Dp Aircraft I Regulatory News (DPA)

31 October 2018 DP AIRCRAFT I LIMITED (the "Company")

INTERIM UPDATE

The Company is issuing this report for the period from 1 May 2018 to 31 October 2018 as an investor update. It should not be relied on by Shareholders, or any other party, as the basis for an investment in the Company or for any other purpose.

Overview

DP Aircraft I Limited, a Guernsey based company, was launched in October 2013. To date the Company has acquired four Boeing 787-8 aircraft, with two leased to Norwegian Air Shuttle ASA and two leased to Thai Airways International PCL. The Company took over the Norwegian aircraft, LN-LNA (previously EI-LNA) and LN-LNB (previously EI-LNB), on 9 October 2013 and the Thai aircraft, HS-TQC and HS-TQD, on 18 June 2015. Since these dates all lease obligations have been met in full by Norwegian and Thai and no incidents of note concerning operations of the aircraft have occurred.

To date the Company has, paid out 19 dividends of 2.25 cents each. The Company pays out dividends on a quarterly basis and targets a yearly distribution of 9 per cent. The last interim dividend payment was paid on 16 August 2018, and the 20th dividend which has been declared is due to be paid on 15 November 2018. The quarterly distributions are targeted for February, May, August and November in each year.

Company Information

The Aviation Market - Overview and Development

The outlook for 2018 remains solid; even though the International Air Transport Association (IATA) lowered its expectation of airlines´ collective net profits from USD 37.4 billion to USD 33.8 billion because of increasing costs, mainly of fuel and labour, as well as rising interest rates. Unit costs are assumed to increase by 5.2 per cent in 2018 compared to the previous year. The average jet fuel price is expected to rise by 26 per cent so that jet fuel costs will account for about 24 per cent of total operating costs compared to a share of 21 per cent in 2017. The passenger yield is assumed to increase by 3.2 per cent after a decline of 0.8 per cent in the previous year. The number of passengers transported by air in 2018 is expected to amount to 4.36 billion; an increase of 6.5 per cent. According to recent trends, it is suggested that passenger numbers could double to 8.2 billion within the next 20 years. While capacity (ASK - Available Seat Kilometres) is expected to grow by 6.7 per cent, demand for air travel (RPK - Revenue Passenger Kilometres) is forecasted to increase by 7.0 per cent and the overall load factor is expected to slightly increase to 81.7 per cent. Demand therefore would increase for the sixth year in a row, faster than the 20-year annual average of 5.5 per cent. Demand for cargo is assumed to increase by 4 per cent benefiting from the growing global economy.

In August 2018, total passenger demand increased by 6.4 per cent while capacity rose by 5.5 per cent compared to the same month in 2017. The overall load factor increased by 0.7 percentage points to 85.3 per cent; the highest ever level since IATA began its time series in 1990. In the first eight months of 2018, global passenger demand grew by 6.8 per cent and is broadly in-line with the five-year average growth rate of 6.9 per cent. The load factor increased by 0.7 percentage points to 82.4 per cent. The Asia-Pacific region outperformed the other regions in regard to capacity and passenger demand in the first eight months of 2018. While passenger demand increased by 9.5 per cent, capacity rose by 8.3 per cent. European carriers reported the highest load factor (85.0 per cent) amongst the regions.

IATA ran a project to identify the key drivers of change to support the aviation industry to prepare for challenges and opportunities within the next 20 years. 50 main drivers had been grouped into five categories: Society (e.g. a growing middle class in China and the Asia-Pacific region or global aging), technology (e.g. alternative fuels and energy sources or 3D printing and new manufacturing techniques), environment (e.g. personal carbon quota or pandemics), economy (e.g. price of oil or open data and radical transparency) and politics (e.g. trade protection and open borders or shifting borders, boundaries and sovereignty).

