1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): July 13, 2001 CONTINENTAL AIRLINES, INC. (Exact name of registrant as specified in its charter) Delaware 0-09781 74-2099724 (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 1600 Smith Street, Dept. HQSEO, Houston, Texas 77002 (Address of principal executive offices) (Zip Code) (713) 324-5000 (Registrant's telephone number, including area code)
2 Item 7. Financial Statements and Exhibits. (c) Exhibits. The Exhibit Index is hereby incorporated by reference. The documents listed on the Exhibit Index are filed as Exhibits with reference to the Registration Statement on Form S-3 (Registration No. 333-57188) of Continental Airlines, Inc. for the purpose of incorporating such documents by reference in (i) a preliminary Prospectus Supplement, to be dated on or after the date hereof, to the Prospectus, dated March 23, 2001, and (ii) a final Prospectus Supplement, to be dated on or after the date hereof, to such Prospectus. The Registration Statement, the preliminary Prospectus Supplement and the final Prospectus Supplement relate to the offering of Continental Airlines, Inc.'s Class D Pass Through Certificates, Series 2001-2.
3 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, Continental Airlines, Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CONTINENTAL AIRLINES, INC. By /s/ JENNIFER L. VOGEL Jennifer L. Vogel Vice President and General Counsel July 13, 2001
4 EXHIBIT INDEX 99.1 Appraisal Report for the 1997-4 Series of Aircraft Information Services, Inc., dated October 6, 1997 99.2 Appraisal Report for the 1997-4 Series of BK Associates, Inc., dated October 6, 1997 99.3 Appraisal Report for the 1997-4 Series of Morten Beyer and Agnew, Inc., dated October 6, 1997 99.4 Appraisal Report for the 1998-1 Series of Aircraft Information Services, Inc., dated February 5, 1998 99.5 Appraisal Report for the 1998-1 Series of Aircraft Information Services, Inc., dated February 11, 1998 99.6 Appraisal Report for the 1998-1 Series of BK Associates, Inc., dated January 29, 1998 99.7 Appraisal Report for the 1998-1 Series of BK Associates, Inc., dated February 10, 1998 99.8 Appraisal Report for the 1998-1 Series of Morten Beyer and Agnew, Inc., dated February 5, 1998 99.9 Appraisal Report for the 1998-1 Series of Morten Beyer and Agnew, Inc., dated February 11, 1998 99.10 Appraisal Report for the 1998-3 Series of Aircraft Information Services, Inc., dated August 27, 1998, revised October 1, 1998 99.11 Appraisal Report for the 1998-3 Series of AvSolutions, Inc., dated October 1, 1998 99.12 Appraisal Report for the 1998-3 Series of Morten Beyer and Agnew, Inc., dated October 1, 1998 99.13 Appraisal Report for the 1999-1 Series of Aircraft Information Services, Inc., dated December 8, 1998 99.14 Appraisal Report for the 1999-1 Series of AvSolutions, Inc., dated December 8, 1998 99.15 Appraisal Report for the 1999-1 Series of Morten Beyer and Agnew, Inc., dated December 8, 1998 99.16 Appraisal Report for the 1999-2 Series of Aircraft Information Services, Inc., dated May 19, 1999 99.17 Appraisal Report for the 1999-2 Series of AvSolutions, Inc., dated May 19, 1999 99.18 Appraisal Report for the 1999-2 Series of Morten Beyer and Agnew, Inc., dated May 19, 1999 99.19 Appraisal Report for the 2000-1 Series of Aircraft Information Services, Inc., dated February 23, 2000 99.20 Appraisal Report for the 2000-1 Series of AvSolutions, Inc., dated February 23, 2000 99.21 Appraisal Report for the 2000-1 Series of Morten Beyer and Agnew, Inc., dated January 17, 2000 99.22 Appraisal Report for the 2000-2 Series of Aircraft Information Services, Inc., dated October 31, 2000
5 2 99.23 Appraisal Report for the 2000-2 Series of Avitas, Inc., dated October 31, 2000 99.24 Appraisal Report for the 2000-2 Series of Morten Beyer and Agnew, Inc., dated October 31, 2000
1 [AIRCRAFT INFORMATION SERVICES, INC. LOGO] 06 October 1997 Continental Airlines 2929 Allen Parkway Houston, TX 77019 Subject: AISI Report No.: A7D098BVO AISI Sight Unseen New Aircraft Base Value Appraisal, Five B737-500, Six B737-700, Ten B737-800 and Three B777-200IGW Aircraft. Dear Gentlemen: In response to your request, Aircraft Information Services, Inc. (AISI) is pleased to offer Continental Airlines our opinion of the sight unseen base market value of various new aircraft scheduled to be delivered from the manufacturer to Continental Airlines between April 1998 and November 1998 as listed and defined in Table I. 1. METHODOLOGY AND DEFINITIONS The method used by AISI in its valuation of the Aircraft was based both on a review of information and Aircraft specifications supplied by Continental Airlines and also on a review of present and past market conditions, various expert opinions (such as aircraft brokers and financiers) and information contained in AISI's databases that help determine aircraft availability and price data and thus arrive at the appraised base values for the new aircraft to be delivered to Continental Airlines. The historical standard term of reference for commercial aircraft value has been 'half-life fair market value' of an 'average' aircraft. However, 'fair market value' could mean a fair value in the given market or a value in a hypothetical 'fair' or balanced market, and the two definitions are not equivalent. Recently, the term 'base value' has been created to describe the theoretical balanced market condition and to avoid the potentially misleading term 'fair market value' which has now become synonymous with the term 'current market value' or a 'fair' value in the actual current market. AISI value definitions are consistent with those of the International Society of Transport Aircraft Trading (ISTAT) of 01 January 1994; AISI is a member of that organization and employs an ISTAT Certified Senior Aircraft Appraiser. AISI defines a 'base value' as that of a transaction between equally willing and informed buyer and seller, neither under compulsion to buy or sell, for a single unit cash transaction with no hidden value or liability, and with supply and demand of the sale item roughly in balance. Base Headquarters, 23232 Peralta Drive, Suite 115, Laguna Hills, CA 92653 TEL: 714-830-0101 FAX: 714-830-1101
2 [AIRCRAFT INFORMATION SERVICES, INC. LOGO] 06 October 1997 AISI File No. A7D098BVO Page - 2 - values are typically given for aircraft in 'new' condition, 'average half-life' condition, or in a specifically described condition unique to a single aircraft at a specific time. An 'average' aircraft is an operable airworthy aircraft in average physical condition and with average accumulated flight hours and cycles, with clear title and standard unrestricted certificate of airworthiness, and registered in an authority which does not represent a penalty to aircraft value or liquidity, with no damage history and with inventory configuration and level of modification which is normal for its intended use and age. AISI assumes average condition unless otherwise specified in this report. 'Half-life' condition assumes that every component or maintenance service which has a prescribed interval that determines its service life, overhaul interval or interval between maintenance services, is at a condition which is one-half of the total interval. It should be noted that AISI and ISTAT value definitions apply to a transaction involving a single aircraft, and that transactions involving more than one aircraft are often executed at considerable and highly variable discounts to a single aircraft price, for a variety of reasons relating to an individual buyer or seller. AISI defines a 'current market value' or 'fair market value' as that value which reflects the real market conditions, whether at, above or below the base value conditions. Assumption of a single unit sale and definitions of aircraft condition, buyer/seller qualifications and type of transaction remain unchanged from that of base value. Current market value takes into consideration the status of the economy in which the aircraft is used, the status of supply and demand for the particular aircraft type, the value of recent transactions and the opinions of informed buyers and sellers. Current market value assumes that there is no short term time constraint to buy or sell. AISI encourages the use of base values to consider historical trends, to establish a consistent baseline for long term value comparisons and future value considerations, or to consider how actual market values vary from theoretical base values. Base values are less volatile than current market values and tend to diminish regularly with time. Base values are normally inappropriate to determine near term values. AISI encourages the use of current market values to consider the probable near term value of an aircraft. 2. VALUATION Following is AISI's opinion of the base market value for the subject aircraft on their respective scheduled delivery dates in current USDollars. Valuations are presented in Table I subject to the assumptions, definitions and disclaimers herein.
3 [AIRCRAFT INFORMATION SERVICES, INC. LOGO] 06 October 1997 AISI File No. A7D098BVO Page - 3 - Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in writing, this report shall be for the sole use of the client/addressee. This report is offered as a fair and unbiased assessment of the subject aircraft. AISI has no past, present, or anticipated future interest in the subject aircraft. The conclusions and opinions expressed in this report are based on published information, information provided by others, reasonable interpretations and calculations thereof and are given in good faith. Such conclusions and opinions are judgments that reflect conditions and values which are current at the time of this report. The values and conditions reported upon are subject to any subsequent change. AISI shall not be liable to any party for damages arising out of reliance or alleged reliance on this report, or for any parties action or failure to act as a result of reliance or alleged reliance on this report. Sincerely, AIRCRAFT INFORMATION SERVICES, INC. /s/ Fred E. Bearden Fred E. Bearden President FB/JDM/jm
4 [AIRCRAFT INFORMATION SERVICES, INC. LOGO] Continental Airlines - AISI File # A7D098BVO October 6, 1997 TABLE I Scheduled Manufacturer's Current USDollars Delivery Date Aircraft Tail Number Delivery Base Value ------------- -------------------- ------------------- B737-500, CFM56-3B1 ENGINES, 129,500LB MTOW Apr-98 656 $33,660,000 May-98 657 $33,740,000 Jun-98 658 $33,830,000 Jul-98 659 $33,910,000 Aug-98 660 $33,990,000 B737-700 CFM56-7B24 ENGINES, 153,000LB MTOW Apr-98 705 $40,880,000 Apr-98 706 $40,880,000 Apr-98 707 $40,880,000 Apr-98 708 $40,880,000 Aug-98 709 $41,280,000 Aug-98 710 $41,280,000 B737-800, CFM56-7B26 ENGINES, 172,500LB MTOW May-98 201 $45,160,000 May-98 202 $45,160,000 May-98 203 $45,160,000 Jun-98 204 $45,270,000 Jun-98 205 $45,270,000 Jun-98 206 $45,270,000 Jul-98 207 $45,380,000 Jul-98 208 $45,380,000 Jul-98 209 $45,380,000 Aug-98 210 $45,490,000 B777-2001GW, GE90 ENGINES, 580,000LB MTOW Sep-98 001 $138,670,000 Oct-98 002 $139,000,000 Nov-98 003 $139,330,000
1 BK ASSOCIATES, INC. 1295 Northern Boulevard Manhasset, New York 11030 (516) 366-6272 - Fax (516) 365-6287 October 6,1997 Continental Airlines 2929 Allen Parkway Houston, TX 77019 Gentlemen: In response to your request, BK Associates, Inc. is pleased to provide this opinion on the base value (BV) as of October 1997 on each of five B737-524, six B737-724, 10 B737-824 and three B777-200 aircraft (Aircraft), which are expected to be delivered to Continental Airlines between April 1998 and November 1998. The B777 aircraft are each powered by two General Electric GE90 series engines, the B737-724 by CFM International CFM56-7B24, the B737-524 by CFM56-3B1, and the B737-824 by CFM56-7B26 engines. Set forth below is a summary of the methodology, considerations and assumptions utilized in this appraisal. CURRENT FAIR MARKET VALUE According to the International Society of Transport Aircraft Trading's (ISTAT) definition of fair market value, to which BK Associates subscribes, the quoted fair market value is the Appraiser's opinion of the most likely trading price that may be generated for an aircraft under the market circumstances that are perceived to exist at the time in question. The fair market value assumes that the aircraft is valued for its highest and best use, that the parties to the hypothetical sale transaction are willing, able, prudent and knowledgeable, and under no unusual pressure for a prompt sale, and that the transaction would be negotiated in an open and unrestricted market on an arm's length basis, for cash or equivalent consideration, and given an adequate amount of time for effective exposure to prospective buyers, which BK Associates considers to be 12 to 18 months.
2 BK ASSOCIATES, INC. Continental Airlines, Inc. October 6, 1997 Page 2 BASE VALUE Base value is the Appraiser's opinion of the underlying economic value of an aircraft in an open, unrestricted, stable market environment with a reasonable balance of supply and demand, and assumes full consideration of its "highest and best use". An aircraft's base value is founded in the historical trend of values and in the projection of future value trends and presumes an arm's length, cash transaction between willing, able and knowledgeable parties, acting prudently, with an absence of duress and with a reasonable period of time available for marketing. VALUE METHODOLOGY Fair market valuations are determined based upon one of three methods: comparable recent sales, replacement cost or rate of return to investor. In this appraisal, BK used the comparable sales method, which is the most common method, in determining the base values of the Aircraft. This method uses industry data to ascertain the prices realized in recent sales of comparable models. The fair market value of the base Aircraft is based on BK's familiarity with the aircraft type, its earnings potential in commercial service, its knowledge of its capabilities and the uses to which it will be put worldwide, its knowledge of the marketing of used aircraft, and the factors affecting the fair market value of such aircraft, and on its knowledge of the asking, offered and transaction prices for similar competitive, and alternative equipment, as well as transactions and negotiations involving basically identical aircraft. These realizations, however, which reflect the market supply and demand at the time of sale, are subject to minor adjustments for other conditions existing at the time of the appraisal. In this respect, we consider the market for the Aircraft to be in reasonable balance at this time, and thus, the fair market value is equal to the base value. In addition, values were adjusted for engine type and maximum gross takeoff weights (MGTOW). In arriving at the base value, BK considered the impact of many factors affecting the market for used aircraft, including: the suitability and operating economies of the aircraft, regulatory factors, and recent sales experience. LIMITING CONDITIONS AND ASSUMPTIONS BK has neither inspected the Aircraft nor their maintenance records but relied upon information supplied by you and from BK's own database. In determining the base market value of a used aircraft, the following assumptions apply to the base aircraft:
3 BK ASSOCIATES, INC. Continental Airlines, Inc. October 6, 1997 Page 3 1. Unless it is new, the aircraft has half-time remaining to its next major overhauls or scheduled shop visit on its airframe, engines, landing gear and auxiliary power unit. 2. The aircraft is in compliance under a Federal Aviation Administration approved airline maintenance program, with all airworthiness directives, mandatory modifications and applicable service bulletins currently up to industry standard. 3. The interior of the aircraft is in a standard configuration for its specific type, with the buyer furnished equipment and options of the types and models generally accepted and utilized in the industry. 4. The aircraft is in current flight operations. 5. The aircraft is sold for cash without seller financing. 6. The Aircraft is in average or better condition. 7. There is no accident damage. CONCLUSIONS Based on the above methodology, considerations and assumptions, and since they are all new and not yet in service, it is our opinion that the base value of each aircraft as of its scheduled delivery date is as follows: Expected Date of Registration Base Model Delivery Number Value (Each) ----- -------- ------ ------------ B737-500 04/98 656 28,25O,000 B737-500 05/98 657 28,250,000 B737-500 06/98 658 28,250,000 B737-500 07/98 659 28,250,000 B737-500 08/98 660 28,250,000
4 BK ASSOCIATES, INC. Continental Airlines, Inc. October 6, 1997 Page 4 Expected Date of Registration Base Model Delivery Number Value (Each) ----- ------- ------ ------------ B737-700 04/98 705 37,750,000 B737-700 04/98 706 37,750,000 B737-700 04/98 707 37,750,000 B737-700 04/98 708 37,750,000 B737-700 08/98 709 37,750,000 B737-700 08/98 710 37,750,000 B737-800 05/98 201 43,600,000 B737-800 05/98 202 43,600,000 B737-800 05/98 203 43,600,000 B737-800 06/98 204 43,600,000 B737-800 06/98 205 43,600,000 B737-800 06/98 206 43,600,000 B737-800 07/98 207 43,600,000 B737-800 07/98 208 43,600,000 B737-800 07/98 209 43,600,000 B737-800 08/98 210 43,600,000 B777-200 09/98 001 120,000,000 B777-200 10/98 002 120,000,000 B777-200 11/98 003 120,000,000 BK Associates, Inc. has no present or contemplated future interest in the Aircraft, nor any interest that would preclude our making a fair and unbiased estimate. This appraisal represents the opinion of BK Associates, Inc. and reflects our best judgment based on the information available to us at the time of preparation and the time and budget constraints imposed by the client. It is not given as a recommendation, or as an inducement, for any financial transaction and further, BK Associates, Inc. assumes no responsibility or legal liability for any action taken or not taken by the addressee, or any other party, with regard to the appraised equipment. By accepting this appraisal, the addressee agrees that BK
5 BK ASSOCIATES, INC. Continental Airlines, Inc. October 6, 1997 Page 5 Associates, Inc. shall bear no such responsibility or legal liability. This appraisal is prepared for the use of the addressee and shall not be provided to other parties without the express consent of the addressee. Sincerely yours, BK ASSOCIATES, INC. /s/ R. L. Britton R. L. Britton Vice President ISTAT Certified Appraiser RLB/kf
1 [MBA LOGO] [MORTEN BEYER & AGNEW LETTERHEAD] October 6, 1997 Continental Airlines, Inc. 2929 Allen Parkway Houston, TX 77019 Gentlemen: Pursuant to your request, Morten Beyer & Associates (MBA) has set forth its opinion regarding the Base Values of twenty-four aircraft (as described in Schedule I herein) being delivered new from the manufacturer to Continental Airlines during 1998. More specifically, our mandate is to render our opinion on this date as to the value of the aircraft on their delivery dates. There are several terms used to describe the "value" of an aircraft. MBA uses the definitions of various value terms as promulgated by the International Society of Transport Aircraft Trading (ISTAT), a not-for-profit organization of some 500 members who have an interest in the commercial aviation industry. The membership consists of management level personnel from banks, leasing companies, airlines, appraisers, brokers, manufacturers, etc. ISTAT has also established standards for appraisal practice and a code of ethics for those members certified by the Society as appraisers. To attain certification members must meet rigid educational and experience requirements and must successfully complete written examinations. Both Morten Beyer and Robert Minnich of MBA are ISTAT Certified Senior Appraisers. ISTAT defines Current Market Value (CMV) as the most likely trading price that may be generated for an aircraft under the market conditions that are perceived to exist at the time in question. Market Value (MV) assumes that the aircraft is valued for its highest, best use, that the parties to the hypothetical sales transaction are willing, able, Phone (703) 847-6898 ~ Fax (703) 734-1474 ~ Internet: MBA@MBA-consulting.com
2 prudent and knowledgeable, and under no unusual pressure for a prompt sale, and that the transactions would be negotiated in an open and unrestricted market on an arm's length basis, for cash or equivalent consideration and given an adequate amount of time for effective exposure to prospective buyers. Fair Market Value is synonymous to MV and Current Fair Market Value is synonymous with CMV because the criteria typically used in those documents that use the term "fair" reflect the same criteria set forth in the above definition of Market Value. Base Value (BV) contains the same elements as MV except the market conditions are always assumed to be in a reasonable state of equilibrium. Base values are related to long term trends, and may or may not reflect the actual value of the aircraft in question. Base values are founded in the historical values of aircraft and are usually used for analysis of historic values or for future value projections. The values set forth herein are Base Values. Base Values are provided for each aircraft, identified by aircraft type and tail numbers taking into account the expected month of delivery to Continental. The expected delivery period for the aircraft that are the subject of this report begins in April, 1998 and terminates in November, 1998. As of the date of this report, we foresee no events that may cause us to revise valuations. However, unforeseen circumstances can occur with little or no warning, and if changed circumstances justify it, MBA would revise its valuations accordingly. All of the aircraft included in this appraisal are new aircraft with scheduled delivery dates starting in April, 1998. The types of aircraft that are the subject of this report are all considered to be effective competitors in the industry for years to come, and they all meet or are lower than Stage III noise level standards. The Boeing 737-500 was first built in 1989, and there are currently 334 in service with 35 operators and another 49 on order. It is the truncated version of the 737-300/400 series and offers a lower cost per aircraft mile. Because of its smaller capacity, its unit costs as measured by the cost per available seat mile are higher. Although we consider the aircraft to be a competitive one, it suffers from the fact that aircraft that are smaller versions of larger aircraft have historically not been as efficient as aircraft that are originally designed as smaller machines. [MBA LOGO] 2
3 The Boeing 737-700 is Boeing's newest entry into the advanced technology market to compete with Airbus A319/320/321 series machines. The aircraft is scheduled to enter service in October, 1997 with the launch customer, Southwest Airlines. There are 252 unfilled orders. We expect that this aircraft will be very popular with the airlines and will have a long production run. The Boeing 737-800 is the largest member of the new (third) generation of the 737 family, and the first aircraft is due to enter service with Hapag-Lloyd in April, 1998. Designed to replace the -400, it is 108 inches longer and has typical two-class seating of 160 and a high density seating if 189. There are 258 unfilled orders for the 737-800. The Boeing 777-200 has been in service since May 15, 1995 with United Airlines which is by far its largest operator. There are 82 in service with 14 operators (as of July 31, 1997), with another 191 aircraft on order. All four of the aircraft types covered in this appraisal have higher maximum take-off weights than MBA considers standard for the type. We have, therefore, increased our normal Base Values by $50 per pound of higher take-off weight. These increases were as follows: AIRCRAFT TYPE HIGHER MTOW INCREASED VALUE - ------------- ----------- --------------- (lbs.) B-737-500 14,000 $ 700,000 B-737-700 20,000 1,000,000 B-737-800 17,000 850,000 B-777-200 35,000 1,750,000 This report has been prepared for the exclusive use of Continental and shall not be provided to other parties by MBA without the express consent of Continental. MBA certifies that this report has been independently prepared and that if fully and accurately reflects MBA's opinion, as of the date of this report, of the values set forth herein. MBA further certifies that it does not have, and does not expect to have, any financial interest in the subject or similar aircraft. [MBA LOGO] 3
4 This report represents MBA's opinion as to the subject aircraft, and is intended to be advisory only, in nature. Therefore, MBA assumes no responsibility or legal liability for any actions taken, or not taken, by Continental or any other party with regard to the subject aircraft. By accepting this report, all parties agree that MBA shall bear no such responsibility or legal liability. Sincerely, /s/ Morten S. Beyer Morten S. Beyer Chairman & CEO [MBA LOGO] 4
5 BASE VALUE APPRAISAL OF LISTED AIRCRAFT UPON DELIVERY DURING 1998 TO CONTINENTAL AIRLINES. INC. (US DOLLARS IN THOUSANDS) EXPECTED MTOW BASE AIRCRAFT TYPE ENGINE DELIVERY DATE TAIL NO. (LBS) VALUE - ------------- ------ ------------- -------- ---- ----- B-737-500 CFM56-3B1 April 1998 656 129,500 $26,590 B-737-500 CFM56-3B1 May 1998 657 129,500 26,590 B-737-500 CFM56-3B1 June 1998 658 129,500 26,697 B-737-500 CFM56-3B1 July 1998 659 129,500 26,697 B-737-500 CFM56-3B1 August 1998 660 129,500 26,750 B-737-700 CFM56-7B24 April 1998 705 153,000 38,053 B-737-700 CFM56-7B24 April 1998 706 153,000 38,053 B-737-700 CFM56-7B24 April 1998 707 153,000 38,053 B-737-700 CFM56-7B24 April 1998 708 153,000 38,053 B-737-700 CFM56-7B24 August 1998 709 153,000 38,207 B-737-700 CFM56-7B24 August 1998 710 153,000 38.207 B-737-800 CFM56-7B26 May 1998 201 172,500 44,120 B-737-800 CFM56-7B26 May 1998 202 172,500 44,120 B-737-800 CFM56-7B26 May 1998 203 172,500 44,120 B-737-800 CFM56-7B26 June 1998 204 172,500 44,210 B-737-800 CFM56-7B26 June 1998 205 172,500 44,210 B-737-800 CFM56-7B26 June 1998 206 172,500 44,210 B-737-800 CFM56-7B26 July 1998 207 172,500 44,300 B-737-800 CFM56-7B26 July 1998 208 172,500 44,300 B-737-800 CFM56-7B26 July 1998 209 172,500 44,300 B-737-800 CFM56-7B26 August 1998 210 172,500 44,390 B-777-200 GE90 September 1998 001 580,000 121,120 B-777-200 GE90 October 1998 002 580,000 121,365 B-777-200 GE90 November 1998 003 580,000 121,610 [MBA LOGO] 5
1 [AISI LOGO] 05 February 1998 Continental Airlines 2929 Allen Parkway Houston, TX 77019 Subject: AISI Report No.: A8S012BVO AISI Sight Unseen New Aircraft Base Value Appraisal, Four B737-500, Six B737-700, Seven B737-800, Five B757-200ER and Two B777-200IGW Aircraft. Dear Gentlemen: In response to your request, Aircraft Information Services, Inc. (AISI) is pleased to offer Continental Airlines our opinion of the sight unseen base market value of various new aircraft scheduled to be delivered from the manufacturer to Continental Airlines during 1998 as listed and defined in Table I. 1. METHODOLOGY AND DEFINITIONS The method used by AISI in its valuation of the Aircraft was based both on a review of information and Aircraft specifications supplied by Continental Airlines and also on a review of present and past market conditions, various expert opinions (such as aircraft brokers and financiers) and information contained in AISI's databases that help determine aircraft availability and price data and thus arrive at the appraised base values for the new aircraft to be delivered to Continental Airlines. The historical standard term of reference for commercial aircraft value has been 'half-life fair market value' of an 'average' aircraft. However, 'fair market value' could mean a fair value in the given market or a value in a hypothetical 'fair' or balanced market, and the two definitions are not equivalent. Recently, the term 'base value' has been created to describe the theoretical balanced market condition and to avoid the potentially misleading term 'fair market value' which has now become synonymous with the term 'current market value' or a 'fair' value in the actual current market. AISI value definitions are consistent with those of the International Society of Transport Aircraft Trading (ISTAT) of 01 January 1994; AISI is a member of that organization and employs an ISTAT Certified Senior Aircraft Appraiser. AISI defines a 'base value' as that of a transaction between equally willing and informed buyer and seller, neither under compulsion to buy or sell, for a single unit cash transaction with no hidden value or liability, and with supply and demand of the sale item roughly in balance. Headquarters, 23232 Peralta Drive, Suite 115, Laguna Hills, CA 92653 Tel: 714-830-0101 Fax: 714-830-1101
2 [AISI Logo] 05 February 1998 AISI File No. A8S012BVO Page -2- Base values are typically given for aircraft in 'new' condition, 'average half-life' condition, or in a specifically described condition unique to a single aircraft at a specific time. An 'average' aircraft is an operable airworthy aircraft in average physical condition and with average accumulated flight hours and cycles, with clear title and standard unrestricted certificate of airworthiness, and registered in an authority which does not represent a penalty to aircraft value or liquidity, with no damage history and with inventory configuration and level of modification which is normal for its intended use and age. AISI assumes average condition unless otherwise specified in this report. 'Half-life' condition assumes that every component or maintenance service which has a prescribed interval that determines its service life, overhaul interval or interval between maintenance services, is at a condition which is one-half of the total interval. It should be noted that AISI and ISTAT value definitions apply to a transaction involving a single aircraft, and that transactions involving more than one aircraft are often executed at considerable and highly variable discounts to a single aircraft price, for a variety of reasons relating to an individual buyer or seller. AISI defines a 'current market value' or 'fair market value' as that value which reflects the real market conditions, whether at, above or below the base value conditions. Assumption of a single unit sale and definitions of aircraft condition, buyer/seller qualifications and type of transaction remain unchanged from that of base value. Current market value takes into consideration the status of the economy in which the aircraft is used, the status of supply and demand for the particular aircraft type, the value of recent transactions and the opinions of informed buyers and sellers. Current market value assumes that there is no short term time constraint to buy or sell. AISI encourages the use of base values to consider historical trends, to establish a consistent baseline for long term value comparisons and future value considerations, or to consider how actual market values vary from theoretical base values. Base values are less volatile than current market values and tend to diminish regularly with time. Base values are normally inappropriate to determine near term values. AISI encourages the use of current market values to consider the probable near term value of an aircraft. 2. VALUATION Following is AISI's opinion of the base market value for the subject aircraft on their respective scheduled delivery dates in current USDollars. Valuations are presented in Table I subject to the assumptions, definitions and disclaimers herein.
