Submitted to the Future of Aviation Advisory Committee

May 19, 2010

The Economic Conditions for U.S. Airlines

The Air Transport Association of America, Inc.

Combination Services

AirTran AirwaysAlaska Airlines

American AirlinesContinental Airlines

Delta Air LinesHawaiian AirlinesJetBlue Airways

Southwest AirlinesUnited Airlines

US Airways

All-Cargo Services

ABX AirASTAR Air Cargo

Atlas Air Worldwide HoldingsEvergreen Int’l Airlines

FedEx CorporationUPS Airlines

Associate Members

Air CanadaAir JamaicaMexicana

2 www.airlines.org

Air transport has become an essential economic and social conduit throughout the world. Beyond the benefits of fast and inexpensive transcontinental travel, air transport also has become a vital form of shipping for high-valued items that need to come to market quickly…

— World Bank (www.worldbank.org/airtransport)

The Future of Aviation Advisory Committee

The Committee will focus principally on five issue areas: balancing the industry’s competitiveness and viability, ensuring a world-class aviation workforce, ensuring aviation safety, securing stable funding for aviation systems and addressing environmental challenges and solutions.

The following slides provide pertinent information concerning each of these issue areas. In general, the slides illustrate the economic challenges the industry faces in attempting to achieve financial stability, including: reduced consumer demand, high taxes and fees, fuel prices that are volatile and well above historic levels, and looming new impositions related to carbon emissions and increased PFCs.

The slides also illustrate the industry’s exceptional safety record.

3 www.airlines.org

Balancing the Industry’s Competitiveness and Viability

4 www.airlines.org

Commercial Aviation: An Economic Enabler

5 www.airlines.org

“Aviation is the glue that keeps the global economy together. Without widely accessible and well-priced air travel, the global economy will quickly become less global.”

— Dr. Mark Zandi, Chief Economist & Co-Founder, Moody’s Economy.com (August 2008)

$1.225 trillion/year in economic activity $371 billion/year in personal earnings 10.9 million jobs

“The Economic Impact of Civil Aviation on the U.S. Economy” (FAA, Dec. 2009)

Commercial aviation helps drive:

Commercial aviation contributes: $731.5 billion/year to U.S. GDP 5.2% of U.S. GDP

“Economic growth and prosperity are determined in large part by access to the global economy. And, just as islands require bridges to the mainland….communities require bridges to the global economy. Air transportation is that bridge, providing the necessary access for U.S. cities…to enjoy a ‘Virtuous Circle of Economic Growth.’”

“The Plane Truth About Air Service and Economic Development,”Global Aviation Improvement Network, Booz Allen (March 2001)

“Every day, the airline industry propels the economic takeoff of our nation. It is the great enabler, knitting together all corners of the country, facilitating the movement of people and goods that is the backbone of economic growth. It also firmly embeds us in that awesome process of globalization that is defining the 21st century.”

— Daniel Yergin, Author, Commanding Heights: The Battle for the World Economy, in the ATA 2005 Economic Report

Source: 1993-2004 from McKinsey study ; 2005-2010F from IATA data/forecasts of global net income and estimates of invested capital

Global Context: Airlines Challenged to Cover Cost of CapitalAirlines Not in a Position to Make Large Investments in New Markets or Equipment

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09F0

2

4

6

8

10

12

14

Return (ROIC)

Cost (WACC)

Per

cen

t

www.airlines.org6

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

(25)

(20)

(15)

(10)

(5)

0

5

10

15

20

25

Airline Industry Profitability ElusivePretax Profit Margin Highly Cyclical and Well Below U.S. Corporate Average

Pre

tax

Pro

fit

Mar

gin

(%

)

Sources: (1) IRS Statistics of Income (Historical Table 13) – “Net income (less deficit)” divided by “Total receipts”; (2) ATA Cost Index

www.airlines.org7

Average of U.S. Corporations

U.S. Passenger Airlines

1991-2000 2001-2008 2009

0.72

8%

0.56

5%

0.46

5%

Demand for Domestic Air Travel Has Not RecoveredSmaller Portion of U.S. Economy Being Spent on Air Travel Means Revenue Shortfall

