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SEPilot
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 12:23 am

Quoting fcogafa (Reply 83):
8 26917 222 N719ML 1995
19 27109 236 N703BA 1995
23 27364 246 N272AT 1996
231 28418 2H6ER 9M-MRK 1999
122 28511 212ER 9V-SQE 1998
126 28512 212ER 9V-SQF 1998
226 28518 212ER N321LF 1999

I stand corrected.

Quoting astuteman (Reply 88):
Except for the A380 of course .....

Granted. But you still have to fill it, and I suspect that most secondhand buyers will be even more leery of it than new buyers have been.

Quoting Ruscoe (Reply 98):
If you read the Doric Nimrod Air Two Qtly Fact Sheet for the 30/6/13 it clearly says that Acquiring, leasing, and selling aircraft will be used to generate income, so it would seem that RV is important to them.

I am quite sure that the original lessors were counting on a considerable RV when the lease was done. Later lessors may have read the tea leaves better and figured differently. But if an airframe, especially one as expensive as the A380 (and the 77W for that matter) is only going to have an economic life of 12 to 15 years, the lease rates (or depreciation schedule, if owned) will have to reflect that. I do suspect that some early lessors of A380's are going to get burned, and perhaps some 77W lessors will as well.
 
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 12:25 am

Quoting parapente (Reply 79):
In other words, the A380 undergoes a heavy check every 2 years. And every 6 years, we have a 'super-heavy' check (for lack of a better term), and some equate this to the D check. To avoid confusion and for consistency with industry terminology, we refer to the scheduled maintenance as 24-month, 48-month, etc, checks.

So I get in trouble using "D-check" rather than "heavy maintenance cycle." The big deal with the A380 is the 2nd "Heavy maintenance cycle" involves more items than the 1st... so 12 years "72 month maintenance" is a heck of a lot more than the 6 year "72 month maintenance."

Quoting fcogafa (Reply 86):
A few years ago there were dire warnings of oil reaching $200 a barrel. It is currently around $90, lower than for some time and there are more producers than ever. The price of oil may not be such a big issue any more.

Fuel is still greater than 1/3rd of costs. While not as dire as when it broke 50% of long haul flying costs, that is still an expense to be managed.

Lightsaber
 
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speedbored
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 2:17 am

Quoting OldAeroGuy (Reply 99):
Did you read the Thread Starter article? Quoting directly from Mr. Clark:

Did you? Please point us to where exactly it quotes Mr Clark as saying his A380s will have zero residual value.

Because of the high cost of spares, an aircraft that is parted out and scrapped can often have a higher value than an aircraft that is sold on for continued use. That is partly why so many other aircraft are also scrapped while they are still quite young.

A 12-15 year old A380 would have a significant (likely 10's of millions) RV, even just as parts and scrap value.

Quoting OldAeroGuy (Reply 99):
If Mr Clark retires the A380's he owns to the desert and parts them out, it diminishes the value of the returned A380's owned by lessors

Actually, it would have exactly the opposite effect.
 
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zeke
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 2:43 am

Quoting 7BOEING7 (Reply 90):
If you can provide specific information about which airplanes CX and SQ had that are now coming back to haunt them I would like to hear it.

Lots of photos in the a.net database of aircraft retired from one airline being reused with their interiors and IFE by other operators.

e.g. ex-9V-SRD,B-HQA


View Large View Medium
Click here for bigger photo!

Photo © Alexander Dunaev
View Large View Medium
Click here for bigger photo!

Photo © Zibo Wang

Quoting Ruscoe (Reply 98):
If the competitors can pick these aircraft up, and hurt the original owner, why does the original owner not continue to operate them?

The owner and operator are not the same entities, often the owner these days is a lease structure.

Quoting Ruscoe (Reply 98):
OK if we accept that the aircraft is fully paid for

Do not need to accept it, the prospectus is a public document available on the internet.

Quoting Ruscoe (Reply 98):
Lets say just for arguments sake, that Doric purchased their 380's for 120million

Doric prospectus says they were purchased for 245 million.

Quoting OldAeroGuy (Reply 99):
Did you read the Thread Starter article? Quoting directly from Mr. Clark:

Yes I did read the OP (and the Leeham link), at no stage does say to quote you directly "the A380 has no residual value". That is pure trolling on your part.
 
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 2:55 am

Quoting KarelXWB (Reply 91):
Amedeo will use the same financial setup as Doric. In other words, after 12 years the airframe is fully paid for. So I'm not sure why they should be worried about residual value, they can retire the aircraft once the lease period ends.

Strange logic. What does being paid for have to do with residual value?
 
Planesmart
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 2:58 am

Quoting Ruscoe (Reply 98):
If you read the Doric Nimrod Air Two Qtly Fact Sheet for the 30/6/13 it clearly says that Acquiring, leasing, and selling aircraft will be used to generate income, so it would seem that RV is important to them.

The prospectus reveals all. Differences between lease and loan are closer than you conclude, and that before considering tax differences.
 
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 3:05 am

Quoting SEPilot (Reply 100):
I am quite sure that the original lessors were counting on a considerable RV when the lease was done. Later lessors may have read the tea leaves better and figured differently.

Indeed.

Do not assume every participant in a syndicate has the same objectives. Sometimes less can be more.
 
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 4:12 am

Quoting zeke (Reply 103):
Lots of photos in the a.net database of aircraft retired from one airline being reused with their interiors and IFE by other operators.

e.g. ex-9V-SRD,B-HQA

I don't disagree with that, I just question whether CX or SQ have been "badly burned" by another airline using their (CX/SQ) used airplanes on their (CX/SQ) routes. You were obviously wrong by including EK in that group and without any more substantiating information I'm pretty sure you were just blowing smoke as far as CX and SQ are concerned. Convince me.
 
