Aviation Financing

Archive for October, 2009

Singapore-based aircraft lessor BOC Aviation has mandated two financings that total $597 million for 16 aircraft to be acquired between October 2009 and March 2010.

One financing is for $301 million, the other is for $296 million, says BOC Aviation. Both are facilitated by Citigroup.

The $301 million financing is guaranteed by European Export Credit Agencies. It covers eight Airbus A320s to be delivered from October 2009 to March 2010, say BOC Aviation.

The $296 million financing is guaranteed by the US Exim Bank and covers eight Boeing 737s to be delivered from October 2009 to February 2010. BOC Aviation adds that it has an option to replace this initial financing with a US Exim Bank guaranteed capital markets issue at a later date if market conditions are attractive.

“We are very pleased to receive support from both the US Exim Bank and European Credit Agencies which demonstrates their confidence in BOC Aviation,” says BOC Aviation chief financial officer Phang Thim Fatt. “They play a key role in our overall funding strategy, complementing financings from our banking group of 42 financial institutions and our parent, Bank of China.”

BEIJING (AFP) – The designer of China’s largest home-produced commercial jet expects strong interest from domestic and overseas buyers when it starts taking orders next year, state media reported Wednesday.

Commercial Aircraft Corporation of China (COMAC), designer of the C919 jet, is in talks with potential customers and hopes to get about 90 orders in the first half of 2010, the Beijing Morning Post said, citing a COMAC official.

“We will cap the number of initial orders because generally the first customers can get price discounts and other favourable conditions,” said Chen Jin, marketing manager for COMAC, according to the paper.

COMAC has opened a tendering process for foreign companies wanting to supply the jet’s engine, and COMAC will pick a supplier at the end of the year, the paper said.

CFM, a joint venture between General Electric and Snecma of France, had submitted a bid, it added.

The jet, which seats between 168 and 190 passengers, is due to make its maiden flight in 2014 and will be delivered to clients in 2016, COMAC officials said while unveiling a model of the plane at a Hong Kong air show this month.

The single-aisle aircraft is part of China’s long-term plan to break the duopoly of Airbus and Boeing in the production of large commercial aircraft.

An ambitious project to build Japan’s first ever passenger jet received a huge boost last week, landing a 100-plane order worth up to US$4 billion (A$4.6 billion) from a US regional airline.

The state-backed Mitsubishi Regional Jet (MRJ) is expected to take to the skies in 2014, carrying Japan’s hopes of developing a full-fledged civil aviation industry with it.

Mitsubishi Heavy Industries, the company developing the 70-90 seat airliner, announced that it had signed a letter of intent with US carrier Trans States for 50 firm orders and the same number of options.

Mitsubishi declined to say how much the latest deal was worth, but the catalogue price of each jet is US$40 million.

It is the second order for the MRJ, which aims to meet growing demand for fuel-efficient planes.

The project officially got off the ground in 2008 after launch customer All Nippon Airways agreed to buy up to 25 of the jets, the first of which are scheduled to be delivered in early 2014.

But it quickly flew into turbulence as the global economic downturn unleashed a severe slump in the aviation industry that forced many carriers, including Japan Airlines, to slash jobs and routes to keep flying.

“This is a very proud moment for us,” said Hideo Egawa, president of Mitsubishi’s aircraft division.

“The world has high expectations for the MRJ. This is especially true in the US,” where airlines operate jets of up to 90 seats on many routes, Egawa said.

The Mitsubishi jet project, which has financial backing from Toyota Motor, is competing with small aircraft produced by Canada’s Bombardier and Brazil’s Embraer, as well as jets designed by Russian and Chinese firms.

“Making a decision of this size in this economic situation was difficult, ” said Richard Leach, president of Trans States Holdings.

“But when these aircraft come into the market it’s at a time when there’s going to be a need in the US to replace aircraft.

“We want to be at the front of the line before there starts to be a feeding frenzy on wanting this technology.”

The group, based in Missouri, operates Trans States Airlines and GoJet Airlines, and operates feeder services for United Airlines and US Airways. It has been a customer advisor for Mitsubishi since the past five years.

The plane saves 20 to 30 per cent in fuel burn per hour compared with other jets in the same category, Mitsubishi officials said.

Fuel costs are “very important,” said Trans States’ Leach.

The jet incorporates a geared turbofan engine developed by Pratt & Whitney, a relatively new technology regarded as a fuel sipper due to a system that allows the engine’s fans to operate at a different speed to the turbine.

The engine is also used in Canada’s Bombardier aircraft.

The MRJ would be the first commercial passenger aircraft in four decades — and the first jet airplane — to be developed in Japan.

Japan has in the past developed a turboprop plane, the YS-11, which was the only Japanese airliner built since World War II. It made its debut flight in 1962 but had limited success with production ending in 1974.

The firm plans to build the aircraft at parent company Mitsubishi Heavy’s factory in central Nagoya prefecture, starting at 24 aircraft per year in the early stages, and increase the amount to 72.