3 [AISI LOGO] 05 February 1998 AISI File No. A8S012BVO Page -3- Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in writing, this report shall be for the sole use of the client/addressee. This report is offered as a fair and unbiased assessment of the subject aircraft. AISI has no past, present, or anticipated future interest in the subject aircraft. The conclusions and opinions expressed in this report are based on published information, information provided by others, reasonable interpretations and calculations thereof and are given in good faith. Such conclusions and opinions are judgments that reflect conditions and values which are current at the time of this report. The values and conditions reported upon are subject to any subsequent change. AISI shall not be liable to any party for damages arising out of reliance or alleged reliance on this report, or for any parties action or failure to act as a result of reliance or alleged reliance on this report. Sincerely, AIRCRAFT INFORMATION SERVICES, INC. /s/ Fred F. Bearden Fred F. Bearden President FB/JDM/jm
4 [AISI LOGO] Table I - AISI File No. A8S012BVO - 05 February 1998 CONTINENTAL AIRLINES FLEET NEW DELIVERY BASE VALUATION New Tail Serial Base Value Aircraft Delivery Numbers Numbers Engine MTOW Then $ - -------------------------------------------------------------------------------------------------------- B737-524 Sep-98 N14664 28925 CFM56-3B1 133,500 34.48 B737-524 Sep-98 N13665 28926 CFM56-3B1 133,500 34.48 B737-524 Oct-98 N14667 28927 CFM56-3B1 133,500 34.56 B737-524 Oct-98 N14668 28928 CFM56-3B1 133,500 34.56 B737-724 Aug-98 N54711 28782 CFM56-7B24 153,000 41.11 B737-724 Aug-98 N15712 28783 CFM56-7B24 153,000 41.11 B737-724 Aug-98 N16713 28784 CFM56-7B24 153,000 41.11 B737-724 Sep-98 N33714 28785 CFM56-7B24 153,000 41.21 B737-724 Oct-98 N24715 28786 CFM56-7B24 153,000 41.31 B737-724 Nov-98 N13716 28787 CFM56-7B24 153,000 41.41 B737-824 Oct-98 N18220 28929 CFM56-7B26 172,500 45.80 B737-824 Nov-98 N12221 28930 CFM56-7B26 172,500 45.91 B737-824 Dec-98 N34222 28931 CFM56-7B26 172,500 46.02 B737-824 Dec-98 N18223 28932 CFM56-7B26 172,500 46.02 B737-824 Dec-98 N24224 28933 CFM56-7B26 172,500 46.02 B737-824 Dec-98 N12225 28934 CFM56-7B26 172,500 46.02 B737-824 Dec-98 N26226 28935 CFM56-7B26 172,500 46.02 B757-224ER Feb-98 N48127 28968 RB211-535E4B 250,000 59.60 B757-224ER Mar-98 N17128 27567 RB211-535E4B 250,000 59.75 B757-224ER Mar-98 N29129 28969 RB211-535E4B 250,000 59.75 B757-224ER Apr-98 N19130 28970 RB211-535E4B 250,000 59.89 B757-224ER Jun-98 N33132 28972 RB211-535E4B 250,000 60.19 B777-224 IGW Nov-98 N78004 27580 GE90 648,000 134.37 B777-224 IGW Dec-98 N78005 27581 GE90 648,000 134.70 AIRCRAFT SPECIFICATIONS HAVE BEEN PROVIDED BY CONTINENTAL AIRLINES
1 AIRCRAFT INFORMATION SERVICES, INC. [AISI LOGO] 11 February 1998 Continental Airlines 2929 Allen Parkway Houston, TX 77019 Subject: AISI Report No.: A8D034B57 AISI Sight Unseen New Aircraft Base Value Appraisal One B757-224ER Aircraft. Dear Gentlemen: In response to your request, Aircraft Information Services, Inc. (AISI) is pleased to offer Continental Airlines our opinion of the sight unseen base market value of one new B757-224ER aircraft with 250,000 lb. maximum take-off weight (MTOW) and powered by RB211-535E4 engines scheduled to be delivered from the manufacturer to Continental Airlines during February 1998 ("the Aircraft"). 1. METHODOLOGY AND DEFINITIONS The method used by AISI in its valuation of the Aircraft was based both on a review of information and Aircraft specifications supplied by Continental Airlines and also on a review of present and past market conditions, various expert opinions (such as aircraft brokers and financiers) and information contained in AISI's databases that help determine aircraft availability and price data and thus arrive at the appraised base values for the new aircraft to be delivered to Continental Airlines. The historical standard term of reference for commercial aircraft value has been 'half-life fair market value' of an 'average' aircraft. However, 'fair market value' could mean a fair value in the given market or a value in a hypothetical 'fair' or balanced market, and the two definitions are not equivalent. Recently, the term 'base value' has been created to describe the theoretical balanced market condition and to avoid the potentially misleading term 'fair market value' which has now become synonymous with the term 'current market value' or a 'fair' value in the actual current market. AISI value definitions are consistent with those of the International Society of Transport Aircraft Trading (ISTAT) of 01 January 1994; AISI is a member of that organization and employs an ISTAT Certified Senior Aircraft Appraiser. AISI defines a 'base value' as that of a transaction between equally willing and informed buyer and seller, neither under compulsion to buy or sell, for a single unit cash transaction with no hidden value or liability, and with supply and demand of the sale item roughly in balance. Headquarters, 23232 Peralta Drive, Suite 115, Laguna Hills, CA 92653 Tel: 714-830-0101 Fax: 714-830-1101
2 [AISI LOGO] 11 February 1998 AISI File No. A8D034B57 Page -2- Base values are typically given for aircraft in "new" condition, "average half-life" condition, or in a specifically described condition unique to a single aircraft time. An "average" aircraft is an operable airworthy aircraft in average physical condition and with average accumulated flight hours and cycles, with clear title and standard unrestricted certificate of airworthiness, and registered in an authority which does not represent a penalty to aircraft value or liquidity, with no damage history and with inventory configuration and level of modification which is normal for its intended use and age. AISI assumes average condition unless otherwise specified in this report. "Half-life" condition assumes that every component or maintenance service which has a prescribed interval that determines its service life, overhaul interval or interval between maintenance services, is at a condition which is one-half of the total interval. It should be noted that AISI and ISTAT value definitions apply to a transaction involving a single aircraft, and that transactions involving more than one aircraft are often executed at considerable and highly variable discounts to a single aircraft price, for a variety of reasons relating to an individual buyer or seller. AISI defines a "current market value" or "fair market value" as that value which reflects the real market conditions, whether at, above or below the base value conditions. Assumption of a single unit sale and definitions of aircraft condition, buyer/seller qualifications and type of transaction remain unchanged from that of base value. Current market value takes into consideration the status of the economy in which the aircraft is used, the status of supply and demand for the particular aircraft type, the value of recent transactions and the opinions of informed buyers and sellers. Current market value assumes that there is no short term constraint to buy or sell. AISI encourages the use of base value to consider historical trends, to establish a consistent baseline for long term value comparisons and future value considerations, or to consider how actual market values vary from theoretical base values. Base values are less volatile than current market values and tend to diminish regularly with time. Base values are normally inappropriate to determine near term values. AISI encourages the use of current market values to consider the probable near term value of an aircraft. 2. Valuation Following is AISI's opinion of the base market value for the subject aircraft as of February 1998 in current USDollars subject to the assumptions, definitions and disclaimers herein. Serial New Base Aircraft Delivery Date Tail Number Number Engine MTOW lb, Value Then $ B757-224ER Feb 1998 N17126 27566 RB211-535E4B 250,000 $59,600,000
3 [AISI LOGO] 11 February 1998 AISI File No. A8D034B57 Page -3- Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in writing, this report shall be for the sole use of the client/addressee. This report is offered as a fair and unbiased assessment of the subject aircraft. AISI has no past, present, or anticipated future interest in the subject aircraft. The conclusions and opinions expressed in this report are based on published information, information provided by others, reasonable interpretations and calculations thereof and are given in good faith. Such conclusions and opinions are judgments that reflect conditions and values which are current at the time of this report. The values and conditions reported upon are subject to any subsequent change. AISI shall not be liable to any party for damages arising out of reliance or alleged reliance on this report, or for any parties action or failure to act as a result of reliance or alleged reliance on this report. Sincerely, AIRCRAFT INFORMATION SERVICES, INC. /s/ Fred E. Bearden Fred E. Bearden President FB/JDM/jm
1 BK Associates, Inc. [LOGO] 1295 Northern Boulevard Manhasset, New York 11030 (516) 365-6272 - Fax (516) 365-6287 January 29, 1998 CONTINENTAL AIRLINES 2929 Allen Parkway Houston, TX 77019 Gentlemen: In response to your request, BK Associates, Inc. is pleased to provide this opinion on the Base Value as of their respective delivery dates on each of four B737-524, six B737-724, seven B737-824, five B757,224 and two B777-224IGW aircraft (Aircraft), which will be delivered to Continental Airlines between February 1998 and December 1998. The Aircraft are further identified in the conclusions of this letter by maximum takeoff weight, engine model, serial number and registration. Set forth below is a summary of the methodology, considerations and assumptions utilized in this appraisal. CURRENT FAIR MARKET VALUE According to the International Society of Transport Aircraft Trading's (ISTAT) definition of FMV, to which BK Associates subscribes, the quoted FMV is the Appraiser's opinion of the most likely trading price that may be generated for an aircraft under the market circumstances that are perceived to exist at the time in question. The FMV assumes that the aircraft is valued for its highest and best use, that the parties to the hypothetical sale transaction are willing, able, prudent and knowledgeable, and under no unusual pressure for a prompt sale, and that the transaction would be negotiated in an open and unrestricted market on an arm's length basis, for cash or equivalent consideration, and given an adequate amount of time for effective exposure to prospective buyers, which BK Associates considers to be 12 to 18 months. BASE VALUE Base value is the Appraiser's opinion of the underlying economic value of an aircraft in an open, unrestricted, stable market environment with a reasonable balance of supply and demand, and assumes full consideration of its "highest and best use". An aircraft's base value is founded in the historical trend of values and in the projection of future value trends and presumes an arm's length, cash transaction between willing, able and knowledgeable parties, acting prudently, with an absence of duress and with a reasonable period of time available for marketing.
2 BK Associates, Inc. Continental Airlines, Inc. January 29, 1998 Page 2 VALUE METHODOLOGY Fair market valuations are determined based upon one of three methods: comparable recent sales, replacement cost or rate of return to investor. In this appraisal, BK used the comparable sales method, which is the most common method, in determining the base values of the Aircraft. This method uses industry data to ascertain the prices realized in recent sales of comparable models. The fair market value of the base Aircraft is based on BK's familiarity with the aircraft type, its earnings potential in commercial service, its knowledge of its capabilities and the uses to which it will be put worldwide, its knowledge of the marketing of used aircraft, and the factors effecting the fair market value of such aircraft, and on its knowledge of the asking, offered and transaction prices for similar competitive, and alternative equipment, as well as transactions and negotiations involving basically identical aircraft. These realizations, however, which reflect the market supply and demand at the time of sale, are subject to minor adjustments for other conditions existing at the time of the appraisal. In this respect, we consider the market for B757, B777 and B737 aircraft to be in reasonable balance at this time, and thus, the FMV is equal to the base value. In addition, values were adjusted for engine type and maximum gross takeoff weights (MGTOW). LIMITING CONDITIONS AND ASSUMPTIONS BK has neither inspected the Aircraft nor their maintenance records but relied upon information supplied by you and from BK's own database. In determining the base value of an aircraft, the following assumptions apply to the aircraft: 1. Unless it is new, the aircraft has half-time remaining to its next major overhauls or scheduled shop visit on its airframe, engines, landing gear and auxiliary power unit. 2. The aircraft is in compliance under Federal Aviation Administration approved airline maintenance program, with all airworthiness directives, mandatory modifications and applicable service bulletins currently up to industry standard. 3. The interior of the aircraft is in a standard configuration for its specific type, with the buyer furnished equipment and options of the types and models generally accepted and utilized in the industry.
3 BK Associates, Inc. [LOGO] Continental Airlines, Inc. January 29, 1998 Page 3 4. The aircraft is in current flight operations. 5. The aircraft is sold for cash without seller financing. 6. The Aircraft is in average or better condition. 7. There is no accident damage. CONCLUSIONS Based on the above methodology, considerations and assumptions, and since they are all new and not yet in service, it is our opinion that the current base value of each aircraft as of its delivery date are as follows: Base Val. Date Reg. Serial on Del. Type of Del. Engine MTOW (lbs). No. Number ($ Mils) - -------- ------- --------- ----------- ------ ------ -------- B737-524 09/98 CFM56-3B1 133,500 N14664 28925 28.50 B737-524 09/98 CFM56-3B1 133,500 N13665 28926 28.50 B737-524 10/98 CFM56-3B1 133,500 N14667 28927 23.60 B737-524 10/98 CFM56-3B1 133,500 N14668 28928 28.60 B737-724 08/98 CFM56-7B24 153,000 N54711 28782 37.80 B737-724 08/98 CFM56-7B24 153,000 N15712 28783 37.80 B737-724 08/98 CFM56-7B24 153,000 N16713 28784 37.80 B737-724 09/98 CFM56-7B24 153,000 N33714 28785 37.90 B737-724 10/98 CFM56-7B24 153,000 N24715 28786 38.00 B737-724 11/98 CFM56-7B24 153,000 N13716 28787 38.00 B737-824 10/98 CFM56-7B26 172,500 N18220 28929 43.50 B737-824 11/98 CFM56-7B26 172,500 N12221 28930 43.50 B737-824 12/98 CFM56-7B26 172,500 N34222 28931 43.50 B737-824 12/98 CFM56-7B26 172,500 N18223 28932 43.50 B737-824 12/98 CFM56-7B26 172,500 N24224 28933 43.50 B737-824 12/98 CFM56-7B26 172,500 N12225 28934 43.50 B737-824 12/98 CFM56-7B26 172,500 N26226 28935 43.50
4 BK Associates, Inc. [LOGO] Continental Airlines, Inc. January 29, 1998 Page 4 Base Val. Date Reg. Serial on Del. Type of Del. Engine MTOW (lbs). No. Number ($ Mils) - -------- ------- --------- ----------- ------ ------ -------- B757-224 02/98 RB211-535E4B 250,000 N48127 28968 54.35 B757-224 03/98 RB211-535E4B 250,000 N17128 27567 54.45 B757-224 03/98 RB211-535E4B 250,000 N29129 28969 54.45 B757-224 04/98 RB211-535E4B 250,000 N19130 28970 54.45 B757-224 06/98 RB211-535E4B 250,000 N33132 28972 54.65 B777-224IGW 11/98 GE90 648,000 N78004 27580 127.00 B777-224IGW 12/98 GE90 648,000 N78005 27581 127.00 BK Associates, Inc. has no present or contemplated future interest in the Aircraft, nor any interest that would preclude our making a fair and unbiased estimate. This appraisal represents the opinion of BK Associates, Inc. and reflects our best judgment based on the information available to us at the time of preparation and the time and budget constraints imposed by the client. It is not given as a recommendation, or as an inducement, for any financial transaction and further, BK Associates, Inc. assumes no responsibility or legal liability for any action taken or not taken by the addressee, or any other party, with regard to the appraised equipment. By accepting this appraisal, the addressee agrees that BK Associates, Inc. shall bear no such responsibility or legal liability. This appraisal is prepared for the use of the addressee and shall not be provided to other parties without the express consent of the addressee. Sincerely yours, BK ASSOCIATES, INC. /s/ John F. Keitz John F. Keitz President ISTAT Senior Certified Appraiser JFK/kf
1 [BK ASSOCIATES, INC. LETTERHEAD] 1295 Northern Boulevard Manhasset, New York 11030 (516) 365-6272 -- Fax (516) 365-6287 February 10, 1998 Continental Airlines, Inc. 2929 Allen Parkway Houston, TX 77019 Dear Sirs: This will respond to your request that BK Associates, Inc. supplement our letter to you, dated January 29, 1998 (the "Prior Letter"), in which we provided our opinion regarding the base value of the twenty-four (24) aircraft described therein, in order to provide you with our opinion regarding the base value of an additional aircraft. This letter should be read in conjunction with, and is subject to all of the considerations, qualifications and limitations contained in, the Prior Letter. The methodology utilized in preparing the Prior Letter was also used to prepare this letter. Please be advised that, in our opinion, the base value of the Boeing 757-224 aircraft, equipped with two RB211-535E4B engines and with an MTOW (lbs.) of 250,000, expected Registration Number N17126 and manufacturer's Serial Number 27566, when newly delivered in February 1998, will be $54,350,000. Sincerely, BK ASSOCIATES, INC. /s/ John F. Keitz John F. Keitz President ISTAT Senior Certified Appraiser JFK/kf
1 February 5, 1998 Continental Airlines, Inc. 2929 Allen Parkway Houston, TX 77019 Gentlemen: Pursuant to your request, Morten Beyer & Agnew (MBA) has set forth its opinion regarding the Base Values of twenty-four aircraft (as described in Schedule I herein) being delivered new from the manufacturer to Continental Airlines during 1998. More specifically, our mandate is to render our opinion on this date as to the value of the aircraft on their delivery dates. There are several terms used to describe the "value" of an aircraft. MBA uses the definitions of various value terms as promulgated by the International Society of Transport Aircraft Trading (ISTAT), a not-for-profit organization of some 500 members who have an interest in the commercial aviation industry. The membership consists of management level personnel from banks, leasing companies, airlines, appraisers, brokers, manufacturers, etc. ISTAT has also established standards for appraisal practice and a code of ethics for those members certified by the Society as appraisers. To attain certification members must meet rigid educational and experience requirements and must successfully complete written examinations. Morten Beyer of MBA is an ISTAT Certified Senior Appraiser and provides oversight of all appraisals issued by MBA. ISTAT defines Current Market Value (CMV) as the most likely trading price that may be generated for an aircraft under the market conditions that are perceived to exist at the time 1 [MBA LOGO]
2 in question. Market Value (MV) assumes that the aircraft is valued for its highest, best use, that the parties to the hypothetical sales transaction are willing, able, prudent and knowledgeable, and under no unusual pressure for a prompt sale, and that the transactions would be negotiated in an open and unrestricted market on an arm's length basis, for cash or equivalent consideration and given an adequate amount of time for effective exposure to prospective buyers. Fair Market Value is synonymous to MV and Current Fair Market Value is synonymous with CMV because the criteria typically used in those documents that use the term "fair" reflect the same criteria set forth in the above definition of Market Value. Base Value (BV) contains the same elements as MV except the market conditions are always assumed to be in a reasonable state of equilibrium. Base values are related to long term trends, and may or may not reflect the actual current value of the aircraft in question. Base values are founded in the historical values of aircraft and are usually used for analysis of historic values or for future value projections. The values set forth herein are Base Values. Base Values are provided for each aircraft, identified by aircraft type and tail numbers taking into account the expected month of delivery to Continental. The expected delivery period for the aircraft that are the subject of this report begins in February, 1998, and terminates in December, 1998. As of the date of this report, we foresee no events that may cause us to revise valuations. However, unforeseen circumstances can occur with little or no warning, and if changed circumstances justify it, MBA would revise its valuations accordingly. All of the aircraft included in this appraisal are new aircraft with scheduled delivery dates starting in February, 1998. The types of aircraft that are the subject of this report are all 2 [MBA LOGO]
3 considered to be effective competitors in the industry for years to come, and they all meet or exceed Stage III noise level standards. The Boeing 737-500 was first built in 1989, and there are currently 334 in service with 35 operators and another 49 on order. It is the truncated version of the 737-300/400 series and offers a lower cost per aircraft mile. Because of its smaller capacity, its unit costs as measured by the cost per available seat mile are higher. Although we consider the aircraft to be a competitive one, it suffers from the fact that aircraft that are smaller versions of larger aircraft have historically not been as efficient as aircraft that are originally designed as smaller machines. The Boeing 737-700 is Boeing's newest entry into the advanced technology market to compete with Airbus A319/320/321 series machines. The aircraft entered service in December, 1997, with the launch customer, Southwest Airlines. There were 318 unfilled orders as of December. We expect that this aircraft will be very popular with the airlines and will have a long production run. The Boeing 737-800 is the largest member of the new (third) generation of the 737 family, and the first aircraft is due to enter service with Hapag-Lloyd in April, 1998. Designed to replace the -400, it is 108 inches longer and has typical two-class seating of 160 and a high density seating if 189. There are 299 unfilled orders for the 737-800 as of December, 1997. The Boeing 757-200 first entered the industry in 1982. There are currently 782 aircraft delivered and 133 on order. These numbers include the 200, 200M, 200PF, and 300 versions. The Boeing 777-200 has been in service since May 15, 1995 with United Airlines which is by far its largest operator. There are 104 in service with 14 operators (as of December 31, 1997), with another 260 aircraft on order. 3 [MBA LOGO]
4 Four of the five aircraft types covered in this appraisal have higher maximum take-off weights than MBA considers standard for the type. We have, therefore, increased our normal Base Values by $50 per pound of higher take-off weight. The adjustment is based on the difference between the appraised aircraft and the weight MBA ascribes to the aircraft as a standard weight. This is usually the base MTOW but can be higher as is the case with the 757-200 to which MBA ascribes a standard purchase MTOW of 240,000 pounds. These increases are as follows: AIRCRAFT TYPE HIGHER MTOW INCREASED VALUE ------------- ----------- --------------- (lbs.) B-737-500 18,500 $ 930,000 B-737-700 20,000 1,000,000 B-737-800 17,000 850,000 B-757-200 10,000 500,000 In the case of the 777-200 IGW, MBA values the aircraft at the maximum MTOW as standard and reduces the value based on the certificate purchase weight. In the case of this appraisal MBA was specifically requested to appraise the 777-200 aircraft at the highest MTOW, that being 648,000. SUMMARY MBA appraises the base fair market value of the twenty-four aircraft as set forth in the exhibit following as of the dates of their scheduled delivery to Continental Airlines at a total of $1,194,240,000, with the individual aircraft values set forth by their respective tail number. 4 [MBA LOGO]
5 This report has been prepared for the exclusive use of Continental Airlines and Credit Suisse and shall not be provided to other parties by MBA without the express consent of Continental and Credit Suisse. MBA certifies that this report has been independently prepared and that it fully and accurately reflects MBA's opinion, as of the date of this report, of the values set forth herein. MBA further certifies that it does not have, and does not expect to have, any financial interest in the subject or similar aircraft. This report represents MBA's opinion as to the subject aircraft, and is intended to be advisory only, in nature. Therefore, MBA assumes no responsibility or legal liability for any actions taken, or not taken, by Continental or any other party with regard to the subject aircraft. By accepting this report, all parties agree that MBA shall bear no such responsibility or legal liability. Sincerely, /s/ Morten S. Beyer Morten S. Beyer Chairman & CEO [MBA LOGO] 5
6 BASE VALUE APPRAISAL OF LISTED AIRCRAFT UPON DELIVERY DURING 1998 TO CONTINENTAL AIRLINES, INC. (US Dollars in Thousands) Expected MTOW Base Aircraft Type Engine Delivery Date Tail No. (lb.) Value - ------------- ------------ ------------- -------- ------- ---------- B-737-524 CFM56-3B1 September 1998 N14664 133,500 $ 27,670 B-737-524 CFM56-3B1 September 1998 N13665 133,500 27,670 B-737-524 CFM56-3B1 October 1998 N14667 133,500 27,730 B-737-524 CFM56-3B1 October 1998 N14668 133,500 27,730 B-737-724 CFM56-7B24 August 1998 N54711 153,000 37,530 B-737-724 CFM56-7B24 August 1998 N15712 153,000 37,530 B-737-724 CFM56-7B24 August 1998 N16713 153,000 37,530 B-737-724 CFM56-7B24 September 1998 N33714 153,000 37,600 B-737-724 CFM56-7B24 October 1998 N24715 153,000 37,680 B-737-724 CFM56-7B24 November 1998 N13716 153,000 37,750 B-737-824 CFM56-7B26 October 1998 N18220 172,500 44,660 B-737-824 CFM56-7B26 November 1998 N12221 172,500 44,750 B-737-824 CFM56-7B26 December 1998 N34222 172,500 44,840 B-737-824 CFM56-7B26 December 1998 N18223 172,500 44,840 B-737-824 CFM56-7B26 December 1998 N24224 172,500 44,840 B-737-824 CFM56-7B26 December 1998 N12225 172,500 44,840 B-737-824 CFM56-7B26 December 1998 N26226 172,500 44,840 B-757-224 ETOPS RB211-535E4B February 1998 N48127 250,000 55,870 B-757-224 ETOPS RB211-535E4B March 1998 N17128 250,000 55,980 B-757-224 ETOPS RB211-535E4B March 1998 N29129 250,000 55,980 B-757-224 ETOPS RB211-535E4B April 1998 N19130 250,000 56,100 B-757-224 ETOPS RB211-535E4B June 1998 N33132 250,000 56,330 B-777-224 IGW GE90 November 1998 N78004 648,000 131,740 B-777-224 IGW GE90 December 1998 N78005 648,000 132,110 Total $1,194,240 6 [MBA LOGO]
1 [MBA LOGO] MORTEN BEYER & AGNEW 8180 Greensboro Drive * Suite 1000 * McLean, VA 22102 February 11, 1998 Continental Airlines, Inc. 2929 Allen Parkway, Suite 1588 Houston, TX 77019 Dear Sirs: This will respond to your request Morten Beyer & Agnew supplement our letter of appraisal to you, dated February 5, 1998 (the "Prior Letter"), in which we provided our opinion regarding the base value of the twenty-four aircraft described therein. This letter should be read in conjunction with, and is subject to all of the considerations, qualifications and limitations contained in, the Prior Letter. The methodology utilized in preparing the Prior Letter was also used to prepare this letter. Be it known that, in our opinion, the base value of the Boeing 757-224 aircraft, equipped with two RB211-535E4B engines and with a MTOW (lbs.) of 250,000, with expected registration number N17126 and manufacturer's serial number 27566, when newly delivered in February 1998, will be $55,870,000.00. Sincerely yours, /s/ RF Agnew RF Agnew President
1 [AISI LOGO] AIRCRAFT INFORMATION SERVICES, INC. Report Date: 27 August 1998 Revision A Date: 01 October 1998 Continental Airlines 2929 Allen Parkway Houston, TX 77019 Subject: AISI Report No.: A8S048BVO Rev A AISI Sight Unseen New Aircraft Base Value Appraisal, Four B757-200ETOP, Seven B737-700, One B737-800 and Two B777-200ER Aircraft. Reference: (a) Telephone conversation Continental/AISI 01 October 1998 (b) Fax specification data from Continental Airlines 01 October 1998 Dear Gentlemen: In response to your request, Aircraft Information Services, Inc. (AISI) is pleased to offer Continental Airlines our opinion of the sight unseen base market value of various new aircraft scheduled to be delivered from the manufacturer to Continental Airlines between December 1998 and April 1999 as listed and defined in Table I. Revision A to this report sets the fleet size to fourteen aircraft and revises the B777-200ER aircraft values to reflect detailed specifications per reference (a) and (b). All other aircraft values remain unchanged. 1. METHODOLOGY AND DEFINITIONS The method used by AISI in its valuation of the Aircraft was based both on a review of information and Aircraft specifications supplied by Continental Airlines and also on a review of present and past market conditions, various expert opinions (such as aircraft brokers and financiers) and information contained in AISI's databases that help determine aircraft availability and price data and thus arrive at the appraised base values for the new aircraft to be delivered to Continental Airlines. The standard term of reference for commercial aircraft value is 'half-life base market value' of an 'average' aircraft. This is a theoretical situation that assumes a balanced market and a hypothetical average aircraft condition. AISI value definitions are consistent with those of the International Society of Transport Aircraft Trading (ISTAT) of 01 January 1994; AISI is a member of that organization and employs an ISTAT Certified and Senior Certified Aircraft Appraiser. Headquarters, 26072 Merit Circle, Suite 123, Laguna Hills, CA 96253 TEL: 949-582-8888 FAX: 949-582-8887 E-MAIL: AISINews@aol.com
2 [AISI LOGO] 27 August 1998 01 October 1999 Rev A AISI File No. A8S048BVO Rev A Page - 2 - AISI defines a 'base value' as that of a transaction between equally willing and informed buyer and seller, neither under compulsion to buy or sell, for a single unit cash transaction with no hidden value or liability, and with supply and demand of the sale item roughly in balance. Base values are typically given for aircraft in 'new' condition, 'average half-life' condition, or in a specifically described condition unique to a single aircraft at a specific time. An 'average' aircraft is an operable airworthy aircraft in average physical condition and with average accumulated flight hours and cycles, with clear title and standard unrestricted certificate of airworthiness, and registered in an authority which does not represent a penalty to aircraft value or liquidity, with no damage history and with inventory configuration and level of modification which is normal for its intended use and age. AISI assumes average condition unless otherwise specified in this report. 'Half-life' condition assumes that every component or maintenance service which has a prescribed interval that determines its service life, overhaul interval or interval between maintenance services, is at a condition which is one-half of the total interval. It should be noted that AISI and ISTAT value definitions apply to a transaction involving a single aircraft, and that transactions involving more than one aircraft are often executed at considerable and highly variable discounts to a single aircraft price, for a variety of reasons relating to an individual buyer or seller. AISI defines a 'current market value' or 'fair market value' as that value which reflects the real market conditions, whether at, above or below the base value conditions. Assumption of a single unit sale and definitions of aircraft condition, buyer/seller qualifications and type of transaction remain unchanged from that of base value. Current market value takes into consideration the status of the economy in which the aircraft is used, the status of supply and demand for the particular aircraft type, the value of recent transactions and the opinions of informed buyers and sellers. Current market value assumes that there is no short term time constraint to buy or sell. AISI encourages the use of base values to consider historical trends, to establish a consistent baseline for long term value comparisons and future value considerations, or to consider how actual market values vary from theoretical base values. Base values are less volatile than current market values and tend to diminish regularly with time. Base values are normally inappropriate to determine near term values. AISI encourages the use of current market values to consider the probable near term value of an aircraft. 2. VALUATION Following is AISI's opinion of the base market value for the subject aircraft on their respective scheduled delivery dates in current US Dollars. Valuations are presented in Table 1 subject to the assumptions, definitions and disclaimers herein.
