10 June 2014

Aegean Airlines S.A. Summary company financials (m)

Pro forma
Year end December FY2011 FY2012 FY2013 FY2014E
Price (ex 1 sp div, pay date 27 Jun '14) 7.28 Revenue 673.1 567.9 847.5 983.1
Market cap (m) 520.3 12.6% -15.6% 21.3% 16.0%
Enterprise value (m) 356.2 EBITDA -22.4 -1.3 91.8 108.1
-3.3% -0.2% 10.8% 11.0%
Free float 65.8% Net income -27.2 -11.8 52.5 68.7
Net debt (cash) -71.0 -74.0 -185.1 -164.1
Shares outstanding 71.4 71.4 71.4 71.5
EV/Sales 0.04 0.13 0.34 0.36
EV/EBITDA -1.3 -60.0 2.8 3.3
PE -3.4 -12.1 7.2 7.6
PE ex cash 5.2
Revenue growth
EBITDA margin
Aegean Airlines is Greek's largest air carrier in terms of passenger traffic, deriving two thirds of its revenue from international passengers for
which its Greek market share is 15% and one third of its revenue from "a quasi-monopoly" (according to the European Commission) on
domestic passengers for which its Greek market share is 71%. From the perspective of revenue by airport base, Aegean derives 86% of its
revenue from its activities from Athens Airport, the largest airport in Greece by passenger numbers, where it has a 34% market share of
international passengers and a 92% market share of domestic passengers. Aegean's market shares at Athens Airport represent also more than
10x the market share of the next largest operator.

Aegean has successfully created value over the last 10 years, increasing its revenues by 197%, market share by 129%, and EBITDA by more than
400%. Aegean has traded through the Greek crisis with a net cash position and without seeking equity funding from the market. The 197%
growth in Aegean's total revenue , including its domestic business' exposure to Greek consumers, more closely matches growth rates achieved
by successful low cost carriers, such as Ryanair (+355% revenue growth), easyJet (+290%) and Spirit Airlines (+265%), and Southwest Airlines
(+171%) over the same period. If we attempt strip out the impact of the Greek crisis from Aegan's financials by looking at its international
passenger revenues in isolation, then 366% revenue growth has been achieved over the period, according to our estimates, beating all
members of the low cost carrier comp set.

Aegean operates 50 planes, 36 of which are Airbus A320 family for its international passengers, and the remainder Bombardier for its domestic
passengers. The company is controlled by its Chairman Theodoros Vassilakis who owns a 34.2% stake.

Aegean's net cash position at 175m for YE2013 has led management to propose a 71.5m special dividend, payable 27th June 2014. Aegean's
valuation, which is considered after adjusting for the payment of this dividend both in the financials above and in this note, stands at 7.6x P/E
2014E and 3.3x EBITDA, a 17% discount to other European flag carrier valuations and a 67% discount to low cost carrier valuations, according to
our analysis.

Aegean was established in 1988, and was acquired by Theodoros Vassilakis, who today retains a 34.2% stake, in 1994. The company was listed
on the Greek stock exchange in 2004. Aegean refocused its business toward international customers during the Greek financial crisis,
maintaining a net cash position and, excluding the acquisition of Olympic Air, Aegean grew revenue by 46% and EBITDA by 95% from 2007
through 2013.

In October 2013, Aegean completed the acquisition of its sole competitor on domestic flights, Olympic Air. The transaction was originally
proposed in 2011 but blocked by the European Commission on the grounds that "it would have resulted in a quasi-monopoly on the Greek air
transport market... leading to higher fares for four out of six million Greek and European consumers travelling on routes to and from Athens each
year." The EC press release also stated: "there is no prospect that any new player would enter the Greek market after the merger and challenge
the new entity on a sufficient scale as concerns domestic flights to and from Athens." However, in October 2013 the EC reversed the decision
and allowed Aegan to acquire Olympic, stating "It is clear that, due to the on-going Greek crisis and given Olympic's own very difficult financial
situation, Olympic would be forced to leave the market soon in any event. Therefore we approved the merger because it has no additional
negative effect on competition." As a result of the deal, Aegean's market share of domestic passengers in Greece has risen to 71%, and to 92%
for domestic passengers at Athens Airport.

Olympic's assets and 200m of revenue were acquired by way of upfront payments summing to a net 11.5m (30.4m paid in two installments
by the date of deal completion, less cash acquired with Olympic of 18.9m). Four additional payments of 10.4m are due in October 2014, 2015,
2016 and 2017, although these should be readily funded from Olympic's post merger cashflows which are no longer subject to price
competition. Post the Olympic acquisition, 33% of Aegean's revenues are derived from domestic flights.

Before the acquisition of Olympic, Aegean had already gained domestic market share through the Greek crisis increasing its share from 32.7% in
2007 to 48.1% in 2013. These shares, however, also represent a drop in passenger numbers of 3% as the domestic market shrunk by 25% and
Greek GDP by 30% over the period. The market share gains came primarily from Olympic Air, now part of Aegean.

