misterbe
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Price for end of line A320 (LaxInt?)

Thu Jan 25, 2018 5:24 pm

LaxInt I was told you're the man with the answer, but I cannot PM you because I just joined the forum.

I wish to establish whether ALGT got a good deal when they recently purchased 12 new A320-200s for an estimated $300m-$350m.

Problem is as I understand it the official new list price of $99m from Airbus http://www.airbus.com/content/dam/corpo ... ist-EN.pdf is essentially meaningless. Allegedly discounts of up to 50% are fairly routine. However it does not square with the second hand prices I've been seeing, although prices are hard to find. This site shows 11 year comps selling for more than $30m, but then again that is the list price?? http://www.avibroker.com/saleavailability.asp

Anyone wish to way in on this, if not LaxInt, please?

P.S. Please speak plainly, you can assume I know little about the industry; I'm here to learn.
 
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LAXintl
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Re: Price for end of line A320 (LaxInt?)

Fri Jan 26, 2018 1:02 am

Considering Airbus 2017 A320CEO list price is $99mil, yes obviously they received a fantastic discount.

As far as used valuations, they currently (as of 12/17) range between $1.3mil for essentially scrap value frame, up to $42.2 for recently manufactured frame.
From the desert to the sea, to all of Southern California
 
misterbe
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Re: Price for end of line A320 (LaxInt?)

Fri Jan 26, 2018 12:46 pm

Much obliged LAXintl and if you will allow me a follow up please.

So it then seems the claims of 50% discounts on new being routine in the industry are incorrect?
 
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zeke
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Re: Price for end of line A320 (LaxInt?)

Fri Jan 26, 2018 1:21 pm

Next to impossible for anyone to make an informed comment, as those who can make an informed comment would be prevented from doing so under various confidentiality agreements.

The price paid onto the OEM may not include the engines and APU (which maybe power by the hour) and the BFE cabin.
Human rights lawyers are "ambulance chasers of the very worst kind.'" - Sky News
 
heavymetal
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Re: Price for end of line A320 (LaxInt?)

Fri Jan 26, 2018 2:00 pm

misterbe wrote:
Much obliged LAXintl and if you will allow me a follow up please.

So it then seems the claims of 50% discounts on new being routine in the industry are incorrect?


Discounts vary significantly between airline, aircraft type, current market demand/situation, etc. With Allegiant being a "new" Airbus customer, at least for new aircraft, and these being end-of-line A320's, it would not be surprising to see a higher discount. For any given aircraft you could see discounts anywhere between 30% - 70%.

zeke wrote:
Next to impossible for anyone to make an informed comment, as those who can make an informed comment would be prevented from doing so under various confidentiality agreements.

The price paid onto the OEM may not include the engines and APU (which maybe power by the hour) and the BFE cabin.


This is a myth on Airliners. In all my years doing this, I've never seen an aircraft sold without engines and APU included. A Power-by-the-hour agreement is for engine maintenance, not for engine ownership. If engines are leased, they have a monthly lease rate and then you would either pay an additional per-hour reserve rate for upcoming shop visits and LLP replacements, or you would compensate the owner at the end of the lease for the maintenance time consumed on the engine(s) since delivery.

As Zeke correctly states, BFE is paid by the airline directly to the BFE supplier and is not included in the price paid to the airframe OEM.
 
heavymetal
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Re: Price for end of line A320 (LaxInt?)

Fri Jan 26, 2018 2:01 pm

heavymetal wrote:
misterbe wrote:
Much obliged LAXintl and if you will allow me a follow up please.

So it then seems the claims of 50% discounts on new being routine in the industry are incorrect?


Discounts vary significantly between airline, aircraft type, current market demand/situation, etc. With Allegiant being a new Airbus customer, at least for new aircraft, and these being end-of-line A320's, it would not be surprising to see a higher discount. For any given aircraft you could see discounts anywhere between 30% - 70%.

zeke wrote:
Next to impossible for anyone to make an informed comment, as those who can make an informed comment would be prevented from doing so under various confidentiality agreements.

The price paid onto the OEM may not include the engines and APU (which maybe power by the hour) and the BFE cabin.


