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special report:FiNaNce & leasiNG2013
February 2013
China is set to invest even greater sums in its aviation sector in 2013, while the country’s lessors are quickly developing their fl eets and expertise. In tandem with this year’s leasing survey, these issues and more are explored in our 2013 interactive special report on fi nance: fl ightglobal.com/ifi nance13
sPecial RePoRt Finance & leasing
fl ightglobal.com/airlines February 2013 | Airline Business | 23
24 Leasing space A graphic snapshot of the major lessors
26 Fast learners How China’s lease sector is building know-how rapidly
32 Shift to the East The leasing market is seeing a change in its investment base
36 Shaping the game How new rules for export credit will impact airlines
40 Finding the funds Record production means more delivery fi nance
43 Lowering the risk Despite few losses in 2012, claims will still exceed $1 billion
contents
All our special reports are available online at fl ightglobal.com/airlines
Rex
Feat
ures
fl ightglobal.com/ab
REGIONAL SHIFT
Aircraft lessors hold a 20% share of the narrowbody aircraft backlog, and 12% of
widebody orders. The latter is down on the 18% share lessors held fi ve years ago. However, the biggest movement during that
period is in regional jets. Lessors account for more than a fi fth of
the fl eet backlog today, compared with only
3% in 2008
HIGH RISERS
Steven Udvar-Hazy’s Air Lease marches on and less than three years after
launch, a fl eet portfolio of 151 valued at $5.6 billion puts it among
the top 10 largest lessors in the world. Other rapid risers in 2012 include Avolon, which grew its
fl eet value by 61% to $3.4 billion, and Doric which
grew by 35% to$4 billion
Finance & leasing snaPsHot
February 2013 | Airline Business | 2524 | Airline Business | February 2013
leasing sPaceGE Capital Aviation Services remains head and shoulders above its rivals by fl eet value and size, but there has been no shortage of activity from the chasing pack during the past 12 months in developing their portfolios and a shift in ownership
GECAS $34.1bn -1.4%
Aviation Capital Group $5.6bn 16.7%
Air Lease $5.6bn 59.7%
SMBC Aviation Capital $5.9bn -11.6%
AWAS $6.1bn 18.6%
CIT Aerospace $7.2bn -4.2%
BOC Aviation $7.3bn 7.9%
AerCap $7.7bn -8.8%
BBAM $.8.7bn 9.8%
ILFC $26.1bn -6.0%
TOP 10 LESSORS BY FLEET VALUE
TOP FLIGHT
GECAS has kept its impressive lead in the
leasing stakes. While its portfolio by fl eet value dropped slightly in 2012 to $34.1 billion, there was a sharper decline at its nearest rival International Lease Finance. Continued growth during the past 12 months has moved
BBAM up to make it the third-largest
lessor
EASTERN PROMISE
China Aircraft Leasing Company, which
acquired 36 Airbus A320s last year, aims to build its portfolio to 100 aircraft by 2015, another sign of the growing development of
the leasing sector in China
ROBERT MARTIN
BOC Aviation continued its strong
recent growth, moving into the top fi ve aircraft lessors in 2012 as it increased the
value of its portfolio 8% over the previous year
to $7.3 billion
fl ightglobal.com/ab
XXXXX XXXChina Aircraft Leasing Company, which acquired
36 Airbus A320s last year, aims to build its portfolio to 100 aircraft by 2015, another sign of the growing development of the leasing sector in
China
CIRCLE 1TOP FLIGHT
GE Capital Aviation Services remains the biggest aircraft lessor in the world, both by fl eet value and size. While its portfolio by fl eet
value dropped slightly in 2012 to $34.1 billion, there was a sharper fall at nearest rival International Lease Finance. Continued growth during the past 12 months has moved BBAM up to the third-largest
lessor
CIRCLE 2HIGH RISERS (with pic: Air Lease)
Air Lease remains on the march and less than three years after its launch, a fl eet portfolio of 151 valued at $5.6 billion puts it among the top ten largest lessors in the world. Other rapid risers in 2012
include Avolon, which grew its fl eet value by 61% to $3.4 billion, and Doric which grew by 35% to $4 billion
CIRCLE 3BIG DEALS
A busy year for acquisitions in the sector was capped in December when Chinese investors agreed to buy a 90% stake in ILFC from AIG.
It marks a further shift to the east in the fi nance sector after Japanese acquisitions earlier in the year. In October, Mitsubishi UFJ
Lease & Finance acquired fast-growing Jackson Square Aviation after Sumitomo Mitsui completed its purchase of RBS Aviation
Capital at the start of the year
CIRCLE 4 (with Pic: Robert Martin)BOC Aviation continued its strong recent growth, moving into the top fi ve aircraft lessors in 2012 as it increased the value of its portfolio
8% over the previous year to $7.3 billion
CIRCLE 5REGIONAL SHIFT
Aircraft lessors hold a 20% share of the narrowbody aircraft order backlog, and 12% of future widebody orders. The latter is down on the 18% share lessors held fi ve years ago. However, the biggest
movement during that period is in regional jets. Lessors account for more than a fi fth of the fl eet backlog today, compared with only 3% in
2008
CIRCLE 6 (with pic either CALC1 or CALC2)China Aircraft Leasing Company, which acquired 36 Airbus A320s last year, aims to build its portfolio to 100 aircraft by 2015, another
sign of the growing development of the leasing sector in China
$181bnThe total fl eet value of the top 50 aircraft lessors’ fl eet portfolios in 2012, marking an increase of 6% over the previous year
1,635Lessors’ fi rm backlog as at the end of 2012, led by GECAS with 285 aircraft, followed by Air Lease with 244, and ILFC with 225
32%Aircraft lessors’ shares represent almost a third of the total global fl eet and 42% of the Airbus and Boeing narrowbody market
BIG DEALS
A busy year for acquisitions in the sector was
capped in December when Chinese investors agreed to buy a
90% stake in ILFC from AIG. It marks a further shift to the east in the fi nance
sector after Japanese acquisitions earlier in the year. In October, Mitsubishi UFJ
Lease & Finance acquired fast-growing Jackson Square Aviation after Sumitomo Mitsui completed its
purchase of RBS Aviation Capital at the start of
last year
Max
Kin
gsle
y-Jon
es/F
light
glob
al, A
irbus
, Bill
yPix
fl ightglobal.com/ab
REGIONAL SHIFT
Aircraft lessors hold a 20% share of the narrowbody aircraft backlog, and 12% of
widebody orders. The latter is down on the 18% share lessors held fi ve years ago. However, the biggest movement during that
period is in regional jets. Lessors account for more than a fi fth of
the fl eet backlog today, compared with only
3% in 2008
HIGH RISERS
Steven Udvar-Hazy’s Air Lease marches on and less than three years after
launch, a fl eet portfolio of 151 valued at $5.6 billion puts it among
the top 10 largest lessors in the world. Other rapid risers in 2012 include Avolon, which grew its
fl eet value by 61% to $3.4 billion, and Doric which
grew by 35% to$4 billion
Finance & leasing snaPsHot
February 2013 | Airline Business | 2524 | Airline Business | February 2013
leasing sPaceGE Capital Aviation Services remains head and shoulders above its rivals by fl eet value and size, but there has been no shortage of activity from the chasing pack during the past 12 months in developing their portfolios and a shift in ownership
GECAS $34.1bn -1.4%
Aviation Capital Group $5.6bn 16.7%
Air Lease $5.6bn 59.7%
SMBC Aviation Capital $5.9bn -11.6%
AWAS $6.1bn 18.6%
CIT Aerospace $7.2bn -4.2%
BOC Aviation $7.3bn 7.9%
AerCap $7.7bn -8.8%
BBAM $.8.7bn 9.8%
ILFC $26.1bn -6.0%
TOP 10 LESSORS BY FLEET VALUE
TOP FLIGHT
GECAS has kept its impressive lead in the
leasing stakes. While its portfolio by fl eet value dropped slightly in 2012 to $34.1 billion, there was a sharper decline at its nearest rival International Lease Finance. Continued growth during the past 12 months has moved
BBAM up to make it the third-largest
lessor
EASTERN PROMISE
China Aircraft Leasing Company, which
acquired 36 Airbus A320s last year, aims to build its portfolio to 100 aircraft by 2015, another sign of the growing development of
the leasing sector in China
ROBERT MARTIN
BOC Aviation continued its strong
recent growth, moving into the top fi ve aircraft lessors in 2012 as it increased the
value of its portfolio 8% over the previous year
to $7.3 billion
fl ightglobal.com/ab
XXXXX XXXChina Aircraft Leasing Company, which acquired
36 Airbus A320s last year, aims to build its portfolio to 100 aircraft by 2015, another sign of the growing development of the leasing sector in
China
CIRCLE 1TOP FLIGHT
GE Capital Aviation Services remains the biggest aircraft lessor in the world, both by fl eet value and size. While its portfolio by fl eet
value dropped slightly in 2012 to $34.1 billion, there was a sharper fall at nearest rival International Lease Finance. Continued growth during the past 12 months has moved BBAM up to the third-largest
lessor
CIRCLE 2HIGH RISERS (with pic: Air Lease)
Air Lease remains on the march and less than three years after its launch, a fl eet portfolio of 151 valued at $5.6 billion puts it among the top ten largest lessors in the world. Other rapid risers in 2012
include Avolon, which grew its fl eet value by 61% to $3.4 billion, and Doric which grew by 35% to $4 billion
CIRCLE 3BIG DEALS
A busy year for acquisitions in the sector was capped in December when Chinese investors agreed to buy a 90% stake in ILFC from AIG.
It marks a further shift to the east in the fi nance sector after Japanese acquisitions earlier in the year. In October, Mitsubishi UFJ
Lease & Finance acquired fast-growing Jackson Square Aviation after Sumitomo Mitsui completed its purchase of RBS Aviation
Capital at the start of the year
CIRCLE 4 (with Pic: Robert Martin)BOC Aviation continued its strong recent growth, moving into the top fi ve aircraft lessors in 2012 as it increased the value of its portfolio
8% over the previous year to $7.3 billion
CIRCLE 5REGIONAL SHIFT
Aircraft lessors hold a 20% share of the narrowbody aircraft order backlog, and 12% of future widebody orders. The latter is down on the 18% share lessors held fi ve years ago. However, the biggest
movement during that period is in regional jets. Lessors account for more than a fi fth of the fl eet backlog today, compared with only 3% in
2008
CIRCLE 6 (with pic either CALC1 or CALC2)China Aircraft Leasing Company, which acquired 36 Airbus A320s last year, aims to build its portfolio to 100 aircraft by 2015, another
sign of the growing development of the leasing sector in China
$181bnThe total fl eet value of the top 50 aircraft lessors’ fl eet portfolios in 2012, marking an increase of 6% over the previous year
1,635Lessors’ fi rm backlog as at the end of 2012, led by GECAS with 285 aircraft, followed by Air Lease with 244, and ILFC with 225
32%Aircraft lessors’ shares represent almost a third of the total global fl eet and 42% of the Airbus and Boeing narrowbody market
BIG DEALS
A busy year for acquisitions in the sector was
capped in December when Chinese investors agreed to buy a
90% stake in ILFC from AIG. It marks a further shift to the east in the fi nance
sector after Japanese acquisitions earlier in the year. In October, Mitsubishi UFJ
Lease & Finance acquired fast-growing Jackson Square Aviation after Sumitomo Mitsui completed its
purchase of RBS Aviation Capital at the start of
last year
Max
Kin
gsle
y-Jon
es/F
light
glob
al, A
irbus
, Bill
yPix
fl ightglobal.com/ab fl ightglobal.com/ab
have ordered aircraft have turned round and done deals below where the market is. Then there are the conditions of the deal.”
The western lessor continues: “It’s not like it’s a totally out-of-control situation. It’s more on the edges, perhaps 10% on the rates. They are defi nitely leaving money on the table.”
The lessor observes that the new Chinese entrants are, in a sense, following the exam-ple of other new entrants. “You always have the most inexperienced guy who sets the rate. You may not know for 10 years if the rate is too low until you see whether the residual value is wrong.”
Although Chinese lessor inexperience has adversely affected some A320 leases and con-tracts, its impact on leasing has been fairly small globally. However, the US lessor warns against complacency: “Essentially, you have a government mandate to learn the business and they will do so, in some cases, the hard way. You have a combination of low funding costs and low criteria. They will become formidable competitors over time. You have to learn to compete with them. You ignore them at your
Finance & leasing cHina
February 2013 | Airline Business | 2726 | Airline Business | February 2013
A320 assembly line in Tianjin, which was established to serve home-market airlines. But a few Chinese lessors are conducting business in the West, and it is these transactions that are causing discontent.
Chinese lessors have a healthy orderbook for the A320, not surprising considering the assembly plant in Tianjin. Although lease rates are taking a hit because of the new entrants, western lessors have long com-plained about A320 lease rates.
CIT Aerospace has placed large orders for the A320ceo and the Neo. Its president, Tony Diaz, assesses the A320 market like this: “Ultimately, it is supply and demand. It’s been a few circumstances that have come together, even going back to when Boeing had a strike [in 2008] when 60-70 737NGs didn’t get built. If there were an additional 60-70 NGs in the market, it would be a different supply and demand.” He adds that even without the strike, Boeing builds fewer air-craft than Airbus, “and that adds up”.