The latest published Boeing Outlook (Current Market Outlook 2018-2037) raised the number of expected deliveries from 41,030 commercial aircraft with a total market value of USD 6.1 trillion to 42,700 with a value of USD 6.3 trillion within the next 20 years. Both Boeing and Airbus (Global Market Forecast 2018-2037) continue to forecast that the global passenger and freighter fleet will double by 2037. According to Airbus 37,390 commercial aircraft will be newly delivered within the next twenty years; 26,540 aircraft will be for growth while 10,850 deliveries will replace older aircraft. Boeing forecasts traffic to grow by 4.7 per cent on average. Airbus expects that in 2037 around 85 per cent (2017: 30 per cent) of the emerging country populations will travel by air.

The Assets - Four Dreamliner Boeing 787-8s

As at 30 September 2018, Boeing had delivered 742 Boeing 787 Dreamliner aircraft, of which 357 aircraft are B787-8s, 379 aircraft are B787-9s and six are B787-10s. The total order for the B787 family amounts to 1,398 aircraft by 70 customers. In the first nine months of 2018, 123 new orders had been placed by existing airlines and lessors such as American Airlines or Air Lease Corporation as well as new customers, amongst others Turkish Airlines and Hawaiian Airlines.

Norwegian has equipped its B787 aircraft with a total of 291 seats, of which 32 are premium economy and 259 economy class seats. This type of aircraft is used to fly from Europe to destinations in Asia and America, amongst others, Boston, Denver, Fort Lauderdale and Bangkok. On 14 January 2018, aircraft LNA was inspected in Birmingham at the Monarch maintenance facilities during a Base Check (every 6,000 flight hours). Our inspector considered the aircraft and its records to be in good condition with no significant defects or airworthiness related issues. Technical records of LNB had been collected early 2018 and are considered to be in good condition. Aircraft LNB had been physically inspected on 30 August 2018 by our technical inspector in Birmingham at the Monarch maintenance facilities during an engine swap. The aircraft is considered to be in good condition with no significant defects or airworthiness related issues.

The leases in respect of the two Norwegian aircraft (LNA and LNB) were novated in September of this year as a result of a restructuring of Norwegian Air's leasing corporate structure at the request of Norwegian Air, to align the leases with the current leasing structure Norwegian Air uses of its operating leases. Following the novation, Torskefjorden Leasing Limited ("TLL"), a 100 per cent subsidiary of Norwegian Air Shuttle, has replaced Norwegian Air Shuttle as the counterparty to each of the leases. Norwegian Air Shuttle has entered into a sub-leasing arrangement with TLL and will remain the commercial operator of the two B787 aircraft. The position of each of the Company's subsidiaries that act as a lessor of the Norwegian aircraft remains substantially the same as regards its rights and duties

The asset manager ("DS Aviation") is growing the team and has now its own technical in-house department with highly skilled and experienced employees. Therefore, since 1st July 2018 the technical asset management is performed by DS Aviation and no longer outsourced.

Thai Airways´ B787-8 offers a total of 264 seats, of which 24 are business and 240 economy class seats. The carrier operates this aircraft type to destinations such as Taipei, Nagoya, Brisbane, Auckland and Vienna. There is still a bottleneck by Rolls-Royce in regard to spare engines and shop visit slots and the engine manufacturers´ engine shops continue to be busy with upgrades on the Trent engines. This currently affects parts of Thai Airways´ Boeing 787 fleet, including TQD and TQC. Aircraft TQC is parked since early July 2018 and aircraft TQD had been parked recently. Our technical inspector completed an interim storage inspection on 24 October 2018 at Bangkok International Airport and concluded that both aircraft are stored in accordance with the applicable storage requirements. The temporary storage does not release Thai to pay lease rentals which are received monthly by the fund in accordance with the provisions of the lease agreement.