Source: ATA analysis of BEA and BTS data

8 www.airlines.org

Annual Passenger Revenue Shortfall(in $Billions) vs. 1991-2000 Average

“The events of 9/11 marked…a permanent decline in domestic airline demand. We estimate that the gap between pre-9/11 demand and the post-9/11 period demand resulted in…the equivalent of the industry having no domestic revenue in 2007 and 2008.” (“9/11 Revenue Impact in Context,” Barclays Capital, Feb. 10, 2009)

2001-2008 2009

($20.1) ($37.5)

Domestic Passenger Revenue as Share of U.S. Gross Domestic Product

(60)

(50)

(40)

(30)

(20)

(10)

0

10

20

CV

G;

(49.

0)S

TL

; (3

3.3)

ON

T;

(32.

8)O

AK

; (2

6.0)

CL

E;

(25.

4)S

JC;

(23.

8)T

US

; (2

3.2)

MC

I; (

22.5

)R

NO

; (2

1.0)

PB

I; (

20.9

)T

PA

; (2

0.7)

RD

U;

(18.

4)P

IT;

(18.

4)A

BQ

; (1

8.4)

SA

N;

(18.

2)F

LL

; (1

7.8)

AU

S;

(17.

8)S

MF

; (1

7.7)

BD

L;

(17.

2)IN

D;

(17.

2)D

AL

; (1

6.6)

AN

C;

(16.

2)B

UR

; (1

6.1)

PV

D;

(15.

8)L

AS

; (1

5.4)

IAH

; (1

3.6)

HN

L;

(13.

5)JA

X;

(13.

4)JF

K;

(12.

8)P

DX

; (1

2.6)

SE

A;

(12.

5)S

AT

; (1

2.1)

MC

O;

(11.

5)L

AX

; (1

1.4)

PH

X;

(11.

3)C

MH

; (1

1.1)

SN

A;

(10.

2)E

WR

; (9

.5)

SL

C;

(9.3

)M

SY

; (8

.8)

IAD

; (8

.2)

SJU

; (8

.1)

PH

L;

(7.0

)M

EM

; (6

.7)

HO

U;

(6.5

)B

UF

; (6

.5)

BO

S;

(5.9

)L

GA

; (5

.5)

MS

P;

(5.0

)O

MA

; (4

.8)

OR

D;

(3.3

)B

NA

; (3

.2)

DC

A;

(3.1

)O

GG

; (2

.7)

RS

W;

(2.7

)D

FW

; (2

.6)

MD

W;

(1.6

)S

FO

; (1

.6)

DT

W;

(1.2

)C

LT

; (0

.9)

AT

L;

(0.7

)D

EN

; (0

.5)

MIA

; 1.

7 B

WI;

4.2

M

KE

; 6.

6

Sources: Innovata (May 7, 2010) and Federal Aviation Administration

What a Difference Two Years Have Made in Airport Ops62 of the 65 FAA “Large” and “Medium” U.S. Airports Have Lost Scheduled Flights

9 www.airlines.org

% Change in Scheduled-Service Departures: 2Q 2010 vs. 2Q 2008

Sources: BTS National-Level Average Fare Series (http://www.bts.gov/xml/atpi/src/avgfareseries.xml) and BLS (http://www.bls.gov/cpi/tables.htm)

DOT: Avg. Domestic Ticket Prices Just Above 1999 LevelsU.S. CPI Rose 41 Percent from 4Q 1995 to 4Q 2009, Leaving Prices $85.86 “Short”

4Q95

4Q96

4Q97

4Q98

4Q99

4Q00

4Q01

4Q02

4Q03

4Q04

4Q05

4Q06

4Q07

4Q08

4Q09

$2

87

.81

$2

78

.35

$2

93

.55

$3

16

.21

$3

17

.98

$3

40

.11

$2

99

.83

$3

08

.85

$3

15

.77

$2

97

.28

$3

14

.76

$3

18

.16

$3

29

.77

$3

44

.82

$3

19

.31

$405.17

www.airlines.org10

Note: BTS reports average fares based on domestic itinerary fares (round-trip or one-way for which no return is purchased). [Averages do not include frequent-flyer or “zero fares.”] Fares are based on the total ticket value, which consists of the price charged by the airlines plus any additional taxes and fees levied by an outside entity at the time of purchase .