Some large bankruptcies have involved Airbus operators, pushing A320s on to the market, says Diaz. Five or six years ago, there was a “bit of a glut” to Boeing and rates were soft, he points out. “It’s a little bit of a cycle.”
Diaz adds: “There is a distinction at Boeing between the Classic and the NG. There are more A320s out there. There is a big differ-ence between the early and current vintages, so there is a perception that there are more of them out there.”
HOME FAVOURITESThere are 10 active lessors in mainland China, plus BOC Aviation (BOCA) of Singapore, a Western lessor acquired by the Bank of China. BOCA is wholly owned by BOC and occasion-ally has to bow to home-market pressures, such as by ordering the Comac C919, but 80% of its funding comes from western sources and its management is steeped in western person-nel and business experience. In December, “China Inc” announced plans to buy 80.1% of International Lease Finance with an option to buy a further 9.9%.
In addition to these 10 active lessors a number of new Chinese leasing companies are looking to enter the business and are being monitored by Aviation Capital Group, which leases aircraft into China.
What has riled some western lessors is that not only are the lease rates offered by the Chi-nese below what they would like to see but, more importantly, contracts offered by Chi-nese lessors in the West fail to give the asset adequate protection. They say return condi-tions are poorly written and maintenance pro-visions are not up to western standards, which have been a long time in the making. “They are new to the business and they are learning,” says a US-based lessor. “BOC Aviation is as sharp as anyone. The newest entrants that
Fast leaRneRs
Although China’s lessors have demonstrated inexperience on occasions, they are building their know-how rapidly and will soon become serious competitors for the rest of the industry
■
■
REPORTSCOTT HAMILTON
SEATTLE
Rex
Feat
ures
peril. They are not going to go away. You have to learn to compete with them, and we are.”
China took another major step to becoming a global infl uence with an announcement in December that “China Inc” will acquire 80.1% of mega-lessor International Lease Finance The buyers are China Trust, China Aviation Industrial Fund and P3 Investments. China Life Insurance and ICBC Investment Holdings are in line to take a further 9.9%.
ILFC parent AIG will retain 10% as a pas-sive investor when all tranches are taken up. ILFC will continue to be managed from its Los Angeles headquarters, just as BOCA retained its Singapore head offi ce after the Bank of China bought the company, but ICBC can be expected to benefi t from ILFC’s exper-tise. It may be that ILFC will eventually order the Comac C919, joining GECAS’s small order from the West. Chinese lessors make up more than half the orders and commitments for the C919, accounting for 200 of the 380 announced as of December.
Another US lessor believes China’s pur-chase of ILFC will eventually hinder its agil-ity. Like the fi rst lessor, this one requested anonymity to avoid offending the Chinese because it, too, does business in the country. “Will they make it a diffi cult process to approve a deal?” the lessor asks. “That remains to be seen.”
This lessor, which competed with Singa-pore Aircraft Leasing Enterprise (SALE) before and after it was bought by Bank of China and renamed BOC Aviation, observes:
A SNAPSHOT OF CHINA’S LEASING COMPANIES
Manager In service
Onorder Notes
ABC Financial Leasing 2 45 Major shareholder Agriculture Bank of China
AVIC International Leasing 26 1 Focus on Chinese-built aircraft
BoCom Leasing 24 30 Major shareholder Bank of Communications
CCB Financial Leasing 2 50 Major s/holders China Construction Bank/Bank of America
CDB Leasing 90 13 Major shareholder China Development Bank
Changjiang Leasing 48 Focused on serving major shareholder HNA Group
China Aircraft Leasing 16 56
China Nat’l Foreign Trade Lsg 0
China Universal Leasing 0
CMB Financial Leasing 6 Major shareholder China Merchants Bank
Dragon Aviation Leasing 17 1 Major shareholder China Aviation Supplies
Haurong Leasing 0
Hebei Leasing 0
Hong Kong Aviation Capital 73 Investors include HNA
ICBC Leasing 76 49 Major shareholder Chinese bank ICBC
Jiangsu Leasing N/A
Minsheng Leasing N/A Start-up, business plan under review
Shanghai Electric Leasing N/A
Shenzhen Financial Leasing N/A AKA CDB Leasing
Xinjian Great Wall Leasing 0
Yangtze River Leasing N/A Major shareholder HNA Group
NOTES: N/A denotes fi gures not available. Table excludes BOC Aviation and ILFC which have major Chinese shareholders. Fleet data source: Flightglobal Ascend Online database
“You always have the most inexperienced guy who sets the rate. You
may not know for 10 years if the rate is too low”
The creation and growth of aircraft leasing companies in China is viewed with mixed feelings out-side the country. On the one hand, Airbus and Boeing are
happy to see this liquidity enter the market at a time when demand for fi nance is growing and banks still tend to be stingy. On the other hand, western lessors and others view the emerging players as inexperienced, some-times naive, and capable of making decisions that can hurt the western leasing market and even aircraft values.
No western lessors wish to be quoted by name because of the political sensitivities of Chinese “face” and the potential for harming their own business relationships. But the candour expressed when cloaked in anonym-ity makes it clear these competitors are not particularly happy, but they are philosophi-cal. “ICBC will be around and they are going to learn some lessons the hard way,” says one US-based lessor about a new, leading Chinese lessor. “They will take some planes back in the same way we did from Eastern and Pan Am in the 1980s and 1990s.”
Return conditions and bankruptcy protec-tions written into leases were often ambigu-ous and court rulings left lessors on the hook for much more than they had thought. Leases written by the new Chinese lessors fall short of the protections in western documents.
The impact has been small so far because the Chinese lessors have few leases outside their homeland. But some western lessors are still concerned. The aircraft affected are mainly Airbuses because the company has been particularly aggressive in placing orders with Chinese lessors and because there is an
fl ightglobal.com/ab fl ightglobal.com/ab
have ordered aircraft have turned round and done deals below where the market is. Then there are the conditions of the deal.”
The western lessor continues: “It’s not like it’s a totally out-of-control situation. It’s more on the edges, perhaps 10% on the rates. They are defi nitely leaving money on the table.”
The lessor observes that the new Chinese entrants are, in a sense, following the exam-ple of other new entrants. “You always have the most inexperienced guy who sets the rate. You may not know for 10 years if the rate is too low until you see whether the residual value is wrong.”
Although Chinese lessor inexperience has adversely affected some A320 leases and con-tracts, its impact on leasing has been fairly small globally. However, the US lessor warns against complacency: “Essentially, you have a government mandate to learn the business and they will do so, in some cases, the hard way. You have a combination of low funding costs and low criteria. They will become formidable competitors over time. You have to learn to compete with them. You ignore them at your
Finance & leasing cHina
February 2013 | Airline Business | 2726 | Airline Business | February 2013
A320 assembly line in Tianjin, which was established to serve home-market airlines. But a few Chinese lessors are conducting business in the West, and it is these transactions that are causing discontent.
Chinese lessors have a healthy orderbook for the A320, not surprising considering the assembly plant in Tianjin. Although lease rates are taking a hit because of the new entrants, western lessors have long com-plained about A320 lease rates.
CIT Aerospace has placed large orders for the A320ceo and the Neo. Its president, Tony Diaz, assesses the A320 market like this: “Ultimately, it is supply and demand. It’s been a few circumstances that have come together, even going back to when Boeing had a strike [in 2008] when 60-70 737NGs didn’t get built. If there were an additional 60-70 NGs in the market, it would be a different supply and demand.” He adds that even without the strike, Boeing builds fewer air-craft than Airbus, “and that adds up”.
Some large bankruptcies have involved Airbus operators, pushing A320s on to the market, says Diaz. Five or six years ago, there was a “bit of a glut” to Boeing and rates were soft, he points out. “It’s a little bit of a cycle.”
Diaz adds: “There is a distinction at Boeing between the Classic and the NG. There are more A320s out there. There is a big differ-ence between the early and current vintages, so there is a perception that there are more of them out there.”
HOME FAVOURITESThere are 10 active lessors in mainland China, plus BOC Aviation (BOCA) of Singapore, a Western lessor acquired by the Bank of China. BOCA is wholly owned by BOC and occasion-ally has to bow to home-market pressures, such as by ordering the Comac C919, but 80% of its funding comes from western sources and its management is steeped in western person-nel and business experience. In December, “China Inc” announced plans to buy 80.1% of International Lease Finance with an option to buy a further 9.9%.
In addition to these 10 active lessors a number of new Chinese leasing companies are looking to enter the business and are being monitored by Aviation Capital Group, which leases aircraft into China.
What has riled some western lessors is that not only are the lease rates offered by the Chi-nese below what they would like to see but, more importantly, contracts offered by Chi-nese lessors in the West fail to give the asset adequate protection. They say return condi-tions are poorly written and maintenance pro-visions are not up to western standards, which have been a long time in the making. “They are new to the business and they are learning,” says a US-based lessor. “BOC Aviation is as sharp as anyone. The newest entrants that
Fast leaRneRs
Although China’s lessors have demonstrated inexperience on occasions, they are building their know-how rapidly and will soon become serious competitors for the rest of the industry
■
■
REPORTSCOTT HAMILTON
SEATTLE
Rex
Feat
ures
peril. They are not going to go away. You have to learn to compete with them, and we are.”
China took another major step to becoming a global infl uence with an announcement in December that “China Inc” will acquire 80.1% of mega-lessor International Lease Finance The buyers are China Trust, China Aviation Industrial Fund and P3 Investments. China Life Insurance and ICBC Investment Holdings are in line to take a further 9.9%.
ILFC parent AIG will retain 10% as a pas-sive investor when all tranches are taken up. ILFC will continue to be managed from its Los Angeles headquarters, just as BOCA retained its Singapore head offi ce after the Bank of China bought the company, but ICBC can be expected to benefi t from ILFC’s exper-tise. It may be that ILFC will eventually order the Comac C919, joining GECAS’s small order from the West. Chinese lessors make up more than half the orders and commitments for the C919, accounting for 200 of the 380 announced as of December.
Another US lessor believes China’s pur-chase of ILFC will eventually hinder its agil-ity. Like the fi rst lessor, this one requested anonymity to avoid offending the Chinese because it, too, does business in the country. “Will they make it a diffi cult process to approve a deal?” the lessor asks. “That remains to be seen.”
This lessor, which competed with Singa-pore Aircraft Leasing Enterprise (SALE) before and after it was bought by Bank of China and renamed BOC Aviation, observes:
A SNAPSHOT OF CHINA’S LEASING COMPANIES
Manager In service
Onorder Notes
ABC Financial Leasing 2 45 Major shareholder Agriculture Bank of China
AVIC International Leasing 26 1 Focus on Chinese-built aircraft
BoCom Leasing 24 30 Major shareholder Bank of Communications
CCB Financial Leasing 2 50 Major s/holders China Construction Bank/Bank of America
CDB Leasing 90 13 Major shareholder China Development Bank
Changjiang Leasing 48 Focused on serving major shareholder HNA Group
China Aircraft Leasing 16 56
China Nat’l Foreign Trade Lsg 0
China Universal Leasing 0
CMB Financial Leasing 6 Major shareholder China Merchants Bank
Dragon Aviation Leasing 17 1 Major shareholder China Aviation Supplies
Haurong Leasing 0
Hebei Leasing 0
Hong Kong Aviation Capital 73 Investors include HNA
ICBC Leasing 76 49 Major shareholder Chinese bank ICBC
Jiangsu Leasing N/A
Minsheng Leasing N/A Start-up, business plan under review
Shanghai Electric Leasing N/A
Shenzhen Financial Leasing N/A AKA CDB Leasing
Xinjian Great Wall Leasing 0
Yangtze River Leasing N/A Major shareholder HNA Group
NOTES: N/A denotes fi gures not available. Table excludes BOC Aviation and ILFC which have major Chinese shareholders. Fleet data source: Flightglobal Ascend Online database
“You always have the most inexperienced guy who sets the rate. You
may not know for 10 years if the rate is too low”
The creation and growth of aircraft leasing companies in China is viewed with mixed feelings out-side the country. On the one hand, Airbus and Boeing are
happy to see this liquidity enter the market at a time when demand for fi nance is growing and banks still tend to be stingy. On the other hand, western lessors and others view the emerging players as inexperienced, some-times naive, and capable of making decisions that can hurt the western leasing market and even aircraft values.
No western lessors wish to be quoted by name because of the political sensitivities of Chinese “face” and the potential for harming their own business relationships. But the candour expressed when cloaked in anonym-ity makes it clear these competitors are not particularly happy, but they are philosophi-cal. “ICBC will be around and they are going to learn some lessons the hard way,” says one US-based lessor about a new, leading Chinese lessor. “They will take some planes back in the same way we did from Eastern and Pan Am in the 1980s and 1990s.”
Return conditions and bankruptcy protec-tions written into leases were often ambigu-ous and court rulings left lessors on the hook for much more than they had thought. Leases written by the new Chinese lessors fall short of the protections in western documents.
The impact has been small so far because the Chinese lessors have few leases outside their homeland. But some western lessors are still concerned. The aircraft affected are mainly Airbuses because the company has been particularly aggressive in placing orders with Chinese lessors and because there is an
fl ightglobal.com/ab28 | Airline Business | February 2013
CIT Aerospace was one of the fi rst companies to order the Airbus A350, including the -800 model. The future of the -800 has been the subject of much speculation. Airbus has been actively shifting customers from the -800 to the -900. CIT had fi ve -800s on order and all have been swapped.