This is a myth on Airliners. In all my years doing this, I've never seen an aircraft sold without engines and APU included. A Power-by-the-hour agreement is for engine maintenance, not for engine ownership. If engines are leased, they have a monthly lease rate and then you would either pay an additional per-hour reserve rate for upcoming shop visits and LLP replacements, or you would compensate the owner at the end of the lease for the maintenance time consumed on the engine(s) since delivery.

As Zeke correctly states, BFE is paid by the airline directly to the BFE supplier and is not included in the price paid to the airframe OEM.
 
heavymetal
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Re: Price for end of line A320 (LaxInt?)

Fri Jan 26, 2018 2:02 pm

misterbe wrote:
Much obliged LAXintl and if you will allow me a follow up please.

So it then seems the claims of 50% discounts on new being routine in the industry are incorrect?


Discounts vary significantly between airline, aircraft type, current market demand/situation, etc. With Allegiant being a new Airbus customer, at least for new aircraft, and these being end-of-line A320's, it would not be surprising to see a higher discount. For any given aircraft you could see discounts anywhere between 30% - 70%.

zeke wrote:
Next to impossible for anyone to make an informed comment, as those who can make an informed comment would be prevented from doing so under various confidentiality agreements.

The price paid onto the OEM may not include the engines and APU (which maybe power by the hour) and the BFE cabin.


This is a myth on Airliners. In all my years doing this, I've never seen an aircraft sold without engines and APU included. A Power-by-the-hour agreement is for engine maintenance, not for engine ownership. If engines are leased, they have a monthly lease rate and then you would either pay an additional per-hour reserve rate for upcoming shop visits and LLP replacements, or you would compensate the owner at the end of the lease for the maintenance time consumed on the engine(s) since delivery.

As Zeke correctly states, BFE is paid by the airline directly to the BFE supplier and is not included in the price paid to the airframe OEM.
 
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zeke
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Re: Price for end of line A320 (LaxInt?)

Fri Jan 26, 2018 2:57 pm

heavymetal wrote:
This is a myth on Airliners. In all my years doing this, I've never seen an aircraft sold without engines and APU included. A Power-by-the-hour agreement is for engine maintenance, not for engine ownership. If engines are leased, they have a monthly lease rate and then you would either pay an additional per-hour reserve rate for upcoming shop visits and LLP replacements, or you would compensate the owner at the end of the lease for the maintenance time consumed on the engine(s) since delivery.


It is no myth, have a look at many of the larger air shows, you often see an announcement for the sale of the airframe, and then a second announcement for the engines. Eg https://www.geaviation.com/press-releas ... boeing-787

Once the airline has entered the purchase agreements, they can often then sell and lease back these assets. Engines often are purchased with maintenance contracts which can follow the engine when sold and leased back.
 
misterbe
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Re: Price for end of line A320 (LaxInt?)

Fri Jan 26, 2018 3:57 pm

Got hold of the contract in ALGT's SEC filings.

A320 Aircraft - any or all of the twelve (12) A320 aircraft to be sold by the Seller and purchased by the Buyer pursuant to this Agreement,
including the Airframe and all components, equipment, parts and accessories installed in or on such aircraft and the Propulsion Systems installed
thereon upon Delivery.
...Propulsion Systems
Each Airframe shall be equipped with a set of two (2) CFM International Engines (“CFM”) CFM56-5B4/3 engines, the “A320 Propulsion
Systems”....

Air Frame
the base price of the Airframe as defined in the Standard Specification (excluding Buyer Furnished Equipment), including nacelles and
thrust reversers, is:

20.1.1.1In accordance with the Specification, the Seller shall install those items of equipment that are identified in the Specification as being furnished by
the Buyer ("Buyer Furnished Equipment" or "BFE"), provided that the BFE and the supplier of such BFE (the “BFE Supplier”) are referred
to in the Airbus BFE Product Catalog valid at the time the BFE Supplier is selected.
 
misterbe
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Re: Price for end of line A320 (LaxInt?)

Fri Jan 26, 2018 3:59 pm

 
misterbe
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Re: Price for end of line A320 (LaxInt?)

