Aviation Finance

Developments

The latest edition of Aviation Finance is published
December 14th 2017: In the latest issue of Aviation Finance: We look ahead at 2018; Life cycles: will 25 years be an accurate economic life for new technology aircraft? Lessor share price performance in 2017 shows investors have a greater understanding of aircraft as an asset class; Moody's sees outlook stable for global airlines and aircraft leasing in 2018; CDB Aviation $492m facility from five banks is prelude to further diversification in 2018; $139 billion required for 2018 aircraft deliveries.

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.

 

Perspectives

Comparing leasing business competitors

Deloitte's Pieter Burger compares the taxation regimes on aircraft assets and leasing in Ireland, Singapore, Hong Kong and other jurisdictions.
SMBC AC's Flannery on its approach to growth
Goshawk's Ruth Kelly on the lessor's growth strategy
Cowen's Helane Becker on the coming aviation deals
GECAS' Diarmuid Hogan on demand for aircraft assets
IBA's Seymour on the business of aircraft appraisals

See the Aviation Finance Perspectives Series here.

Analysis

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.

C Series still faces big headwinds in narrowbody marketplace
Even with the new backing of Airbus, the future for Bombardier's C Series is likely to be turbulent, according to a new report by Moody's Investor Services. It identifies a number of headwinds for the new aircraft, including limited demand for planes of 100 to 150 seat capacity, the continued focus of airlines on achieving acceptable returns on capital and the relative youth of the world's small narrowbody fleet. The rating agency concludes that it is extremely unlikely sufficient numbers of the aircraft can be sold to recoup its $6 billion development costs.


Maturing 787 market underlined by Emirates order
Boeing secured a major advance for its 787 programme by winning orders for 40 units of the -10 variant from Emirates at the Dubai Airshow. Aside from replacing a prior order for Airbus A350s the US manufacturer will be pleased to see such vindication for a programme that began with difficulty but has matured in to a key cash generator for the business.

 

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Financing & Risk Strategies

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Aviation Finance Special Features

Ireland: International Aviation Finance Hub


Are NEO delays supporting CEOs?
The ongoing engine issues with Airbus NEO aircraft remind us of the challenges posed when Boeing struggled to deliver early Big Twin 787s. At that time delays in 787 deliveries created short term demand for lift which supported in particular A330 values and lease rates.


Air freight experiences a fifth straight month of double digit growth
Air freight markets continue to power through 2017 and posted another double digit percentage growth clip during August. Demand rose 12.1% and according to IATA this is the fifth month when double digit gains were achieved. That pace reflects better global economics and growing capacity. The rates being achieved in 2017 significantly outpaces the average 4.4% growth rate attained in the past five years. For investors in freight aircraft this represents a material improvement in the environment in which their assets operate.


Monarch collapse speeds up the consolidation of European airline industry
The collapse of the UK airline Monarch is yet another signal of consolidation in the European airline industry. It will have a series of effects on various parts of the aviation complex and creates opportunity for the strongest carriers to advance their positions further. Monarch carried over 6m passengers last year and operated 35 short-haul A320/A321 and B737 aircraft. All of these assets were leased and will now have to find a new home inside or outside Europe. Employees of the airline, including over 400 pilots, will be searching for employment opportunities. Given the age of the airline many of these are seasoned pilots who will be of value to growth carriers.

 

Analysis

Tokyo Century to pay $600m for 20% of ACG
Tokyo Century Corporation is expected to put up just under $600 million for a 20 per cent stake in the US-based lessor Aviation Capital Group, which has been 100 per cent-owned by Pacific Life Insurance Co since 2005. This puts a notional value on the US-based lessor of $3 billion.

DAE agrees to acquire AWAS
April 25th 2017: Dubai Aerospace Enterprise has agreed to acquire AWAS, the Dublin-based whose majority shareholder is UK private equity Terra Firma. The combined entity will have an owned, managed and committed fleet of 394 aircraft, valued at more than $14 billion. The move by Terra Firma to sell AWAS follows its decision to sell a portfolio of 90 aircraft to Macquarie in 2015. DAE will become a top 10 lessor when the deal completes in Q3.

Avolon closes CIT deal
Avolon has closed its $10.38 billion acquisition of the aircraft leasing business of CIT Group, encompassing approximately 320 aircraft, of which some 72 per cent are in-production narrowbodies. The price represents represents a 6.7% premium on the net assets of $9.4 billion. Avolon said the transaction gives it an owned fleet of 551 aircraft at end December last year, with an average aircraft age of 4.7 years. The combined business serves 149 customers in 62 countries with approximately one third of in-service aircraft leased 
into each of the Americas, EMEA and Asia-Pacific regions.

Avianca opts again for EAIV to finance three aircraft
March 21st 2017 Investment bank Burnham Sterling has closed its third privately placed EETC for Colombian airline Avianca, this time financing three aircraft - two Airbus A320s and one Boeing 787 – as it did with its first in December 2014. The transaction, again made using the bank's proprietary EAIV (Enhanced Aviation Investment Vehicle) structure, is its first multi-currency EAIV, providing both US dollar and Euro funding for Latin America’s second largest airline.

CDB Aviation Lease Finance delivers one Airbus A320-200neo to SAS
2nd March 2017 CDB Aviation Lease Finance, which is a wholly owned Irish subsidiary of China Development Bank Financial Leasing Co., Limited, announced today the delivery of one Airbus A320-200neo aircraft to flag carrier SAS. The Airbus A320-200neo represents CDB Aviation’s first delivery of a six aircraft sale and leaseback transaction with SAS, the largest airline in Scandinavia. Patrick Hannigan, CDB Aviation Chief Commercial Officer commented, "It's our first deal with SAS. CDB Aviation has ambitious growth plans and we look forward to doing more business with them'.

Juneyao makes its first widebody order as it plots global reach
February 22nd: China's Juneyao Airlines has finalised an order for five Boeing 787-9 Dreamliners. The order is valued at $1.3 billion at list prices and comes as Boeing rolls out the first 787-10, the largest variant of the 787 which is due to enter into service in 2018. Juneyao's new order includes options for five more 787-9s. It is the airlines first Boeing order and first widebody airplane order as the privately-owned airline looks to spread its network beyond China.