CIT Aerospace president Tony Diaz says four of the fi ve aircraft had been placed with airlines, all of which wanted the -900.
“That was a simple decision,” he adds. “I think what you are really seeing with Airbus on the 350 programme is that they have tried to de-risk it by building just the -900 early on.”
Diaz expects Airbus to build all three models, but says in the near term says, “I think they are trying to simplify the production and avoid further delays”.
Airbus declined to comment. Previously, John Leahy, chief operating offi cer - customers, said Airbus was encouraging switches to the -900 because that model was more profi table than the -800 and would be available sooner.
“They are taking steps to de-risk production by concentrating on the -900,” Diaz adds. “I think they have this under control. They have had their share of delays, but until they start fl ying the aircraft, you don’t know if there will be issues [like Boeing had with the 787]. We think they will eventually build the -800.”
In December Tom Williams, Airbus vice-president of programmes, said the -800’s entry into service was still planned for 2016 and there had been no programme review.
Finance & leasing cHina
maintained one of the highest returns on equity in the industry while also getting investment-grade credit ratings from Stand-ard and Poor’s and Fitch. Bank of China has been very supportive and the acquisition of SALE has been a success for both parties.”
The second lessor believes ILFC faces a more daunting challenge in integrating with its new Chinese owners: “You have three or four different companies buying ILFC. I don’t know how much autonomy they will give ILFC. The Chinese will become much more formidable competitors. They will learn from [ILFC] but this is China Inc buying ILFC and how much will they let the management run ILFC remains to be seen. By nature, China becomes much more hidebound.”
This lessor says China is buying compa-nies that bring scale and scope to leasing and these new lessors will have “cheap money”.
In 2013, the global leasing community is expected to self-fund about 5% of Boeing’s deliveries, according to an analysis by Boeing Capital with a larger percentage fi nanced by lessors through other liquidity.
Boeing Capital did not have a breakdown of the money expected to come from China’s leasing community. ■
worth it in the long term. In December 2008 to February 2009, at the bottom of the cycle, we bought $2.5 billion of good purchase-leasebacks in three months with the full backing of the shareholder, who had commit-ted both debt and equity to support our coun-tercyclical growth.
“Over the last six years, we have tripled the size of the company to $9 billion and
“SALE is more cumbersome. Chief executive Robert Martin has to go to Beijing every six weeks and talk with 25 people. They are lim-ited as to what they can and cannot do.”
Martin replies: “The comment is fi ve years old. Remember, we have now been owned by BOC for six years [in December]. At the start in 2007, it is true that we spent a lot of time educating the new shareholder, but it was
Read about the leasing industry’s personalities including Robert Martin of BOC Aviation at:fl ightglobal.com/ifi nance13
xxxxxx xxxxxxx xxxxxxx xxxxxxxxx xxxxxxx
xxxxxxxxxxxxx
x%
COLOMBIAN CARRIERS XXXXXXXXXX
Carrier Market share Load factorJun-09 Jun-08 Jun-09
Avianca* 55.7% 61.0% 76.7%Aero Republica 17.3% 16.0% 67.6%Aires 14.8% 10.6% 57.7%Satena 8.1% 9.7% 64.0%EasyFly 2.4% 1.5% 61.5%Anitoquia 1.7% 1.3% 67.5%Total/Average 100% 100.1% 69.9%*Avianca fi gures include SAM subsidiary. NOTES: Market share is based on domestic passengers carried in June 2009 and June 2008. SOURCE: Colombian CAA monthly supply and demand data
sWitcHing a350-800s to 900sRe
x Fe
atur
es
Airbus has a Chinese A320 assembly line and has been aggressively securing orders for the twinjet from local leasing companies
Finance & leasing suRVeY
fl ightglobal.com/ab February 2013 | Airline Business | 29
DAT A COMPILED BY NIGEL FISHER, STEVE PHIPPS & MIKE REED FLIGHTGLOBAL DATA RESEARCH TEAM
toP 50 leasing suRVeYOur annual review of the lessors (P29-35) provides a snapshot of the global fl eet that they own and manage, compiled from Flightglobal’s Ascend Online database as of December 2012
REGIONAL JETS: LEASED FLEET
Manufacturer Type Value ($m) Fleet Av. value ($m)
Bombardier CRJ 1,030 285 3.6CRJ700/900/1000 956 75 12.7
SUBTOTAL 1,986 360 5.5Embraer E-170/175 1,440 80 18.0
E-190/195 5,128 205 25.0ERJ-145 family 1,199 189 6.3
SUBTOTAL 7,766 474 16.4BAe Systems BAe 146/Avro RJ 234 76 3.1Fokker Fokker F28/70/100 189 60 3.2Others 279 34 8.2REGIONAL SET GRAND TOTAL 10,454 1,004 10.4NOTES: Embraer data includes Harbin Chinese production; Others includes Antonov An-148; Fairchild/Dornier 328Jet; Sukhoi Superjet 100; Mainline total covers Airbus and Boeing only.*BBAM excludes FLY Leasing, whose portfolio is managed by BBM.SOURCE: Returns to annual leasing survey and Flightglobal’s Ascend Online database. Survey data covers all fi rms with an active operating lease business and a substantial investment in fl eet and is not restricted to top 50 aircraft lessors as previously published.
NARROWBODY LESSORS BY FLEET VALUE
Rank Company Value ($m) Fleet Change
1 GECAS 20,716 1,102 -212 ILFC 13,902 756 +63 BBAM* 6,450 297 -14 SMBC Aviation Capital 5,647 218 -125 Aviation Capital Group 5,362 259 +256 AerCap 5,161 246 -317 CIT Aerospace 4,994 217 -18 BOC Aviation 4,660 166 +149 AWAS 4,106 192 +2410 Avolon Aerospace Leasing 2,690 76 +28
WIDEBODY LESSORS BY FLEET VALUE
Rank Company Value ($m) Fleet Change
1 ILFC 12,222 277 -42 GECAS 9,504 194 +73 Doric 3,867 27 +64 BOC Aviation 2,461 27 +25 AerCap 2,442 44 +26 Aircastle Advisor 2,380 60 +67 Air Lease 2,203 28 +118 BBAM* 2,126 33 +49 AWAS 2,018 50 -310 CIT Aerospace 1,938 39 +0
REGIONAL AIRCRAFT LESSORS BY FLEET SIZE
Rank Company Value ($m) Fleet Jets Tprops Change
1 GECAS 3,876 446 418 28 -32 Nordic Aviation Capital 1,442 162 5 157 +253 Falko 280 105 69 36 -284 Avmax Aircraft Leasing 327 99 32 67 +145 Saab Aircraft Leasing 98 59 0 59 -346 ECC Leasing 368 54 53 1 +177 JetFleet Management 107 40 7 33 -18 Air Lease 1,008 38 30 8 +249 Jetscape 806 37 35 2 +410 Erik Thun AB 163 33 1 32 +1
MAINLINE AIRCRAFT: LEASED FLEET
Manufacturer/category Type Value ($m) Fleet Av. value ($m)
Airbus narrowbody A318 331 23 14.4A319 9,903 637 15.5A320 38,285 1,632 23.5A321 7,872 300 26.2
AIRBUS NARROWBODY TOTAL 56,390 2,592 21.8Airbus widebody A300 356 32 11.1
A310 115 21 5.5A330 23,279 395 58.9A340 2,568 100 25.7A380 3,047 18 169.3
AIRBUS WIDEBODY TOTAL 29,365 566 51.9AIRBUS TOTAL 85,756 3,158 27.2Boeing narrowbody 717 1,049 128 8.2
727 16 24 0.7737 CFM 2,549 756 3.4737 JT8D 13 59 0.2737 NG 49,809 1,841 27.1757 2,994 293 10.2DC-8 43 28 1.5DC-9 1 6 0.1MD-80 293 177 1.7MD-90 60 12 5.0
BOEING NARROWBODY TOTAL 56,827 3,324 17.1Boeing widebody 747 5,592 167 33.5
767 5,407 334 16.2777 24,193 271 89.3787 105 1 105.0DC-10 5 7 0.7MD-11 681 41 16.6
BOEING WIDEBODY TOTAL 35,983 821 43.8BOEING TOTAL 92,809 4,145 22.4MAINLINE AIRCRAFT GRAND TOTAL 178,565 7,303 24.5
TURBOPROPS: LEASED FLEET
Manufacturer Type Value ($m) Fleet Av. value ($m)
ATR ATR 42 254 64 4.0ATR 72 1,704 152 11.2
SUBTOTAL 1,958 216 9.1BAe Systems ATP/ Jetstream 31/41 79 54 1.5Bombardier Twin Otter/Dash 8 1,778 219 8.1Embraer EMB-120 17 13 1.3Fokker 50 84 48 1.7Saab 340/ 2000 275 133 2.1Others 173 68 2.5TOTAL 4,364 751 5.8MAINLINE/REGIONAL GRAND TOTAL 193,383 9,058 21.3NOTES: Others include Aircraft Industries (Let) 410, Antonov An-12/An-26/An-140, AVIC XAC MA60, Fairchild/Dornier 228/328, Harbin Y-12, Hawker Beech 1900 and Lockheed Hercules
fl ightglobal.com/ab fl ightglobal.com/ab
Finance & leasing lessoRs
February 2013 | Airline Business | 3332 | Airline Business | February 2013
sHiFt to tHe eastChinese investors’ move to buy up to 90% of ILFC is the latest in a string of trades, refl ecting a changing investment base for aircraft lessors and the growing prominence of Asian fi nance
■
■
REPORTLAURA MUELLERLONDON
DEFINITIONS: Ranking: The survey is based on the Top 50 companies with a substantial operating lease business ranked by the value of their owned and/or managed fl eets at the end of December 2012. Change: The change fi gures are based on fl eets/values supplied by Flightglobal’s Ascend Online Fleets and Values databases for December 2012 and 2011. Operating lessors: Lessors are defi ned as those with an active operating lease business and a substantial investment in fl eet. Companies that are solely or predominantly fi nanciers have been excluded. Fleets & values: The survey represents a snapshot of fl eets, including stored aircraft, with fair market generic values supplied by Ascend. Note the composition of fl eets is constantly changing.
nese investors will give China instant mass in the market. ILFC accounts for 14% of the world’s leased fl eet, according to Flightglo-bal’s Ascend Online database.
And just as importantly, a “local” lessor could provide Chinese airframer Comac with the necessary platform to eventually market its C919 indigenous single-aisle airliner.
ILFC was founded in 1973, so the lessor is able to provide its buyers with valuable mar-ket experience, which is just as crucial as deep pockets in the leasing industry.
“The Chinese would gain the ‘best in class’ knowledge through the purchase,” says a leasing source.
ILFC also presents a much-needed invest-ment opportunity for Chinese investors, which have pent-up cash piles padded with US dollars.
REFINANCING WITH EASEA fi nancier notes that after the purchase of ILFC, the buyers “can easily” refi nance a good portion of the portfolio and “improve their economics almost immediately”.
For parent company American Interna-tional Group (AIG), the deal allows the insur-ance giant to fi nally offl oad a non-core asset, which has been incurring ongoing, serious impairment charges since 2009.
In the third quarter, ILFC wrote down $98 million related to its fl eet, on top of another $30 million in the second quarter. In addi-tion, the lessor incurred fl eet-related charges of $1.7 billion, $1.6 billion and $51 million in 2011, 2010 and 2009, respectively, accord-ing to a regulatory fi ling with the Securities and Exchange Commission.
In addition, proceeds from the sale will help AIG to pay down its $182 billion bailout from the US government after the 2008 fi nan-cial crisis.
AIG had planned to divest ILFC in an ini-tial public offering. However, those plans dried up once the Chinese group showed interest, so it is safe to say the agreed sale price is probably the best deal AIG could get.
The insurer plans to sell up to a 90% stake in ILFC to the investor group in a transaction that values the lessor at about $5.28 billion. ILFC employs 560 people and manages 1,000 aircraft. It holds orders for 225 units.
The investor group of New China Trust, China Aviation Industrial Fund and P3 Investments has agreed to acquire 80.1% of
As airlines opt for operating leases to reduce the debt bur-den on their balance sheets, buyers, particularly out of Asia, hope to realise healthy profi ts.
“Rapid growth in the demand for leased aircraft among Asian airlines points to the further expansion of Asian investor interest in leasing,” Fitch Ratings says in a recent report on lessors.
This is backed by Boeing’s 2012 Current Market Outlook, which indicates the Asia-Pacifi c region will represent 35% of all com-mercial aircraft deliveries through 2031.
“We expect changing ownership structures to drive more investment, both through acquisitions and organic growth, as Asian carriers look for new sources of fi nancing to support rapid fl eet growth in the coming years,” says Fitch.