Fri Jan 26, 2018 4:24 pm

Another way to look at this is the security they have to put up for debt. ALGT's recent filing showed they borrowed $237m under the loan agreements, which are secured by the 12 new aircraft. It again seems cheap if the above contracts seems to indicate that it is the basic aircraft with what I assume are standard engines (please correct me if CFM56-5B4/3 are not standard - I have no idea). Also if you look at the jump in their future commitments at the time when the signed the contract the price seems to indicate $282m. That again would imply a loan to value ration of roughly 80%, which seems ok. Again please correct me if I'm wrong on my loan assumptions, I assume many posters on this board will know. At the end it all translates to low to mid 20's per aircraft, so probably fair to settle at $25m. However that comes to 25% of list price; not sure if end of the line explains it, but seems awfully low to me.

Having said all that I note in their presentations they now have future commitments of $295m over 4 years for what they refer to as "Airbus Heavy Maintenance". Is this something that should really be lobbed in with the purchase price, which would bring the numbers to a more normal level?
 
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lightsaber
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Re: Price for end of line A320 (LaxInt?)

Fri Jan 26, 2018 6:19 pm

misterbe wrote:
Another way to look at this is the security they have to put up for debt. ALGT's recent filing showed they borrowed $237m under the loan agreements, which are secured by the 12 new aircraft. It again seems cheap if the above contracts seems to indicate that it is the basic aircraft with what I assume are standard engines (please correct me if CFM56-5B4/3 are not standard - I have no idea). Also if you look at the jump in their future commitments at the time when the signed the contract the price seems to indicate $282m. That again would imply a loan to value ration of roughly 80%, which seems ok. Again please correct me if I'm wrong on my loan assumptions, I assume many posters on this board will know. At the end it all translates to low to mid 20's per aircraft, so probably fair to settle at $25m. However that comes to 25% of list price; not sure if end of the line explains it, but seems awfully low to me.

Having said all that I note in their presentations they now have future commitments of $295m over 4 years for what they refer to as "Airbus Heavy Maintenance". Is this something that should really be lobbed in with the purchase price, which would bring the numbers to a more normal level?

As I read through the contracts, the airframes were sold for much less than the resale value of today's CEOs. This is typical of end of line airframes.

So yes, it was a good deal.

To everyone:
But these airframes will burn 18% more fuel than today's NEO/MAX and 23% more than 2025ish PIPs. Also, the NEO and MAX have improvements to reduce (a little) the maintenance costs

Even with the deep discount, after 10 or so years, a NEO would be saving money over a CEO.

Lightsaber
You only have the first amendment with the 2nd. If you're not going to offend someone with what you say, you don't have the 1st.
 
heavymetal
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Re: Price for end of line A320 (LaxInt?)

Fri Jan 26, 2018 7:59 pm

zeke wrote:
heavymetal wrote:
This is a myth on Airliners. In all my years doing this, I've never seen an aircraft sold without engines and APU included. A Power-by-the-hour agreement is for engine maintenance, not for engine ownership. If engines are leased, they have a monthly lease rate and then you would either pay an additional per-hour reserve rate for upcoming shop visits and LLP replacements, or you would compensate the owner at the end of the lease for the maintenance time consumed on the engine(s) since delivery.


It is no myth, have a look at many of the larger air shows, you often see an announcement for the sale of the airframe, and then a second announcement for the engines. Eg https://www.geaviation.com/press-releas ... boeing-787

Once the airline has entered the purchase agreements, they can often then sell and lease back these assets. Engines often are purchased with maintenance contracts which can follow the engine when sold and leased back.


This is partially correct in that you do sign a separate purchase agreement with the engine OEM when you have he choice. However, the method for paying the airframe OEM and for reporting CapEx will always include the engines. I won’t go into further detail.

I see your point on sale and leasebacks, but it would be very unusual to do this on an individual asset basis right after delivery. I’m not sure anyone would even necessarily do that, because it has massive implications on financing for any party involved. You usually sale and leaseback the aircraft as a whole, or sale and leaseback individual spare engines. There could be independent airfram / engine equity participants behind the investor, but generally speaking it would be a package deal for a new aircraft delivery.

The maintenance agreement, or PBH, would only be applicable to the airline operator, and would not be transferable to another airline or leasing company.

lightsaber wrote:
misterbe wrote:
Another way to look at this is the security they have to put up for debt. ALGT's recent filing showed they borrowed $237m under the loan agreements, which are secured by the 12 new aircraft. It again seems cheap if the above contracts seems to indicate that it is the basic aircraft with what I assume are standard engines (please correct me if CFM56-5B4/3 are not standard - I have no idea). Also if you look at the jump in their future commitments at the time when the signed the contract the price seems to indicate $282m. That again would imply a loan to value ration of roughly 80%, which seems ok. Again please correct me if I'm wrong on my loan assumptions, I assume many posters on this board will know. At the end it all translates to low to mid 20's per aircraft, so probably fair to settle at $25m. However that comes to 25% of list price; not sure if end of the line explains it, but seems awfully low to me.

