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AA Sells, Lease Back 35 737-800s  
User currently offlineLAXintl From United States of America, joined May 2000, 24320 posts, RR: 47
Posted (2 years 9 months 4 days 21 hours ago) and read 12046 times:

While often a common practice to gain liquidity and keep the books clean of long-term debt liability, American Airlines has entered into a purchase-leaseback transaction with AerCap for 35 737-800 aircraft scheduled for delivery through 2013.

Story:
http://atwonline.com/aircraft-engine...e-35-737s-sale-leaseback-deal-0715

I kinda wonder if this was;
a) Need to reduce debt load to meet short term covenants due continued projected financial losses this year.
or
b) Clear the books of long-term debt to help shape financing arrangements for the rumored large narrowbody order.


From the desert to the sea, to all of Southern California
40 replies: All unread, showing first 25:
 
User currently offlinedelimit From United States of America, joined Jan 2009, 1486 posts, RR: 2
Reply 1, posted (2 years 9 months 4 days 21 hours ago) and read 12036 times:

Or C) inability to get financing at sane interest rates.

It's being discussed in the Airbus order megathread.


User currently offlineN328KF From United States of America, joined May 2004, 6482 posts, RR: 3
Reply 2, posted (2 years 9 months 4 days 21 hours ago) and read 11816 times:

Quoting delimit (Reply 1):
Or C) inability to get financing at sane interest rates.

Or D) take advantage of low lending finance rates and get a bunch of money back at the same time. This is only bad if they squander the money that they get from the leaseback.



When they call the roll in the Senate, the Senators do not know whether to answer 'Present' or 'Not guilty.' T.Roosevelt
User currently offlineLAXintl From United States of America, joined May 2000, 24320 posts, RR: 47
Reply 3, posted (2 years 9 months 4 days 20 hours ago) and read 11687 times:

Quoting N328KF (Reply 2):
Or D) take advantage of low lending finance rates and get a bunch of money back at the same time.

What low lending finance rates?

Per AA's own SEC filings, they continue to pay premiums on debt due to their low end credit rating (CCC), mere 1-step above "In default with little prospect for recovery" as ratings go.
http://www.reuters.com/article/2011/.../idUS147273+24-Mar-2011+BW20110324

Back in May AMR aircraft debt and collateral was further reduced by S&P also.
http://aviationblog.dallasnews.com/a...sp-lowers-ratings-on-american.html



From the desert to the sea, to all of Southern California
User currently offlineLAXtoATL From United States of America, joined Oct 2009, 1590 posts, RR: 2
Reply 4, posted (2 years 9 months 4 days 19 hours ago) and read 11210 times:

Quoting N328KF (Reply 2):
This is only bad if they squander the money that they get from the leaseback.

This transaction would likely have no affect on their cash position as little to no money would change hands on this deal. These are aircraft that have yet to be delivered and therefore AA has not purchased them yet, the leasing company will actually complete the purchase from Boeing and lease the aircraft to AA. The leasing company is just taking over the delivery slots from AA. If AA had already purchased the aircraft from Boeing and owned the frames outright (not financed), then AA would receive cash back in a sale-leaseback transaction but in this scenario AA in simply leasing aircraft from the lessor, the lessor is obtaining the aircraft from Boeing that were already earmarked for AA. AA may or may not have made a deposit to Boeing on these aircraft, but either way I don't expect the leasing company to provide AA any money on this transaction.


User currently offlineLAXintl From United States of America, joined May 2000, 24320 posts, RR: 47
Reply 5, posted (2 years 9 months 4 days 18 hours ago) and read 10899 times:

Quoting LAXtoATL (Reply 4):

  . Yeah it seems the cost to finance the aircraft might be too prohibitive, and the most expeditious thing in the short run is to acquire them under operating leases.

I'm always leery of such practices however as all it does it push the inherit problem into the future, and operating leases are virtually always higher cost in the long run as you are paying someone else's mortgage plus a bit of profit for them.
Also have too many such leased planes your monthly operating cash out will be very high without offsetting credit benefits for things like depreciation.