No doubt the purchase of International Lease Finance, the second biggest aircraft lessor in the world, by a consortium of Chi-
TOP 50 LESSORS BY FLEET VALUE – 2012
Rank Total fl eet value Total Average value Managed only2012 (2011) Company $m Change fl eet $m Change $m Share
1 (1) GECAS 34,096 -1.4% 1,742 19.6 -0.7% 1,162 3.4%2 (2) ILFC 26,123 -6.0% 1,033 25.3 -6.2% 946 3.6%3 (4) BBAM 8,622 9.8% 332 26.0 8.2% 7,602 88.2%4 (3) AerCap 7,707 -8.8% 297 25.9 0.2% 1,937 25.1%5 (6) BOC Aviation 7,276 7.9% 198 36.7 -2.4% 702 9.6%6 (5) CIT Aerospace 7,179 -4.2% 268 26.8 -6.0% 68 0.9%7 (8) AWAS 6,131 18.6% 244 25.1 8.9% 116 1.9%8 (7) SMBC Aviation Capital 5,913 -11.6% 232 25.5 -6.3% 0 0.0%9 (12) Air Lease 5,618 59.7% 151 37.2 2.6% 0 0.0%10 (9) Aviation Capital Group 5,582 16.7% 270 20.7 5.9% 170 3.0%11 (13) Doric 4,046 35.6% 35 115.6 4.6% 4,046 100.0%12 (14) CDB Leasing 3,795 32.1% 91 41.7 1.6% 0 0.0%13 (10) Aircastle Advisor 3,769 1.1% 158 23.9 -10.4% 55 1.4%14 (16) MC Aviation Partners 3,529 25.0% 110 32.1 -1.1% 788 22.3%15 (23) Avolon Aerospace Leasing 3,414 61.3% 89 38.4 -5.8% 0 0.0%16 (18) Pembroke Group 3,395 33.8% 97 35.0 3.4% 145 4.3%17 (11) Macquarie AirFinance 3,179 -12.2% 149 21.3 -8.1% 350 11.0%18 (17) ICBC Leasing 3,174 21.5% 82 38.7 -6.7% 124 3.9%19 (21) Jackson Square Aviation 2,762 25.2% 65 42.5 -11.4% 0 0.0%20 (15) Sumisho Acft Asset Mgt 2,621 -8.5% 86 30.5 -5.3% 989 37.8%21 (25) DAE Capital 2,528 23.1% 51 49.6 13.5% 0 0.0%22 (22) Hong Kong Avn Capital 2,301 4.6% 73 31.5 -2.6% 1,688 73.4%23 (27) Guggenheim Avn Partners 2,278 29.4% 66 34.5 0.0% 0 0.0%24 (28) ORIX Aviation 2,232 56.4% 120 18.6 14.7% 323 14.5%25 (19) Boeing Capital 2,135 -11.0% 236 9.0 -8.7% 185 8.6%26 (24) Amentum Capital 2,067 -1.6% 45 45.9 -3.8% 2,067 100.0%27 (20) FLY Leasing 2,024 -8.4% 110 18.4 -9.2% 0 0.0%28 (26) ALAFCO 1,566 -18.8% 51 30.7 -4.4% 0 0.0%29 (31) Nordic Aviation Capital 1,478 46.4% 174 8.5 26.2% 0 0.0%30 (82) Changjiang Leasing 1,156 668.6% 50 23.1 -23.1% 0 0.0%31 (30) Lease Corporation Int'l 970 -7.8% 12 80.9 -0.1% 970 100.0%32 (29) SkyWorks Leasing 962 -21.8% 84 11.5 -8.8% 962 100.0%33 (43) Santos Dumont Acft Mgmt 961 87.7% 25 38.5 20.1% 0 0.0%34 (46) VEB-Leasing JSC 867 82.2% 41 21.1 -2.2% 0 0.0%35 (34) Jetscape 853 8.7% 43 19.8 6.2% 325 38.1%36 (58) Novus Aviation 786 157.8% 17 46.2 127.5% 515 65.6%37 (33) Aircraft Leasing & Mgmt 738 -7.4% 35 21.1 11.1% 738 100.0%38 (35) Investec Global Acft Fund 676 2.0% 19 35.6 -8.8% 172 25.5%39 (32) Penerbangan Malaysia 666 -24.0% 37 18.0 -13.7% 0 0.0%40 (37) Cargo Aircraft Mgmt 645 3.2% 75 8.6 6.0% 13 2.0%41 (56) China Aircraft Leasing 607 94.6% 16 37.9 21.7% 0 0.0%42 (48) AVIC International Leasing 587 35.6% 33 17.8 2.7% 6 0.9%43 (38) Banc of America Leasing 540 -12.1% 36 15.0 0.1% 17 3.1%44 (40) Dragon Aviation Leasing 537 -8.8% 17 31.6 -8.8% 0 0.0%45 (36) Volito Avn Services 509 -18.7% 36 14.1 8.3% 0 0.0%46 (39) GOAL 502 -15.9% 33 15.2 4.5% 0 0.0%47 (116) BoCom Leasing 499 1248.4% 15 33.3 79.8% 0 0.0%48 (41) VTB-Leasing 494 -14.5% 39 12.7 -16.7% 297 60.3%49 (45) Aircraft Purchase Fleet 463 -4.0% 16 28.9 -10.0% 0 0.0%50 (54) Aldus Aviation 457 41.8% 21 21.7 8.0% 0 0.0%
TOTAL 181,015 6.1% 7,355 24.6 1.0% 27,477 15.2%Notes: Fleet value based on Ascend estimates 2012. FLY Leasing aircraft managed by BBAM, but not included in BBAM fi gures to avoid double counting. 2011 rankings reworked due to new historical data for two lessors. RBS Aviation Capital acquired by SMBC.
“China would gain the ‘best in class’ knowledge through the purchase of ILFC by a consortium of
Chinese investors”
Rex
Feat
ures
fl ightglobal.com/ab fl ightglobal.com/ab
Finance & leasing lessoRs
February 2013 | Airline Business | 3332 | Airline Business | February 2013
sHiFt to tHe eastChinese investors’ move to buy up to 90% of ILFC is the latest in a string of trades, refl ecting a changing investment base for aircraft lessors and the growing prominence of Asian fi nance
■
■
REPORTLAURA MUELLERLONDON
DEFINITIONS: Ranking: The survey is based on the Top 50 companies with a substantial operating lease business ranked by the value of their owned and/or managed fl eets at the end of December 2012. Change: The change fi gures are based on fl eets/values supplied by Flightglobal’s Ascend Online Fleets and Values databases for December 2012 and 2011. Operating lessors: Lessors are defi ned as those with an active operating lease business and a substantial investment in fl eet. Companies that are solely or predominantly fi nanciers have been excluded. Fleets & values: The survey represents a snapshot of fl eets, including stored aircraft, with fair market generic values supplied by Ascend. Note the composition of fl eets is constantly changing.
nese investors will give China instant mass in the market. ILFC accounts for 14% of the world’s leased fl eet, according to Flightglo-bal’s Ascend Online database.
And just as importantly, a “local” lessor could provide Chinese airframer Comac with the necessary platform to eventually market its C919 indigenous single-aisle airliner.
ILFC was founded in 1973, so the lessor is able to provide its buyers with valuable mar-ket experience, which is just as crucial as deep pockets in the leasing industry.
“The Chinese would gain the ‘best in class’ knowledge through the purchase,” says a leasing source.
ILFC also presents a much-needed invest-ment opportunity for Chinese investors, which have pent-up cash piles padded with US dollars.
REFINANCING WITH EASEA fi nancier notes that after the purchase of ILFC, the buyers “can easily” refi nance a good portion of the portfolio and “improve their economics almost immediately”.
For parent company American Interna-tional Group (AIG), the deal allows the insur-ance giant to fi nally offl oad a non-core asset, which has been incurring ongoing, serious impairment charges since 2009.
In the third quarter, ILFC wrote down $98 million related to its fl eet, on top of another $30 million in the second quarter. In addi-tion, the lessor incurred fl eet-related charges of $1.7 billion, $1.6 billion and $51 million in 2011, 2010 and 2009, respectively, accord-ing to a regulatory fi ling with the Securities and Exchange Commission.
In addition, proceeds from the sale will help AIG to pay down its $182 billion bailout from the US government after the 2008 fi nan-cial crisis.
AIG had planned to divest ILFC in an ini-tial public offering. However, those plans dried up once the Chinese group showed interest, so it is safe to say the agreed sale price is probably the best deal AIG could get.
The insurer plans to sell up to a 90% stake in ILFC to the investor group in a transaction that values the lessor at about $5.28 billion. ILFC employs 560 people and manages 1,000 aircraft. It holds orders for 225 units.
The investor group of New China Trust, China Aviation Industrial Fund and P3 Investments has agreed to acquire 80.1% of
As airlines opt for operating leases to reduce the debt bur-den on their balance sheets, buyers, particularly out of Asia, hope to realise healthy profi ts.
“Rapid growth in the demand for leased aircraft among Asian airlines points to the further expansion of Asian investor interest in leasing,” Fitch Ratings says in a recent report on lessors.
This is backed by Boeing’s 2012 Current Market Outlook, which indicates the Asia-Pacifi c region will represent 35% of all com-mercial aircraft deliveries through 2031.
“We expect changing ownership structures to drive more investment, both through acquisitions and organic growth, as Asian carriers look for new sources of fi nancing to support rapid fl eet growth in the coming years,” says Fitch.
No doubt the purchase of International Lease Finance, the second biggest aircraft lessor in the world, by a consortium of Chi-
TOP 50 LESSORS BY FLEET VALUE – 2012
Rank Total fl eet value Total Average value Managed only2012 (2011) Company $m Change fl eet $m Change $m Share
1 (1) GECAS 34,096 -1.4% 1,742 19.6 -0.7% 1,162 3.4%2 (2) ILFC 26,123 -6.0% 1,033 25.3 -6.2% 946 3.6%3 (4) BBAM 8,622 9.8% 332 26.0 8.2% 7,602 88.2%4 (3) AerCap 7,707 -8.8% 297 25.9 0.2% 1,937 25.1%5 (6) BOC Aviation 7,276 7.9% 198 36.7 -2.4% 702 9.6%6 (5) CIT Aerospace 7,179 -4.2% 268 26.8 -6.0% 68 0.9%7 (8) AWAS 6,131 18.6% 244 25.1 8.9% 116 1.9%8 (7) SMBC Aviation Capital 5,913 -11.6% 232 25.5 -6.3% 0 0.0%9 (12) Air Lease 5,618 59.7% 151 37.2 2.6% 0 0.0%10 (9) Aviation Capital Group 5,582 16.7% 270 20.7 5.9% 170 3.0%11 (13) Doric 4,046 35.6% 35 115.6 4.6% 4,046 100.0%12 (14) CDB Leasing 3,795 32.1% 91 41.7 1.6% 0 0.0%13 (10) Aircastle Advisor 3,769 1.1% 158 23.9 -10.4% 55 1.4%14 (16) MC Aviation Partners 3,529 25.0% 110 32.1 -1.1% 788 22.3%15 (23) Avolon Aerospace Leasing 3,414 61.3% 89 38.4 -5.8% 0 0.0%16 (18) Pembroke Group 3,395 33.8% 97 35.0 3.4% 145 4.3%17 (11) Macquarie AirFinance 3,179 -12.2% 149 21.3 -8.1% 350 11.0%18 (17) ICBC Leasing 3,174 21.5% 82 38.7 -6.7% 124 3.9%19 (21) Jackson Square Aviation 2,762 25.2% 65 42.5 -11.4% 0 0.0%20 (15) Sumisho Acft Asset Mgt 2,621 -8.5% 86 30.5 -5.3% 989 37.8%21 (25) DAE Capital 2,528 23.1% 51 49.6 13.5% 0 0.0%22 (22) Hong Kong Avn Capital 2,301 4.6% 73 31.5 -2.6% 1,688 73.4%23 (27) Guggenheim Avn Partners 2,278 29.4% 66 34.5 0.0% 0 0.0%24 (28) ORIX Aviation 2,232 56.4% 120 18.6 14.7% 323 14.5%25 (19) Boeing Capital 2,135 -11.0% 236 9.0 -8.7% 185 8.6%26 (24) Amentum Capital 2,067 -1.6% 45 45.9 -3.8% 2,067 100.0%27 (20) FLY Leasing 2,024 -8.4% 110 18.4 -9.2% 0 0.0%28 (26) ALAFCO 1,566 -18.8% 51 30.7 -4.4% 0 0.0%29 (31) Nordic Aviation Capital 1,478 46.4% 174 8.5 26.2% 0 0.0%30 (82) Changjiang Leasing 1,156 668.6% 50 23.1 -23.1% 0 0.0%31 (30) Lease Corporation Int'l 970 -7.8% 12 80.9 -0.1% 970 100.0%32 (29) SkyWorks Leasing 962 -21.8% 84 11.5 -8.8% 962 100.0%33 (43) Santos Dumont Acft Mgmt 961 87.7% 25 38.5 20.1% 0 0.0%34 (46) VEB-Leasing JSC 867 82.2% 41 21.1 -2.2% 0 0.0%35 (34) Jetscape 853 8.7% 43 19.8 6.2% 325 38.1%36 (58) Novus Aviation 786 157.8% 17 46.2 127.5% 515 65.6%37 (33) Aircraft Leasing & Mgmt 738 -7.4% 35 21.1 11.1% 738 100.0%38 (35) Investec Global Acft Fund 676 2.0% 19 35.6 -8.8% 172 25.5%39 (32) Penerbangan Malaysia 666 -24.0% 37 18.0 -13.7% 0 0.0%40 (37) Cargo Aircraft Mgmt 645 3.2% 75 8.6 6.0% 13 2.0%41 (56) China Aircraft Leasing 607 94.6% 16 37.9 21.7% 0 0.0%42 (48) AVIC International Leasing 587 35.6% 33 17.8 2.7% 6 0.9%43 (38) Banc of America Leasing 540 -12.1% 36 15.0 0.1% 17 3.1%44 (40) Dragon Aviation Leasing 537 -8.8% 17 31.6 -8.8% 0 0.0%45 (36) Volito Avn Services 509 -18.7% 36 14.1 8.3% 0 0.0%46 (39) GOAL 502 -15.9% 33 15.2 4.5% 0 0.0%47 (116) BoCom Leasing 499 1248.4% 15 33.3 79.8% 0 0.0%48 (41) VTB-Leasing 494 -14.5% 39 12.7 -16.7% 297 60.3%49 (45) Aircraft Purchase Fleet 463 -4.0% 16 28.9 -10.0% 0 0.0%50 (54) Aldus Aviation 457 41.8% 21 21.7 8.0% 0 0.0%
TOTAL 181,015 6.1% 7,355 24.6 1.0% 27,477 15.2%Notes: Fleet value based on Ascend estimates 2012. FLY Leasing aircraft managed by BBAM, but not included in BBAM fi gures to avoid double counting. 2011 rankings reworked due to new historical data for two lessors. RBS Aviation Capital acquired by SMBC.
