Moderators: jsumali2, richierich, ua900, PanAm_DC10, hOMSaR

 
BAorAB
Posts: 31
Joined: Sun May 05, 2019 10:11 pm

Re: Inching towards a collapse of the leasing industry

Tue Jul 21, 2020 4:10 pm

I think in the end, the 787-10 will end up being the best plane of this renewal cycle/ generation of WB aircraft. I think this will be the aircraft airlines keep around 25-30 years. The range and size fits well for so many markets. It's exceeded performance expectations and regular routes include over 11 hr flights with max payload. Europe to US, Europe to Asia Inter Asia, Asia to Pacific. That 8-12 hour aircraft really will be the sweet spot going forward with airlines being unable to support as many exotic and ULH routes and frequencies. It'll be a winner for airlines and leasing companies and expect orders to touch 1000 in it's lifetime.
 
User avatar
SEPilot
Posts: 5639
Joined: Sat Dec 30, 2006 10:21 pm

Re: Inching towards a collapse of the leasing industry

Wed Jul 22, 2020 12:37 pm

lightsaber wrote:
BrianDromey wrote:
lightsaber wrote:
The A380s will join the 744 at the quad senior center.

Lightsaber


The A380 is something of a microcosim for the larger industry. On one had airlines cannot/will not pay the leasing costs of their current fleet. On the other hand there is little benefit to repossessing the aircraft, there is no onward market right now. Better for the leasing companies to leave them with the current operators who will have to store and maintain them. Airlines might not be willing to do this, of course. Particularly for fleets like the A380, 747, even 777s. The A350 and 787 seem to be the future WB's, I think the 77X might be a bit too large for now. The return of the MAX will put similar pressure on the narrow-body market, which has been very tight on supply up to now.

It is a game of chicken with widebody leases. In particular the largest widebodies. I agree 777s will be returned.

Due to age, the 787 2nd hand market will be tested. There are a number becoming available of the 788s: https://leehamnews.com/2020/07/10/hotr/

The 789/A359 are the safe bets for leasing companies. The 787-10 and A35K, not so much (not liquid markets).
Lightsaber

The main idea of leasing is that the lessee pays only for the value of the capital equipment that he actually consumes, instead of the entire cost up front. This requires a reasonably predictable residual value at the end of the lease. I think right now that is out the window for all planes, but I agree that the 789 and A359 are probably the best bets. The other justification for leasing, at least in the US, is tax law in that leasing expenses are directly deductible instead of having to figure depreciation. But that is no help to the leasing companies as it does not solve the residual value problem, and leases that pay off the plane and give a profit for the lessors will probably be too expensive. The airlines would be better off just buying them.
The problem with making things foolproof is that fools are so doggone ingenious...Dan Keebler
 
MIflyer12
Posts: 8300
Joined: Mon Feb 18, 2013 11:58 pm

Re: Inching towards a collapse of the leasing industry

Fri Aug 07, 2020 12:12 pm

SEPilot wrote:
The main idea of leasing is that the lessee pays only for the value of the capital equipment that he actually consumes, instead of the entire cost up front. This requires a reasonably predictable residual value at the end of the lease.


That's true, but financing an expensive asset over much of its useful life also requires stable rates of inflation and capital costs. It's why we don't see 30-year fixed rate home mortgages in less stable countries. (Make your own list; I don't need the hate mail.)

There's plenty of money available to borrow by the strong: Alphabet Inc (GOOGL.O) borrowed $10 billion in the investment-grade corporate debt market on Monday, the Google parent’s largest ever bond issue, which it secured at its lowest-ever cost of financing.

Of the $10 billion on offer, the $1 billion five-year tranche was issued at a coupon of 0.45%, the lowest coupon seen on a U.S. corporate bond at that maturity, according to Refinitiv data, which goes back to 1980.


Have another read: 0.45%

https://www.reuters.com/article/us-alph ... SKCN24Z2PC

But, no, if you're concerned whether 12-yr residual values are going to be 50% or 20%, or if dozens of the ~270 IATA carriers are going into bankruptcy restructuring (allowing them to terminate leases, or to return planes to satisfy loans), blowing big holes in the 2nd hand aircraft market(s), maybe you should find another sector in which to invest.
 
User avatar
lightsaber
Moderator
Posts: 20328
Joined: Wed Jan 19, 2005 10:55 pm

Re: Inching towards a collapse of the leasing industry

Fri Aug 07, 2020 2:14 pm

MIflyer12 wrote:
SEPilot wrote:
The main idea of leasing is that the lessee pays only for the value of the capital equipment that he actually consumes, instead of the entire cost up front. This requires a reasonably predictable residual value at the end of the lease.


