3 November 2015 Wui Jin Woon Senior Director Capital Markets Agenda Airline funding of aircraft deliveries Delivery financing options for lessors Operating lessor funding Airline funding of aircraft deliveries ID: 488240
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Slide1
Capital Markets and Financing
3 November 2015Wui Jin WoonSenior Director, Capital MarketsSlide2
Agenda
Airline funding of aircraft deliveriesDelivery financing options for lessorsOperating lessor fundingSlide3
Airline funding of aircraft deliveriesSlide4
How are aircraft financed?
Source: BoeingSlide5
Airline Financing Considerations
Cost v DiversificationManage financing riskFinancial markets change over time and a particular source might be unavailable at a point in timeBalanceRelationshipExecution risk
FlexibilityRegional v Global BanksLease v BuySlide6
Consider the various cycles
Aviation Cycle
Aircraft ValuesAirline Profitability
CMV ≥ CBV
6
th
consecutive year
Debt
Cycle
Bank Sentiment
Bond Market Appetite
Margins at
historical lows
All eyes on the Fed
Equity
Investor Cycle
Return Requirements
Long Run Appetite
Strong interest
TBDSlide7
Delivery financing options for lessorsSlide8
Capital markets an increasingly significant financing source
Source: BoeingSlide9
Lessor Financing Considerations
Cost v DiversificationCost is key to leasing competitivenessSimilar diversification considerations to airlines (financing risk, market risk, balancing other issues)But a wider scope to diversify due to portfolio of lesseesTrading flexibilityFleet strategy
Liability managementRatings considerationsSlide10
Financing strategy is connected to fleet strategy
Portfolio Size
0-50
50-100
100+
Growth Rate (aircraft added per year)
0-10
10-20
20+
Bilateral (non-recourse)
Bilateral (full-recourse)
Secured portfolio financing
Unsecured debt
Note: box sizes are not strictly representative. Chart excludes export credit financing
Warehouse facilitySlide11
Operating lessor fundingSlide12
Lessors have a constant need for funding
Aircraft are depreciating assets, so lessors have to buy aircraft just to stay the same sizeTo achieve IRR targets, aircraft under 15 years of age need to be financedAircraft usually need to be re-financed at least once while they are owned by a lessorSlide13
Lessors must adapt to changing financial markets
1990
2000
2010
2015
Post Gulf war and
GPA
GPA workout refinancing
First ABS transactions
Many banks in market
Post 9/11
FI backed lessors
ABS markets re-opened
Banks re-entered as
market
improved
Financial crisis and recovery
Increased ECA borrowing
Use of recourse
Portfolio finance in bank market
New capital markets issuance
Currently
ABS for debt and equity
Growth of capital
markets
Diversity of banksSlide14
Lessors need to pay attention to the liabilities side of the balance sheet
Recipes for trouble:Borrowing short/lending longExcess leverage leading into a downturnHigh refinance risk
Unmatched fundingConcentration of relationship banksDependence on capital markets
Structures that are difficult to unwindSlide15
Credit Rating Considerations
Rating agencies differ in the sector teams that cover lessors (S&P: corporates, Fitch, Moody’s: FIG)While the rating methodologies are different, there are some common considerations:
Like
Dislike
Diversified fleet by customer
Concentrated fleet
Mainstream
liquid aircraft
Out
of production aircraft
Unsecured debt /Unencumbered assets
High
proportion of secured debt
Large and well-positioned in industry
Small and
relatively new in industry
Diverse earnings
Monoline
businesses
Shareholder has a positive influence
on financing (support, franchise)
Shareholder treats
business as non-core / short term