Having said all that I note in their presentations they now have future commitments of $295m over 4 years for what they refer to as "Airbus Heavy Maintenance". Is this something that should really be lobbed in with the purchase price, which would bring the numbers to a more normal level?

As I read through the contracts, the airframes were sold for much less than the resale value of today's CEOs. This is typical of end of line airframes.

So yes, it was a good deal.

To everyone:
But these airframes will burn 18% more fuel than today's NEO/MAX and 23% more than 2025ish PIPs. Also, the NEO and MAX have improvements to reduce (a little) the maintenance costs

Even with the deep discount, after 10 or so years, a NEO would be saving money over a CEO.

Lightsaber


Do you have a source for the 18% and 23% claims? I was under the impression this was closer to 15-16% based on Spirit’s statements, and hadn’t seen an additional 6-7% from the PIP.

I also don’t believe that the NEO generates savings on an NPV basis at these deal levels. If OPs CapEx is assumed to be correct, that’s ~$30M per airplane, a $10-15M+ discount versus a NEO. With fuel at these now-moderate levels, and Allegiant’s lower utilization model, I think it would take almost a full 25-years to recover the initial price gap, possibly longer. If you bring the fuel benefit down to 12-15% that only lengthens the breakeven period.
 
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lightsaber
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Re: Price for end of line A320 (LaxInt?)

Tue Jan 30, 2018 1:02 am

heavymetal wrote:
zeke wrote:
heavymetal wrote:
This is a myth on Airliners. In all my years doing this, I've never seen an aircraft sold without engines and APU included. A Power-by-the-hour agreement is for engine maintenance, not for engine ownership. If engines are leased, they have a monthly lease rate and then you would either pay an additional per-hour reserve rate for upcoming shop visits and LLP replacements, or you would compensate the owner at the end of the lease for the maintenance time consumed on the engine(s) since delivery.


It is no myth, have a look at many of the larger air shows, you often see an announcement for the sale of the airframe, and then a second announcement for the engines. Eg https://www.geaviation.com/press-releas ... boeing-787

Once the airline has entered the purchase agreements, they can often then sell and lease back these assets. Engines often are purchased with maintenance contracts which can follow the engine when sold and leased back.


This is partially correct in that you do sign a separate purchase agreement with the engine OEM when you have he choice. However, the method for paying the airframe OEM and for reporting CapEx will always include the engines. I won’t go into further detail.

I see your point on sale and leasebacks, but it would be very unusual to do this on an individual asset basis right after delivery. I’m not sure anyone would even necessarily do that, because it has massive implications on financing for any party involved. You usually sale and leaseback the aircraft as a whole, or sale and leaseback individual spare engines. There could be independent airfram / engine equity participants behind the investor, but generally speaking it would be a package deal for a new aircraft delivery.

The maintenance agreement, or PBH, would only be applicable to the airline operator, and would not be transferable to another airline or leasing company.

lightsaber wrote:
misterbe wrote:
Another way to look at this is the security they have to put up for debt. ALGT's recent filing showed they borrowed $237m under the loan agreements, which are secured by the 12 new aircraft. It again seems cheap if the above contracts seems to indicate that it is the basic aircraft with what I assume are standard engines (please correct me if CFM56-5B4/3 are not standard - I have no idea). Also if you look at the jump in their future commitments at the time when the signed the contract the price seems to indicate $282m. That again would imply a loan to value ration of roughly 80%, which seems ok. Again please correct me if I'm wrong on my loan assumptions, I assume many posters on this board will know. At the end it all translates to low to mid 20's per aircraft, so probably fair to settle at $25m. However that comes to 25% of list price; not sure if end of the line explains it, but seems awfully low to me.

Having said all that I note in their presentations they now have future commitments of $295m over 4 years for what they refer to as "Airbus Heavy Maintenance". Is this something that should really be lobbed in with the purchase price, which would bring the numbers to a more normal level?

