LAXintl From United States of America, joined May 2000, 22027 posts, RR: 51 Posted (8 months 2 weeks 4 days 6 hours ago) and read 21532 times:
Common event, but under some unusual circumstances..
I noticed AA filed motion with the court for approval to sell and leaseback pair of 777-300ER aircraft and engines due in November and December this year with Guggenheim Aviation Partners.
In the motion AA explains it has been in “rigorous effort to obtain financing” and in discussions with “large number (27) partners” to finance 10 77W aircraft due over a 14-month period, however realized due to complex nature of AA finances and need for encumbrances and liens, the best path was to seek sale/leaseback transaction.
Additionally, AA states this transaction will aid it helping realize cash proceed from the sale and minimize otherwise required cash outlay due at delivery.
I think this goes back to stories earlier in AA's BK, that the carrier had very little collateral left to work with, and that virtually everything of value such as owned aircraft, airport slots, route authorities and facilities are already pledged on as collateral on existing debt.
Court items #4253, 4254
From the desert to the sea, to all of Southern California
jfk777 From United States of America, joined Aug 2006, 7343 posts, RR: 7 Reply 2, posted (8 months 2 weeks 4 days 6 hours ago) and read 21331 times:
Quoting mogandoCI (Reply 1):
so much for all that fan-fare about brand new product on 77W ... 2 is a start, but god knows if they would eventually
AA is going to have between 10 and 12 77W by the end of 2013, its a lot more then 2 77W's. The J class is also going into the 777-200ER, AA has 47 of them.
DocLightning From United States of America, joined Nov 2005, 16814 posts, RR: 57 Reply 3, posted (8 months 2 weeks 4 days 6 hours ago) and read 21210 times:
I've always wondered about sell/leaseback. Doesn't this wind up costing more money in the long run?
mercure1 From French Polynesia, joined Jul 2008, 604 posts, RR: 2 Reply 5, posted (8 months 2 weeks 4 days 6 hours ago) and read 21133 times:
No money, no honey.
No surprise banks are leery of giving AA money for new aircraft if it cannot provide sufficient collateral.
AA already is drowning in debt (debt service alone was almost $1bil last year), so no surprise they have hard time finding parties that are willing to work with.
Aesma From France, joined Nov 2009, 4783 posts, RR: 9 Reply 6, posted (8 months 2 weeks 4 days 6 hours ago) and read 21130 times:
Quoting DocLightning (Reply 3): I've always wondered about sell/leaseback. Doesn't this wind up costing more money in the long run?
Compared to a straight buy with money you have, or a buy with a cheap loan, sure, but AA doesn't have money and can't loan money cheaply (or at all, meaning they have no choice since then can't pay Boeing).
New Technology is the name we give to stuff that doesn't work yet. Douglas Adams
Stitch From United States of America, joined Jul 2005, 26696 posts, RR: 83 Reply 7, posted (8 months 2 weeks 4 days 5 hours ago) and read 20983 times:
Quoting DocLightning (Reply 3): I've always wondered about sell/leaseback. Doesn't this wind up costing more money in the long run?
Doric Aircraft Finance paid $198 million each for SQ's first three A380-800s and they are charging SQ $1.7 million a month in rent for 120 months (10 years). So SQ is paying $204 million in rents, but it is possible that SQ paid less than $198 million for those A380s and they also can do other things with that $198 million which could generate more than the $6 million difference.
Doric Aircraft Finance paid $168 million for A6-ECQ (a 777-300ER) and is leasing it back to EK for 12 years at $1.2 million a month. So that is just under $173 million in rent. Doric expects the full amount to be repaid within 10 years, however, so perhaps Doric gets additional income beyond the rental payments - they do re-package these assets and sell shares of them to the public.
They've done the same with three EK A380-800s, paying $234 million each and leasing them back to EK for 12 years with repayment planned in 10 years. However, I don't have the rental rate for this plane (I expect it's between $1.5-2 million a month).
Quoting mercure1 (Reply 5): No surprise banks are leery of giving AA money for new aircraft if it cannot provide sufficient collateral.
I expect AA offered the 777-300ERs themselves as collateral. AA also has cash on hand to pay for them outright. However, doing a sale and leaseback lowers the monthly outlay and generates immediate income from the sale itself.
Daysleeper From UK - England, joined Dec 2009, 800 posts, RR: 1 Reply 8, posted (8 months 2 weeks 4 days 5 hours ago) and read 20919 times:
It's been discussed in a recent thread that in the event of a US/AA merger the entity created would have a strong Airbus preference. So would acquiring aircraft in this manner make it easier to get rid of them if so desired?