May 19, 2010 – “While air fares in the fourth quarter of 2009 declined 6.1 percent since the fourth quarter of 2000, overall prices measured by the inflation rate rose 24.1 percent during that period. In the 14 years from 1995, the first year of BTS records, air fares rose 10.9 percent compared to a 40.7 percent inflation rate . In 1995 dollars, the average air fare in the fourth quarter of 2009 was $227, compared to $288 in 1995 and $300 in 2000.”

$8

5.8

6

Actual Avg. Prices

CPI-Linked Prices

Jet Fuel Prices* in 2009 Exceeded Historical AverageDecisions About Staffing, Scheduling, Aircraft Purchasing Made in Broader Cycles

1991-2000 2001-2008 2009 YTD 2010

$0.59

$1.53 $1.69

$2.13

11

* Simple average of spot price per gallon in New York Harbor, U.S. Gulf Coast and Los Angeles (from EIA Weekly Petroleum Status Report)

www.airlines.org

“It is very hard to justify oil going from $30 to above $80 based only on the fundamentals of supply and demand.” Economist Nouriel Roubini, Inside Commodities Conference (11/4/09)

“I have no problem with the notion that $75 or $80 a barrel oil is a fair market value in a healthy economy, but we’ve got ahead of ourselves.” Stephen Schork, Inside Commodities Conference (11/4/09)

“[O]il, energy and food prices are now rising faster than economic fundamentals warrant, and could be driven higher by excessive liquidity chasing assets and by speculative demand… The global economy could not withstand another contractionary shock if similar speculation drives oil rapidly towards $100 a barrel.” Nouriel Roubini, NYU, “The risk of a double-dip recession is rising” (8/23/09)

U.S. Aviation* Taxes/Fees Up Substantially From 2000Airlines and Flying/Shipping Public Have Not Received Commensurate ROI

www.airlines.org12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000 FAA TaxesAirport PFCsDHS Taxes

Source: ATA, BTS, DHS, FAA* U.S. passenger and cargo carriers; FAA taxes are commercial aviation only

Collections, in Billions

2-J

an

-09

15

-Ja

n-0

92

9-J

an

-09

11

-Fe

b-0

92

5-F

eb

-09

10

-Ma

r-0

92

3-M

ar-

09

3-A

pr-

09

17

-Ap

r-0

93

0-A

pr-

09

13

-Ma

y-0

92

7-M

ay

-09

9-J

un

-09

22

-Ju

n-0

96

-Ju

l-0

91

7-J

ul-

09

30

-Ju

l-0

91

2-A

ug

-09

25

-Au

g-0

98

-Se

p-0

92

1-S

ep

-09

2-O

ct-

09

15

-Oc

t-0

92

8-O

ct-

09

10

-No

v-0

92

3-N

ov

-09

7-D

ec

-09

18

-De

c-0

94

-Ja

n-1

01

5-J

an

-10

29

-Ja

n-1

01

1-F

eb

-10

25

-Fe

b-1

01

0-M

ar-

10

23

-Ma

r-1

06

-Ap

r-1

01

9-A

pr-

10

30

-Ap

r-1

01

3-M

ay

-10

800,000

900,000

1,000,000

1,100,000

1,200,000

1,300,000

1,400,000

1,500,000

1,600,000

1,700,000

1,800,000

Trading of Oil Futures Surging in Spring 2010Daily Paper Trade (Million Barrels) of Oil via Exchanges*