As I read through the contracts, the airframes were sold for much less than the resale value of today's CEOs. This is typical of end of line airframes.

So yes, it was a good deal.

To everyone:
But these airframes will burn 18% more fuel than today's NEO/MAX and 23% more than 2025ish PIPs. Also, the NEO and MAX have improvements to reduce (a little) the maintenance costs

Even with the deep discount, after 10 or so years, a NEO would be saving money over a CEO.

Lightsaber


Do you have a source for the 18% and 23% claims? I was under the impression this was closer to 15-16% based on Spirit’s statements, and hadn’t seen an additional 6-7% from the PIP.

I also don’t believe that the NEO generates savings on an NPV basis at these deal levels. If OPs CapEx is assumed to be correct, that’s ~$30M per airplane, a $10-15M+ discount versus a NEO. With fuel at these now-moderate levels, and Allegiant’s lower utilization model, I think it would take almost a full 25-years to recover the initial price gap, possibly longer. If you bring the fuel benefit down to 12-15% that only lengthens the breakeven period.

If a NEO burns 16% less than a CEO, than inverting gives a CEO burns 18% more than a NEO, or approximately 1.18*.84=1.

It depends on utilization. Yes, the bulk of Allegiant is low utilization. But the new CEOs are being used 9+ hours per day. Allegiant is growing up. MD-80 have lower utilization than old A319/320 which is much lower than their top lines.

At today's approaching $80 oil, high utilization CEOs should burn $13,000+ per day. Save say 15%, and that is roughly $2,000/day. With maintenance saving a million per year. So yes, I think after ten years the NEO has paid it's premium.

Low utilization aircraft should be bought used. Now there are good deals to keep the lines going during transition. But high utilization sub-fleets would do better long term buying NEOs. Sub-fleets flying less than 8 hours a day, but more than 6 should look at the end of line deals. Sub-fleets flying less than 6 hours a day should be looking at older used CEO.

When Allegiant bought new, I saw a chart showing 12 lines at 9.5+ hours per day, with the bulk under 8 hours with MD-80 lines under 6. By lines I mean what one aircraft flies in a day, per schedule.

Now it does depend on interest rates. If an airline cannot borrow the added $12 million, that is an issue. I have heard of many end of line orders where the airframer loans 10 to 15% of the airframe sans interior purchase price to pay the lease company down payment with the airline paying only a few percent. If that was the deal, than my analysis doesn't apply for it assumes low interest rates applying equally to both models.

Then it becomes an outstanding deal.

Lightsaber
You only have the first amendment with the 2nd. If you're not going to offend someone with what you say, you don't have the 1st.
 
heavymetal
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Re: Price for end of line A320 (LaxInt?)

Tue Jan 30, 2018 5:29 am

lightsaber wrote:
heavymetal wrote:
zeke wrote:

It is no myth, have a look at many of the larger air shows, you often see an announcement for the sale of the airframe, and then a second announcement for the engines. Eg https://www.geaviation.com/press-releas ... boeing-787

Once the airline has entered the purchase agreements, they can often then sell and lease back these assets. Engines often are purchased with maintenance contracts which can follow the engine when sold and leased back.


This is partially correct in that you do sign a separate purchase agreement with the engine OEM when you have he choice. However, the method for paying the airframe OEM and for reporting CapEx will always include the engines. I won’t go into further detail.

I see your point on sale and leasebacks, but it would be very unusual to do this on an individual asset basis right after delivery. I’m not sure anyone would even necessarily do that, because it has massive implications on financing for any party involved. You usually sale and leaseback the aircraft as a whole, or sale and leaseback individual spare engines. There could be independent airfram / engine equity participants behind the investor, but generally speaking it would be a package deal for a new aircraft delivery.

The maintenance agreement, or PBH, would only be applicable to the airline operator, and would not be transferable to another airline or leasing company.

lightsaber wrote:
As I read through the contracts, the airframes were sold for much less than the resale value of today's CEOs. This is typical of end of line airframes.

So yes, it was a good deal.

To everyone:
But these airframes will burn 18% more fuel than today's NEO/MAX and 23% more than 2025ish PIPs. Also, the NEO and MAX have improvements to reduce (a little) the maintenance costs

Even with the deep discount, after 10 or so years, a NEO would be saving money over a CEO.

