

ICF’s Approach – A New Methodology

Unlike other models, ICF’s model accounts for the value
behavior of an aircraft’s constituent components
ICF’S APPROACH
Schematic of Half-Life Aircraft
and Engine Value Trends
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
 Depreciating assets,
typically over 25 years
 Materially different value
between 5 and 25 year old
assets
Note:Half-life engines valued as standalone engines in the market; cost of
installed engines purchased new frequently less than value of spare engine.
Age in Years
% of Value
Airframes
 With maintenance, can
repeatedly restored to
like-new condition
 No influence of engine age
on value
 5 or 25 year old engine in
same maintenance status
can have the same value
Engines
Airframe
Aircraft
Engine

As a result, by considering the values of the constituent
components, more precise residuals can be determined
Indicative Schematic of Aircraft Residual Values
(Airframe vs. Engine)% of Original
Aircraft Value
Age in Years
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
Engine share of
total aircraft value
increases over time
as airframe loses
value
Maintenance share of total
engine value increases over
time as core value declines
Half-Life Airframe Value
Half-Life Engine Maintenance Values
Half-Life Engine Cores

Important contrasts can be drawn between ICF’s residual
value model and more traditional approaches
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
777-300ER Residual Value Forecast
Aircraft Half-Life CMV$ Millions
Age in Years
Aircraft Premium
Airframe Mx
Airframe Core
Engine Mx
Engine Core + Premium
“Traditional” 777-300ER RV Curve

ICF’s model easily allows one to evaluate aircraft in
conditions other than half-life
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
The difference in valued
between a mature 777-300ER
in half-life and a full-life
condition is over $12 million
777-300ER Residual Value Forecast
Aircraft Half-Life CMV
Aircraft Premium
Airframe Mx
Airframe Core
Engine Mx
Engine Core + Premium
“Traditional” 777-300ER RV Curve
$ Millions
Age in Years

