Exchange Income : Q2 2021 Quarterly Report

Second Quarter Report

For the six months ended

June 30, 2021

CEO's Message

The rollout of vaccines accelerated in the second quarter of the year, and while we are certainly not finished with the pandemic, we are seeing the economy expand and there is a true sense of optimism we are nearing the end of this very difficult period. We are excited about a return to growth and a sense of normalcy as we move through the balance of 2021.

EIC has performed very well throughout the pandemic as our diverse, essential niche operations have provided a steady cash flow and allowed us to maintain our dividend while most others in the aviation space have not. In addition to managing the short-term operations and financial performance, we have maintained a focus on the long-term by strengthening our balance sheet to facilitate accretive acquisition and organic growth. I will come back to those initiatives later in this message, but first I would like to address the remarkable financial performance in the second quarter.

The second quarter marks the first time the comparative quarter was also fully impacted by the pandemic. These results clearly illustrate the success of the adaptations we have made within our businesses to deal with the pandemic.

Highlights from EIC's second quarter financial performance include:

• Revenue grew by 32% to $322 million
• EBITDA increased by 31% to $81 million
• Net Earnings per share increased by 450% to $0.44
• Adjusted Net Earnings per share improved by 231% to $0.53
• Free Cash Flow less Maintenance Capital Expenditures per share rose 34% to $0.98
• Trailing twelve-month Free Cash Flow less Maintenance Capital Expenditures payout ratio improved to 58% from 76%

The payout ratio of 58% is the best since the year end of 2019, which were wholly pre-pandemic operations.

The improvement in the results was achieved in spite of a decline of more than $14 million in government support when compared to 2020. Absent the government support in both periods, EBITDA increased 110% in the quarter.

Another way to evaluate our second quarter is to compare it to 2019, which was the last pre-pandemic second quarter. The strength of the 2021 second quarter is evident in this comparison as both revenue and EBITDA are within 10% of 2019 results and Free Cash Flow less Maintenance Capital Expenditures is higher than 2019. This is not an exact comparison as we have completed three acquisitions which are in the 2021 results, but not in 2019. These acquisitions are modest in size however, and the comparison is being made to show we have recovered substantially and are on track to meet and subsequently exceed pre-pandemic levels over the next few quarters. We have learned over the last 18 months it is impossible to accurately predict the pandemic and as such there may still be some bumps in the road.

Our scheduled airline business experienced a slow and steady recovery as passenger numbers improved throughout the quarter. The rate and extent of the recovery varied greatly by geographic area. Passenger volumes in the Maritimes have improved significantly and may reach pre-pandemic levels in the third quarter. Improvement in central Canada and Nunavut has been much more subdued as an overwhelmed medical system has limited access to diagnostic appointments and treatment, which has in turn reduced travel for medical procedures. Vaccination rates in these communities are high and travel will rapidly resume as soon as the medical system can handle more normal volumes. Restricted access to the medical system over the last 18 months has created a significant backlog of patients waiting to be treated. Accordingly, we expect demand to be robust for a prolonged period as soon as access normalizes.

Regional One has experienced an increase in orders for parts and larger aircraft components as major airlines have begun to increase flying in response to greater consumer demand. The recovery in the United States has been faster than in the balance of the world. Regional One's parts and components business is more focused in the United States than other geographies, and as a result we have seen this part of our business rebound the quickest. Our aircraft leasing business is focused outside of North America and the recovery in this geography has been slower, meaning it will likely take several more quarters to return to historical levels.

Our ISR and medevac operations have continued to operate at or near pre-pandemic levels as they have through most of the last 18 months. They have shown to be very resilient throughout the pandemic and thus we decided to increase our investment in these areas. Between the investment in the Netherlands maritime surveillance contract and the acquisition of Carson Air, we will invest over $100 million. I will return to this topic later in this message.

Our Manufacturing segment continues to experience strong demand, although Quest is dealing with challenges related to deferred construction projects and the corresponding dislocation in their production schedule. Longer term, Quest has seen robust demand for future projects, and we are excited about fully deploying the investments in new production and installation capacity in upcoming quarters.