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 4:27 am

Quoting planesmart (Reply 106):

Do not assume every participant in a syndicate has the same objectives. Sometimes less can be more.

True, but I doubt that there are very many who were aiming to lose money. If there are, I can help them and they won't even need to buy an aircraft.    
 
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zeke
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 4:58 am

Quoting 7BOEING7 (Reply 107):
I don't disagree with that, I just question whether CX or SQ have been "badly burned" by another airline using their (CX/SQ) used airplanes on their (CX/SQ) routes. You were obviously wrong by including EK in that group and without any more substantiating information I'm pretty sure you were just blowing smoke as far as CX and SQ are concerned. Convince me.

Sorry, I am not falling for the bait. Interiors on a medium widebody like an A330 is worth around 12-15 million, a 777 more like 16-20 million, and as the OP article says, the A380 "easily in the $30m-$50m range for a complete cabin makeover". They stay with the aircraft at the end of the lease, same with cargo conversions. I dont need to convince anyone that not needing to make that capital expenditure on the used aircraft provides a competitive advantage.
 
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 5:08 am

Quoting zeke (Reply 109):
Sorry, I am not falling for the bait. Interiors on a medium widebody like an A330 is worth around 12-15 million, a 777 more like 16-20 million, and as the OP article says, the A380 "easily in the $30m-$50m range for a complete cabin makeover". They stay with the aircraft at the end of the lease, same with cargo conversions. I dont need to convince anyone that not needing to make that capital expenditure on the used aircraft provides a competitive advantage.

No bait here. I again agree with what you just said and will now accept that your previous statement in Post 89 is without basis in fact....

"SQ, CX, EK have been burned badly in the past when competitors have picked up their retired aircraft with their same product are placed on the same routes."

.... and is b**l s**t.
 
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zeke
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 6:09 am

Quoting 7BOEING7 (Reply 110):
I again agree with what you just said and will now accept that your previous statement in Post 89 is without basis in fact....

It is based upon fact, i.e. EK with having Air India, PIA, Tunisair, Royal Jordanian, Iran Air operating their decommissioned aircraft over the same routes. It is only going to get worse for EK with them replacing over 100 aircraft in the next 10 years. Numerous photos in the database with the Transaero 777s in Singapore (ex SQ), CX has had their decommissioned aircraft return to HKG with airlines like Air Asia X, Air China, Hainan, Philippines, Sri Lankan, PIA.

Just another example of more trolling on this thread.
 
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 6:16 am

Quoting 7BOEING7 (Reply 3):
I wonder which "desert" they will use.

Perhaps but not suitable for the aircraft storage similar to VIctorville & Mojave desert where conditions are dry.

Quoting kl911 (Reply 5):
Quoting 7BOEING7 (Reply 3):
I wonder which "desert" they will use

Well, they have plenty of desert around DXB..
Quoting UAEflyer (Reply 18):
Quoting kl911 (Reply 5):
Well, they have plenty of desert around DXB..

There is no desert around DXB , as all the city is reseved for future plans and reservations, maybe they have to look to Russia or USA to park them overthere

I wouldn't be surprised if the new airplane graveyard in Alice Springs is considered.  http://www.smh.com.au/business/aviat...irst-arrivals-20140925-10m2p1.html

EK413
 
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 7:26 am

Quoting nomadd22 (Reply 104):
Strange logic. What does being paid for have to do with residual value?

That's the whole point of the discussion: there's no reason to be worried about residual value when you have your investment returned. At least Doric are not worried.

[Edited 2014-10-16 00:36:40]
 
94717
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 8:24 am

The central point here is in my view this;

Doric and probably other lease companies are supposed to make a profit of their investment after 12 years.

After this Diric will consider offers to make a new lease for another 3 years from for example EK. If income from spareparts etc is lower compared to the income of leasing it 3 years, then they will let the frame go for spare parts.

After 15 years, if not already made into spare parts after 12 years, it will be repeated.

Doric will make a evaluation: Lease 3 more years vs spareparts. If the lease is higher then the spareparts they will lease it. Now if EK does not want the frame on the market, they need to add the variable to purchase the frame from the Doric or pay the differense between lease and sparepart so Doric go for the sparepart path.

I consider this quit simple.

For the frames owned by EK the equation is the same. Someone will also calculate the cost or profit to make spareparts of the frame compared to sell the frame.
 
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 8:54 am

Quoting olle (Reply 114):
Doric and probably other lease companies are supposed to make a profit of their investment after 12 years.

The profit comes after 10 years. During the lease period of 12 years, the first 10 years are for repaying the investment and the remaining 2 years are profit.
 
Planesmart
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 9:17 am

Quoting SEPilot (Reply 108):
True, but I doubt that there are very many who were aiming to lose money. If there are, I can help them and they won't even need to buy an aircraft

Tax effective investment is about the greater good. Will your loss create a tax effective loss greater, equal or less than the primary loss?

Some leases use publicly accessed funds, with a published prospectus, while others by invitation / private placement. An order for say 10 aircraft for a single leasee may use a mix.

Publicly accessed funds mean information is in the public domain, but there will still be addendums and side agreements, which while disclosed (in terms of existance), are not published, other than to actual participants.
 
Planesmart
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 10:04 am

Be careful to compare apples with apples. Early EK leases were sale / leaseback.

For those referring to timing disposal to avoid major inspections, thats not usually how a lease works. The leasee is expected to return the asset to a prescribed minimum life, right up to full life. A powerful customer like EK might be able to negotiate a percentage less than full life, while an operator with less clout would be full (100%).

That means if the lease terminated just before a major service was due, the leasee would have the option of having the service completed, or, making a cash adjustment (if 90% of the time / hours / cycles had elapsed, they would have to pay 90% of the expected cost).
 
94717
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 3:31 pm

Quoting KarelXWB (Reply 115):

Quoting olle (Reply 114):
Doric and probably other lease companies are supposed to make a profit of their investment after 12 years.

