Ascend

The Steady Rise of Airlines With No Passengers

2012-01-26T09:50:57Z

The Economist

Saturday January 21, 2012

ORIX Aviation agrees on lease extensions with US Airways

2012-01-24T12:50:02Z

US Airways has secured lease extensions on three of the aircraft it is leasing from ORIX Aviation, this news service has learnt.

The aircraft concerned are two Boeing 767-200ERs (MSNs 24765 and 24764) and one 737-400 (MSN 24552). Both 767s were built in 1990, with leases previously scheduled to expire later this year. The lease for the 1989 vintage 737 had been due to expire next year.

US Airways is also leasing three 757-200 aircraft from ORIX, with leases set to expire in 2014, according to Ascend data. The airline currently operates a total of 340 aircraft.

By Fay Sanders

Should we be Worried about Kingfisher Airlines?

2012-01-24T09:42:56Z

News services have been alive in the past few days and weeks with concerns over the future of Kingfisher Airlines, culminating with reports that the Indian Directorate General of Civil Aviation (DGCA) has issued an audit of the airline indicating that it should be wound up. Although this seems unlikely in the immediate future, reports continue to surface of concerns over the airline’s financial health and it does seem likely that some element of fleet downsizing will be necessary over the next few months to support the airline’s survival.

According to the Ascend Online Fleets database Kingfisher currently operates a fleet of three Airbus A319, 21 A320, eight A321 and five A330 aircraft alongside a regional fleet of two ATR42s and 23 ATR72s. In addition the airline holds firm orders for 68 A320s, 15 A330s, five A350s and five A380s. There was also an order for 38 ATR72s but ATR reported earlier this week that it has removed those commitments from its orderbook, describing the airline as an “unreliable customer”. So should we be concerned that a failure of the airline might create an immediate capacity surplus at a time of general market uncertainty for the global airline industry?

Looking first at the operating fleet, all 37 aircraft are owned by a diverse group of operating lessors including AerCap, Air Lease Corporation, AWAS, Aviation Capital Group, BBAM, BOC Aviation, DAE Capital, ILFC, Pembroke Group, RBS Aviation Capital and Volito Aviation Services. The single-aisle exposure is greatest at ILFC with six A320s and one A321, and AWAS with one A320 and four A321s but no single lessor currently carries significant exposure in the event of a sudden airline failure. A quick check of current aircraft availability advertised in the Airfax monthly newsletter shows there are presently 23 A319s, 23 A320s and seven A321s offered for near term sale or lease. Although the addition of the entire Kingfisher single-aisle fleet to this inventory would be an unwelcome event, the numbers do not appear significant enough to make an impact on the market by themselves. The position is similar with the A330-200s with three aircraft currently leased from DAE Capital and two from Pembroke Group. A330-200 availability is currently very limited with only one aircraft offered for lease in June this year, so the industry should have no problem with absorbing this additional capacity if it were to arrive on the market.

The backlog may appear more of a problem for Airbus, but the database indicates that only three of the A320s are scheduled for delivery in 2012 and with no serial number allocations yet evident, production is possibly not scheduled as yet. So Airbus should have no issue with reallocating these slots, particularly in view of their current backlog which today still includes another 1,560 A320 aircraft (excluding NEO variants) of which 341 are scheduled to be delivered in the remainder of 2012. The remainder of the A320 backlog is scheduled from 2013 through to 2018, so while the loss of these 67 orders would not be welcome, the impact will not be immediate and Airbus will have plenty of time to mitigate the loss of the order. Likewise, the first A330 delivery is not scheduled until 2014,the first A380 in 2017 and the first A350 in 2019, but there would be plenty of opportunity to mitigate these order losses.

On first impressions, the potential failure of an airline of the stature of Kingfisher Airlines may cause concerns in the market and will certainly cause some issues for particular leasing companies in the short-term, yet the longer-term impact on the commercial aircraft supply side does not appear significant.

Aldus acquires three Brazilian E-jets through ECA facility

2012-01-20T15:23:44Z

Aldus Aviation has made its first investment from a $375 million export credit facility, which was underwritten by Brazilian Export Bank BNDES in September last year, according to Ciarán Redmond, chief operating officer at the Shannon, Ireland-based lessor.

The investment was used to fund the recent delivery of three new Embraer E-Jets - two E-195s and one E-190 – which are already being operated by two South American airlines, Redmond said.
Aldus, which has 19 Embraer jets in its current portfolio, is planning to use the credit facility to acquire a further 12 of the Brazilian aircraft over the next 12 to 18 months. A number of these new aircraft have already been earmarked to specific airlines, Redmond said.

