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INNOV!KTRAVIATIONLIMITED

WARWICK CONSULTING GROUP, INC. 4701 N. 24TH STREET .#B-6 PHOENIX, ARIZONA 85016 (602) 468-9983 7 EAST 47TH STREET, 6TH FL00. R NEWYORK, NEW YORK 10017 (212) 832-7433

MAY 18, 1991

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INNOVAIR AVIATION LIMITED

Table of Contents

DISCLAIMERS ...............................................

1

PURPOSE.

"

2

Description ............................................. Financial Abstracts - 1990 Actual ................... ~... - 1991-95 Projected .......... " ....... Company Highlights .............................. ~ ....... BUSINESS DESCRIIwgION

3 5 5 6

Company History..., ...................................... " C om~ ~ - ~-6~ ~ -~d-- ~5 D-~--c~ve s ....... TURBO MODIFICKTION INDUSTRY, THE PRODUC~S ~ND THE MARKET Summary. of Aircraft Modification Industry ............... Summary of Conversion Process ......... - .................. Summary of Market ............... . ........................ Competition ................................. " ............

~ 8 9 I0 13 15

Sales Projections ........ ~ ................ , ......... ¯ .... Pricing Strategies ...................................... Distribution and Marketing .............................. Special Corporate Relationship .......................... Product Availability ............. ~... .................... Product Support ........... - .............................. .Purchasing ....... ; ........... ¯ ........................... Status of Current Customer contacts ..................... New products ............................................

21 23 23 25 26 26 26 27 31

" Summary of Management. " " Principals' Background ........... " ....................... ¯ Organizational Chart. Production Facilities ...................................

34 36 38 40

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Table of Contents (Continued)

HISTORICAL AND PROJECTED FiNANCIAL STATEMY2~2S IDnov~r Aviation Limited

Balance Sheets ........... ~ .............................. Statements of Income and Retained Earnings .............. Statements of Cash Flows .............................. ".. .Summary of Significant Projection Assumptions and A~counting Policies .......... ~ ....................... ..InnovairTurbo Conversions, Inc.
Balance S~eets .......................................... Sta~ements..~f--I-ncome-and Ret~ined--E~Tz~ngs~-..;~ .......... Statements of Cash Flows ................................ Summary of Significant Projection Assumptions. and Accounting Policies ............ "...~ .................

41 43 44 46

57 59 60 62

Exhibit "A".- Supplemental Type Certificate and Parts Manufacturer Approval Exhibit "B, - Specifications and Performance Char~s Exhibit "C" - PromOtional Materials: - Basler Brochure - Air Atlantique Brochure ¯ ."-'Grisly Hunter Executive Summary Exhibit "D" - Customer & ~echnical Reaction to Turbo-67 Exhibit "E" - Infrared Signature Information .Exhibit "F" - New Products Exhibit "G" - Innovair/BTC License Agreement Exhibit "H" - Known Icing Certification Opinion Exhibit "I" - "Flight International" Article - April 24, 1991

