Aviation Finance

Aviation Finance - Vol 2 No.8 April 12th 2012
Aircraft Values

Aircraft operating lifespan arguably shortened as second hand market values decrease

A sustained and widening gap between new and second hand aircraft values has developed and the depressed second hand market has now extended to include reasonably young jets of only five to seven years old. With these price falls, some aircraft traders argue that aircraft are now worth parting out at as young as 15 years because their engines and individual parts are worth more than the unit value of the plane itself.

The Cutting Edge

Recent start-ups launch successfully despite oil and macroeconomic headwinds

At a time when consolidation and capacity contraction are themes sweeping across the global airline sector it could be concluded that start-up ventures are unlikely to succeed. That conclusion is re-enforced by the continuing high price of jet fuel which is making profitable commercial aviation ventures difficult to develop. However, three new airlines are being established at present that defy this notion and all are backed by seasoned investors.

Airline Financing and Developments

First Airbus A380 to be financed under Japanese operating lease with a call option (JOLCO)

Lufthansa closed financing last week on an Airbus A380 aircraft under a Japanese operating lease with a call option (JOLCO). This is the first time a JOLCO structure has been used to purchase this type of jet. At the same time it has been reported that Norwegian Air intends to lease some of itsfleet as it expands following its huge order at the Singapore Air Show. Meanwhile Pinnacle has filed for Chapter 11 protection.

Capital Markets

ILFC IPO, Doric equity raise and ALC bond issuance are indicators of growing interest in capital markets

Healthy predictions on the valuation range of ILFC as well as other positive current market capitalizations for lessors are stimulating more intensive coverage by both buy side and sell side analysts and deepening the investor pool available to aircraft financiers. Joe Gill discusses the contributing factors to this growing capital market activity.

Taxation

The role of the 'game changing' US Job Creation Act of 2004 and the other 'killer apps' that made Ireland a global leader in aviation finance

PAT O'BRIEN was one of the leading tax advisers in the creation of the Irish international aircraft leasing industry, whose clients were the major household names of the industry. Now retired from KPMG, he spoke to Aviation Finance editor Ken O'Brien about the key reasons that the industry has been such a success over the thirty years of its existence and the specific role of tax in that story. This article is one of over 50 articles that will appear in the upcoming Finance Dublin Yearbook 2012 a special commemorative edition of the Yearbook celebrating the 25th Anniversary of Ireland's IFSC.

  
Aviation Finance Vol. 2 No.8

In this issue

The particular uncertainties of the cycle of 2012 are analysed in this issue by engine leasing pioneer ELF's President and CEO, Jon Sharp, whose insights give us pause to reflect on the strength of business models, and businesses that derive their stability from diversity, innovation, and originality. Across the capital markets, and in the airline business itself, where we report on three start ups, there is heartening evidence that none are absent.

Perspectives

'Sell or hold?': the question at individual asset level that's facing engine lessors, says Jon Sharp of ELF

With no boom in the world economy likely any time soon, the existence of an oversupply of equipment and enhanced uncertainty regarding residual values, 'sell or hold?' is the question at individual asset level. You are damned if you do, damned if you don’t, says pioneer of the engine leasing industry JON SHARP, CEO and president of Engine Lease Finance Corporation. He writes exclusively for Aviation Finance about the key challenges facing engine lessors.

Lessor Financing and Developments

Analysts say AIG likely to float ILFC soon

AIG's rating has been upped following indications that it looks likely to float ILFC and pay back its government debt, in response to an improvement in the IPO market. Positve developments in the private equity arena were also evident this month, with Mitsubishi and the Development Bank of Japan buying 60 per cent of TES Holdings from DVB Bank.

Manufacturers

Ramped up production rates by OEMs means up to $1.3 bn of narrow body aircraft changing hands per week

If we assume that the ticket price of a narrowbody is about $70 million then $5.2 billion of narrow body aircraft are changing hands every month, or $1.3 billion per week, writes Joe Gill. He discusses the frenetic activity this requires of those charged with ensuring that the financing, registration and owneship process is completed effectively and efficiently.During the first quarter of 2012 Airbus delivered 131 commercial aircraft to its customers globally, an increase of 10 per cent. In the same period Boeing dispatched 137 units to its airline and leasing clients, a rise of 32 per cent. These statistics reflect a healthy marketplace for the two leading world OEMs and are a function of the record ordering that took place over the past three years.

Irish Competitiveness

'A leading edge over other global locations particularly for public lessors' says Colm Barrington on Ireland as an aviation finance centre

'A combination of the flexible asset depreciation rules and the low corporate tax rate allied to Ireland's very attractive international tax treaties continues to give Dublin a leading edge over other global locations,' says COLM BARRINGTON, CEO of Fly Leasing, on Ireland's attractiveness as a domicile for global aircraft leasing businesses. Barrington recently outlined to Aviation Finance the strengths of the jurisdiction.