“China would gain the ‘best in class’ knowledge through the purchase of ILFC by a consortium of
Chinese investors”
Rex
Feat
ures
fl ightglobal.com/ab34 | Airline Business | February 2013 February 2013 | Airline Business | 35fl ightglobal.com/ab
Finance & leasing lessoRs
ILFC for $4.23 billion, with an option to buy an additional 9.9% stake.
However, AIG had a book value for ILFC of $7.9 billion at the end of the third quarter. The insurance giant said it will record a non-operating loss of $4.4 billion on the sale, including a charge for tax-related items.
OUT WITH THE OLDThe potential sale of ILFC follows two other lessor purchases last year to Japanese buyers, involving smaller aircraft fl eets. Emboldened by the strong yen and solid cash reserves, these banks acquired a solid slice out of the aircraft leasing sector.
In October 2012, Mitsubishi UFJ Lease & Finance acquired Jackson Square Aviation (JSA) for about Y100 billion ($1.17 billion). The Japanese team beat bids from China Development Bank and Hong Kong Aviation Capital (HKAC), which were also looking to beef up their Asian leasing presence.
JSA has a fl eet of 76 aircraft in service val-ued in excess of $4 billion, the lessor says. The fl eet originated through sale-and-lease-back transactions, according to JSA.
Sources indicate that the purchase of JSA could be linked to growth plans the Japanese fi nancier has for its Dublin-based MUL Avia-tion Capital subsidiary, which was estab-lished in January with the aim of growing a portfolio of narrowbody aircraft.
Mitsubishi UFJ is Japan’s largest fi nancial group and the world’s second-largest bank holding company with about $1.7 trillion in deposits as of March 2011. It has a four-aircraft portfolio, according to Ascend’s database.
JSA’s primary shareholder, Oaktree Capital Management, a Los Angeles-based private equity fund, mandated Deutsche Bank to manage the sale of its major shareholding in the lessor. The sale is compatible with the Oaktree Capital’s business strategy of selling rather than maintaining its investments in aircraft lessors.
In 2007, Oaktree Capital sold its interest in operating lessor Pegasus Aviation Finance to Terra Firma for $5.2 billion.
The JSA transaction follows the long-antic-ipated sale of RBS Aviation Capital to Sumi-tomo Mitsui in January 2012 for $7.3 billion. The business employs 69 people and owns 206 aircraft and has commitments to pur-chase a further 87 by 2015.
The Tokyo-based group fended off bids
TOP 50 LESSORS BY FLEET SIZE – 2012
Rank Total fl eet Fleet by type Value2012 (2011) Company number Change units +/- Wide Narrow RJ/T’prop Fleet ($m) Rank Average ($m)
1 (1) GECAS 1,742 -0.7% -13 194 1,102 446 34,096 1 19.62 (2) ILFC 1,033 0.2% +2 277 756 26,123 2 25.33 (3) BBAM 332 1.5% +5 33 297 2 8,622 3 26.04 (4) AerCap 297 -8.9% -29 44 246 7 7,707 4 25.95 (7) Aviation Capital Group 270 10.2% +25 11 259 5,582 10 20.76 (5) CIT Aerospace 268 1.9% +5 39 217 12 7,179 6 26.87 (9) AWAS 244 8.9% +20 50 192 2 6,131 7 25.18 (8) Boeing Capital 236 -2.5% -6 18 209 9 2,135 25 9.09 (6) SMBC Aviation Capital 232 -5.7% -14 2 218 12 5,913 8 25.510 (10) BOC Aviation 198 10.6% +19 27 166 5 7,276 5 36.711 (12) Nordic Aviation Capital 174 16.0% +24 12 162 1,478 29 8.512 (13) Aircastle Advisor 158 12.9% +18 60 96 2 3,769 13 23.913 (17) Air Lease 151 55.7% +54 28 85 38 5,618 9 37.214 (11) Macquarie AirFinance 149 -4.5% -7 12 133 4 3,179 17 21.315 (15) ORIX Aviation 120 36.4% +32 17 100 3 2,232 24 18.616 (20) MC Aviation Partners 110 26.4% +23 28 82 3,529 14 32.116 (16) FLY Leasing 110 0.9% +1 6 104 2,024 27 18.418 (14) Falko 105 -16.7% -21 105 280 64 2.719 (22) Avmax Aircraft Leasing 99 19.3% +16 99 327 61 3.320 (24) Pembroke Group 97 29.3% +22 15 82 3,395 16 35.021 (28) CDB Leasing 91 30.0% +21 23 49 19 3,795 12 41.722 (29) Avolon Aerospace Leasing 89 71.2% +37 7 76 6 3,414 15 38.423 (21) Sumisho Aircraft Asset Mgt 86 -3.4% -3 6 77 3 2,621 20 30.524 (18) SkyWorks Leasing 84 -14.3% -14 17 46 21 962 32 11.525 (26) ICBC Leasing 82 30.2% +19 22 53 7 3,174 18 38.726 (23) Cargo Aircraft Management 75 -2.6% -2 44 31 645 40 8.627 (27) Hong Kong Aviation Capital 73 7.4% +5 17 50 6 2,301 22 31.528 (33) Guggenheim Aviation Partners 66 29.4% +15 33 33 2,278 23 34.528 (25) Sky Holding 66 -8.3% -6 12 54 408 56 6.230 (34) Jackson Square Aviation 65 41.3% +19 6 59 2,762 19 42.530 (19) Saab Aircraft Leasing 59 -46.8% -52 59 98 85 1.732 (40) AerSale 54 42.1% +16 18 36 430 52 8.032 (48) ECC Leasing 54 50.0% +18 54 368 58 6.834 (32) Apollo Aviation Group 52 10.6% +5 16 33 3 427 53 8.235 (36) DAE Capital 51 8.5% +4 20 31 2,528 21 49.635 (30) ALAFCO 51 -15.0% -9 4 47 1,566 28 30.737 (38) Changjiang Leasing 50 8.7% +4 32 18 1,156 30 23.138 (63) GA Telesis 48 92.0% +23 15 21 12 387 57 8.139 (31) Aergo Capital 47 4.4% +2 44 3 97 86 2.140 (37) Amentum Capital 45 2.3% +1 14 26 5 2,067 26 45.941 (42) Jetscape 43 2.4% +1 6 37 853 35 19.842 (71) VEB-Leasing JSC 41 86.4% +19 19 12 10 867 34 21.143 (45) JetFleet Management 40 5.3% +2 40 107 84 2.743 (39) World Star Aviation 40 -11.1% -5 2 38 92 89 2.345 (47) VTB-Leasing 39 2.6% +1 14 23 2 494 49 12.746 (43) Penerbangan Malaysia 37 -11.9% -5 20 17 666 39 18.047 (44) Banc of America Leasing 36 -12.2% -5 8 20 8 540 43 15.047 (35) Volito Avn Services 36 -25.0% -12 36 509 45 14.147 (50) Ilyushin Finance 36 9.1% +3 7 20 9 62 101 1.750 (57) Doric 35 29.6% +8 27 8 4,046 11 115.6
TOTAL 7,796 3.8% +286 1,232 5,334 1,230 176,316 22.6NOTES: Figures based on fl eet data from Flightglobal’s Ascend Online database for December 2012. Total fl eet is owned and managed. 2011 data recalculated on basis of top 50 lessors by fl eet size, and not top 50 lessors by fl eet value ranked by their fl eet size, as published previously. SMBC Aviation Capital was formerly RBS Aviation Capital
from China Development Bank and Wells Fargo in order to secure a home for its lofty yen reserves and to counter slowing growth in the Japanese market.
Previously, in 2010, HKAC, a consortium that includes HNA Group and Bravia Capital Partners, completed the acquisition of Allco Aviation and 68 aircraft from Australia-based Allco Finance Group after the fi nancier went into receivership. HKAC has committed fi nancial support from Chinese banks includ-ing the Agricultural Bank of China and China Development Bank. Financial terms of the transaction were not disclosed.
But it was the Bank of China’s purchase of Singapore-based BOC Aviation (previously Singapore Aircraft Leasing Enterprise) for $965 million that kick-started this wave of Asian investors in 2006. At that time, the les-sor owned a fl eet of 63 aircraft and managed another 14 units. Now, the lessor has a port-folio of 203 owned and managed aircraft.
END OF THE WAVEThis show of banking money in the leasing market differs from the wave of private equity investors apparent during the past couple of years. It also signals the emergence of longer-term investment in the leasing sector.
According to Fitch, acquisitions of lessors by larger banks create “certain benefi ts” in terms of lower funding costs, consistent sin-gle-shareholder strategy and cross-selling opportunities with the parent company.
The combination of airlines’ increasing reliance on operating leases globally, along with the expected growth in air travel, also makes aircraft lessors an attractive acquisi-tion target for fi nancial institutions, the rating agency indicates. Fitch expects to see further consolidation activity in the sector, especially among those lessors that are owned by pri-vate-equity sponsors.
“Private equity investors are realising the 15-20% return is no longer possible, so these funds are looking at other assets more closely,” says a fi nancier.
“This has led to the migration of investors into leasing which are willing to settle for an 8-10% return and match long-term liabilities with long-term investments.”
Last August private equity fi rm Fortress Investment Group ended its investment in operating lessor Aircastle through the latter’s 9.25 million common shares offering. The
LEASING COMPANY YEAR-END JET ORDER BACKLOG AND SHARE OF GLOBAL TOTAL
2008 2009 2010 2011 2012Units Share Units Share Units Share Units Share Units Share
Narrowbody 952 20% 949 21% 1,057 23% 1,195 20% 1,180 20%Widebody 453 18% 405 17% 321 13% 296 12% 266 12%Regional 25 3% 13 3% 26 5% 85 19% 67 21%TOTAL 1,430 18% 1,367 18% 1,404 19% 1,576 18% 1,513 18%Notes: Figures based on Flightglobal’s Ascend Online database for years to end December. Share = share of total order backlog in units
Ontario Teachers’ Pension Plan purchased 6.2 million common shares of Aircastle, while undisclosed investors assumed the remaining amount. Aircastle repurchased 2.5 million common shares from Fortress Invest-ment in a separate transaction at a cost of $28.5 million.
In the same month, AerCap repurchased an additional $120 million in common shares from Cerberus Capital Management, reducing the private equity fi rm’s holding to 10% of outstanding ordinary shares. The lessor, which is heavily backed by private equity money, disclosed in a market announcement last year that its board of directors decided to “explore a range of strategic alternatives to
enhance shareholder value, including contin-ued execution of operating strategies, further share repurchases, aircraft portfolio sales, or a sale or merger of the company”.
Operating lessor AWAS has also seen a change in its investor base. Last year, Canada Pension Plan Investment Board provided $266 million to help bankroll expansion at the lessor, increasing its stake in AWAS to 25% from 16%. Private equity fi rm Terra Firma owns 60% of AWAS and co-investors own the remaining 15%.
In October 2011, Irish aviation fi rm Avolon diversifi ed its investor base by securing an equity investment of $300 million from the Government of Singapore Investment Corpo-ration, a sovereign wealth fund.
The change in investor base is a recent occurrence, considering private equity and hedge fund backing for operating lessors was the norm just years before.
When JSA was formed in March 2010, the lessor secured a $500 million equity commit-ment exclusively from investment funds managed by Oaktree Capital.
In the same year, Avolon was launched with $1.4 billion in equity and debt backing from the private equity fi rms of Cinven, CVC Capital Partners, Oak Hill Capital Partners as well as bank partners DVB and UBS.
Industry godfather Steve Udvar-Hazy’s venture, Air Lease, which came to market in early 2010, secured $1.3 billion in equity capital and approximately $2 billion of com-mitted debt fi nancing. ■
“Fitch expects to see further consolidation
activity, especially among lessors owned by
private-equity sponsors”
Read more about aircraft fi nancing in 2013 in our interactive fi nance special:fl ightglobal.com/iFinance13
fl ightglobal.com/ab34 | Airline Business | February 2013 February 2013 | Airline Business | 35fl ightglobal.com/ab
Finance & leasing lessoRs
ILFC for $4.23 billion, with an option to buy an additional 9.9% stake.