The profit comes after 10 years. During the lease period of 12 years, the first 10 years are for repaying the investment and the remaining 2 years are profit.

So this means that with a lease of 12+3=12 years gives 5 years of profit + resale of spare parts.

Then, what is the problem?
 
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 3:49 pm

Quoting lightsaber (Reply 101):
Fuel is still greater than 1/3rd of costs. While not as dire as when it broke 50% of long haul flying costs, that is still an expense to be managed.

Indeed. A well utilized (4500 hrs per year) WB airframe will burn it's own purchase cost worth of fuel in just 4 years . . . Replacing it after 12 - 15 years with something that is 10+% more efficient becomes rather attractive.

These used frames may be very attractive for operators that have (much) lower utilization (say upto 2500 hrs per year).

PW100
 
Daysleeper
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 5:29 pm

Quoting fcogafa (Reply 86):
A few years ago there were dire warnings of oil reaching $200 a barrel. It is currently around $90, lower than for some time and there are more producers than ever. The price of oil may not be such a big issue any more.

Demand dictates price. The recent GFC has seen demand drop hence the Oil price, but with a finite irreplaceable resource I wouldn't bet on the current downward trent continuing.

Quoting OldAeroGuy (Reply 99):
Did you read the Thread Starter article? Quoting directly from Mr. Clark:

Did you read the rest of the thread? This situation is not unique to your favourite aircraft to troll, in fact with direct replacement aircraft such as the 77X and A350 I'd wager that its situation for the 777 is just as bleak. It's also worth considering Boeing position; the 77F is hardly selling, if they announce a conversion for passenger variants then they have effectively killed the 77F, and after killing the 747 with the 77X I can't imagine them doing this again any time soon.

On a different subject, I wasn't aware we had so many multi-millionaire investment brokers posting here, I mean with the absolute certainty some posters have to predict the future I can only imagine what they have made investing on the markets.

Another annoyance I have is the idea that Americans demand frequency. I think one poster pointed out that there are departures within 15 minutes of each other to meet this demand. I mean who the hell would make a schedule down to 15 minute when a transcontinental flight is involved? I mean never mind MX delays, or the idiotic passenger who brings so much on board it has to then be checked - It's utter BS

I'd speculate this boils down to the fact US airlines are miles behind their international counterparts when it comes to luxury, service, and the general "flying experience" This is why on transatlantic flights most major European majors are able to fly A380's. and more to the point I'm willing to bet BA's A380 service doesn't only have Brits on board.

To get to the point, if say Delta had the opportunity to buy a cheap A380, then I would bet the frequency argument would go right out of the window. with the admittedly few times I have flow J class on US based airlines it's comparable to Y+ on a European. This could be a hell of a marketing tool for them, "Compared to (insert competitor here) all our passengers fly business class"
 
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Revelation
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 7:14 pm

Quoting Daysleeper (Reply 120):
It's also worth considering Boeing position; the 77F is hardly selling, if they announce a conversion for passenger variants then they have effectively killed the 77F, and after killing the 747 with the 77X I can't imagine them doing this again any time soon.

It's not evident that 777F would be killed by 777-BCF because they would not have the same customers, just like those who buy new A380s are not at all likely to be the same ones interested in used A380s.

Quoting Daysleeper (Reply 120):
This is why on transatlantic flights most major European majors are able to fly A380's. and more to the point I'm willing to bet BA's A380 service doesn't only have Brits on board.

IMHO BA's use of A380 is more about the fact that BA has developed just one international hub of significant size, and it's one that has just two runways.

Quoting Daysleeper (Reply 120):
To get to the point, if say Delta had the opportunity to buy a cheap A380, then I would bet the frequency argument would go right out of the window. with the admittedly few times I have flow J class on US based airlines it's comparable to Y+ on a European. This could be a hell of a marketing tool for them, "Compared to (insert competitor here) all our passengers fly business class"
DL has just announced they are retiring the 747s even faster than planned, including putting a 12 year old airframe into the desert early. They have no evident interest in using large aircraft to significantly raise the bar in terms of services and passenger comfort.

In Delta Will "phase Out" 747 Service By 2017 (by SLCUT2777 Oct 16 2014 in Civil Aviation) member flighty says:

Quote:

A333 HGW (242T) can do most of the old NW 741/742 missions like LAX-NRT, SEA-NRT, MSP-NRT, NRT-HNL on a fraction of the fuel. Same revenue passenger count (at a higher load factor), same freight. Fuel savings vs. 744 are drastic.

So that's where DL is headed, not towards A380s...

[Edited 2014-10-16 12:47:57]
 
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 7:34 pm

To whom could they sell 15 years old A380? Realistically, the only takers would be in Asia (European (flag) carriers will not buy old equipment, for US carriers the type is too large) - and they would probably often deploy them with rock bottom fares on city pairs EK serves via DXB. So if they are written off, it makes more sense to turn them into cans.
 
Daysleeper
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RE: A380s Will Be Parked In The Desert - Clark

Thu Oct 16, 2014 10:12 pm

Quoting Revelation (Reply 121):
So that's where DL is headed, not towards A380s...

I didn't say that they were, I was just making the point that in a country which demands the best customer service from any consumer related industry other than the airlines, which I find odd.

The single hub vs multi-hub is a good one, well it would be if they all flew to different places, the fact is they don't, they are constrained by the single hub nature of their destination. For example; JFK - LHR British Airways, Air France... etc can all fly A380s multiple times per day, US carriers?

In regards to the early retirement if the 744's; as has already been stated in this thread they are not fuel efficient and in comparison to BA and LF which run much older metal DL's its a small fleet and suffers all the usual small fleet issues.

I honestly believe that if a US based airline had the guts to offer the same standard of travel as their European counter parts, or really go out on a limb and go ME3 style it would pay off. Assuming they could get cheap used A380's - which it appears EK isn't going to let happen.

