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, 25737 posts, RR: 50
Posted (2 years 1 month 2 weeks 1 day 22 hours ago) and read 23338 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 1 day 22 hours ago) and read 23210 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, 8424 posts, RR: 7
Reply 2, posted (2 years 1 month 2 weeks 1 day 22 hours ago) and read 23137 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, 19927 posts, RR: 59
Reply 3, posted (2 years 1 month 2 weeks 1 day 22 hours ago) and read 23017 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, 5201 posts, RR: 15
Reply 4, posted (2 years 1 month 2 weeks 1 day 22 hours ago) and read 23015 times:

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

User currently onlinemercure1 From French Polynesia, joined Jul 2008, 1599 posts, RR: 2
Reply 5, posted (2 years 1 month 2 weeks 1 day 22 hours ago) and read 22939 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, 6723 posts, RR: 12
Reply 6, posted (2 years 1 month 2 weeks 1 day 22 hours ago) and read 22937 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 onlineStitch From United States of America, joined Jul 2005, 31098 posts, RR: 85
Reply 7, posted (2 years 1 month 2 weeks 1 day 22 hours ago) and read 22790 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, 854 posts, RR: 1
Reply 8, posted (2 years 1 month 2 weeks 1 day 22 hours ago) and read 22725 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 onlineStitch From United States of America, joined Jul 2005, 31098 posts, RR: 85
Reply 9, posted (2 years 1 month 2 weeks 1 day 22 hours ago) and read 22696 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 1 day 22 hours ago) and read 22618 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, 25737 posts, RR: 50
Reply 11, posted (2 years 1 month 2 weeks 1 day 22 hours ago) and read 22621 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, 25737 posts, RR: 50
Reply 12, posted (2 years 1 month 2 weeks 1 day 21 hours ago) and read 22536 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 onlineStitch From United States of America, joined Jul 2005, 31098 posts, RR: 85
Reply 13, posted (2 years 1 month 2 weeks 1 day 21 hours ago) and read 22217 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 1 day 18 hours ago) and read 20898 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, 2376 posts, RR: 7
Reply 15, posted (2 years 1 month 2 weeks 1 day 18 hours ago) and read 20003 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, 612 posts, RR: 0
Reply 16, posted (2 years 1 month 2 weeks 1 day 17 hours ago) and read 19779 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, 7690 posts, RR: 3
Reply 17, posted (2 years 1 month 2 weeks 1 day 17 hours ago) and read 19327 times:

Surely this reduces the value of AA.

Is AA allowed to sell assets whilst in Chapter 11.


User currently onlineStitch From United States of America, joined Jul 2005, 31098 posts, RR: 85
Reply 18, posted (2 years 1 month 2 weeks 1 day 17 hours ago) and read 18794 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 1 day 16 hours ago) and read 17430 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 1 day 15 hours ago) and read 16857 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, 1569 posts, RR: 0
Reply 21, posted (2 years 1 month 2 weeks 1 day 15 hours ago) and read 16770 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 1 day 15 hours ago) and read 16033 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 onlineStitch From United States of America, joined Jul 2005, 31098 posts, RR: 85
Reply 23, posted (2 years 1 month 2 weeks 1 day 14 hours ago) and read 15992 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 1 day 12 hours ago) and read 13635 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.


User currently offlineTrijetsRMissed From United States of America, joined Oct 2006, 2376 posts, RR: 7
Reply 25, posted (2 years 1 month 2 weeks 1 day 12 hours ago) and read 13029 times:

Quoting Stitch (Reply 18):
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.

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.



There's nothing quite like a tri-jet.
User currently onlineckfred From United States of America, joined Apr 2001, 5271 posts, RR: 1
Reply 26, posted (2 years 1 month 2 weeks 1 day 11 hours ago) and read 12456 times:

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 be deducted as a business expense, since there is no longer a tax advantage to outright ownership of older airplanes.

User currently onlineFlighty From United States of America, joined Apr 2007, 8631 posts, RR: 2
Reply 27, posted (2 years 1 month 2 weeks 1 day 10 hours ago) and read 12333 times:

Quoting DocLightning (Reply 3):
I've always wondered about sell/leaseback. Doesn't this wind up costing more money in the long run?

