Sponsor Message:
Civil Aviation Forum
My Starred Topics | Profile | New Topic | Forum Index | Help | Search 
AA Sell / Leaseback 777-300ER Fleet  
User currently offlineLAXintl From United States of America, joined May 2000, 25786 posts, RR: 50
Posted (2 years 1 month 2 weeks 5 days 18 hours ago) and read 23345 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
40 replies: All unread, showing first 25:
 
User currently offlinemogandoCI From , joined Dec 1969, posts, RR:
Reply 1, posted (2 years 1 month 2 weeks 5 days 17 hours ago) and read 23217 times:

so much for all that fan-fare about brand new product on 77W ... 2 is a start, but god knows if they would eventually

User currently offlinejfk777 From United States of America, joined Aug 2006, 8428 posts, RR: 7
Reply 2, posted (2 years 1 month 2 weeks 5 days 17 hours ago) and read 23144 times:
Support Airliners.net - become a First Class Member!

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.


User currently offlineDocLightning From United States of America, joined Nov 2005, 19954 posts, RR: 59
Reply 3, posted (2 years 1 month 2 weeks 5 days 17 hours ago) and read 23024 times:

I've always wondered about sell/leaseback. Doesn't this wind up costing more money in the long run?

User currently onlinekl911 From Czech Republic, joined Jul 2003, 5214 posts, RR: 15
Reply 4, posted (2 years 1 month 2 weeks 5 days 17 hours ago) and read 23022 times:

They keep on selling assets. How many planes do they still own? ( excluding old planes with no value)

User currently offlinemercure1 From French Polynesia, joined Jul 2008, 1611 posts, RR: 2
Reply 5, posted (2 years 1 month 2 weeks 5 days 17 hours ago) and read 22946 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.


User currently offlineAesma From France, joined Nov 2009, 6728 posts, RR: 12
Reply 6, posted (2 years 1 month 2 weeks 5 days 17 hours ago) and read 22944 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
User currently offlineStitch From United States of America, joined Jul 2005, 31124 posts, RR: 85
Reply 7, posted (2 years 1 month 2 weeks 5 days 17 hours ago) and read 22797 times:
Support Airliners.net - become a First Class Member!

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.

[Edited 2012-09-05 11:06:39]

User currently offlineDaysleeper From UK - England, joined Dec 2009, 865 posts, RR: 1
Reply 8, posted (2 years 1 month 2 weeks 5 days 17 hours ago) and read 22732 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?

[Edited 2012-09-05 11:11:28]

User currently offlineStitch From United States of America, joined Jul 2005, 31124 posts, RR: 85
Reply 9, posted (2 years 1 month 2 weeks 5 days 17 hours ago) and read 22703 times:
Support Airliners.net - become a First Class Member!

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.


User currently offlinemogandoCI From , joined Dec 1969, posts, RR:
Reply 10, posted (2 years 1 month 2 weeks 5 days 17 hours ago) and read 22625 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


User currently offlineLAXintl From United States of America, joined May 2000, 25786 posts, RR: 50
Reply 11, posted (2 years 1 month 2 weeks 5 days 17 hours ago) and read 22628 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
User currently offlineLAXintl From United States of America, joined May 2000, 25786 posts, RR: 50
Reply 12, posted (2 years 1 month 2 weeks 5 days 17 hours ago) and read 22543 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
User currently offlineStitch From United States of America, joined Jul 2005, 31124 posts, RR: 85
Reply 13, posted (2 years 1 month 2 weeks 5 days 16 hours ago) and read 22224 times:
Support Airliners.net - become a First Class Member!

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.


User currently offlineEXMEMWIDGET From United States of America, joined Jan 2004, 212 posts, RR: 0
Reply 14, posted (2 years 1 month 2 weeks 5 days 13 hours ago) and read 20905 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.


User currently offlineTrijetsRMissed From United States of America, joined Oct 2006, 2378 posts, RR: 7
Reply 15, posted (2 years 1 month 2 weeks 5 days 13 hours ago) and read 20010 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.