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DISCLAIMERS

THE INFORMATION CONTAINED IN THIS CONFIDENTIAL MEMORANDUM, INCLUDING BUT NOT LIMITED TO THE BUSINESS DESCRIPTION, CORPORATE HISTORY, OPERATING PROCEDURES, FACILITIES AND PROJECTED FINANCIAL STATEMENTS, WHICH WARWICK CONSULTING GROUP, INC. ("WARWICK") OBTAINED IS, TO THE BEST OF WARWICK ~ S KNOWLEDGE, ACCURATE AND COMPLETE. WARWICK HAS NOT AUDITED OR OTHERWISE CONFIRMED AND, ONLY TO A LIMITED EXTENT, HAS IT REVIEWED THIS INFORMATION. NO REPRESENTATIONS; EXPRESS OR IMPLIED, ARE BEING MADE AS TO THE COMPLETENESS OF, OR THE CONCLUSIONS TO BE DRAWN FROM, THE INFORMATION CONTAINED IN THIS CONFIDENTIAL MEMORANDUM. THIS" CONFIDENTIAL MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OF THE COMPANIES DESCRIBED HEREIN. ANY SUCH OFFER OR SOLICITATION MAY ONLY BE MADE THROUGH DIRECT NEGOTIATION WITH THE COMPANIES AFTER PERFORMING A THOROUGH INDEPENDENT DUE DILIGENCE INVESTIGATION OF THE COMPANIES AND THE SUBSTANTIAL RISKS ASSOCIATED THEP, EWITH. PRIOR TO THE'CONSUMMATION OF A~.Y SUCH INVESTMENT, SUCH INTERESTED PARTY WILL BE ALLOWED ACCESS TO ADDITIONAL INFORMATION RELATING TO THE COMPANIES AND SUCH INVESTMENT AND WILL BE ALLOWED TO ASK QUESTIONS OF TH~ PRINCIPAL" ~NDIV~-D~2£LS ~SS~CI~TED" "WL.-TH"-THE"-COMP~N-I~---~UCH INVeSTMeNT MAY ONLY BE MADE THROUGH THE NEGOTIATION AND EXECUTION OF A DEFINITIVE INVESTMENT" AG~%EEM~NT CONTAINING ALL REPRESENTATIONS, TERMS AND CONDITIONS WITH RESPECT TO SUCH WARRANTIES, INVESTMENT, IF ANY. ONLY STRICTLY '=ACCREDITED INVESTORS" (AS SUCH TERM IS' DEFI~ED IN THE UNITED STATES FEDERAL SECURITIES LAWS) ME~TING CERTAIN ADDITIONAL QUALIFICATION STANDARDS WILL BE ALLOWED TO INVEST IN THE COMPANIES. THIS CON]~IDENTIAL MEMORANDUM. DOES NOT" CONTAIN ALL MATERIAL INFORMATION WHICH MUST BE CAREFULLY .CONSIDERED BY ANY PARTY DESIRING TO INVEST IN ANY SECURITIES OF THE COMPANIES AND, THEREFORE, NO RELIANCE SHOULD BE ?LACED ON THE CONTENTS OF THIS MEMORANDUM FOR SUCH AN INVESTMENT PURPOSE. OPINIONS AND BELIEFS EXPRESSED IN THIS CONFIDENTIAL MEMORANDUM ARE SOLELY THOSE OF BRYAN CARMICHAEL AND BARRY WILSON AND HAVE NOT . BEEN INDEPENDENTLY INVESTIGATED OR VERIFIED FOR ACCURACY, ADEQUACY OR COMPLETENESS. MOREOVER, THE INFORMATION CONTAINED HEREIN IS EXPRESSED. AS OF THE DATE ON THE .COVER PAGE OF THIS MEMORANDUM AND IS SUBJECT TO CHANGE WITHOUT NOTICE, AND THE DELIVERY AND ¯RECEIPT OF THIS MEMORANDUM SHALL NOT CREATE ANY IMPLICATION THAT NO SUCH CHANGE HAS OCCURRED. BY ACCEPTING THIS CONFIDENTIAL MEMORANDUM, -THE RECIPIENT EXPRESSLY AGREES TO TREAT ALL INFORMATION SET FORTH HEREIN STRICTLY CONFIDENTIAL AND NOT TO DISCLOSE OR USE ANY SUCH INFORMATION FOR ANY PURPOSE OTHER THAN AS. DESCRIBED IN THIS MEMORANDUM CONSISTENT WITH THE TERMS AND CONDITIONS OF THE CONFIDENTIALITY AGREEMENT EXECUTED BY SUCH RECIPIENT IN CONNECTION HEREWITH. ANY DISTRIBUTION OR REPRODUCTION OF THIS MY~MORANDUM, IN WHOLE OR IN PART, OR THE DI~I~LGENCE OF ANY OF ITS CONTENTS, WITHOUT TH~ PRIOR CONSENT OF WARWICK IS STRICTLY" PROHIBITED. THIS M~MORANDUM (AND ~ EXHIBITS THERETO) MUST BE RETURNED TO WARWICK UPON REQUEST.

