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  • TroyAvi Air Cargo Overview Dr Emre Serpen TroyAvi, President, Aviation Practice
  • TroyAvi Global cross roads: to the West mature economies, to the East, North and South emerging markets with fast growth rates Turkish Airlines demonstrated significant growth leveraging both economic growth in turkey and also leveraging 6th freedom potential of Istanbul There is significant opportunities for air freight growth in Turkey in the coming years both destination and 6th freedom Air freight growth is driven by economic activity, world trade, industrial production and consumption Worldwide trade is expected to grow 3.8 % over the next 20 years Emerging markets are expected grow 6% which is well above of mature markets  Growth in the air freight industry is primarily driven by emerging markets Opportunities for Air Cargo Growth , through Turkey’s strategic location Source: Airbus
  • TroyAvi World air cargo growth has been relatively flat since 2011, with some improvement in 2013 World air cargo traffic growth has been relatively flats since 2011, following strong recovery in 2010 - 2009 -9.6% - 2010 +18.5% - 2011 -0.9% - 2012 -1.1 There has been an improvement in 2013 with +3.5% increase first two quarters of 2013 IATA cargo confidence survey indicate some improvement through 2013
  • TroyAvi Turkey’s strategic location with access to emerging markets and recent focus on air cargo enabled start of rapid growth of air cargo activity In recent years Air transport growth in Turkey has been faster than global averages RTK growth tracks closely GDP growth In recent years gap is developing between GDP and RTK correlation Increasing fuel prices, mode shift to maritime and other transport may be contributing to this gap Seasonally adjusted FTK’s have been flat since recovery in 2010 This has not impacted growth of Air cargo in Turkey – with significant growth with new freighters, belly and greater share of 6th freedom air cargo market Source: IATA, CAPA
  • TroyAvi Opportunities for growth for air cargo in Turkey is greater than global averages World air cargo traffic has grown 5.4 % since 1982 from 50 to 200 billion RTK Next 30 years world economy is expected to grow by 3.2%, cargo traffic is expected to grow to 600 billion RTK, 5% 2023 goal for Turkey is $500 M, this could represent growth of air cargo from 2.5 million to 6 Million Tonnes Industry is poised for change to replicate the success we have seen in passenger air transport in both destination and transhipment market Source: Boeing, Airbus
  • TroyAvi 6 0 50 100 150 200 250 Europe (ex TK, RU) Turkey Africa + Middle East CIS Rest of Asia (ex CIS) North America Central & South America + Carib Oceania (OZ + NZ) Departures Average Daily Departing Flights July 2010 July 2013 Istanbul is now positioned as an aviation hub, primarily through the growth of the passenger business Source: Innovata Schedules (accessed through Diio). Turkey has largest trucking fleet in Europe, from Istanbul it can effectively serve most Europe. An Advantage over Gulf Carriers . Opportunities for further growth, Asia
  • TroyAviTurkey’s GDP Growth is above global averages Forecasted GDP growth in Asia Pacific, Middle East and Africa are also above global averages. Source: Thomson Reuters estimates GDP Growth Forecast (2013-2023)
  • TroyAvi 8 Continuing growth of connecting traffic leveraging Turkey’s strategic global location Istanbul is poised to continue its growth as a global hub and presents opportunity for cargo growth EUROPE - MIDDLE EAST EUROPE - ASIA- PACIFIC N.A. - ASIA PACIFIC EUROPE - AFRICA EUROPE - CIS IST
  • TroyAvi Europe Americas Africa Asia (excl. CIS) Russia/CIS Oceania Middle East Opportunities for further growth for Istanbul as an aviation hub 9 CDG FRA IST DXB LHR There are further opportunities for Istanbul for further growth as a global hub considering comparisons of service with other hubs
  • TroyAvi Turkey  Turkey experienced above average cargo growth of its European peers in 2010 (average 15.4%)#1 Istanbul SAW #4 Ankara ESB World Ranking – Highest Growth Airports by Passengers ( #6 Turkey (In Europe) #19 Turkey (Worldwide) World Ranking – Busiest Cargo Country by Tonnage 26.4% 2010 YoY Growth by Total Cargo Carried Istanbul IST 22.4% 2010 YoY Growth by Total Cargo Carried  In 2010, the amount of cargo carried through Istanbul IST airport grew faster than similarly cargo-sized airports in the Middle East; Doha grew at 10.7% and Abu Dhabi grew at 15.6% Turkey experienced above average cargo growth in the recent years