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 domain where sale/leaseback through GE offers profits for both parties compared to AA buying and financing at 18%.


User currently offlineteme82 From Finland, joined Mar 2007, 1569 posts, RR: 0
Reply 28, posted (2 years 1 month 2 weeks 1 day 6 hours ago) and read 10372 times:
Support Airliners.net - become a First Class Member!

Quoting coopdogyo (Reply 24):
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.

Thanks for clearing that one =)



Flying high and low
User currently offlinebongodog1964 From United Kingdom, joined Oct 2006, 3635 posts, RR: 3
Reply 29, posted (2 years 1 month 2 weeks 1 day 4 hours ago) and read 9205 times:

Quoting bennett123 (Reply 17):
Surely this reduces the value of AA.

Is AA allowed to sell assets whilst in Chapter 11.

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 without a cast iron guarantee of getting it back ?

Sale and leaseback is a very common form of aircraft financing, I recall seeing a programme years back where 2 744's were handed over to BA, and immediately sold and leased back before they even set off on their delivery flight. Few airlines have the necessary captial structure to own all their fleet. Its a mixture of wholly owned aircraft, leased aircraft which were originally ordered by a leasing comapny, buy and leaseback as in this case, and owned aircraft with finance loans secured against them.


User currently offlineKC135TopBoom From United States of America, joined Jan 2005, 12158 posts, RR: 51
Reply 30, posted (2 years 1 month 2 weeks 1 day 3 hours ago) and read 8804 times:

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 not all of these new airplanes also end up as sale/lease deals?

User currently offlinesuperjeff From United States of America, joined Feb 2010, 245 posts, RR: 0
Reply 31, posted (2 years 1 month 2 weeks 1 day 3 hours ago) and read 8531 times:
Support Airliners.net - become a First Class Member!

Quoting bennett123 (Reply 17):
Surely this reduces the value of AA.

[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 approval. Generally, the procedure is that AA would make application to the Court for permission to sell the assets, and explain why they are doing so and what they intend to do with the proceeds. Any creditors could object if they wished to do so, in which case the Court would schedule a hearing and either approve, reject, or modify what AA were to propose.

Jeff


User currently offlineLAXintl From United States of America, joined May 2000, 25737 posts, RR: 50
Reply 32, posted (2 years 1 month 2 weeks 1 day 1 hour ago) and read 6646 times:

Quoting KC135TopBoom (Reply 30):
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 not all of these new airplanes also end up as sale/lease deals?

The mega narrow body order are leases....

See press release from the time.

American also will benefit from approximately $13 billion of committed financing from the manufacturers through lease transactions that will help maximize balance sheet flexibility and reduce risk. The financing fully covers the first 230 deliveries.

https://www.aa.com/i18n/amrcorp/newsroom/fp_amr_fleet_agreement.jsp

=



From the desert to the sea, to all of Southern California
User currently offlinemcg From United States of America, joined Sep 2003, 821 posts, RR: 0
Reply 33, posted (2 years 1 month 2 weeks 1 day ago) and read 6410 times:

Quoting redzeppelin (Reply 16):
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.

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 $33 million in the 380 at the start of the lease. This investment is the owners equity in the deal. To earn a 15% return on the equity investment the airplane will need to be worth about $146 million at lease end.

Compound interest is a powerful thing.


User currently offlineAAR90 From United States of America, joined Jan 2000, 3474 posts, RR: 46
Reply 34, posted (2 years 1 month 2 weeks 1 day ago) and read 6400 times:

Quoting KC135TopBoom (Reply 30):
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 not all of these new airplanes also end up as sale/lease deals?

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 be delivered as a mix of leases and purchases... after AA returns to a competitive position in the financial world (post-BK, just like all of its competitors).



*NO CARRIER* -- A Naval Aviator's worst nightmare!
User currently offlinebrilondon From Canada, joined Aug 2005, 4299 posts, RR: 1
Reply 35, posted (2 years 1 month 2 weeks 1 day ago) and read 5797 times:

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 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 them no option but to shut down and liquidate their assets. I could be wrong on this but I believe they owed much more money to their creditors as a percentage of their net worth than AA does. Please correct my analysis of the AA vs. PA bankruptcy.