The charts below give a short overview of the utilisation of airframe and engines of each of the four aircraft of the Company:

The Lessees

Norwegian Air Shuttle ASA

Norwegian Air Shuttle ASA operates as a low-cost carrier on short-, medium- and long-haul routes. The airline is the 8th largest overall airline in Europe, the 3rd largest low-cost carrier in Europe and the 5th largest low-cost airline worldwide. The carrier is the largest non-US airline serving New York. Norwegian Air Shuttle has the first mover advantage in the European long-haul low-cost market and with its current fleet of 30 B787s a critical mass to profit from economies of scale. In 2017, the airline transported more than 33 million passengers, an increase of 13 per cent on the previous year. The airline operates a network of more than 500 routes to over 150 destinations including more than 60 intercontinental city pairs. As at 30 September 2018, the fleet consisted of 158 passenger aircraft. The airline took delivery of one B787 in the third quarter and will take delivery of 11 Dreamliners in 2018 operating a fleet of 32 B787s at year´s end. In the third quarter, Norwegian Air Shuttle was voted again 'World's Best Low-Cost Long-Haul Airline" and "Best Low-Cost Airline in Europe" at Skytrax 2018 World Airline Awards.

During the first half of 2018, passenger numbers increased by 14 per cent to 17.45 million compared to the same period in the previous year, while operating revenues increased by 32 per cent to NOK 17.22 billion (USD 2.11 billion). While capacity was increased by 43 per cent, demand grew by 42 per cent. The passenger load factor was 85.8 per cent. Ancillary revenues per passenger increased by 18 per cent during the first half of 2018. Operating losses decreased by 19 per cent to NOK 2.08 billion (USD 254 million). The carrier stated a net profit of NOK 0.25 billion (USD 31 million) compared to a net loss of NOK 2.18 billion (USD 260 million) in the same period 2017. Results were influenced by a NOK 1.94 billion financial gain from reclassification of its investment in Norwegian Finans Holding, in which the airline has a 16.4 per cent shareholding. Furthermore, results were impacted by increased fuel prices, foreign currency effects and its strong capacity growth. In March 2018, Norwegian raised NOK 1.30 billion (USD 168 million) through a share issue.

During the third quarter 2018, operating revenues increased by 33 per cent to NOK 13.39 billion (USD 1,643 million) compared to the same quarter in 2017. EBITDAR grew by 6 per cent to 3.36 billion (USD 412 million). Norwegian stated an operating profit of NOK 1.82 billion (USD 223 million); up 14 per cent. If excluding other loss and gains (amongst other effects from currency and forward fuel contracts), the operating result is NOK 1.42 billion (USD 174 million). Net profit amounted by 18 per cent to NOK 1.30 billion (USD 160 million) compared to the third quarter 2017. Capacity increased by 33 per cent while demand grew by 32 per cent and the load factor decreased by 1.2 percentage points to 90.5 per cent. Unit revenue remained stable while unit costs excluding fuel decreased by 10 per cent compared to the same quarter in the previous year. Ancillary revenues per passenger grew by 16 per cent to NOK 177 (USD 22). Aircraft utilisation during the third quarter increased from 11.7 to 13.1 block hours a day compared with the same quarter in the previous year. Cash and cash equivalents as at 30 September 2018 stood at NOK 3.21 billion (USD 394 million) and the equity ratio was 9 per cent, up 2 percentage points compared to the previous year.

The airline continues the process of divesting aircraft in line with its strategy to decrease the capex commitment in 2018 from USD 1.9 billion to USD 1.75 billion. Thus, the carrier sold eight B737-800s with delivery in 2018 and 2019. Norwegian currently has 191 aircraft on order. Growth in terms of capacity and fleet peaked in the first half 2018; Norwegian´s long-haul fleet doubled within 12 months. The low-cost carrier entered a phase of moderate growth. Third quarter results indicate that the airline now profits from economies of scale. In 2019, capacity growth is anticipated to be between 15 and 20 per cent. The medium-term network strategy is to maintain short-haul operations within Europe and to sustainable grow medium- and long-haul operations out of Europe as well as to exploit new and underserved markets. The core business for the B787 fleet will remain on the transatlantic routes. The United States count for the largest market after Norway in regard to total revenues.