  • TroyAvi Further to belly Freighter Fleet now contributing to air cargo growth Turkey ranks 19th among largest air cargo markets globally Rapid growth of traffic circa 500K tonnes imports and 350K tonnes exports Turkish Cargo achieved + 20% growth in freight tons-kilometre (FTK) in 2013. 35 Freighter Destinations Focus on emerging trade lanes are under served as they do not yet demand or support dedicated freighter services in their own right Construction of new 50,000 square meter cargo centre will begin at Istanbul Atatürk Airport. 1 United States 14 Malaysia 2 Hong Kong (SAR) China 15 Luxembourg 3 United Arab Emirates 16 Singapore 4 Japan 17 Australia 5 China 18 Brazil 6 Germany 19 Turkey 7 Korea, Republic of 20 Italy 8 United Kingdom 21 Spain 9 Chinese Taipei 22 Switzerland 10 Thailand 23 South Africa 11 France 24 Indonesia 12 Netherlands 25 Chile 13 India 3 A310-300F, 6 A330-200F 6 A300 -600, 1 330 200F 1 737 F
  • TroyAvi Istanbul is yet to achieve similar growth levels among European Airports, Paris and Frankfurt remain leading air cargo airports in Europe Source: ACI 2010 Annual Report This excludes grey cargo/passenger belongings with significant volume to Russia/CIS Boeing world cargo forecast 2023
  • TroyAvi US West Coast Mexico Ohio valley US East Coast US South East Mid-south South America West South America South Europe North West Europe South Africa East Africa South Europe East Israël Middle East Delhi Bangkok Singapore/Kuala Lumpur/Jakarta Australia East Coast Pearl river delta Taiwan South-Korea Shanghai region Japan Source: OAG Almaty region Astana region Beijing region Bangalore/ Mumbai Kuwait Calcutta At cross roads of world economic regions Africa West Opportunity to replicate the success of passenger business
  • TroyAvi World Map, distorted by Freight Volume Source: Airbus, IATA Cargo Symposium 2011 Opportunity for further growth: Regional Cargo Hub
  • TroyAvi Total trade import and export 000 Istanbul is an already retail hub for the region, and on its way to becoming a regional distribution centre Russia, China, and Germany are among leading partners. Turkey is poised for further growth. Istanbul become retail hub for countries in the region Source : TroyAvi Analysis
  • TroyAvi Its location enables resilience with leverage and access to multiple trade routes Source:CAPA
  • TroyAvi This is emphasised by growth unaffected by relative slowdown of Asian routes last year In 2013 Asia pacific routes were most adversely affected Middle east carriers added significant capacity to capture emerging opportunities Overall world air cargo grow was 0.4 in 2013 Turkish air cargo carriers led by TK continued their growth in 2013
  • TroyAvi World air cargo traffic is forecasted to grow 5% yoy over the next two decades with opportunity to capitalise on growth markets Turkey, -- Europe To/From Asia/Middle East,/Africa/CIS
  • TroyAvi Europe’s largest trading partner is China with 1.8+ MT Air Trade, followed by India and Japan 1,241,410 1,152,168 1,658,021 1,808,950 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 2008 2009 2010 2011 Tonnes Tonnes EuropeanCountry-level Air Trade (Exports& Imports) India Japan South Korea Singapore Australia Malaysia Indonesia New Zealand China * Estimated Q4-2011 based on proportion Q4 in 2010 Source: Districon
  • TroyAvi Europe to Asia air trade is expected to grow 5.6% through 2031 Air cargo companies in Turkey have services to China, there are opportunities for growth. Chinese carrier’s acquisition of Turkish Air cargo companies – opportunities for regional distribution, trucking to Europe Air Cargo Mkt Share By Freight Tonnes Loaded & Unloaded Asia-Pacific Hong Kong HKG, 4.2M Shanghai PVG, 3.2M Seoul ICN, 2.7M Tokyo NRT, 2.2M Singapore SIN, 1.9M Top Cargo Airports Tonnage 35.1% Source: ACI 2010 Annual Report, Highest Passenger Growth Airports with more than 5 million pax, Boeing world cargo forecast 2023
  • TroyAvi 21 Growth opportunities in China and Asia Note: Excludes, China, India and CIS countries. Source: Innovata Schedules (accessed through Diio). Week of July 20th, 2013 IST has only four cities and 27 weekly flights to China. Western European hubs FRA and CDG has nearly three times as much flights each to Chinese destinations IST offers services to 15 Rest of Asia countries, it lags behind most other major hubs in flight frequencies, compared with its peer hubs. TK MNG provides direct freighter services to China Intervistas
  • TroyAvi 6.5% Air Cargo Mkt Share By Freight Tonnes Loaded & Unloaded Middle East Dubai DUB, 2.3M Doha DOH, 0.5M Abu Dhabi AUH, 0.4M Top Cargo Airports Tonnage In the Middle East, liberalized bilateral agreements and increases in fleet drove growth, i.e. UAE and Qatar.
