Half Yearly Report

Doric Nimrod Air Two Limited

Half-Yearly

Financial Report

From 1 April 2012 to 30 September 2012 (Unaudited)

Contents

1. Summary Information 2

2. Chairman's Statement 4

3. Asset Managers Report 6

4. Interim Management Report and Responsibility Statement 13 

5. Directors 15

6. Unaudited Financial Statements 16

7. Notes to Financial Statements 24

8. Advisers and Contact information 52

Company Overview

Doric Nimrod Air Two Limited (LSE:DNA2/DN2C) ("DNA2" or the "Company") is a Guernsey company incorporated on 31 January 2011.

Pursuant to the Company's Prospectus dated 30 June 2011, the Company offered its shares for issue by means of a placing and on 14 July 2011, raised approximately £136 million by the issue of Ordinary Preference Shares at an issue price of £2 each. The Company's Ordinary Preference Shares were admitted to trading on the Specialist Fund Market of the London Stock Exchange and the Channel Islands Stock Exchange on 14 July 2011. Subsequently the Company raised a total of approximately £188.5 million from a C share fundraising (the "C Share Issue"), which closed on 27 March 2012 with the admission of 100,250,000 Convertible Preference Shares to trading on the Specialist Fund Market of the London Stock Exchange and the Channel Islands Stock Exchange.

The Company's total issued share capital currently consists of 72,500,000 Ordinary Preference Shares (the "Ordinary Shares") and 100,250,000 Convertible Preference Shares (the "C Shares") (together the "Shares").

Investment Objectives and Policy

The Company's investment objective is to obtain income returns and a capital return for its Shareholders by acquiring, leasing and then selling aircraft. The Company will receive income from the lease rentals paid by Emirates pursuant to the leases. It is anticipated that income distributions will be made quarterly.

The Company aims to provide Shareholders with an attractive total return comprising income, from distributions through the period of the Company's ownership of the Assets, and capital, upon the sale of the Assets.

To achieve the investment objective the Company is to purchase a total of seven Airbus A380-800 aircraft (each an "Asset"), which will be leased to Emirates Airlines, the national carrier owned by the Investment Corporation of Dubai, based in Dubai, United Arab Emirates.

The Company has four wholly-owned subsidiaries; MSN077 Limited, MSN090 Limited, MSN105 Limited and Doric Nimrod Air Finance Alpha Limited ("DNAFA") which each hold or will hold the Assets for the Company.

The first Asset was acquired by MSN077 Limited on 14 October 2011 for a purchase price of US$234 million. The second Asset was acquired by MSN090 Limited on 2 December 2011 for a purchase price of US$234 million. The third Asset was acquired by MSN105 Limited on 1 October 2012 for a purchase price of US$234 million.

Upon delivery, the respective subsidiary entered into an operating lease with Emirates, pursuant to which the relevant Asset has been leased to Emirates for an expected initial term of 12 years, with fixed lease rentals for the duration. 

In order to complete the purchase of the relative Assets, MSN077 Limited, MSN090 and MSN105 Limited entered into separate loan agreements, each of which will fully amortise with quarterly repayments in arrears over 12 years (together the "Loans"). A fixed rate of interest applies to the Loans. The first loan agreement, second loan agreement and the third loan agreement are on materially the same terms.

The fourth, fifth, sixth and seventh Assets have or are to be acquired by DNAFA using the proceeds of the C Share Issue together with the proceeds of the recent offering of the Pass Through Certificates Series 2012-1 (the "Certificates") by DNAFA and these Assets will also be leased to Emirates for an expected initial term of 12 years, with fixed lease rentals for the duration. The Certificates, with an aggregate face amount of approximately $587.5 million were admitted to the official list of the UK Listing Authority and to the London Stock Exchange on 12 July 2012.

The fourth Asset was acquired by DNAFA on 1 October 2012 for a purchase price of US$234 million. The fifth Asset was acquired by DNAFA on 12 October 2012 for a purchase price of US$234 million. The sixth Asset was acquired by DNAFA on 9 November 2012 for a purchase price of US$234 million. The seventh (and final) Asset is anticipated to be acquired by DNAFA during Q4 2012.