From the desert to the sea, to all of Southern California
User currently offlinepar13del From Bahamas, joined Dec 2005, 6728 posts, RR: 8
Reply 6, posted (2 years 9 months 4 days 18 hours ago) and read 10734 times:

Quoting LAXtoATL (Reply 4):
The leasing company is just taking over the delivery slots from AA. If AA had already purchased the aircraft from Boeing and owned the frames outright (not financed), then AA would receive cash back in a sale-leaseback transaction but in this scenario AA in simply leasing aircraft from the lessor, the lessor is obtaining the aircraft from Boeing that were already earmarked for AA. AA may or may not have made a deposit to Boeing on these aircraft, but either way I don't expect the leasing company to provide AA any money on this transaction.

My question, since AA has a contract with Boeing for a/c purchase, does the leasing company get the price that AA would have paid or does the price revert to curent market rates without AA's discount?


User currently offlineAADC10 From United States of America, joined Nov 2004, 2016 posts, RR: 0
Reply 7, posted (2 years 9 months 4 days 17 hours ago) and read 10452 times:

Quoting LAXintl (Reply 3):
What low lending finance rates?

Per AA's own SEC filings, they continue to pay premiums on debt due to their low end credit rating (CCC), mere 1-step above "In default with little prospect for recovery" as ratings go.
http://www.reuters.com/article/2011/...10324

It depends on what the lessors are offering but it is probably at money rates significantly lower than what AMR pays to float paper based on their bond rating. The ownership of the aircraft is transferred to the lessors so they have direct security in the aircraft. Bondholders have to get in line behind employees and fight over the remaining assets in Ch. 11.


User currently offline474218 From United States of America, joined Oct 2005, 6340 posts, RR: 9
Reply 8, posted (2 years 9 months 4 days 16 hours ago) and read 10180 times:

Quoting par13del (Reply 6):
My question, since AA has a contract with Boeing for a/c purchase, does the leasing company get the price that AA would have paid or does the price revert to curent market rates without AA's discount?


Boeing is selling the airframes to AA. After or simultaneously with AA taking delivery AA will sell them to the leasing company.

The leasing company and Boeing have no involvement with each other. Other than Boeing will end up with the leasing companies money.


User currently offlinegigneil From United States of America, joined Nov 2002, 16345 posts, RR: 86
Reply 9, posted (2 years 9 months 4 days 13 hours ago) and read 9672 times:

I could stir the pot and mention that this could allow them to get out of those 737-800s in shorter order, if they were in fact planning a fleet swap.

  

NS


User currently offline474218 From United States of America, joined Oct 2005, 6340 posts, RR: 9
Reply 10, posted (2 years 9 months 4 days 13 hours ago) and read 9628 times:

Quoting gigneil (Reply 9):
I could stir the pot and mention that this could allow them to get out of those 737-800s in shorter order, if they were in fact planning a fleet swap.


That really depends on the terms of the lease. AA may actually be able to sell or park airframes they own easier than ones they have leased for a specific period of time!


User currently offlinegigneil From United States of America, joined Nov 2002, 16345 posts, RR: 86
Reply 11, posted (2 years 9 months 4 days 13 hours ago) and read 9569 times:

Absolutely. It could go either way.

AerCap is a big financier of most major airframers. They could or could not be part of either the Boeing or Airbus packages - or neither!

NS


User currently offlineKPDX From United States of America, joined Dec 2005, 2690 posts, RR: 3
Reply 12, posted (2 years 9 months 4 days 13 hours ago) and read 9550 times:

I'm gonna laugh when AA orders 300 Irkut MS-21s. Muahahaha!

    



View my aviation videos on Youtube by searching for zildjiandrummr12
User currently offlineodwyerpw From Mexico, joined Dec 2004, 793 posts, RR: 2
Reply 13, posted (2 years 9 months 4 days 8 hours ago) and read 6772 times:
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Launch customer for 797.


Quiero una vida simple en Mexico. Nada mas.
User currently offlineBurkhard From Germany, joined Nov 2006, 4360 posts, RR: 2
Reply 14, posted (2 years 9 months 4 days 8 hours ago) and read 6748 times:

Can it be that this increases Americans independance from Boeing?

User currently offlineSKAirbus From Norway, joined Oct 2007, 1618 posts, RR: 2
Reply 15, posted (2 years 9 months 4 days 6 hours ago) and read 6437 times:

Quoting Burkhard (Reply 14):
Can it be that this increases Americans independance from Boeing?

Totally agree.... With the major mergers of NW and DL; and CO and UA, there is more competition out there. With mixed boards where both NW and UA had sizable Airbus fleets then there is every reason that the new merged boards will consider buying Airbus if the aircraft they offer suit their fleet needs.