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PURPOSE

This Confidential Memorandum is .presented by WarwicM Consulting Group, Inc. to inform interested parties of the aircraft conversion industry and how it relates to the business and the potential of Innovair Aviation Limited. Bryan Carmichael and Barry Wilson, principal shareholders of Innovair Aviation Limited, are initiating a plan to recapitalize this company in order to realize the anticipated growth potential. The structure and capitalization of Innovair Aviation Limited is..to be negotiated by all parties. The ultimate structure of such recapitalization may differ substantially from that assumed in the financial projections contained herein.

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EXECUTIVE SD-MMARY

DescriDtionl
Innovair Aviation Limited ("Innovair") and Basler Turbo Conversions, Inc. ("BTC") were incorporated in the first half of 1988 with the express business objective of jointly modernizing and converting Douglas DC-3/C-47 aircraft by adding turbo-prop power and other improvements. They have successfully obtained the supplemental type certificate approving its turbo-prop conversion and have achieved $13,632,000 in sales during 1990. .Because of the many benefits, of this converted aircraft over other similar aircraft, the market potential is believed to be excellent.

Innovair has a license agreement with BTC that allows Innovair to manufacture and install conversion kits and market the Turbo-67 in all countries outside the United States. BTC builds kits for sales to Basler Flight -Services (BFS), who is the distributor for the U.S~ market, and also for sales to any U.S. government agency. Because of rapidly escala~cimg Costs ol~-ircraft production and increases in delivery delays, the aircraft conversion industry has become -an accepted supplier of aircraft. The conversion industry has helped to relieve budgetary pressures, both military 'and civilian. With the recent availability of a broader range of reliable turbo-prop .engines to accomplish efficient conversions, conversions such as the Turbo-67 are expected, to become a significant competitor and logical. alternative to higher priced new prmduction aircraft. During the last four years, the Companies have jointly "funded approximately $7,000,000 toward~ research and development costs to secure a type certificate for the Basler Turbo-67 DC-3/C-47 conversion from piston power to turbo-prop power. On February 27,. 1990, a Supplemental Type Certificate (STC) covering this conversion- (Turbo-67) was issued by the Federal Aviation Administration (FAA) (see- Exhibit "A"). ~ Parts Manufacturers Approval (PMA) was issued by the FAA subsequently in March 1990 authorizing the sale of Turbo-67 conversion.kits (Exhibit "A"). Approximately 1,200 Douglas DC-3/C-47s are operating in many countries, around the world, in military and civilian roles. This aircraft plays a unique role particularly in third world countries because of.its broad range of ~perating capabilities. Due to the scarcity of avgas and the increasing unreliability of its piston engines, the Company believes the need for conversion to turbo-prop power has become a real priority. Because of the Company's successful Turbo-67 conversion, interest in utilizing the DC-3/C-47 in Western countries has increased dramatically~ particularly for small package freight use and for drug interdiction and surveillance roles.

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Since obtaining the STC last year, sales have included the following: two conversions delivered to the U.S. Air Force under a Foreign Military Assistance (FMA) program with negotiations in thefinal stages for four more to be ordered in 1991; one has .been delivered to the U.S. Forestry and a second conversion is nearing completion; one has been Forestry delivered to United Technologies Corporation for demonstration and promotion of international sales and two have been sold to a South American freight airline.

In total, Innovair Aviation Limited and BTC have jointly completed the in-house manufactured items for twelve DC-3/C-47 converslon kits, seven of which have been installed along with purchased components, on aircraft which have been, or are nearing, delivery. An additional six kits have been approximately 50% completed. It is believed that the Turbo-67 conversion is superior to the piston engine DC-3/C-47 in all performance parameters. Its low capital and direct operating cost, ease and low cost of maintenance, and reliability in a wide.range of military and civilian role6, makes it a very competitive product. The Turbo-67 conversion modernizes the cockpit and replaces all major systems on the aircraft. Due to. the enhanced ~pecifications over the original DC-3)C-4.7, the airframe, with. a~pro~i~-~ ~-al-i-~h-a~, .~ no l~f~-~k~l~a-~ns. As such, Khe converted aircraf~ is "completely modernized" and can be positioned against new aircraft with comparable performance. The capital cost of the Turbo-67 is about one-third of the price' of ~omparable new aircraft, providing considerable price elasticity to increase profitability (see Table 2). Presently, the principal shareholders of Innovair Aviation Limited (Mr. Carmlchael and Mr. Wilson) and the management have decided to secure additiunal capital for the operation of Innovair aS a distinct entity. This will allow the manufacturing of kits in a new company, Innovair Turbo Conversion, which may be-a separate company.or a subsidiary of Innovair Aviation Limited, and expand the international marketing activity through Innovair Aviation Limited (collectively "Companies" or "I.nnovair"). The minority partner has decided not to participate in this business expansion. However, the license agreement will remain in place with BTC. It should be noted that the future of Innovair is not.limited to the bright prospects Of "converting" a significant portion, of still in operation. Instead, the .the 1,200- DC-3/C-47s experienced operational group that successfully developed the already identified several aircraft Turbo-67 conversion has types which would also be logical conversion candidates, using the technology developed on the T~rbo-67. Innovair's management believes it has all the key elements in place to benefit from the future potential within this industry: certifications, an experienced operational team, the foundation of solid distribution systems, proven performance, customer base and plans for new product development. DX 169