Output of the ICF Residual Value Model permits a “look under
the hood” of what is driving the overall aircraft value
Aircraft
Spec Data
• Aircraft Type
• Engine Type
• Vintage
Engine
Value Data
• Engine Core Value
• Shop Visit Status Adj
• LLP Status Adj
• Engine Premium
Airframe
Value Data
• AF Core Value
• APU Core Value
• AF Check Status Adj
• LG Overhaul Status Adj
Final Value
• Aircraft Premium
• Half Life Base Value
• Full Life Base Value
AIRCRAFT Engine APU VINTAGE Vin_Month Year Age EngCore ESVMx LLPMx EngPremium EngMx Engsubtotal AFCore Ccheck_Mx HeavyCheck_Mx LG_Mx APU_Mx TR_Mx AirframeMX AFSubTotal ACPremium EXP_HLBV FLBV
777-300ER GE90-115BL2 GTCP331-500 2015 6 2015 0 $14.1 $6.3 $3.2 $17.0 $9.5 $40.5 $8.4 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $11.7 $95.7 $160.7 $160.7
777-300ER GE90-115BL2 GTCP331-500 2015 6 2016 1 $13.5 $6.4 $3.2 $18.1 $9.6 $41.2 $7.6 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $10.9 $84.3 $145.1 $149.2
777-300ER GE90-115BL2 GTCP331-500 2015 6 2017 2 $13.0 $6.5 $3.2 $18.9 $9.7 $41.6 $6.8 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $10.0 $74.3 $130.7 $138.8
777-300ER GE90-115BL2 GTCP331-500 2015 6 2018 3 $12.5 $6.6 $3.2 $19.5 $9.8 $41.9 $5.9 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $9.2 $65.4 $119.5 $129.4
777-300ER GE90-115BL2 GTCP331-500 2015 6 2019 4 $12.1 $6.7 $3.2 $20.0 $9.9 $41.9 $5.1 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $8.3 $57.6 $109.9 $121.0
777-300ER GE90-115BL2 GTCP331-500 2015 6 2020 5 $11.6 $6.8 $3.2 $20.3 $10.0 $41.8 $4.2 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $7.5 $50.9 $101.7 $113.4
777-300ER GE90-115BL2 GTCP331-500 2015 6 2021 6 $11.2 $6.9 $3.2 $20.3 $10.1 $41.6 $3.4 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $6.6 $45.1 $94.5 $106.6
777-300ER GE90-115BL2 GTCP331-500 2015 6 2022 7 $10.7 $7.0 $3.2 $20.3 $10.2 $41.2 $2.5 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $5.8 $40.1 $87.9 $100.5
777-300ER GE90-115BL2 GTCP331-500 2015 6 2023 8 $10.3 $7.1 $3.2 $20.1 $10.3 $40.7 $2.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $5.6 $35.8 $82.7 $95.7
777-300ER GE90-115BL2 GTCP331-500 2015 6 2024 9 $9.9 $7.2 $2.7 $20.3 $9.9 $40.1 $2.1 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $5.4 $32.2 $77.9 $90.9
777-300ER GE90-115BL2 GTCP331-500 2015 6 2025 10 $9.6 $7.3 $2.0 $20.6 $9.3 $39.4 $1.9 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $5.2 $29.2 $73.8 $86.3
777-300ER GE90-115BL2 GTCP331-500 2015 6 2026 11 $9.2 $7.3 $1.4 $20.8 $8.7 $38.6 $1.7 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $5.0 $26.6 $70.2 $82.1
777-300ER GE90-115BL2 GTCP331-500 2015 6 2027 12 $8.9 $7.3 $1.3 $20.4 $8.6 $37.8 $1.5 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $4.8 $24.3 $66.9 $78.8
777-300ER GE90-115BL2 GTCP331-500 2015 6 2028 13 $8.5 $7.2 $1.3 $20.1 $8.4 $37.1 $1.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $4.6 $22.4 $64.0 $75.7
777-300ER GE90-115BL2 GTCP331-500 2015 6 2029 14 $8.2 $7.1 $1.2 $19.9 $8.3 $36.3 $1.1 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $4.4 $20.6 $61.3 $72.8
777-300ER GE90-115BL2 GTCP331-500 2015 6 2030 15 $7.9 $7.0 $1.1 $19.3 $8.1 $35.2 $0.9 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $4.2 $18.9 $58.3 $69.6
777-300ER GE90-115BL2 GTCP331-500 2015 6 2031 16 $7.6 $6.9 $1.0 $18.4 $7.9 $33.9 $0.7 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $4.0 $17.2 $55.0 $66.2
777-300ER GE90-115BL2 GTCP331-500 2015 6 2032 17 $7.3 $6.8 $1.0 $17.3 $7.7 $32.3 $0.5 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $3.8 $15.4 $51.4 $62.4
777-300ER GE90-115BL2 GTCP331-500 2015 6 2033 18 $7.0 $6.7 $0.9 $15.9 $7.6 $30.5 $0.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $3.6 $13.4 $47.4 $58.2
777-300ER GE90-115BL2 GTCP331-500 2015 6 2034 19 $6.7 $6.6 $0.8 $14.3 $7.4 $28.4 $0.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $3.5 $11.1 $43.0 $53.7
777-300ER GE90-115BL2 GTCP331-500 2015 6 2035 20 $6.5 $6.5 $0.8 $12.8 $7.3 $26.5 $0.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $3.5 $8.5 $38.5 $49.0
777-300ER GE90-115BL2 GTCP331-500 2015 6 2036 21 $6.2 $6.4 $0.7 $11.4 $7.1 $24.7 $0.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $3.5 $5.3 $33.6 $43.9
777-300ER GE90-115BL2 GTCP331-500 2015 6 2037 22 $6.0 $6.3 $0.7 $10.1 $7.0 $23.1 $0.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $3.5 $1.7 $28.2 $38.5
777-300ER GE90-115BL2 GTCP331-500 2015 6 2038 23 $5.8 $6.2 $0.7 $8.8 $6.9 $21.5 $0.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $3.5 $0.0 $25.0 $35.2
777-300ER GE90-115BL2 GTCP331-500 2015 6 2039 24 $5.6 $6.1 $0.7 $7.7 $6.8 $20.1 $0.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $3.5 $0.0 $22.8 $32.9
777-300ER GE90-115BL2 GTCP331-500 2015 6 2040 25 $5.4 $6.0 $0.7 $6.7 $6.7 $18.7 $0.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $3.5 $0.0 $20.8 $30.7
777-300ER GE90-115BL2 GTCP331-500 2015 6 2041 26 $5.1 $5.9 $0.7 $5.7 $6.6 $17.5 $0.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $3.5 $0.0 $18.9 $28.8
777-300ER GE90-115BL2 GTCP331-500 2015 6 2042 27 $5.0 $5.8 $0.7 $4.8 $6.5 $16.3 $0.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $3.5 $0.0 $17.2 $27.0
777-300ER GE90-115BL2 GTCP331-500 2015 6 2043 28 $4.8 $5.8 $0.7 $4.0 $6.5 $15.2 $0.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $3.5 $0.0 $15.6 $25.3
777-300ER GE90-115BL2 GTCP331-500 2015 6 2044 29 $4.6 $5.7 $0.7 $3.2 $6.4 $14.2 $0.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $3.5 $0.0 $14.2 $23.5
777-300ER GE90-115BL2 GTCP331-500 2015 6 2045 30 $4.4 $5.6 $0.7 $2.6 $6.3 $13.2 $0.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $3.5 $0.0 $13.4 $22.1
777-300ER GE90-115BL2 GTCP331-500 2015 6 2046 31 $4.2 $5.5 $0.7 $1.9 $6.2 $12.4 $0.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $3.5 $0.0 $12.7 $20.9
777-300ER GE90-115BL2 GTCP331-500 2015 6 2047 32 $4.1 $5.4 $0.7 $1.3 $6.1 $11.5 $0.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $3.5 $0.0 $12.0 $19.7
777-300ER GE90-115BL2 GTCP331-500 2015 6 2048 33 $3.9 $5.3 $0.7 $0.8 $6.1 $10.8 $0.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $3.5 $0.0 $11.4 $18.6
777-300ER GE90-115BL2 GTCP331-500 2015 6 2049 34 $3.8 $5.3 $0.7 $0.3 $6.0 $10.0 $0.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $3.5 $0.0 $10.8 $17.6
777-300ER GE90-115BL2 GTCP331-500 2015 6 2050 35 $3.6 $5.2 $0.7 $0.0 $5.9 $9.4 $0.3 $0.2 $1.6 $0.8 $0.2 $0.4 $3.3 $3.5 $0.0 $10.3 $16.7

