PPVRA
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"Dreamliner" For Whom, Airlines Or Lessors?

Sun May 15, 2005 4:36 am

I'm sure GECAS/ILFC etc. will look at the extra profit potential of the aircraft and hike it's leasing costs. How much will that take the spotlight away from the efficiency of the aircraft? Will the 787 turn into a leasing company cash-cow, and not for the airlines? How much will that super efficiency be passed down to the airlines?

It seems this will be a plane you should own, and not lease. Maybe that's the reason why no leasing companies have orderd the plane yet? Big "oops" it seems. The technological aspects may be wonderful, but this...

BTW, I'm a big fan of the aircraft and hope Boeing sells 1000s of them.

Thoughts?

Cheers,
PPVRA

[Edited 2005-05-14 21:37:10]
"If goods do not cross borders, soldiers will" - Frederic Bastiat
 
AMSSpotter
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RE: "Dreamliner" For Whom, Airlines Or Lessors?

Sun May 15, 2005 4:47 am

I guess the free market will sove this "problem" and I'm sure Boeing will keep selling a lot of Dreamliners (either to the lease companies or to airlines).
 
OldAeroGuy
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RE: "Dreamliner" For Whom, Airlines Or Lessors?

Sun May 15, 2005 4:51 am

None of leasing companies have bought a 787 to date.
Airplane design is easy, the difficulty is getting them to fly - Barnes Wallis
 
Planesmart
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RE: "Dreamliner" For Whom, Airlines Or Lessors?

Sun May 15, 2005 5:46 am

The cost of leasing an aircraft is based on the price (and that is determined by what is included in the price - some customers will try and add non-capital components for tax and/or liquidity reasons), cost of funds, customer risk profile, use profile (projected cycles & hours), term (length of lease), projected market/value at end of lease, and tax.

In the good old days, leasing companies and financiers would place 'block' orders, first to get a good price (partly for their bottom line and partly to pass on to customers) and second to influence the market (leasing companies would often sell delivery positions at a profit).

In 2005 the market is very different, and leasing companies are somewhat pre-occupied with protecting US airline exposures, and assisting with the re-structure of that industry.

Leasing business arises in different ways in 2005. Larger airlines negotiate aircraft purchases direct with the manufacturer, and then in parallel (or later if delivery is well into the future) arrange funding. Some will use negotiating expertise from a financier or leasing company to assist in this process. Later, the airline decides whether to lease or buy the airframes, engines, simulators and other equipment.

Smaller, less financial airlines may use the buying power of the financier or leasing company to acquire the aircraft for them, either to lease or purchase.

If an airline orders 10 aircraft, they may lease 5, purchase 5, yet purchase or lease all the engines. It's simply a case of the best deal, with the best overall cost.

Tax can play a big part. There are sometimes advantages loading early aircraft deliveries with high levels of non-capex costs, some airlines operate their own lease companies (often based overseas), others lease overseas, while others may appear to borrow overseas. Big capital items - big mirrors.

So leasing companies are really driven by customers. No customers wanting to lease - no lease company orders.

Finally two points. All current 787 orders and most A38 orders to-date are what financiers would call options. They are supported only by miniscule payments to the manufacturers, which are refundable, transferrable & deferrable, so in virtually all cases, finance is yet to be arranged, although negotiations are well underway for the A38 (care not to double count previously announced airline orders and later lease company orders for the same aircraft).

Second, the A38 is regarded as a medium-high risk (size for A, some technology, project magnitude) and 787 is high risk (technology, manufacturing, degree of risk-sharing) projects, and so financiers and leasors have very much preferred to take a wait and see approach.
 
TrappedinMKG
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RE: "Dreamliner" For Whom, Airlines Or Lessors?

Sun May 15, 2005 6:04 am

Quoting OldAeroGuy (Reply 2):
None of leasing companies have bought a 787 to date.

Au contraire. ILFC has purchased 20. Seeing as how GE is the main engine supplier, I would suspect GECAS isn't far behind.
 
PPVRA
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RE: "Dreamliner" For Whom, Airlines Or Lessors?

Sun May 15, 2005 6:27 am

Quoting PlaneSmart (Reply 3):
In 2005 the market is very different, and leasing companies are somewhat pre-occupied with protecting US airline exposures, and assisting with the re-structure of that industry.

Ok, I can see that. But what about the other costumers? As you said, leasing costs are decided in the individual basis, if so, how much will it rise after U.S. airlines recuperate? And what about the others, currently profitable and financially sound airlines?



Quoting PlaneSmart (Reply 3):
The cost of leasing an aircraft is based on the price (and that is determined by what is included in the price - some customers will try and add non-capital components for tax and/or liquidity reasons), cost of funds, customer risk profile, use profile (projected cycles & hours), term (length of lease), projected market/value at end of lease, and tax.

But don't you think the lessors would want a share on the extra revenue the aircraft is bringing in for the airlines? I can't see them being nice and passing on all the benefits of such an evolutionary aircraft.

Cheers,
PPVRA
"If goods do not cross borders, soldiers will" - Frederic Bastiat
 
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PanAm_DC10
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RE: "Dreamliner" For Whom, Airlines Or Lessors?

Sun May 15, 2005 6:36 am

Quoting TrappedInMKG (Reply 4):
Au contraire. ILFC has purchased 20

No they have not. Mr Udvar-Hazy has expressed an interest to purchase around 20-25 in addition to the same amount of A350s. AWAS have been reported to be evaluating purchasing 10 787s though even then not for some time.

OldAeroGuy is correct. No Leasing firm has yet ordered the 787

Regards
Ask the impossible to achieve the best possible
 
Planesmart
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RE: "Dreamliner" For Whom, Airlines Or Lessors?

Sun May 15, 2005 6:46 am

PPVRA

'As you said, leasing costs are decided in the individual basis, if so, how much will it rise after U.S. airlines recuperate? And what about the others, currently profitable and financially sound airlines?'

'But don't you think the lessors would want a share on the extra revenue the aircraft is bringing in for the airlines? I can't see them being nice and passing on all the benefits of such an evolutionary aircraft.'

It's a competitive market, so if leasing companies push up margins, then more customers will opt to purchase.

Many believe an airline will lease if it's credit isn't good enough to borrow. Not so. Credit assessment is identical for lease v purchase.

Thankfully there are financially sound airlines around, because together with financiers and leasors, they are helping to subsidise the current poor performers, although concessions granted to poor performing USA-based airlines have spilled over to better performing ones in the USA and overseas.

787 alone won't improve airline profitability. When the industry recovers, current concessions will disappear, but the level of profitability enjoyed by those providing funding in the 70's & 80's will never return. As for putting a premium on the 787, it's more likely B would do that, but that would improve the cost-effectiveness & economics of competing A products.

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