Stitch From United States of America, joined Jul 2005, 26696 posts, RR: 83 Reply 9, posted (8 months 2 weeks 4 days 5 hours ago) and read 20890 times:
Quoting Daysleeper (Reply 8): It's been discussed in a recent thread that in the even of a US/AA merger the entity created would have a strong Airbus preference. So does acquiring aircraft in this manner make it easier to get rid of them if so desired?
Perhaps. The 777-300ER is quite popular and in demand, so if a post-merger AA wanted to cancel the leases, Guggenheim should have little problem re-marketing the planes.
Then again, a post-merger AA would probably not be in a position to place a large order for A350-1000s anytime soon and even if they were, Airbus is probably not in a position to deliver them anytime soon. So assuming a 10-12 year lease period, the planes would be coming off-lease about the time a post-merger AA could get new A350-1000s as replacements so they only need not renew the lease.
mogandoCI From , joined Dec 1969, posts, RR: Reply 10, posted (8 months 2 weeks 4 days 5 hours ago) and read 20812 times:
Quoting jfk777 (Reply 2): AA is going to have between 10 and 12 77W by the end of 2013, its a lot more then 2 77W's. The J class is also going into the 777-200ER, AA has 47 of them.
i'm not saying AA ordered 2 but referring how many eventually would fall through these sell/leaseback deals.
Ya the new Y- is also going into the 77Es but i'm not excited about those either
LAXintl From United States of America, joined May 2000, 22027 posts, RR: 51 Reply 11, posted (8 months 2 weeks 4 days 5 hours ago) and read 20815 times:
Quoting DocLightning (Reply 3): I've always wondered about sell/leaseback. Doesn't this wind up costing more money in the long run?
Unless you happen to be Easyjet or Ryanair which purchase aircraft at far lower price than they were able to turn around and sell form, then yes.
Also by leasing, you lose some tax benefits, ability to depreciate, and ultimately having equity in an asset.
Quoting kl911 (Reply 4): They keep on selling assets. How many planes do they still own? ( excluding old planes with no value)
According to their last annual report 345 of 608 aircraft were owned. Of course almost 120 of those were extremely low value MD-80s.
Quoting mercure1 (Reply 5): No surprise banks are leery of giving AA money for new aircraft if it cannot provide sufficient collateral.
I don't believe AA has taken delivery of a single aircraft in the last 2-years that it owns. Even prior to BK it started sale/lease backs of 737 fleet - often in batches of 10 at a time.
For the collateral AA has pretty much pledged all it can. From its annual report it says 143 aircraft, engines, slots at LHR and NRT slots, route authorities, facilities, and other assets are all tied up covering various debts.
Quoting Stitch (Reply 7): perhaps Doric gets additional income
Remember they still own the asset, and still have many years to continue earning income on them beyond the initial 10 or 12 year terms of the leases.
From the desert to the sea, to all of Southern California
LAXintl From United States of America, joined May 2000, 22027 posts, RR: 51 Reply 12, posted (8 months 2 weeks 4 days 5 hours ago) and read 20730 times:
Quoting mogandoCI (Reply 10): i'm not saying AA ordered 2 but referring how many eventually would fall through these sell/leaseback deals.
Likely all 12 - that is what they state was found to be the best financial path to pursue.
For the additional 10 frames due on 2013, they would simply need to secure bids from companies to see whom could offer the best terms.
Clearly the pressure was on to wrap things up for the first 2 frames first as we are merely 2-months away from delivery.
From the desert to the sea, to all of Southern California
Stitch From United States of America, joined Jul 2005, 26696 posts, RR: 83 Reply 13, posted (8 months 2 weeks 4 days 5 hours ago) and read 20409 times:
Quoting LAXintl (Reply 11): Remember they still own the asset, and still have many years to continue earning income on them beyond the initial 10 or 12 year terms of the leases.
Indeed. And the prospectus does note that the debt portion of the funding will be fully amortized over the 12 year period, leaving the plane unencumbered at the end.
EXMEMWIDGET From United States of America, joined Jan 2004, 188 posts, RR: 0 Reply 14, posted (8 months 2 weeks 4 days 2 hours ago) and read 19092 times:
Quoting kl911 (Reply 4): They keep on selling assets. How many planes do they still own? ( excluding old planes with no value)
Reminds me of TWA and Pan Am back in the day. They both slowly bled to death by selling off everything of value just to stay alive.