In regards to 777 BCF, lets not forget that the A380 was designed as a freighter, so as much as it irks the haters here it also can be converted. Should main deck cargo be in such demand passenger 777s be economical to convert then the A380 sure as hell would be too. Even though it can't be loaded via a nose door....funny how no one has mentioned that about the 777 huh?
 
trevd
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RE: A380s Will Be Parked In The Desert - Clark

Fri Oct 17, 2014 9:52 pm

Quoting KarelXWB (Reply 113):
Quoting nomadd22 (Reply 104):
Strange logic. What does being paid for have to do with residual value?


That's the whole point of the discussion: there's no reason to be worried about residual value when you have your investment returned. At least Doric are not worried.

I'm not sure people understand the Doric Nimrod structures here....residual value is absolutely essential to the shareholders that invested in those deals.

Those shareholders paid approximately $83.88m for the equity in those deals (the remaining purchase price of the aircraft were funded by bonds). During the 12 year term of the Emirates leases, all the rent from Emirates goes to pay the bonds with quarterly interest payments to the shareholders of 2.0625 pence totaling 8.25% per share each year.

There is no pay-down or amortization of the equity during the term of the lease, and in-fact those shareholders only get their equity back (the $83.88m) at the end of the lease when the a/c are sold.

If comparable a/c are being scraped at the end of 12-15 years with Emirates just for the value of engines and parts....this is HUGE. Instead of getting their $83.88m back, shareholders will be left with just pennies on the dollar. Just that simple fact, that investors may end with negative return on equity will make this aircraft very, very difficult and very expensive to finance.

And yes, you can bet that Amadeo is going to be sweating this.
 
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7BOEING7
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RE: A380s Will Be Parked In The Desert - Clark

Fri Oct 17, 2014 10:23 pm

Quoting trevd (Reply 124):
Instead of getting their $83.88m back, shareholders will be left with just pennies on the dollar. Just that simple fact, that investors may end with negative return on equity will make this aircraft very, very difficult and very expensive to finance

Actually if you do the math, over 12 years the investors receive 99% of their initial investment -- if the airplane is worth $0 at that point (unlikely) they lose 1% of whatever they invested. If the airplane is worth $84M at this point (possibly) they've almost doubled their initial investment. The answer combined with extended lease income will lie somewhere in between. To get 8.25% guaranteed return on your money every year you probably need to take some risk.
 
trevd
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RE: A380s Will Be Parked In The Desert - Clark

Fri Oct 17, 2014 10:58 pm

Quoting 7BOEING7 (Reply 125):
Quoting trevd (Reply 124):
Instead of getting their $83.88m back, shareholders will be left with just pennies on the dollar. Just that simple fact, that investors may end with negative return on equity will make this aircraft very, very difficult and very expensive to finance

Actually if you do the math, over 12 years the investors receive 99% of their initial investment -- if the airplane is worth $0 at that point (unlikely) they lose 1% of whatever they invested. If the airplane is worth $84M at this point (possibly) they've almost doubled their initial investment. The answer combined with extended lease income will lie somewhere in between. To get 8.25% guaranteed return on your money every year you probably need to take some risk.

Sorry but that is just so NOT how the math on the investment works.

This is equity, not debt. If you put $1,000 in the bank expecting 4% interest a year on it....in 4 years you should have accumulated $169.86 in interest over that period, PLUS your original $1,000 better be there.

FV = $1,000. * (1.04 * 1.04 * 1.04 *1.04) = $1,169.86

If instead the bank shows you with a balance of just $169.86 but your original investment has disappeared, how happy are you?
 
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speedbored
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RE: A380s Will Be Parked In The Desert - Clark

Fri Oct 17, 2014 11:26 pm

Quoting trevd (Reply 126):
Sorry but that is just so NOT how the math on the investment works.

Actually, yes it is.

Quoting trevd (Reply 126):
This is equity, not debt. If you put $1,000 in the bank expecting 4% interest a year on it....in 4 years you should have accumulated $169.86 in interest over that period, PLUS your original $1,000 better be there.

Not if you take the interest out instead of reinvesting it. And this is done quarterly in the case of the particular leases you refer to:

Quoting trevd (Reply 124):
all the rent from Emirates goes to pay the bonds with quarterly interest payments to the shareholders of 2.0625 pence totaling 8.25% per share each year.
 
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7BOEING7
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RE: A380s Will Be Parked In The Desert - Clark

Fri Oct 17, 2014 11:36 pm

Quoting trevd (Reply 126):
Sorry but that is just so NOT how the math on the investment works.

This is equity, not debt. If you put $1,000 in the bank expecting 4% interest a year on it....in 4 years you should have accumulated $169.86 in interest over that period, PLUS your original $1,000 better be there.

FV = $1,000. * (1.04 * 1.04 * 1.04 *1.04) = $1,169.86

If instead the bank shows you with a balance of just $169.86 but your original investment has disappeared, how happy are you?

Let's run the numbers all the way. In this case (airplane $0 value) your bank account shows $83.04M ($83.88M*.0825*12) at the end of 12 years and you walk away with a loss $0.84M (1%) -- a lot of people have done worse in the stock market. If the lease gets extended for 3 years you end up with $103.8M ($83.88*.0825*15) in your account -- you didn't lose the shirt off your back but it was a risky investment and you made money, not as much as you thought you would though. If the airplane sells for $60M at the end of the first lease there's $143M in your account -- that's more than you started with and you've made almost 6% per year on your investment. More reward, more risk -- to get 8.25% annually you have to take on a fair amount of risk these days.
 
mffoda
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RE: A380s Will Be Parked In The Desert - Clark

Fri Oct 17, 2014 11:47 pm

Quoting trevd (Reply 124):
If comparable a/c are being scraped at the end of 12-15 years with Emirates just for the value of engines and parts....

