Aviation Finance

Aviation Finance - Vol 1 No. 5 November 10th 2011
Q3 Lessor Results Analysis

Leasing company results illustrate debate over asset values

The effect of changing technology and growing production rates by OEMs was illustrated well in ILFC’s recent results. The leasing company, which is part of AIG, took a $1.5bn impairment charge on its fleet of 934 aircraft and that eclipsed a $200m operating profit on revenues of $1.1bn in the three months ending September 2011.

The Aviation Economy

Managing in a crisis - an OEM's tale

October has been another month when dramatic political and macroeconomic developments across the Eurozone have undermined confidence among consumers and investors. Amid all of that turmoil it is worth reflecting on the ability of large OEMs to remain stable and forward moving in developing the commercial aircraft market. The October activity sheet for Airbus is illuminating in this context.

Jurisdictions & Islamic Aviation Finance

Ireland and Bermuda facilitate Islamic aviation financing structures

Both Ireland and Bermuda are being looked at as host jurisdictions to facilitate Islamic financing rules for aviation finance, with Bermuda, for example, hosting the $290m aircraft engine securitisation carried out by GE Capital Aviation Services in 2011, the first closed since 2008. Ireland too has been to the fore in developing Sharia compliant structures: Ernst & Young's John Hannigan writes on developments in the Republic of Ireland's hosting regime.

Carrier Focus

Legacy carriers underperforming compared to LCCs in October

Financial results from airlines in Europe over recent weeks lay bare structural differences between Legacy carriers and the low cost LCC segment. Both easyJet and Ryanair have reported strong financial performance and have raised their full year guidance on profitability. In contrast, the Legacy carriers have struggled to maintain guidance as inclement macro-economic trends relating to consumer demand and cargo have dampened forward bookings.

Islamic Aviation Finance & Ireland

Aircraft leasing securitisation structures that are compliant with Islamic Finance

After a dip during the financial crisis of 2007-2010, there was a recovery in the use of Sukuk as an alternative source of funding for companies in the aircraft leasing sector. This article examines a growing interest in Ireland and some key tax issues that need to be addressed in structuring these investment propositions. Sukuk represent the Islamic equivalent of conventional bonds that can be issued to raise funding and allows financial institutions and similar entities to invest in companies in a manner that is Shariah-compliant. The use of Sukuk investment instruments have seen steady growth in recent years and levels of issuance returned to pre crisis levels in 2010 after a dip in 2008 and 2009, with over US$45 billion of Sukuk issuance in 2010 alone.

  
Aviation Finance Vol. 1 No 5

This issue

In the midst of all the concerns this Fall around banking and aircraft financing it is important to remember that much is still very solid about the aviation complex, and this issue highlights a number of these. For example, in our focus on Airbus's current work programme it is striking just how strong the order book remains, compared with just a year ago, and aside from the nostalgia some will feel over the discontinuation of production of the workhorse A340.

Interview: Domhnal Slattery of Avolon

GIC's $300 million investment likely to see bulk of Avolon's planned 150 strong fleet deployed in Asia-Pacific within 3 years - Slattery

Avolon's equity injection by Singapore's sovereign wealth fund represents a further step change in the lessor's evolution, whose financing strategy recognises the importance of equity in underpinning aviation finance. We caught up with Avolon's CEO, Domhnal Slattery following the GIC announcement to put the following questions to him:

The Cutting Edge

The A380 and B787 are in commercial service, offering opportunity for innovative lessors

The two highest profile and global large aircraft programmes - Boeing’s 787 and Airbus’ A380 - are now both operating commercial services following the introduction by ANA of the 787 last month. The A380, remarkably, is approaching its fourth anniversary of service with Singapore Airlines and the aircraft concerned has recently undergone a relatively heavy C maintenance check.

Banking

Asian banks step in as eurozone crisis hits aircraft lending

Air France-KLM has turned to Asia to help fund its aircraft needs as the eurozone crisis weighs on a number of European banks and their ability to fund aircraft purchases in dollars. Meanwhile, EADS CFO Hans Peter Ring has said the company is continuing with talks to allow its Airbus customers to purchase aircraft in euro rather than U.S. dollars. Such a move may help big players in the aircraft financing sector such as BNP Paribas and Societe Generale, who have both indicated they are to cut back on aircraft financing due to difficulties in sourcing dollars as a result of the eurozone crisis.

Aviation Finance Ireland

Good business models in the Irish aviation complex proving successful

The $300 investment secured by Avolon from Singapore's sovereign wealth fund highlights both the strength of that lessor's business model and shows that Ireland has the people and business environment to create world beating companies. Despite eurozone worries Ryanair has reported a 20 per cent profit margin after tax for the half year to the end of September showing that the aviation markets can still be navigated with the right business model while Dublin Aerospace's novel approach is allowing the two year old company to gain a stronghold in the aircraft maintenance market, adding 150 jobs in the process.