Exchange Income : Q1 2021 Quarterly Report

First Quarter Report

For the three months ended

March 31, 2021

CEO's Message

As Canada and the world continue to struggle through the COVID-19 pandemic, our results through the first quarter of 2021 are once again defined by our ability to manage through uncertain times, mitigate challenges to our operation, and position the company to capture opportunities we believe to be close on the horizon.

In that respect, our ability to post solid results for the period is encouraging, with EIC's performance for the quarter surpassing in many respects our Q1 2020 results. The Company's ability to deliver during uncertain times once again validates our belief in empowering strong management teams throughout our operations and confirms EIC's ability to internalize lessons learned during the pandemic, and to leverage them to inform decision-making going forward.

Highlights from EIC's first quarter financial performance include:

• EBITDA of $64 million, an increase of 12% over the prior period
• Revenue of $301 million, a decrease of 2% from the prior period
• Adjusted Net Earnings of $11 million or $0.30 per basic share, an increase of 413% and 400%, respectively, over the prior period
• Free Cash Flow of $42 million or $1.17 per basic share, an increase of 7% and 4%, respectively, over the prior period
• Free Cash Flow less Maintenance Capital expenditures improved to $0.55 per basic share, from $0.07 in the prior period
• Free Cash Flow less Maintenance Capital Expenditures payout ratio strengthens to 62% on a trailing twelve-month basis, improving from 68% at March 31, 2020

EIC's payout ratio on a Free Cash Flow less Maintenance Capital Expenditures basis is a strong indicator of our ability to navigate the pandemic and manage cash flow. The Company has maintained a healthy 62% payout ratio, stronger than the 68% recorded in the twelve months ending March 31, 2020, despite a full year of operation in the pandemic environment. This resilience is a direct credit to the strength of our subsidiary management teams and a testament to their collective ability to adapt to the challenges of the pandemic while keeping our people and customers safe. Our collective proficiency providing essential services and remaining responsive to the needs of our customers while actively managing the costs of our operation have been key to ensuring the viability of our dividend and the continued strength of our balance sheet.

Traditionally, the first quarter of the year is the weakest for EIC, as winter roads compete with our northern aviation operations. This seasonality, in combination with elevated Maintenance Capital Expenditures requirements, typically drives significant cash utilization in the period. Over the last ten years, our average net debt rose by approximately $40 million in the first quarter. By contrast, our persistent focus on cash flow management and reduced Maintenance Capital Expenditures almost eliminated this elevated cash utilization in the first quarter of 2021, as net debt rose by only $4 million. This achievement again demonstrates the exceptional flexibility of the EIC business model and highlights our proven ability to rapidly adapt in response to unforeseen challenges.

While scheduled airline services remain challenged by regional travel restrictions and concurrent declines in passenger traffic, there are encouraging signs in the segment. Where restrictions ease even temporarily, EIC continues to see strong evidence of pent-up demand with bookings returning quickly when travel is practical. We believe that the essential nature of our services positions EIC air carriers for a rapid return to normal traffic levels, and that additional opportunity exists for our airlines given the emphasis on regional connectivity in Canada's post-pandemic recovery.

In our aerospace operations, we've continued to achieve consistent results by emphasizing dependable delivery of long-term contracts and by successfully mitigating pandemic impacts on our operation. Our management teams have successfully drawn on lessons learned early in the pandemic to ensure we are managing internal resources, navigating challenges in external supply chains, and ultimately meeting customer expectations.

At Regional One, we're starting to see the accelerated pace of vaccine distribution in the United States translate to increased activity in the regional aviation market. We're encouraged that the pent-up demand we had identified is solidifying and we remain firm in our belief that the global regional jet market will rebound strongly as the pandemic abates.

EIC's Manufacturing segment also continues to experience strong demand, despite operational challenges and some order dislocation associated with the COVID-19 pandemic. Our emphasis on communication with customers along with proactive management of supply chains and delivery schedules has preserved the strength of our order book. We remain encouraged for a strong post-pandemic recovery in the segment and have made a series of investments and acquisitions in the space to ensure we are properly positioned to capitalize as business returns to a new normal.

The positive signs we are seeing across our existing businesses are also guiding our preparation for growth and investment moving forward. As vaccine distribution ramps up, we can see a return to normalcy is coming. We have a proven track record of successfully growing our business through accretive acquisitions, and we need to be ready to move when we identify opportunities.

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Exchange Income Corporation

This thinking underpins the recent completion of our $80 million bought deal public offering of common shares. We expect to grow, and our acquisition team is actively assessing potential opportunities. We also understand the imperative of maintaining a strong balance sheet. This infusion of liquidity will help us meet both objectives.

So, while management remains cautious in the face of a pandemic that continues to prove unpredictable in domestic and international markets, EIC is also extremely confident moving forward. Our business model has met the tests of the last year and has demonstrated its inherent resiliency. We have strong management teams whose planning is informed by experiences and difficult lessons learned through the pandemic, we're seeing the early signs of recovery and pent-up demand across our businesses, we have secured the additional liquidity we need to take advantage of imminent opportunity, and we have a demonstrated ability to complete accretive acquisitions that build our enterprise.

As always, we're committed to continuing to generate value for our investors while paying our dividend. We have put in place a strategy that will support those goals, and while we recognize the pandemic will continue to create challenges, we are equally optimistic the pandemic recovery in 2021 will reward EIC for the results we have achieved and preparations we have made.

Mike Pyle

Chief Executive Officer

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Exchange Income Corporation

May 13, 2021

TABLE OF CONTENTS

1. FINANCIAL HIGHLIGHTS AND SIGNIFICANT EVENTS ___________________________________________________ 7
2. RESULTS OF OPERATIONS ________________________________________________________________________ 9
3. INVESTING ACTIVITIES ___________________________________________________________________________ 13
4. DIVIDENDS AND PAYOUT RATIOS__________________________________________________________________ 14
5. OUTLOOK ______________________________________________________________________________________ 16
6. LIQUIDITY AND CAPITAL RESOURCES______________________________________________________________ 18
7. RELATED PARTY TRANSACTIONS _________________________________________________________________ 21
8. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS _______________________________________________ 21
9. ACCOUNTING POLICIES __________________________________________________________________________ 21
10. CONTROLS AND PROCEDURES __________________________________________________________________ 21
11. RISK FACTORS_________________________________________________________________________________ 21
12. NON-IFRSFINANCIAL MEASURES AND GLOSSARY__________________________________________________ 22
13. QUARTERLY INFORMATION ______________________________________________________________________ 23
14. FINANCIAL STATEMENTS AND NOTES_____________________________________________________________ 24

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Exchange Income Corporation

Management Discussion & Analysis

of Operating Results and Financial Position for the three months ended March 31, 2021

PREFACE

This Management's Discussion and Analysis ("MD&A") supplements the unaudited interim condensed consolidated financial statements and related notes for the three months ended March 31, 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 months ended March 31, 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 acquisitions price volatility; 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.

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Exchange Income Corporation