As far as the engines are concerned, how many are actually owned by the airline customers? I believe most are on PBH or equivalent and are owned by the engine OEM's. So, not much value to the airline customer, and the engines usually provide the lions share of the profit when parting out an aircraft.   
 
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RE: A380s Will Be Parked In The Desert - Clark

Sat Oct 18, 2014 12:03 am

Quoting KarelXWB (Reply 113):
That's the whole point of the discussion: there's no reason to be worried about residual value when you have your investment returned. At least Doric are not worried.

Some people think that Amadeo and Doric haven discovered math and calculators... Anet never fail to deliver the A380 detractors.. ONTOH, they expect selling over a hundred triple 7 is going to be a walk in the park.

Quoting olle (Reply 118):
The profit comes after 10 years. During the lease period of 12 years, the first 10 years are for repaying the investment and the remaining 2 years are profit.

So this means that with a lease of 12+3=12 years gives 5 years of profit + resale of spare parts.

Then, what is the problem?

That some here really believe they did not do their homework, after the a340 and A345 fiascos, I am sure NOBODY would assume weird or uncalculated risks.

Quoting Daysleeper (Reply 120):
On a different subject, I wasn't aware we had so many multi-millionaire investment brokers posting here, I mean with the absolute certainty some posters have to predict the future I can only imagine what they have made investing on the markets.

I don't have the background or expertise to work on a financial institution, but I never see that those who do, lose their shirts just to close a deal on a previous non working scheme.... and I guess EK also do its math and calculates risk and ROI.

TRB
 
BestWestern
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RE: A380s Will Be Parked In The Desert - Clark

Sat Oct 18, 2014 12:18 am

Quoting zeke (Reply 111):
CX has had their decommissioned aircraft return to HKG with airlines like Air Asia X, Air China, Hainan, Philippines, Sri Lankan, PIA.

I've flown on ex CX equipped aircraft from Shenzhen on many occasions (the 346 for example).
 
trevd
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RE: A380s Will Be Parked In The Desert - Clark

Sat Oct 18, 2014 1:03 am

Quoting 7BOEING7 (Reply 128):
Let's run the numbers all the way. In this case (airplane $0 value) your bank account shows $83.04M ($83.88M*.0825*12) at the end of 12 years and you walk away with a loss $0.84M (1%) -- a lot of people have done worse in the stock market. If the lease gets extended for 3 years you end up with $103.8M ($83.88*.0825*15) in your account -- you didn't lose the shirt off your back but it was a risky investment and you made money, not as much as you thought you would though. If the airplane sells for $60M at the end of the first lease there's $143M in your account -- that's more than you started with and you've made almost 6% per year on your investment. More reward, more risk -- to get 8.25% annually you have to take on a fair amount of risk these days.

Again, you're confusing debt and equity. No one would finance an aircraft if the best equity return you could get was 6%. Airlines would have to finance everything on their own balance sheet and keep the residual risk. The Debt used to finance these a/c alone paid a coupon of 5.125% for the A notes and 6.5% for the B notes, meaning investors would expect a 4-6% premium for the risk over the debt at a minimum !!

In the prospectus, Doric quoted an expected future value of the aircraft in 12 years of $139m. Personally I think that's unlikely, but the idea of losing significant amounts of the initial investment would see the end of these public Doric / KG type financings and would be an unmitigated disaster for the likes of Amadeo or the prospect of other leasing companies taking asset risk on the A380.
 
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par13del
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RE: A380s Will Be Parked In The Desert - Clark

Sat Oct 18, 2014 1:10 am

Quoting Daysleeper (Reply 120):
I'd speculate this boils down to the fact US airlines are miles behind their international counterparts when it comes to luxury, service, and the general "flying experience" This is why on transatlantic flights most major European majors are able to fly A380's. and more to the point I'm willing to bet BA's A380 service doesn't only have Brits on board.

How does using an A380 versus a 777 or 767 provide better service, before the A380 US service standards was still below their European counterparts, I suspect the desires of the company versus the a/c makes the difference.

Quoting Daysleeper (Reply 123):
For example; JFK - LHR British Airways, Air France... etc can all fly A380s multiple times per day, US carriers?

So all these European carriers are running multiple hub to JFK (for example) frequencies to placate Americans or to meet traffic demands?

Quoting Daysleeper (Reply 123):
I honestly believe that if a US based airline had the guts to offer the same standard of travel as their European counter parts, or really go out on a limb and go ME3 style it would pay off.

A harsh fact is that they don't need to, their domestic market is generating more profits than their international routes.
At present they appear to source a/c which can be utilized efficiently on both their domestic and international routes with high utilization, they don't appear to want to have sub-fleets of a/c which are not interchangeable, the few 747's deployed are being removed sooner rather than later, DL is taking a loss after just upgrading the interiors.

As mentioned, the need to service multiple domestic hubs does make a difference, most seem to think that should not prevent the use of the A380, it did for the 747, time will tell if the A380 is any different.
 
trevd
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RE: A380s Will Be Parked In The Desert - Clark

Sat Oct 18, 2014 1:14 am

Quoting mffoda (Reply 129):
Quoting trevd (Reply 124):
If comparable a/c are being scraped at the end of 12-15 years with Emirates just for the value of engines and parts....

As far as the engines are concerned, how many are actually owned by the airline customers? I believe most are on PBH or equivalent and are owned by the engine OEM's. So, not much value to the airline customer, and the engines usually provide the lions share of the profit when parting out an aircraft.

Good point mffoda. I'm not sure how many of the aircraft have engines on PBH programs which definately end up diluting the value of any surplus engines from part-out.
 
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7BOEING7
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RE: A380s Will Be Parked In The Desert - Clark

Sat Oct 18, 2014 3:11 am

Quoting trevd (Reply 126):
This is equity, not debt. If you put $1,000 in the bank expecting 4% interest a year on it....in 4 years you should have accumulated $169.86 in interest over that period, PLUS your original $1,000 better be there.