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Important AsDe~ts of the Investmen~ An experienced management team will be led Stronq ManaGement: by Bryan Carmichael and Barry Wilson (see enclosed Principal's Background), who have a cbmbined forty-five years of international busines~ background. The technical team, who played a major role in designing and manufacturing the prototype aircraft, will. direct th4 production program. Attractive ¯Market: The DC-3'conversion market is attractive because of the time and cost barrier of entry, lack of present competition, high margins and the demand for this aircraft. Proprietary Prod~c~: Turbo-67 conversions have a unique market position because of its many benefits, i.e. costs, reliability, and efficiency. Favorable Economics: The conversion of the DC-3/C-47 has a very low capital requirement for manufacturing. The low cost to manufacture, complemented by the elasticity of price creates an attractive profit potential.

Innovair will manufacture and market a product which has m~ny ~enef-its---ove~.---compet~er~., .... pmoduot-s including, csst, higher efficiency, and better reliability. Customers have purchased kits and converted DC-3/C-47 .aircraft, thus creating an excellent base for referrals, testimonials and futttre business. "

Because of the time and cost to obtain FAA'approval for this product,- entry by 'additional competition is limited, thus allowing for profi~ margins from kits and upez-aticnal. equipment to remain very high. The accumulation of. expertise in the development of this conversion is believed to be adaptable to other products which havea good profit potential. The supply of airframes available ~hould be more than .adequate tomeet the expected req~.irements.
Competition for this specific conversion is limited because of the many product benefits.that the DC-3/C-47 has relative to the purchase of new aircraft with comparable performance capability. Because of budget restrictions in the military and also in the private.sector, the importance of the cost of the DC-3/C-47 conversion versus other conversions has increased.. Customer satisfaction has-been very high and the aircraft which have been sold have exceeded expected performance standards.

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Historical and Projected Financial Data of the Companies The following table summarizes certain historical and projected financi~l data of Innovair Aviation Limited and its planned manufacturing affiliate which must be read in conjunction with the -complete projections and the. related ass~ptions included elsewhere herein.

Z990 (~)

265

489

4,865

5,926

7,980

10,196

197

240

474

482

49Q.

498

(I)

Since some sales were made on a joint basis, this Historical' Income Statement for 1990 is based on our estimate of the proper allocation of activity attributed to Innovair.
Sales are recognized when delivery of kits occurs. Consequently, some kits ordered in 1991 will not. be recognized until 1992 when they are delivered. The projected value of kits ordered du~ing 1991 is $16,000,000.

(2)

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BUSINESS DESCRII~TION" History:

The information in this Confidential Memorandum is based on the contemplated recapitalization of the Company. The other entities' that have been. involved in the conversion process is Basler Flight Service ("BFS") and Basler Turbo Conversion ("BTC"). BFS and BTC are expected to remain with the present ownership. ' The following is a brief description of the history of each entity. INNOVAIR AVIATION LTD. Innovair- Aviation Ltd. ("Innovair") was incorporated in. Hong Kong in April 1988. The company was fol-med to market conversion kits to" the international community. Innovair has a license "agreement" with' BTC (Exhibit "G")" that allows Innovair to manu-fa~cure;-Tnst-all conversion kits and market the Turbo-67 in all countries outside the United States.
BASLERTURBO CONVERSION INC.