3 [AISI LOGO] 27 August 1998 01 October 1998 Rev A AISI File No. A8S048BVO Rev A Page - 3 - Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in writing, this report shall be for the sole use of the client/addressee. This report is offered as a fair and unbiased assessment of the subject aircraft. AISI has no past, present, or anticipated future interest in the subject aircraft. The conclusions and opinions expressed in this report are based on published information, information provided by others, reasonable interpretations and calculations thereof and are given in good faith. Such conclusions and opinions are judgments that reflect conditions and values which are current at the time of this report. The values and conditions reported upon are subject to any subsequent change. AISI shall not be liable to any party for damages arising out of reliance or alleged reliance on this report, or for any parties action or failure to act as a result of reliance or alleged reliance on this report. Sincerely, AIRCRAFT INFORMATION SERVICES, INC. /s/ JOHN D. MCNICOL John D. McNicol Vice President Appraisals & Forecasts
4 [AISI LOGO] Continental Airlines - AISI File #A8S048BVO Rev A Report Date 27 August 1998 Revised 01 Oct 1998 TABLE I Scheduled Current USDollars Manufacturer's Aircraft Serial/Tail Delivery Delivery Date Number Base Value B757-200Etop, RB211-535E4B ENGINES, 255,000LB MTOW Dec-98 29282 / 133 $60,920,000 Jan-99 29283 / 134 $61,040,000 Feb-99 29284 / 135 $61,170,000 Mar-99 29285 / 136 $61,290,000 B737-700, CFM56-7B24 ENGINES, 153,000LB MTOW Jan-99 28936 / 717 $40,030,000 Jan-99 28937 / 718 $40,030,000 Feb-99 28938 / 719 $40,120,000 Mar-99 28939 / 720 $40,200,000 Mar-99 28940 / 721 $40,200,000 Apr-99 28789 / 722 $40,280,000 Apr-99 28790 / 723 $40,280,000 B737-800, CFM56-7B26 ENGINES, 172,500LB MTOW Apr-99 28788 / 227 $49,580,000 B777-200ER GE90B ENGINES, 648,000LB MTOW Dec-98 29476 / 006 $137,060,000 Feb-99 29477 / 007 $137,690,000
1 [AvSOLUTIONS LOGO] October 1, 1998 Mr. Gerry Laderman Vice President, Corporate Finance Continental Airlines, Inc. 1600 Smith Street HQ-SFN Houston, Texas 77002 Dear Mr. Laderman: AvSOLUTIONS is pleased to provide this opinion on the base value, as of October 1998, of seven Boeing 737-700, one Boeing 737-800, four Boeing 757-200 and two Boeing 777-200 IGW aircraft (the aircraft). The Boeing 737-700 and the Boeing 737-800 aircraft are powered by CFM International CFM56-7B series engines. the Boeing 757-200 aircraft are powered by Rolls-Royce RB211-535E4 engines, and the Boeing 777-200 IGW aircraft are powered by General Electric GE90-90B engines. The total of fourteen aircraft will be delivered new to Continental Airlines, Inc. from the fourth quarter of 1998 through the second quarter of 1999. A listing of the particular aircraft is provided as attachment 1 of this document. Set forth below is a summary of the methodology, considerations and assumptions utilized in this appraisal. BASE VALUE Base value is the appraiser's opinion of the underlying economic value of an aircraft in an open, unrestricted, stable market environment with a reasonable balance of supply and demand, and assumes full consideration of its "highest and best use". An aircraft's base value is founded in the historical trend of values and in the projection of future value trends and presumes an arm's length, cash transaction between willing, able and knowledge parties, acting prudently, with an absence of duress and with a reasonable period of time available for marketing. CURRENT FAIR MARKET VALUE According to the International Society of Transport Aircraft Trading's (ISTAT) definition of Fair Market Value (FMV), to which AvSOLUTIONS subscribes, the quoted FMV is the appraiser's opinion of the most likely trading price that may be generated for an aircraft under the market circumstances that are perceived to exist at the time in question. The fair market value assumes that the aircraft is valued for its highest and best use, that the parties to the hypothetical sales transaction are willing, able, prudent and knowledgeable, and under no unusual pressure for a prompt sale, and that the transaction would be negotiated in an open and unrestricted market on an arm's length basis, for cash equivalent consideration, and given an adequate amount of time for effective market exposure to perspective buyers, which AvSOLUTIONS considers to be ten to twenty months. 7518-B Diplomat Drive, Manassas, Virginia 20109 Telephone 703-330-0461 Fax 703-330-0581
2 [AvSOLUTIONS LOGO] Page 2 Continental Airlines, Inc. APPRAISAL METHODOLOGY The method employed by AvSOLUTIONS to appraise the current and future values of aircraft and the associated equipment addresses the factors that influence the market value of an aircraft, such as its age, condition, configuration, the population of similar aircraft, similar aircraft on the market, operating costs, cost to acquire a new aircraft, and the state of demand for transportation services. To achieve this objective, cross-sectional data concerning the values of aircraft in each of several general categories is collected and analyzed. Cross-sectional data is then postulated and compared with reported market values at a specified point in time. Such data reflects the effect of deterioration in aircraft performance due to usage and exposure to the elements, as well as the effect of obsolescence due to the evolutionary development and implementation of new designs and materials. The product of the analysis identifies the relationship between the value of each aircraft and its characteristics, such as age, model designation, service configuration and engine type. Once the relationship is identified, one can then postulate the effects of the difference between the economic circumstances at the time when the cross-sectional data were collected and the current situation. Therefore, if one can determine the current value of an aircraft in one category, it is possible to estimate the current values of all aircraft in that category. The manufacturer and size of the aircraft usually determine the specific category to which it is assigned. Segregating the world airplane fleet in this manner accommodates the potential effects of different size and different design philosophies. The variability of the data used by AvSOLUTIONS to determine the current and future market values implies that the actual value realized will fall within a range of values. Therefore, if a contemplated value falls within the specified confidence range, AvSOLUTIONS cannot reject the hypothesis that it is a reasonable representation of the current market situation. LIMITING CONDITIONS AND ASSUMPTIONS In order to conduct this valuation, AvSOLUTIONS is solely relying on information as supplied by Continental Airlines, Inc. or Morgan Stanley, and from data within AvSOLUTIONS' own database. In determining the base value of the subject aircraft, the following assumptions have been researched and determined:
3 [AvSOLUTIONS LOGO] Page 3 Continental Airlines, Inc. 1. AvSOLUTIONS has not inspected these aircraft or their maintenance records: accordingly, AvSOLUTIONS cannot attest to their specific location or condition. 2. The aircraft will be delivered new to Continental Airlines, Inc. between the fourth quarter of 1998 and the second quarter of 1999. 3. The aircraft will be certified, maintained and operated under United States Federal Aviation Regulation (FAR) part 121. 4. All mandatory inspections and Airworthiness Directives have been complied with. 5. The aircraft have no damage history. 6. The aircraft are in good condition. 7. AvSOLUTIONS considers the economic useful life of these aircraft to be at least 32 years. Based upon the above methodology, considerations and assumptions, it is AvSOLUTIONS' opinion that the base value of each aircraft is as listed in attachment 1.
4 [AvSOLUTIONS LOGO] Page 4 Continental Airlines, Inc. STATEMENT OF INDEPENDENCE This appraisal report represents the opinion of AvSOLUTIONS, and is intended to be advisory in nature. Therefore, AvSOLUTIONS assumes no responsibility or legal liability for actions taken or not taken by the Client or any other party with regard to the subject aircraft. By accepting this report, the Client agrees that AvSOLUTIONS shall bear no responsibility or legal liability regarding this report. Further, this report is prepared for the exclusive use of the Client and shall not be provided to other parties without the Client's express consent. Aviation Solutions Inc. (AvSOLUTIONS) hereby states that this valuation report has been independently prepared and fairly represents the subject aircraft and AvSOLUTIONS' opinion of their values. Aviation Solutions Inc. (AvSOLUTIONS) further states that it has no present or contemplated future interest or association with the subject aircraft. Signed, /s/ BRYANT LYNCH Bryant Lynch Manager, Commercial Appraisals
5 [AVSOLUTIONS LOGO] ATTACHMENT 1 EETC COLLATERAL SUMMARY AIRCRAFT NO. AIRCRAFT DELIVERY ENGINES MTOW BASE VALUE QTR/YR (POUNDS) 1 Boeing 737-700 1/1999 CFM56-7B24 153,000 $38,550,000 2 Boeing 737-700 1/1999 CFM56-7B24 153,000 $38,550,000 3 Boeing 737-700 1/1999 CFM56-7B24 153,000 $38,550,000 4 Boeing 737-700 1/1999 CFM56-7B24 153,000 $38,550,000 5 Boeing 737-700 1/1999 CFM56-7B24 153,000 $38,550,000 6 Boeing 737-700 2/1999 CFM56-7B24 153,000 $38,883,000 7 Boeing 737-700 2/1999 CFM56-7B24 153,000 $38,883,000 AIRCRAFT NO. AIRCRAFT DELIVERY ENGINES MTOW BASE VALUE QTR/YR (POUNDS) 8 Boeing 737-800 2/1999 CFM56-7B26 172,500 $46,950,000 AIRCRAFT NO. AIRCRAFT DELIVERY ENGINES MTOW BASE VALUE QTR/YR (POUNDS) 9 Boeing 757-200 4/1998 RB211-535E4 255,000 $57,530,000 10 Boeing 757-200 1/1999 RB211-535E4 255,000 $57,850,000 11 Boeing 757-200 1/1999 RB211-535E4 255,000 $57,850,000 12 Boeing 757-200 1/1999 RB211-535E4 255,000 $57,850,000 AIRCRAFT NO. AIRCRAFT DELIVERY ENGINES MTOW BASE VALUE QTR/YR (POUNDS) 13 Boeing 777-200 IGW 4/1998 GE90-90B 648,000 $131,780,000 14 Boeing 777-200 IGW 1/1999 GE90-90B 648,000 $132,350,000
1 MORTEN BEYER & AGNEW - -------------------------------------------------------------------------------- AVIATION CONSULTING FIRM Appraisal of 14 Aircraft PREPARED FOR: Continental Airlines, Inc. OCTOBER 1, 1998 Washington, D.C. London 8180 Greensboro Drive Lahinch 62, Lashmere Suite 1000 Copthorne McLean, Virginia 22102 West Sussex Phone +703 847 6598 Phone +44 1342 716248 Fax +703 847 1911 Fax +44 1342 718967
2 I. INTRODUCTION AND EXECUTIVE SUMMARY Morten Boyer and Agnew, Inc. (MBA), has been retained by Continental Air Lines, Inc (CAL) to determine the Current Base Value (CBV) of 14 Boeing aircraft delivered new over the next nine months. The aircraft are further identified in Section II of this report. In performing this valuation we did not inspect the aircraft specifications or their maintenance documentation, and we relied solely on information provided to us by CAL. Based on the information set forth further in this report, it is our opinion that the CBV of the aircraft in this portfolio is $78,090,000 with their respective individual values noted in Section IV. MBA uses the definition of certain terms, such as CMV and Base Value (BV), as promulgated by the International Society of Transport Aircraft Trading (ISTAT), a non-profit association of management personnel from banks, leasing companies, airlines, manufacturers, appraisers, brokers, and others who have a vested interest in the commercial aviation industry. ISTAT defines Market Value as the appraiser's opinion of the most likely trading price that may be generated for an aircraft under market conditions that are perceived to exist at the time in question. MV assumes that the aircraft is valued for its highest, best use; that the parties to the hypothetical sale transaction are willing, able, prudent and knowledgeable and under no unusual pressure for a prompt sale; and that the transaction would be negotiated in an open and unrestricted market on an arm's-length basis, for cash or equivalent consideration, and given an adequate amount of time for effective exposure to prospective buyers. The ISTAT definition of Base Value (BV) has, essentially, the same elements of MV except that the market circumstances are assumed to be in a reasonable state of equilibrium. Thus, BV pertains to an idealized aircraft and market combination, but will not necessarily reflect the actual MV of the aircraft in question. BV is founded in the historical trend of values and is generally used to analyze historical values or to project future values. The Current Base Value is the BV at the time of this opinion, effective upon the defined delivery dates of the subject aircraft assets. [MBA LOGO] 1
3 II. AIRCRAFT AIRCRAFT TAIL NUMBER SERIAL NUMBER DATE OF MFR. 737-700 717 28936 1-99 718 28937 1-99 719 28938 2-99 720 28939 3-99 721 28940 3-99 722 28789 4-99 723 28790 4-99 737-800 227 28788 4-99 757-200ER 133 29282 12-98 134 29283 1-99 135 29284 2-99 136 29285 3-99 777-200IGW 006 29476 12-98 007 29477 2-99 [MBA LOGO] 2
4 III. CURRENT MARKET CONDITIONS [AIRCRAFT PHOTO] BOEING 737-700/800 SERIES Boeing is replacing the current trio of 737s with upgraded versions beginning with the 737-700 last year. Southwest Airlines' order for 63 of the series officially launched the program in late 1993, and now new orders are running at an increasing rate. Boeing is ramping-up production to the early 1990s level. The -600 is a replacement for the first generation -100/-200 series, and the - -700 is a replacement to the -300 series. As well, the -800 is a replacement to the B737-400 series. The fuselage of the new aircraft will mirror that of the original (which were out-growths of the original -100s and -200s). Upgraded avionics, a new wing design, and other improvements will combine to increase range, efficiency, and performance in general. The CFM56-7 will be the exclusive engine for the 3rd generation. B737-700s are just entering service with Southwest, as supply and assembly problems slowed the production lines in 1997, and Boeing is playing 'catch-up' on an overly ambitious production schedule. Prospects for the 3rd generation 737 jets are considerably enhanced by the discontinuation of the MD-80/-90 series. The MD-95 has been adopted by Boeing as its 100-seat competitor under the aegis of B-717. On the other hand, Airbus is becoming more aggressive with its A319/320/321 high tech series and winning an increasing share of orders. As the industry approaches the peak of the current cycle, the prospects for a downturn increase, together with deferrals and cancellations of orders for both manufacturers. Although Boeing has recently stated that the future market will consist of more narrow-bodied aircraft like the 737 and 757 series. ECONOMICS - There is no in-service operating data for the B737-NG (Next Generation) aircraft. However, it may be reliably assumed that this data will prove that this model to be highly efficient. [MBA LOGO] 3
5 [AIRCRAFT PHOTO] BOEING 757-200 The 757 was conceived in 1978 as the successor to the 727. First deliveries took place in late 1982 as 727 production was terminated. The aircraft was somewhat slow in penetrating the market, as it came on-line in the repression of the early 1980s, but enjoyed accelerating popularity in the late 1980s. The aircraft is offered in two engine configurations, Rolls Royce and Pratt & Whitney, including several variants. The aircraft's popularity has increased as airlines have grown to appreciate its fuel economy and operating efficiency. As of mid-1997, the Rolls version had the greater market share, with 428 deliveries and 53 on order, compared with 293 deliveries and 53 orders/options for the P&W version. Both versions have achieved decent operator bases, with 43 airlines ordering the RR version and 19 the P&W. A cargo version is also in production, with 60 already produced and 15 more on order. United Parcel Service was the major purchaser, ordering 35 P&W powered models, and then 20 more Rolls-powered configurations along with 41 options. The 757's capabilities have grown in the 15 years it has been produced, and it is currently available at much higher gross weights and in an ETOPS (Extended Twin Operations) version used by many carriers in long range operations. In late 1995 and 1996 a total of three 757s were lost in accidents, with crew reactions to emergency situations considered the probable cause. In the prior 15 years only one had been lost in a hijacking situation in China. The very large backlog of undelivered ordered and optioned 757s speaks to the excellence of the aircraft. The economic superiority of the 757 over the smaller narrowbodies (737 and MD-80) suggests that the heaviest casualties may befall these latter aircraft, and that the airlines will tend to move up to the 757. The major competitor to the 757 is not the smaller American twins, but rather the Airbus A321 series which has piled up an impressive order backlog, and is increasingly penetrating the U.S. market, as seen by USAir's recent order for up to 400 A320 and derivatives at the expense of existing Boeing options. Current operating costs suggest the A320 is up to 25 percent more efficient than the 737s or MD-80s, and even equal to, or superior to, the 757. The difficulty in placing Eastern's 25-plane fleet perhaps raises a note of caution with respect to any aircraft. Their disposal required some two years, involving lessors, banks, and Boeing. Realizations were reasonable in the early transactions, but tended to decline later. The fact that [MBA LOGO] 4
6 the aircraft were encumbered by tax benefit transfer liabilities did not appear to be a factor. There have been no recent 'fire sales' of this nature. In the final analysis, the 757 is assured of a firm share of the aircraft market for many years to come in both passenger and cargo configuration. It has excellent environmental characteristics and has not experienced technical difficulties. ECONOMICS The MBA Model shows the 757 to be one of the most efficient aircraft of any type, size, or age. Its combination of capacity, low fuel consumption and reasonable price all contribute to its outstanding economics. We expect that the 757 will prove to be one of the strongest players in the residual value market for the next two decades. [AIRCRAFT PHOTO] BOEING 777-200 The 777 is currently the world's largest widebody twin. It is Boeing's answer to the Airbus Industrie A330 and, to a lesser extent, the Douglas MD-11, both of which are filling a gap between Boeing's 767 and 747 lines. The A330 and MD-11 have the distinct marketing advantage of being in service from two to seven years ahead of the 777, and already have large order books (A330) and customer lists. Boeing is playing catch-up in this market segment, but is doing it with typical Boeing combination of power and finesse. Only three years following its introduction, 72 have been delivered with 288 on order. The initial 777 design was the -200A (now the -200), followed by the -200IGW (Increased Gross Weight) and featured all of the three major high bypass engines: the P&W 4074, the Rolls Royce Trent 871, and the General Electric 90-B3. Gross weight has already been increased to 545,000 pounds for the -200, and 642,000 pounds for the -200IGW/-300. A maximum seating capacity of 440 passengers is available in the -200/-200IGW model and 550 in the newly announced - -300 version. Fair Market Values for the -200 versions are $117.7 and $125.5 million, respectively, while the -300 is expected to premier at $146.0 million. [MBA LOGO] 5
7 Production of the low gross version is expected to cease after the -300 is debuted, but it will coexist, even as the increased capacity 767-400ER moves into the lower end of the 777 capacity market. To an increasing degree, Boeing is competing against itself as it offers an even more variegated selection of aircraft derivatives. ECONOMICS The 777 should have operating characteristics and seat mile costs very comparable to the A330 and considerably better than the MD-11, according to the MBA economic model. It will particularly appeal to the large segment of the market which traditionally buys Boeing. Helped by the normal maintenance-free ride, United reported 1996 777 DOCs at 3.06 cents per available seat mile (ASM), the cheapest in its fleet and 13.6 percent below the 747-400. Ownership costs as a percent of DOCs are: 747-400 - 29.2 percent, and 777-200 - 24.6 percent. The 777 has the initial advantage of low maintenance costs, an all-new technological design, a two-person crew, low specific fuel consumption, and high capacity. Its operating margin and net margin after financial costs should be among the best of all aircraft types, even though the projected lease costs are 24.1 percent of total operating expense. The aircraft may require some modification of airport gate facilities to handle its great wing span (folding wings are available at extra cost, but no one has ordered them). The 777 will be well-suited to meeting airline expansion needs in markets where added frequencies are no longer possible due to slot and gate facility restrictions. [MBA LOGO] 6
8 IV. VALUATION CURRENT BASE VALUE ADJUSTED BASE AIRCRAFT SERIAL NUMBER DATE OF MFR. ($000,000) VALUE* 737-700 28936 1-99 36.90 38.10 28937 1-99 28938 2-99 36.98 38.20 28939 3-99 37.05 38.25 28940 3-99 28789 4-99 37.13 38.30 28790 4-99 737-800 28788 4-99 44.36 45.30 757-200ER 29282 12-98 50.87 51.80 29283 1-99 50.97 51.90 29284 2-99 51.08 52.00 29285 3-99 51.18 52.10 777-200IGW 29476 12-98 129.90 129.90 29477 2-99 130.40 130.40 TOTAL $ 78,090,000 * Adjustments include, when applicable, increased MTOW. In developing the CBV of these aircraft, MBA did not inspect the aircraft or its historical maintenance documentation. Therefore, we used certain assumptions that are generally accepted industry practice to calculate the value of an aircraft when more detailed information is not available. The principal assumptions are as follows (for each aircraft): 1. The aircraft is delivered new. 2. The overhaul status of the airframe, engines, landing gear and other major components are the equivalent of new delivery otherwise specified. 3. The specifications of the aircraft are those most common for an aircraft of this type new delivery. [MBA LOGO] 7
9 4. The aircraft is in a standard airline configuration. 5. Its modification status is comparable to that most common for an aircraft of its type and vintage. 6. No accounting was made for lease obligations or terms of ownership. [MBA LOGO] 8
10 V. COVENANTS This report has been prepared for the exclusive use of CAL and shall not be provided to other parties by MBA without the express consent of CAL. MBA certifies that this report has been independently prepared and that it fully and accurately reflects MBA's opinion as to the Current Base Value. MBA further certifies that it does not have, and does not expect to have, any financial or other interest in the subject or similar aircraft. This report represents the opinion of MBA as to the Current Base Value of the subject aircraft and is intended to be advisory only in nature. Therefore, MBA assumes no responsibility or legal liability for any actions taken or not taken by CAL or any other party with regard to the subject aircraft. By accepting this report, all parties agree that MBA shall bear no such responsibility or legal liability. PREPARED BY: /s/ BRYSON P. MONTELEONE BRYSON P. MONTELEONE MANAGER OF OPERATIONS REVIEWED BY: /s/ MORTEN S. BEYER MORTEN S. BEYER CHAIRMAN AND CEO ISTAT APPRAISER FELLOW [MBA LOGO] 9
1 [AIRCRAFT INFORMATION SERVICES, INC. LETTERHEAD] 08 December 1998 Continental Airlines 2929 Allen Parkway Houston, TX 77019 Subject: AISI Report No.: A9S004BVO AISI Sight Unseen New Aircraft Base Value Appraisal, Thirteen B737-700, Fourteen B737-800 and Four B777-200ER Aircraft. Reference: (a) Credit Suisse First Boston faxes 13 Nov 98, 01 Dec 98, and 14 Jan 99 Dear Gentlemen: Aircraft Information Services, Inc. (AISI) is pleased to offer Continental Airlines our opinion of the sight unseen base market value of various new aircraft schedule to be delivered from the manufacturer to Continental Airlines between March 1999 and October 1999 as listed and defined in Table I. 1. METHODOLOGY AND DEFINITIONS The method used by AISI in its valuation of the Aircraft was based both on a review of information and Aircraft specifications supplied by the client and also on a review of present and past market conditions, various expert opinions (such as aircraft brokers and financiers) and information contained in AISI's databases that help determine aircraft availability and price data and thus arrive at the appraised base values for the new aircraft to be delivered to Continental Airlines. The standard terms of reference for commercial aircraft value are 'half-life base market value' and 'half-life current market value' of an 'average' aircraft. Base value is a theoretical value that assumes a balanced market while current market value is the value in the real market; both assume a hypothetical average aircraft condition. AISI value definitions are consistent with the current definitions of the International Society of Transport Aircraft Trading (ISTAT). AISI is a member of that organization and employs an ISTAT Certified and Senior Certified Aircraft Appraiser. Headquarters, 26072 Merit Circle, Suite 123, Laguna Hills, CA 92653 TEL: 949-582-8888 FAX: 949-582-8887 E-MAIL: AISINews@aol.com
2 [AISI LOGO] 08 December 1998 AISI File No. A9S004BVO Page - 2 - AISI defines a 'base value' as that of a transaction between equally willing and informed buyer and seller, neither under compulsion to buy or sell, for a single unit cash transaction with no hidden value or liability, and with supply and demand of the sale item roughly in balance. Base values are typically given for aircraft in 'new' condition, 'average half-life' condition, or in a specifically described condition unique to a single aircraft at a specific time. An 'average' aircraft is an operable airworthy aircraft in average physical condition and with average accumulated flight hours and cycles, with clear title and standard unrestricted certificate of airworthiness, and registered in an authority which does not represent a penalty to aircraft value or liquidity, with no damage history and with inventory configuration and level of modification which is normal for its intended use and age. AISI assumes average condition unless otherwise specified in this report. 'Half-life' condition assumes that every component or maintenance service which has a prescribed interval that determines its service life, overhaul interval or interval between maintenance services, is at a condition which is one-half of the total interval. It should be noted that AISI and ISTAT value definitions apply to a transaction involving a single aircraft, and that transactions involving more than one aircraft are often executed at considerable and highly variable discounts to a single aircraft price, for a variety of reasons relating to an individual buyer or seller. AISI defines a 'current market value', which is synonymous with the older term 'fair market value' as that value which reflects the real market conditions, whether at, above or below the base value conditions. Assumption of a single unit sale and definitions of aircraft condition, buyer/seller qualifications and type of transaction remain unchanged from that of base value. Current market value takes into consideration the status of the economy in which the aircraft is used, the status of supply and demand for the particular aircraft type, the value of recent transactions and the opinions of informed buyers and sellers. Current market value assumes that there is no short term time constraint to buy or sell. AISI encourages the use of base values to consider historical trends, to establish a consistent baseline for long term value comparisons and future value considerations, or to consider how actual market values vary from theoretical base values. Base values are less volatile than current market values and tend to diminish regularly with time. Base values are normally inappropriate to determine near term values. AISI encourages the use of current market values to consider the probable near term value of an aircraft. 2. VALUATION Following is AISI's opinion of the base market value for the subject aircraft on their respective scheduled delivery dates in current US Dollars. Valuations are presented in Table I subject to the assumptions, definitions and disclaimers herein.