That's true, but financing an expensive asset over much of its useful life also requires stable rates of inflation and capital costs. It's why we don't see 30-year fixed rate home mortgages in less stable countries. (Make your own list; I don't need the hate mail.)

There's plenty of money available to borrow by the strong: Alphabet Inc (GOOGL.O) borrowed $10 billion in the investment-grade corporate debt market on Monday, the Google parent’s largest ever bond issue, which it secured at its lowest-ever cost of financing.

Of the $10 billion on offer, the $1 billion five-year tranche was issued at a coupon of 0.45%, the lowest coupon seen on a U.S. corporate bond at that maturity, according to Refinitiv data, which goes back to 1980.


Have another read: 0.45%

https://www.reuters.com/article/us-alph ... SKCN24Z2PC

But, no, if you're concerned whether 12-yr residual values are going to be 50% or 20%, or if dozens of the ~270 IATA carriers are going into bankruptcy restructuring (allowing them to terminate leases, or to return planes to satisfy loans), blowing big holes in the 2nd hand aircraft market(s), maybe you should find another sector in which to invest.

With risk comes reward. Google has little, if any, risk. Aircraft leasing has risk, so higher yield. As you allude, not for those who need to maximize certainty of investment.

There will be a negative return. The lower traunch bond holders will suffer.

Lightsaber
Winter is coming.
 
brilondon
Posts: 3164
Joined: Sun Aug 21, 2005 6:56 am

Re: Inching towards a collapse of the leasing industry

Fri Aug 07, 2020 2:25 pm

When you're in business, you're willing to accept risk. This is what it's about. If you can't handle that risk then you will never be successful.
Rush forever Closer To My Heart
 
frmrCapCadet
Posts: 4340
Joined: Thu May 29, 2008 8:24 pm

Re: Inching towards a collapse of the leasing industry

Sat Aug 08, 2020 12:46 pm

brilondon wrote:
When you're in business, you're willing to accept risk. This is what it's about. If you can't handle that risk then you will never be successful.


A lot of onetime people who accepted risk died in abject poverty. Its not just about accepting risk. It is about managing it.
Buffet: the airline business...has eaten up capital...like..no other (business)
 
MIflyer12
Posts: 8300
Joined: Mon Feb 18, 2013 11:58 pm

Re: Inching towards a collapse of the leasing industry

Sat Aug 08, 2020 2:14 pm

frmrCapCadet wrote:
brilondon wrote:
When you're in business, you're willing to accept risk. This is what it's about. If you can't handle that risk then you will never be successful.


A lot of onetime people who accepted risk died in abject poverty. Its not just about accepting risk. It is about managing it.


I'm not worried about leasing company execs, nor the bankers and bondholders who supported their business model(s), dying in abject poverty.

Some risks can't be managed. Some not at reasonable cost (long term jet fuel price movements, for one - you can hedge short term but can't tie up tens of $Billions to go out five years). Some risks weren't reasonably foreseen (the 95% decline in op revenues), and no coping mechanisms at all were developed.

It's why we have bankruptcy law: an opportunity to restructure to keep an ongoing business, firm priority of claims, court oversight... Returned aircraft have value. This is not Cinderella's magic coach at midnight. Aircraft may not have as much value as they had six months ago, and it will take time to place all the economically-viable aircraft (viable in terms of op cost, viable in terms of a diverse pool of operating carriers, and in terms of remaining life), but the leasing market will keep functioning.

Popular Searches On Airliners.net

Top Photos of Last:   24 Hours  •  48 Hours  •  7 Days  •  30 Days  •  180 Days  •  365 Days  •  All Time

Military Aircraft Every type from fighters to helicopters from air forces around the globe

Classic Airliners Props and jets from the good old days

Flight Decks Views from inside the cockpit

Aircraft Cabins Passenger cabin shots showing seat arrangements as well as cargo aircraft interior

Cargo Aircraft Pictures of great freighter aircraft

Government Aircraft Aircraft flying government officials

Helicopters Our large helicopter section. Both military and civil versions

Blimps / Airships Everything from the Goodyear blimp to the Zeppelin

Night Photos Beautiful shots taken while the sun is below the horizon

Accidents Accident, incident and crash related photos

Air to Air Photos taken by airborne photographers of airborne aircraft

Special Paint Schemes Aircraft painted in beautiful and original liveries

Airport Overviews Airport overviews from the air or ground

Tails and Winglets Tail and Winglet closeups with beautiful airline logos