Sources: Citi Futures, EIA, IEA, New York Mercantile Exchange (NYMEX) and London IntercontinentalExchange® (ICE)

* NYMEX West Texas Intermediate (WTI) + ICE WTI + Brent

www.airlines.org13

< BBB- (speculative or “junk”)

>= BBB- (investment-grade)

Ex

xo

nM

ob

il

Mic

ros

oft

Pfi

zer

Wa

l-M

art

eB

ay

Am

azo

n

QA

NT

AS

So

uth

we

st

Lu

fth

an

sa

Bri

tis

h A

ir

TA

M

Ala

sk

a

Co

nti

ne

nta

l

De

lta

SA

S

Am

eri

ca

n

JA

L

Je

tBlu

e

Un

ite

d

US

Air

wa

ys

Air

Ca

na

da

Air

Ja

ma

ica

Air

Tra

n

One U.S. Passenger Airline Has Investment-Grade CreditNo Passenger Airline in the World Enjoys an A-Minus or Better Rating from S&P

14 www.airlines.orgSources: Standard and Poor’s as of Dec. 18, 2009 and http://online.wsj.com/article/BT-CO-20090420-711716.html

U.S. Passenger Airlines* Market Value in ContextMarket Capitalization (Billion USD) as of Mar. 31, 2010 @ 1:00 PM EDT

15

ExxonMobil (XOM)

Microsoft (MSFT)

Wal-Mart (WMT)

Amazon (AMZN)

eBay (BAY)

All Publicly Traded U.S. Passenger Air-

lines*

$316.4

$258.8

$212.0

$60.5

$35.2

$38.4

www.airlines.org

* U.S. Passenger Airlines

AAI AirTranALK AlaskaAMR AmericanCAL ContinentalDAL DeltaHA HawaiianJBLU JetBlueLCC US AirwaysLUV SouthwestMESA MesaPNCL PinnacleRJET RepublicSKYW SkyWestUAUA UnitedXJT ExpressJet

Source: MSN Money - http://moneycentral.msn.com/investor/research/welcome.asp

Ensuring a World-Class Aviation Workforce

16 www.airlines.org

Economy, Fuel, Taxes, Regulation Continue Toll on Jobs*U.S. Passenger Airline FTEs* Down More Than 30% from May 2001 All-Time PeakM

ar-

90

Ma

r-9

1

Ma

r-9

2

Ma

r-9

3

Ma

r-9

4

Ma

r-9

5

Ma

r-9

6

Ma

r-9

7

Ma

r-9

8

Ma

r-9

9

Ma

r-0

0

Ma

r-0

1

Pe

ak

Ma

r-0

2

Ma

r-0

3

Ma

r-0

4

Ma

r-0

5

Ma

r-0

6

Ma

r-0

7

Ma

r-0

8

Ma

r-0

9

Ma

r-1

0

45

0.5

43

9.1

44

5.3

44

1.1

43

5.6

42

9.8

43

7.7

37

9.7

39

7.2

41

7.4

50

4.0

53

8.7

54

4.4

46

5.6

46

0.8

44

1.2

42

8.5

40

4.9

40

7.9

41

5.5

39

2.1

37

7.3

* Full-time equivalent employees in thousands (see http://www.bts.gov/programs/airline_information/number_of_employees/)17 www.airlines.org

“Why are companies still laying people off if the economy’s looking better? A closer look at the airline industry might help answer that question. While carriers say they see glimmers of evidence that the plunge in passenger demand that began a year ago is bottoming out, they aren’t seeing many signs that travelers are coming back or are willing to pay more for tickets… And now fuel prices are rising again, giving more cause for alarm.” Susan Carey, “Airlines Illustrate Why Layoffs Continue,” Wall Street Journal (Nov. 6, 2009)

Commercial Aviation Drives 10.9M U.S. JobsEvery 100 Civil Aviation Jobs Generate Approximately 330 Jobs in Other Industries