3 [AISI LOGO] 08 December 1998 AISI File No. A9S004BVO Page -3- Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in writing, this report shall be for the sole use of the client/addressee. This report is offered as a fair and unbiased assessment of the subject aircraft. AISI has no past, present, or anticipated future interest in the subject aircraft. The conclusions and opinions expressed in this report are based on published information, information provided by others, reasonable interpretations and calculations thereof and are given in good faith. Such conclusions and opinions are judgments that reflect conditions and values which are current at the time of this report. The values and conditions reported upon are subject to any subsequent change. AISI shall not be liable to any party for damages arising out of reliance or alleged reliance on this report, or for any parties action or failure to act as a result of reliance or alleged reliance on this report. Sincerely, AIRCRAFT INFORMATION SERVICES, INC. /s/ John D. McNicol John D. McNicol Vice President Appraisals & Forecasts
4 [AISI LOGO] Continental Airlines - AISI File # A9S004BVO Values as of 08 December 1998 TABLE I Scheduled Expected Manufacturer's Aircraft Serial Registration Continental New Delivery Base Value Delivery Date Number Number Tail Number Current USDollars - -------------- --------------- ------------ ----------- ----------------------- B737-700, CFM56-7B24 Engines, 153,000LB MTOW Jun-99 28791 N27724 724 $40,350,000 Jun-99 28941 N13750 750 $40,350,000 Jul-99 28796 N39726 726 $40,420,000 Jul-99 28797 N38727 727 $40,420,000 Jul-99 28944 N39728 728 $40,420,000 Jul-99 28945 N24729 729 $40,420,000 Aug-99 28798 N17730 730 $40,480,000 Aug-99 28799 N14731 731 $40,480,000 Aug-99 28948 N16732 732 $40,480,000 Sep-99 28949 N27733 733 $40,550,000 Sep-99 28950 N27734 734 $40,550,000 Sep-99 28800 N14735 735 $40,550,000 Oct-99 28951 N24736 736 $40,620,000 B737-800, CFM56-7B26 Engines, 172,500LB MTOW May-99 28792 N14228 228 $49,540,000 Jun-99 28793 N17229 229 $49,620,000 Jun-99 28794 N14230 230 $49,620,000 Jun-99 28795 N14231 231 $49,620,000 Jun-99 28942 N26232 232 $49,620,000 Jul-99 28943 N17233 233 $49,700,000 Aug-99 28946 N16234 234 $49,790,000 Aug-99 28947 N14235 235 $49,790,000 Sep-99 28801 N35236 236 $49,870,000 Sep-99 28802 N14237 237 $49,870,000 Oct-99 28804 N12238 238 $49,950,000 Oct-99 28951 N27239 239 $49,950,000 Oct-99 28952 N14240 240 $49,950,000 Oct-99 28953 N54241 241 $49,950,000 B777-200ER, GE90B Engines, 648,000LB MTOW Mar-99 29478 N78008 008 $134,270,000 Apr-99 29479 N78009 009 $134,490,000 May-99 29480 N76010 010 $134,710,000 Jul-99 29859 N79011 011 $135,160,000
1 [AvSOLUTIONS LOGO] December 8, 1998 Continental Airlines, Inc. 1600 Smith Street HQ-SFN Houston, Texas 77002 Dear Continental Airlines, Inc.: AvSOLUTIONS is pleased to provide this opinion on the base value, as of December 1998, of thirteen Boeing 737-700, fourteen Boeing 737-800 and four Boeing 777-200 IGW aircraft (the aircraft). The Boeing 737-700 and the Boeing 737-800 aircraft are powered by CFM International CFM56-7B series engines and the Boeing 777-200 IGW aircraft are powered by General Electric GE90-90B engines. The total of thirty-one aircraft will be delivered new to Continental Airlines, Inc. from the first quarter of 1999 through the fourth quarter of 1999. A listing of the particular aircraft is provided as attachment 1 of this document. Set forth below is a summary of the methodology, considerations and assumptions utilized in this appraisal. BASE VALUE Base value is the appraiser's opinion of the underlying economic value of an aircraft in an open, unrestricted, stable market environment with a reasonable balance of supply and demand, and assumes full consideration of its "highest and best use". An aircraft's base value is founded in the historical trend of values and in the projection of future value trends and presumes an arm's length, cash transaction between willing, able and knowledge parties, acting prudently, with an absence of duress and with a reasonable period of time available for marketing. CURRENT FAIR MARKET VALUE According to the International Society of Transport Aircraft Trading's (ISTAT) definition of Fair Market Value (FMV), to which AvSOLUTIONS subscribes, the quoted FMV is the appraiser's opinion of the most likely trading price that may be generated for an aircraft under the market circumstances that are perceived to exist at the time in question. The fair market value assumes that the aircraft is valued for its highest and best use, that the parties to the hypothetical sales transaction are willing, able, prudent and knowledgeable, and under no unusual pressure for a prompt sale, and that the transaction would be negotiated in an open and unrestricted market on an arm's length basis, for cash equivalent consideration, and given an adequate amount of time for effective market exposure to perspective buyers, which AvSOLUTIONS considers to be ten to twenty months. 10687 Gaskins Way, Suite 200, Manassas, Virginia 20109-2371, USA Telephone: 703-330-0461 Fax: 703-330-0581 Email: avsol@avsolutions.com
2 [AvSOLUTIONS LOGO] Page 2 Continental Airlines, Inc. APPRAISAL METHODOLOGY The method employed by AvSOLUTIONS to appraise the current and future values of aircraft and the associated equipment addresses the factors that influence the market value of an aircraft, such as its age, condition, configuration, the population of similar aircraft, similar aircraft on the market, operating costs, cost to acquire a new aircraft, and the state of demand for transportation services. To achieve this objective, cross-sectional data concerning the values of aircraft in each of several general categories is collected and analyzed. Cross-sectional data is then postulated and compared with reported market values at a specified point in time. Such data reflects the effect of deterioration in aircraft performance due to usage and exposure to the elements, as well as the effect of obsolescence due to the evolutionary development and implementation of new designs and materials. The product of the analysis identifies the relationship between the value of each aircraft and its characteristics, such as age, model designation, service configuration and engine type. Once the relationship is identified, one can then postulate the effects of the difference between the economic circumstances at the time when the cross-sectional data were collected and the current situation. Therefore, if one can determine the current value of an aircraft in one category, it is possible to estimate the current values of all aircraft in that category. The manufacturer and size of the aircraft usually determine the specific category to which it is assigned. Segregating the world airplane fleet in this manner accommodates the potential effects of different size and different design philosophies. The variability of the data used by AvSOLUTIONS to determine the current and future market values implies that the actual value realized will fall within a range of values. Therefore, if a contemplated value falls within the specified confidence range, AvSOLUTIONS cannot reject the hypothesis that it is a reasonable representation of the current market situation. LIMITING CONDITIONS AND ASSUMPTIONS In order to conduct this valuation, AvSOLUTIONS is solely relying on information as supplied by Continental Airlines, Inc. or Credit Suisse First Boston Corporation, and from data within AvSOLUTIONS' own database. In determining the base value of the subject aircraft, the following assumptions have been researched and determined:
3 [AvSOLUTIONS LOGO] Page 3 Continental Airlines, Inc. 1. AvSOLUTIONS has not inspected these aircraft or their maintenance records; accordingly, AvSOLUTIONS cannot attest to their specific location or condition. 2. The aircraft will be delivered new to Continental Airlines, Inc. between the first quarter of 1999 and the fourth quarter of 1999. 3. The aircraft will be certified, maintained and operated under United States Federal Aviation Regulation (FAR) part 121. 4. All mandatory inspections and Airworthiness Directives have been complied with. 5. The aircraft have no damage history. 6. The aircraft are in good condition. 7. AvSOLUTIONS considers the economic useful life of these aircraft to be at least 32 years. Based upon the above methodology, considerations and assumptions, it is AvSOLUTIONS' opinion that the base value of each aircraft is as listed in attachment 1.
4 [AvSOLUTIONS LOGO] Page 4 Continental Airlines, Inc. STATEMENT OF INDEPENDENCE This appraisal report represents the opinion of AvSOLUTIONS, and is intended to be advisory in nature. Therefore, AvSOLUTIONS assumes no responsibility or legal liability for actions taken or not taken by the Client or any other party with regard to the subject aircraft. By accepting this report, the Client agrees that AvSOLUTIONS shall bear no responsibility or legal liability regarding this report. Further, this report is prepared for the exclusive use of the Client and shall not be provided to other parties without the Client's express consent. Aviation Solutions Inc. (AvSOLUTIONS) hereby states that this valuation report has been independently prepared and fairly represents the subject aircraft and AvSOLUTIONS' opinion of their values. Aviation Solutions Inc. (AvSOLUTIONS) further states that it has no present or contemplated future interest or association with the subject aircraft. Signed, /s/ Bryant Lynch Bryant Lynch Manager, Commercial Appraisals
5 [AvSOLUTIONS LOGO] ATTACHMENT 1 EETC COLLATERAL SUMMARY DELIVERY MTOW AIRCRAFT NO. AIRCRAFT QTR/YR ENGINES (POUNDS) BASE VALUE - ------------ -------------- -------- ---------- --------- ----------- 1 Boeing 737-700 2/1999 CFM56-7B24 153,000 $38,883,000 2 Boeing 737-700 2/1999 CFM56-7B24 153,000 $38,883,000 3 Boeing 737-700 3/1999 CFM56-7B24 153,000 $39,216,000 4 Boeing 737-700 3/1999 CFM56-7B24 153,000 $39,216,000 5 Boeing 737-700 3/1999 CFM56-7B24 153,000 $39,216,000 6 Boeing 737-700 3/1999 CFM56-7B24 153,000 $39,216,000 7 Boeing 737-700 3/1999 CFM56-7B24 153,000 $39,216,000 8 Boeing 737-700 3/1999 CFM56-7B24 153,000 $39,216,000 9 Boeing 737-700 3/1999 CFM56-7B24 153,000 $39,216,000 10 Boeing 737-700 3/1999 CFM56-7B24 153,000 $39,216,000 11 Boeing 737-700 3/1999 CFM56-7B24 153,000 $39,216,000 12 Boeing 737-700 3/1999 CFM56-7B24 153,000 $39,216,000 13 Boeing 737-700 4/1999 CFM56-7B24 153,000 $39,549,000 DELIVERY MTOW AIRCRAFT NO. AIRCRAFT QTR/YR ENGINES (POUNDS) BASE VALUE - ------------ -------------- -------- ---------- --------- ----------- 14 Boeing 737-800 2/1999 CFM56-7B26 172,500 $46,950,000 15 Boeing 737-800 2/1999 CFM56-7B26 172,500 $46,950,000 16 Boeing 737-800 2/1999 CFM56-7B26 172,500 $46,950,000 17 Boeing 737-800 2/1999 CFM56-7B26 172,500 $46,950,000 18 Boeing 737-800 2/1999 CFM56-7B26 172,500 $46,950,000 19 Boeing 737-800 3/1999 CFM56-7B26 172,500 $47,243,000 20 Boeing 737-800 3/1999 CFM56-7B26 172,500 $47,243,000 21 Boeing 737-800 3/1999 CFM56-7B26 172,500 $47,243,000 22 Boeing 737-800 3/1999 CFM56-7B26 172,500 $47,243,000 23 Boeing 737-800 3/1999 CFM56-7B26 172,500 $47,243,000 24 Boeing 737-800 4/1999 CFM56-7B26 172,500 $47,536,000 25 Boeing 737-800 4/1999 CFM56-7B26 172,500 $47,536,000 26 Boeing 737-800 4/1999 CFM56-7B26 172,500 $47,536,000 27 Boeing 737-800 4/1999 CFM56-7B26 172,500 $47,536,000
6 [AvSOLUTIONS LOGO] ATTACHMENT 1 EETC COLLATERAL SUMMARY page two DELIVERY MTOW AIRCRAFT NO. AIRCRAFT QTR/YR ENGINES (POUNDS) BASE VALUE - ------------ ------------------ -------- ---------- --------- ----------- 28 Boeing 777-200 IGW 1/1999 GE90-90B 648,000 $132,350,000 29 Boeing 777-200 IGW 2/1999 GE90-90B 648,000 $132,930,000 30 Boeing 777-200 IGW 2/1999 GE90-90B 648,000 $132,930,000 31 Boeing 777-200 IGW 3/1999 GE90-90B 648,000 $133,510,000
1 MORTEN BEYER & AGNEW - -------------------------------------------------------------------------------- AVIATION CONSULTING FIRM APPRAISAL OF 1999-1 PORTFOLIO EETC PREPARED FOR: CONTINENTAL AIRLINES/C-S FIRST BOSTON DECEMBER 8, 1998 Washington, D.C. London 8180 Greensboro Drive Lahinch 62, Lashmere Suite 1000 Copthorne McLean, Virginia 22102 West Sussex Phone +703 847 6598 Phone +44 1342 716248 Fax +703 847 1911 Fax +44 1342 718967
2 I. INTRODUCTION AND EXECUTIVE SUMMARY Morten Beyer and Agnew, Inc. (MBA), has been retained by Credit Suisse -- First Boston/Continental Air Lines, Inc. (CAL) to determine the Current Base Value (CBV) of 31 Boeing aircraft delivered new over the next nine months. The aircraft are further identified in Section II of this report. In performing this valuation we did not inspect the aircraft specifications or their maintenance documentation, and we relied solely on information provided to us by CAL. MBA uses the definition of certain terms, such as CMV and Base Value (BV), as promulgated by the International Society of Transport Aircraft Trading (ISTAT), a non-profit association of management personnel from banks, leasing companies, airlines, manufacturers, appraisers, brokers, and others who have a vested interest in the commercial aviation industry. ISTAT defines Market Value (MV) as the appraiser's opinion of the most likely trading price that may be generated for an aircraft under market conditions that are perceived to exist at the time in question. MV assumes that the aircraft is valued for its highest, best use; that the parties to the hypothetical sale transaction are willing, able, prudent and knowledgeable, and under no unusual pressure for a prompt sale; and that the transaction would be negotiated in an open and unrestricted market on an arm's-length basis, for cash or equivalent consideration, and given an adequate amount of time for effective exposure to prospective buyers. The ISTAT definition of Base Value (BV) has, essentially, the same elements of MV except that the market circumstances are assumed to be in a reasonable state of equilibrium. Thus, BV pertains to an idealized aircraft and market combination, but will not necessarily reflect the actual MV of the aircraft in question. BV is founded in the historical trend of values and is generally used to analyze historical values or to project future values. The Current Base Value is the BV at the time of this opinion, effective upon the defined delivery dates of the subject aircraft assets. [MBA LOGO]
3 II. AIRCRAFT (1999-1 PORTFOLIO) AIRCRAFT TAIL NUMBER SERIAL NUMBER DATE OF MFR. - -------------------------------------------------------------------------- 737-724 N27724 28791 6-99 ---------------------------------------------------------- N13750 28941 6-99 ---------------------------------------------------------- N39726 28798 7-99 ---------------------------------------------------------- N38727 28797 7-99 ---------------------------------------------------------- N39728 28944 7-99 ---------------------------------------------------------- N24729 28945 7-99 ---------------------------------------------------------- N17730 28798 8-99 ---------------------------------------------------------- N14731 28799 8-99 ---------------------------------------------------------- N16732 28948 8-99 ---------------------------------------------------------- N27733 28949 9-99 ---------------------------------------------------------- N27734 28950 9-99 ---------------------------------------------------------- N14735 28800 9-99 ---------------------------------------------------------- N24736 28951 10-99 - -------------------------------------------------------------------------- 737-824 N14228 28792 5-99 ---------------------------------------------------------- N17229 28793 6-99 ---------------------------------------------------------- N14230 28794 6-99 ---------------------------------------------------------- N14231 28795 6-99 ---------------------------------------------------------- N28232 28942 6-99 ---------------------------------------------------------- N17233 28943 7-99 ---------------------------------------------------------- N16234 28946 8-99 ---------------------------------------------------------- N14235 28947 8-99 ---------------------------------------------------------- N35236 28801 9-99 ---------------------------------------------------------- N14237 28802 9-99 ---------------------------------------------------------- N12238 28804 10-99 ---------------------------------------------------------- N27239 28951 10-99 ---------------------------------------------------------- N14240 28952 10-99 ---------------------------------------------------------- N54241 28953 10-99 - -------------------------------------------------------------------------- 777-224IGW N78008 29478 3-99 ---------------------------------------------------------- N78009 29479 4-99 ---------------------------------------------------------- N78010 29480 5-99 ---------------------------------------------------------- N79011 29859 7-99 - -------------------------------------------------------------------------- [MBA LOGO]
4 III. CURRENT MARKET CONDITIONS [Airplane graphic] BOEING 737-700/800 SERIES Boeing is replacing the current trio of 737s with upgraded versions beginning with the 737-700 last year. Southwest Airlines' order for 63 of the series officially launched the program in late 1993, and now new orders are running at an increasing rate. Boeing is ramping-up production to the early 1990s level. The -600 is a replacement for the first generation -100/-200 series, and the - -700 is a replacement to the -300 series. As well, the -800 is a replacement to the B737-400 series. The fuselage of the new aircraft will mirror that of the original (which were out-growths of the original -100s and -200s). Upgraded avionics, a new wing design, and other improvements will combine to increase range, efficiency, and performance in general. The CFM56-7 will be the exclusive engine for the 3rd generation. B737-700s are just entering service with Southwest, as supply and assembly problems slowed the production lines in 1997, and Boeing is playing 'catch-up' on an overly ambitious production schedule. Prospects for the 3rd generation 737 jets are considerably enhanced by the discontinuation of the MD-80 / -90 series. The MD-95 has been adopted by Boeing as its 100-seat competitor under the aegis of B-717. On the other hand, Airbus is becoming more aggressive with its A319/320/321 high tech series and winning an increasing share of orders. As the industry approaches the peak of the current cycle, the prospects for a downturn increase, together with deferrals and cancellations of orders for both manufacturers. Boeing has recently stated that the future market will consist of more narrow-bodied aircraft like the 737 and 757 series. ECONOMICS There is no in-service operating data for the B737-NG (Next Generation) aircraft. However, it may be reliably assumed that this data will prove that this model to be highly efficient. [MBA LOGO]
5 MID-YEAR UPDATE These Next Generation B-737s are just entering service. More than 40 700s are already flying, most with Southwest, the launch customer. The 600's are expected to enter service early next year, and the 800's already have more than a dozen flying. Boeing is struggling to ramp-up production to 21 a month just as orders are peaking out. Despite the Asian flu, orders are thriving this year, with 240 through July, five more than Boeing booked over 12 months in 1997. Airbus has achieved 247 for its rival A-319/320/321 series so far this year. MBA continues to hold the Current Market Prices of the next generation B-737s at 100 percent of Base Value. We have not evaluated the -900 in this update, but will do so in the January 1999 volume. [Airplane Graphic] BOEING 777-200 The 777 is currently the world's largest widebody twin. It is Boeing's answer to the Airbus Industrie A330 and, to a lesser extent, the Douglas MD-11, both of which are filling a gap between Boeing's 767 and 747 lines. The A330 and MD-11 have the distinct marketing advantage of being in service from two to seven years ahead of the 777, and already have large order books (A330) and customer lists. Boeing is playing catch-up in this market segment, but is doing it with typical Boeing combination of power and finesse. Only three years following its introduction, 72 have been delivered with 288 on order. The initial 777 design was the -200A (now the -200), followed by the -200IGW (Increased Gross Weight) and featured all of the three major high bypass engines; the P&W 4074, the Rolls Royce Trent 871, and the General Electric 90-B3. Gross weight has already been increased to 545,000 pounds for the -200, and 648,000 pounds for the -200IGW/-300. A maximum seating capacity of 440 passengers is available in the -200/-200IGW model and 550 in the newly announced - -300 version. Fair Market Values for the -200 versions are $117.7 and $125.5 million, respectively, while the -300 is expected to premier at $146.0 million. Production of the low gross version is expected to cease after the -300 is debuted, but it will coexist, even as the increased capacity 767-400ER moves into the lower end of the 777 capacity market. [MBA LOGO]
6 To an increasing degree, Boeing is competing against itself as it offers an even more variegated selection of aircraft derivatives. ECONOMICS The 777 should have operating characteristics and seat mile costs very comparable to the A330 and considerably better than the MD-11, according to the MBA economic model. It will particularly appeal to the large segment of the market which traditionally buys Boeing. Helped by the normal maintenance-free ride, United reported 1996 777 DOCs at 3.06 cents per available seat mile (ASM), the cheapest in its fleet and 13.6 percent below the 747-400. Ownership costs as a percent of DOCs are: 747-400 - 29.2 percent, and 777-200 - 24.6 percent. The 777 has the initial advantage of low maintenance costs, an all-new technological design, a two-person crew, low specific fuel consumption, and high capacity. Its operating margin and net margin after financial costs should be among the best of all aircraft types, even though the projected lease costs are 24.1 percent of total operating expense. The aircraft may require some modification of airport gate facilities to handle its great wing span (folding wings are available at extra cost, but no one has ordered them). The 777 will be well suited to meeting airline expansion needs in markets where added frequencies are no longer possible due to slot and gate facility restrictions. MID-YEAR UPDATE Boeing's B-777 was its first all-new product in 20 years. Not since the B-757 and B-767 in 1982 has Boeing offered an all-new design. However, the B-777 does not go technically as far as the Airbus. Boeing incorporated glass cockpits, but eschewed fly-by-wire and side-stick controls. The B-777 got off to a strong start with 141 deliveries and 253 outstanding orders as of June 30, 1998. However, 109 of these advance orders were by Asia-Pacific carriers, and a significant attrition is expected in the next few years. Boeing is offering the B-777 in a low gross, high gross, and stretched version, each with all three 'big' engines. This Balkanization of the product line has no doubt diluted Boeings profits and complicated its production process. The B-777 was in direct competition not only with the Airbus A330/340, but also with the MD-11 product line, no doubt hastening its demise. MBA currently values the B-777's Current Market Prices at 100 percent of Base Value. [MBA LOGO]
7 IV. VALUATION Aircraft Serial Number Date of Mfr. Current Base Value Adjusted Base Value* ($000,000) - ---------------------------------------------------------------------------------------------------- 737-724 28791 6-99 37.28 38.48 28941 6-99 37.28 38.48 28796 7-99 37.36 38.56 28797 7-99 37.36 38.56 28944 7-99 37.36 38.56 28945 7-99 37.36 38.56 28798 8-99 37.44 38.64 28799 8-99 37.44 38.64 28948 8-99 37.44 38.64 28949 9-99 37.51 38.71 28950 9-99 37.51 38.71 28800 9-99 37.51 38.71 28951 10-99 37.59 38.79 - ---------------------------------------------------------------------------------------------------- 737-824 28792 5-99 44.45 45.47 28793 6-99 44.54 45.56 28794 6-99 44.54 45.56 28795 6-99 44.54 45.56 28942 6-99 44.54 45.56 28943 7-99 44.63 45.65 28946 8-99 44.72 45.74 28947 8-99 44.72 45.74 28801 9-99 44.81 45.83 28802 9-99 44.81 45.83 28804 10-99 44.91 45.93 28951 10-99 44.91 45.93 28952 10-99 44.91 45.93 28953 10-99 44.91 45.93 - ---------------------------------------------------------------------------------------------------- 777-224IGW 29478 3-99 134.93 135.53 29479 4-99 135.21 135.81 29480 5-99 135.48 136.08 29859 7-99 136.04 136.64 * Adjustments include, when applicable, increased MTOW. [MBA LOGO]
8 In developing the CBV of these aircraft, MBA did not inspect the aircraft or its historical maintenance documentation. Therefore, we used certain assumptions that are generally accepted industry practice to calculate the value of an aircraft when more detailed information is not available. The principal assumptions are as follows (for each aircraft): 1. The aircraft is delivered new. 2. The overhaul status of the airframe, engines, landing gear and other major components are the equivalent of new delivery otherwise specified. 3. The specifications of the aircraft are those most common for an aircraft of this type new delivery. 4. The aircraft is in a standard airline configuration. 5. Its modification status is comparable to that most common for an aircraft of its type and vintage. 6. No accounting was made for lease obligations or terms of ownership. [MBA LOGO]
9 V. COVENANTS This report has been prepared for the exclusive use of Credit Suisse - First Boston/CAL and shall not be provided to other parties by MBA without the express consent of Credit Suisse - First Boston/CAL. MBA certifies that this report has been independently prepared and that it fully and accurately reflects MBA's opinion as to the Current Base Value. MBA further certifies that it does not have, and does not expect to have, any financial or other interest in the subject or similar aircraft. This report represents the opinion of MBA as to the Current Base Value of the subject aircraft and is intended to be advisory only in nature. Therefore, MBA assumes no responsibility or legal liability for any actions taken or not taken by Credit Suisse - First Boston/CAL or any other party with regard to the subject aircraft. By accepting this report, all parties agree that MBA shall bear no such responsibility or legal liability. PREPARED BY: /s/ Bryson P. Monteleone BRYSON P. MONTELEONE MANAGER OF OPERATIONS REVIEWED BY: /s/ Morten S. Beyer MORTEN S. BEYER CHAIRMAN AND CEO ISTAT APPRAISER FELLOW [MBA LOGO]
1 [AIRCRAFT INFORMATION SERVICES, INC. LETTERHEAD] 19 May 1999 Continental Airlines 2929 Allen Parkway Houston, TX 77019 Subject: AISI Report No.: A9S011BVO AISI Sight Unseen New Aircraft Base Value Appraisal, Four B737-700, Fifteen B737-800, Two B757-200Etop and Three B777-200ER Aircraft. Reference: (a) Credit Suisse First Boston faxes 27/29 April and 6/19 May 1999 Dear Gentlemen: Aircraft Information Services, Inc. (AISI) is pleased to offer Continental Airlines our opinion of the sight unseen base market value of various new aircraft scheduled to be delivered from the manufacturer to Continental Airlines between July 1999 and December 1999 as listed and defined in Table I. 1. METHODOLOGY AND DEFINITIONS The method used by AISI in its valuation of the Aircraft was based both on a review of information and Aircraft specifications supplied by the client and also on a review of present and past market conditions, various expert opinions (such as aircraft brokers and financiers) and information contained in AISI's databases that help determine aircraft availability and price data and thus arrive at the appraised base values for the new aircraft to be delivered to Continental Airlines. The standard terms of reference for commercial aircraft value are 'half-life base market value' and 'half-life current market value' of an 'average' aircraft. Base value is a theoretical value that assumes a balanced market while current market value is the value in the real market; both assume a hypothetical average aircraft condition. AISI value definitions are consistent with the current definitions of the International Society of Transport Aircraft Trading (ISTAT). AISI is a member of that organization and employs an ISTAT Certified and Senior Certified Aircraft Appraiser. HEADQUARTERS, 26072 MERIT CIRCLE, SUITE 123, LAGUNA HILLS, CA 92653 TEL: 949-582-8888 FAX: 949-582-8887 E-MAIL: AISINews@aol.com
2 [AISI LOGO] 19 May 1999 AISI File No. A9S011BVO Page -2- AISI defines a 'base value' as that of a transaction between equally willing and informed buyer and seller, neither under compulsion to buy or sell, for a single unit cash transaction with no hidden value or liability, and with supply and demand of the sale item roughly in balance. Base values are typically given for aircraft in 'new' condition, 'average half-life' condition, or in a specifically described condition unique to a single aircraft at a specific time. An 'average' aircraft is an operable airworthy aircraft in average physical condition and with average accumulated flight hours and cycles, with clear title and standard unrestricted certificate of airworthiness, and registered in an authority which does not represent a penalty to aircraft value or liquidity, with no damage history and with inventory configuration and level of modification which is normal for its intended use and age. AISI assumes average condition unless otherwise specified in this report. 'Half-life' condition assumes that every component or maintenance service which has a prescribed interval that determines its service life, overhaul interval or interval between maintenance services, is at a condition which is one-half of the total interval. It should be noted that AISI and ISTAT value definitions apply to a transaction involving a single aircraft, and that transactions involving more than one aircraft are often executed at considerable and highly variable discounts to a single aircraft price, for a variety of reasons relating to an individual buyer or seller. AISI defines a 'current market value', which is synonymous with the older term "fair market value" as that value which reflects the real market conditions, whether at, above or below the base value conditions. Assumption of a single unit sale and definitions of aircraft condition, buyer/seller qualifications and type of transaction remain unchanged from that of base value. Current market value takes into consideration the status of the economy in which the aircraft is used, the status of supply and demand for the particular aircraft type, the value of recent transactions and the opinions of informed buyers and sellers. Current market value assumes that there is no short term time constraint to buy or sell. AISI encourages the use of base values to consider historical trends, to establish a consistent baseline for long term value comparisons and future value considerations, or to consider how actual market values vary from theoretical base values. Base values are less volatile than current market values and tend to diminish regularly with time. Base values are normally inappropriate to determine near term values. AISI encourages the use of current market values to consider the probable near term value of an aircraft. 2. VALUATION Following is AISI's opinion of the base market value for the subject aircraft on their respective scheduled delivery dates in current US dollars. Valuations are presented in Table I subject to the assumptions, definitions and disclaimers herein.