Norwegian will optimise its long-haul network and cease operations to Singapore and of the transatlantic routes out of Edinburgh. Contrary, the carrier will add new destinations, amongst others Krabi (Thailand), Rio de Janeiro (Brazil) and some Canadian destinations which were approved by the Canadian Transportation Agency this March. As of October 2018, Norwegian operates 86 routes longer than 4,000 km stage length with a mix of Boeing 737s and Boeing B787s. In July, the carrier announced it had applied for a Swedish AOC (Air Operator Certificates) as it seeks a stronger foothold in the European Union and this AOC would facilitate accessibility in Sweden and increase traffic rights throughout Scandinavia. Norwegian Air Argentina started domestic operations 16th October 2018. The home base is at Buenos Aires Aeroparque, the national airport of Buenos Aires which has a total of three airports.

In September 2018, capacity increased by 32 per cent and demand respectively grew by 31 per cent compared to the same month in 2017. The load factor slightly decreased by 0.9 percentage points to 88.8 per cent while passenger numbers grew by 9 per cent to 3.4 million. Yield and unit revenues decreased by 3 per cent and 4 per cent respectively while the average flying distance increased by 14 per cent compared to the same month a year ago. This October, Norwegian announced to have signed up to use a new consumption-monitoring software which is expected to cut the carrier´s fuel bill by 2 per cent. The system supports the analysis of flight data to identify operational efficiencies at a fleet, route and individual flight-stage level. Therefore, the system also analyses weather conditions, flightpaths, air traffic control, and payloads.

Thai Airways International PCL

Thai Airways International Public Company Limited, full service network carrier and flag carrier of the Kingdom of Thailand, is majority-owned by the Thai Government (Ministry of Finance) (51.03 per cent). In 2017, Thai Airways International, excluding any subsidiaries, transported nearly 20 million passengers. As at 30 June 2018, the fleet of Thai Airways, including its subsidiary Thai Smile, comprised 105 active aircraft. The carrier currently operates 63 destinations in 32 countries, including 13 destinations in 11 European countries.

In the second quarter 2018, operating revenues increased by 4.6 per cent to THB 47.24 billion (USD 1,431 million) while operating expenses increased by 6.4 per cent to THB 50.05 billion (USD 1,516 million) compared to the same quarter in the previous year. While the operating loss increased by 52.4 per cent to THB 2.81 billion (USD 85 million), the net loss improved by 40.5 per cent to THB 3.10 billion (USD 94 million). Fuel and oil expenses counted for a share of 28.3 per cent of total expenses. Average jet fuel prices increased by 36.5 per cent compared to the same period in the previous year. Thai´s results had been influenced by one-time expenses: an impairment loss of assets and aircraft of THB 257 million (USD 8 million) and a loss on foreign currency exchange of THB 431 million (USD 13 million). While capacity increased by 5.3 per cent, demand grew by 1.6 per cent and the load factor decreased by 2.7 percentage points to 75.8 per cent. Number of passengers transported increased by 0.5 per cent to 5.9 million and aircraft utilisation remained stable at 11.5 block hours a day.

During the first half of 2018, total operating revenues increased by 6.0 per cent to THB 100.71 billion (USD 3,244 million) compared to the same half in the previous year. Total expenses increased by 5.7 per cent, mainly due to the increase in fuel price. Operating profit increased by 41.8 per cent to THB 1.03 billion (USD 31 million) while net loss decreased by 81.4 per cent to THB 0.38 billion (USD 12 million). Results were impacted by an impairment loss of assets and aircraft of THB 2.73 billion as well as a gain on foreign currency exchange of THB 152 million. Thai increased capacity by 5.1 per cent, while demand grew by 1.9 percent and the load factor decreased by 2.5 percentage points to 78.2 per cent. The passenger yield grew by 1.4 per cent compared to the first half of 2017. At the end of the quarter, cash and cash equivalents stood at THB 14.10 billion (USD 427 million) and total assets amounted to THB 281.96 billion (USD 8,540 million).