TrijetsRMissed From United States of America, joined Oct 2006, 2098 posts, RR: 6 Reply 15, posted (8 months 2 weeks 4 days 1 hour ago) and read 18197 times:
Quoting DocLightning (Reply 3):
I've always wondered about sell/leaseback. Doesn't this wind up costing more money in the long run?
Historically, US legacies have only done this type of arrangement under dyer circumstances, i.e. bankruptcy, or in other cases, interim fleet options.
AA's sale and lease-back spans most of the active fleet. It may free up short term cash, but at the price of multiple long term benefits. AA has decided this arrangement fits within their strategic plan. Other airlines, notably DL's current administration, would avoid this if at all possible.
Quoting LAXintl (Reply 11): Quoting kl911 (Reply 4):
They keep on selling assets. How many planes do they still own? ( excluding old planes with no value)
According to their last annual report 345 of 608 aircraft were owned. Of course almost 120 of those were extremely low value MD-80s.
And even some of the MD-80s (which were paid off in full) were sold and leased back in 2010 or 2011. And this is the airline with some 400+ aircraft on order?
Quoting EXMEMWIDGET (Reply 14): Reminds me of TWA and Pan Am back in the day. They both slowly bled to death by selling off everything of value just to stay alive.
It's the PA/EA book that leads to the inevitable,... liquidation. Or in AA's case, most likely a merger/acquisition.
redzeppelin From United States of America, joined Feb 2012, 275 posts, RR: 0 Reply 16, posted (8 months 2 weeks 4 days 1 hour ago) and read 17973 times:
Quoting Stitch (Reply 7): Doric Aircraft Finance paid $198 million each for SQ's first three A380-800s and they are charging SQ $1.7 million a month in rent for 120 months (10 years). So SQ is paying $204 million in rents, but it is possible that SQ paid less than $198 million for those A380s and they also can do other things with that $198 million which could generate more than the $6 million difference.
So in this particular example, the airline ultimately pays $6M (~3%) more than the initial sale price in lease payments, but Doric still owns the plane after the 10 year lease expires. That way Doric is making about 3% on the transaction, even if the the plane has no value for additional leases or resale after 10 years. But if the plane is still in demand after 10 years, any money that Doric gets for it is pure gravy. Am I understanding correctly?
So the airline gets some extra cash flexibility up front from the intial sale, but is left with no equity in the aircraft at the end of the lease. Is that right? GAP buys the plane, AA gives all the money back over the course of the lease, but GAP still owns the plane at the end? I wonder how much a 10-year-old 77W will be worth a decade from now.
Stitch From United States of America, joined Jul 2005, 26696 posts, RR: 83 Reply 18, posted (8 months 2 weeks 4 days 1 hour ago) and read 16988 times:
Quoting TrijetsRMissed (Reply 15): And even some of the MD-80s (which were paid off in full) were sold and leased back in 2010 or 2011. And this is the airline with some 400+ aircraft on order?
That might not be too dumb a move, depending on the rents and lease term, since the planes are effectively worthless and AA could have storage or disposal costs if they continued to own them.
Quoting bennett123 (Reply 17): Is AA allowed to sell assets whilst in Chapter 11.
They can with the Bankruptcy Judge's approval, which they evidently received.
ZaphodB From United States of America, joined Jan 2012, 77 posts, RR: 0 Reply 19, posted (8 months 2 weeks 3 days 23 hours ago) and read 15624 times:
Quoting redzeppelin (Reply 16): That way Doric is making about 3% on the transaction, even if the the plane has no value for additional leases or resale after 10 years. But if the plane is still in demand after 10 years, any money that Doric gets for it is pure gravy. Am I understanding correctly?
Looks like Doric is a peddler of bad-math-bonds. CDO issuers usually hold a piece of the equity tranche but the deals are structured so that they recoup their (minimal) investment very quickly - 2 or 3 years tops. For them, anything after that is gravy. They will also be creaming off a management fee. The real risk is being taken by the investors/suckers who bought the mezz and senior tranches who receive LIeBOR + x and vainly hope that the ratings agencies know what they are doing.
ETinCaribe From Ethiopia, joined Dec 2009, 619 posts, RR: 0 Reply 20, posted (8 months 2 weeks 3 days 23 hours ago) and read 15051 times:
Quoting Stitch (Reply 13):
Indeed. And the prospectus does note that the debt portion of the funding will be fully amortized over the 12 year period, leaving the plane unencumbered at the end.
great insightful info as usual Stitch. Which party is responsible financially for the maintenance costs?
