Overview of the Aircraft Leasing Industry

advertisement
Overview of the Aircraft Leasing Industry
Laurence Vigeant-Langlois, PhD
VP Portfolio Strategy & Acquisitions
CIT Aerospace
Presentation to the Air Transportation Systems Engineering class
George Mason University
April 2011
®
© CIT Group Inc., 2011. All Rights Reserved.
Contents
CIT Overview
Operating Lessor Business Model
Fleet Planning
Market Trends & Outlook
© CIT Group Inc., 2011. All Rights Reserved.
CIT Overview
Bank Holding Company With Over 100 Years Commercial Lending Experience
Focused on Small Business and Middle Market Companies
Reorganized Capital Structure Provides Flexibility to Refine Business Model
$53 Billion in Assets and $8.7 Billion Market Capitalization
© CIT Group Inc., 2011. All Rights Reserved.
Financial Solutions for Small Business and Middle Market Companies
Corporate
Finance
Lending, leasing, advisory and other financial services
to small and middle market companies
Portfolio Assets
$10B
Trade
Finance
Factoring, lending, receivables management and trade
finance to companies in retail supply chain
Portfolio Assets
$3B
Transportation
Finance
Lending, leasing and advisory services to the
transportation industry, principally aerospace and rail
Vendor
Finance
Financing and leasing solutions to manufacturers and
distributors around the globe
Portfolio assets include loans, operating leases and assets held for sale; data as of 9/30/2010
Excludes liquidating Consumer Segment with portfolio assets of $9B
Excludes other assets and cash totaling $13B
© CIT Group Inc., 2011. All Rights Reserved.
Portfolio Assets
$12B
Portfolio Assets
$6B
CIT Transportation Finance Structure
CIT Transportation Finance
$12.5 B Managed Assets
CIT Aerospace
Commercial Airlines
$7.6BN Portfolio
• $665MM Portfolio
•
322 Aircraft
• 273 Transactions
•
120 Customers
• 202 Customers
•
58 Countries
• 13 Countries
•
77 new aircraft on order
• Products:
•
Primary offices in New
York, Ft. Lauderdale,
Dublin and Singapore
• Third Party Transactions
 Debt
 Sale Leaseback
 EETC
 Aircraft Sales
CIT Transportation
Leveraged Finance
Business Aircraft
•
Financial Institutions
Group
CIT Rail
• $432MM managed assets
• Aero & Defense: $357 MM
to 21 Customers
• Marine: $71 MM to 7
customers
• Industries covered include
aerospace, defense,
 Loans
 Leases
government services,
homeland security, marine,
 Fractional Share
Financing
rail.
• Customer base primarily
corporate users
• Products include senior debt,
leases, junior debt and
advisory
• Expanding scope
internationally
• Offices in New York,
Connecticut, Los Angeles,
• Strong manufacturer
relationships
Chicago.
Note: All dollar values are preliminary at 9/30/2010 based on post FSA basis
© CIT Group Inc., 2011. All Rights Reserved.
5
• $3.8BN Managed Assets
• 112,880 Railcars
• 531 Locomotives
• ~500 Customers
• Located in Chicago, IL
• Lessees in US, Canada and
Mexico
• Customers include railroads
as well as shippers
CIT Aerospace Portfolio
CIT Fleet
CIT Orderbook
(301 Aircraft)
(111 Aircraft)
Airbus
Narrow
AirbusBody, 34
CIT Orderbook
Boeing
Narrow
Body, 113
Airbus
Narrow
Body, 128
Narrow
Body, 34
737NG, 48
737NG, 48
A330, 12
787, 10
Boeing Wide
Body, 27
Airbus Wide
Body, 33
787, 10
2010 Portfolio Activity



25 aircraft sold
22 new aircraft added
68 existing aircraft re-marketed
© CIT Group Inc., 2011. All Rights Reserved.
A350, 7
A330, 12
A350, 7
2011 Portfolio Activity