FV = $1,000. * (1.04 * 1.04 * 1.04 *1.04) = $1,169.86

Let's use your example except the interest paid is based on the initial investment and not compounded. We'll use 8.25% and 12 years.

FV = $1,000 + (1.0825*12*1,000) = $1,990 if I get my initial investment back, if not $990 which is hardly "just pennies on the dollar" as you said -- it's just 99 pennies on the dollar. You gambled and you lost, that's all that happened. No mumble jumble there just straight numbers. If the airplane is worth their initial investment, they for the most part double their money in 12 years -- not bad considering today's interest rates.
 
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speedbored
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RE: A380s Will Be Parked In The Desert - Clark

Sat Oct 18, 2014 12:09 pm

Quoting trevd (Reply 132):
No one would finance an aircraft if the best equity return you could get was 6%

And yet they do, frequently.

Quoting trevd (Reply 132):
meaning investors would expect a 4-6% premium for the risk over the debt at a minimum !!

And yet they don't, frequently. I have seen many lease contracts with 0% premium (to use your terminology), where the entire benefit to the investor is from tax reductions.

There's a huge amount of 'leasing' nonsense and misinformation being spouted in this thread.

Despite what many people here are saying, finance companies are very very good at assessing RVs on the assets that they finance. They either have RV assessor departments of their own, or use the services of specialist companies that do nothing but RV assessment. In both cases, these are staffed by extremely clever people who spend a lot of time analyzing the assets and markets and, more often than not, come up with very accurate RV numbers. And in the case of assets (like the A380, 787, A350) with no, as yet, established aftermarket, those RV numbers will always be conservative.

But, regardless of whether the RV has been correctly assessed, there are lots of other factors that people here are conveniently ignoring:

There are many different varieties of finance that we commonly refer to as "leases".

Some "leases" have no RV risk for the finance company as they are finance leases, hire purchase agreements, or similar products, where the airline is committed to purchase the aircraft at the end of the "lease" for a sum that ensures that the "lease" is profitable for the finance company. It is then entirely up to the airline whether there is more value to them in continuing to operate the aircraft, selling it on to another airline, parting it out and scrapping it, or doing something else with it.

Then there are the operating leases and more exotic finance products where RV risk remains with the finance company. In these cases, that risk is mitigated by things such as:
Clauses in the lease requiring periodic reassessments of the RV and repricing of the "lease" payments to cover any anticipated shortfall, if the expected RV reduces.
RV guarantees, either from the airline or manufacturer.
RV insurance.
Secondary lease agreements.
and many more, often very innovative, methods.

Aircraft leasing/finance companies, and their investors, are nowhere near as stupid as some people on here are trying to portray them. Very few, if any, will be losing any money when these A380 finance contracts reach maturity.
 
trevd
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RE: A380s Will Be Parked In The Desert - Clark

Sun Oct 19, 2014 7:36 pm

Quoting speedbored (Reply 136):
Quoting trevd (Reply 132):
No one would finance an aircraft if the best equity return you could get was 6%

And yet they do, frequently.

Wow....this is so wrong I can only expect you don't understand the difference between debt and equity. In the case of these Doric deals, if the debt which has the first priority mortgage on the aircraft is priced at 5.25%, and fully amortized - meaning they get their 5.25% coupon AND their principle back over the 10 year term...there is no equity investor that would be willing to invest if the most likely outcome is a 6% return.

With the "safe" money getting a 5.25% return (and their principle back), you MUST offer the equity investors a reasonable premium over the debt to compensate for the risk. Remember, in a default situation the debt gets paid off first before the equity gets a penny. Now risk of default by EK is probably pretty low, but the other risk the equity has is (back to the main topic) the residual value of the aircraft when they sell it.

So again, the Doric prospectus' suggested the RV of the A380 after 12 years would be $139m...perhaps a bit high, but even if it were $100m, that may be viewed as an acceptable downside case to give the equity at 9.14% return ( for a more reasonable target of 10% you'd need a $117m RV). Remember, with the $139m residual suggested in the DNA prospectus, they are suggesting investors MAY be able to achieve nearly a 11% equity return.

You can easily do the math on your HP12C to see how horrific a part-out residual would be for these investors.

PV= $-83.88m, Pmt = $576,675, n=144 and FV = $100m : hit i and multiply by 12 and you get an annual 9.13% return.
PV= $-83.88m, Pmt = $576,675, n=144 and FV = $117.7m : hit I and multiply by 12 and you get an annual 10.0% return.

PV = $-83.88m, Pmt=$576,675, n=144 and FV = $40m : hit i and multiply by 12 and you get a 5.07% return

That $40m part-out residual (some would say that's probably high for a part-out) would, in my view (having spend more than 20 years buying and financing commercial aircraft ) seriously hurt the ability to finance the A380.

Obviously this is something Airbus is working hard to address - and the best way to do this is by broadening the market. They have to have more homes for the A380 that provide Doric/Amadeo, other lessors as well as other operators, potential homes for these aircraft at the end of there initial lease terms.

To some of speedbored's other points: are there other types of leases, of course there are. Finance leases are really another form of debt where the lessee retains the aircraft at the end of the lease - allows the lessee/operator to finance more of the purchase price as opposed to a regular term loan where they may only be able to achieve 50-70% of the assessed value of the a/c tying up more equity on their balance sheet than they may want. The other difference is the lessee keeps the aircraft at the end of the term (as opposed to a regular operating lease where they get to just walk away) so they are still left with the residual value risk.