Performance Overview

All payments by Emirates have to date been made in accordance with the terms of the respective Lease.

During the period under review and in accordance with the Distribution Policy specified in its prospectus, DNA2 declared one interim dividend of 3.00 pence per Ordinary Preference Share and subsequent to the period under review DNA2 declared two further interim dividends, one of 4.50 pence per Ordinary Preference Share and one of 0.75 pence per Convertible Preference Share. Future dividend payments are anticipated to continue to be declared and paid on a quarterly cycle on the basis specified by the Company's Distribution Policy and subject to compliance with applicable laws and regulations.

I am pleased to present Shareholders with the Company's half yearly financial report covering the period from 1 April 2012 until 30 September 2012.

Admission of 72,500,000 Ordinary Preference Shares of the Company to trading on the Specialist Fund Market of the London Stock Exchange and listing on the Channel Islands Stock Exchange took place on 14 July 2011, with an issue price of 200p each. Subsequently the Company issued 100,250,000 Convertible Preference Shares which were admitted to trading on the same exchanges on 27 March 2012 at an issue price of 200p each.

The Company's investment objective is to obtain income returns and a capital return for its Shareholders by acquiring leasing and then selling aircraft. The Company intends to use the net proceeds of the share placings together with loans, to fund the purchase of seven Airbus A380-800 aircraft. The first three aircraft were financed by using the equity proceeds from the admission of the Ordinary Preference Shares, and the remaining aircraft are to be financed by using the equity proceeds from the admission of the Convertible Preference Shares. The debt for the first three aircraft was in the form of separate bank loan agreements, whilst the debt requirement for the remaining aircraft was met by way of an issue of Certificates which were admitted to the Official List of the London Stock Exchange on 12 July 2012.

The Company acquired the first aircraft, through its wholly owned subsidiary MSN077 Limited. The aircraft was acquired on 14 October 2011 for the sum of US$234 million. Upon delivery this subsidiary also entered into an aircraft operating lease with Emirates Airlines. The aircraft has been leased to Emirates for an initial term of twelve years with fixed lease rentals for the duration. The debt portion of the funding will fully amortise over the twelve years of the lease, leaving the aircraft unencumbered at the conclusion of the lease. All payments thus far by Emirates have been made in accordance with the term of the lease.

The Company acquired two more aircraft on similar terms on 2 December 2011 (through the Company's wholly owned subsidiary MSN090 Ltd) and on 1 October 2012 (through its wholly owned subsidiary MSN105 Ltd). Now that the three assets have been acquired and leased, the Company will target a distribution to Shareholders of 4.5p per Ordinary Preference Share per quarter (amounting to a yearly distribution of 9%) based on the initial placing price of 200p per share.

Using the proceeds of the admission of the Convertible Preference Shares, and debt raised by way of the Certificates, the Company, through its wholly owned subsidiary, Doric Nimrod Air Finance Alpha Limited, acquired the fourth aircraft on 1 October 2012, the fifth on 12 October 2012 and the sixth on 9 November 2012. The seventh is expected to be acquired by the end of the fourth quarter of 2012.

Both the aircraft and the lessee have performed well over the period. Despite the turmoil in the global economy, passenger air traffic grew, although at a lower rate than in the recent past. Emirates continues to report strong performance, greatly aided by the airline's ability to adjust flight schedules swiftly, and redeploy aircraft about the network, thus optimising revenue, albeit that profit figures were adversely impacted by the high cost of jet fuel.

The lease payments received by the Company from Emirates cover repayment of the debt as well as income to pay dividends to shareholders. Emirates bears all costs (including maintenance, repair and insurance) relating to the aircraft during the lifetime of the lease. The Company's Asset Manager, Doric GmbH, continues to monitor the lease and reports regularly to the Board. Nimrod Capital LLP, the Company's Placing and Corporate and Shareholder Advisory Agent, continues to liaise between the Board and Shareholders, which includes distribution of quarterly fact sheets and the interim management statements.