20 new aircraft delivering
3 sale-leaseback E190s
33 existing aircraft placed
38 new Boeing aircraft order
Discussions with manufacturers
for additional orders
6
Commercial Air Market Position
$40,000
Publicly Traded Aircraft Lessors’ Fleet Age*
$35,873
$35,000
$30,764
$30,000
$25,000
Lessor
Fleet
Value
GECAS
ILFC
CIT
AerCap
FLY
Aircastle
 CIT has
1,807
1,078
316
270
303
137
$35,873
$30,764
$7,784
$6,450
$6,263
$3,101
($MM)
Age On Order
9.5
8.5
5.9
9.2
10.2
13.1
245
117
73
24
20
8
the youngest fleet amongst the publicly
traded Lessors.
$20,000
$15,000

90% of the value of the CIT owned fleet is <10 years
old compared to 74% of the world fleet value.
$10,000
$7,784
$7,047
$6,450
$6,348
$6,263
$4,331
$5,000
$4,227
$3,101
$0
GECAS
ILFC
RBS
Source: Ascend Online as of 12/14/10 and CIT forecasted NI as of 12/31/10.
© CIT Group Inc., 2011. All Rights Reserved.
AerCap
BOC
FLY
ACG
AWAS
Aircastle
CIT Aerospace Customers and Portfolio Distribution


120 Customers in 58 Countries
Added 15 customers and 8 countries in 2010
US &
Canada
13%
Latin
America
14%
© CIT Group Inc., 2011. All Rights Reserved.

Offices in New York, Ft. Lauderdale,
Dublin and Singapore
Europe
31%
Asia/
Pacific
32%
Middle East/
Africa
10%
8
CIT Aerospace Track Record
Proven Success

Over 40 years of aircraft finance experience
 A recognized leader in aircraft leasing and finance
Reliable Partner to Manufacturers

Despite recent turmoil, CIT Aerospace continued operating normally
 Took delivery of all our aircraft commitments
Diverse Operator Base

Ability and desire to do business with less-than-stellar airlines and jurisdictions
 Continue to add customers and countries
In-House Expertise

Marketing and technical experts with backgrounds that include:
 Airlines
 Manufacturers
 MROs
© CIT Group Inc., 2011. All Rights Reserved.
9
Operating Lessor Business Model
© CIT Group Inc., 2011. All Rights Reserved.
Operating Lessor Business Model (1/4)
Value Proposition

Financial participant with high industry knowledge & ability to leverage credit spread
arbitrage opportunities
 Additional airframer distribution channel
Main Product
Operating lease of commercial airplanes – buy, hold-and-lease, sell
 Dry lease
 Excludes insurance, crew, grounds staff, supporting equipment, maintenance
 Aircraft on airline operating certificate
 Configured with airline paint scheme, interior, avionics
 Transfers to lessee the right to use the property (without ownership risk)
 Treated as operating expense in Income Statement & does not affect Balance Sheet
 Revealed in footnotes of financial statements under US GAAP
 Vs. capital lease
 For which lessee assumes ownership benefits & risks
 Considered both an asset & liability on BS
 Lessee claims depreciation & deduct interest expense
 Recognizes expenses sooner than with equivalent operating lease

© CIT Group Inc., 2011. All Rights Reserved.
Operating Lessor Business Model (2/4)
Activities

Business strategy
 Portfolio planning
 Risk management
 Financial planning

Asset management
 Maintenance reserve claims
 Record management
 Quiet enjoyment clause

Asset acquisitions
 Speculative purchases
 Secondary market purchases
 Airlines – sale lease-back
 Financial institutions – w/w.o. lease

Asset sale
 Airlines
 Financial institutions
 Others

Marketing / re-marketing & lease negotiation
 MOU, lease, board approval
 Commercial, legal, technical terms

Aircraft delivery / redelivery
 Engine selection
 Configuration management
 Inspections (& maintenance) for re-delivery
© CIT Group Inc., 2011. All Rights Reserved.
Operating Lessor Business Model (3/4)
Customers & Transaction Partners

Airlines
 Top-tier
 Middle credits
 New entrants


Flag carriers
 LCCs
 Inclusive Tour
Financial institutions
 Banks
 Lessors
 Export credit agencies
Resources: in-house vs. outsourced







Business strategy
Marketing
New aircraft programs
Technical & asset management
Trading & financing
Risk management
Other: pricing, legal, accounting, insurance, tax, HR
Business Metrics

Volume
 ROE
 Asset utilization
 Defaults
© CIT Group Inc., 2011. All Rights Reserved.