There are also more exotic tax structured products such as the JOL (Japanese Operating Lease), which does accept a much lower equity return (although even for this product - a 6% equity may be a stretch) as it allows for the depreciation of the aircraft to benefit and off-set the investors (must be a Japanese entity/investor) profits from other sources, this actually is a good option for A380s and in fact several Air France A380s have been financed this way - the fact this is limited just to the Japanese market probably makes it fairly limited.

As for residual value insurance or a guarantee - it's absolutely clear in the Doric DNA prospectuses that there is none for them to rely on. One could argue that Airbus could step in at the end of the term and purchase the aircraft at a value that protects the investors in order to enhance the markets view of the A380 in terms of asset risk.

The point in all this is the 'we'll just scrap the aircraft in 12-15 years when we're done with it' would have a horrendous impact on residual value for the aircraft. An operator like Emirates with a low cost of funds may indeed be fine scrapping the a/c after 15 years: a $250m purchase for 180 months to a $25m part-out residual with a 8% internal hurdle rate is a $2.3m monthly'cost' to them. That's probably pretty close to what they are paying for a monthly lease rate in these Doric deals. Others with less access to cheap capital may find that $25m a big problem - the good news for operators tho' is they at least continue to fly the aircraft, a leasing company doesn't have that option.

I hope this is helpful for most here.
 
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speedbored
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RE: A380s Will Be Parked In The Desert - Clark

Sun Oct 19, 2014 9:51 pm

Quoting trevd (Reply 137):
this is so wrong I can only expect you don't understand the difference between debt and equity

Well I only spent 14 years as a consultant to the asset finance industry so maybe you are right, and all those companies paying £2000-£5000 per day for my time were wasting their money.

Quoting trevd (Reply 137):
there is no equity investor that would be willing to invest if the most likely outcome is a 6% return.

You can keep saying this as much as you like but out there in the real world, very many investors are investing in schemes will lower rates of return than that. As I said before, many are happy with an apparent 0% return in order to gain the tax advantages.

I am certain that you are wrong here because I have been involved in the negotiation and completion of very many such finance arrangements and have seen (and indeed written parts of) the relevant contracts.

Quoting trevd (Reply 137):
allows the lessee/operator to finance more of the purchase price as opposed to a regular term loan where they may only be able to achieve 50-70% of the assessed value of the a/c tying up more equity on their balance sheet than they may want.

Absolute rubbish. For big ticket finance such as this, purchase loans are often as much as 90%+ of purchase price (as opposed to "assessed value"), and can sometimes even be higher than 100%, to cover ancillary costs.

When deciding how much loan to value risk to accept, the finance company doesn't really care what flavour of finance contract they are looking at. It's all about risk.

Quoting trevd (Reply 137):
As for residual value insurance or a guarantee - it's absolutely clear in the Doric DNA prospectuses that there is none for them to rely on.

A prospectus is about as detailed as a marketing brochure. Have you actually seen any of the contracts relating to any of these Doric leases you claim to know so much about? I have and I can assure you that you are wrong.

Quoting trevd (Reply 137):
I hope this is helpful for most here.

Well it probably will be helpful for any people who wish to become as misinformed about asset finance as you clearly are.
 
toxtethogrady
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RE: A380s Will Be Parked In The Desert - Clark

Mon Oct 20, 2014 1:01 am

I suspect these airplanes will not stay in the desert long if some carrier thinks they can acquire a large-capacity aircraft on the quick and on the cheap. Maybe a US carrier that wouldn't take them at retail prices will find they fit the cost models better at the kind of discount an older-model aircraft would fetch. That seems to be the usual progression with these things; Singapore's cast-off 777's are working well in Transaero's fleet.
 
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speedbored
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RE: A380s Will Be Parked In The Desert - Clark

Mon Oct 20, 2014 2:25 am

Quoting trevd (Reply 140):
Sorry speed bored, but I refuse to engage in high school level arguments...you don't offer a single cogent point about why equity investors, particularly in these kinds of structure should be happy with a 0% return...what crap - at best you look like a moron, at worst, you may be misguiding people on this forum who may actually want to learn something or engage in informed conversation.

I have offered, and repeated one major "cogent point" why. TAX. In the majority of large aircraft leases, most of the benefit to the lessor (or investors in the case of leases like the Doric ones) comes from the tax advantages, and not from any margin (or "interest") paid by the lessee.

btw, you can always tell that someone knows they have lost an argument when the resort to personal insults.

Quoting trevd (Reply 140):
If you actually have in interest in aircraft finance...all I can offer is to encourage you to go to university, learn some basics about finance and try and get a job with a bank that does aviation finance or with a leasing company.

Been there, done that. Became a consultant in it. Did well enough to retire before I was 50. Given that banks and finance institutions paid up to £5000 per day for my assistance and advice, I am absolutely certain that I know what I am talking about.
 
2175301
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RE: A380s Will Be Parked In The Desert - Clark

Mon Oct 20, 2014 2:26 am

Trevd & Speedboard:

You both are actually right and wrong.

Trevd is correct that there is a class of investors who do in fact work the way he describes; and those investors are in fact expecting a good residual value in such an investment.

Speedboard is correct that there is a class of investors who are not so picky; or do not investigate the details of what is actually guaranteed or what the actual risks are. These people often do in fact become involved in investments with low (or negative) rates of return.

I tend to find that the Trevd class of investor does a lot better financially than the Speedboard class of investors. I am also tired of hearing about all the great investments that people at work claim to be making; but then years later they are surprised that they have a loss or very minimal gain.

I think it would be very interesting to study who purchased the "certificates" behind the A380 leases.

Have a great day,
 
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speedbored
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RE: A380s Will Be Parked In The Desert - Clark

Mon Oct 20, 2014 2:32 am

Quoting 2175301 (Reply 142):
You both are actually right and wrong.

Trevd is correct that there is a class of investors who do in fact work the way he describes; and those investors are in fact expecting a good residual value in such an investment.