However, AIG had a book value for ILFC of $7.9 billion at the end of the third quarter. The insurance giant said it will record a non-operating loss of $4.4 billion on the sale, including a charge for tax-related items.
OUT WITH THE OLDThe potential sale of ILFC follows two other lessor purchases last year to Japanese buyers, involving smaller aircraft fl eets. Emboldened by the strong yen and solid cash reserves, these banks acquired a solid slice out of the aircraft leasing sector.
In October 2012, Mitsubishi UFJ Lease & Finance acquired Jackson Square Aviation (JSA) for about Y100 billion ($1.17 billion). The Japanese team beat bids from China Development Bank and Hong Kong Aviation Capital (HKAC), which were also looking to beef up their Asian leasing presence.
JSA has a fl eet of 76 aircraft in service val-ued in excess of $4 billion, the lessor says. The fl eet originated through sale-and-lease-back transactions, according to JSA.
Sources indicate that the purchase of JSA could be linked to growth plans the Japanese fi nancier has for its Dublin-based MUL Avia-tion Capital subsidiary, which was estab-lished in January with the aim of growing a portfolio of narrowbody aircraft.
Mitsubishi UFJ is Japan’s largest fi nancial group and the world’s second-largest bank holding company with about $1.7 trillion in deposits as of March 2011. It has a four-aircraft portfolio, according to Ascend’s database.
JSA’s primary shareholder, Oaktree Capital Management, a Los Angeles-based private equity fund, mandated Deutsche Bank to manage the sale of its major shareholding in the lessor. The sale is compatible with the Oaktree Capital’s business strategy of selling rather than maintaining its investments in aircraft lessors.
In 2007, Oaktree Capital sold its interest in operating lessor Pegasus Aviation Finance to Terra Firma for $5.2 billion.
The JSA transaction follows the long-antic-ipated sale of RBS Aviation Capital to Sumi-tomo Mitsui in January 2012 for $7.3 billion. The business employs 69 people and owns 206 aircraft and has commitments to pur-chase a further 87 by 2015.
The Tokyo-based group fended off bids
TOP 50 LESSORS BY FLEET SIZE – 2012
Rank Total fl eet Fleet by type Value2012 (2011) Company number Change units +/- Wide Narrow RJ/T’prop Fleet ($m) Rank Average ($m)
1 (1) GECAS 1,742 -0.7% -13 194 1,102 446 34,096 1 19.62 (2) ILFC 1,033 0.2% +2 277 756 26,123 2 25.33 (3) BBAM 332 1.5% +5 33 297 2 8,622 3 26.04 (4) AerCap 297 -8.9% -29 44 246 7 7,707 4 25.95 (7) Aviation Capital Group 270 10.2% +25 11 259 5,582 10 20.76 (5) CIT Aerospace 268 1.9% +5 39 217 12 7,179 6 26.87 (9) AWAS 244 8.9% +20 50 192 2 6,131 7 25.18 (8) Boeing Capital 236 -2.5% -6 18 209 9 2,135 25 9.09 (6) SMBC Aviation Capital 232 -5.7% -14 2 218 12 5,913 8 25.510 (10) BOC Aviation 198 10.6% +19 27 166 5 7,276 5 36.711 (12) Nordic Aviation Capital 174 16.0% +24 12 162 1,478 29 8.512 (13) Aircastle Advisor 158 12.9% +18 60 96 2 3,769 13 23.913 (17) Air Lease 151 55.7% +54 28 85 38 5,618 9 37.214 (11) Macquarie AirFinance 149 -4.5% -7 12 133 4 3,179 17 21.315 (15) ORIX Aviation 120 36.4% +32 17 100 3 2,232 24 18.616 (20) MC Aviation Partners 110 26.4% +23 28 82 3,529 14 32.116 (16) FLY Leasing 110 0.9% +1 6 104 2,024 27 18.418 (14) Falko 105 -16.7% -21 105 280 64 2.719 (22) Avmax Aircraft Leasing 99 19.3% +16 99 327 61 3.320 (24) Pembroke Group 97 29.3% +22 15 82 3,395 16 35.021 (28) CDB Leasing 91 30.0% +21 23 49 19 3,795 12 41.722 (29) Avolon Aerospace Leasing 89 71.2% +37 7 76 6 3,414 15 38.423 (21) Sumisho Aircraft Asset Mgt 86 -3.4% -3 6 77 3 2,621 20 30.524 (18) SkyWorks Leasing 84 -14.3% -14 17 46 21 962 32 11.525 (26) ICBC Leasing 82 30.2% +19 22 53 7 3,174 18 38.726 (23) Cargo Aircraft Management 75 -2.6% -2 44 31 645 40 8.627 (27) Hong Kong Aviation Capital 73 7.4% +5 17 50 6 2,301 22 31.528 (33) Guggenheim Aviation Partners 66 29.4% +15 33 33 2,278 23 34.528 (25) Sky Holding 66 -8.3% -6 12 54 408 56 6.230 (34) Jackson Square Aviation 65 41.3% +19 6 59 2,762 19 42.530 (19) Saab Aircraft Leasing 59 -46.8% -52 59 98 85 1.732 (40) AerSale 54 42.1% +16 18 36 430 52 8.032 (48) ECC Leasing 54 50.0% +18 54 368 58 6.834 (32) Apollo Aviation Group 52 10.6% +5 16 33 3 427 53 8.235 (36) DAE Capital 51 8.5% +4 20 31 2,528 21 49.635 (30) ALAFCO 51 -15.0% -9 4 47 1,566 28 30.737 (38) Changjiang Leasing 50 8.7% +4 32 18 1,156 30 23.138 (63) GA Telesis 48 92.0% +23 15 21 12 387 57 8.139 (31) Aergo Capital 47 4.4% +2 44 3 97 86 2.140 (37) Amentum Capital 45 2.3% +1 14 26 5 2,067 26 45.941 (42) Jetscape 43 2.4% +1 6 37 853 35 19.842 (71) VEB-Leasing JSC 41 86.4% +19 19 12 10 867 34 21.143 (45) JetFleet Management 40 5.3% +2 40 107 84 2.743 (39) World Star Aviation 40 -11.1% -5 2 38 92 89 2.345 (47) VTB-Leasing 39 2.6% +1 14 23 2 494 49 12.746 (43) Penerbangan Malaysia 37 -11.9% -5 20 17 666 39 18.047 (44) Banc of America Leasing 36 -12.2% -5 8 20 8 540 43 15.047 (35) Volito Avn Services 36 -25.0% -12 36 509 45 14.147 (50) Ilyushin Finance 36 9.1% +3 7 20 9 62 101 1.750 (57) Doric 35 29.6% +8 27 8 4,046 11 115.6
TOTAL 7,796 3.8% +286 1,232 5,334 1,230 176,316 22.6NOTES: Figures based on fl eet data from Flightglobal’s Ascend Online database for December 2012. Total fl eet is owned and managed. 2011 data recalculated on basis of top 50 lessors by fl eet size, and not top 50 lessors by fl eet value ranked by their fl eet size, as published previously. SMBC Aviation Capital was formerly RBS Aviation Capital
from China Development Bank and Wells Fargo in order to secure a home for its lofty yen reserves and to counter slowing growth in the Japanese market.
Previously, in 2010, HKAC, a consortium that includes HNA Group and Bravia Capital Partners, completed the acquisition of Allco Aviation and 68 aircraft from Australia-based Allco Finance Group after the fi nancier went into receivership. HKAC has committed fi nancial support from Chinese banks includ-ing the Agricultural Bank of China and China Development Bank. Financial terms of the transaction were not disclosed.
But it was the Bank of China’s purchase of Singapore-based BOC Aviation (previously Singapore Aircraft Leasing Enterprise) for $965 million that kick-started this wave of Asian investors in 2006. At that time, the les-sor owned a fl eet of 63 aircraft and managed another 14 units. Now, the lessor has a port-folio of 203 owned and managed aircraft.
END OF THE WAVEThis show of banking money in the leasing market differs from the wave of private equity investors apparent during the past couple of years. It also signals the emergence of longer-term investment in the leasing sector.
According to Fitch, acquisitions of lessors by larger banks create “certain benefi ts” in terms of lower funding costs, consistent sin-gle-shareholder strategy and cross-selling opportunities with the parent company.
The combination of airlines’ increasing reliance on operating leases globally, along with the expected growth in air travel, also makes aircraft lessors an attractive acquisi-tion target for fi nancial institutions, the rating agency indicates. Fitch expects to see further consolidation activity in the sector, especially among those lessors that are owned by pri-vate-equity sponsors.
“Private equity investors are realising the 15-20% return is no longer possible, so these funds are looking at other assets more closely,” says a fi nancier.
“This has led to the migration of investors into leasing which are willing to settle for an 8-10% return and match long-term liabilities with long-term investments.”
Last August private equity fi rm Fortress Investment Group ended its investment in operating lessor Aircastle through the latter’s 9.25 million common shares offering. The
LEASING COMPANY YEAR-END JET ORDER BACKLOG AND SHARE OF GLOBAL TOTAL
2008 2009 2010 2011 2012Units Share Units Share Units Share Units Share Units Share
Narrowbody 952 20% 949 21% 1,057 23% 1,195 20% 1,180 20%Widebody 453 18% 405 17% 321 13% 296 12% 266 12%Regional 25 3% 13 3% 26 5% 85 19% 67 21%TOTAL 1,430 18% 1,367 18% 1,404 19% 1,576 18% 1,513 18%Notes: Figures based on Flightglobal’s Ascend Online database for years to end December. Share = share of total order backlog in units
Ontario Teachers’ Pension Plan purchased 6.2 million common shares of Aircastle, while undisclosed investors assumed the remaining amount. Aircastle repurchased 2.5 million common shares from Fortress Invest-ment in a separate transaction at a cost of $28.5 million.
In the same month, AerCap repurchased an additional $120 million in common shares from Cerberus Capital Management, reducing the private equity fi rm’s holding to 10% of outstanding ordinary shares. The lessor, which is heavily backed by private equity money, disclosed in a market announcement last year that its board of directors decided to “explore a range of strategic alternatives to
enhance shareholder value, including contin-ued execution of operating strategies, further share repurchases, aircraft portfolio sales, or a sale or merger of the company”.
Operating lessor AWAS has also seen a change in its investor base. Last year, Canada Pension Plan Investment Board provided $266 million to help bankroll expansion at the lessor, increasing its stake in AWAS to 25% from 16%. Private equity fi rm Terra Firma owns 60% of AWAS and co-investors own the remaining 15%.
In October 2011, Irish aviation fi rm Avolon diversifi ed its investor base by securing an equity investment of $300 million from the Government of Singapore Investment Corpo-ration, a sovereign wealth fund.
The change in investor base is a recent occurrence, considering private equity and hedge fund backing for operating lessors was the norm just years before.
When JSA was formed in March 2010, the lessor secured a $500 million equity commit-ment exclusively from investment funds managed by Oaktree Capital.
In the same year, Avolon was launched with $1.4 billion in equity and debt backing from the private equity fi rms of Cinven, CVC Capital Partners, Oak Hill Capital Partners as well as bank partners DVB and UBS.
Industry godfather Steve Udvar-Hazy’s venture, Air Lease, which came to market in early 2010, secured $1.3 billion in equity capital and approximately $2 billion of com-mitted debt fi nancing. ■
“Fitch expects to see further consolidation
activity, especially among lessors owned by
private-equity sponsors”
Read more about aircraft fi nancing in 2013 in our interactive fi nance special:fl ightglobal.com/iFinance13
fl ightglobal.com/ab fl ightglobal.com/ab
Finance & leasing eXPoRt cReDit
February 2013 | Airline Business | 3736 | Airline Business | February 2013
New rules for export credit have come into force, but questions remain over the goal of pushing more airlines towards commercial fi nancing or whether the new agreement tackles every issue of concern
■
■
REPORTDAVID KNIBBSEATTLE
For more than a year we knew it was coming but now the 2011 Air-craft Sector Understanding (ASU) has started to take effect, everyone is still wondering how it will
change the most widely used form of aircraft fi nance – export credit – and the potential repercussions of these changes.
The new ASU – replacing a 2007 agreement – comes at a time when traditional sources of commercial fi nancing are stressed and airlines and lessors are relying more on export credit to fi nance new aircraft. The higher fees expected under this ASU could bring a hefty lift in fi nancing costs for many airlines, which in turn raises questions about how these changes may affect aircraft fi nancing and pur-chase patterns over the longer term.
The 2011 ASU addresses most of the issues that prompted its adoption by the Organisa-tion for Economic Co-operation and Develop-ment (OECD). Airlines in the USA and parts of Europe which did not qualify for export credit because of a so-called “home market” or “home country” rule, complained loudly that strong rivals such as Emirates were gain-ing an unfair advantage – many called it a subsidy – because those carriers were not in a “home” country and so could access cheaper export credit.
Another group led by Emirates, Etihad and Ryanair responded that a better solution would be to scrap the home country rule so export credit was equally available to everyone. While this debate raged, Airbus and Boeing worried
sHaPing tHe gaMe
that manufacturers in Brazil, Canada, China, Japan, and Russia were building or planning larger aircraft, and the export credit for those aircraft ought to be under the same rules as for US and European-built aircraft.