Revenue sources
 Rents
 Asset sales

Costs
 Asset purchases
 Cost of funds
 Maintenance & transitions
 Employees
Operating Lessor Business Model (4/4)
Market Segmentation

Two large players
 GECAS (GE)
 Second-tier lessors
 AerCap
 CIT

Others
 Smaller lessors

ILFC (AIG)

ACG

Non-traditional lessors

AWAS


RBS

BOC  AirCastle  FLY
New entrants
Competitive Strategies

Fleet composition
 Aircraft age
 Fleet size
 Passenger vs. cargo configuration
 Aircraft models
 Delivery/re-delivery slots
 Commercial terms
 Maintenance reserves
 Rents
 Lease duration
 Risk management strategies
 Jurisdictions
 Exposure per operator
 Complementary (financial) products
© CIT Group Inc., 2011. All Rights Reserved.
Value Proposition for Trade Partners
Airlines
Pros
1.
Mitigation of customer resistance to new
aircraft
2.
No PDPs, which are hard to finance
3.
No equity, minimizing cash outlay &
preserving borrowing capacity or liquidity
4.
Reasonable cash flow (25 vs. 12 years)
5.
Enhanced flexibility to enter/exit from
changes in technology & capacity needs
(e.g., “put” option). Access to newer
technology earlier
Aircraft Manufacturers
1.
Additional distribution platform
2.
Market seeding for new sales via
lease of used aircraft
3.
Credit risk mitigation
4.
Slot offering when skyline is sold out
5.
Enhanced stability through biz cycle
Total Backlog as % of World Fleet
Lessor Backlog as % of World Fleet
45%
40%
35%
30%
25%
20%
15%
6.
Cons
10%
Elimination of asset value risk:
residual & obsolescence
7.
For weaker credits, access to fleeting
1.
Usually more expensive
2.
Less maintenance flexibility
© CIT Group Inc., 2011. All Rights Reserved.
5%
0%
1969
1974
1979
1984
1989
1994
1999
2004
2009
Source: Ascend Online, as of 11/1/09
1.
Possible lease vs. sale competition
- if skyline is not sold-out
- depending on sale reward structure
Fleet Planning
© CIT Group Inc., 2011. All Rights Reserved.
Desirable Airplane Features (Airlines)
Revenue
Matched to the mission – schedule & routes
 Seat count, configuration & MTOW vs. range
 Utilization: reliability & turn-around times
 Marketable
 Attractive “product”: classes, seats, IFE, galleys, lavatories
 Newer aircraft
 Favorable to ancillary revenue generation

Cost

Fuel burn
 Cost per trip vs. cost per mile
 Ownership / financing
 Maintenance
© CIT Group Inc., 2011. All Rights Reserved.
Desirable Asset Features (Investors)
Good Financials



ROE
Risk-Adjusted Rents
Residual Values
ROE
Lifecycle Costs




Low purchase price
Low customization
Little surprise (Ad, sB and stC)
Economic vs. operational life (& obsolescence)
“Re-marketable”



Fungible
# airplanes vs. # operators
Customization vs. appeal
 Seats, Galleys, IFE, Paint
 Engines, Avionics
 Everything Else
Liquidity