3 [AISI LOGO] 19 May 1999 AISI File No. A9S011BVO Page -3- Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in writing, this report shall be for the sole use of the client/addressee. This report is offered as a fair and unbiased assessment of the subject aircraft. AISI has no past, present, or anticipated future interest in the subject aircraft. The conclusions and opinions expressed in this report are based on published information, information provided by others, reasonable interpretations and calculations thereof and are given in good faith. Such conclusions and opinions are judgments that reflect conditions and values which are current at the time of this report. The values and conditions reported upon are subject to any subsequent change. AISI shall not be liable to any party for damages arising out of reliance or alleged reliance on this report, or for any parties action or failure to act as a result of reliance or alleged reliance on this report. Sincerely, AIRCRAFT INFORMATION SERVICES, INC. /s/ JOHN D. MCNICOL John D. McNicol Vice President Appraisals & Forecasts
4 [AISI LOGO] Continental Airlines - AISI File # A9S011BVO 19-May-99 TABLE I - ------------------------------------------------------------------------------------------------------------- Scheduled Expected Manufacturer's Aircraft Serial Registration New Delivery Base Value Current Delivery Date Number Number USDollars - ------------------------------------------------------------------------------------------------------------- B737-700, CFM56-7B24 ENGINES, 153,000LB MTOW - ------------------------------------------------------------------------------------------------------------- Jul-99 28945 N24729 $40,200,000 - ------------------------------------------------------------------------------------------------------------- Aug-99 28948 N16732 $40,260,000 - ------------------------------------------------------------------------------------------------------------- Sep-99 28800 N14735 $40,330,000 - ------------------------------------------------------------------------------------------------------------- Sep-99 28803 N24736 $40,330,000 - ------------------------------------------------------------------------------------------------------------- B737-800, CFM56-7B26 ENGINES, 172,500LB MTOW - ------------------------------------------------------------------------------------------------------------- Sep-99 28801 N35236 $49,330,000 - ------------------------------------------------------------------------------------------------------------- Oct-99 28804 N12238 $49,410,000 - ------------------------------------------------------------------------------------------------------------- Oct-99 28951 N27239 $49,410,000 - ------------------------------------------------------------------------------------------------------------- Oct-99 28953 N14240 $49,410,000 - ------------------------------------------------------------------------------------------------------------- Oct-99 28952 N54241 $49,410,000 - ------------------------------------------------------------------------------------------------------------- Oct-99 28805 N14242 $49,410,000 - ------------------------------------------------------------------------------------------------------------- Oct-99 28806 N18243 $49,410,000 - ------------------------------------------------------------------------------------------------------------- Nov-99 28954 N17244 $49,490,000 - ------------------------------------------------------------------------------------------------------------- Nov-99 28955 N17245 $49,490,000 - ------------------------------------------------------------------------------------------------------------- Nov-99 28956 N27246 $49,490,000 - ------------------------------------------------------------------------------------------------------------- Dec-99 28807 N36247 $49,570,000 - ------------------------------------------------------------------------------------------------------------- Dec-99 28808 N13248 $49,570,000 - ------------------------------------------------------------------------------------------------------------- Dec-99 28809 N14249 $49,570,000 - ------------------------------------------------------------------------------------------------------------- Dec-99 28957 N14250 $49,570,000 - ------------------------------------------------------------------------------------------------------------- Dec-99 28958 N25201 $49,570,000 - ------------------------------------------------------------------------------------------------------------- B757-200ETOP, RB211-535E4 ENGINES, 255,000LB MTOW - ------------------------------------------------------------------------------------------------------------- Nov-99 30229 N34137 $61,510,000 - ------------------------------------------------------------------------------------------------------------- Dec-99 30351 N13138 $61,610,000 - ------------------------------------------------------------------------------------------------------------- B777-200ER, GE90B ENGINES, 648,000LB MTOW - ------------------------------------------------------------------------------------------------------------- Aug-99 29860 N77012 $135,160,000 - ------------------------------------------------------------------------------------------------------------- Sep-99 29861 N78013 $135,380,000 - ------------------------------------------------------------------------------------------------------------- Oct-99 29862 N77014 $135,600,000 - -------------------------------------------------------------------------------------------------------------
1 [AvSOLUTIONS LOGO] May 19, 1999 Continental Airlines, Inc. 1600 Smith Street Houston, Texas 77002 Dear Continental Airlines, Inc.: AvSOLUTIONS is pleased to provide this opinion on the base value, as of May 1999, of four Boeing 737-700, fifteen Boeing 737-800, two Boeing 757-200 and three Boeing 777-200 IGW aircraft (the aircraft). The Boeing 737-700 and the Boeing 737-800 aircraft are powered by CFM International CFM56-7B series engines. The Boeing 757-200 aircraft are powered by Rolls-Royce RB211-535E4B engines. The Boeing 777-200 IGW aircraft are powered by General Electric GE90-90B engines. The total of twenty-four aircraft will be delivered new to Continental Airlines, Inc. from the third quarter of 1999 through the fourth quarter of 1999. A listing of the particular aircraft is provided as attachment 1 of this document. Set forth below is a summary of the methodology, considerations and assumptions utilized in this appraisal. BASE VALUE Base value is the appraiser's opinion of the underlying economic value of an aircraft in an open, unrestricted, stable market environment with a reasonable balance of supply and demand, and assumes full consideration of its "highest and best use". An aircraft's base value is founded in the historical trend of values and in the projection of future value trends and presumes an arm's length, cash transaction between willing, able and knowledge parties, acting prudently, with an absence of duress and with a reasonable period of time available for marketing. CURRENT FAIR MARKET VALUE According to the International Society of Transport Aircraft Trading's (ISTAT) definition of Fair Market Value (FMV), to which AvSOLUTIONS subscribes, the quoted FMV is the appraiser's opinion of the most likely trading price that may be generated for an aircraft under the market circumstances that are perceived to exist at the time in question. The fair market value assumes that the aircraft is valued for its highest and best use, that the parties to the hypothetical sales transaction are willing, able, prudent and knowledgeable, and under no unusual pressure for a prompt sale, and that the transaction would be negotiated in an open and unrestricted market on an arm's length basis, for cash equivalent consideration, and given an adequate amount of time for effective market exposure to perspective buyers, which AvSOLUTIONS considers to be ten to twenty months. 10687 Gaskins Way, Suite 200, Manassas, Virginia 20109-2371, USA Telephone: 703-330-0461 Fax: 703-330-0581 EMAIL: AVSOL@AVSOLUTIONS.COM
2 [AvSolutions LOGO] Page 2 Continental Airlines, Inc. APPRAISAL METHODOLOGY The method employed by AvSOLUTIONS to appraise the current and future values of aircraft and the associated equipment addresses the factors that influence the market value of an aircraft, such as its age, condition, configuration, the population of similar aircraft, similar aircraft on the market, operating costs, cost to acquire a new aircraft, and the state of demand for transportation services. To achieve this objective, cross-sectional data concerning the values of aircraft in each of several general categories is collected and analyzed. Cross-sectional data is then postulated and compared with reported market values at a specified point in time. Such data reflects the effect of deterioration in aircraft performance due to usage and exposure to the elements, as well as the effect of obsolescence due to the evolutionary development and implementation of new designs and materials. The product of the analysis identifies the relationship between the value of each aircraft and its characteristics, such as age, model designation, service configuration and engine type. Once the relationship is identified, one can then postulate the effects of the difference between the economic circumstances at the time when the cross-sectional data were collected and the current situation. Therefore, if one can determine the current value of an aircraft in one category, it is possible to estimate the current values of all aircraft in that category. The manufacturer and size of the aircraft usually determine the specific category to which it is assigned. Segregating the world airplane fleet in this manner accommodates the potential effects of different size and different design philosophies. The variability of the data used by AvSOLUTIONS to determine the current and future market values implies that the actual value realized will fall within a range of values. Therefore, if a contemplated value falls within the specified confidence range. AvSOLUTIONS cannot reject the hypothesis that it is a reasonable representation of the current market situation. LIMITING CONDITIONS AND ASSUMPTIONS In order to conduct this valuation, AvSOLUTIONS is solely relying on information as supplied by Continental Airlines, Inc. or Credit Suisse First Boston Corporation, and from data within AvSOLUTIONS' own database. In determining the base value of the subject aircraft, the following assumptions have been researched and determined:
3 [AvSolutions LOGO] Page 3 Continental Airlines, Inc. 1. AvSOLUTIONS has not inspected these aircraft or their maintenance records; accordingly, AvSOLUTIONS cannot attest to their specific location or condition. 2. The aircraft will be delivered new to Continental Airlines, Inc. between the third quarter of 1999 and the fourth quarter of 1999. 3. The aircraft will be certified, maintained and operated under United States Federal Aviation Regulation (FAR) part 121. 4. All mandatory inspections and Airworthiness Directives have been complied with. 5. The aircraft have no damage history. 6. The aircraft are in good condition. 7. AvSOLUTIONS considers the economic useful life of these aircraft to be at least 32 years. Based upon the above methodology, considerations and assumptions, it is AvSOLUTIONS' opinion that the base value of each aircraft is as listed in attachment 1.
4 [AvSolutions LOGO] Page 4 Continental Airlines, Inc. STATEMENT OF INDEPENDENCE This appraisal report represents the opinion of AvSOLUTIONS, and is intended to be advisory in nature. Therefore, AvSOLUTIONS assumes no responsibility or legal liability for actions taken or not taken by the Client or any other party with regard to the subject aircraft. By accepting this report, the Client agrees that AvSOLUTIONS shall bear no responsibility or legal liability regarding this report. Further, this report is prepared for the exclusive use of the Client and shall not be provided to other parties without the Client's express consent. Aviation Solutions Inc. (AvSOLUTIONS) hereby states that this valuation report has been independently prepared and fairly represents the subject aircraft and AvSOLUTIONS' opinion of their values. Aviation Solutions Inc. (AvSOLUTIONS) further states that it has no present or contemplated future interest or association with the subject aircraft. Signed, /s/ Bryant Lynch Bryant Lynch Manager, Commercial Appraisals
5 [AvSolutions LOGO] ATTACHMENT 1 EETC COLLATERAL SUMMARY page 1 AIRCRAFT SERIAL DELIVERY MTOW NO. AIRCRAFT NUMBER MO-YR ENGINES (POUNDS) BASE VALUE - -------------------------------------------------------------------------------------- 1 Boeing 737-700 28945 Jul-99 CFM56-7B24 153,000 $39,110,000 - -------------------------------------------------------------------------------------- 2 Boeing 737-700 28948 Aug-99 CFM56-7B24 153,000 $39,110,000 - -------------------------------------------------------------------------------------- 3 Boeing 737-700 28800 Sep-99 CFM56-7B24 153,000 $39,110,000 - -------------------------------------------------------------------------------------- 4 Boeing 737-700 28803 Sep-99 CFM56-7B24 153,000 $39,110,000 AIRCRAFT SERIAL DELIVERY MTOW NO. AIRCRAFT NUMBER MO-YR ENGINES (POUNDS) BASE VALUE - -------------------------------------------------------------------------------------- 5 Boeing 737-800 28801 Sep-99 CFM56-7B26 172,500 $47,243,000 - -------------------------------------------------------------------------------------- 6 Boeing 737-800 28804 Oct-99 CFM56-7B26 172,500 $47,536,000 - -------------------------------------------------------------------------------------- 7 Boeing 737-800 28951 Oct-99 CFM56-7B26 172,500 $47,536,000 - -------------------------------------------------------------------------------------- 8 Boeing 737-800 28953 Oct-99 CFM56-7B26 172,500 $47,536,000 - -------------------------------------------------------------------------------------- 9 Boeing 737-800 28952 Oct-99 CFM56-7B26 172,500 $47,536,000 - -------------------------------------------------------------------------------------- 10 Boeing 737-800 28805 Oct-99 CFM56-7B26 172,500 $47,536,000 - -------------------------------------------------------------------------------------- 11 Boeing 737-800 28806 Oct-99 CFM56-7B26 172,500 $47,536,000 - -------------------------------------------------------------------------------------- 12 Boeing 737-800 28954 Nov-99 CFM56-7B26 172,500 $47,536,000 - -------------------------------------------------------------------------------------- 13 Boeing 737-800 28955 Nov-99 CFM56-7B26 172,500 $47,536,000 - -------------------------------------------------------------------------------------- 14 Boeing 737-800 28956 Nov-99 CFM56-7B26 172,500 $47,536,000 - -------------------------------------------------------------------------------------- 15 Boeing 737-800 28807 Dec-99 CFM56-7B26 172,500 $47,536,000 - -------------------------------------------------------------------------------------- 16 Boeing 737-800 28808 Dec-99 CFM56-7B26 172,500 $47,536,000 - -------------------------------------------------------------------------------------- 17 Boeing 737-800 28809 Dec-99 CFM56-7B26 172,500 $47,536,000 - -------------------------------------------------------------------------------------- 18 Boeing 737-800 28957 Dec-99 CFM56-7B26 172,500 $47,536,000 - -------------------------------------------------------------------------------------- 19 Boeing 737-800 28958 Dec-99 CFM56-7B26 172,500 $47,536,000
6 [AvSolutions LOGO] ATTACHMENT 1 EETC COLLATERAL SUMMARY page 2 AIRCRAFT SERIAL DELIVERY MTOW NO. AIRCRAFT NUMBER MO-YR ENGINES (POUNDS) BASE VALUE - ---------------------------------------------------------------------------------------- 20 Boeing 757-200 30229 Nov-99 RB211-535E4B 255,000 $58,840,000 - ---------------------------------------------------------------------------------------- 21 Boeing 757-200 30351 Dec-99 RB211-535E4B 255,000 $58,840,000 - ---------------------------------------------------------------------------------------- AIRCRAFT SERIAL DELIVERY MTOW NO. AIRCRAFT NUMBER MO-YR ENGINES (POUNDS) BASE VALUE - ------------------------------------------------------------------------------------------ 22 Boeing 777-200 IGW 29860 Aug-99 GE90-90B 648,000 $133,510,000 - ------------------------------------------------------------------------------------------ 23 Boeing 777-200 IGW 29861 Sep-99 GE90-90B 648,000 $133,510,000 - ------------------------------------------------------------------------------------------ 24 Boeing 777-200 IGW 29862 Oct-99 GE90-90B 648,000 $134,090,000 - ------------------------------------------------------------------------------------------
1 MORTEN BEYER & AGNEW - -------------------------------------------------------------------------------- AVIATION CONSULTING FIRM Appraisal of 24 Boeing Aircraft (1999-2 EETC) PREPARED FOR: Continental Airlines MAY 19, 1999 Washington, D.C. London 8180 Greensboro Drive Lahinch 62, Lashmere Suite 1000 Copthorne McLean, Virginia 22102 West Sussex Phone +703 847 6598 Phone +44 1342 716248 Fax +703 847 1911 Fax +44 1342 718967
2 5/19/99 I. INTRODUCTION AND EXECUTIVE SUMMARY Morten Beyer and Agnew, Inc. (MBA), has been retained by Continental Airlines, Inc. (CAL) to determine the Current Base Value (CBV) of 24 Boeing aircraft to be delivered new over the next eight months. The aircraft are further identified in Section II of this report. MBA uses the definition of certain terms, such as CMV and Base Value (BV), as promulgated by the International Society of Transport Aircraft Trading (ISTAT), a non-profit association of management personnel from banks, leasing companies, airlines, manufacturers, appraisers, brokers, and others who have a vested interest in the commercial aviation industry. ISTAT defines Market Value (MV) as the appraiser's opinion of the most likely trading price that may be generated for an aircraft under market conditions that are perceived to exist at the time in question. MV assumes that the aircraft is valued for its highest, best use; that the parties to the hypothetical sale transaction are willing, able, prudent and knowledgeable and under no unusual pressure for a prompt sale; and that the transaction would be negotiated in an open and unrestricted market on an arm's-length basis, for cash or equivalent consideration, and given an adequate amount of time for effective exposure to prospective buyers. The ISTAT definition of Base Value (BV) has, essentially, the same elements of MV except that the market circumstances are assumed to be in a reasonable state of equilibrium. Thus, BV pertains to an idealized aircraft and market combination, but will not necessarily reflect the actual MV of the aircraft in question. BV is founded in the historical trend of values and is generally used to analyze historical values or to project future values. The Current Base Value is the BV at the time of this opinion, effective upon the defined delivery dates of the subject aircraft assets. [MBA LOGO] 1
3 5/19/99 II. CURRENT MARKET CONDITIONS [GRAPHIC OF AIRPLANE] BOEING 737-700/800 SERIES Boeing is replacing the current trio of 737s with upgraded versions beginning with the 737-700 last year. Southwest Airlines' order for 63 of the series officially launched the program in late 1993, and now new orders are running at an increasing rate. Boeing is ramping-up production to the early 1990s level. The -600 is a replacement for the first generation -100/-200 series, and the - -700 is a replacement to the -300 series. As well, the -800 is a replacement to the B737-400 series. The fuselage of the new aircraft will mirror that of the original (which were out-growths of the original -100s and -200s). Upgraded avionics, a new wing design, and other improvements will combine to increase range, efficiency, and performance in general. The CFM56-7 will be the exclusive engine for the 3rd generation. B737-700s are just entering service with Southwest, as supply and assembly problems slowed the production lines in 1997, and Boeing is playing "catch-up" on an overly ambitious production schedule. Prospects for the 3rd generation 737 jets are considerably enhanced by the discontinuation of the MD-80/-90 series. The MD-95 has been adopted by Boeing as its 100-seat competitor under the aegis of B-717. On the other hand, Airbus is becoming more aggressive with its A319/320/321 high tech series and winning an increasing share of orders. As the industry approaches the peak of the current cycle, the prospects for a downturn increase, together with deferrals and cancellations of orders for both manufacturers. Although Boeing has recently stated that the future market will consist of more narrow-bodied aircraft like the 737 and 757 series. ECONOMICS -- There is no in-service operating data for the B737-NG (Next Generation) aircraft. However, it may be reliably assumed that this data will prove that this model to be highly efficient. [MBA LOGO] 2
4 5/19/99 These Next Generation B-737s are just entering service. More than 40 700s are already flying, most with Southwest, the launch customer. The 600's are expected to enter service early next year, and the 800's already have more than a dozen flying. Boeing is struggling to ramp-up production to 21 a month just as orders are peaking out. Despite the Asian flu, orders are thriving this year, with 240 through July. Airbus has achieved 247 for its rival A-319/320/321 series so far this year. MBA continues to hold the Current Market Prices of the next generation B-737s at 100 percent of Base Value. [GRAPHIC OF AIRPLANE] BOEING 757-200 The 757 was conceived in 1978 as the successor to the 727. First deliveries took place in late 1982 as 727 production was terminated. The aircraft was somewhat slow in penetrating the market, as it came on-line in the depression of the early 1980s, but has seen accelerating popularity in the late 1980s and 90s. The aircraft is offered in two engine configurations, Rolls Royce and Pratt & Whitney. The aircraft's popularity has increased as airlines have grown to appreciate its fuel economy and operating efficiency. As of January 1, 1999, the Rolls version had the greater market share, with 418 deliveries and 35 on order, compared to 310 deliveries and 58 orders/options for the P&W version. Both versions have achieved decent operator bases, with 43 airlines ordering the RR version and 19 the P&W. A cargo version is also in production, with 75 already produced and 5 more on order. United Parcel Service was the major purchaser, ordering 35 P&W powered models, and then 20 more Rolls-powered configurations along with 41 options. The 757's capabilities have grown in the 17 years it has been produced, and it is currently available at much higher gross weights and in an ER (extended range) version used by several European carriers in transatlantic operations. In late 1995 and 1996 a total of three 757s were lost in accidents, with crew reactions to emergency situations considered the probable cause. In the prior 15 years only one had been lost in a hijacking situation in China. The very large backlog of undelivered ordered and optioned 757s speaks to the excellence of the aircraft. The economic superiority of the 757 over the smaller narrowbodies (737 and [MBA LOGO] 3
5 5/19/99 MD-80) suggests that the heaviest casualties may befall these latter aircraft, and that the airlines will tend to move up to the 757. The major competitor to the 757 is not the smaller American twins, but rather the Airbus A319/320/321 series which has piled up an impressive order backlog, and is increasingly penetrating the U.S. market, as seen by USAir's recent order for up to 400 -- at the expense of existing Boeing options. Current operating costs suggest the A320 is up to 25 percent more efficient than the 737s or MD-80s, and even equal to, or superior to, the 757, but Boeing's own B-737-800/900s also challenge the B-757 from below. The difficulty in placing Eastern's 25-plane fleet after its bankruptcy perhaps raises a note of caution with respect to any aircraft. Their disposal required some two years, involving lessors, banks, and Boeing. Realizations were reasonable in the early transactions, but tended to decline later. The fact that the aircraft were encumbered by tax benefit transfer liabilities did not appear to be a factor. There have been no recent "fire sales" of this nature. In the final analysis, the 757 is assured of a firm share of the aircraft market for many years to come in both passenger and cargo configuration. It has excellent environmental characteristics and has not experienced technical difficulties. ECONOMICS The MBA Model shows the 757 to be one of the most efficient aircraft of any type, size, or age. Its combination of capacity, low fuel consumption and reasonable price all contribute to its outstanding economics. We expect that the 757 will prove to be one of the strongest players in the residual value market for the next two decades. [MBA LOGO] 4
6 5/19/99 [GRAPHIC OF AIRPLANE] BOEING 777-200 The 777 is currently the world's largest widebody twin. It is Boeing's answer to the Airbus Industrie A330 and, to a lesser extent, the Douglas MD-11, both of which are filling a gap between Boeing's 767 and 747 lines. The A330 and MD-11 have the distinct marketing advantage of being in service from two to seven years ahead of the 777, and already have large order books (A330) and customer lists. Boeing is playing catch-up in this market segment, but is doing it with typical Boeing combination of power and finesse. Only three years following its introduction, 72 have been delivered with 288 on order. The initial 777 design was the -200A (now the -200), followed by the -200IGW (Increase Gross Weight) and featured all of the three major high bypass engines: the P&W 4074, the Rolls Royce Trent 871, and the General Electric 90-B3. Gross weight has already been increased to 545,000 pounds for the -200, and 642,000 pounds for the -200IGW/-300. A maximum seating capacity of 440 passengers is available in the -200/-200IGW model and 550 in the newly announced -300 version. Fair Market Values for the -200 versions are $117.7 and $125.5 million, respectively, while the -300 is expected to premier at $146.0 million. Production of the low gross version is expected to cease after the -300 is debuted, but it will coexist, even as the increased capacity 767-400ER moves into the lower end of the 777 capacity market. To an increasing degree, Boeing is competing against itself as it offers an even more variegated selection of aircraft derivatives. ECONOMICS The 777 should have operating characteristics and seat mile costs very comparable to the A330 and considerably better than the MD-11, according to the MBA economic model. It will particularly appeal to the large segment of the market which traditionally buys Boeing. Helped by the normal maintenance-free ride, United reported 1996 777 DOCs at 3.06c per available seat mile (ASM), the cheapest in its fleet and 13.6 percent below the 747-400. Ownership costs as a percent of DOCs are: 747-400 -- 29.2 percent, and 777-200 -- 24.6 percent. [MBA LOGO] 5