On behalf of the Board we would like to thank all Shareholders for their continued support of the Company.

Norbert Bannon

Chairman

1. The Assets

At the end of September 2012, the Company completed the purchase of two Airbus A380 aircraft, bearing manufacturer's serial numbers (MSN) 077 and 090. The third aircraft (MSN 105) was delivered on 1st October 2012. DNAFA acquired one additional A380 (MSN 106) on 1st October 2012. All four aircraft are leased to Emirates for an initial term of 12 years with fixed lease rentals for the duration.

The first aircraft was acquired by MSN077 Limited on 14th October 2011 for a purchase price of USD 234 million. The second aircraft was acquired by MSN090 Limited, on 2nd December 2011 for a purchase price of USD 234 million. The third aircraft was acquired by a separate wholly-owned subsidiary of the Company (MSN105 Limited) on 1st October 2012 for a purchase price of USD 234 million.

 The fourth aircraft (MSN 106) was delivered on 1st October 2012 for a purchase price of USD 234 million. MSN 106 was acquired by DNAFA and was the first aircraft financed with the proceeds of the EETC.

The remaining three additional A380s are expected to be delivered between October and December 2012. Each aircraft will be leased to Emirates for a period of 12 years from the point of delivery.

Amongst its 184 aircraft in operation as of August 2012, Emirates has a fleet of 23 A380s which currently serve 19 destinations worldwide: Amsterdam, Auckland, Bangkok, Beijing, Hong Kong, Jeddah, Johannesburg, Kuala Lumpur, London Heathrow, Manchester, Munich, New York JFK, Paris, Rome, Seoul, Shanghai, Sydney, Toronto and Tokyo. In the last quarter of 2012 Emirates is planning to launch A380 flights to Melbourne, Moscow and Singapore. The carrier is the largest A380 operator in the world and has now carried more than 10 million passengers and has flown more than 150 million kilometers since the double decker was introduced to its fleet in August 2008. Emirates has an additional 67 of this model on firm order for delivery through 2017.

Recent visits of the two A380s (MSN 077 and 090) owned by the Company since 2011 included Auckland, Bangkok, London Heathrow, Rome, Sydney and Tokyo.

Aircraft Utilization

For the period from original delivery of the Airbus A380 with MSN 077 to Emirates in mid-October 2011 until the end of August 2012, a total of 512 flight cycles were registered. Total flight hours were 4,314. This is equal to an average flight duration of approximately eight and a half hours.

For the period from delivery of the Airbus A380 with MSN 090 to Emirates in early December 2011 until the end of August 2012, a total of 651 flight cycles were registered. Total flight hours were 3,573. This is equal to an average flight duration of approximately five and a half hours.

Maintenance Status

Emirates maintains its A380 aircraft fleet based on a maintenance program according to which minor maintenance checks are performed every 1,500 flight hours and more significant maintenance checks (so called C checks) every 24 months or 12,000 flight hours, whichever comes first. The first C check of the A380 with MSN 077 is likely to occur in October 2013 and the first C check of the A380 with MSN 090 is likely to occur in December 2013. The Asset Manager plans to inspect the A380s with MSN 077 and MSN 090 during winter 2012/2013. Emirates bears all costs (including maintenance, repair and insurance) relating to the aircraft during the lifetime of the lease.

Hairline Cracks

Since late 2011, hairline cracks have been discovered in a small number of L-shaped metal brackets within the wing structure of some A380s. There are about 2,000 brackets (known as rib-skin attachments or wing rib feet) in each wing, which attach the wing's upper and lower skins to ribs running throughout the wing. The aircraft remain fully airworthy and pose no risk to flight safety as affirmed by European Aviation Safety Agency ("EASA") and Airbus.

Since the occurrence of the issue, Airbus has traced the source of the cracking in A380 wing structures to the choice of a less flexible aluminum alloy used to make the wing brackets, stresses involved during assembly when fitting portions of the wing together plus thermal fatigue during flight at very low temperatures.