  • TroyAvi Air freight in Turkey doubled between 2004 and 2013 TR:Turkey, KR: Korea CNN: China North IN: Indonesia USNC:US North Central CNS: China South, IL: Israel TW: Taiwan ONRE: Near East USSW: US south West HKUS NE : US North East CNE: China East JP: Japan USSE: US South East CA: Canada ONAF: North Africa SG: Singapore AU: Australia AE: UAE OME: Middle East Non Directional Source: LogCapStrat database
  • TroyAvi Commodity breakdown of Turkey – Hong Kong Route shows high yield cargo OD originating china north OND originating Turkey C390C: Manufactured Goods C381: Metals Products C2A: Minerals C3853: Watches C321: Textiles C390A: Toys/Sports C3832B: Semi Conductors C3832C: Communications C3825: Computers C371: Iron and Steel Source: LogCapStrat database Opportunities to distribute to ME, Africa, Balkans/Europe
  • TroyAvi Non directional OD totals include Textiles, Cloths, Manufactured goods C390C: Manufactured Goods C381: Metals Products C2A: Minerals C3825 Computers C321: Textiles 322:: Toys/Sports C3843B: Auto Spare Parts C3832C: Communications C3825: Computers C371: Iron and Steel Source: LogCapStrat database
  • TroyAvi US. Korea, Japan, Hong Kong, are leading routes by commodity value TR:Turkey, KR: Korea CNN: China North IN: Indonesia USNC:US North Central CNS: China South, IL: Israel TW: Taiwan ONRE: Near East USSW: US south West HKUS NE : US North East CNE: China East JP: Japan USSE: US South Est CA: Canada ONAF: North Africa SG: Singapore AU: Australia AE: UAE OME: Middle East Source: LogCapStrat database
  • TroyAvi In US NE route Jewellery, Clothing, Aircraft Parts, Medical and Computers lead the mix C390B: Jewellery C851: Professional/Office C322: Wearing/Clothes C825: Computers C3845: Aircraft/parts C3821 Electrical/Machinery C3832B: Semi Conductors C321: Textiles C3522: Drugs/Medical C832C Iron Communications C3829: Machinery Source: LogCapStrat database Opportunities to distribute to ME, Africa, Balkans/Europe
  • TroyAvi In Europe Weekly frequency of truck flights grew five fold over the past decade Long haul truck flights in Europe increased 5 times compared with airport flights which increased 3 times Istanbul offer opportunity to provide truck flights Distributing traffic to Balkans and Europe providing door-to-door services Given the changes in customer behaviour. With speed and consistency of delivery there could be opportunities for further growth Third Istanbul airport including with multi-modal connections will provide basis for further growth. This could be a competitive advantage compared with other hubs in the region Turkey has the largest trucking fleet in Europe with 55 K units and it can significantly capitalise on Truck Flight opportunity Source:
  • TroyAvi With largest fleet in Europe truck flight growth provides significant opportunity for Turkey Air transport agreements with new countries opened new routes for air freight – 143 new agreements over the past decade During financial crisis in Europe focus has shifted to African and Middle In world bank ratings in 2012 Turkey went up to 27th from previous 30th in 2009, The goal is to reach among top ten by 2023 Domestic air cargo also grew from 181 KT to 555KT Growth of roads and airports in Turkey also offer opportunities for growth of the air truck flights for Domestic distribution, Iraq, in future Syria Regional Distribution of Air Cargo from Asia with Trucks and Freighters Source THY Cargo 2012
  • TroyAvi Turkey is not immune to global challenges of air cargo industry Air cargo lagged passenger growth in previous years. With recent focus air cargo experienced growth. For example stated target is to grow revenues to 15% range Source: IATA
  • TroyAvi Some of the challenges we see globally are also experienced in Turkey Freighter load factor and utilisation averages are in line with global averages. TK reports higher LF of their freighters
  • TroyAvi Growth of WB fleet also present challenges for other Turkish Air Cargo companies Source: IATA Ascend
  • TroyAviIncluding pressures on cargo yields Global Air freight rates have remained weak in 2013 Source : CAPA, IATA This overcapacity in the air freight business has also contributed to weak cargo yield trends. World cargo yield collapsed in 2009, falling 15%, then rebounding strongly in 2010, since when it has underperformed passenger yield growth (it fell by 6% in 2012 according to IATA).
