An interesting week indeed

Dino D'Amore
By Dino D'Amore September 3, 2015 17:19

An interesting week indeed

As you may have heard Frank Pray has left Intrepid Aviation to pursue other ventures effective immediately, Olaf Sachau (CFO) has taken the reigns as CEO.

On Tuesday Blackrock increased its holding in Rolls Royce to ensure that it had a voting block as more and more big gun institutions circle the manufacturer looking to do a deal – Any deal would be huge and would be a real bargain on forward earnings – Will Rolls Royce Aero Engines continue to be an English company? Watch this space.

The leasing sector meanwhile continues, on the face of it, to absorb capacity and power forward. The reality is somewhat more convoluted. Those lessors specializing in the SLB market are being slowly murdered by the month on month reduction in the cost of capital. Market leading lessors are literally being pushed aside by the new batch of keen lessors looking to build-up a book at speed and/or put money to work at speed. And yet in all this there are new companies looking to get into aircraft leasing and long standing top 20 lessors/asset managers that continue to not listen to the advisers they have been paying for. Some lessors have made decisions of late, weather this be aircraft purchases, SLBs or entire business models, that leave many scratching their heads as to how they will be able to come out of the other side of the next 15 years intact – We are looking into that further for you at the moment, but on the deal information we have here we are unable to make some of the figures work beyond six years.

In all of this we can argue that there is one certainty – experienced aircraft and engine lessors are becoming a sought after commodity – companies across the globe are being held back by a lack of experienced staff and Chinese banks looking to move into the market literally have to buy-in experienced staff, as this dynamic plays out it is perhaps prudent to add that the swing factor in getting the right people may well be location and for that reason more and more companies are looking to open offices in London, if the HQ is in Singapore, Dublin, Hong Kong or the like then for these companies London satellite offices are becoming a strong tool to attract the very best staff.
Then there is the 777. The problems in placing 777s in the secondary market should not be underestimated by anyone. Airlines have the aircraft way overvalued on the books, this in turn means they cannot sell them on with ease without the very large writedowns required, this in turn will lead the big boys such as British Airways and American to run the 777s into the ground, but the smaller airlines cannot do that – Compounding matters those same smaller airlines got themselves on to the 787 order books for the most part and that means they have to dump the 777s at some point. Moreover those 787s are proving to be one hell of a risk given that no one knows what the maintenance costs will be on those composite fuselages, the only example we have is Ethiopian and that 787 was taken away by Boeing who it is said blew a cool $30m on repairs over six weeks. Maybe Boeing should have ramped-up the 787 delivery stream far more slowly, but they are on catch-up and are under pressure to throw them out both by large customers and by shareholders. The reconfiguration cost of the 777 is a killer for many and is for the most part an average of $20m from the off. In addition it is well worth noting that no matter how bad things seem for the 777-200 at the moment things are going to be far worse for the 777-300ER given the amount of 787s, 777Xs, A350s and A330s that will be flying around the globe in ten years’ time. If fuel prices ever reach 2007 levels again within the next decade then the old 777s are going to have an even harder time finding homes. There are few lessors with late 777300ERs on the books and the key for these will be purchase price, that, at least is where Air Lease are well insulated as they paid sum $150m for the aircraft (it is said). Others might not be as lucky as Air Lease on that one.

Then there is Russia: Exactly as reported here at the turn of the year, Aeroflot is acquiring Transero as part of the Kremlin’s overall aim to re-nationalize the skies of Russia and “make Aeroflot great again”. The details of the deal have not been released and I would be surprised if exacting numbers are ever released to the public intentionally. Aeroflot will acquire Transaero Airlines after a government commission backed the acquisition of JSC Transaero Airlines by Aeroflot Group in a meeting chaired by Russian First Deputy Prime Minister Igor Shuvalov. Transaero Airlines reported 2015 first-half net loss of RUB3.54bn ($60 million), which narrowed greatly from a net loss of RUB1.91bn in H1 2014. Revenue rose 25.8% to RUB176.467bn and operating profit was RUB5.87bn, reversed from an operating loss of RUB1.384bn in the year-ago half. Traffic rose 14% to 17.9m passengers. Domestic passenger numbers grew 33.4% to 10.3 million, while international passenger numbers decreased 4.9% to 7.6 million. Load factor remained flat at 75.7%. The load factor on international routes grew 1.2 points to 75.8%; on domestic routes it decreased 2.1 points to 75.5%. Lessors are safe with Aeroflot and the well placed S7 but other airlines are being targeted to be absorbed by Aeroflot, if the Kremlin can find an excuse to take-over S7 then it will though, that should be remembered – So watch the A7 figures with care even though the airline is very well run indeed.