Business cycle vs. depreciation
Vintages vs. airplane retirements
© CIT Group Inc., 2011. All Rights Reserved.
1st Lease
2nd Lease
MSV
3rd Lease
MSV
Sale
Asset Life
Business Strategy & Aircraft Purchasing
Corporate Objectives
• Financial & Strategic Goals
• Risk Management
• Resource Allocation
Market Analysis
Risk Management
• Trends
• World Fleet Supply-Demand
• Business Cycle
Fleet Planning
Buy
Hold &
Lease
Sell
Competitive Analysis
• Competitive Advantages
• Market Segmentation
• Supply & Price Pressures
Asset Acquisitions
Portfolio Strategy
•
•
•
•
© CIT Group Inc., 2011. All Rights Reserved.
Acquisitions in 1y & 2y markets
Returns vs. credit trade-offs
Lease rates & terms
Divestitutres
Asset Acquisitions
Deal Pipeline Development

Develop pipeline of target aircraft, opportunities & portfolios

Seek proposals & quotes from airframers & engine suppliers
Analysis & Internal Sale

Develop lifecycle valuation & financial modeling

Develop & sell business case to management & executive teams
Due Diligence

Assert market demand

Assess configuration options, pricing & marketability impact

Ascertain sale & product support

Address relevant risks – obsolescence, residual values, programmatic, product
performance
Negotiation

Negotiate pricing, delivery slots, guarantees, warranties, etc. etc. etc. & close deal
Post-Acquisition Acitivities
•
Delivery, placements, contractual follow-ups
© CIT Group Inc., 2011. All Rights Reserved.
Risk Management
Market Acceptance
•
•
•
•
•
Mission – seat count/usable payload vs. range
Manufacturer’s offerings and history – Airbus /Boeing vs. Bombardier/Embraer vs. COMAC, etc.
Total market volume – a/p sold, operator count, geographical distribution
Addressable market – a/p-engine types, in-service count, creditworthiness, PMAe’d parts
Airplane operating economics
Financial Return
Event
• Risk-adjusted ROE
• Achievable ROE vs.
credit score (PD) trade-offs
Portfolio Management
Buy
Competitive Landscape
•
•
•
•
Supply-demand in a/c & seats
Substitute financial products
Manufacturers? (slot availability)
New financial players
Hold &
Lease
• Mx (shop visit costs, ABCs)
• Contract violations
• Defaults – mx reserves
Sell
Geographical Diversity
• Jurisdiction prohibitions, taxes
• Captive/niche markets
Residual Value
•
•
•
•
© CIT Group Inc., 2011. All Rights Reserved.
Technical obsolescence & vintage effect (e.g., narrowbody replacement)
Economic vs. operational life
Impact of environmental and other regulations
Price elasticity of demand considering business cycle effects
Fleet Lifecycle by Model
Fleet vs. Model Age
4000
3500
Maturity
Production
3000
Fleet Count
Retirement
2500
2000
1500
1000
500
0
0
5
10
15
20
Model Age
© CIT Group Inc., 2011. All Rights Reserved.
25
30
737 (NG) 1998
A320 Family 1989
A320 1989
737 (CFMI) 1985
E-Jet 2005
A319 1997
MD-80 1981
CRJ Regional Jet 1993
777 1996
757 1983
767 1983
A330 1994
A340 1994
A321 1995
A310 1984
A318 2004
Balancing Creditworthiness & Returns – Operator count counts!
25
D