18 www.airlines.orgSource: Federal Aviation Administration, “The Economic Impact of Civil Aviation on the U.S. Economy,” (December 2009)

0%-4.9%5%-9.9%10% or above

Ensuring Aviation Safety

19 www.airlines.org

With Each Decade, U.S. Airline Safety Improves MarkedlyFatal Accidents per Million Aircraft Departures in Scheduled Service

20 www.airlines.org

1970-79 1980-89 1990-99 2000-09

0.8810

0.5050

0.2919

0.1230

Source: ATA analysis of data from the National Transportation Safety Board

U.S. Passenger Fatalities per 100 Million Passenger Miles

21 www.airlines.org

Auto (1) Bus (2) Rail (3) Airline (4)

0.78

0.04 0.04 0.01

Source: National Safety Council Injury Facts®, 1997-2006 averages

1. Passenger cars/taxis; drivers considered passengers; data from the NSC Fatality Analysis Reporting System2. Does not include school buses; data from the NSC Fatality Analysis Reporting System3. Data from the Federal Railroad Administration (FRA)4. Large and commuter airlines, excluding cargo; data from the National Transportation Safety Board (NTSB)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Fatal Accidents Scheduled Departures Fatal Accident Trendline

Source: National Transportation Safety Board (NTSB)

Fat

al A

ccid

ents

pe

r M

illio

n S

ch

edu

led

De

par

ture

s*

* Scheduled passenger and cargo operations of U.S. air carriers operating under 14 CFR 121; NTSB accident rates exclude incidents resulting from illegal acts

With Each Decade, U.S. Airline Safety Has ImprovedSince Deregulation, < 0.5 Fatal Accidents per Million Departures

Sc

hed

ule

d A

irline

De

pa

rtures

(Millio

ns

)

Based on U.S. Bureau of Transportation Statistics (Form 41) and National Transportation Safety Board air carrier data available as of November 2009.

0%

5%

10%

15%

20%

25%

30%

35%

40%

0.00

0.05

0.10

0.15

0.20

0.25

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Acc

iden

ts w

ith

Mai

nte

nan

ce a

s P

rob

able

Cau

se(p

er 1

00,0

00 D

epar

ture

s)Safety Improves with

Increased Outsourcing

Amount Outsourced

All Maintenance Related Accidents

Sh

are

of

To

tal M

ain

ten

ance

Sp

end

ing

Ou

tso

urc

ed

Fatal Maintenance Related Accidents

Mechanical Dispatch Reliability

96.0

96.5

97.0

97.5

98.0

98.5

99.0

99.5

Mec

hani

cal D

ispa

tch

Relia

bilit

y, %

U.S. Operators of Boeing Commercial Jet Transports

Source: Boeing

Securing Stable Funding for Aviation Systems

25 www.airlines.org

Sources: ATA, BTS and Innovata (via APGDat )

2009 Domestic Seating Capacity Fell Most Since 1942Market Forces, Policy Resulted in Largest Post-WWII Contraction in Aviation History

26 www.airlines.org

19

32

19

34

19

36

19

38

19

40

19

42

19

44

19

46

19

48

19

50

19

52

19

54

19

56

19

58

19

60

19

62

19

64

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

(40)

(20)

0

20

40

60

80

100

(16.2) (6.9)

An

nu

al P

erce

nt

Ch

ang

e in

Do

mes

tic

AS

Ms*

* An available seat mile (ASM) is one seat flown one mile

Source: ATA analysis of federal tax code

Tax Bite on a $300 One-Stop Round Trip* Has Nearly TripledGrowing Take by U.S. Government and Airports Leaves Less Revenue for Carriers

www.airlines.org27

Airfare Taxes

* Sample itinerary assumes one-stop domestic round trip with maximum passenger facility charge (PFC) per airport; $300 total price includes taxes and fees.