The ICF Residual Value Model accounts for the impact of
OEM engine maintenance agreements
 Since the ICF residual value model forecasts asset values on a major
componentized level, it is possible to model the value impact of
highly restrictive Original Equipment Manufacturer (“OEM”) engine
maintenance agreements
• With a “top down” approach, the traditional residual value forecasts
do not offer the same level of flexibility
 By reducing the values of the engines to account for the lack of liquidity
in the market for these assets a more accurate forecast of value can be
generated
• This allows the aircraft owner to make more informed decisions
in the face of OEM engine maintenance which have effectively
closed the market to used engine material and thus have had a
adverse impact on the market for used and parted out engines

The ICF Residual Value Model effectively accounts for the value
penalty associated with first and last off the line aircraft
8
10
12
14
16
18
20
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
2 Years
Early build aircraft typically suffer
from reduced performance and
efficiency as a result of being over
weight – this results in lower
residual values
Economic Life (Years)
Representative Aircraft Economic Life
Economic Life
WITH Shoulder
assumption Baseline economic Life
assumption of 16 Years
applies to 'Middle Year'
of production
Economic Life
without Shoulder
assumption

The ICF Residual Value Model is capable of modeling the
market dynamics associated with end-of-life challenges
 As aircraft approach the end-of-life, engine and airframe maintenance
value may not be fully valued by the market
• Especially true of engines, as operators build engines to specific cycle lives
 Restrictive TCAs limit the ability of owners to extract value at the
end of life
 Last off the line aircraft will have a shorter economic life
– the ICF Residual Value Model accounts for this impact

THE ICF RESIDUAL VALUE MODEL - DETAILS
ICF values each aircraft element independently and
sources current data from four aviation practices
 Data on the core values are gathered not only through ICF’s appraisal work
but also broader engagements from all four ICF Aviation Practices
• Airframe core values are based on not only sales of
whole airframes for part out but also derived from
realized sales from actual teardowns
• Engine core values are based primarily on market intel
from knowledgeable market sources
 Maintenance cost and Life Limited Part (“LLP”) data is
more transparent through the OEMs, although ICF also
gathers third party data to guide our opinion of costs
for airframe, landing gear and engine maintenance