In February 2012, EASA issued an updated airworthiness directive ("AD") in relation to the wing rib feet cracks, which called for all A380s in operation to be checked for cracks in the brackets that attach to the wing's ribs before reaching 1,300 flights. Aircraft already approaching or beyond the threshold were ordered to perform the checks and repairs almost immediately.

In late June EASA issued a new AD pertaining to wing rib feet cracks on the Airbus A380 aircraft, which specified repeat inspections of A380 aircraft at defined intervals. This will allow A380 aircraft to continue flying until a permanent fix for wing rib feet cracking has been incorporated in the aircraft. The length of the applicable inspection interval is determined by the location within the wing where previous wing rib feet repairs have been made and the type of repair that has been previously made. Depending on this, an inspection interval of between 560 and 1,200 flight cycles is required. After performing this repeat inspection, the follow-on repeat inspections shall have an inspection interval of 560 flight cycles.

Airbus has developed a permanent fix to wing rib feet cracking, which is currently being certified by EASA. A retrofit modification will be installed on in-service aircraft, while a production modification will be applied for new aircraft. The retrofit is expected to become available in late 2012/early 2013. A further AD is anticipated which will instruct A380 operators to implement the retrofit. At that time, the retrofit will be installed in existing A380s. New aircraft with the production modification are expected to be delivered beginning in early 2014. The permanent fix developed by Airbus will preserve the full design service life of the A380 aircraft.

Airbus has confirmed that it may take up to 8 weeks to incorporate the permanent fix in the A380. Another option is for the fix to be gradually accomplished during regularly scheduled "heavy checks" when the aircraft is two, four, and six years of age. To implement the repair gradually, some extra days would be added to each two to three week "heavy check". Aircraft operators are expected to choose between the various repair solutions depending on their fleet planning and flight schedules.

The two A380s owned by the Company (MSN 077 and 090) on 30th September 2012 are not yet close to approaching the threshold of 1,300 flight cycles for the first check and hence have not been inspected. It is anticipated that inspections will be performed in line with scheduled maintenance activities for each aircraft.

All the repair works will be covered by the applicable manufacturer's warranties. In the meantime airlines with A380s on lease will continue to operate the aircraft and their lease rental obligations will remain absolute and unconditional on these events.

2. Market Overview

The International Air Transport Association (IATA) released its latest industry outlook in June 2012 according to which global industry profits are expected to reach USD 3.0 billion this year. A temporary fall in oil prices, stronger than expected growth in passenger traffic and a bottoming out of the freight market have been driving some improvements in the profitability outlook. However, this is offset by the continued European sovereign debt crisis and uncertainties related to the economic growth outlook.

IATA expects that 2012 will mark a second successive year of declining airline profits. In 2010 the industry's profits peaked at USD 15.8 billion, before dipping in 2011 to USD 7.9 billion net profit. Although airlines face the common challenges of high fuel prices and economic uncertainty, the regional picture is diverse. Compared with the previous forecast in March 2012, North American and Latin American carriers are expected to see improved prospects. But the outlook for European, Asian-Pacific and Middle Eastern carriers has been downgraded, with European losses expected to reach USD 1.1 billion.

World GDP growth, a key driver of airline profitability, is expected to be 2.1% in 2012. That is slightly better than the anticipated 2.0% growth forecast in March. But this still represents a slower growth environment compared to last year, and one in which airlines will struggle to absorb cost increases. Historically, the airline industry has fallen into losses (at a global level) when world GDP growth drops below 2.0%.

During the course of 2012, passenger demand, measured in revenue passenger kilometers, continues to expand, but at a below-trend rate. According to IATA, average annualized rate grew by approximately 3% since January 2012. Due to the recent deterioration in business confidence in a number of major economies, IATA expects a further slowdown of growth during the next months. In its latest Global Market Forecast, published in September 2012, Airbus predicts a compound average growth rate of 4.7% per annum for worldwide passenger traffic until 2031.

Sources: IATA, Airbus

3. Lessee - Emirates Key Financials and Outlook

Emirates revenue reached a record high of USD 16.9 billion in the 12 months ended 31st March 2012, an increase of 16% from the previous financial year. Passenger revenue climbed 18% year-on-year, to USD 13.3 billion due to the overall expansion of passenger numbers as well as higher fares.