Speedboard is correct that there is a class of investors who are not so picky; or do not investigate the details of what is actually guaranteed or what the actual risks are. These people often do in fact become involved in investments with low (or negative) rates of return.

I have never claimed that there are no "Trevd" class investors. I have simply been trying to counter his argument that ALL investors are like that:

Quoting speedbored (Reply 136):
Quoting trevd (Reply 132):
No one would finance an aircraft if the best equity return you could get was 6%

And yet they do, frequently.
 
trevd
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RE: A380s Will Be Parked In The Desert - Clark

Mon Oct 20, 2014 4:29 am

2175031 - thanks for the positive comments.

I too think it would be interesting to know who has ended up with the larger tranches of these certificates.



Quoting 2175301 (Reply 142):
I think it would be very interesting to study who purchased the "certificates" behind the A380 leases.

The DNA prospectuses give a little insight into the part of the market they were aiming for. From that you can glean their intended objectives and targeted investor.

" Investment objective - The Company’s investment objective is to obtain income returns and a capital return for its Shareholders by acquiring, leasing and then selling aircraft

Typical investors - Typical investors in the Company are expected to be institutional investors, private client fund managers and private client brokers"
 
n471wn
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RE: A380s Will Be Parked In The Desert - Clark

Mon Oct 20, 2014 8:09 pm

Quoting sassiciai (Reply 12):
Air India is already cannibalising one of its B787s)

This is simply not true
 
trevd
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RE: A380s Will Be Parked In The Desert - Clark

Tue Oct 21, 2014 2:25 am

Quoting speedbored (Reply 142):
I have never claimed that there are no "Trevd" class investors. I have simply been trying to counter his argument that ALL investors are like that:

My posts were clearly specific to the Doric structures:

Quoting trevd (Reply 124):
I'm not sure people understand the Doric Nimrod structures here....residual value is absolutely essential to the shareholders that invested in those deals

And while pointing out that there are in fact other structure for different purposes and different types of investors...these deals are clearly not structured that way.

Quoting trevd (Reply 137):
are there other types of leases, of course there are. Finance leases are really another form of debt where the lessee retains the aircraft at the end of the lease
Quoting trevd (Reply 137):
also more exotic tax structured products such as the JOL (Japanese Operating Lease),


To claim my posts were suggesting ALL investors are like that is simply trying to mislead the discussion away from the main point - that RV matters in THESE (Doric) structures, and in the absence of someone coming to the party with a large residual value guarantee (unlikely except perhaps for Airbus) will be equally important to an operating lessor such as Amadeo.
 
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speedbored
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RE: A380s Will Be Parked In The Desert - Clark

Tue Oct 21, 2014 4:13 am

Quoting trevd (Reply 145):
My posts were clearly specific to the Doric structures:

Whether they were or not (and I would dispute the "clearly" as many of your posts appear to be generalisations), you are still wrong when you say:

Quoting trevd (Reply 124):
I'm not sure people understand the Doric Nimrod structures here....residual value is absolutely essential to the shareholders that invested in those deals.

Having provided consultancy services to an investor in one of these vehicles, I have seen the detail of how they work (the public prospectuses and annual reports barely skim the surface).

I can say with absolute certainty that, even if the aircraft have only scrap value at lease maturity, the investor I was working with will still be very happy with the return on their investment. I would be very surprised if the same is not true for all such investors.

Perhaps those people who seem so keen to portray the A380 as such a colossal RV risk for the Doric Nimrod investors could explain why in the face of this certain doom, the DNA1 share price has risen by more than 25% in 2 years and the DNA2 C-shares have risen by more than 16% in just 9 months?

Or do the detractors genuinely believe that people with tens of millions of dollars to invest are really just plain stupid?
 
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KarelXWB
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RE: A380s Will Be Parked In The Desert - Clark

Mon Oct 27, 2014 4:12 pm

Regarding lease periods, aircraft number 51 (A6-EEZ) is on lease for 15 years:

Quote:
On October 27 2014 Hannover Leasing announced it had reached an agreement to finance the aircraft. The contract runs until December 31 2029. Total investment is 250,5 million US dollar.

http://www.aad-fondsdiscount.de/gesc...-leasing-flight-invest-51-f102398/
http://www.aad-fondsdiscount.de/gesc...nloads/hl_flight_invest_51_wai.pdf
http://www.aad-fondsdiscount.de/gesc...s/hl_flight_invest_51_prospekt.pdf
 
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Ab345
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RE: A380s Will Be Parked In The Desert - Clark

Tue Nov 04, 2014 10:27 pm

Didn't see this posted anywhere today:

Aircraft leasing company Amedeo purchased an Airbus Group NV (AIR) A380 superjumbo from Dubai-based Emirates, the model’s biggest operator, as it seeks to build up a portfolio of the double-decker jets.

The Dublin-based company acquired the A380 after it was handed over to Emirates yesterday and will lease it back to the Gulf carrier for 12 years. The deal tapped financing from a banking syndicate and private-equity backer Pine Brook Partners.

Amedeo acquired its second A380 ahead of the slated delivery from 2016 of 20 aircraft that it’s buying outright but has yet to place with an operator. Chief Executive Officer Mark Lapidus is betting on the 550-seat plane’s ability to maximize capacity for airlines flying large numbers of people into slot-constrained airports such as London Heathrow.


http://www.bloomberg.com/news/2014-1...lease-deal-to-build-portfolio.html

So does this mean that from the 20 ordered in early 2014, two are already placed with EK and 18 to go?
 
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7BOEING7
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RE: A380s Will Be Parked In The Desert - Clark

Tue Nov 04, 2014 10:41 pm

Quoting Ab345 (Reply 148):
So does this mean that from the 20 ordered in early 2014, two are already placed with EK and 18 to go?

No, they were purchased by EK and then sold to Amedeo through a sale-leaseback deal -- happens all the time -- not part of the 20 airplane order.

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