After six years of decline the demand from domestic passengers in Greece today is showing more promising trends. Domestic passenger
numbers increased 18% at Athens Airport for the first five months of the year, and historically have shown correlation, albeit with greater
volatility, to Greek GDP growth. Aegean's domestic load factors, at close to 70%, offer the ability to take on increased passenger demand
without additional plane purchases.

Aegean responded to the Greek crisis by focusing on its international business and and undertaking cost improvement initiatives. Excluding the
acquisition of Olympic, international passengers grew 81% from 2007 to 2013, and payroll costs dropped from 13.5% to 10.4% of revenue. As
these and other measures took hold, and the Greek crisis abated, Aegean's EBITDA margin progression moved from a 9.7% margin in 2007, to a
-3.3% trough margin in 2011, and finally to a 12.2% margin in 2013. International passenger numbers in Greece are also showing improved
economic trends this year, with a 17% increase in international passengers at Athens Airport for the first five months of the year.

economic trends this year, with a 17% increase in international passengers at Athens Airport for the first five months of the year.

Aegean's competitive stronghold is Athens Airport, where it derives more than 86% of group revenue from the operation of 77 routes, twice the
number of routes of its next 10 competitors combined. Aegean appears to be consolidating its position, adding 14 routes at Athens in 2014
versus 3 routes added by easyJet and 2 routes added by Ryanair. The Greek market is underdeveloped in terms of the market share of the
largest flag carrier Aegean, at 28% market share for all of Greece, compared to the average market share of the largest flag carrier across each
European country of 39%. On the same vein, the penetration of all low cost carriers in Greece, at a combined 28% market share, is also low
relative to the average combined low cost carrier penetration in Europe of 40%.

Therefore, rather than a battle of Aegean versus the low cost carriers, we would expect the natural outcome in Greece to be that both Aegean
(as a result of its leading market position and "grandfather rights" slot rules restricting new competition) gains share and the low cost carriers
(as a result of their lower price points) gain share, at the expense of the more than 50 airlines in Athens Airport for example that split the
remaining 37% of the market share, many of which may be less profitable due to their lesser scale. This outcome would be in line with the
recent past, in which as we have noted Aegean has gained share both in its international and domestic operations, and for continued although
modest low cost carrier growth. We would also note our assumption of a 40% market share target for the low cost carriers in Greece is ahead of
other estimates, for example a recent report by The European Organization for the Safety of Air Navigation which forecasted low cost carrier
market share in Greece to rise from 28% in 2013 to 32% by 2020.

As noted, since 1994 has Aegean been controlled by its Chairman Theodoros Vassilakis who today owns a 34.2% stake. Other prominent Greek
businessmen appear to have expressed confidence in his vision with the two Laskaridis brothers, Greek shipping businessmen, owning 8.2% of
Aegean each. We would note that the shareholdings of Vassilakis and the Laskaridis were at higher levels historically until they led a combined
placing of 8.4% of share capital on 10 April 2014 at a price of 7.50. Whilst such a placing might normally be a negative indicator, in this case it
may also be indicative of other attractive opportunities in the depressed Greek market. In a related move, although its logic unclear, Vassilakis
also acted in concert with the Laskaridis brothers on 30 April 2014 buying back 2.5% of stock at 7.45, making their net reduction 5.7% of
Aegean's share capital.

In summary, Aegean Airlines is Greek's largest air carrier in terms of passenger traffic. The group derives two thirds of its revenue from its
international business, where it has grown revenues by 366% over the last 10 years - a higher growth rate than low cost carrier airlines have
achieved over the same period. The remaining one third of Aegean's revenue is derived from what the EC has described as "a quasi-monopoly"
in domestic flights, with a market share of 71% throughout Greece, and 92% share in domestic flights out of Athens. Aegean has traded
reasonably through the Greek financial crisis, refocusing the business on international flights and growing its market share. For the first 5
months of 2014, Aegean has seen increased passenger numbers of 17.6% at Athens Airport, suggesting our 16% pro-forma revenue growth
estimate (already ahead of consensus) for the full year may be too low if these trends continue. Low cost carriers are increasingly active in
Greece, yet the country has low penetration rates for both its leading flag carrier - Aegean - and low cost carriers, suggesting both groups have
room to grow. For FY2014, Aegean shares trade at 3.3x EBITDA and 7.6x PE, or 5.2x PE if the company's net cash position is deducted (these
metrics are ex the special dividend payable on 27th June).

Finally, the stated synergies from the acquisition of Olympic Air are noteworthy. The acquisition prospectus states synergies "are
anticipated to amount to 3% to 4% of the consolidated turnover in a stable economic environment." Taking the mid-point of guidance, the
synergies would represent increased operating earnings of 34m, a 42% uplift to stated proforma 2013 operating earnings of 82.6m, placing
Aegean on 5.6x PE post synergies (3.6x PE ex cash).