There's nothing quite like a tri-jet.
User currently offlineredzeppelin From United States of America, joined Feb 2012, 614 posts, RR: 0
Reply 16, posted (2 years 1 month 2 weeks 5 days 13 hours ago) and read 19786 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.

[Edited 2012-09-05 15:20:02]


Flown: DL,OS,NZ,UN,VV,NW,AA,UA,HP,TZ,AS,AF,KL,SK,WS,AZ,OK; op by OO,MQ,XJ,9E,G7,EV,QX,RP
User currently offlinebennett123 From United Kingdom, joined Aug 2004, 7698 posts, RR: 3
Reply 17, posted (2 years 1 month 2 weeks 5 days 12 hours ago) and read 19334 times:

Surely this reduces the value of AA.

Is AA allowed to sell assets whilst in Chapter 11.


User currently offlineStitch From United States of America, joined Jul 2005, 31124 posts, RR: 85
Reply 18, posted (2 years 1 month 2 weeks 5 days 12 hours ago) and read 18801 times:
Support Airliners.net - become a First Class Member!

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.


User currently offlineZaphodB From United States of America, joined Jan 2012, 77 posts, RR: 0
Reply 19, posted (2 years 1 month 2 weeks 5 days 11 hours ago) and read 17437 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.


User currently offlineETinCaribe From Ethiopia, joined Dec 2009, 737 posts, RR: 0
Reply 20, posted (2 years 1 month 2 weeks 5 days 10 hours ago) and read 16864 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?


User currently offlineteme82 From Finland, joined Mar 2007, 1571 posts, RR: 0
Reply 21, posted (2 years 1 month 2 weeks 5 days 10 hours ago) and read 16777 times:
Support Airliners.net - become a First Class Member!

Quoting LAXintl (Thread starter):
Guggenheim Aviation Partners

Sorry for asking but does this company have any dealings with the Guggenheim museums all over the globe??



Flying high and low
User currently offlineZaphodB From United States of America, joined Jan 2012, 77 posts, RR: 0
Reply 22, posted (2 years 1 month 2 weeks 5 days 10 hours ago) and read 16040 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.


User currently offlineStitch From United States of America, joined Jul 2005, 31124 posts, RR: 85
Reply 23, posted (2 years 1 month 2 weeks 5 days 10 hours ago) and read 15999 times:
Support Airliners.net - become a First Class Member!

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.


User currently offlinecoopdogyo From United States of America, joined Jan 2010, 189 posts, RR: 0
Reply 24, posted (2 years 1 month 2 weeks 5 days 8 hours ago) and read 13642 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
28 teme82 : Thanks for clearing that one =)
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 Post contains links 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 Post contains images 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
Top Of Page
Forum Index

This topic is archived and can not be replied to any more.

Printer friendly format

Similar topics:More similar topics...
AA Has Announed It Initial 777-300ER Schedule posted Wed May 23 2012 09:06:54 by TWA85
AA 777-300ER IFE System - Panasonic Or Thales? posted Thu Nov 17 2011 14:47:10 by 1337Delta764
AA Convert 1 777-200ER To 1 777-300ER posted Fri Oct 7 2011 05:44:47 by PanAm_DC10
ANA Orders 4 More 777-300ER, Sell 3 More 747-400 posted Tue Mar 6 2007 07:29:54 by Jimyvr
Boeing Video Shows United 777-300ER posted Sat Sep 1 2012 07:45:06 by kaitak744
Leahy- 777-300ER Cannot Compete With A350-1000 posted Mon May 28 2012 05:02:59 by g500
American 777-300ER Updates? posted Mon Mar 5 2012 18:18:08 by SXDFC
Pakistan International (PIA) Order 5x Boeing 777-300ER's posted Fri Feb 17 2012 12:49:20 by SA7700
Air China Upgrades PEK-LAX To 777-300ER posted Fri Jan 27 2012 13:33:16 by g500
American Unveils 777-300ER With Sky Interior posted Thu Jan 26 2012 15:38:12 by 4engines4lnghll