One of the hallmarks of EIC's strategy since our inception 20 years ago is maintaining a strong, liquid balance sheet that will enable us to move quickly on opportunities when they present themselves while continuing to provide flexibility in times of economic uncertainty. Adherence to our strategy allowed us to complete the acquisition of WIS last summer in the early stages of the COVID-19 pandemic. We

Second Quarter 2021 Report

-2-

Exchange Income Corporation

have seen significant acquisition opportunities even with the travel challenges created by COVID-19, and therefore decided to complete a share offering during the second quarter. The offering generated gross proceeds of $88 million at $39.40 per share. On July 12, 2021, we announced a new issue of Convertible Debentures that generated gross proceeds of $144 million and closed on July 30, 2021. The proceeds will be used to retire existing Convertible Debenture series that come due over the next two years. On July 30, 2021, we announced we would be redeeming the June 2023 debentures on September 2, 2021, utilizing approximately $69 million of the proceeds of the recent offering. The balance will be temporarily utilized to reduce our senior debt facility until deployed to retire other series in the future. We also extended our $1.3 billion syndicated debt facility to August 6, 2025. These three transactions ensure we have the necessary financial resources to continue to successfully execute our business model and weather any economic uncertainties that may arise.

On July 5, 2021, we announced the acquisition of Carson Air in British Columbia for an aggregate purchase price of $61 million. Carson, in addition to being in the freight and pilot training business, is British Columbia's leader in providing medevac services. EIC has seen the resilience of the medevac business throughout the pandemic, and Carson is the ideal candidate to increase our medevac business and expand our geographic coverage. The proven management team led by Kevin Hillier maintains one of the best reputations in the industry. When added to our existing medevac business, Carson further establishes EIC as the premier provider of medical evacuation services in Canada.

At the same time as we announced the acquisition of Carson, we announced we have entered into Letters of Intent to acquire three additional companies for aggregate consideration of $53 million. These are smaller tuck-in acquisitions that are closely related to our existing operations and are expected to be immediately accretive and synergistic. On August 11, 2021, we closed the first of these transactions with the purchase of Macfab Manufacturing for $11 million. The company is closely aligned with our Ben Machine operations and will add capacity and efficiencies to both operations. The remaining transactions are still in the final due diligence phase and assuming no issues are uncovered, are expected to close over the next 60 days. Between Carson, Macfab Manufacturing, and the two remaining acquisitions in progress, we expect to deploy approximately $114 million in accretive acquisitions during 2021.

We are also investing in growing our existing operations, and our airlines in particular. As we exit the pandemic, we have seen a significant increase in demand from our remote mining customers and remote freight customers. By the end of 2021, we will add a net of four larger gauge aircraft (ATR 72 and Dash-8 Q400) to our fleet to meet this demand. Our model is indifferent to organic growth or growth by acquisition, and as long as the investment meets our stringent criteria, we are prepared to deploy our balance sheet to grow accretively.

Managing through the pandemic has been a great challenge as we have first focused on keeping our staff and customers safe while maintaining essential services. We also worked hard to manage our cash flow and maintain our dividend which our shareholders have been able to rely on since our inception almost 2 decades ago. However, a purely short-term focus would have prevented us from continuing our growth trajectory as the pandemic comes to a close and we return to a more normal operating environment. We have kept our eyes on the horizon while dealing with the innumerable challenges of COVID-19. We have added major contracts, completed accretive acquisitions, and strengthened our balance sheet to facilitate further growth. We are genuinely excited about the future. I want to thank our Board, management team, and employees around the globe who have made this possible. I also want to thank our shareholders and all stakeholders for their support, during the last 18 months in particular. I look forward to speaking with you again in November when we release our third quarter results.

Mike Pyle

Chief Executive Officer

Second Quarter 2021 Report

-3-

Exchange Income Corporation

August 12, 2021

TABLE OF CONTENTS

1. FINANCIAL HIGHLIGHTS AND SIGNIFICANT EVENTS ___________________________________________________ 7
2. RESULTS OF OPERATIONS ________________________________________________________________________ 9
3. INVESTING ACTIVITIES ___________________________________________________________________________ 17
4. DIVIDENDS AND PAYOUT RATIOS__________________________________________________________________ 19
5. OUTLOOK ______________________________________________________________________________________ 20
6. LIQUIDITY AND CAPITAL RESOURCES______________________________________________________________ 23
7. RELATED PARTY TRANSACTIONS _________________________________________________________________ 25
8. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS _______________________________________________ 25
9. ACCOUNTING POLICIES __________________________________________________________________________ 25
10. CONTROLS AND PROCEDURES __________________________________________________________________ 25
11. RISK FACTORS_________________________________________________________________________________ 26
12. NON-IFRSFINANCIAL MEASURES AND GLOSSARY__________________________________________________ 26
13. QUARTERLY INFORMATION ______________________________________________________________________ 28
14. FINANCIAL STATEMENTS AND NOTES_____________________________________________________________ 29