Mitsubishi, advised by US aircraft maker Boeing, said earlier this month it had delayed the delivery slightly to revamp the design by increasing cabin and cargo space and switching to aluminium for the wings, from carbon-fibre.

 

With the recent turmoils in world banking systems, sourcing finance for your next aircraft lease may not be as straight forward as in the past.  Banks are getting tougher and credit is generally harder to come by. So it can pay to have a specialist finance broker like Finlease on your side with a proven history in aircraft leasing.   Here are a few guidelines you should be aware of as you embark upon your journey.          

In the vast majority of cases, the principals that apply to sourcing finance for an aircraft lease are the same as applied to any other robust asset whether they be for business or recreational purposes.          

Looking to buy a helicopter we’ll let’s look at security for the loan. Any financier considering aircraft funding need only concern themselves with the ‘true’ exposure on the asset, that being the difference between the amount owed and the ‘realisable sale value’. So don’t feel obliged to commit personal assets like residential real estate. If so, you may want to look for alternative financiers as in the majority of cases, even in today’s difficult climate, Finlease is able to use the aircraft itself as security for your loan.

Look at your ability to service the lease. In the case of commercial aircraft, the additional income generated by the aircraft will assist in your capability to make repayments. So it’s worth taking this additional income into account rather than purely considering your current income stream.

When deciding on a finance solution that best suits your circumstances, consideration must be made to factors including cash flow, GST and tax deductions. Finlease is able to advise on which mechanism will mesh with your current accounting structure, particularly with regard to how you report GST, along with finance solutions (perhaps leasing) that can optimise tax deductibility.

If you’re considering importing an aircraft, in most cases Finlease is able avoid the requirement of most financiers to secure the aircraft against real estate. Instead, they can provide mechanisms which avoid such restrictions. Finlease can advise on the advantages of such solutions and commitments you should be aware of.

You’ll also need to consider repowers and rebuilds which may be required down the track. These expensive facts of life are almost unique to the Aviation Industry. From the financier’s point of view, such expenses need only be seen as financing a refurbished aircraft which in turn will become a significantly more valuable asset. As you can appreciate, providing safe passage through such a process is an area for the guiding hand of a finance broker with proven expertise in the aircraft finance.

Scott Murdoch | October 01, 2009

MACQUARIE Airports (MAp) will be formally spun off from Macquarie, after investors approved a $345 million transaction that marks the end of the investment bank’s bull-market satellite fund model.

The vote to internalise MAp’s management was approved by 78per cent of the fund’s shareholders. The deal’s progression came after a protracted legal battle between MAp and rival bidding consortium Global Airports (GAp), which lodged a competing proposal to manage MAp for an upfront payment of up to $100m.

GAp applied to the NSW Supreme Court to have the MAp shareholder meeting adjourned and sought further details of the fund’s “shareholder agreement” and potential poison pill contracts with Macquarie.

Its legal bid collapsed on Tuesday night, prompting GAp to withdraw its rival proposal.

At the shareholder meeting in Sydney yesterday, a tense showdown between MAp’s lead independent director Trevor Gerber and one of the proponents of the legal action, Scott Frazer, unfolded just before the vote.

Mr Frazer, who had his court costs covered by GAp founder Mike Fitzpatrick, told the 200 investors his bid to seek further information and detail from MAp had proven futile.

“We sought information in the courts as to the change of control and pre-emptive rights of the deal,” he said.

“It was refused because we could not pay the tens of millions of dollars in perceived and potential damages that Macquarie could have sought. I think every shareholder here needs to know what the answers are.”

Mr Gerber then told the meeting the GAp executives had claimed on Tuesday night after the NSW Supreme Court had found against them, that they had withdrawn the action.

“It’s important to put some context to your approach, you were one of the plaintiffs who sought to stop this meeting from going ahead,” Mr Gerber said. “The GAp team protested loudly that they had been intimidated by us as we sought to protect you, the security holders, from suffering any losses from their actions.

“The court disagreed that we were intimidating.”

MAp is the third major fund to cut ties with Macquarie, after Macquarie Leisure Trust and Macquarie Communications.

Next on the chopping block is Macquarie Infrastructure Group which could also internalise its management.

MAp and Macquarie had threatened to seek damages from GAp, and primarily Mr Fitzpatrick, for lost interest revenue and even the potential security price fall, if the meeting had been injuncted from proceeding.

The MAp internalisation required 50 per cent of votes to proceed. Macquarie did not vote its 22 per cent stake in the airport fund. It has said it plans to retain its holding and will participate in the $345m entitlement offer that MAp will carry out now at $2.30 to fund the payment to Macquarie.

Before the vote, Mr Gerber told investors the deal would save $32m in the first year and there would be ongoing savings as the fund would be managed at a cost of $11m, compared to the average $78m a year when Macquarie was involved.

“The liability for future performance fees will be eliminated,” he said.

“Whilst MAp has not incurred a performance fee recently, total performance fees since listing have been $255m; when they do occur they can be large.

“As I mentioned earlier, MAp is currently in performance fee territory.”

The entitlement offer, priced at $2.30, will now be carried out late this month.