Geographically, East Asia and Australasia remains Emirates' most important region in terms of revenue, accounting for almost 30%, just ahead of Europe. The carrier's revenue base is increasingly diffused globally, particularly with the introduction of several new routes into North and South America and the development of African destinations.

Despite this strong revenue growth, the high cost of jet fuel impacted Emirates' bottom line with the airline's profit dropping to USD 409 million, representing a decrease of 72% over last year's record results. Fuel costs increased by 44.4% compared to the preceding year to USD 6.6 billion, representing about 40% of Emirates' total operating costs. Emirates Chairman and CEO, Sheikh Ahmed bin Saeed Al Maktoum, stated that if fuel prices remained where they were in the previous financial year, the net profit "would have again soared to a new record high".

Emirates balance sheet total as per 31st March 2012 was USD 21 billion - an increase of 18% from last year. Total equity increased by more than 3% to USD 5.85 billion with an equity ratio of 28%. The current ratio is 0.98; therefore the airline would be able to meet its current liabilities by liquidating all of its current assets.

Significant items on the liabilities side of the balance sheet are finance leases in the amount of USD 5.44 billion and revenues received in advance from passenger and cargo sales (USD 2.58 billion). These solid financial results not only represent Emirates' 24th consecutive year of profit, but the carrier was also able to strengthen its cash position by 11.6% to USD 4.2 billion.

For the current financial year 2012/13 36 new aircraft are scheduled for delivery, including 12 Airbus A380, 20 Boeing 777-300ER and four freighters. This would be the highest number of aircraft received in a single year of operation. With an increased fleet, Emirates has already launched 12 new destinations in 2012 (Rio de Janeiro, Buenos Aires, Dublin, Lusaka, Harare, Dallas, Seattle, Ho Chi Minh City, Barcelona, Lisbon, Erbil, Washington DC). Adelaide, Algiers, Lyon, Phuket and Warsaw will join the extensive network of Emirates over the course of the next few months. Emirates is also responding to stronger passenger demand on some existing routes. A second A380 service into Paris will start in January 2013. All five daily flights into London Heathrow will be served by A380s from the beginning of February 2013.

In the 2011/2012 financial year, the Emirates fleet, one of the youngest in the industry, carried a record number of almost 34 million passengers at an 80% passenger load factor to a network of 126 destinations in 74 countries. As of 31st August 2012 Emirates has 184 aircraft in operation, with firm orders for another 226 aircraft, including 67 A380.

In July 2012 Emirates was awarded with 'World's Best Airline Inflight Entertainment 2012' award for the eighth consecutive year. Based on more than 18 million airline passenger votes from over 100 different nationalities, consultancy company SKYTRAX identified industry-leading airlines in a number of categories. Emirates 'ice' (which stands for information, communications and entertainment) inflight entertainment system offers over 1,400 channels and is being continuously enhanced. Emirates has also rolled out WiFi internet connection on its entire A380 fleet.

On 6th September 2012 lessee Emirates and Qantas announced a global aviation partnership that will see the Australian carrier move its hub for European flights to

Dubai from Singapore. The 10-year codeshare agreement is enhanced by integrated network collaboration with coordinated pricing, sales and scheduling as well as a benefits sharing model. Emirates will benefit from a major feed for its European, African and Middle Eastern destinations, while gaining access to Qantas' strong network in Australia, which offers nearly 5,000 weekly flights to more than 50 destinations. Subject to regulatory approvals, the partnership arrangements are planned to take effect in April 2013. Neither airline will take equity in the other.

Both airlines will jointly offer 98 weekly flights between Australia and Dubai. Four daily services from Sydney and Melbourne to Dubai will be serviced by A380s. With Emirates flying the largest fleet of A380s in the world with 23, combined with Qantas' 12 A380s for a total of 35, many onward flights to Europe including London, Paris, Moscow, Amsterdam, Munich and Rome will also be serviced by A380s. Qantas will make use of Dubai International's Terminal 3 including the dedicated A380 facility, which will start operations in early 2013 with 20 aircraft contact gates, all of them capable of accommodating one A380.