7 5/19/99 The 777 has the initial advantage of low maintenance costs, an all-new technological design, a two-person crew, low specific fuel consumption, and high capacity. Its operating margin and net margin after financial costs should be among the best of all aircraft types, even though the projected lease costs are 24.1 percent of total operating expense. The aircraft may require some modification of airport gate facilities to handle its great wing span (folding wings are available at extra cost, but no one has ordered them). The 777 will be well-suited to meeting airline expansion needs in markets where added frequencies are no longer possible due to slot and gate facility restrictions. Boeing's B-777 was its first all-new product in 20 years. Not since the B-757 and B-767 in 1982 has Boeing offered an all-new design. However, the B-777 does not go technically as far as the Airbus. Boeing incorporated glass cockpits, but eschewed fly-by-wire and side-stick controls. The B-777 got off to a strong start with 141 deliveries and 253 outstanding orders as of June 30, 1998. However, 109 of these advance orders were by Asia-Pacific carriers, and a significant attrition is expected in the next few years. Boeing is offering the B-777 in a low gross, high gross, and stretched version, each with all three "big" engines. This Balkanization of the product line has no doubt diluted Boeing's profits and complicated its production process. The B-777 was in direct competition not only with the Airbus A330/340, but also with the MD-11 product line, no doubt hastening its demise. MBA currently values the B-777's Current Market Prices at 100 percent of Base Value. [MBA LOGO] 6
8 5/19/99 III. VALUATION (1992-2 EETC) SCHEDULED AIRCRAFT SERIAL CONTINENTAL ADJ. BASE VALUE MANUFACTURER'S NUMBER TAIL NUMBER ($000,000) DELIVERY DATE B737-700, CFM56-7B24, 153,000(lb) MTOW - ------------------------------------------------------------------------------ JULY 99 28945 N24729 36.11 - ------------------------------------------------------------------------------ AUGUST 99 28948 N16732 36.18 - ------------------------------------------------------------------------------ SEPTEMBER 99 28800 N14735 36.25 ------------------------------------- 28803 N24736 - ------------------------------------------------------------------------------ SCHEDULED AIRCRAFT SERIAL CONTINENTAL ADJ. BASE VALUE MANUFACTURER'S NUMBER TAIL NUMBER ($000,000) DELIVERY DATE B737-800, CFM56-7B26 Engines, 172,500(lb) MTOW - ------------------------------------------------------------------------------ SEPTEMBER 99 28801 N35236 44.72 - ------------------------------------------------------------------------------ OCTOBER 99 28804 N12238 44.81 ------------------------------------- 28951 N27239 ------------------------------------- 28953 N14240 ------------------------------------- 28952 N54241 ------------------------------------- 28805 N14242 ------------------------------------- 28806 N18243 - ------------------------------------------------------------------------------ NOVEMBER 99 28954 N17244 44.90 ------------------------------------- 28955 N17245 ------------------------------------- 28956 N27246 - ------------------------------------------------------------------------------ DECEMBER 99 28807 N36247 44.99 ------------------------------------- 28808 N13248 ------------------------------------- 28809 N14249 ------------------------------------- 28957 N14250 ------------------------------------- 28958 N25201 - ------------------------------------------------------------------------------ SCHEDULED AIRCRAFT SERIAL CONTINENTAL ADJ. BASE VALUE MANUFACTURER'S NUMBER TAIL NUMBER ($000,000) DELIVERY DATE B757-200, RB211-535E4B, 255,000(lb) MTOW - ------------------------------------------------------------------------------ NOVEMBER 99 30229 N34137 59.48 - ------------------------------------------------------------------------------ DECEMBER 99 30351 N13138 59.60 - ------------------------------------------------------------------------------ [MBA LOGO] 7
9 5/19/99 SCHEDULED AIRCRAFT SERIAL CONTINENTAL ADJ. BASE VALUE MANUFACTURER'S NUMBER TAIL NUMBER ($000,000) DELIVERY DATE B777-200B, GE90B Engines, 648,000(lb) MTOW - ------------------------------------------------------------------------------ AUGUST 99 29860 N77012 132.69 - ------------------------------------------------------------------------------ SEPTEMBER 99 29861 N78013 132.96 - ------------------------------------------------------------------------------ OCTOBER 99 29862 N77014 133.22 - ------------------------------------------------------------------------------ In developing the CBV of these aircraft, MBA did not inspect the aircraft or its historical maintenance documentation. Therefore, we used certain assumptions that are generally accepted industry practice to calculate the value of an aircraft when more detailed information is not available. The principal assumptions are as follows (for each aircraft): 1. The aircraft is to be delivered new. 2. The overhaul status of the airframe, engines, landing gear and other major components are the equivalent of new delivery otherwise specified. 3. The specifications of the aircraft are those most common for an aircraft of this type new delivery. 4. The aircraft is in a standard airline configuration. 5. Its modification status is comparable to that most common for an aircraft of its type and vintage. 6. No accounting is made for lease obligations or terms of ownership. [MBA LOGO] 8
10 5/19/99 IV. COVENANTS This report has been prepared for the exclusive use of Credit Suisse -- First Boston/CAL and shall not be provided to other parties by MBA without the express consent of Credit Suisse -- First Boston/CAL. MBA certifies that this report has been independently prepared and that it fully and accurately reflects MBA's opinion as to the Current Base Value. MBA further certifies that it does not have, and does not expect to have, any financial or other interest in the subject or similar aircraft. This report represents the opinion of MBA as to the Current Base Value of the subject aircraft and is intended to be advisory only in nature. Therefore, MBA assumes no responsibility or legal liability for any actions taken or not taken by Credit Suisse -- First Boston/CAL or any other party with regard to the subject aircraft. By accepting this report, all parties agree that MBA shall bear no such responsibility or legal liability. PREPARED BY: /s/ Bryson P. Monteleone BRYSON P. MONTELEONE MANAGER OF OPERATIONS REVIEWED BY: /s/ Morten S. Beyer MORTEN S. BEYER CHAIRMAN AND CEO ISTAT APPRAISER FELLOW [MBA LOGO] 9
1 [AIRCRAFT INFORMATION SERVICES, INC. LOGO] 23 February 2000 Continental Airlines 1600 Smith Street HQSFN Houston, TX 77002 Subject: AISI Report No.: A0S007BVO AISI Sight Unseen New Aircraft Base Value Appraisal, Sixteen B737-800, Three B757-200Etop and Four B767-400ER Aircraft. Reference: (a) Morgan Stanley Memorandum 04 January 2000 (b) Credit Suisse First Boston fax 05 January 2000 (c) Email messages 07/12/13 January 2000 (d) Email message 22 February 2000 Dear Gentlemen: Aircraft Information Services, Inc. (AISI) is pleased to offer Continental Airlines our opinion of the sight unseen base market value of various new aircraft scheduled to be delivered from the manufacturer to Continental Airlines between February 2000 and December 2000 as listed and defined in Table I. 1. METHODOLOGY AND DEFINITIONS The method used by AISI in its valuation of the Aircraft was based both on a review of information and Aircraft specifications supplied by the client and also on a review of present and past market conditions, various expert opinions (such as aircraft brokers and financiers) and information contained in AISI's databases that help determine aircraft availability and price data and thus arrive at the appraised base values for the new aircraft to be delivered to Continental Airlines. The standard terms of reference for commercial aircraft value are 'half-life base market value' and 'half-life current market value' of an 'average' aircraft. Base value is a theoretical value that assumes a balanced market while current market value is the value in the real market; both assume a hypothetical average aircraft condition. AISI value definitions are consistent with the current definitions of the International Society of Transport Aircraft Trading (ISTAT). AISI is a member of that organization and employs an ISTAT Certified and Senior Certified Aircraft Appraiser.
2 [AISI LOGO] 23 February 2000 AISI File No. A0S007BVO Page -2- AISI defines a 'base value' as that of a transaction between equally willing and informed buyer and seller, neither under compulsion to buy or sell, for a single unit cash transaction with no hidden value or liability, and with supply and demand of the sale item roughly in balance. Base values are typically given for aircraft in 'new' condition, 'average half-life' condition, or in a specifically described condition unique to a single aircraft at a specific time. An 'average' aircraft is an operable airworthy aircraft in average physical condition and with average accumulated flight hours and cycles, with clear title and standard unrestricted certificate of airworthiness, and registered in an authority which does not represent a penalty to aircraft value or liquidity, with no damage history and with inventory configuration and level of modification which is normal for its intended use and age. AISI assumes average condition unless otherwise specified in this report. 'Half-life' condition assumes that every component or maintenance service which has a prescribed interval that determines its service life, overhaul interval or interval between maintenance services, is at a condition which is one-half of the total interval. It should be noted that AISI and ISTAT value definitions apply to a transaction involving a single aircraft, and that transactions involving more than one aircraft are often executed at considerable and highly variable discounts to a single aircraft price, for a variety of reasons relating to an individual buyer or seller. AISI defines a 'current market value', which is synonymous with the older term 'fair market value' as that value which reflects the real market conditions, whether at, above or below the base value conditions. Assumption of a single unit sale and definitions of aircraft condition, buyer/seller qualifications and type of transaction remain unchanged from that of base value. Current market value takes into consideration the status of the economy in which the aircraft is used, the status of supply and demand for the particular aircraft type, the value of recent transactions and the opinions of informed buyers and sellers. Current market value assumes that there is no short term time constraint to buy or sell. AISI encourages the use of base values to consider historical trends, to establish a consistent baseline for long term value comparisons and future value considerations, or to consider how actual market values vary from theoretical base values. Base values are less volatile than current market values and tend to diminish regularly with time. Base values are normally inappropriate to determine near term values. AISI encourages the use of current market values to consider the probable near term value of an aircraft. 2. VALUATION The aircraft are valued predicated upon the reference (a), (b), (c) and (d) data which describes the aircraft MTOW, any engine upgrades, any added fuel capacity, and any added avionics or interior upgrades.
3 [AIRCRAFT INFORMATION SERVICES, INC. LOGO] 23 February 2000 AISI File No. A0S007BVO Page -3- Following is AISI's opinion of the base market value for the subject aircraft on their respective scheduled delivery dates in current US Dollars. Valuations are presented in Table 1 subject to the assumptions, definitions and disclaimers herein. Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in writing, this report shall be for the sole use of the client/addressee. This report is offered as a fair and unbiased assessment of the subject aircraft. AISI has no past, present, or anticipated future interest in the subject aircraft. The conclusions and opinions expressed in this report are based on published information, information provided by others, reasonable interpretations and calculations thereof and are given in good faith. Such conclusions and opinions are judgments that reflect conditions and values which are current at the time of this report. The values and conditions reported upon are subject to any subsequent change. AISI shall not be liable to any party for damages arising out of reliance or alleged reliance on this report, or for any parties action or failure to act as a result of reliance or alleged reliance on this report. Sincerely, AIRCRAFT INFORMATION SERVICES, INC. /s/John D. McNicol John D. McNicol Vice President Appraisals & Forecasts
4 [LOGO] CONTINENTAL AIRLINES - AISI FILE #A0S007BVO February 23, 2000 TABLE I Scheduled Aircraft Expected Manufacturer's Serial Registration New Delivery Base Value Delivery Date Number Number Current US Dollars - ----------------------------------------------------------------------------------------- B737-800, CFM56-7B26 ENGINES, 174,200LB MTOW Jun-00 30429 N24202 $48,950,000 Jun-00 30613 N33203 $48,950,000 Jul-00 30576 N35204 $49,060,000 Jul-00 30577 N27205 $49,060,000 Jul-00 30578 N11206 $49,060,000 Aug-00 30579 N36207 $49,180,000 Aug-00 30580 N26208 $49,180,000 Aug-00 30581 N33209 $49,180,000 Sep-00 30582 N73251 $49,290,000 Sep-00 30583 N37252 $49,290,000 Sep-00 30584 N37253 $49,290,000 Sep-00 30779 N76254 $49,290,000 Oct-00 30610 N37255 $49,400,000 Oct-00 30611 N73256 $49,400,000 Nov-00 30612 N38257 $49,520,000 Nov-00 30802 N77258 $49,520,000 - ----------------------------------------------------------------------------------------- B757-200ETOP, RB211-535E4B ENGINES, 255,000LB MTOW Feb-00 30352 N17139 $60,520,000 Feb-00 30353 N41140 $60,520,000 Jun-00 30354 N19141 $61,080,000 - ----------------------------------------------------------------------------------------- B767-400ER, CF6-80C2B8F ENGINES, 450,000LB MTOW Jul-00 29446 N66051 $106,970,000 Aug-00 29447 N67052 $107,210,000 Oct-00 29448 N59053 $107,710,000 Dec-00 29449 N76054 $108,200,000 - -----------------------------------------------------------------------------------------
1 [AvSolutions, Inc. Letterhead] February 23, 2000 Mr. Gerry Laderman Senior Vice President, Corporate Finance Continental Airlines, Inc. 1600 Smith Street HQ-SFN Houston, Texas 77002 Dear Mr. Laderman: AvSOLUTIONS is pleased to provide this opinion on the base value, as of February 2000, of sixteen Boeing 737-800, three Boeing 757-200 and four Boeing 767-400ER aircraft (the aircraft). The Boeing 737-800 aircraft are powered by CFM International CFM56-7B26 engines. The Boeing 757-200 aircraft are powered by Rolls-Royce RB211-535E4B engines. The Boeing 767-400ER aircraft are powered by General Electric CF6-80C2B8F engines. The total of twenty-three aircraft will be delivered new to Continental Airlines, Inc. from the first quarter of 2000 through the fourth quarter of 2000. A listing of the particular aircraft is provided as attachment 1 of this document. Set forth below is a summary of the methodology, considerations and assumptions utilized in this appraisal. BASE VALUE Base value is the appraiser's opinion of the underlying economic value of an aircraft in an open, unrestricted, stable market environment with a reasonable balance of supply and demand, and assumes full consideration of its "highest and best use". An aircraft's base value is founded in the historical trend of values and in the projection of future value trends and presumes an arm's length, cash transaction between willing, able and knowledge parties, acting prudently, with an absence of duress and with a reasonable period of time available for marketing. CURRENT FAIR MARKET VALUE According to the International Society of Transport Aircraft Trading's (ISTAT) definition of Fair Market Value (FMV), to which AvSOLUTIONS subscribes, the quoted FMV is the appraiser's opinion of the most likely trading price that may be generated for an aircraft under the market circumstances that are perceived to exist at the time in question. The fair market value assumes that the aircraft is valued for its highest and best use, that the parties to the hypothetical sales transaction are willing, able, prudent and knowledgeable, and under no unusual pressure for a prompt sale, and that the transaction would be negotiated in an open and unrestricted market on an arm's length basis, for cash equivalent consideration, and given an adequate amount of time for effective market exposure to prospective buyers, which AvSOLUTIONS considers to be ten to twenty months. 10687 Gaskins Way, Suite 200, Manassas, Virginia 20109-2371, USA Telephone: 703-330-0461 Fax: 703-330-0581 EMAIL: AVSOL@AVSOLUTIONS.COM
2 [AvSOLUTIONS LOGO] Page 2 Continental Airlines, Inc. APPRAISAL METHODOLOGY The method employed by AvSOLUTIONS to appraise the current and future values of aircraft and the associated equipment addresses the factors that influence the market value of an aircraft, such as its age, condition, configuration, the population of similar aircraft, similar aircraft on the market, operating costs, cost to acquire a new aircraft, and the state of demand for transportation services. To achieve this objective, cross-sectional data concerning the values of aircraft in each of several general categories is collected and analyzed. Cross-sectional data is then postulated and compared with reported market values at a specified point in time. Such data reflects the effect of deterioration in aircraft performance due to usage and exposure to the elements, as well as the effect of obsolescence due to the evolutionary development and implementation of new designs and materials. The product of the analysis identifies the relationship between the value of each aircraft and its characteristics, such as age, model designation, service configuration and engine type. Once the relationship is identified, one can then postulate the effects of the difference between the economic circumstances at the time when the cross-sectional data were collected and the current situation. Therefore, if one can determine the current value of an aircraft in one category, it is possible to estimate the current values of all aircraft in that category. The manufacturer and size of the aircraft usually determine the specific category to which it is assigned. Segregating the world airplane fleet in this manner accommodates the potential effects of different size and different design philosophies. The variability of the data used by AvSOLUTIONS to determine the current and future market values implies that the actual value realized will fall within a range of values. Therefore, if a contemplated value falls within the specified confidence range, AvSOLUTIONS cannot reject the hypothesis that it is a reasonable representation of the current market situation. LIMITING CONDITIONS AND ASSUMPTIONS In order to conduct this valuation, AvSOLUTIONS is solely relying on information as supplied by Continental Airlines, Inc. or Morgan Stanley Dean Witter or Credit Suisse First Boston Corporation, and from data within AvSOLUTIONS' own database. In determining the base value of the subject aircraft, the following assumptions have been researched and determined:
3 [AvSOLUTIONS LOGO] Page 3 Continental Airlines, Inc. 1. AvSOLUTIONS has not inspected these aircraft or their maintenance records; accordingly, AvSOLUTIONS cannot attest to their specific location or condition. 2. The aircraft will be delivered new to Continental Airlines, Inc. between the first quarter of 2000 and the fourth quarter of 2000. 3. The aircraft will be certified, maintained and operated under United States Federal Aviation Regulation (FAR) part 121. 4. All mandatory inspections and Airworthiness Directives have been complied with. 5. The aircraft have no damage history. 6. The aircraft are in good condition. 7. AvSOLUTIONS considers the economic useful life of these aircraft to be at least 32 years. Based upon the above methodology, considerations and assumptions, it is AvSOLUTIONS' opinion that the base value of each aircraft is as listed in attachment 1.
4 [AvSOLUTIONS LOGO] PAGE 4 CONTINENTAL AIRLINES, INC. STATEMENT OF INDEPENDENCE This appraisal report represents the opinion of AvSOLUTIONS, and is intended to be advisory in nature. Therefore, AvSOLUTIONS assumes no responsibility or legal liability for actions taken or not taken by the Client or any other party with regard to the subject aircraft. By accepting this report, the Client agrees that AvSOLUTIONS shall bear no responsibility or legal liability regarding this report. Further, this report is prepared for the exclusive use of the Client and shall not be provided to other parties without the Client's express consent. Aviation Solutions Inc. (AvSOLUTIONS) hereby states that this valuation report has been independently prepared and fairly represents the subject aircraft and AvSOLUTIONS' opinion of their values. Aviation Solutions Inc. (AvSOLUTIONS) further states that it has no present or contemplated future interest or association with the subject aircraft. Signed, /s/ Bryant Lynch Bryant Lynch Manager, Commercial Appraisals
5 [AV SOLUTIONS LOGO] ATTACHMENT 1 EETC COLLATERAL SUMMARY page one ============================================================================================ Aircraft Serial Delivery MTOW Number Aircraft Number Qtr/Yr Engines (pounds) Base Value ____________________________________________________________________________________________ 1 Boeing 737-800 30429 2/2000 CFM56-7B26 174,200 $48,141,000 ____________________________________________________________________________________________ 2 Boeing 737-800 30613 2/2000 CFM56-7B26 174,200 $48,141,000 ____________________________________________________________________________________________ 3 Boeing 737-800 30576 3/2000 CFM56-7B26 174,200 $48,454,000 ____________________________________________________________________________________________ 4 Boeing 737-800 30577 3/2000 CFM56-7B26 174,200 $48,454,000 ____________________________________________________________________________________________ 5 Boeing 737-800 30578 3/2000 CFM56-7B26 174,200 $48,454,000 ____________________________________________________________________________________________ 6 Boeing 737-800 30579 3/2000 CFM56-7B26 174,200 $48,454,000 ____________________________________________________________________________________________ 7 Boeing 737-800 30580 3/2000 CFM56-7B26 174,200 $48,454,000 ____________________________________________________________________________________________ 8 Boeing 737-800 30581 3/2000 CFM56-7B26 174,200 $48,454,000 ____________________________________________________________________________________________ 9 Boeing 737-800 30582 3/2000 CFM56-7B26 174,200 $48,454,000 ____________________________________________________________________________________________ 10 Boeing 737-800 30583 3/2000 CFM56-7B26 174,200 $48,454,000 ____________________________________________________________________________________________ 11 Boeing 737-800 30584 3/2000 CFM56-7B26 174,200 $48,454,000 ____________________________________________________________________________________________ 12 Boeing 737-800 30779 3/2000 CFM56-7B26 174,200 $48,454,000 ____________________________________________________________________________________________ 13 Boeing 737-800 30610 4/2000 CFM56-7B26 174,200 $48,770,000 ____________________________________________________________________________________________ 14 Boeing 737-800 30611 4/2000 CFM56-7B26 174,200 $48,770,000 ____________________________________________________________________________________________ 15 Boeing 737-800 30612 4/2000 CFM56-7B26 174,200 $48,770,000 ____________________________________________________________________________________________ 16 Boeing 737-800 30802 4/2000 CFM56-7B26 174,200 $48,770,000 ____________________________________________________________________________________________ ============================================================================================ Aircraft Serial Delivery MTOW Number Aircraft Number Qtr/Yr Engines (pounds) Base Value ____________________________________________________________________________________________ 17 Boeing 757-200 30352 1/2000 RB211-535E4B 255,000 $59,239,000 ____________________________________________________________________________________________ 18 Boeing 757-200 30353 1/2000 RB211-535E4B 255,000 $59,239,000 ____________________________________________________________________________________________ 19 Boeing 757-200 30354 2/2000 RB211-535E4B 255,000 $59,625,000 ____________________________________________________________________________________________
6 [AvSOLUTIONS LOGO] ATTACHMENT 1 EETC COLLATERAL SUMMARY page two ================================================================================================================== Aircraft Aircraft Serial Delivery Engines MTOW Base Value Number Number Qtr/Yr (pounds) - ------------------------------------------------------------------------------------------------------------------ 20 Boeing 767-400ER 29446 3/2000 CF6-80C2B8F 450,000 $107,028,000 21 Boeing 767-400ER 29447 3/2000 CF6-80C2B8F 450,000 $107,028,000 22 Boeing 767-400ER 29448 4/2000 CF6-80C2B8F 450,000 $107,913,000 23 Boeing 767-400ER 29449 4/2000 CF6-80C2B8F 450,000 $107,913,000
1 MORTEN BEYER & AGNEW - ----------------------------------------------------------------------------- AVIATION CONSULTING FIRM Appraisal of 23 Aircraft (2000-1 EETC) PREPARED FOR: Continental Airlines JANUARY 17, 2000 Washington, D.C. London 8180 Greensboro Drive Lahinch 62, Lashmere Suite 1000 Copthorne McLean, Virginia 22102 West Sussex Phone +703 847 6598 Phone +44 1342 716248 Fax +703 847 1911 Fax +44 1342 718967 [ MBA LOGO ]
2 I. INTRODUCTION AND EXECUTIVE SUMMARY MORTEN BEYER AND AGNEW (MBA) has been retained by Continental Airlines, Inc. to determine the Current Base Value (CBV) of 23 Boeing aircraft to be delivered new over the next eleven months. The aircraft are further identified in Section II of this report. MBA uses the definition of certain terms, such as CMV and Base Value (BV), as promulgated by the International Society of Transport Aircraft Trading (ISTAT), a non-profit association of management personnel from banks, leasing companies, airlines, manufacturers, appraisers, brokers, and others who have a vested interest in the commercial aviation industry. ISTAT defines Market Value (MV) as the appraiser's opinion of the most likely trading price that may be generated for an aircraft under market conditions that are perceived to exist at the time in question. MV assumes that the aircraft is valued for its highest, best use; that the parties to the hypothetical sale are willing, able, prudent and knowledgeable and under no unusual pressure for a prompt sale; and that the transaction would be negotiated in an open and unrestricted market on an arm's-length basis, for cash or equivalent consideration, and given an adequate amount of time for effective exposure to prospective buyers. The ISTAT definition of Base Value (BV) has, essentially, the same elements of MV except that the market circumstances are assumed to be in a reasonable state of equilibrium. Thus, BV pertains to an idealized aircraft and market combination, but will not necessarily reflect the actual MV of the aircraft in question. BV is founded in the historical trend of values and is generally used to analyze historical values or to project future values. The Current Base Value is the BV at the time of this opinion, effective upon the defined delivery dates of the subject aircraft assets.