2010 Taxes20% ($61)*

1972 Taxes7% ($22)*

1992 Taxes13% ($38)*

$2,890

$1,756 $407$569 $283

$448

$7,233

$2,106$487 $469 $16,648

* Federally levied/approved commercial aviation taxes/fees only; some taxes/fees shown include collections from non-U.S. carriers

Sources: Department of Homeland Security, FAA, Office of Management Budget, Transportation Security Administration, ATA

DHS = $3.5B

FAA = $10.3B

“Special” Tax Burden* Was $16.6 Billion in 2009In Addition to Typical Federal, State and Local Corporate Taxes (e.g., Income, Property, Sales)

2009 collections ($millions) from airlines

28 www.airlines.org

Federal Aviation Administration (FAA)

Department of Homeland Security (DHS)

U.S. Airports

Commercial66% ($7,978)

BizJet17% ($2,034)

GA Piston6% ($710)

Military, FSS, etc. 11% ($1,312)

Commercial95% ($11,423)

BizJet5% ($573)

GA Piston0% ($38)

FAA COSTS BY USER GROUPSource: Federal Aviation Administration FY05 Cost

Allocation Study as applied to total FY08 Trust Fund revenues

AIRPORT & AIRWAY TRUST FUND TAXES PAID

Source: Federal Aviation Administration Trust Fund Revenue Collections

Airlines Account for 95% of Funding But Only 66% of CostsDollars in Millions, Based on FY08 FAA Budget

www.airlines.org29

Cross-Subsidy: $3,445

2005 2006 2007 2008 2009

35.7

40.9

49.0 49.3

51.2

EWR/JFK/LGA/PHL Share (%) of Major-Airport Delay Minutes

Source: FAA OPSNET for OEP 35 airports

Billions of Aviation Taxes Have Hardly Made a DentNew York-Area Delay Share Continues to Rise, Begging for Accelerated NextGen Implementation

30 www.airlines.org

Addressing Environmental Challenges and Solutions

31 www.airlines.org

2000 ($0.82)

2001 ($0.78)

2002 ($0.72)

2003 ($0.85)

2004 ($1.16)

2005 ($1.66)

2006 ($1.97)

2007 ($2.11)

2008 ($3.07)

2009 ($1.90)

10,000

10,000,010,000

20,000,010,000

30,000,010,000

40,000,010,000

50,000,010,000

60,000,010,000

$16,787,334,749.0$14,991,769,736.0$12,813,212,487.0$15,487,272,266.0

$22,741,604,813.0

$33,175,241,878.0

$38,771,888,440.0

$41,861,502,122.0

$57,849,854,321.0

$32,290,032,485.0

In 2008, U.S. Passenger and All-Cargo Airlines Spent $16B More on Fuel Than in 2007 and $42B More Than in 2003

Sources: ATA, Energy Information Administration, Department of Transportation

Note: Value in parentheses below year is average price paid per gallon excluding taxes, into-plane fees, pipeline tariffs and hedging costs

32 www.airlines.org

Gallons

“The U.S. airlines…have a relatively low proportion of their 2008 fuel needs hedged, because hedging high and volatile fuel prices is expensive and may require posting cash collateral.”

Standard & Poor’s (March 11, 2008)

1978 1980 1990 2000 2005 2009

2.9 3.1

3.8

4.9

5.8 6.1

Airline Fuel Efficiency Has Surged Over Three DecadesRevenue Ton Miles (RTMs) per Gallon – U.S. Passenger and All-Cargo Airlines

Source: ATA analysis of DOT Form 41 traffic data (T2-Z240) and gallons (T2-Z921)

* U.S. passenger and cargo airlines operating worldwide – passenger and cargo revenue ton miles (RTMs) in all services

www.airlines.org33

“We’re not aware of any other major user of fossil fuels or those who tap into the electrical grid targeting as aggressive a reduction in their carbon footprint as the global airline industry….”