Key Takeaways
 The value behavior of the aircraft/airframe and engines are very different
and are not accounted for in traditional residual value models
 ICF has designed its aircraft residual value model to consider these various
constituent components with precision
 Consequently, it is capable of considering a number of important market
dynamics not evaluated with more traditional methodologies, like:
• Impact of restrictive maintenance agreements on overall aircraft values
• Impact of reducing airframe/engine core values with more part-outs
• Impact of varying economic lives for aircraft produced early and late
in the production cycle

About ICF

ICF is one of the world’s largest and most experienced aviation
and aerospace consulting firms
Airports • Airlines • Aerospace & MRO • Aircraft
joined ICF in 2011
joined ICF in 2007
 52 years in business (founded 1963)
 80+ professional staff
− Dedicated exclusivelyto aviation and aerospace
− Blend of consultingprofessionals and experienced aviationexecutives
 Specialized,focused expertise and proprietary knowledge
 Broad functional capabilities
 More than 10,000 private sector and public sector assignments
 Backed by parent ICF International (2014 revenue: 1.05 billionUSD)
 Global presence –– offices around the world
New York • Boston • Ann Arbor • London • Singapore • Beijing
ABOUT ICF
joined ICF in 2012

ICF’s Aircraft Advisory & Management Practice is the leading advisor
and provider of asset management services to the industry
ABOUT ICF
ICF has in-depth knowledge of the aircraft, engine, and parts financing
and leasing sectors, and has advised managements, investors, and lenders
on a significant number of industry opportunities and threats. ICF is a
leading provider of due diligence services to investors with respect to
discrete assets, portfolios, and platforms.
Led by three ISTAT-certified appraisers, ICF annually provide robust value
and lease rate determinations and forecasts for $35 billion of aircraft,
engines, spare parts inventories, simulators, operating leases, and other
tangible and intangible assets.
ICF provides asset and lease management and technical services, ranging
from assistance with risk analysis and lease contract negotiation to
records management, lease compliance monitoring, annual inspections,
maintenance cost forecasting, portfolio management, asset redelivery,
and remarketing.
ICF provides end-to-end support to clients looking to buy, lease, and sell
aircraft, covering the spectrum from corporate jet and turboprop aircraft
to narrowbody and widebody commercial jet aircraft. ICF extensively
supports selection, contract negotiations, due diligence, and technical
services to ensure optimal outcomes.
ICF provides expert program management services for new and used
aircraft. ICF’s services range from developing detailed specifications to
sourcing and managing all BFE, and managing
modifications to support changes in operation or role, lease transitions,
etc.
Strategic
Investment
Advisory & Due
Diligence
Clientele
 Banks
 Bondholders
 Export credit agencies
 Insurance companies
 Investment banks
 Rating agencies
 Established airlines
 Start-up airlines
 Corporate flight departments
 VVIPs
Airlines and Operators
 Airlines
 Aircraft & Engine Lessors
 Aftermarket Traders
 Private Equity Firms
 Hedge Funds
Asset Owners and Equity Investors
Lenders, Creditors, and Related
Appraisals
& Valuation
Aircraft Asset
Management and
Technical Services
Purchase, Lease,
and Sale
Negotiation
Support
Interior &
Modification
Program
Management
CapabilitiesAircraft

In addition to aviation, ICF International is one of the world’s
leading policy management and technology consulting firms
 Over 45 years experience – Founded 1969
 Large, diversified consulting organization
offering end-to-end management, technology,
and policy services
 Diverse client base:
• 63% government (U.S. federal, state, and
local agencies; non-U.S.)
• 37% commercial
 Global presence with more than 70 offices,
headquartered in the Washington, DC, area
 Publicly listed on NASDAQ* (“ICFI”) in
2006; mid-sized market cap
$1.05B Revenues
5,000+ Employees
ICFI NASDAQ
ICF Delivers Professional Services and Technology
Solutions in Three Focus Areas
Energy, Environment,
Transportation
Health, Social Programs,
and Consumer/Financial
Public Safety and Defense
ABOUT ICF

Thank you!
For questions regarding this
presentation, please contact:
Stuart Rubin
Principal
9300 Lee Highway
Fairfax, VA 22031
+1 (703) 634-3015
stuart.rubin@icfi.com

ICF Residual Value Model

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