3 II. CURRENT MARKET CONDITIONS [PHOTO OF PLANE} BOEING 737-700/800 SERIES NUMBER OF OPERATORS: 30 AIRCRAFT ORDERED: 520 AIRCRAFT DELIVERED 171 Boeing began replacing the trio of B-737-300/-400/-500s with upgraded new generation versions beginning with B-737-700 in 1997. Southwest Airlines' order for 63 of the series officially launched the program in late 1993, and new orders increased rapidly. Boeing ramped-up production to 278 last year, but will have to cut again as orders are filled in 2000 and not being replaced. 1999 new orders fell to 265. The fuselage of the new aircraft mirror that of the old (which were out-growths of the original -100s and -200s). Upgraded avionics, a new wing design, and other improvements combine to increase range, efficiency, and performance in general. The CFM56-7 is the exclusive engine for the 3rd generation. However, Boeing is losing market share to the more comfortable, wider A320 family. Prospects for the 3rd generation B-737 jets were thought to be considerably enhanced by the discontinuation of the MD-80/-90 series. The MD-95 has been adopted by Boeing as its 100-seat competitor under the aegis of B-717, competing with its own B-737-600. Airbus is becoming more aggressive with its A318/319/320/321 high-tech series and winning an increasing share of orders. During 1998 Airbus had 437 narrowbody orders. Boeing had 516, including 28 MD-80/-90s. In 1999, Airbus overwhelmed Boeing with 408 narrowbody orders to Boeing's 106. As the industry passes the peak of the current cycle, the prospects for a downturn increase, together with deferrals and cancellations of orders for both manufacturers. 2
4 [PHOTO OF PLANE] BOEING 757-200 NUMBER OF OPERATORS: 69 AIRCRAFT ORDERED: 1035 AIRCRAFT DELIVERED: 880 The 757 was conceived in 1978 as the successor to the 727. First deliveries took place in late 1982 as the 727 production was terminated. The aircraft was somewhat slow in penetrating the market, as it came on-line in the depression of the early 1980s, but has seen accelerating popularity in the late 1980s and 90s. The aircraft is offered in two engine configurations, Rolls Royce and Pratt & Whitney. The aircraft's popularity has increased as airlines have grown to appreciate its fuel economy and operating efficiency. The 757's capabilities have grown in the 18 years it has been produced, and it is currently available at much higher gross weights and in an ER (extended range) version used by several European carriers in transatlantic operations. In late 1995 and 1996 a total of three 757s were lost in accidents, with crew reactions to emergency situations considered the probable cause. In the prior 15 years only one had been lost in a hijacking situation in China. The economic superiority of the 757 over the smaller narrowbodies (737 and MD-80) suggests that the heaviest casualties may befall these latter aircraft, and that the airlines will tend to move up to the 757. The major competitor to the 757 is not the smaller American twins, but rather the Airbus A319/320/321 series which has piled up an impressive order backlog, and is increasingly penetrating the U.S. market, as seen by USAir's recent order for up to 400 -- at the expense of then existing Boeing options. Current operating costs suggest the A320 is up to 25 percent more efficient than the 737s or MD-80s, and even equal to, or superior to, the 757, but Boeing's own B-737-800/900s also challenge the B-757 from below. In the final analysis, the 757 is assured of a firm share of the aircraft market for many years to come in both passenger and cargo configuration. It has excellent environmental characteristics and has not experienced technical difficulties, and should meet reasonable Stage 4 Noise levels. ECONOMICS - The MBA Model shows the 757 to be one of the most efficient aircraft of any type, size, or age. Its combination of capacity, low fuel consumption and reasonable price all 3
5 contribute to its outstanding economics. We expect that the 757 will prove to be one of the strongest players in the residual value market for the next two decades. BOEING 767-400ER [Photo of Boeing 767-400ER] Number of Operators: 2 Aircraft Ordered: 59 Aircraft Delivered 0 Boeing tried to interest Delta in buying more B-777s, but the aircraft was just too much for the Atlanta airline who was already suffering indigestion on its MD-11s. Delta is a big B-767 operator with 94 in service and 24 on order. Boeing obligingly agreed to stretch the B-767-300ER to the -400ER configuration, increasing gross weight from 412,000 pounds to 450,000 and seating up to 375, only 65 below the B-777 and about the same as its 40-odd remaining L-1011s which it is retiring. Delta and Continental are the only airlines with B-767-400ER so far, totaling 47. There are eight additional orders from lessors. MBA estimates the initial offering price to be $105.09 million with initial engines to be the GE CF6-80C2B7F's. P&W or Rolls engines can also be ordered if the customer desires. First delivery will be early this year. 4
6 III. VALUATION (2000-1 EETC) Scheduled Aircraft Serial Continental Adj. Base Value Manufacturer's Number Tail Number ($000,000) Delivery Date - ----------------------------------------------------------------------- B737-800, CFM56-7B26, 174,200(lb) MTOW - ----------------------------------------------------------------------- JUN-00 30429 N24202 43.01 --------------------------------------------------- 30613 N33203 43.01 - ----------------------------------------------------------------------- JUL-00 30576 N35204 43.11 --------------------------------------------------- 30577 N27205 43.11 --------------------------------------------------- 30578 N11206 43.11 - ----------------------------------------------------------------------- AUG-00 30579 N36207 43.20 --------------------------------------------------- 30580 N26208 43.20 --------------------------------------------------- 30581 N33209 43.20 - ----------------------------------------------------------------------- SEP-00 30582 N73251 43.28 --------------------------------------------------- 30583 N37252 43.28 --------------------------------------------------- 30584 N37253 43.28 --------------------------------------------------- 30779 N76254 43.28 - ----------------------------------------------------------------------- OCT-00 30610 N37255 43.36 --------------------------------------------------- 30611 N73256 43.36 - ----------------------------------------------------------------------- NOV-00 30612 N38257 43.46 --------------------------------------------------- 30802 N77258 43.46 - ----------------------------------------------------------------------- Scheduled Aircraft Serial Continental Adj. Base Value Manufacturer's Number Tail Number ($000,000) Delivery Date - ----------------------------------------------------------------------- B757-200, RB211-535E4B, Engines, 255,000(lb) MTOW - ----------------------------------------------------------------------- FEB-00 30352 N17139 58.07 --------------------------------------------------- 30353 N41140 58.07 - ----------------------------------------------------------------------- JUN-00 30354 N19141 58.54 - ----------------------------------------------------------------------- Scheduled Aircraft Serial Continental Adj. Base Value Manufacturer's Number Tail Number ($000,000) Delivery Date - ----------------------------------------------------------------------- B767-400ER, CF6-80C2B8F Engines, 450,000(lb) MTOW - ----------------------------------------------------------------------- JUL-00 29446 N66051 97.20 - ----------------------------------------------------------------------- AUG-00 29447 N67052 97.40 - ----------------------------------------------------------------------- OCT-00 29448 N59053 97.80 - ----------------------------------------------------------------------- DEC-00 29449 N76054 98.20 - ----------------------------------------------------------------------- 5
7 In developing the CBV of these aircraft, MBA did not inspect the aircraft or its historical maintenance documentation. Therefore, we used certain assumptions that are generally accepted industry practice to calculate the value of an aircraft when more detailed information is not available. The principal assumptions are as follows (for each aircraft): 1. The aircraft is to be delivered new. 2. The overhaul status of the airframe, engines, landing gear and other major components are the equivalent of new delivery otherwise specified. 3. The specifications of the aircraft are those most common for an aircraft of this type new delivery. 4. The aircraft is in a standard airline configuration. 5. Its modification status is comparable to that most common for an aircraft of its type and vintage. 6. No accounting is made for lease obligations or terms of ownership. 6
8 IV. COVENANTS This report has been prepared for the exclusive use of Credit Suisse-First Boston/Continental Airlines and shall not be provided to other parties by MBA without the express consent of Credit Suisse-First Boston/Continental Airlines. MBA certifies that this report has been independently prepared and that it fully and accurately reflects MBA's opinion as to the Current Base Value. MBA further certifies that it does not have, and does not expect to have, any financial or other interest in the subject or similar aircraft. This report represents the opinion of MBA as to the Current Base Value of the subject aircraft and is intended to be advisory only, in nature. Therefore, MBA assumes no responsibility or legal liability for any actions taken, or not taken, by Credit Suisse-First Boston/Continental Airlines or any other party with regard to the subject aircraft. By accepting this report, all parties agree that MBA shall bear no such responsibility or legal liability. PREPARED BY: /s/ Bryson P. Monteleone ------------------------ BRYSON P. MONTELEONE DIRECTOR OF OPERATIONS REVIEWED BY: January 17, 2000 /s/ Morten S. Beyer Ref #00111 ------------------- MORTEN S. BEYER, APPRAISER FELLOW CHAIRMAN & CEO ISTAT CERTIFIED SENIOR APPRAISER 7
1 AIRCRAFT [AISI LOGO] INFORMATION SERVICES, INC. 31 October 2000 Continental Airlines 1600 Smith Street HQSFN Houston, TX 77002 Subject: AISI Report No.: A0S051BVO AISI Sight Unseen New Aircraft Base Value Appraisal, Fourteen B737-800, Ten B737-900, Six B767-200ER and Two B767-400ER Aircraft. Reference: (a) Credit Suisse First Boston Email message 25 August 2000 Dear Gentlemen: Aircraft Information Services, Inc. (AISI) is pleased to offer Continental Airlines our opinion of the sight unseen base market value of various new aircraft scheduled to be delivered from the manufacturer to Continental Airlines between February 2001 and December 2001 as listed and defined in Table I and referenced (a) data above. 1. METHODOLOGY AND DEFINITIONS The method used by AISI in its valuation of the Aircraft was based both on a review of information and Aircraft specifications supplied by the client and also on a review of present and past market conditions, various expert opinions (such as aircraft brokers and financiers) and information contained in AISI's databases that help determine aircraft availability and price data and thus arrive at the appraised base values for the new aircraft to be delivered to Continental Airlines. The standard terms of reference for commercial aircraft value are 'half-life base market value, and 'half-life current market value' of an 'average' aircraft. Base value is a theoretical value that assumes a balanced market while current market value is the value in the real market; both assume a hypothetical average aircraft condition. AISI value definitions are consistent with the current definitions of the International Society of Transport Aircraft Trading (ISTAT), those of 01 January 1994. AISI is a member of that organization and employs an ISTAT Certified and Senior Certified Aircraft Appraiser. Headquarters: 26072 Merit Circle, Suite 123, Laguna Hills, CA 92653 Tel: 949-582-8888 FAX: 949-582-8887 E-MAIL: AISINews@aol.com
2 31 October 2000 [AISI LOGO] AISI File No. A0S051BVO Page - 2 - AISI defines a 'base value' as that of a transaction between equally willing and informed buyer and seller, neither under compulsion to buy or sell, for a single unit cash transaction with no hidden value or liability, and with supply and demand of the sale item roughly in balance. Base values are typically given for aircraft in 'new' condition, 'average half-life' condition, or in a specifically described condition unique to a single aircraft at a specific time. An 'average' aircraft is an operable airworthy aircraft in average physical condition and with average accumulated flight hours and cycles, with clear title and standard unrestricted certificate of airworthiness, and registered in an authority which does not represent a penalty to aircraft value or liquidity, with no damage history and with inventory configuration and level of modification which is normal for its intended use and age. AISI assumes average condition unless otherwise specified in this report. 'Half-life' condition assumes that every component or maintenance service which has a prescribed interval that determines its service life, overhaul interval or interval between maintenance services, is at a condition which is one-half of the total interval. It should be noted that AISI and ISTAT value definitions apply to a transaction involving a single aircraft, and that transactions involving more than one aircraft are often executed at considerable and highly variable discounts to a single aircraft price, for a variety of reasons relating to an individual buyer or seller. AISI defines a 'current market value', which is synonymous with the older term 'fair market value' as that value which reflects the real market conditions, whether at, above or below the base value conditions. Assumption of a single unit sale and definitions of aircraft condition, buyer/seller qualifications and type of transaction remain unchanged from that of base value. Current market value takes into consideration the status of the economy in which the aircraft is used, the status of supply and demand for the particular aircraft type, the value of recent transactions and the opinions of informed buyers and sellers. Current market value assumes that there is no short term time constraint to buy or sell. AISI encourages the use of base values to consider historical trends, to establish a consistent baseline for long term value comparisons and future value considerations, or to consider how actual market values vary from theoretical base values. Base values are less volatile than current market values and tend to diminish regularly with time. Base values are normally inappropriate to determine near term values. AISI encourages the use of current market values to consider the probable near term value of an aircraft.
3 31 October 2000 [AISI LOGO] AISI File No. A0S051BVO Page - 3 - 2. VALUATION The aircraft are valued predicated upon the reference (a) data which describes the aircraft MTOW and any engine upgrades. The aircraft are also assumed to have similar configurations and capabilities as previous aircraft delivered to Continental Airlines. Following is AISI's opinion of the base market value for the subject aircraft on their respective scheduled delivery dates in current US Dollars. Valuations are presented in Table I subject to the assumptions, definitions and disclaimers herein.
4 31 October 2000 [AISI LOGO] AISI File No. A0S051BVO Page - 4 - TABLE I - -------------------------------------------------------------------------------------------------------- Scheduled Expected Manufacturer's Aircraft Serial Registration New Delivery Base Value Delivery Date Number Number Current USDollars - ------------------------------------------------------------------------------------------------------- B737-800, CFM56-7B26 ENGINES, 174,200LB MTOW - ------------------------------------------------------------------------------------------------------- May-01 30803 N73259 $ 50,230,000 - -------------------------------------------------------------------------------------------------------- Jun-01 30855 N35260 $ 50,350,000 - -------------------------------------------------------------------------------------------------------- Jul-01 31582 N77261 $ 50,460,000 - -------------------------------------------------------------------------------------------------------- Jul-01 32402 N33262 $ 50,460,000 - -------------------------------------------------------------------------------------------------------- Aug-01 31583 N37263 $ 50,580,000 - -------------------------------------------------------------------------------------------------------- Aug-01 31584 N33264 $ 50,580,000 - -------------------------------------------------------------------------------------------------------- Aug-01 31585 N76265 $ 50,580,000 - -------------------------------------------------------------------------------------------------------- Aug-01 32403 N33266 $ 50,580,000 - -------------------------------------------------------------------------------------------------------- Sep-01 31586 N37267 $ 50,700,000 - -------------------------------------------------------------------------------------------------------- Sep-01 31587 N38268 $ 50,700,000 - -------------------------------------------------------------------------------------------------------- Oct-01 31588 N76269 $ 50,810,000 - -------------------------------------------------------------------------------------------------------- Oct-01 31632 N73270 $ 50,810,000 - -------------------------------------------------------------------------------------------------------- Nov-01 31589 N36272 $ 50,930,000 - -------------------------------------------------------------------------------------------------------- Nov-01 31590 N37273 $ 50,930,000 - -------------------------------------------------------------------------------------------------------- B737-900, CFM56-7B26 ENGINES, 174,200LB MTOW - ------------------------------------------------------------------------------------------------------- May-01 30118 N30401 $ 51,580,000 - ------------------------------------------------------------------------------------------------------- Jun-01 30119 N79402 $ 51,700,000 - ------------------------------------------------------------------------------------------------------- Jul-01 30120 N38403 $ 51,820,000 - ------------------------------------------------------------------------------------------------------- Jul-01 30121 N32404 $ 51,820,000 - ------------------------------------------------------------------------------------------------------- Aug-01 30122 N72405 $ 51,940,000 - ------------------------------------------------------------------------------------------------------- Sep-01 TBD N73406 $ 52,060,000 - ------------------------------------------------------------------------------------------------------- Sep-01 TBD N35407 $ 52,060,000 - ------------------------------------------------------------------------------------------------------- Oct-01 TBD N37408 $ 52,180,000 - ------------------------------------------------------------------------------------------------------- Nov-01 TBD N37409 $ 52,300,000 - ------------------------------------------------------------------------------------------------------- Dec-01 TBD N75410 $ 52,420,000 - ------------------------------------------------------------------------------------------------------- B767-200ER, CF6-80C2B4F ENGINES, 395,000LB MTOW - ------------------------------------------------------------------------------------------------------- Feb-01 30434 N68155 $ 81,000,000 - ------------------------------------------------------------------------------------------------------- Mar-01 30435 N76156 $ 81,190,000 - ------------------------------------------------------------------------------------------------------- Apr-01 30436 N67157 $ 81,380,000 - ------------------------------------------------------------------------------------------------------- May-01 30437 N67158 $ 81,570,000 - ------------------------------------------------------------------------------------------------------- Jul-01 30438 N68159 $ 81,940,000 - ------------------------------------------------------------------------------------------------------- Oct-01 30439 N68160 $ 82,510,000 - ------------------------------------------------------------------------------------------------------- B767-400ER, CF6-80C2B8F ENGINES, 450,000LB MTOW - ------------------------------------------------------------------------------------------------------- Mar-01 29450 N76055 $108,990,000 - ------------------------------------------------------------------------------------------------------- Jun-01 29451 N66056 $109,740,000 - -------------------------------------------------------------------------------------------------------
5 31 October 2000 [AISI LOGO] AISI File No. A0S051BVO Page - 5 - Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in writing, this report shall be for the sole use of the client/addressee. This report is offered as a fair and unbiased assessment of the subject aircraft. AISI has no past, present, or anticipated future interest in the subject aircraft. The conclusions and opinions expressed in this report are based on published information, information provided by others, reasonable interpretations and calculations thereof and are given in good faith. Such conclusions and opinions are judgments that reflect conditions and values which are current at the time of this report. The values and conditions reported upon are subject to any subsequent change. AISI shall not be liable to any party for damages arising out of reliance or alleged reliance on this report, or for any parties action or failure to act as a result of reliance or alleged reliance on this report. Sincerely, AIRCRAFT INFORMATION SERVICES, INC. /s/ John D. McNicol John D. McNicol Vice President Appraisals & Forecasts
1 [AVITAS LOGO] CONTINENTAL AIRLINES OCTOBER 31, 2000 - -------------------------------------------------------------------------------- INTRODUCTION AVITAS, Inc. has been retained by Continental Airlines (the "Client") to provide its opinion as to the Base Value for fourteen (14) Boeing 737-800, ten (10) Boeing 737-900, six (6) Boeing 767-200ER and two (2) Boeing 767-400ER aircraft. The subject aircraft are identified and their values are set forth in Figure 1 in this report. The values presented in this report assume that this aircraft will be in new, "flyaway" condition and fully certificated for commercial operations. We have further assumed that the subject aircraft will be operated under the air transport regulations of a major nation. The values presented in this report do not take into consideration fleet sales, attached leases, tax considerations or other factors that might be considered in structuring the terms and conditions of a specific transaction. These factors do not directly affect the value of the aircraft itself but can affect the economics of the transaction. Therefore, the negotiated striking price in an aircraft transaction may take into consideration factors such as the present value of the future lease stream, the terms and conditions of the specific lease agreement and the impact of tax considerations. DEFINITIONS AVITAS's value definitions conform to those of the International Society of Transport Aircraft Trading ("ISTAT") adopted in January 1994, and are summarized as follows: - - BASE VALUE is the appraiser's opinion of the underlying economic value of an aircraft in an open, unrestricted, stable market environment with a reasonable balance of supply and demand, and assumes full consideration of its "highest and best use." An aircraft's Base Value is founded in the historical trend of values and in the projection of value trends and presumes an arm's-length, cash transaction between willing and knowledgeable parties, acting prudently, with an absence of duress and with a reasonable period of time for marketing. Base Value typically assumes that an aircraft's physical condition is average for an aircraft of its type and age, and its maintenance time status is at mid-life, mid-time (or benefiting from an above-average maintenance status if it is new or nearly new). [GLOBE GRAPHIC] - ------------------------------------------------ WORLD HEADQUARTERS: 14520 Avion Pkwy, Chantilly, VA 20151 USA - Telephone: (703) 476-2300 Fax: (703) 860-5855 Email: avitas@dnv.com AVITAS EUROPE: Palace House, 3 Cathedral St. London SEI 9DE,- Telephone: 0171-716-6621 Fax: 0717-357-6873 Email: avitas@dnv.com AVITAS ENGINEERING: 5040 N.W. 7th Street, #900 Miami, FL 33126 - Telephone: (305) 476-9650 Fax: (305) 476-9915 Email: avitas@dnv.com A DET NORSKE VERITAS COMPANY - -------------------------------------------------
2 [AVITAS LOGO] CONTINENTAL AIRLINES OCTOBER 31, 2000 - -------------------------------------------------------------------------------- - - MARKET VALUE (or CURRENT MARKET VALUE if the value pertains to the time of the analysis) is the appraiser's opinion of the most likely trading price that may be generated for an aircraft under the market conditions that are perceived to exist at the time in question given an adequate amount of time to properly market it. It assumes that an aircraft's physical condition is average for an aircraft of its type and age, and its maintenance time status is at mid-life, mid-time (or benefiting from an above-average maintenance status if it is new or nearly new). Market Value is synonymous with Fair Market Value. AIRCRAFT VALUE AVITAS's opinion as to the value of the subject aircraft is presented below in millions of U.S. dollars. Base Values are as of the delivery dates for each aircraft. With regard to new aircraft, AVITAS considers the Base Value and the Market Value to be the same. The Base Value of a new aircraft is the typical price paid by an average operator in a single unit or small lot sale. Actual transaction prices may be either above or below that level due to a number of factors. For example, a launch order or a large fleet order may result in discounts, whereas a single unit sale to a small operator who needs a substantial amount of support may be approaching the list price. Furthermore, implicit in these values is AVITAS's assumption that the new aircraft will remain with the original operator for at least two years. If a newly delivered aircraft comes onto the market, the seller is at an immediate disadvantage as he is likely to be in competition with the manufacturer who can offer training and support.