Lightsaber


Do you have a source for the 18% and 23% claims? I was under the impression this was closer to 15-16% based on Spirit’s statements, and hadn’t seen an additional 6-7% from the PIP.

I also don’t believe that the NEO generates savings on an NPV basis at these deal levels. If OPs CapEx is assumed to be correct, that’s ~$30M per airplane, a $10-15M+ discount versus a NEO. With fuel at these now-moderate levels, and Allegiant’s lower utilization model, I think it would take almost a full 25-years to recover the initial price gap, possibly longer. If you bring the fuel benefit down to 12-15% that only lengthens the breakeven period.

If a NEO burns 16% less than a CEO, than inverting gives a CEO burns 18% more than a NEO, or approximately 1.18*.84=1.

It depends on utilization. Yes, the bulk of Allegiant is low utilization. But the new CEOs are being used 9+ hours per day. Allegiant is growing up. MD-80 have lower utilization than old A319/320 which is much lower than their top lines.

At today's approaching $80 oil, high utilization CEOs should burn $13,000+ per day. Save say 15%, and that is roughly $2,000/day. With maintenance saving a million per year. So yes, I think after ten years the NEO has paid it's premium.

Low utilization aircraft should be bought used. Now there are good deals to keep the lines going during transition. But high utilization sub-fleets would do better long term buying NEOs. Sub-fleets flying less than 8 hours a day, but more than 6 should look at the end of line deals. Sub-fleets flying less than 6 hours a day should be looking at older used CEO.

When Allegiant bought new, I saw a chart showing 12 lines at 9.5+ hours per day, with the bulk under 8 hours with MD-80 lines under 6. By lines I mean what one aircraft flies in a day, per schedule.

Now it does depend on interest rates. If an airline cannot borrow the added $12 million, that is an issue. I have heard of many end of line orders where the airframer loans 10 to 15% of the airframe sans interior purchase price to pay the lease company down payment with the airline paying only a few percent. If that was the deal, than my analysis doesn't apply for it assumes low interest rates applying equally to both models.

Then it becomes an outstanding deal.

Lightsaber


Yes I see what you are saying on fuel burn now, I misread it at first so I apologize for that. Makes perfect sense.

Do you have a source for the $1M in annual maintenance savings? My sources and several online publications say that maintenance costs will be on-par with the current generation engines. See the iba and Avolon reports below for examples.

http://www.iba.aero/wp-content/uploads/ ... ection.pdf

http://avolon.aero/wp/wp-content/upload ... _Final.pdf

Going back to your example, I agree that Allegiant said they would utilize these new A320s on their higher-utilization flying lines, so I agree with your assessment of saving $2,000 per day at current fuel levels. This amounts to $730,000 per year in savings if the airplane flew all 365 days.

Using a conservative capital cost of 10%, then the NPV of your annual fuel savings after 10-years would be about $4.6M, and after 25-years it would be $10.6M. Even using a 5% cost of capital, which is unrealistic for the vast majority of the worlds airlines, you would only get a $5.6M NPV after 10-years and a $10.2M NPV after 25-years. Neither scenario recoups the $10-15M+ discount, which is already a present value. Even if we added in a potential $1M per year in maintenance savings, the NPV of your total savings would be $10M in 10-years, or $15M in 25-years, which is roughly breakeven against the discounted A320ceo. This is why I believe Allegiant chose the A320ceo over the A320neo. The discount they got more than offset the lifetime savings that the A320neo would have offered.
 
misterbe
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Re: Price for end of line A320 (LaxInt?)

Sat Feb 03, 2018 5:23 pm

Thank you all, that was impressive feedback. Apologies for the tardy reply; I was travelling.
Thanks again for the education!!
 
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lightsaber
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Re: Price for end of line A320 (LaxInt?)

Tue Feb 06, 2018 3:27 am

heavymetal wrote:
lightsaber wrote:
heavymetal wrote:

This is partially correct in that you do sign a separate purchase agreement with the engine OEM when you have he choice. However, the method for paying the airframe OEM and for reporting CapEx will always include the engines. I won’t go into further detail.

I see your point on sale and leasebacks, but it would be very unusual to do this on an individual asset basis right after delivery. I’m not sure anyone would even necessarily do that, because it has massive implications on financing for any party involved. You usually sale and leaseback the aircraft as a whole, or sale and leaseback individual spare engines. There could be independent airfram / engine equity participants behind the investor, but generally speaking it would be a package deal for a new aircraft delivery.