Bas~er Turbo Conversion Inc.. ("BTC") was incorporated in Wisconsin on January 29," 1988.: BTC b~ilt the prototype aircraf.t and .obtained the certification of the Turbo-67 by the FAA, attached as Exhibit "A". BTC manufactures the Turbo-67 conversion kit and sells kits to BFS for the U.S. market and to Innovair for sales to the international market.

Basler Flight Service, Inc. ("BFS") is located in Oshkosh and was. incorporated in Wisconsin. Ownership is 100% by Warren Basler. BFS is presently BTC's distributor for the U.S. "market and also for' sales to any U.S. government agency. In its facility in Oshkosh, Wisconsin, conversions of DC-3/C-47s have been .completed. A freight airline is also operated by BFS in Oshkosh.

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Companies' Goals and Objectives: Short-Term for T~'rbo-67

Achieve as a minimum the sales target for the period 1991 through 1995 of installing the Turbo-67 conversion on approximately 10% of the DC-3/C-47 airframes available in international markets (total sales of approximately 92 conversion kits).
Develop through distributorship arrangements a strong worldwide sales and product support capability for the Turbo-67 during 1991.

Establish a lease financing arrangement through third parties, available to Turbo-67 customers, i~ the second half of 1991. M~intain an active program fort he years 1991 and 1992 to establish efficient production facilities and .The -.-i-ni-~l ..... ~oa-I is~ t~ .install basic ~euhn~rues~conversions ~n 7500 man ho~rs. Goals will be ~stablished for the inspection and overhaul aspects of the conversion and for kit part.fabrication, within the third quarter of 1991. Define additional uses for the Turbo-67 such as firebombing and surveillance, .by internal "development " or in cooperation with other companies.
Develop new products based on, or related to, technology developed on the T~rbo-67 project. The majo~ thrust will be the modez-nization and conversion of other aircraft to-turbo-prop power. Lonm-Term Study commercial and military aircraft produced outside the United States to determine the feasibility of expanding" aircraft conversion operations internationally.

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TURBO MODIFICATION INDUSTRY, THE PRODUCTS AND THE MARKET S~mmar~ of Aircraft Modification'Industry: The industry involved with the conversion of piston engine aircraft to .turbo-prop power came into existence in the late 1950s with the successful conversion of the Convair 580 at Burbank, California.
The industry tends to be made up of relatively small companies although a few larger operators have undertaken conversions such as Dee Howard in Texas (re-engined BAClII), Volpar at Van Nuy@ Airport, California (Beech 18 and Falcon 20) and Trecor at Santa Barbara, California (Grumman S-2 Tracker).

The expertise of the particular management and technicai personnel involved with a conversion project are a major factor ¯ in its success. People involved in the conversion industry tend, in many ~ases, to be "loners" who are most productive in a work environment that suits them. For this reason, the assembly of a competent conversion team can be time-consuming. The air,raft modification industry has gained greater acceptance over the past fifteen years as a result of the increasing price of new .aircraft, extended delivery times and the increasing cost of developing and certifying new aircraft. This has tended to make financially unviable the development of.new aircraft for relatively smaller market segments, other factors affecting the recent growth of conversions are the recent availability of dependable, reasonably priced, turbo, prop engines in a variety of power ranges, and the pressures on military a~d civilian operators' b~dgets. The future potential for the modification industry should remain excellent as most of the factors mentioned above are not likely to be radically reversed.
R~tiqDale for Turbo-67 Conversion:

The Douglas DC-3/C-47 is a twin-engined passenger and cargo aircraft with a civilian designation as a DC-3 and military designatibn as a C-47. Between 1935 and 1946, approximately 10,500 were built in the United States, and around 2,000.were built under license in the USSR (Li-2) and Japan. In the civilian field the DC-3 was the basis for establishing an economically viable and -efficient airline industry in the U.S. and around the world. Approximately 550 civilian DC-3s are operating today.