I hate how airlines try to sucumb to government protectionist policies by only buying a certain type of aircraft... Like AA and (the old) DL with Boeing.

In Europe you have quite a lot of fleet diversity when it comes to recent orders/delivered planes:

- LH: A333, A346, A388, B748
- AF: A332, A388, B772, B77W
- BA: A388, B772, B77W¨
- KL: A332, A333, B772, B77W

I hope this is a signal that AA will adopt a more "global" approach to aircraft ordering, choosing a product that best suits their needs and can earn them the most money. Only buying Boeing may not allow that.



Next Flights: LHR-LBA (319-SK), MAN-ARN (736-SK), ARN-LHR (763-BA), LHR-CPH (CR9-SK), CPH-LHR (320-SK), LHR-IAH (744-BA)
User currently offlinedelimit From United States of America, joined Jan 2009, 1486 posts, RR: 2
Reply 16, posted (2 years 9 months 4 days 4 hours ago) and read 5924 times:

Increased independance from Boeing gets AA what exactly? They've been free to order from Airbus since the EU forced Boeing to throw out the exclusivity clauses back when they were approving the MD merger.

There was nothing protectionist about the exclusivity deal. The US government wasnt involved. AA, CO and DL got a fantastic deal from Boeing. It has served them well.

I really don't understand why the deal continues to generate such high levels of rhetoric on this forum.


User currently offlineSKAirbus From Norway, joined Oct 2007, 1618 posts, RR: 2
Reply 17, posted (2 years 9 months 4 days 4 hours ago) and read 5824 times:

An exclusivity deal is uncompetitive and under EU any deal to buy exclusively from one carrier would be illegal.


Next Flights: LHR-LBA (319-SK), MAN-ARN (736-SK), ARN-LHR (763-BA), LHR-CPH (CR9-SK), CPH-LHR (320-SK), LHR-IAH (744-BA)
User currently offlinedelimit From United States of America, joined Jan 2009, 1486 posts, RR: 2
Reply 18, posted (2 years 9 months 4 days 4 hours ago) and read 5786 times:

Once again...There hasn't been an exclusivity deal since the MD merger was approved. The exclusivity clauses were invalidated.

User currently offlineUSAF336TFS From United States of America, joined Apr 2005, 1445 posts, RR: 52
Reply 19, posted (2 years 9 months 4 days 4 hours ago) and read 5651 times:

Quoting SKAirbus (Reply 17):
An exclusivity deal is uncompetitive and under EU any deal to buy exclusively from one carrier would be illegal.

You need to tell that to the French government with regard to the pressure they are applying on AF.



336th Tactical Fighter Squadron, 4th Fighter Wing, Seymour Johnson AFB
User currently offlineSEPilot From United States of America, joined Dec 2006, 6676 posts, RR: 46
Reply 20, posted (2 years 9 months 4 days 4 hours ago) and read 5607 times:

With a company with as bad a credit rating as AMR it is probably cheaper to lease the planes than to buy them. AerCap probably can get a much better interest rate than AMR, and can lease them at a profit to AA for less than AA would pay to finance them. Also, AA can write off the whole lease payment instead of having to depreciate the aircraft. The downside for AA is that at the end of the lease AerCap owns the aircraft, while if they were financed AA would own them free and clear. But if you are in a desperate cash situation (which I gather AA is) you have to do what will work in the short term.


The problem with making things foolproof is that fools are so doggone ingenious...Dan Keebler
User currently offlineLAXtoATL From United States of America, joined Oct 2009, 1590 posts, RR: 2
Reply 21, posted (2 years 9 months 4 days 3 hours ago) and read 5294 times:

Quoting SEPilot (Reply 20):
With a company with as bad a credit rating as AMR it is probably cheaper to lease the planes than to buy them.

Credit rating also affects the lease rate that a lessor charges. There is a finance charge built into the monthly lease rate of leases, a lease is a form of financing you are just financing a portion of the asset as oppose to the entire asset. Leases are cheaper in the short-term but more expensive in the long-term.


User currently offlinescbriml From United Kingdom, joined Jul 2003, 12033 posts, RR: 47
Reply 22, posted (2 years 9 months 4 days 3 hours ago) and read 5260 times:
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Quoting USAF336TFS (Reply 19):
You need to tell that to the French government with regard to the pressure they are applying on AF

The French government is not applying any pressure on AF. Some individual politicians are. There's a very big difference.