The maintenance agreement, or PBH, would only be applicable to the airline operator, and would not be transferable to another airline or leasing company.



Do you have a source for the 18% and 23% claims? I was under the impression this was closer to 15-16% based on Spirit’s statements, and hadn’t seen an additional 6-7% from the PIP.

I also don’t believe that the NEO generates savings on an NPV basis at these deal levels. If OPs CapEx is assumed to be correct, that’s ~$30M per airplane, a $10-15M+ discount versus a NEO. With fuel at these now-moderate levels, and Allegiant’s lower utilization model, I think it would take almost a full 25-years to recover the initial price gap, possibly longer. If you bring the fuel benefit down to 12-15% that only lengthens the breakeven period.

If a NEO burns 16% less than a CEO, than inverting gives a CEO burns 18% more than a NEO, or approximately 1.18*.84=1.

It depends on utilization. Yes, the bulk of Allegiant is low utilization. But the new CEOs are being used 9+ hours per day. Allegiant is growing up. MD-80 have lower utilization than old A319/320 which is much lower than their top lines.

At today's approaching $80 oil, high utilization CEOs should burn $13,000+ per day. Save say 15%, and that is roughly $2,000/day. With maintenance saving a million per year. So yes, I think after ten years the NEO has paid it's premium.

Low utilization aircraft should be bought used. Now there are good deals to keep the lines going during transition. But high utilization sub-fleets would do better long term buying NEOs. Sub-fleets flying less than 8 hours a day, but more than 6 should look at the end of line deals. Sub-fleets flying less than 6 hours a day should be looking at older used CEO.

When Allegiant bought new, I saw a chart showing 12 lines at 9.5+ hours per day, with the bulk under 8 hours with MD-80 lines under 6. By lines I mean what one aircraft flies in a day, per schedule.

Now it does depend on interest rates. If an airline cannot borrow the added $12 million, that is an issue. I have heard of many end of line orders where the airframer loans 10 to 15% of the airframe sans interior purchase price to pay the lease company down payment with the airline paying only a few percent. If that was the deal, than my analysis doesn't apply for it assumes low interest rates applying equally to both models.

Then it becomes an outstanding deal.

Lightsaber


Yes I see what you are saying on fuel burn now, I misread it at first so I apologize for that. Makes perfect sense.

Do you have a source for the $1M in annual maintenance savings? My sources and several online publications say that maintenance costs will be on-par with the current generation engines. See the iba and Avolon reports below for examples.

http://www.iba.aero/wp-content/uploads/ ... ection.pdf

http://avolon.aero/wp/wp-content/upload ... _Final.pdf

Going back to your example, I agree that Allegiant said they would utilize these new A320s on their higher-utilization flying lines, so I agree with your assessment of saving $2,000 per day at current fuel levels. This amounts to $730,000 per year in savings if the airplane flew all 365 days.

Using a conservative capital cost of 10%, then the NPV of your annual fuel savings after 10-years would be about $4.6M, and after 25-years it would be $10.6M. Even using a 5% cost of capital, which is unrealistic for the vast majority of the worlds airlines, you would only get a $5.6M NPV after 10-years and a $10.2M NPV after 25-years. Neither scenario recoups the $10-15M+ discount, which is already a present value. Even if we added in a potential $1M per year in maintenance savings, the NPV of your total savings would be $10M in 10-years, or $15M in 25-years, which is roughly breakeven against the discounted A320ceo. This is why I believe Allegiant chose the A320ceo over the A320neo. The discount they got more than offset the lifetime savings that the A320neo would have offered.

With maintenance (fuel savings+maintenance, not maintenance alone). It isn't a million a year in fuel savings. It is a million per year combined with fuel savings. My bad for not being more clear.

My only sources are friends who worked the project to cut maintenance costs. The biggest improvement is longer intervals for the engines on the A321.

I still disagree the discounts was enough for extended high utilization savings. But it would depend on fuel price assumptions. I'm curious as to when fracking builds up enough to moderate the prices.

I know Indigo (of India, not the partners) is benefitting from free fuel hedging with NEO (not burning fuel is the cheapest hedge).

Lightsaber
You only have the first amendment with the 2nd. If you're not going to offend someone with what you say, you don't have the 1st.
 
misterbe
Topic Author
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Re: Price for end of line A320 (LaxInt?)