Dean Gerber, partner at Chicago law fi rm Vedder Price and chair of its global transpor-tation fi nance team, has watched develop-ments closely. He recalls the arguments “united rival manufacturers and pitted air-lines and commercial banks against govern-ments in a dispute over the role ECAs [export credit agencies] play in supporting sales of commercial aircraft”.
The 2011 ASU applies to all new commer-cial aircraft, except regional jets and turbo-props, delivered since the turn of the year. New regional aircraft come under the agree-ment on 1 January 2014. It applies to new air-craft from all manufacturers except those in China and Russia, which are not OECD mem-bers. Brazil is not an OECD member either but has accepted the new ASU. Aside from this difference in effective dates, the ASU eliminates all distinctions between aircraft type and sizes.
The new ASU raises the export credit pre-mium for all buyers/borrowers, whether air-line or lessor, but the rise is steeper for those with a better credit rating. Higher-risk air-lines will still pay more than they do now but not as much proportionally, making export credit less attractive to stronger airlines. As Gerber explains, the accord “attempts to bring ECA fi nancings more in line with mar-ket conditions”. By including new aircraft from Canada, Brazil, and Japan, Gerber says the ASU will also “minimise the support of the ECAs as a factor in the choice by buyers/borrowers among competing aircraft”.
RISK RATINGSThe new ASU directs each export credit agency to classify its buyers/borrowers into one of eight risk categories, based on their senior unsecured credit ratings. These rank-ings, valid for up to 12 months, will be recorded with the OECD Secretariat.
An airline’s risk rating affects several things, the main one being the amount of pre-mium an ECA will charge for providing export credit. Calculation of this premium is complex, but it starts with an airline’s risk rating. Once the premium is calculated for a given transaction, it is set. The customer may pay it up front or during the life of its loan. Questions remain about whether the pre-mium itself may be fi nanced.
Export credit agencies will adjust their pre-miums prospectively. They will set the new premiums each February and adjust them
quarterly through surcharges. The purpose of these adjustments is to keep premiums in line with changing market conditions. As a result, premiums may rise or fall but insiders say they will not change as sharply as the market itself. As one banker puts it, these adjustments seek a balance between stability on the one hand and keeping pace with the market on the other.
Risk ratings affect other things as well. ECAs may cover up to 85% of the net price for higher risk airlines, but the cover for stronger airlines is limited to 80%. This is another feature, says Gerber, “designed to make ECA fi nancing less desirable for these buyers/borrowers who can more readily access commercial fi nancing”.
Most observers predict such disincentives will drive fi nancially strong airlines away from export credit. This is precisely the intended consequence, with the result, of course, that it will leave the ECAs exposed to higher risks.
However, the ASU drafters added require-ments to reduce this risk. Export credit for higher risk airlines comes with more strings attached. These may include higher initial security deposits, shorter repayment periods, minimum lease payments for leased aircraft, and higher maintenance reserves.
Regardless of risk rating, all transactions must also be asset-backed, with protections for the lender and ECA in the form of cross-default and cross-collateralisation of all air-craft and engines owned by the same buyer/
borrower, plus special creditor and guarantor protections in the case of leased aircraft.
The ASU also uses a carrot-stick approach to encourage nations to adopt the Convention on International Interests in Mobile Equip-ment and its related Aircraft Protocol, collec-tively called the Cape Town Convention. This carefully crafted law creates an interna-tional registry of security interests in aircraft and spells out creditor rights, thereby elimi-nating much of the uncertainty about how creditors might fare in a local jurisdiction after an air carrier’s default or insolvency. The airlines of any country that adopts the Cape Town Convention, making it the law of their own land, qualify for a discount of up to 10% on their export credit premium.
So far, 52 nations have adopted the Cape Town Convention and several more, including Australia and Canada, seem anxious to follow suit. The so-called “Cape Town discount” no doubt gives them an added incentive. Austral-ia’s transport minister Anthony Albanese esti-mates that adopting the convention will save Australian airlines, which routinely use export credit, $330,000 on a new ATR 72 turboprop and $2.5 million on an Airbus A380.
LIKELY CHANGESHow much will these new rules add to the cost of export credit? “The 2011 ASU roughly doubles premiums contained in the 2007 ASU,” says Gerber. The minimum premium for an investment-grade airline will rise from about 4% of the transaction value to almost
The approximate minimum transaction premium for an airline under the new ASU
8%
8%. For lower-rated airlines, the new premi-ums will be higher. Airlines in any country which adopts the Cape Town Convention will qualify for that discount.
EXPORT CREDITHigher-risk airlines will continue to rely on export credit because they have nowhere else to go, but stronger airlines with access to commercial fi nancing may fi nd export credit less attractive. This is the underlying goal of the new ASU.
Predictions differ on the likely collateral effects. Among the more optimistic are those who foresee a boost to commercial lenders. Until now, many lenders have shunned the aircraft sector because of the lower rates offered on ECA-backed loans. The recent popularity of export credit, they claim, has distorted the market. Higher interest rates, so the theory goes, will attract more fi nanciers into the sector. Some even predict such increased competition between lenders will bring commercial rates down.
The shorter-term view is less rosy. Com-mercial liquidity is still limited for reasons that have little to do with airlines. The more pessimistic predictions are that this shortage will compel continued reliance on export credit, even by investment-grade airlines, with the aircraft manufacturers themselves stepping up with more support.
Experts debated the ASU’s effect at a con-ference of the International Society of Trans-port Aircraft Trading in September. Kostya
Rex
Feat
ures
fl ightglobal.com/ab fl ightglobal.com/ab
Finance & leasing eXPoRt cReDit
February 2013 | Airline Business | 3736 | Airline Business | February 2013
New rules for export credit have come into force, but questions remain over the goal of pushing more airlines towards commercial fi nancing or whether the new agreement tackles every issue of concern
■
■
REPORTDAVID KNIBBSEATTLE
For more than a year we knew it was coming but now the 2011 Air-craft Sector Understanding (ASU) has started to take effect, everyone is still wondering how it will
change the most widely used form of aircraft fi nance – export credit – and the potential repercussions of these changes.
The new ASU – replacing a 2007 agreement – comes at a time when traditional sources of commercial fi nancing are stressed and airlines and lessors are relying more on export credit to fi nance new aircraft. The higher fees expected under this ASU could bring a hefty lift in fi nancing costs for many airlines, which in turn raises questions about how these changes may affect aircraft fi nancing and pur-chase patterns over the longer term.
The 2011 ASU addresses most of the issues that prompted its adoption by the Organisa-tion for Economic Co-operation and Develop-ment (OECD). Airlines in the USA and parts of Europe which did not qualify for export credit because of a so-called “home market” or “home country” rule, complained loudly that strong rivals such as Emirates were gain-ing an unfair advantage – many called it a subsidy – because those carriers were not in a “home” country and so could access cheaper export credit.
Another group led by Emirates, Etihad and Ryanair responded that a better solution would be to scrap the home country rule so export credit was equally available to everyone. While this debate raged, Airbus and Boeing worried
sHaPing tHe gaMe
that manufacturers in Brazil, Canada, China, Japan, and Russia were building or planning larger aircraft, and the export credit for those aircraft ought to be under the same rules as for US and European-built aircraft.
Dean Gerber, partner at Chicago law fi rm Vedder Price and chair of its global transpor-tation fi nance team, has watched develop-ments closely. He recalls the arguments “united rival manufacturers and pitted air-lines and commercial banks against govern-ments in a dispute over the role ECAs [export credit agencies] play in supporting sales of commercial aircraft”.
The 2011 ASU applies to all new commer-cial aircraft, except regional jets and turbo-props, delivered since the turn of the year. New regional aircraft come under the agree-ment on 1 January 2014. It applies to new air-craft from all manufacturers except those in China and Russia, which are not OECD mem-bers. Brazil is not an OECD member either but has accepted the new ASU. Aside from this difference in effective dates, the ASU eliminates all distinctions between aircraft type and sizes.
The new ASU raises the export credit pre-mium for all buyers/borrowers, whether air-line or lessor, but the rise is steeper for those with a better credit rating. Higher-risk air-lines will still pay more than they do now but not as much proportionally, making export credit less attractive to stronger airlines. As Gerber explains, the accord “attempts to bring ECA fi nancings more in line with mar-ket conditions”. By including new aircraft from Canada, Brazil, and Japan, Gerber says the ASU will also “minimise the support of the ECAs as a factor in the choice by buyers/borrowers among competing aircraft”.
RISK RATINGSThe new ASU directs each export credit agency to classify its buyers/borrowers into one of eight risk categories, based on their senior unsecured credit ratings. These rank-ings, valid for up to 12 months, will be recorded with the OECD Secretariat.
An airline’s risk rating affects several things, the main one being the amount of pre-mium an ECA will charge for providing export credit. Calculation of this premium is complex, but it starts with an airline’s risk rating. Once the premium is calculated for a given transaction, it is set. The customer may pay it up front or during the life of its loan. Questions remain about whether the pre-mium itself may be fi nanced.
Export credit agencies will adjust their pre-miums prospectively. They will set the new premiums each February and adjust them
quarterly through surcharges. The purpose of these adjustments is to keep premiums in line with changing market conditions. As a result, premiums may rise or fall but insiders say they will not change as sharply as the market itself. As one banker puts it, these adjustments seek a balance between stability on the one hand and keeping pace with the market on the other.
Risk ratings affect other things as well. ECAs may cover up to 85% of the net price for higher risk airlines, but the cover for stronger airlines is limited to 80%. This is another feature, says Gerber, “designed to make ECA fi nancing less desirable for these buyers/borrowers who can more readily access commercial fi nancing”.
Most observers predict such disincentives will drive fi nancially strong airlines away from export credit. This is precisely the intended consequence, with the result, of course, that it will leave the ECAs exposed to higher risks.
However, the ASU drafters added require-ments to reduce this risk. Export credit for higher risk airlines comes with more strings attached. These may include higher initial security deposits, shorter repayment periods, minimum lease payments for leased aircraft, and higher maintenance reserves.
Regardless of risk rating, all transactions must also be asset-backed, with protections for the lender and ECA in the form of cross-default and cross-collateralisation of all air-craft and engines owned by the same buyer/
borrower, plus special creditor and guarantor protections in the case of leased aircraft.
The ASU also uses a carrot-stick approach to encourage nations to adopt the Convention on International Interests in Mobile Equip-ment and its related Aircraft Protocol, collec-tively called the Cape Town Convention. This carefully crafted law creates an interna-tional registry of security interests in aircraft and spells out creditor rights, thereby elimi-nating much of the uncertainty about how creditors might fare in a local jurisdiction after an air carrier’s default or insolvency. The airlines of any country that adopts the Cape Town Convention, making it the law of their own land, qualify for a discount of up to 10% on their export credit premium.
So far, 52 nations have adopted the Cape Town Convention and several more, including Australia and Canada, seem anxious to follow suit. The so-called “Cape Town discount” no doubt gives them an added incentive. Austral-ia’s transport minister Anthony Albanese esti-mates that adopting the convention will save Australian airlines, which routinely use export credit, $330,000 on a new ATR 72 turboprop and $2.5 million on an Airbus A380.
LIKELY CHANGESHow much will these new rules add to the cost of export credit? “The 2011 ASU roughly doubles premiums contained in the 2007 ASU,” says Gerber. The minimum premium for an investment-grade airline will rise from about 4% of the transaction value to almost
The approximate minimum transaction premium for an airline under the new ASU
8%
8%. For lower-rated airlines, the new premi-ums will be higher. Airlines in any country which adopts the Cape Town Convention will qualify for that discount.
EXPORT CREDITHigher-risk airlines will continue to rely on export credit because they have nowhere else to go, but stronger airlines with access to commercial fi nancing may fi nd export credit less attractive. This is the underlying goal of the new ASU.
Predictions differ on the likely collateral effects. Among the more optimistic are those who foresee a boost to commercial lenders. Until now, many lenders have shunned the aircraft sector because of the lower rates offered on ECA-backed loans. The recent popularity of export credit, they claim, has distorted the market. Higher interest rates, so the theory goes, will attract more fi nanciers into the sector. Some even predict such increased competition between lenders will bring commercial rates down.
The shorter-term view is less rosy. Com-mercial liquidity is still limited for reasons that have little to do with airlines. The more pessimistic predictions are that this shortage will compel continued reliance on export credit, even by investment-grade airlines, with the aircraft manufacturers themselves stepping up with more support.
Experts debated the ASU’s effect at a con-ference of the International Society of Trans-port Aircraft Trading in September. Kostya
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Feat
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February 2013 | Airline Business | 39flightglobal.com/ab
Read industry reaction to the new ASU at the recent IStAt conference in Rome:flightglobal.com/ASU
Finance & LeaSinG export credit
Zolotusky, managing director of Boeing Capital, predicted that because of higher financing costs, “we will see more people rent than buy aircraft”.
Ray Sisson, president of operating lessor AWAS, agrees but also thinks the new ASU will cause carriers to defer orders for new equipment, saying: “It will drive more air-lines to older aircraft.”
We will soon see whether these new rules cause the slump in aircraft finance some pre-dict, but even the naysayers acknowledge air-lines and lessors will eventually adapt to the higher cost of aircraft finance, whether through export credit or commercial loans, because they have little choice.