Sources: Emirates, The Airline Analyst

4. Aircraft - A380

At the end of August 2012, the global A380 fleet consisted of 81 planes that were in service with eight operators: Emirates (23 A380 aircraft), Singapore Airlines (18), Qantas (12), Deutsche Lufthansa (10), Air France (8), Korean Airways (5), China Southern Airlines (3) and Malaysia Airlines (2).

Thai Airways received its first Airbus A380 at the end of September with another three deliveries due in December. Two more will follow in 2013. The Thai flag carrier plans on entering the aircraft into service in October 2012 and will become the ninth operator of A380s worldwide. Since the inaugural flight of the first Airbus A380 in October 2007, the worldwide fleet with currently eight operators has accumulated over 600,000 flight hours, performing more than 72,000 revenue flights. Average utilization across this total fleet is 13-plus flight hours per day.

Sources: Airbus, Ascend

A description of important events which have occurred during the financial period, their impact on the performance of the Company as shown in the financial statements and a description of the principal risks and uncertainties facing the Company is given in the Chairman's Statement, Asset Managers Report and the notes to the financial statements contained on pages 24 to 51 and is incorporated here by reference.

Going Concern

The Company's principal activities are set out within the Company Overview on pages 2 and 3. The financial position of the Company is set out on pages 16 to 23. In addition, Note 18 to the financial statements includes the Company's objectives, policies and processes for managing its capital; its financial risk management objectives and its exposures to credit risk and liquidity risk. The Loan interest rates have been fixed and the fixed rental income under the Leases means that the rent should be sufficient to repay the loans and provide surplus income to pay for the Company's expense and permit payment of the dividends per the investment policy.

After making reasonable enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

Responsibility Statements

The Board of directors jointly and severally confirm that, to the best of their knowledge:

(a) The financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

(b) This Interim Management Report includes or incorporates by reference:

a. An indication of important events that have occurred during the Period, and their impact on the financial statements;

b. a description of the principal risks and uncertainties for the remaining six months of the financial year; and

c. confirmation that there were no related party transactions in the Period that have materially affected the financial position or the performance of the Company during that period.

Norbert Bannon Charles Wilkinson

Chairman Chairman of Audit Committee

Norbert Bannon (Chairman)

Norbert Bannon is a Director of the Irish and UK subsidiaries of a major Canadian bank. He has been approved by the Central Bank of Ireland and by the UK's Financial Services Authority. He is the Chairman of two large pension schemes and is Chairman of the Audit Committee of Doric Nimrod Air One Limited. He is a Director of and Advisor to a number of financial Companies in the UK and Ireland.

He has extensive experience in international finance having been CEO of banks in Singapore and New York. He was Managing Director of Ireland's largest venture capital company and was Finance Director and Chief Risk Officer of AIB Capital Markets Plc. which he left in 2002. He has worked as consultant to a number of international companies.

He earned a degree in economics from Queens University, studied at Stanford Graduate School of Business and is a Chartered Accountant.

Charles Edmund Wilkinson

Charles Wilkinson is a Solicitor who retired from Lawrence Graham LLP in March 2005. While at Lawrence Graham, he specialised in Corporate Finance and Commercial Law, latterly concentrating on Investment Trust and Fund work. He is currently Chairman of Doric Nimrod Air One Limited. He is also a Director of Premier Energy and Water Trust Plc., a listed Investment Trust and Landore Resources Ltd, a Guernsey based mining exploration Company.

Geoffrey Alan Hall

Geoffrey Hall has extensive experience in Investment Management. He has previously been Chief Investment Officer at Allianz Insurance Plc., a major UK insurance company, as an Investment Manager at HSBC Asset Management, County Investment Management, and British Railways Pension Funds. He is currently an Investment Consultant to Cumberland Place Investment Management, and also Chairman of WHEB Asset Management, a major firm in sustainability investing.

Geoffrey earned his masters degree in geography at the University of London. He is an associate of the Society of Investment Professionals (the CFA Society of the UK).