Thu Feb 08, 2018 8:10 pm

lightsaber wrote:
heavymetal wrote:
zeke wrote:

It is no myth, have a look at many of the larger air shows, you often see an announcement for the sale of the airframe, and then a second announcement for the engines. Eg https://www.geaviation.com/press-releas ... boeing-787

Once the airline has entered the purchase agreements, they can often then sell and lease back these assets. Engines often are purchased with maintenance contracts which can follow the engine when sold and leased back.


This is partially correct in that you do sign a separate purchase agreement with the engine OEM when you have he choice. However, the method for paying the airframe OEM and for reporting CapEx will always include the engines. I won’t go into further detail.

I see your point on sale and leasebacks, but it would be very unusual to do this on an individual asset basis right after delivery. I’m not sure anyone would even necessarily do that, because it has massive implications on financing for any party involved. You usually sale and leaseback the aircraft as a whole, or sale and leaseback individual spare engines. There could be independent airfram / engine equity participants behind the investor, but generally speaking it would be a package deal for a new aircraft delivery.

The maintenance agreement, or PBH, would only be applicable to the airline operator, and would not be transferable to another airline or leasing company.

lightsaber wrote:
As I read through the contracts, the airframes were sold for much less than the resale value of today's CEOs. This is typical of end of line airframes.

So yes, it was a good deal.

To everyone:
But these airframes will burn 18% more fuel than today's NEO/MAX and 23% more than 2025ish PIPs. Also, the NEO and MAX have improvements to reduce (a little) the maintenance costs

Even with the deep discount, after 10 or so years, a NEO would be saving money over a CEO.

Lightsaber


Do you have a source for the 18% and 23% claims? I was under the impression this was closer to 15-16% based on Spirit’s statements, and hadn’t seen an additional 6-7% from the PIP.

I also don’t believe that the NEO generates savings on an NPV basis at these deal levels. If OPs CapEx is assumed to be correct, that’s ~$30M per airplane, a $10-15M+ discount versus a NEO. With fuel at these now-moderate levels, and Allegiant’s lower utilization model, I think it would take almost a full 25-years to recover the initial price gap, possibly longer. If you bring the fuel benefit down to 12-15% that only lengthens the breakeven period.

If a NEO burns 16% less than a CEO, than inverting gives a CEO burns 18% more than a NEO, or approximately 1.18*.84=1.

It depends on utilization. Yes, the bulk of Allegiant is low utilization. But the new CEOs are being used 9+ hours per day. Allegiant is growing up. MD-80 have lower utilization than old A319/320 which is much lower than their top lines.

At today's approaching $80 oil, high utilization CEOs should burn $13,000+ per day. Save say 15%, and that is roughly $2,000/day. With maintenance saving a million per year. So yes, I think after ten years the NEO has paid it's premium.

Low utilization aircraft should be bought used. Now there are good deals to keep the lines going during transition. But high utilization sub-fleets would do better long term buying NEOs. Sub-fleets flying less than 8 hours a day, but more than 6 should look at the end of line deals. Sub-fleets flying less than 6 hours a day should be looking at older used CEO.

When Allegiant bought new, I saw a chart showing 12 lines at 9.5+ hours per day, with the bulk under 8 hours with MD-80 lines under 6. By lines I mean what one aircraft flies in a day, per schedule.

Now it does depend on interest rates. If an airline cannot borrow the added $12 million, that is an issue. I have heard of many end of line orders where the airframer loans 10 to 15% of the airframe sans interior purchase price to pay the lease company down payment with the airline paying only a few percent. If that was the deal, than my analysis doesn't apply for it assumes low interest rates applying equally to both models.

Then it becomes an outstanding deal.

Lightsaber


LS I'm a bit confused here. If you look at Allegiant's 2017 investor day slides (link below) then slide 54 shows them planning to fly on average around 77 lines in Q1 2018 v 72 in Q1 2017. That's way outside the 12 you mentioned above. Please clarify.
Also on slide 57 the show them planning to increase the 5 block hours/ac/day on the MD80's to slightly over 7/ac/day on the Airbus, which supports your thesis that after 10 years the fuel/maintenance costs will catch up correct?

http://phx.corporate-ir.net/External.Fi ... U9MQ==&t=1

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