One of the few options is the capital market, which may be a viable choice for some. Fin-nair, for instance, recently raised €120 million ($159 million) in an over-subscribed bond issue, and AirAsia X is optimistic that in the first quarter of 2013 it will successfully raise M$760 million ($250 million) from its initial public offering. However, the capital markets are still an option reserved for stronger airlines under favourable conditions.
hOme COuntRy RuLeThe elephant in the room the new ASU does not address is the home market or home coun-try rule, which provoked the loudest argu-ments preceding the agreement. This rule, which withheld export credit from US and some European carriers, tilted the system, they claimed, in favour of rivals in other countries who could and did take advantage of export credit. But the OECD rejected the suggestion from Emirates and its allies simply to change or scrap the home country rule and settled instead on higher export credit premiums.
One reason for the OECD’s approach is that the home country rule is hardly a “rule” in the traditional sense, but rather an unwritten, informal understanding between the USA’s Ex-Im bank – and its counterpart export credit agencies in the UK, France, Germany and Spain – that they will not offer export credit to airlines in their own or each other’s countries. Skirting around this rule may have temporarily averted a showdown but the unresolved issue of Canada and, by exten-sion, Brazil and Japan, remains potent.
As Gerber explains: “In the past, Canada’s primary aircraft manufacturer, Bombardier, did not produce aircraft that directly com-peted [with Airbus and Boeing].” Canada was not subject to the Home Country rule, so Ex-Im bank and the European ECAs routinely covered aircraft purchases by Air Canada and WestJet. But Bombardier’s introduction of the 110/130-seat, twin-turbofan CSeries caused Boeing and Airbus to question why the home country rule should not extend to Canada. “With potential competitors from other coun-tries such as Brazil, China and Russia on the
export credit agencies
(mainline jets)$29bn
inDustRy DeLiveRy finanCing sOuRCes: 2012-2013
Captial markets$10bn
Cash$24bn
tax equity$2bn
export credit agencies
(regional jets)$3bn
Commercial banks$20bn
Lessors (self-fund)$7bn
MiddleEast1.2%
Asia-Paci�c22.1%
North America28.1%
Africa1.1%
SOURCE: Boeing
2010SHARE
Europe39.1%
SouthAmerica
8.4%
$95bn2012 total
export credit agencies
(mainline jets)$24bnCapital
markets$14.5bn
Cash$26bn
tax equity$2.5bn
export credit agencies
(regional jets)$3bn
Commercial banks$29bn
Lessors (self-fund)$5bn
MiddleEast1.2%
Asia-Paci�c22.1%
North America28.1%
Africa1.1%
SOURCE: Boeing
2010SHARE
Europe39.1%
SouthAmerica
8.4%
$104bn2013 forecast
verge of producing similar aircraft to the CSeries,” Gerber explains, “Airbus and Boe-ing were concerned that if Canada was not bound by the home country rule, these other countries would expect identical treatment.”
CReDit RePeRCussiOnsThe issue remains unresolved, prompting Gerber to predict that if Canada offers export credit on a CSeries order by a US or European airline, “there may be repercussions in the form of matched home-country financing by the USA and/or the European ECAs”. An Air France official already warns that it may test the rule by applying for export credit on its own orders. If the home country rule starts to unravel, then Gerber foresees that the 2011 ASU, to put it mildly, may be open to “fur-ther negotiations”.
The new ASU clearly has not solved all
problems. The immediate future of Ex-Im bank has been secured with its re-authorisa-tion, but by a sharply-divided Congress. This new law directs the US treasury secretary to negotiate with foreign counterparts on ways to reduce export credit generally and, specifi-cally, on aircraft.
As late as November, Delta Air Lines was complaining that Ex-Im bank’s cover on a sale of Boeing 787s to LOT Polish Airlines was an “unnecessary subsidy”. If such com-plaints continue now the new ASU has taken effect, or if the home country rule erupts into a full-blown dispute, the 2011 ASU may come under fire well before its scheduled review in 2015. ■
fl ightglobal.com/ab fl ightglobal.com/ab
HOW WILL AIRLINES FIND $100 BILLION FOR 2013 DELIVERIES?
Finance & leasing DeliVeRies
February 2013 | Airline Business | 4140 | Airline Business | February 2013
MAX KINGSLEY-JONES LONDON
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us
2013 NARROWBODY DELIVERIES
SOURCE: Ascend Online database applying 2013 full-life base values
Middle East
North America
Europe
Asia Paci�c
AfricaLatin America
Region undisclosed
Region Undisclosed
Africa
Middle East
Latin America
North America
Europe
Asia Pacific
$8.7bn
$3.8bn
$1.8bn
$0.9bn $0.4bn
$11.0bn
$20.7bnTotal value:
$47.3bn
2013 DELIVERY VALUES BY AIRFRAMER
Forecast for mainline and regional jet deliveries to airlines/lessors from Ascend Online Fleets database
Airbus widebodyAirbus narrowbody
Boeing narrowbodyBombardier regional jetBoeing widebody
Embraer regional jet
Regional jet
Regional jet
Widebody
Narrowbody
Widebody
Narrowbody
Boeing total:$53.4bn
Airbus total:$42.4bn
$30.8bn
$22.6bn
$17.7bn
$24.7bn
737 ClassicA320neo
$0.9bn $2.2bn
2013 DELIVERY VALUES BY REGION
Forecast for mainline and regional jet deliveries to airlines/lessors from Ascend Online database applying 2013 full-life base values
Middle East
North America
Europe
Asia Paci�c
AfricaLatin America
Region undisclosed
Region Undisclosed
Africa
Latin America
Middle East
North America
Europe
Asia Pacific
$14.7bn
$10.1bn
$5.7bn
$2.1bn $0.8bn
$20.1bn
$45.3bn
2013 DELIVERY VALUES BY CATEGORY AND REGION
Forecast for mainline and regional jet deliveries to airlines/lessors from Ascend Online database applying 2013 full-life base values
0
10
20
30
40
50
RegionUndisclosed
AfricaLatinAmerica
MiddleEast
NorthAmerica
EuropeAsia Paci�c
Regional jetNarrowbodyWidebody
$0.8bn
$45.3bn
$20.1bn
$14.7bn
$10.1bn
$5.7bn$2.1bn
The major airframers are set to de-liver almost $100 billion worth of jet airliners in 2013 as production rates in Airbus and Boeing’s plants surpass the record output
of 1,190 units set last year.According to projections based on data
from the Flightglobal Ascend Online data-base, almost $96 billion worth of airliners will be delivered by Airbus and Boeing in 2013 (applying 2013 full-life base values). A further $3 billion worth of metal will be shipped by Bombardier and Embraer.
“We estimate that demand for fi nance is up by 15% this year over 2012,” says Flightglobal Ascend senior aviation analyst Rob Morris.
Airbus will again be shaded by its US rival, shipping $42 billion of assets, compared with $53 billion from Seattle. Airbus will earn more from single-aisles, delivering $24.7 billion worth of A320 family aircraft against $22.6 bil-lion worth of 737s. But Toulouse looks set to be beaten fair and square in the more lucrative widebody arena, delivering $17.7 billion worth of A330s and A380s against an impres-sive tally of $30.8 billion in 747s, 767s 777s and 787s by Boeing.
Well over two-fi fths of the 2013 fi nancing requirements will be from Asia-Pacifi c air-
lines, which will take $45 billion worth of airliners. “That’s 18% greater than last year,” Morris points out.
Europe accounts for around a fi fth ($20 bil-lion) of the delivery fi nancing needs, while North American carriers will need to fi nd al-most $15 billion in airliner fi nancing this year. Morris says that the North American fi gure is around 40% greater than 2012.
Deliveries to Middle Eastern carriers will account for around $10 billion this year.
Morris expects that export credit agency (ECA) activity will be broadly the same as 2012: “We estimate around $24.5 billion worth of ECA fi nancings, despite the potential increase in cost,” he says.
Bank activity is set to increase signifi cantly, with Asia Pacifi c driving much of that growth due to its greater funding requirements.
Capital market activity is set to increase by as much as 50%. This will be driven by the increased value of deliveries to North Ameri-can airlines, Morris says.
“As for the assets, around 80% of deliveries will be types Ascend classes as ‘liquid’, and thus relatively easy to fi nance. That’s around the same ratio as last year and on this basis we expect fi nance will be found for the other 20%, as it was in 2012.” ■
FUNDING THE $100BN WORTH OF NEW AIRCRAFT THIS YEAR
■
FinDing tHe FunDsRecord production means that airlines’ delivery fi nance requirements will increase by 15% this year to $100 billion, with banking activity likely to grow signifi cantly
fl ightglobal.com/ab
Paul Hayes is director of air safety and insurance at Flightglobal’s consultancy and data arm Ascend
Finance & leasing insuRance
February 2013 | Airline Business | 43
loWeRing tHe RisKOne of air travel’s safest years has been excellent news for insurers. But despite the relatively low number of losses, 2012 claims will still exceed $1 billion
REPORTPAUL HAYES LONDON
One of the best years on record for airline safety means that 2012 has been a year of low levels for incurred losses from air crashes. There were no major catastro-
phes and the number of passenger fatalities and expected cost were low, compared to recent years.
Insurance rates and written premiums also fell, but given the benign claims experience in 2012 this was not unexpected, and pre-mium income perhaps did not fall as far as it might have.
Flightglobal’s consultancy arm Ascend cur-rently estimates total incurred airline claims, including those incurred but not reported for 2012, at just over $1 billion – the lowest esti-mate in more than 20 years. Ascend’s estimate for net written premium in 2012, excluding hull war and excess third party war, is $1.8 billion – 10% down on 2011.
As in 2011, the low level of incurred loss in 2012 is very much a mixed blessing for insur-ers, as although Ascend predicts that many will have made money, there is real concern that premium levels are now too low to be
-10
-5
0
5
10
15
OctSepAugJulJunMayAprMar
Gro
wth
rat
es (
%)
Traffic growth trend
ATA AEA AAPA ALTA
-10
-5
0
5
10
15
OctSepAugJulJunMayAprMar
Gro
wth
rat
es (
%)
Capacity growth trend
ATA AEA AAPA ALTA
0
1000
2000
3000
4000
5000
$ (
m)
Airline hull and liability costs and premiums
Claims cost Written premium
2012
The amount of premium written in an ‘underwriting year’ and the cost of claims incurred in a calendar year are notdirectly comparable. Excludes hull war and excess third party war losses. SOURCE: Ascend
20001990
able to maintain the market in the longer term. And, with a low level of losses in 2012, there will be an expectation of further rate reduc-tions in 2013.
Worldwide there were only 10 fatal acci-dents where revenue passengers were killed and, fortunately, most of these did not involve a considerable loss of life. Only the Bhoja Air and Dana Air crashes resulted in a large number of fatalities. These two accidents caused the death of 268 passengers – almost 75% of the total of 362 revenue passenger deaths during the year.
While 2012 was not the lowest number of passenger fatalities in a year – in 2004 only 344 revenue passengers were killed – it was
still 10% better than 2011, and compared very well to most other recent years.
Estimates of incurred passenger liability for 2012 are also low, currently at just $80 million. This is very similar to estimates for 2011, which are also very low. Passenger liability estimates for these years are the lowest since 1986.
Estimates for incurred passenger liability in 2004 – the year with the fewest passenger fatalities – are just over $200 million. The annual average for the last decade (2000-2009), even excluding liabilities incurred from 9/11, is $510 million.
As with fatal accidents the number of air-line total losses in 2012 was also low. So far there are only 39 confi rmed. This is the lowest number of such losses over the last 20 years, and is very likely to be the lowest since 1945.
LOSSES FALLThese airline total losses also involved only relatively low-value aircraft. None of the air-craft were valued at more than $30 million and all bar one have hull values of less than $10 million. Therefore, the current estimate for the cost of airline total losses in 2012 is only $105 million. This is the lowest fi gure since 1984, and puts the 2012 fi gure far below the $416 million annual average cost of total losses for 2000-2009.
The number of major partial losses known so far for 2012, 70, is far more typical, and will cost an estimated $320 million – well exceeding the $253 million annual average for 2000-2009.
While 2012 was a quieter year – and the estimated cost of incurred losses for the year is the lowest for many years – looked at from another angle, 2012 shows that, even in a benign year, claims can still reach $1 billion.
It is diffi cult to imagine a year in which air-line claims could come in at a lower number, and with many aircraft hulls insured for $100-300 million – and some policies having limits of $2.5 billion – there is plenty of scope for a considerably worse result.
One catastrophic loss could exceed the total global premium for the year. This is well illus-trated by insurance market host Lloyd’s realis-tic disaster scenario addressing aviation, RDS13 Aviation Collision, which is used to test the corporation’s syndicates writing avia-tion risks.
This reads: “Assume a collision between two aircraft over a major city anywhere in the world, using the syndicate’s two highest air-line exposures. Assume a total liability loss of up to $4,000 million: comprising up to $2,000 million per airline and any balance up to $1,000 million from a major product manu-facturer’s product liability policy(ies) and/or an air traffi c control liability policy(ies), where applicable.” ■
The current estimate for the cost of airline total losses in 2012 is only $105 million – the
lowest since 1984
Regionals subject
February 2012 | Airline Business | 19flightglobal.com/ab
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