Ethereum-Based Solution for Aircraft Leasing Audits

BitLease An Ethereum-based Solution to Leased Aircraft Audits Team 8: Andres Florez, Paul Lee, Junaedy Liem & Lyanna Lim

Multiple parties generate records in aircraft leasing Record review is challenging due to a lack of organized and reliable database Manu- facturer Review of physical documents Rebuild aircraft maintenance history Verify signatures in maintenance documents of internal auditors vs. regulator s database Identify possible modifications to records Aircraft MRO Service $ Aircraft Lessor Airline Lease Compliance report $ $ MRO service External auditor MROs Records Current leasing process generates multiple, independent records that mandate costly audits at the end of each lease 2

BitLease eases record storage & auditing BitLease enables immutable record keeping that benefits lessors & lessees Manufacturer BitLease is an aircraft leasing implementation of Ethereum Enables & enforces smart contracts between lessors, lessees and all other leasing parties Immutable records on private, permissioned blockchain enables faster, cheaper audits Records MROs Airline Records Records Bitlease BitLease reduces the cost and time of aircraft leasing audits 3

Blockchain: a game of winners and losers How Bitlease Works MROs Regulator Airlines (lessees) and aircraft owners (lessors) will benefit from reduced audit costs, immutable record of service, transaction confirmation efficiencies (from days to minutes) and higher consistencies Any repair and maintenance work is recorded onto the blockchain. The transaction is verified only if all relevant parties agree, i.e. consensus The regulator monitors maintenance records and validates signatures of airlines internal auditors. Airlines External auditors will be partially displaced; disintermediation occurs Manufacturers The manufacturer adds the model, aircraft identification number, and maintenance records to the aircraft template as permitted by the smart contract. Abusers will be discouraged to undertake fraudulent activities The internal auditor registers the aircrafts maintenance records onto BitLease. 4 Lessors

Once leading lessor adopts BitLease, airlines will follow Lessors are few and concentrated: Top 10 lessors have 66% market share Air lease market growth is high: CAGR of 6% through 2021 Requires only one lessor buy- in Simplifies processes for regulators & lessors Lessors have significant information asymmetry once aircrafts are on lease, see value in a common database Physical audit is mandated by international aviation agencies process must be done and is highly expensive Solution exists in already-established blockchains (eg: Quorum, Smart Contracts & Digital Twins) Airlines already use internal software for MRO purposes Guarantees privacy to all parties involved Leverages existing Technology 5

Proof of Concept Definition Development Deployment Expansion 1 2 - 3 months 1 1-2 5 month month months months Identify lessor and airline Clarify business process Define development guidelines Develop software Develop storage system Develop user interface Develop training materials Develop test scenarios Perform tests Make adjustments Train personnel Launch application Monitor progress Expand to other airlines Expand to other lessors 6

Oil & Gas Equipment: Oil & gas companies which lease drilling rigs and crews from oil-field services companies can utilize blockchain to record equipment lease and equipment repair and maintenance. Heavy Industrial Equipment: Lessors and lessees of land drilling and excavation equipment, heavy construction machinery etc can utilize blockchain to keep records. Medical Equipment: Hospitals and clinics which rent medical devices for fixed-term use can keep records on the blockchain ledger. Container Ships: Charter owners (lessors) and liner companies (lessees) can also utilize this blockchain technology to keep records of lease contract conditions and repair records 7

Risks Mitigation No lessor is on board right now Hire industry expert with connections in lessor companies Regulator buy-in Encourage lobbying from lessors and lessees First mover disadvantage Quickly increase barriers to entry through regulatory mandates Low barriers to entry (Bitcoin / Ethereum is non-proprietary) BitLease application to be proprietary Security attacks Usage of Ethereum blockchain 8

Year 1 Year 2 Year 3 Year 4 1,000 -450 -400 Year 5 2,000 -600 -400 ($ 000 s) Revenue Developers Management Software licenses Rental Other overhead Total Operating Expenses EBITDA Taxes Net Income ( + ) ( - ) ( - ) ( - ) ( - ) ( - ) ( = ) ( = ) ( - ) ( = ) 13 250 -180 -250 500 -300 -300 -10 -30 -32 -672 -172 60 -112 -120 -200 -4 -6 -15 -30 -45 -940 60 -21 39 -20 -30 -53 -30 -0 -354 -342 120 -222 -30 -23 -489 -239 84 -156 -1,103 898 -314 583 Free Cash Flow Terminal value -233 -156 -112 39 583 5,007 2,407 770 3.1x Present Value Investment ROI 9