“Should you consider buying carbon offsets next time you log on to your computer?” Airmail 349, Merrill Lynch (Jan. 16, 2009)

The Environmental Way Forward – Globally

www.airlines.org34

Global Sectoral Approach Framework for Aviation

– International and domestic aviation emissions under framework

– Collective aviation-specific emissions targets• Fuel efficiency: annual average improvement of 1.5% through 2020• Growth of the industry’s emissions “carbon neutral” beginning in 2021• Aspirational goal of 50% reduction in emissions in 2050 (vs. 2005 levels)

– Targets all subject to government investment and “do no harm” – so technology, operations and infrastructure improvements flourish

Why These Targets?

– They address the key concern . . . growth . . .• While global aviation currently contributes only 2% of the world’s man-

made CO2, many are concerned that growth in demand = growth in emissions

– While seeking to keep sufficient resources within the industry to allow it to continue its strong record of continuous environmental improvement

Global Approach Requires International & U.S. Adoption

www.airlines.org35

Framework should be established under ICAO

– International Civil Aviation Organization (ICAO) is the authority for international aviation emissions

Framework should be incorporated in domestic legislation

– Not a “carve out,” but a “carve in”

– Complementary policy framework – countries must:• Accelerate ATC modernization, including federal funding for aircraft equipage, training, etc.

• Support development and deployment of aviation alternative fuels

• Reinstate (and increase) research and development and investment for aircraft technology

– All of these efforts should be taken in context of solid energy policy, including stable fuel supplies and appropriate oversight and control of energy futures trading/speculation

ATA Alternative Fuels Commitment is Predicated on Performance — We Are Feedstock- and Technology-Neutral

April 22, 2008—The members of the Air Transport Association of America (ATA) are dedicated to the development and deployment of safe, environmentally friendly, reliable and economically feasible alternatives to conventional petroleum-based jet fuel. We recognize that this effort presents significant technical and financing challenges…We commit to work with future suppliers who potentially can integrate alternative fuels into our operations… To foster the development and deployment of alternative jet fuels that meet our objectives, ATA is a founding and principal member of the Commercial Aviation Alternative Fuels Initiative (CAAFI), a consortium of government agencies, airlines, manufacturers, airports and current and prospective fuel suppliers that are coordinating work on the research and development of alternative jet fuels, including technical specifications, environmental aspects, production and distribution.

www.airlines.org36

To foster the development and deployment of alternative jet fuels that meet our objectives, ATA is a founding and principal member of the Commercial Aviation Alternative Fuels Initiative (CAAFI), a

consortium of government agencies, airlines, manufacturers, airports and current and prospective fuel suppliers that are

coordinating work on the research and development of alternative jet fuels, including technical specifications, environmental aspects,

production and distribution.

In addition…we seek to engage potential suppliers who are capable of providing alternative aviation fuel that can reach our airports within the next few years, in particular, while also encouraging

potential suppliers who may be developing alternatives that will be realized in the longer term.

The Bottom LineExcerpted from Fitch Ratings Airline Credit Navigator (April 13, 2010)

“Given the urgent need for balance sheet deleveraging through the next industry demand cycle as the key to ratings improvement, Fitch will be focused first and foremost on the free cash flow (FCF) generation performance of U.S. carriers as the recovery takes hold in 2010…

Without exception, the U.S. legacy carriers face heavy debt maturities (and in some cases rising cash pension funding obligations) that simply will not be funded entirely out of internal cash flow over the next several quarters even if a solid global ⎯recovery takes shape. This will force many carriers to continue borrowing in 2010 and 2011, delaying any significant progress toward deleveraging their extremely weak balance sheets.

Renewed speculation surrounding potential mergers and industry consolidation reflects the notable improvements in the industry operating outlook and the long-term logic of increased concentration in a largely commoditized industry that remains vulnerable to external demand and fuel price shocks. Fitch continues to see further industry consolidation as a necessary and inevitable part of the U.S. airline industry’s effort to ensure more durable financial profiles through economic cycles…”

37 www.airlines.org

Source: Fitch Ratings “Airline Credit Navigator: Spring 2010 (April 13, 2010)