Quoting ZaphodB (Reply 19): CDO issuers usually hold a piece of the equity tranche but the deals are structured so that they recoup their (minimal) investment very quickly - 2 or 3 years
what would be the min investment as a %age of the overall cost?
ZaphodB From United States of America, joined Jan 2012, 77 posts, RR: 0 Reply 22, posted (8 months 2 weeks 3 days 22 hours ago) and read 14227 times:
Quoting ETinCaribe (Reply 20): what would be the min investment as a %age of the overall cost?
The CDOs that I had first hand knowledge of back in the mid-2000s the equity tranches were 3 to 5% of the total structure and the house I worked for kept about 20% of that (so to answer your question: 1%), and they were fully paid down by the 'excess spread' in under 2 years. After that you're laughing all the way to the bank, but if the structure blows up very quickly you find out why the equity tranche is also called the first loss piece.
Stitch From United States of America, joined Jul 2005, 26696 posts, RR: 83 Reply 23, posted (8 months 2 weeks 3 days 22 hours ago) and read 14186 times:
Quoting ETinCaribe (Reply 20): Which party is responsible financially for the maintenance costs?
That I do not know.
Quoting teme82 (Reply 21): Sorry for asking but does this company have any dealings with the Guggenheim museums all over the globe??
I do not believe so. They are part of Guggenheim Partners, LLC, which is a global financial services firm.
coopdogyo From United States of America, joined Jan 2010, 189 posts, RR: 0 Reply 24, posted (8 months 2 weeks 3 days 20 hours ago) and read 11829 times:
Quoting Stitch (Reply 23): Quoting teme82 (Reply 21):
Sorry for asking but does this company have any dealings with the Guggenheim museums all over the globe??
I do not believe so. They are part of Guggenheim Partners, LLC, which is a global financial services firm.
As an employee of Guggenheim Partners you do get free access to the Guggenheim museum in New York and possibly others. Guggenheim Aviation Partners is basically their own separate entity and are based in Issaquah Washington. They are under the umbrella of Guggenheim Partners but they seem to be able to do their own thing.
25 TrijetsRMissed: I don't disagree that the move wasn't without reason. I'm just stating that AA wouldn't do so if it truly didn't need to.
26 ckfred: It is quite common for airlines to sell and leaseback aircraft, once they are fully depreciated. That way, the cost of ownership (lease payments) can
27 Flighty: It is a play on cost of capital. If GE Capital pays a 2% interest rate and AA pays an 18% interest rate, that 16% spread (exaggeration) provides a do
29 bongodog1964: AA don't even have the asset yet. If they can't agree a sale and leaseback there are no new aircraft. Who would lend money to an airline in Ch11 with
30 KC135TopBoom: This brings into question the A-321 (and other Airbus models) and Boeing orders from last year when they placed a 450+ airplane order. Will most, if n
31 superjeff: [quote=bennett123,reply=17] Is AA allowed to sell assets whilst in Chapter 11. [ Yes, but if they wish to do so, they have to get bankruptcy court ap
32 LAXintl: The mega narrow body order are leases.... See press release from the time. American also will benefit from approximately $13 billion of committed fin
33 mcg: You can't forget the time value of money. The present value of $1.7 million for 120 months at 7% is about $147 million. Thus somebody is investing $3
34 AAR90: The first half of the 460 plane order is "financed" by Boeing and Airbus in the form of leases by the manufacturers. Expect the remaining aircraft to
35 brilondon: It is not a valid comparison as there were not the leasing options back in the 90's I don't believe and they were forced into Chapter 7, which gave t
36 LAXintl: Pan Am was hawking assets going back to the 1970s. Steady stream of planes, facilities, routes, hotel chain and other subsidiaries. Aircraft leasing
37 TrijetsRMissed: No, I believe it's quite the contrary, in fact. As in less often than not. Particularly when involving large airlines with large fleets of aircraft,
38 LAXintl: Whats going to be interesting is the future AA will have an incredibly high volume of leased equipment - and with the huge rental payments going along
39 Stitch: AA is said to have secured very attractive lease financing through Airbus and I can only assume that Boeing had to do the same in order to secure the
40 goosebayguy: Personally I would be very wary of providing leased aircraft to AA. Imagine is it does go belly up. Suddenly 600 aircraft available on the worlds mark
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