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BT-67
METAL CONTROL SURFACES .CARGO DOOR METAL CONTROL SURFACES FUSELAGE STRETCH REINFORCEMENT

COWLING METAL CONTROL SURFACES

CONTROL PEDESTAL REINFORCEMENT NACEU.E 5 BLADE METAL PROP LEAD=NG EDGE WING TiP

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The C-47 was the cargo and personnel carrier*workhorse for the military in World War II. It operated under every conceivable condition spanning the arctic to the tropics, deserts to aircraft carriers, float' planes and ski-equipped operations. Around 650 C-47s are still operated by the military in 50 countries. When the DC-3 was conceived, structural analysis was in its infancy, and the airframe was designe~ to a greater level of structural strength than would be the case today. The DC-3 is not pressurized, hence it is not subject to the pressure fatigue-cycle factors applicable to pressurized airframes. McDonnell Douglas, in cooperation with the -FAA and current operators, completed in April 1988 a Supplemental Inspection Document (S.I.D.) program. As a result of this p~ogram, the DC-3/C-47 airframe is expected to have an unlimited operational life span provided the S.I.D. maintenance program is implemented by operators. The. DC-3/C-47 still occupies a unique position in the aviation industry because the companies do not believe a replacement aircraft has been built which will match its operating capabilities in the areas of: low cost of purchase, payload and c~c volumm-, ea~-.~nd-&ow-~ast-~T-~xrfram~-mai~t~nan~e, rough field capability and excellent flight characteristics. The one problem area which has developed for the DC-3/C-47 involves the piston engine. New piston engines are no longer . available and efficient engine maintenance is hard to find and quite costly. As a result, piston engines are no longer reliable enough for the efficient operation of DC-3/C-47 aircraft, pa.rticularly on schedule~ services. .Summary o~ Conversion Process: The conversion process begins with the complet~ stripping of the airframe. The bare frame is comprehensively inspected to ensure structural integrity. All controls and systems areremoved during this overhaul process including all wiring, hydraulic lines," main landing gear, avionics, etc. The conversion work begins with an extension of the fuselage and a substantial strengthening of the center section-and wings. Due to this'ex~.ensive "beef-up," the maximum gross weight of the plane is increased fro~ 26,900 ibs. to 28,750 ibs. New engines are installed as well as a new electrical system, instrument panel, fuel system, an upgraded hydraulic system and modified wing tips. A description of the conversion process in the form of a supplemental book is available upon request.

o o

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The following conversion: POWER pLANT:

items are installed as part of the basic

Pratt & Whitney PT6A-67R (1424 SHP). PROPELLERS.: Hartzell 292.6cm diameter, 5 blade metal propellers. AIRFRAME: Complete inspection utilizing FAA approved manual. Repair of normal wear "and tear items included in conversion cost. Fuselage 'stretched one meter forward of the wing to increase cabin volume and payload, in addition to ~£n~i-~n~ent~r--of--g~-pa-r~met~s.

Exhausts directed through engine nacelles and dispersed over the upper ~ing surface to eliminate infrared signature. Center and outer wings reinforced to reduce loa~s on lower wing attach angl~s and to support the increased maximum gross weight. Wing leading" edge and tip modified to improve flight characteristics in-all phases of flight.

Control pedestal modified for turbine engine controls. SYSTEMS:
Electrical system replaced by complete new system. Hydraulic system upgraded to improve gear yetraction time. Fuel system upgraded to. FAR Part 25, including new filler caps.

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Brakes, B.F. . Goodrich H2-445 expander ' tube brake assembly installed. Optlonal Equipment Which can Be Inc~ude~: ~The following optional equipment is available for installation at a company facility, .and in kit form where indicated: Top Cargo Door (Ground Use Only) Cargo Floor, Fruehauf No. STR020687047 with six (6) Brownline Tracks Outer Wing Long Range Tanks * * 4x200 U.S. Gals..- 800 Gals. 2x200 U.S. Gals. - 400 Gals.