737-800
World Fleet 2008
C
2500 (100)
D
3500 (180)
Both
20
% Probability of Default
# Airplanes (# Operators)
C
A320
15
10
7.4
6.2
5
4.6
A320 Family vs 737NG - Operators
0
Source: Airclaims June 07
Aircraft: In-service for airline use
No. of operators
200
175
Nearly 200
Operators!
Credit
A320 D
Family
Good
C
737NG
150
125
100
D
75
AIRBUS S.A.S. All rights reserved. Confidential and proprietary document.
50
25
73% of A320 market base created with lessors
Creditworthiness options
36 new operators since Jan. 2005
tied to number of operators
0
y1
y2
y3 2001
y4
y5
y6
y7
y8
y9 y10
1998
1999
2000
2002
2003
2004
2005
2006
2007
© CIT Group Inc., 2011. All Rights Reserved.
The A320 Family operator base continues to grow
With big input from lessors
C
y%
D
ROE
In-Service Fleet History vs. Aircraft Gauge
500
450
747
400
777
Max Seat Count
350
A340
300
DC-10
L-1011
A300
250
767
200
A310
707
A330
A321
757
DC-8
737 NG
150
727
A320
MD-80
737 CFM
DC-9
100
A319
737 JT8D
CRJ
50
1950
1960
© CIT Group Inc., 2011. All Rights Reserved.
1970
1980
1990
2000
2010
146
727
737 (NG)
737 (CFMI)
737 (JT8D)
A320
717
MD-80
100
170
175
190
328JET
70
747
195
767
777
787
A300
A310
A330
A340
CRJ Regional Jet
CRJ700 Regional Jet
Caravelle
A319
DC-10
614
Concorde
DC-9
F.28
757
A321
707
DC-8
L-1011 TriStar
MD-11
Mercure
880
990
One-Eleven
Trident
VC10
Comet
A318
Market Trends & Outlook
© CIT Group Inc., 2011. All Rights Reserved.
Air Traffic & Aircraft Demand
• Traffic demand returning to 2008 levels as global
economy recovers
• Airline profitability higher on controlled capacity
growth and stable fuel prices
History
Forecast
• Air traffic forecast to continue historic trend at 3-5%
annually
• Requirement seen for over 37,000 aircraft worth
over $3 T over the next 20 years.
• Developing markets (e.g., China, India) exhibiting
strongest growth
Source: ESG
• High fuel prices accelerating replacement demand
for advanced technology aircraft
The World Commercial Aircraft Fleet Will More Than Double
Over the Next 20 Years
2030
46,100 airplanes
50,000
Over 37,000 New
Aircraft Required
40,000
30,000
2009
21,500 airplanes
20,000
6%
15%
18%
10,000
3%
15%
25%
24,600
For Growth
Replacement
12,800
57%
61%
Source: ESG
2009
2030
© CIT Group Inc., 2011. All Rights Reserved.
Regional Twin Aisle
Single Aisle 747 and larger
• Standard narrow-body aircraft such as 737 & A320
in highest demand as low-cost carriers & route
fragmentation proliferate in developing countries
• Longer-range, intermediate body aircraft (A330, 787,
A350) showing strong demand as growth in
intercontinental travel demand strengthens on
growing global trade
• RJs & VLAs (e.g. A380) continue specialized roles
• Operating leasing has grown from 3% of world fleet
in 1980 to 35% today; expected to rise to 50% in
next decade
Operating Lease Market
• Forbes/CIT survey (Jan
2011) confirms importance
of Operating Leasing for
airlines
• Benefits to airlines include
capital flexibility, fleet
flexibility, and risk mitigation
World Fleet Ownership
3%