Rush for ever; Yankees all the way!!
User currently offlineLAXintl From United States of America, joined May 2000, 25737 posts, RR: 50
Reply 36, posted (2 years 1 month 2 weeks 23 hours ago) and read 5332 times:

Quoting brilondon (Reply 35):
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 them no option but to shut down and liquidate their assets. I could be wrong on this but I believe they owed much more money to their creditors as a percentage of their net worth than AA does. Please correct my analysis of the AA vs. PA bankruptcy.

Pan Am was hawking assets going back to the 1970s. Steady stream of planes, facilities, routes, hotel chain and other subsidiaries.

Aircraft leasing has existed in the industry for well into the 1940s. Sure not the type of complex or creative deals as today, but many folks got started post WW2 with leased equipment.

For PA specifically towards the end much of its 727 and 747 were leased - many on leaseback transactions, while its entire Airbus fleet was secured on leases as well. Airbus was quite aggressive back in the day and was willing to structure all types of creative deals to find home for its models with leases being a prime tool.

Here is a Fortune story from 1985 --
Airbus won a $1.1-billion order for A320s from Pan Am in part because it threw in cheap leases -- as well as immediate delivery -- on a dozen wide-body jets it had sitting around, left over from the dark days of 1983-84 when money-losing airlines canceled orders.
http://money.cnn.com/magazines/fortu...archive/1985/12/23/66817/index.htm

=



From the desert to the sea, to all of Southern California
User currently offlineTrijetsRMissed From United States of America, joined Oct 2006, 2376 posts, RR: 7
Reply 37, posted (2 years 1 month 2 weeks 11 hours ago) and read 4249 times:

Quoting ckfred (Reply 26):
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 be deducted as a business expense, since there is no longer a tax advantage to outright ownership of older airplanes.

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, that at one time were NB deliveries. In this case, it is more the exception to the rule than a frequent occurrence. (Provided the airline is on stable ground).

The strategy you outlined was more common for LCCs during the post-deregulation boom of the '80s and '90s. For example, a small airline with conservative venture capital would buy 10-15 727s on the cheap, (of 20+ years of age), from 3-5 different suppliers. Then, to generate cash and benefit from allowances, do a sale and leaseback arrangement as you mentioned with a single leasing company. Small transport companies do the same thing with their fleet of trucks. But it is not a common practice to apply to hundreds of aircraft owned outright by legacy airline.

Quoting LAXintl (Reply 36):

  



There's nothing quite like a tri-jet.
User currently offlineLAXintl From United States of America, joined May 2000, 25737 posts, RR: 50
Reply 38, posted (2 years 1 month 1 week 3 days ago) and read 3524 times:

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 with that.

All recent 737-800 deliveries, atleast 230 of the NEO/MAX order, and now 77Ws along with about 50% of the existing fleet will be on lease.

So while AA will be making large lease payments, it wont enjoy any of the ownership financial or tax benefits such as depreciation to go along with it.

As an analyst said about the MAX/NEO order financing;

“The debt associated with those aircraft will be off-balance sheet as the aircraft are being financed under operating leases, but in general since one must capitalise these off-balance-sheet debt at seven-times first-year rental rates, AMR is looking at its practical debt increasing, not decreasing through this order.”

I guess AA does not have much choice in the short run, however its seems in the long term these transactions are not the ideal method.



From the desert to the sea, to all of Southern California
User currently onlineStitch From United States of America, joined Jul 2005, 31098 posts, RR: 85
Reply 39, posted (2 years 1 month 1 week 3 days ago) and read 3520 times:
Support Airliners.net - become a First Class Member!

Quoting LAXintl (Reply 38):
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 with that.

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 their part of the deal.


User currently offlinegoosebayguy From United Kingdom, joined Sep 2009, 406 posts, RR: 0
Reply 40, posted (2 years 1 month 1 week 2 days 19 hours ago) and read 3289 times:

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 market. This would decimate residual values etc. So a leasing company would find their valuable asset virtually worthless. Add in the ordered aircraft and the worlds aerospace market will face very uncertain times.

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