While Vistara, the joint venture airline between Tata Sons and Singapore Airlines, has made a good move this week as it appointed Sharaf Travels as a ticket sales agent in all six Gulf Cooperation Council (GCC) states. Vistara is not launching flights to the region but the move is seeking to tap into the substantial Indian expatriate population that live in the Gulf states. Finally an Indian airline moves to galvanize part of the Indian diaspora.

Meanwhile keep a watch on PAL and Cebu Pacific as the Philippine and the United Arab Emirates governments have agreed to increase air traffic rights between the two countries from the current 28 weekly flights to 35 from each country. The new flights, which will address a spike in demand, may serve to connect more regional airports in the Philippines to hubs in Dubai and Abu Dhabi. PAL and Cebu Pacific are in no position to flood these routes, where as Etihad and Emirates are ready and able to connect these airports to the world via the UAE. Moreover the two nations have also agreed on “co-terminalization”, which allows an airline from one country to fly to a city in the other country and onward to another city in that country without picking up passengers in the domestic leg – this is a massive benefit to the UAE carriers make no mistake.

Dublin and Hong Kong Conferences: Define established – Define market leading
When considering which conference(s) to attend in Hong Kong, Dublin and now Dubai in 2015/16 it is worth putting the record straight on a few home truths:
The largest financing and leasing conference in the APAC region ever was Airline Economics Growth Frontiers 2014 at the time it opened – Right now as I type it is highly likely that the largest finance and leasing conference in Europe and the world is Airline Economics Growth Frontiers Dublin (save for ISTAT USA).

When considering which conference to attend in Asia Pacific, Europe and the Middle East it might be worth remembering a few truths, in that only Airline Economics can lay claim to always throughout its history having assisted airline and investor attendance growth through demonetisation and only Airline Economics can lay claim to having reduced delegate rates in real terms year on year since inception. Airline Economics brought the large scale airline, lessor and banking panels back to the stages of Hong Kong and Dublin and Airline Economics, far from being seen to stand still when it comes to content will always be fresh as we let the moderators and their panels decide what should be debated and discussed without narrowing the subject matter just before the events – We always cover the most important issues and we always will as we give the scope to do so from the word go in the schedules.

Airline Economics brought to delegates the open excel delegate lists, the open networking at venues, the conference app, the free of charge schools for the executives of tomorrow and the awards voted for by the industry for the industry. Most surprising to many is the fact that when considering which events series is the more established only Airline Economics can lay claim to having the same staff working on the same events on the same dates at the same locations at all times – To my mind that makesAirline Economics the most established events series in Dublin for sure and maybe in Hong Kong also.

When it comes to a question of trust in the future and trusting an event organiser to stick to the core mantra of quality, content and friendliness through open networking and airline and investor assistance, while reducing the cost to delegates and sponsors year on year, there is only one event organiser in the aviation finance and leasing sector with a 100% track record and that isAirline Economics.

Stick by us because weather it is through conferences, data provision and/or publishing we will always stick by you by forcing up quality and forcing down prices by 50% or more…….. Can the same be said for our competitors? Can a conference organiser or data provider that is also listed company ever keep margins depressed for the benefit of the industry in the long term? – They cannot, but they can use the tool to try and drive away competition before gradually increasing prices, but it is a fact thatAirline Economics has a business model that allows it to keep prices low year after year after year. Airline Economics is strong but we are only strong because of your mutual support – So thank you all.

Dino D'Amore
By Dino D'Amore September 3, 2015 17:19