In August 2018, Thai Airways successfully issued a series of unsecured debentures with a volume of THB 7 billion (USD 211 million) for institutional and high net worth investors. The fixed coupon rates are between 2.25 and 4.62 per cent and all seven tranches with tenures of between one and 15 years received an "A" rating by TRIS Rating. While the rating agency is aware of the fact that the capital structure of Thai Airways remains weak (debt-to-capital ratio at 87 per cent as of March 2018), also in-line with the fleet renewal plan, it also notes that it expects the airline to receive continuous support by the Thai government.

Thai implemented a revised 2017 - 2021 Plan with five key strategies to continually drive from the third phase of its transformation plan to ensure sustainable operating results, increasing efficiency and continuous improvement of service quality to be competitive in the global market. The five strategies are:

· Increase in revenues by improving network, yields, ancillary revenues and cost structure by implementing common fleet and adopting low-cost business models

· Seeking new business opportunities; e.g. launching of joint ventures in the MRO (Maintenance, Repair and Overhaul), cargo and logistic business at U-Tapao airport

· Creating seamless travel between pre-flight, in-flight and post-flight services

· Implementation of digital applications to generate a competitive advantage

· Human resources development with focus on organizational structure, culture and leadership

In May 2018, the carrier already announced that the acting president, Usanee Sangsingkeo, will retire from the carrier in September. Sumeth Damrongchaitham was appointed to become the new president. He was managing director at Dhanarak Asset Development, a government-owned company managing state assets and properties. He started 1 September in his role as the airline´s president and executive vice president, finance and accounting. Sumeth Damrongchaitham is elected president for a period of four years. In July, Ekniti Nitithanprapas was appointed as new chairman. Previously, he acted as director general of Thailand's finance ministry, chairman of the country's National Credit Bureau, and as director of an oil and gas company.

This September, Thai Airways announced a plan to form an alliance with Airports of Thailand (AOT), the Tourism Authority of Thailand, and Krungthai Bank to support Thailand´s sustainable growth. This would include Thai Airways flying tourists to secondary destinations promoted by the AOT. Moreover, Thai Airways is satisfied with the five-times-weekly flights to Vienna launched last November. Thai Smile's daily Bangkok-Kaohsiung A320 service has also done well since its October 2017 launch. Regarding further growth, the carrier takes a careful approach. First the carrier awaits the Thai cabinet to approve a plan for around 22 to 23 new aircraft and more clarity on the future fleet plan; secondly the airline concentrates on a more consolidated group approach. The latter includes a closer integration in terms of network so that both carriers Thai Airways and Thai Smile will support each other more strongly with positive effect on overall connectivity.

In the second quarter of 2018, the number of foreign tourists increased by 9.9 per cent compared to the second quarter of last year. Particularly tourist arrivals from China, Hong Kong, India and Laos are expanding. Additionally, the economy of Thailand and private consumption is improving steadily. The month of June 2018 was the 16th month in a row stating a growth in the export sector.

Material Events since April 2018

May 2018

Interim update (30 May 2018)

The interim investor update report for the period 6 November to 30 April 2018 was published.

July 2018

2018 Annual General Meeting (16 July 2018)

The results of the 2018 AGM were published.

Dividend Declaration (16 July 2018)

The Company declared a quarterly dividend in respect of the quarter ended 30 June 2018, of 2.25 cents per Share, to holders of shares on the register at 27 July 2018, and payment was made on 16 August 2018.

August 2018

Unaudited Condensed Consolidated Interim Report (20 August 2018)

The Unaudited Condensed Consolidated Interim Report for the period ended 30 June 2018 were published.

October 2018

Dividend Declaration (18 October 2018)

The Company declared a quarterly dividend in respect of the quarter ended 30 September 2018, of 2.25 cents per Share, to holders of shares on the register at 26 October 2018, payment is due to be made on 15 November 2018.

Enquiries:

Kellie Blondel / Sophie Lane

Aztec Financial Services (Guernsey) Limited

As Company Secretary to DP Aircraft I Limited

Tel: + 44 (0) 1481 748833