Aviation Finance

Aviation Finance - Vol 1 No. 3. October 13th 2011
Financing

The 'Volcker Rule' and aircraft finance

Shrinking the investment banks' ability to engage in prop trading could conceivably have a knock-on effect on other sectors seeking bank funding including aviation finance. There is the possibility that aviation finance could tap into a re-deployment of US investment bank trading capital into commercial lending, for example.

The Cutting Edge

Lessors to the fore as aircraft orders and deliveries remain firm

Data from both Airbus and Boeing regarding their 2011 order and delivery programmes continue to show robust activity levels among the leading global OEMs. Boeing has chalked up 426 net new orders this year (adjusting for 105 cancellations) while Airbus has sold a net 1038 units by the end of September. Lessors remain key parts of the order books for both manufacturers with ALC, GECAS and ILFC accounting for 18% of Boeing’s bookings in 2011 while GECAS, ILFC and ICBC make up 20% of Airbus’ gross orders.

Jurisdictions Focus

Aircraft leasing in Ireland

Over the last year, a number of aircraft leasing companies have established a presence in Ireland or committed additional resources to their Irish leasing platform through employment and funding commitments. Some of the key criteria in determining a jurisdiction to establish aircraft leasing operations are reputation, expertise, tradition in the aviation industry and tax efficiencies. So why have many international aircraft lessors chosen to establish operations in Ireland?

Leasing: Business Jets

Minsheng Financial Leasing orders 33 business jets from Embraer and Dassault, signalling the opening up of business jet leasing In China

China's growth potential for executive jet leasing was underlined this month and in earlier deals signed by Chinese lessor Minsheng. In contrast to the US, where about 11,000 business jets are in operation, there were only 200 private jets in China during 2010. Bombardier expects China to be the No 3 global market for business jets in the next decade, after North America and Europe. It forecasts over 950 executive jet deliveries to China by 2020 and a further 1400 by 2030.

Ireland: Lessors

Pembroke nearly doubles profit in 2010 as penetration of Asian market increases

During the past year Pembroke has furthered it's penetration of the fast growing Asian markets and is also active in the LCC sector where it has a number of key clients including Air Arabia, Cebu and Tiger. By combining the strength of it's parent banking group with the expertise of a Dublin based global team Pembroke is positioned to grow it's share of the leasing market.

  
Aviation Finance Vol. 1 No 3

This issue: an American white knight in debt financing?

The latest issue of Aviation Finance looks at American banking after the Volcker rule, and in it we suggest that investment banks' capital may be redeployed in another way to the benefit of aircraft finance, as plain vanilla commercial lenders. This could serve to underpin the current shift in sourcing of finance from European banks, which has been signalled long before the current eurozone crisis to American, Asian, and Australian banks. The latest sign, that Soc Gen is pulling back from aircraft finance is confirmation of this trend. There will, of course, be European exceptions, and we shall be highlighting these in upcoming editions.

Perspectives

Why leasing is more profitable, and less risky

One of America's leading aviation and aircraft leasing analysts, Gary Liebowitz, of Wells Fargo Securities cites a chart published in the first issue of this publication in his latest (October 12th) regular commentary on the industry Leibo's Leasing Letter. The chart, supplied by Avolon's Dick Forsberg, shows that, as a group, aircraft lessors remained solidly profitable through cyclical economic downturns – 'unlike their global airline customers that have a 20-year cumulative net margin of approximately zero'. It should be noted though that the 'Airline Net Income Margin' line (see top line in the table) aggregates the performance of LCCs and legacy airlines. Also there is a feeling amongst some analysts that backward - looking profits in leasing may not be repeated in the future, as future residual value performance may not be as good as in the past.

Funding

Airbus to bridge the gap 'if necessary'

Airbus has said it will help its customers with financing if the European debt crisis makes it necessary and has said it has been in discussions with export credit agencies, who stepped in with guarantees during the 2008 crisis when market funding for aircraft was not available.

Digest

Q4 begins

GECAS sees strong demand in Embraer's E-Jets and also leases six A320s as part of Citilink's fleet modernisation; Oak Hill Capital invests further in Southern Air as the cargo carrier looks to complete its fleet renewal; US Ex-Im Bank guarantees loans to Air India for 27 Boeing Dreamliners; Aircraft lessor Aergo is set to buy a majority stake in Peruvian Airlines.

Taxation

Irish aircraft leasing industry hopes Special Assignment Relief Programme (SARP) will be extended in Budget to make the jurisdiction more attractive for mobile executives

Ireland's aircraft leasing industry has urged the Government to take action in the upcoming 2012 Budget to improve the international competitiveness of its world leading aircraft leasing industry. The broad thrust of pre Budget submissions, channeled through Ireland's financial services consultative process, the Clearing House Group, a broad industry representative group, is that personal tax rates, particularly for high paid internationally mobile executives could be made more attractive, helping companies seeking to locate staff in the jurisdiction.