Second Quarter 2021 Report

-4-

Exchange Income Corporation

Management Discussion & Analysis

of Operating Results and Financial Position for the three and six months ended June 30, 2021

PREFACE

This Management's Discussion and Analysis ("MD&A") supplements the unaudited interim condensed consolidated financial statements and related notes for the three and six months ended June 30, 2021 ("Consolidated Financial Statements") of Exchange Income Corporation ("EIC" or "the Corporation"). All amounts are stated in thousands of Canadian dollars, except per share information and share data, unless otherwise stated.

This MD&A should be read in conjunction with the unaudited interim condensed consolidated financial statements of the Corporation for the three and six months ended June 30, 2021, its annual financial statements for the year ended December 31, 2020, and its annual MD&A for the year ended December 31, 2020. The unaudited interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") applicable to the preparation of the interim financial statements.

FORWARD-LOOKING STATEMENTS

This report and the documents incorporated by reference herein contain forward-looking statements. All statements other than statements of historical fact contained in this report and the documents incorporated by reference herein are forward-looking statements, including, without limitation, statements regarding the future financial position, business strategy, completed and potential acquisitions and the potential impact of such completed and/or potential acquisitions on the operations, financial condition, capital resources and business of the Corporation and/or its subsidiaries, the Corporation's policy with respect to the amount and/or frequency of dividends, budgets, litigation, projected costs and plans and objectives of or involving the Corporation or its subsidiaries or any businesses to potentially be acquired by the Corporation. Prospective investors can identify many of these statements by looking for words such as "believes", "expects", "will", "may", "intends", "projects", "anticipates", "plans", "estimates", "continues" and similar words or the negative thereof.

Forward-looking statements are necessarily based upon a number of expectations or assumptions that, while considered reasonable by management at the time the statements are made, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Readers are cautioned to not place undue reliance on forward-looking statements which only speak as to the date they are made. Although management believes that the expectations and assumptions underlying such forward-looking statements are reasonable, there can be no assurance that such expectations or assumptions will prove to be correct. A number of factors could cause actual future results, performance, achievements, and developments of the Corporation and/or its subsidiaries to differ materially from anticipated results, performance, achievements, and developments expressed or implied by such forward-looking statements. Such factors include, but are not limited to: COVID-19 related risks; economic and geopolitical conditions; competition; government funding for First Nations health care; access to capital; market trends and innovation; general uninsured loss; climate; acts of terrorism; pandemic; level and timing of defence spending; government funded defence and security programs; significant contracts and customers; operational performance and growth; laws, regulations and standards; acquisition risk; concentration and diversification risk; maintenance costs; access to parts and relationships with key suppliers; casualty losses; environmental liability risks; dependence on information systems and technology; international operations risks; fluctuations in sales prices of aviation related assets; fluctuations in purchase prices of aviation related assets; warranty risk; global offset risk; intellectual property risk; availability of future financing; income tax matters; commodity risk; foreign exchange; interest rates; current credit facility and the trust indentures; dividends; unpredictability and volatility of prices of securities; dilution risk; credit risk; reliance on key personnel; employees and labour relations; and conflicts of interest. A further discussion of these risks is included in Section 11 - Risk Factors.

The information contained or incorporated by reference in this report identifies additional factors that could affect the operating results and performance of the Corporation and its subsidiaries. Assumptions about the performance of the businesses of the Corporation and its subsidiaries are considered in setting the business plan for the Corporation and its subsidiaries and in setting financial targets. Should one or more of the risks materialize or the assumptions prove incorrect, actual results, performance, or achievements of the Corporation and its subsidiaries may vary materially from those described in forward-looking statements.

The forward-looking statements contained herein or contained in a document incorporated by reference herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included or incorporated by reference in this report are made as of the date of this report or such other date specified in such statement. Except as required by law, the Corporation disclaims any obligation to update any forward-looking information, estimates or opinions, future events or results, or otherwise.

Second Quarter 2021 Report

-5-

Exchange Income Corporation