Getting creative, getting caught and doing deals

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By TESTCustomwebLP TESTCustomwebLP May 12, 2015 10:44

Getting creative, getting caught and doing deals

So how do you shift aircraft these days? For Airbus at the moment on A330 aircraft it seems sale and leaseback is the way to go again – in a deal that could potentially echo the Singapore deal a while back Airbus is looking to place new A330 aircraft into Saudi on a sale and leaseback basis. We also hear, but are not able to confirm, that similar offers have been mentioned to other airlines lately.

So the question is this: Should a manufacturer get involved in the sale-and-leaseback market when such a move could be seen as a conflict of interest given that so many customers are lessors?

The answer, to be fair, is not straight forward depending on your point of view: Of course Airbus and any other OEM has the right to get creative in order to place its new aircraft just as any other company that has an asset to sell does. But with over 40% of its customer base being lessors, does Airbus have a duty of care towards the same not to compete with them? Not competing would limit the manufacturer to a narrow bandwidth of traditional sales options and in the event would affect sales. But selling assets to lessors and then when lessors try to place those assets going to the same client and offering a similar deal at far reduced prices on newer equipment is for many a step too far.

Another bump in the road for the leasing market in China is that airlines have recognised that they need to manage their aging fleets and as such are insisting that lessors take on their older aircraft as part of negotiations for new leasing deals. This is creating a problem for many lessors specifically because many of the older aircraft are 777-200s, which are not easy to shift in the secondary market. It will be interesting to see how this dynamic plays out and which lessors are willing to take that risk on older aircraft or take a hit to keep those all-important relationships with Chinese airlines. Finding 777s homes is a worry that is growing in the market. Make sure you register your interest for the Airline Economics 777 conference on the day of the ISTAT holiday reception in London this December – email philipt@aviationnews-online.com.

In this highly liquid market, there are many interesting aviation finance deals to watch. UKEF is preparing to issue a RMB denominated deal later this week or next, while there are five ABS deals currently being prepared – from BOC Aviation; Element Financial from BBAM; SMBC; AWAS with a vintage portfolio and Octagon from GECAS – while with a sixth being considered by Bank of Communications. Investment bankers are reported to be heavily marketing ABS structures to lessors to ensure that they “don’t miss out” on such a hot market, therefore there may be many more to come to the market this year. We expect the ones already mentioned to come to market before July.

As reported here a few days ago Iranian airlines have managed to acquire some 15 aircraft of late and that they have ended up with Mahan Air, which is under embargo by the US and Europe because of probable links to Iran’s military, something which is vehemently denied by the airline. It now transpires that at least nine A340s and an A320 were all brokered by a Turkish-based entity as being destined for Al-Naser Airlines — Once again a number of aviation firms who thought Christmas had come early on the A340 have been left with the FBI breathing down their necks. But the net is closing-in on the Turkish based broker fast.

Qantas Airways shares rose 6.6% to A$3.54 – The highest level in more than six years in Sydney after the carrier said it would spend about A$550 million less on fuel this year amid a 36% drop in jet fuel prices. Qantas shares have almost tripled in the past 12 months. But all the while the Australian government is considering opening-up Northern Australian skies to all-comers which could prove to be a bit of a problem on a few routes for Qantas and Virgin Australia. It is worth keeping an eye on this.

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By TESTCustomwebLP TESTCustomwebLP May 12, 2015 10:44