  • TroyAvi Air cargo industry in Turkey is poised for transformation, to capitalise on the opportunities Weakness Infrastructure High Total Transport Costs Red tape and legislation Unfair competitive practise Customs Lack of scale Avoid apron congestion Adopt Best practices Opportunities Cargo terminal at the 3rd Airport Increase WB Services to Asia Regional use of NB freighters Integrated use of ISG and Ataturk with common Customs Road Truck flights
  • TroyAvi Revenue Growth and Performance Improvement Through Transformation of Processes better leverage of technology Commercial activities to improve cargo revenues, yield and load factor for belly and freighter operations. 35 Capacity management is focused to improve cargo leverage and communications between passenger and cargo Pricing and revenue management evaluates Pricing and Revenue Management activities for belly and freighter operations.. Revenue planning and revenue delivery activities including pricing, revenue management and sales are assessed, and improved. With sales focus on key account management, development of long term revenues per key account and develop best practice key account management practices. Example Cargo Capacity Management Example Cargo Revenue Management
  • TroyAvi TroyAvi team members have extensive strategy and performance improvement assignments worldwide
  • TroyAvi Our delivery team and associates include experts with experience of working with leading airlines and aviation consultancies worldwide Dr. Emre Serpen President, Head of Airline Practice • 20+ years, 70+ airlines in 50+ countries 20+ Airline professionals with deep industry knowledge, and optimisation expertise.
  • TroyAvi Proven tools, methods and data to deliver strategy and performance improvement engagements 2006 2007 2008 2009 2010 2011 2012 2013 SAR (Millions) Baseline Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Total Operating Revenues (Net) Total Cargo Scheduled Revenue 488 569 622 749 799 844 880 918 Cargo Charter Revenue 8 15 15 15 15 15 15 15 Other Revenue 49 49 49 49 49 49 49 49 Total Revenue 544 633 685 813 863 907 944 981 Aircraft & Other Lease Costs (Incl. Ownership) Flight Crew Employment Cost 30 38 47 57 59 60 61 62 Fuel 51 142 181 220 227 233 237 240 Direct Maintenance 47 100 124 147 153 157 160 162 Landing Fees 7 4 6 7 7 7 7 7 Overflight 12 13 16 19 19 20 20 21 Aircraft, Engines & Components Depreciation 56 55 65 75 79 81 82 84 Insurance 2 2 3 3 3 3 3 3 Passenger Operating Costs 7 5 5 6 6 6 6 7 Charter Operating Costs 6 11 11 11 11 11 11 11 Total Aircraft & Other Lease Costs 218 370 458 544 564 580 589 598 Total Indirect Operating Costs 307 269 282 306 306 312 313 312 Total Operating Costs 525 639 740 850 870 892 901 910 Profit (Loss) 19 -6 -55 -37 -8 15 42 71 Profit Margin 4% -1% -8% -5% -1% 2% 4% 7% Operating Metrics Freighter Fleet at Year-End 12/31 -- -- -- -- -- -- -- -- Total Weekly Departures (both directions) 26 26 34 38 40 42 42 42 Total Block Hours 8,173 9,623 11,859 13,757 14,073 14,454 14,454 14,454 Total Available Ton Kilometers (Millions) 517 596 734 884 905 919 922 926 Total Cargo Carried (000s) 63,649 70,161 77,818 92,531 98,483 105,357 109,794 114,426 Average Rate per Kilogram 8.6 9.0 8.8 8.8 8.8 8.6 8.6 8.6 Comparative Metrics Average Daily Utilization (Block Hours) -- -- -- -- -- -- -- -- Average Block Hours per Flight 6.0 7.1 6.7 7.0 6.8 6.6 6.6 6.6 System Load Factor (Belly/Freighter Combi) 76.9% 64.5% 55.4% 58.5% 59.4% 62.0% 64.6% 67.3% Total Operating Revenues per ATK 1.05 1.06 0.93 0.92 0.95 0.99 1.02 1.06 Total Direct Operating Costs per ATK 0.42 0.62 0.62 0.62 0.62 0.63 0.64 0.65 Total Operating Costs per ATK 1.02 1.07 1.01 0.96 0.96 0.97 0.98 0.98 Total Operating Revenues per Block Hour 66,613 65,776 57,786 59,065 61,304 62,771 65,279 67,896 Total Direct Operating Costs per Block Hour 26,705 38,497 38,640 39,566 40,075 40,133 40,736 41,349 Total Operating Costs per Block Hour 64,272 66,431 62,444 61,786 61,854 61,699 62,370 62,969 Example for illustration Example: Project Approach Example: Diagnostic Analysis Example: Freighter and Belly Business Plan Example: Route Analysis
  • TroyAvi Thank you for your Attention Please contact Dr Emre Serpen for further information eserpen@troyavi.com +447944163891