50%
• Over the past 30 years the
world’s airlines have leased,
rather than purchased, a
growing share of their fleets
• Leasing represents 38% of
the world fleet vs. just 3% in
1980
• Leased aircraft fleet is
expected to rise above 50%
by 2015
© CIT Group Inc., 2011. All Rights Reserved.
Owned Share
97%
1980
2015
Lessor Share
of
World Fleet
Owned Share
50%*
Source: Ascend
* Estimated
27
Financing of Airbus Deliveries (2003-2008)
© CIT Group Inc., 2011. All Rights Reserved.
Market Trends - Leasing by Regions
© CIT Group Inc., 2011. All Rights Reserved.
Market Trends – Leasing by Operators
© CIT Group Inc., 2011. All Rights Reserved.
Leasing – a Growing & Fragmented Market
© CIT Group Inc., 2011. All Rights Reserved.
Market Trends – Growing Lessor Fleet
© CIT Group Inc., 2011. All Rights Reserved.
Market Trends – Growing Lessor Fleet Share
© CIT Group Inc., 2011. All Rights Reserved.
Supply & Demand Modeling (Nov 2010 Update)
450
18%
400
16%
350
14%
300
12%
250
10%
Equilibrium level for values
200
8%
150
6%
100
4%
50
2%
0
0%
19
90
19
9
19 1
92
19
9
19 3
94
19
9
19 5
96
19
9
19 7
98
19
9
20 9
00
20
0
20 1
02
20
0
20 3
04
20
0
20 5
06
20
0
20 7
08
20
0
20 9
10
20
1
20 1
12
20
1
20 3
14
20
1
20 5
16
20
17
Thousands
Downside risk of oversupply except if very strong traffic growth prevails.
Seat Production
Seat Surplus
Seat Surplus %
Business Cycle Modeling
GDP Growth, Airline Profitability, Aircraft Orders?
© CIT Group Inc., 2011. All Rights Reserved.
Business Cycle Modeling as Rent Factors
(1st Year of New Airplane Deliveries)
Rent Factors (%) vs. Airplane Delivery Year
A321-200
A320
A319
737-700
Transition
1.1
Bull
Market
Contraction
Bear
Market
Expansion
Rent Factors (%)
1
0.9
0.8
0.7
0.6
1
2
3
4
0.5
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Airplane Delivery Year
© CIT Group Inc., 2011. All Rights Reserved.
Rent Factors vs. Year over Year GDP Growth
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
© CIT Group Inc., 2011. All Rights Reserved.
2006 2007 2008
Managing Lease Terms through the Business Cycle
Rent
Factor
Transition
Bull
Market
Contraction
Bear
Market
Expansion
Time
© CIT Group Inc., 2011. All Rights Reserved.
Business Cycle & Projection
Rent Factors (%) vs. Airplane Delivery Year
A321-200
A320
A319
Projection
737-700
1.1
1
Rent Factors (%)
0.9
0.8
0.7
0.6
0.51988
1989 1990 1991 1992 1993 1994 1995
1996
1997
1998 1999 2000 2001 2002 2003
2004 2005
2006
2007 2008 2009 2010 2011 2012 2013 2014
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Airplane Delivery Year
© CIT Group Inc., 2011. All Rights Reserved.
2015 2016
2017 2018
2019 2020 2021 2022
2011 CIT/Forbes Global Aerospace Outlook
Scope:
Survey of 136 airline executives around the world in November and December, 2010
Key Findings:
2008 - 09 recession forced many airlines to make tough decisions
 Grounded planes, pared fleets, consolidated routes, cut staff
 Airlines leaner, more efficient and feel competitively stronger
Fuel costs remain the biggest challenge
 Hedging fuel to mitigate fuel price fluctuations
 View fuel efficient aircraft as a hedge
Fleet executives want more fuel efficient aircraft
 But waiting to see what manufacturers offer and how they perform
Airline industry consolidation will continue
 80% of executives expect an increase in M&A activity over the next five years
Emerging markets promise greatest opportunity for growth
 U.S. and European carriers dealing with recession
 Other regions (e.g. Asia/Pacific, Middle East) added planes, routes and seats
Business travelers and ancillary charges are key components of future airline profitability
Operating leasing is fundamental to fleet financing for many airlines
 Over half the respondents lease more than 50% of their fleets
© CIT Group Inc., 2011. All Rights Reserved.
40
Industry Trends to Watch For
Airframer Momentum & Strategy

Airbus NEO pulling Boeing strategic customers

Boeing’s play in re-engining vs. clean sheet design launch

Embraer’s play
New Aircraft Technology

Composite material maintainability

New engine technology – CMC, Open Rotor
Markets

Shortening airplane lifecycles

Historically duopolistic industry accepting more players - China
Financing

Export credit agency financing levels

Cost of financing across products
Leasing

Success level of new entrants, publicly traded lessors

Consolidation
© CIT Group Inc., 2011. All Rights Reserved.
Thank You!
CIT
Transportation Finance
11 West 42nd Street, 12th Floor
New York, NY 10036
t: 212.771.9634 c: 781.526.1308
Laurence.Vigeant-Langlois@cit.com
www.cit.com
Laurence Vigeant-Langlois, PhD
VP Portfolio Strategy & Acquisitions
© CIT Group Inc., 2011. All Rights Reserved.
Download