Aviation Finance

Developments

The latest edition of Aviation Finance is published
February 22nd 2018: In the latest issue of Aviation Finance: We look at the return of equity market volatility and what it means for aviation finance; GDP growth momentum gathers pace in early 2018 underpinning global aviation growth; Airbus & Boeing's results show two OEMs going from strength to strength; China focus; Avolon revenues jump 159% after CIT acquisition; AerCap announces new $200m share repurchase programme; Stellwagen Group MBO will see a return to more 'flexible' and 'aggressive' strategy; Chorus Aviation's equity raise.

Global GDP momentum underpins aviation expansion
Nothing matters more to demand for air passenger and cargo travel than GDP growth rates. Long established statistics prove a positive correlation between air travel and GDP so if the latter is building momentum the prospects for aviation are good. Moreover, because global airline load factors are near all time highs any expansion in demand should feed through in demand for more aircraft, a positive trend for investors in aviation assets writes Joe Gill.

 

Perspectives

A shift in lease pricing dynamics

Goshawk's Ruth Kelly on interest rates, investor sentiment, increasing delivery rates and the intense price competition in the sale/leaseback and aircraft trading markets.
CDB ALF's Peter Chang on its new model platform
Avolon's Dick Forsberg's Fearless Forecast for 2018
Deloitte's Burger on tax attractions of jurisdictions
SMBC AC's CFO on its approach to growth
GECAS' Diarmuid Hogan on demand for aircraft assets

See the Aviation Finance Perspectives Series here.

Analysis

IATA identifies potential future megatrends
IATA has published a valuable contribution to the debate about the future of air travel in which it has identified a number of mega themes that could evolve as aviation develops. It puts new technology, data, unmanned aircraft, smart regulation and infrastrucutre at the the head of the list of these potential future megatrends.

Max 10 reaches next design phase ahead of 2020 introduction
Boeing has announced that all design requirements are now in place to proceed with the largest version of the 737 MAX, the -10. This will bring a version of the narrowbody to the market that offers seat density which is being increasingly demanded by low cost carriers in particular as they migrate towards larger single aisle aircraft.

A380 order welcome but customer base remains narrow
Having secured a critical order in January for its superjumbo Airbus must now focus on broadening the depth and breadth of the aircraft customer base. To this end it must find more strategic buyers than can showcase the aircraft in markets where volume and density count. IAG, and in particular British Airways, is an intriguing prospect in this regard. The UK flag carrier already operates 10 A380s and these ply high volume routes from the carrier’s base at Heathrow, London. Heathrow is a tightly constrained airport which is technically full, especially at peak operating times. The planning process to advance additional capacity appears mired in elongated political and environmental reviews which could push new capacity out by ten years or more.

 

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Financing & Risk Strategies

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Aviation Finance Special Features

Ireland: International Aviation Finance Hub


With 1,300 aircraft coming off lease in 2018, IBA outlines 12 key themes for the year
IBA outlines the 12 key themes it has identified for 2018 and takes a closer look at the prospects for c.1,300 aircraft due to come off lease in the coming 12 months, and asks whether 2018 will be another 'year of extensions'.

Natixis Investment Managers acquires stake in Airborne Capital
January 18th 2018: Natixis Investment Managers has acquired a minority stake in aviation asset manager Airborne Capital in a move that is expected to accelerate the company's plans to reach it initial target of $5 billion of aviation assets under management. Update: launched in late 2017 Airborne is led by industry veterans Cian Dooley, founding partner; Anand Ramachandran, CFO and Ramki Sundaram, CEO and has already received substantial backing from Irish financial services group FEXCO.

EY Special Report: The Future of Flying
The international tax landscape is changing rapidly, and there are a variety of tax and accounting changes on the horizon that lessors should be aware of. EY's John Hannigan outlines some of these tax developments including Anti-Tax Avoidance Directive (ATAD); Multilateral Instrument (MLI); Common Consolidated Corporate Tax Base (CCCTB); IFRS 16; Transfer Pricing (TP) and US Tax Reform. The report also contains a timeline for the major changes that will affect aviation finance companies over the coming years. EY also analyses the comparative features of the leading jurisdictions from a tax point of view here.

 

Analysis

IBA provides detailed view of new operating leases and secondary trading volumes in 2017
In its first published review of operating leasing and secondary trading volumes, IBA's new aviation industry service, IBA.iQ, reports strong growth in new operating leases in both narrowbody and widebody aircraft markets. Overall narrowbody trading levels increased slightly in 2017 compared to 2016 but secondary trading of widebodies has remained flat over the past two years, although there are some differences based on aircraft model.

Forsberg's 'Fearless Forecast' for 2018
The global aviation industry head into 2018 in rude health says Avolon's Dick Forsberg. 2017 saw over 4 billion passengers travel on 36.8 million flights while air freight also grew strongly. Despite a steady rise in aircraft deliveries, he says, capacity is still increasing more slowly than traffic and load factors continue to rise as a result. Forsberg analyses the industry fundamentals, the aviation industry cycle, aircraft deliveries, OEMs strategies, financing trends in the 2018 edition of his widely respected 'Fearless Forecast'.

Life cycles: will 25 years still apply to new technology aircraft?
Life cycles are an integral part of the financial returns from an aircraft. The traditional assumption has been that aircraft have economic lives of up to 25 years and that generates a stream of operating revenues which reward investors in these assets as they depreciate over time. While investors can take their own views on projected actual lives assessors and bankers tend to use the 25 year life as a central pillar in calculating values and especially residual values.

Lessor share price performance points to a greater understanding of aircraft as an asset class
Momentum behind stockmarket listed aircraft lessors continues to be good as 2017 comes to a close. The combined stockmarket value of the five key listed lessors has reached almost $19bn, making the sector more visible to investors compared to twelve months ago.

Commercial UAVs a new frontier in aviation leasing
The aviation investment group Irelandia has established a new leasing platform focussed on unmanned aerial vehicles (UAVs), otherwise known as drones. AerDrone International (AI) will be set up along the lines of operating lessors that focus on commercial aircraft. It is being launched in Dublin to leverage the air finance and leasing eco-system that supports over thirty leasing companies in Ireland.


Dubai orders show industry in rude health
Record breaking orders placed at the 2017 Dubai Airshow indicate an industry in rude health with no suggestion that cyclical factors are constraining the medium to longer term enthusiasm of airlines for growth. New order highlights include Indigo Partners' $49.5 billion order with Airbus and Flydubai's $27 billion order with Boeing.