3 [AVITAS LOGO] CONTINENTAL AIRLINES OCTOBER 31, 2000 - -------------------------------------------------------------------------------- Figure 1 - --------------------------------------------------------------------------------------------------------------- Continental Airlines Aircraft Description & Summary of Aircraft Values in US$ Million - --------------------------------------------------------------------------------------------------------------- No. Type Engines Serial Reg. Yr. Qtr. MTOW Base Number Number Del. Del. (lbs) Value - --------------------------------------------------------------------------------------------------------------- 1 737-800 CFM56-7B26 30803 N73259 2001 2 174,200 $ 45.1 - --------------------------------------------------------------------------------------------------------------- 2 737-800 CFM56-7B26 30855 N35260 2001 2 174,200 45.1 - --------------------------------------------------------------------------------------------------------------- 3 737-800 CFM56-7B26 31582 N77261 2001 3 174,200 45.5 - --------------------------------------------------------------------------------------------------------------- 4 737-800 CFM56-7B26 32402 N33262 2001 3 174,200 45.5 - --------------------------------------------------------------------------------------------------------------- 5 737-800 CFM56-7B26 31583 N37263 2001 3 174,200 45.5 - --------------------------------------------------------------------------------------------------------------- 6 737-800 CFM56-7B26 31584 N33264 2001 3 174,200 45.5 - --------------------------------------------------------------------------------------------------------------- 7 737-800 CFM56-7B26 31585 N76265 2001 3 174,200 45.5 - --------------------------------------------------------------------------------------------------------------- 8 737-800 CFM56-7B26 32403 N33266 2001 3 174,200 45.5 - --------------------------------------------------------------------------------------------------------------- 9 737-800 CFM56-7B26 31586 N37267 2001 3 174,200 45.5 - --------------------------------------------------------------------------------------------------------------- 10 737-800 CFM56-7B26 31587 N38268 2001 3 174,200 45.5 - --------------------------------------------------------------------------------------------------------------- 11 737-800 CFM56-7B26 31588 N76269 2001 4 174,200 45.8 - --------------------------------------------------------------------------------------------------------------- 12 737-800 CFM56-7B26 31632 N73270 2001 4 174,200 45.8 - --------------------------------------------------------------------------------------------------------------- 13 737-800 CFM56-7B26 31589 N36272 2001 4 174,200 45.8 - --------------------------------------------------------------------------------------------------------------- 14 737-800 CFM56-7B26 31590 N37273 2001 4 174,200 45.8 - --------------------------------------------------------------------------------------------------------------- 15 737-900 CFM56-7B26 30118 N30401 2001 2 174,200 48.2 - --------------------------------------------------------------------------------------------------------------- 16 737-900 CFM56-7B26 30119 N79402 2001 2 174,200 48.2 - --------------------------------------------------------------------------------------------------------------- 17 737-900 CFM56-7B26 30120 N38403 2001 3 174,200 48.6 - --------------------------------------------------------------------------------------------------------------- 18 737-900 CFM56-7B26 30121 N32404 2001 3 174,200 48.6 - --------------------------------------------------------------------------------------------------------------- 19 737-900 CFM56-7B26 30122 N72405 2001 3 174,200 48.6 - --------------------------------------------------------------------------------------------------------------- 20 737-900 CFM56-7B26 TBD N73406 2001 3 174,200 48.6 - --------------------------------------------------------------------------------------------------------------- 21 737-900 CFM56-7B26 TBD N35407 2001 3 174,200 48.6 - --------------------------------------------------------------------------------------------------------------- 22 737-900 CFM56-7B26 TBD N37408 2001 4 174,200 48.9 - --------------------------------------------------------------------------------------------------------------- 23 737-900 CFM56-7B26 TBD N37409 2001 4 174,200 48.9 - --------------------------------------------------------------------------------------------------------------- 24 737-900 CFM56-7B26 TBD N75410 2001 4 174,200 48.9 - --------------------------------------------------------------------------------------------------------------- 25 767-200ER CF6-80C2B4F 30434 N68155 2001 1 395,000 72.8 - --------------------------------------------------------------------------------------------------------------- 26 767-200ER CF6-80C2B4F 30435 N76156 2001 1 395,000 72.8 - --------------------------------------------------------------------------------------------------------------- 27 767-200ER CF6-80C2B4F 30436 N67157 2001 2 395,000 73.3 - --------------------------------------------------------------------------------------------------------------- 28 767-200ER CF6-80C2B4F 30437 N67158 2001 2 395,000 73.3 - --------------------------------------------------------------------------------------------------------------- 29 767-200ER CF6-80C2B4F 30438 N68159 2001 3 395,000 73.9 - --------------------------------------------------------------------------------------------------------------- 30 767-200ER CF6-80C2B4F 30439 N68160 2001 4 395,000 74.4 - --------------------------------------------------------------------------------------------------------------- 31 767-400ER CF6-80C2B8F 29450 N76055 2001 1 450,000 94.1 - --------------------------------------------------------------------------------------------------------------- 32 767-400ER CF6-80C2B8F 29451 N66056 2001 2 450,000 95.5 - --------------------------------------------------------------------------------------------------------------- GRAND TOTAL $ 1,753.4 - --------------------------------------------------------------------------------------------------------------- 3
4 [AVITAS LOGO] CONTINENTAL AIRLINES OCTOBER 31, 2000 - -------------------------------------------------------------------------------- GENERAL MARKET OVERVIEW INTRODUCTION AVITAS believes that the expected downturn in the commercial aircraft market is now upon us. The most recent indications are that values and lease rates for several key types have softened while the number of aircraft being offered for sale or lease has risen significantly, especially over the last two years. The increase in availability has been particularly marked for older narrowbodies and some older widebody types have begun to reach the end of their useful economic lives somewhat earlier than anticipated. Orders for new jet aircraft peaked in 1998 while deliveries reached a record high the following year. Recent trends in the global economy have had a negative impact on aircraft values. Although the Asian recession has passed and recovery in the region now appears to be sustained, values of widebody types remain somewhat soft. However, there are signs that carriers based there, who represent a sizeable portion of the world market for widebodied aircraft, are once again giving their attention to fleet renewal and expansion. European and U.S. carriers operating routes to Asian destinations have also been rebuilding their schedules after the cutbacks introduced in the wake of the economic crisis of 1997 and 1998. In the U.S., the generally robust financial health of the airline industry continues as growth in traffic volumes remains strong. However, the earnings peak was reached in 1998 and rising fuel costs have affected profitability. The passing of the Stage 2 noise gate at the end of 1999 resulted in increasing weakness in the values of many older narrowbodies. In Latin America, which has traditionally been a market for these aircraft, manufacturers have succeeded in placing more new equipment while negative financial developments in some countries have also been felt. New aircraft prices have been kept in check due to intense sales competition between Airbus and Boeing. Airbus, which has steadily built up market share at Boeing's expense, is finalizing plans to make the transition to a more conventional corporate structure which should also help to foster a more competitive environment. BACKGROUND - BOEING 737-800 AND 737-900 The Boeing 737-800 is a stretched version of the 737-400 capable of transporting up to 162 passengers in two-class configuration or 189 in a single class. The extra seating gives the -800 a reduction in seat-mile charges over the -400 for the same trip cost. The differences between the 737-800 and the A320 are far less pronounced than the other variants, thus tightening the competition. The seating of the 737-800 is greater than that of the A320 (189 vs 164 in a single class); however, it has a little less range. In late 1997, Alaska Airlines launched the Boeing 737-900, which is a 737-800 stretched by nearly nine feet, with ten firm orders. The aircraft will have 18% more cargo volume and 9% more passenger cabin area than the 737-800. Deliveries are scheduled to begin in April 2001. 4
5 [AVITAS LOGO] CONTINENTAL AIRLINES OCTOBER 31, 2000 - -------------------------------------------------------------------------------- FIGURE 2 - ------------------------------------------------------------------------------ BOEING 737 FAMILY STATISTICS AS OF JULY 2000 - ------------------------------------------------------------------------------ MODEL AIRCRAFT IN SERVICE OPERATORS FIRM ORDERS - ------------------------------------------------------------------------------ 737-600 38 4 35 - ------------------------------------------------------------------------------ 737-700 242 36 474 - ------------------------------------------------------------------------------ 737-800 306 39 373 - ------------------------------------------------------------------------------ 737-900 1 45 - ------------------------------------------------------------------------------ GRAND TOTAL 587 79 927 - ------------------------------------------------------------------------------ Source: BACK Information Services The Figure below summarizes the performance capabilities of the 737NG series excluding the -600. FIGURE 3 - ------------------------------------------------------------------------------- AIRCRAFT SEATING CAPACITY MTOW (LBS) RANGE MODEL BASIC MAX BASIC MAX BASIC MAX - ------------------------------------------------------------------------------- 737-700 128 149 133,000 153,000 1,620 3,245 - ------------------------------------------------------------------------------- 737-800 162 189 155,500 174,200 1,905 2,925 - ------------------------------------------------------------------------------- 737-900 177 189 166,000 174,200 1,925 2,728 - ------------------------------------------------------------------------------- CURRENT MARKET - BOEING 737-800 CURRENT MARKET AVITAS is of the opinion that the current market for the Boeing 737-800 aircraft is firm. There are presently 306 aircraft in service worldwide among 39 airline operators and a backlog of 373 firm orders and 127 options. CURRENT OPERATOR BASE AND BACKLOG As of July 2000, there were 306 737-800 aircraft in service among 39 operators and another 373 on firm order and 127 options for the type. OUTLOOK AND FUTURE ASSET RISK ANALYSIS With regard to the 737-800's competition, the A320-200, which has been in service since 1988, has 832 aircraft in service and 517 firm orders. The A320 offers a maximum takeoff weight of 162,000 to 169,000 pounds versus the 737-800's 155,500 to 174,200 pounds and similar range capability; but the 737-800 can have as many as 12 more seats than the A320, depending on interior configuration. Although Airbus has had a great degree of recent success with the A320-200 and the aircraft remains a tough competitor to the 737-800, to meet specific operating needs, the 737-800 can be ordered with higher 5
6 [AVITAS LOGO] CONTINENTAL AIRLINES OCTOBER 31, 2000 - -------------------------------------------------------------------------------- specifications than the A320. AVITAS believes the values for the 737-800 should remain firm despite intense competition in the foreseeable future. CURRENT MARKET - BOEING 737-900 CURRENT MARKET AVITAS is of the opinion that the current market for the Boeing 737-900, the newest B737NG jet aircraft, is stable. There is presently a backlog of 45 firm orders and 13 options. Alaska Airlines launched the aircraft in November 1997, with an order for 10 aircraft. Continental Airlines, KLM and Korean Airlines followed with orders for the type. The first aircraft is scheduled for delivery to Alaska Airlines in April of 2001. CURRENT OPERATOR BASE AND BACKLOG As shown in the Figure below, as of July 2000, there were 58 737-900 aircraft on backlog among four operators. FIGURE 4 - ------------------------------------------------------------------------------- BOEING 737-900 BACKLOG AS OF JULY 2000 - ------------------------------------------------------------------------------- OPERATOR FIRM ORDERS OPTIONS TOTAL - ------------------------------------------------------------------------------- ALASKA AIRLINES 10 10 20 - ------------------------------------------------------------------------------- KOREAN AIR 16 3 19 - ------------------------------------------------------------------------------- CONTINENTAL AIRLINES 15 15 - ------------------------------------------------------------------------------- KLM ROYAL DUTCH AIRLINES 4 4 - ------------------------------------------------------------------------------- GRAND TOTAL 45 13 58 - ------------------------------------------------------------------------------- Source: BACK Information Services OUTLOOK AND FUTURE ASSET RISK ANALYSIS The competing aircraft types are the nine feet smaller 737-800, which was introduced into service in 1997, and the A321-100/-200 aircraft, which was introduced into service in 1993. Both these aircraft have significant backlogs with 373 firm orders for the 737-800 and 170 for the A321s. It seems is unlikely that the -900 will capture as many orders as the successful -700 and -800, which both have significant fleets in service and large backlogs among a broad range of operators and airlines. Another indirect competitor is the larger 757-200 which seats 194 passenger in a 2-class configuration and has been in airline service since 1982. The type is still in production holds a backlog of 86 firm orders and 49 options. 6
7 [AVITAS LOGO] CONTINENTAL AIRLINES OCTOBER 31, 2000 - -------------------------------------------------------------------------------- Unless the backlog for the 737-900 increases considerably, the aircraft may become a niche aircraft like the 737-600. CURRENT MARKET - BOEING 767-200/-200ER CURRENT MARKET AVITAS is of the opinion that the current market for the Boeing 767-200 is somewhat soft with values for the oldest models at levels low enough to justify freighter conversions. Airborne Express has contracted to acquire 23 units and Emery Worldwide Airlines is evaluating the type together with the A300 and the DC-10 to gradually replace its DC-8 fleet. The carrier has been in discussions with Boeing about becoming the launch customer of the 767-200 freighter conversion program and is expected to make a decision soon. Though the preference for 767-200 aircraft is focused on the -ER variant with 6,500 nautical mile range, the most significant level of demand is for the 767-300ER aircraft, which has a seating capacity of 45 more passengers than the - -200 but 500 nautical miles less range. RECENT FLEET DEVELOPMENTS In November 1998, Continental Airlines announced a firm order for ten 767-200ERs which will replace some of the carrier's 747s and DC-10s. The new aircraft, which will be delivered from 2000 through 2005, are intended to be flown on international markets in South America and Europe. CURRENT OPERATOR BASE AND BACKLOG As of July 2000, there were 217 767-200/-200ER aircraft in service. Continental Airlines holds ten firm orders for the 767-200ER which are scheduled for delivery over the next four years. Presented below is the current fleet distribution for the 767 (all variants). FIGURE 5 - -------------------------------------------------------------------------------- BOEING 767 CURRENT FLEET AND BACKLOG AS OF JULY 2000 - -------------------------------------------------------------------------------- MODEL IN SERVICE FIRM ORDERS OPTIONS TOTAL - -------------------------------------------------------------------------------- 767-200 122 122 - -------------------------------------------------------------------------------- 767-200ER 95 10 105 - -------------------------------------------------------------------------------- 767-300 136 1 3 140 - -------------------------------------------------------------------------------- 767-300ER 421 40 14 475 - -------------------------------------------------------------------------------- 767-400ER 9 42 24 75 - -------------------------------------------------------------------------------- GRAND TOTAL 783 93 41 917 - -------------------------------------------------------------------------------- Source: BACK Information Services 7
8 [AVITAS LOGO] CONTINENTAL AIRLINES OCTOBER 31, 2000 - -------------------------------------------------------------------------------- The 767-200 and -200ER compete with the A310-200 and -300, of which there are currently 228 in service (including ten in storage). No orders have been placed for the type, with the exception of the order placed by Continental Airlines, in the last couple of years and an order for five aircraft for Iraqi Airways still listed as outstanding is now believed to have lapsed. OUTLOOK AND FUTURE ASSET RISK ANALYSIS With the launch of the 757-300 and the 767-400ER and despite the recent Continental Airlines order for ten aircraft, we do not expect any further sales of the 767-200ER to commercial operators. Prior to the Continental Airlines order, the last commercial 767-200ER was delivered in July 1993. As the All Nippon Airways - Airborne Express transaction shows, values of older vintage 767-200s have decreased to a level where freighter conversions have become economically and operationally feasible. We expect residual values for older aircraft to remain stable as they are being converted to freighters. CURRENT MARKET - BOEING 767-400ER CURRENT MARKET AVITAS believes that the Boeing 767-400ER market is stable. The aircraft was launched by Delta Airlines in 1997 and the first entered service in August 2000. The carrier is replacing its 48 L1011s with the type over the next couple of years. The 767-400ER is a 21-foot stretch of the 767-300ER of which there are 421 aircraft in service and 40 firm orders and 14 options. CURRENT OPERATOR BASE AND BACKLOG As of July 2000, there was a backlog of 75 767-400ERs among three airlines and one leasing company. The GE CF6-80C2B7 engines will power all aircraft currently on order. Pratt & Whitney engines are also available however, no orders have been placed. Figure 6 - ------------------------------------------------------------------------------------------------ BOEING 767-400ER AS OF JULY 2000 - ------------------------------------------------------------------------------------------------ OPERATOR/ORDERHOLDER IN SERVICE FIRM ORDERS OPTIONS TOTAL - ------------------------------------------------------------------------------------------------ DELTA AIR LINES 14 24 38 - ------------------------------------------------------------------------------------------------ CONTINENTAL AIRLINES 24 24 - ------------------------------------------------------------------------------------------------ BOEING 9 9 - ------------------------------------------------------------------------------------------------ KENYA AIRWAYS 3 3 - ------------------------------------------------------------------------------------------------ GE CAPITAL AVIATION SERVICES INC. 1 1 - ------------------------------------------------------------------------------------------------ GRAND TOTAL 9 42 24 75 - ------------------------------------------------------------------------------------------------ Source: Back Information Services 8
9 [AVITAS LOGO] CONTINENTAL AIRLINES OCTOBER 31, 2000 - -------------------------------------------------------------------------------- OUTLOOK AND FUTURE ASSET RISK ANALYSIS The Boeing 767-400ER competes with the A330-200, which has greater range and is also heavier than the 767-400ER. However, the 767-400ER has a lower fuel burn than the A330-200. In a search for a 200-seater, Airbus is considering a further shrink of the A330, tentatively designated the A330-100. The aircraft would have the same range capability but a lower MTOW than the A330-200. The -400ER is an incremental product to the 767-300ER, which has been a successful product with airlines and leasing companies. It was designed to replace older L1011s, DC-10-30s and A300s. The future values should be stable despite the intense competition with the Airbus products. COVENANTS Unless otherwise noted, the values presented in this report assume an arm's-length, free market transaction for cash between informed, willing and able parties free of any duress to complete the transaction. If a distress sale becomes necessary, a substantial discount may be required to quickly dispose of the equipment. AVITAS does not have, and does not intend to have, any financial or other interest in the subject aircraft. Further, this report is prepared for the exclusive use of the Client and shall not be provided to other parties without the express consent of the Client. This report represents the opinion of AVITAS and is intended to be advisory only in nature. Therefore, AVITAS assumes no responsibility or legal liability for any action taken, or not taken, by the Client or any other party, with regard to this equipment. By accepting this report, all parties agree that AVITAS shall bear no such responsibility or legal liability including liability for special or consequential damage. STATEMENT OF INDEPENDENCE AVITAS hereby states that this valuation report has been independently prepared and fairly represents AVITAS's opinion of the subject aircraft's value. /s/ Susanna Blackman Susanna Blackman Manager - Appraisal Operations 9
1 MORTEN BEYER & AGNEW -------------------- AVIATION CONSULTING FIRM APPRAISAL OF 32 AIRCRAFT (2000-2 EETC) PREPARED FOR: Continental Airlines, Inc. OCTOBER 31, 2000 Washington, D. C. London Pacific Rim 2107 Wilson Blvd. Lahiuch 62, Lashmere 3-16-16 Higashiool Suite 750 Copthorne Shinagawa- ku Arlington, Virginia 22201 West Sussex Tokyo 140-0011 United States United Kingdom Japan Phone +703 276 3200 Phone +44 1342 716248 Phone +81 3 3763 6845 Fax +703 276 3201 Fax +44 1342 718967 [MBA Logo]
2 I. INTRODUCTION AND EXECUTIVE SUMMARY MORTEN BEYER AND AGNEW (MBA) has been retained by Continental Airlines, Inc. to determine the Current Base Value (CBV) of 32 Boeing aircraft to be delivered new over the next fourteen months. The aircraft are further identified in Section II of this report. MBA uses the definition of certain terms, such as CMV and Base Value (BV), as promulgated by the International Society of Transport Aircraft Trading (ISTAT), a non-profit association of management personnel from banks, leasing companies, airlines, manufacturers, appraisers, brokers, and others who have a vested interest in the commercial aviation industry. ISTAT defines Market Value (MV) as the appraiser's opinion of the most likely trading price that may be generated for an aircraft under market conditions that are perceived to exist at the time in question. MV assumes that the aircraft is valued for its highest, best use; that the parties to the hypothetical sale transaction are willing, able, prudent and knowledgeable and under no unusual pressure for a prompt sale; and that the transaction would be negotiated in an open and unrestricted market on an arm's-length basis, for cash or equivalent consideration, and given an adequate amount of time for effective exposure to prospective buyers. The ISTAT definition of Base Value (BV) has, essentially, the same elements of MV except that the market circumstances are assumed to be in a reasonable state of equilibrium. Thus, BV pertains to an idealized aircraft and market combination, but will not necessarily reflect the actual MV of the aircraft in question. BV is founded in the historical trend of values and is generally used to analyze historical values or to project future values. The Current Base Value is the BV at the time of this opinion, effective upon the defined delivery dates of the subject aircraft assets. [MBA Logo]
3 II. CURRENT MARKET CONDITIONS [GRAPHIC OF AIRPLANE] BOEING 737-800/900 SERIES 737-800 737-900 - ---------------------------------------------------------------- NUMBER OF OPERATORS: 41 5 AIRCRAFT ORDERED: 744 46 AIRCRAFT DELIVERED 316 0 Boeing began replacing the trio of B-737-300/-400/-500s with upgraded new generation versions beginning with the B-737-700 in 1997. Southwest Airlines' order for 63 of the series officially launched the program in late 1993, and with their most recent order of 94 with options for another 196 have secured the future of the program. The fuselage of the new aircraft mirror that of the old (which were out-growths of the original -100s and -200s). Upgraded avionics, a new wing design, and other improvements combine to increase range, efficiency, and performance in general. The CFM56-7 is the exclusive engine for the 3rd generation. Prospects for the 3rd generation 737 jets were thought to be considerably enhanced by the discontinuation of the MD-80/-90 series. The MD-95 has been adopted by Boeing as its 100 seat competitor under the aegis of B-717, competing with its own Boeing 737-600. On the other hand, Airbus is becoming more aggressive with its A319/320/321 high tech series and winning an increasing share of orders. The new generation aircraft are actually starting to compete with their older and larger sibling the Boeing 757. Airlines such as Aloha and Southwest are finding the flexibility and the range offered by the 737-700 to fit very well with their respective trans-pacific and trans-continental routes. Delta has replaced their 757's with 737-800 aircraft on their routes to Central America. While these aircraft are providing improved economics, their success will only be told by passenger preferences and tolerances for smaller cabins over longer journeys. As the industry passed the peak of the current cycle, in 1998, the prospects for a downturn increase, together with deferrals and cancellations of orders for both manufacturers. Although [MBA Logo] 2
4 Boeing has recently stated that the future market will consist of more narrow-bodied aircraft like the 737 and 757 series. [GRAPHIC OF AIRPLANE] BOEING 767-200ER NUMBER OF OPERATORS: 27 AIRCRAFT ORDERED: 107 AIRCRAFT DELIVERED 97 The twin-aisle semi-widebody B-767 was launched in 1978 and entered service in 1982. The aircraft has undergone significant development in terms of gross weight and capacity, affecting payload and range. The initial model, the B-767-200, offered a MTOGW of 280,000 pounds, while the current 767-300ER is certified at 412,000 pounds. Early development extended the range of the -200 as the ER model, enabling it to fly the Atlantic nonstop. Initial routings were circuitous, since the aircraft had to stay within 90 minutes of a landing place. But as experience was gained, the FAA and international authorities approved ETOPS (extended range twin-engine over water operations), and more direct routes became possible. The first production models of the larger 767-300 were delivered in 1986 in domestic configuration, soon to be followed by successively higher gross weight Extended Range (ER) models. Orders for the -200 slowed to a trickle following the introduction of the -300, and it is probable that production of this model will be discontinued in the near future, despite Continental's recent order. Much of the success of the B-767 series of aircraft is attributable to ETOPS operations, where these aircraft (and the A310) have replaced B-747s, DC-10s and L-1011s on many long flights. So far there have been no untoward incidents under the ETOPS programs. The 767 family has an exemplary overall safety record, with only three flight accidents-one attributed to inadvertent thrust reverser deployment on a Lauda Air 767-300 over Bangkok, one Ethiopian -200 lost in a hijacking incident in the Comoro Islands in 1996, and the third was the recent Egypt Air accident off the coast of Nantucket. As of recent the 767-200ER is slated for a small interior facelift. Revamped for orders by Continental, the new 767-200ER has a brand new cockpit, upgraded avionics and an interior that reflects the newer design of the 400ER. The 200ER also has upgraded engines and an increased MGTOW to 395,000 pounds. Continental argues that the 200ER fits the growth to secondary European markets, which might be too thin for a 767-400ER or 777. [MBA Logo] 3
5 ECONOMICS The MBA Model indicates that it is hard to make money with the B-767-200. Satisfactory margins are achieved only by classifying the B-767-200 as a narrowbody in terms of seating capacity. By definition, MBA has assumed that only 67.5 percent of maximum certified seating is installed in a widebody, compared to 85 percent in a narrowbody. This is in accord with industry experience. In the long term, the relatively high seat mile costs of the B-767-200 will make them less desirable in the used market, and the demand for and price of these aircraft will decline further than that of more desirable types. Their residual values will also be impaired and they will move into the cargo market. [MBA Logo] 4
6 [GRAPHIC OF AIRPLANE] BOEING 767-400ER Number of Operators: 2 Aircraft Ordered: 59 Aircraft Delivered 2 Backlog 47 Boeing tried to interest Delta in buying more B-777s, but the aircraft was just too much for the Atlanta airline who was already suffering indigestion on its MD-11s. Delta is a big B-767 series operator with 94 in service and 24 on order. Boeing obligingly agreed to stretch the B-767-300ER to the -400ER configuration, increasing gross weight from 412,000 pounds to 450,000 and seating up to 375, only 65 below the B-777 and about the same as its 40-odd remaining L-1011s which it is retiring. Delta and Continental are the only airlines with B-767-400ER so far, totaling 47. Kenya Airways also has a current order for three aircraft. [MBA Logo] 5
7 III. VALUATION (2000-2 EETC) - -------------------------------------------------------------------------------- SCHEDULED AIRCRAFT SERIAL CONTINENTAL ADJ. BASE VALUE MANUFACTURER'S NUMBER TAIL NUMBER ($000,000) DELIVERY DATE - -------------------------------------------------------------------------------- B737-800, CFM56-7B26, 174,200(lb) MTOW - -------------------------------------------------------------------------------- MAY-01 30803 N73259 43.91 - -------------------------------------------------------------------------------- JUN-01 30855 N35260 44.00 - -------------------------------------------------------------------------------- JUL-01 31582 N77261 44.09 -------------------------------------------------------- 32402 N33262 44.09 - -------------------------------------------------------------------------------- AUG-01 31583 N37263 44.17 -------------------------------------------------------- 31584 N33264 44.17 -------------------------------------------------------- 31585 N76265 44.17 -------------------------------------------------------- 32403 N33266 44.17 - -------------------------------------------------------------------------------- SEP-01 31586 N37267 44.26 -------------------------------------------------------- 31587 N38268 44.26 - -------------------------------------------------------------------------------- OCT-01 31588 N76269 44.35 -------------------------------------------------------- 31632 N73270 44.35 - -------------------------------------------------------------------------------- NOV-01 31589 N36272 44.44 -------------------------------------------------------- 31590 N37273 44.44 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULED AIRCRAFT SERIAL CONTINENTAL ADJ. BASE VALUE MANUFACTURER'S NUMBER TAIL NUMBER ($000,000) DELIVERY DATE - -------------------------------------------------------------------------------- B737-900, CFM56-7B26, 174,200(lb) MTOW - -------------------------------------------------------------------------------- MAY-01 30118 N30401 46.21 - -------------------------------------------------------------------------------- JUN-01 30119 N79402 46.31 - -------------------------------------------------------------------------------- JUL-01 30120 N38403 46.40 -------------------------------------------------------- 30121 N32404 46.40 - -------------------------------------------------------------------------------- AUG-01 30122 N72405 46.50 - -------------------------------------------------------------------------------- SEP-01 TBD N73406 46.59 -------------------------------------------------------- TBD N35407 46.59 - -------------------------------------------------------------------------------- OCT-01 TBD N37408 46.69 - -------------------------------------------------------------------------------- NOV-01 TBD N37409 46.78 - -------------------------------------------------------------------------------- DEC-01 TBD N75410 46.88 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULED AIRCRAFT SERIAL CONTINENTAL ADJ. BASE VALUE MANUFACTURER'S NUMBER TAIL NUMBER ($000,000) DELIVERY DATE - -------------------------------------------------------------------------------- B767-200ER, CF6-8OC2B4F Engines, 395,000(lb) MTOW - -------------------------------------------------------------------------------- FEB-01 30434 N68155 77.02 - -------------------------------------------------------------------------------- MAR-01 30435 N76156 77.18 - -------------------------------------------------------------------------------- APR-01 30436 N67157 77.34 - -------------------------------------------------------------------------------- MAY-01 30437 N67158 77.50 - -------------------------------------------------------------------------------- JUL-01 30438 N68159 77.81 - -------------------------------------------------------------------------------- OCT-01 30439 N68160 78.29 - -------------------------------------------------------------------------------- [MBA Logo] 6
8 - -------------------------------------------------------------------------------- SCHEDULED AIRCRAFT SERIAL CONTINENTAL ADJ. BASE VALUE MANUFACTURER'S NUMBER TAIL NUMBER ($000,000) DELIVERY DATE - -------------------------------------------------------------------------------- B767-400ER, CF6-8OC2B8F Engines, 450,000(lb) MTOW - -------------------------------------------------------------------------------- MAR-01 29450 N76055 98.81 - -------------------------------------------------------------------------------- JUN -01 29451 N66056 99.43 - -------------------------------------------------------------------------------- In developing the CBV of these aircraft, MBA used certain assumptions that are generally accepted industry practice to calculate the value of an aircraft when more detailed information is not available and when aircraft are anticipated for future delivery. The principal assumptions are as follows (for each aircraft): 1. The aircraft is to be delivered new. 2. The overhaul status of the airframe, engines, landing gear and other major components are the equivalent of new delivery otherwise specified. 3. The specifications of the aircraft are those most common for an aircraft of this type new delivery. 4. The aircraft is in a standard airline configuration. 5. No accounting is made for lease obligations or terms of ownership. [MBA Logo] 7
9 IV. COVENANTS This report has been prepared for the exclusive use of Continental Airlines/ Credit Suisse First Boston and shall not be provided to other parties by MBA without the express consent of Continental Airlines/Credit Suisse First Boston. MBA certifies that this report has been independently prepared and that it fully and accurately reflects MBA's opinion as to the Current Base Value. MBA further certifies that it does not have, and does not expect to have, any financial or other interest in the subject or similar aircraft. This report represents the opinion of MBA as to the Current Base Value of the subject aircraft and is intended to be advisory only, in nature. Therefore, MBA assumes no responsibility or legal liability for any actions taken, or not taken, by Continental Airlines/Credit Suisse First Boston or any other party with regard to the subject aircraft. By accepting this report, all parties agree that MBA shall bear no such responsibility or legal liability. PREPARED BY: /s/ Bryson P. Monteleone BRYSON P. MONTELEONE DIRECTOR OF OPERATIONS REVIEWED BY: October 31, 2000 Ref #00280 /s/ Morten S. Beyer MORTEN S. BEYER, APPRAISER FELLOW CHAIRMAN & CEO ISTAT CERTIFIED SENIOR APPRAISER [MBA Logo] 8