** Metal Flight Control Surfaces Du~l One-P~e~- -Electr-ical-ly- Heated-Wi-ndshields Exterior Paiht - Includes St.ripping (N/A) Oxygen Systems 3 Crew for 4 Hours 1 Tank 3 Mike-Masks 3 Crew for 16 Hours 4 Tank 3 Mike-Masks Cockpit Interior and Soundproofing (N/A) Cockpit Overhead Window (N/A) Wing and Empennage De-lcer Boots Installed (N/A) Gill cargo Liner Avionics Packages as Designated by Customer

Not yet available in kit form. Anticipate availability by January.1992.
Plans and instructions supplied for local production.
N/A Not Available in kit form.

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Performance enhancement result~Dg from Turbo-67 conversioD: Greater power and increased reliability available from turbo-prop engines. Maximum cruise speed increased to 210 kts. Standard cruise speed increased to .196 kts. Maximum range' (with optional long-range tanks) imp~bved to 1976 nautical miles.

Maximum payload increased to i0,000 ibs. Cabin cubic capacity increased 35% to 1,250 cubic "feet. Ability to accept five LD3 containers with installation of top cargo door.
Reduced stall speed end.improved flight characteristics.

Improved performance in hot and high bonditions. significantly reduced infrared profile, practically removing the likelihood of shoulder held, heat seeking missi~es locking on to the aircraft. exterior noise levei sufficiently to. pass Reduced stringent FAA Stage III noise standards. Improved single engine perform~n..ce. Reduced cost and ease of maintenance of engines and airframes. For. additional- information, see the performance charts included in Exhibit "B." Summary o~ Market: Availability of Aircraft: Attached is a. schedule (Table 1) indicating that there are. around 1,200 DC-3/C-47 airur~ft currentlyoperating aroundthe world, according to professional trade journals and other sources. There are additional airframes which have been mothbal~ed, generally because the engines have been cannibalized to keep other DC-3/C-47s flying. The aircraft numbers listed under Comecon, China and Indo China are a mix of Li-2s manufactured under Douglas licehse in Russia and C-47s left over from World War II and the Vietnam War. The suitability of Li-2s for conversion still has to be confirmed. There is an ongoing project to update and refine data on the number of airframes available and suitable for c6nversion, however, it is .believed that sufficient airframes exist to support a substantial sales volume.
-13C0~3613

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Market Position~nq: Two major market segments of approximately equal size exist for the Turbo-67, namely military and civilian. The Turbo-67 as a cargo hauler fa-lls inte a slot between the smaller jets such as the DC-9 and Boeing 737s at the upper end of payload and performance.and twin turbo-prOps such as the Casa 212, Shorts 330, Cor~ier 228 and Turbo Twin Otters on the lower side. Aircraft with the most competitive performance capabilities are the Casa 235, the Dash 8 and the Short~ 360. The Tttrbo-67 will be positioned in the follo~ing markets: Civilian Use Milltar~_.Use

Small Package Freight-Feeder Route General. Cargo Convertible cargo/Passenger
Commuter

General Cargo2Passenger Surveillance Drug Interdiction Intelliq~qe Gathering Gunships

Fire Jumpers
S~rveillance Oil Spills

Mapping The Company believes that the fastest growing civilian markets are the small package freight in the developed world (examples of potential customers are Federal Express, DHL, Airborne, Burlington Express and TNT) and convertible cargo/passenger .in the Third World Countries . In the military area, the greatest potential for growth will be in surveillance and drug interdiction roles as the military gets increasingly involved in these functions. The development of international marketing material will be. carried out in Hong Kong. .The material will be professionally produced, concentrating on performance capability and special features of-the Turbo-67..The main marketing themes will be: moderniz&tion - reliability - low capital- cost - low cost of operation and maintenance - very low infrared signature (Exhibit "E") - low external noise level - broad range of operational roles. The marketing tools will be the use of a demonstrator aircraft, supported by videos, trade journals and presence at major international air shows. A demonstrator aircraft will dominate the Companies' marketing program because of its extremely impressive performance fo~ a 50-year-old airframe. It is believed to be the most effective way to
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get across the concept that not only has the DC-3/C-47 been converted to turbo-prop power, but virtually every aircraft system has bemn modernized. It is expected to dramatically demonstrate the extremely low external noise levels of-the converted aircraft. Competition: The mos~ directly competitive product to the Turbo-67 is a conversion of the Douglas DC-3/C-47 by Aero Modifications International (AMI), which was issued a Supplemental Type Certificate (S.T.C.) in 1987. The company believes five conversions using the AMI kit have been completed and one is operating in the. u.s. The Company believes that the AMI conversion does not represent a serious competitive threat for the following reasons:

The AMI conversion ut~izes Pratt and Whitney PT6A-65AR engines. The Turbo-67 utilizes PT6A-67R engines which signficantly better performance' from high provide altitude airports and in hot conditions (see Exhibit

"B").
AMI did not reinforce the wings and center section of the aircraft and as a result is required to install a total of 1,200 lbs. of lead on the engine firewalls. This effectively. reduces the revenue payload by 1,.200 ibso.

The Maximum Gross Weight for the AMI conversion is 26,900 Ibs. Because the wings and center section .are reinforced on the Turbo-@7, its Maximum Gross Weight is 28,750 Ibs.,. effectively increasing its revenue payload by 1,850 ibs.
4°

The AMI conversion vents the exhaust direct from the side of the cowling. The T~rbo-67 exhausts are enclosed in the cowling and vent over the top of the Wing resulting in a .very low infrared signature, providing protection against, heat-seeking missiles and a lowe_~ noise level. AM! has-no technical in-house capability to support the .product in the field as far as training, maintenance and spares are concerned. The Turbo-67 .will be supported by in-house'training, maintenance and spares caPability.

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Other conversions of the DC-3/C-47 could be ~ndertaken by another competitor~ but such a program would take 18 months to 2 years and such competitor would be required to undertake the same certifihation program undertaken for the Turbo-67. The Company believes the cost wo~Id exceed BTC's $7 million development expenditure. By that time, it is anticipated that the Company would be firmly entrenched within the market as the leading Conversion cbmpany of DC-3/C-47 aircraft. Q~her.Competition:

The aircraft with the most comparable performance to the Turbo~67 are the following: Casa 235, DeHavilland Dash-8 and the Shorts 360. A schedule is attached (Table 2) comparing key performance data and price of these aircraft with the Turbo-67. This attachment highlights the very competitive performance of the Turbo-67. 8rid its low capital cost comparedto alternative aircr~of~

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Basler Turbo Conversions & lnnovair World Wide Sales Potential For Turbo-67
Airframes Available Civilian 130 130 CENTRAL AMERICA/CARIBBEAN 'DOMINICAN REPUBUC EL SALVADOR. HAm HONDURAS . GUA'I'~ MEXICO NICARAGUA PANAMA 2O 6 7 2 4
4

Potential Saie~ Civilian 30 Military 40

Militaw

9

.15

5 11 3 9

2 6 6 6

10
SOUTH AMERICA ARGENTINA 6 2 10 17 26 PERU URUGUAY VENEZUELA 16 1 5 3O 38 3O 6 2 4 10 10 6

BOLIVIA
CHILE COLOMBIA

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Table 1 ( Continued )

Airframes Available Civilian EUROPE Ml.l.itary

Potential Sales Civilian Mll~tary

U.~
GREECE TURKEY

10 lO

10 10 10

2O MIDDLE EAS~T ISRAEL YEMEN

64

18 2

18

2O
AFRICA

18

CA~EBOON
ETHIOPIA GABON "7

4. 10 3 9 5 7 8O 2 2 6. 120
4

U~YA
MADAGASCAR NIGERIA SOUTH AFRICA SUDAN KENYA OTHERS

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Table 1 ( Continued
Airframes Available Civilian ASIA AUSTRAUA NEW GUINEA INDONESIA KOREA ¯ PHIUPPINES 7 6 6 4 2 9 20 24 3 4 2O 9 33 15 4 4 4 Mi.i~ary Potential Sales Clvlllan Military

TA~VAN
TH~JLAND INDIA

18 TOTAL FOR ABOVE COUNTRIES COMECON, cHINA AND INDO CHINA 401

111 454

76 .217

25 227

TOTAL RUSSIA YUGOSLAVIA POLAND CHINA ¯ LAOS CAMBODIA ~IETNAM .150 15 15 80 10 5 30

TOTAL . 6 5O 30

TOTAL-.rOR COMECON, CHINA, ETC. 305

86

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