Hey AA, the 1960s called. They want their planes back!
User currently offlinedelimit From United States of America, joined Jan 2009, 1486 posts, RR: 2
Reply 23, posted (2 years 9 months 4 days 3 hours ago) and read 5159 times:

Honestly, how? What is the substantive difference between members of the government applying pressure and the government applying pressure, except a manner of degree? AF would be free to ignore either.

User currently offlineUSAF336TFS From United States of America, joined Apr 2005, 1445 posts, RR: 52
Reply 24, posted (2 years 9 months 4 days 2 hours ago) and read 5094 times:

Quoting SKAirbus (Reply 15):
I hate how airlines try to sucumb to government protectionist policies by only buying a certain type of aircraft... Like AA and (the old) DL with Boeing.
Quoting delimit (Reply 16):
There was nothing protectionist about the exclusivity deal. The US government wasnt involved.

  

It was a "gentleman's agreement between Boeing and the major American carriers. The United States government does not get involved with fleet purchase decisions of private companies. Period. Although on the other side of the pond...

FAIR USE:

http://www.cargonewsasia.com/secured/article.aspx?id=15&article=25867

"[An] Air France spokesman told Dow Jones Newswires that chief executive Pierre-Henri Gourgeon has been invited to a meeting with Pierre Lellouche, junior minister for external trade later this week. "We are a private company, but Gourgeon frequently talks to parliamentarians and other government officials when they request meetings," he said. Air France is 15.7 percent owned by the French state"

"In a radio interview, Carayon said Air France, as a European airline, has a duty to protect jobs at Airbus. Carayon has made a point in recent years of encouraging what he calls "economic patriotism." "Air France isn't Air Boeing," Carayon said, pointing out that US airlines traditionally favour Airbus' US-based rival.

French news agency AFP quoted Lellouche as saying Tuesday that the government had helped Air France a lot when it ran into problems with EU regulators, and that it expected the carrier to "return the favour."



336th Tactical Fighter Squadron, 4th Fighter Wing, Seymour Johnson AFB
25 delimit : It wasn't a gentleman's agreement; it was a contract. The exclusivity portion of the contract was later invalidated. The gentleman's agreement is a my
26 movingtin : Crappy Airbus customer support is why those Airlines chose Boeing. Last I checked, The USA is not in the EU!
27 AA777223 : There are these things called $1 buyout leases. This allows a carrier to order the aircraft from a lessor. The lessor can secure lower financing cost
28 LAXtoATL : Your point? A) It doesn't change the fact that AA's credit rating affects the lease rate the lessor will charge AA. B) Are you suggesting that this s
29 AA777223 : My point had less to do with your post specifically and more to do with other posts that were made in the thread and the general discussion on leasin
30 LAXtoATL : Well since you quoted my statement, it seemed as if you were suggesting that a buyout lease would somehow change the fact that the lessee's credit ra
31 474218 : Who did MD merge with? Lockheed merged with Martin Marietta and became Lockheed Martin. McDonnell merged with Douglas became McDonnell Douglas. Boein
32 Post contains images SEPilot : Or MD bought Boeing with Boeing's money....
33 goldenstate : I would say some of both. AMR's negative free cash flow requires significant borrowing just to maintain the company at its present size and state. Ca
34 AdmiralRitt : If this move reflects AA's need to squeeze cash savings out of opearating expenses....then..... If I read correctly on others threads, AA is using who
35 LAXtoATL : At the end of the day there really isn't much difference in leasing aircraft or financing them using them as collateral (as far as total dollars are
36 LipeGIG : I would think that AA already paid a security deposit, and will see this money back. It's just a small transfer from restricted cash (it's a deposit
37 Stitch : If AA is going to place a large order for the 737RE and the A320neo, they're going to need interim lift, but might not want to keep the planes forever
38 LAXtoATL : Either way it wouldn't be a meaningful amount of cash. However, any deposit already made on the aircraft AA would be unlikely to see again. The lesso
39 Post contains images lightsaber : CCC?!? They might as well declare BK. That poor a bond rating is going to make it impossible for non-aircraft financing. I have to agree... AA had no
40 Stitch : That could explain the sheer number of firm orders and options they are said to be considering.
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