By Fay Sanders

Japanese banks flourish amidst European financial uncertainty

2012-01-20T12:00:49Z

As European banks are forced to rein in their lending, Japanese banks have stepped up their activity in the aircraft finance market. The Development Bank of Japan (DBJ), a new entrant in the global aviation industry, is understood to be looking to add an additional $500 million to its original budget of $1.5 billion to cover its first three years of aviation finance lending. This news service has learnt that DBJ is planning to up its lending activity in 2012 once its budget increase has been finalised.
Tokyo Star Bank, another Japanese newcomer to global aviation financing, is currently looking at a number of deals involving operating lessors and top-tier airlines, according to Fintan Smyth, managing director of the bank’s cross-border finance division. The bank completed its first deal in March 2011 when it underwrote $30 million of ILFC's $1.52 billion loan facility led by Citibank and Credit Suisse First Boston involving the participation of fellow Japanese banks Aozora Bank and NEC Capital.
“We’re seeing a good pipeline of deals and, since pricing is going up, we can get margins that make sense for our bank; even for the top airlines,” said Smyth. “As a new bank we can therefore focus on the more conservative deals while building up our bank's expertise and relationships, whereas previously spreads may have been a bit low for us on such deals.” Similarly to DBJ, Tokyo Star Bank’s resource allocation for 2012 will be firmed up by 31 March.
Meanwhile, European funding prospects look bleaker with Basel III banking regulation looming on the horizon, bringing with it the threat of more costly lending. In some cases, banks have been forced to wind down their aviation finance activities, such as German bank HSH Nordbank which is set to close its aviation branch in London before the end of 2012. Major players in the French banking market, including Société Générale, Crédit Agricole & corporate investment bank, Natixis Transport Finance, BNP Paribas and Credit Industriel et Commercial have all had to scale back lending to the aviation industry, as they struggle to obtain dollar funding.
However, the climate of economic uncertainty in Europe is helping certain emerging aviation banks in Japan to gain momentum, suggested one Asian banker. “Emerging players often miss out on arranging primary deals through not being able to make a quick enough decision, but the current market situation is allowing new players to consider a particular deal at their own pace and to discuss primary deals directly with the airlines or lessors,” he said.
It is thought that Japanese banks will be an invaluable source of financing for the predicted $100 billion worth of new aircraft needing to be financed in 2012. Strong support from export credit agencies, combined with fresh funding from Japan, will “remove the threat of a tremendous funding gap”, according to Bertrand Grabowski, managing director and board member of Germany’s DVB Bank.
DBJ has already closed seven deals in as many months, from June through to December 2011, exceeding its original target of completing seven deals by March 2012. At an average ticket size of $30-35 million, the deals have involved both undisclosed lessors and airlines; such as the recent financing of an Airbus A330 for Thai Airways and a Boeing 777-300ER for Air New Zealand.
Although DBJ has focused on primary transactions, there has been market talk of the bank buying a certain amount of loans from European Banks. However, question marks remain as to whether the group will continue allocating resources with a view to carrying out large-scale secondary transactions, given the costly element of senior debt and the abundance of primary deals. “Nothing has been decided yet; the budget is still under discussion and the bank is reviewing all options,” said Masao Masuda, acting head of DBJ’s global aviation team, who argued the strategic rationale of buying loans from European banks selling off segments of their portfolio. “Secondary deals with banks that are staying in the market could lead to some attractive primary opportunities, as well as giving access to short-term maturity debt,” he noted, adding that there could be some interest in doing secondary deals with banks that have walked away from the market if the margins are as attractive as, or better than, primary transactions.
SMBC’s acquisition of RBS Aviation Capital earlier this week will heighten domestic Japanese interest in the aircraft asset class, several industry players argued. It has already been mooted that the newly-acquired entity would be open to acquiring Mitsubishi regional jet aircraft, prompting further local investment.
By Fay Sanders

Deucalion sells 747-400 freighter to KV Aviation.

2012-01-20T11:58:10Z

The Deucalion Aviation Funds have sold one 1998 vintage Boeing 747-400 freighter (MSN 27602) to KV Aviation, this news service has learnt. The aircraft is subject to an eight year operating lease with Southern Air Holdings Inc, a source close to the matter said.

The 747-400 freighter was delivered to Southern Air last month following the completion of its conversion from passenger to cargo configuration by IAI Bedek Aviation Group, as previously reported on this news service.

By Fay Sanders

Jazeera Airways to receive next A320 early February

2012-01-19T11:17:02Z

Jazeera Airways is poised to receive delivery of a new Airbus A320 aircraft early next month, chief executive officer of the Kuwaiti carrier Stefan Pichler told this news service.

The Kuwait Stock Exchange-listed airline group already owns 11 A320s through its leasing arm Sahaab Aircraft Leasing. Six of these are directly operated by Jazeera Airways, while one is leased to Sri Lankan Airlines and the remaining four to Virgin America.

A further three A320, due to be delivered in 2012 and 2013, have already been financed by Sahaab Aircraft Leasing, through funding secured from a consortium of local banks, Pichler said.

Jazeera Airways embarked upon a rigorous restructuring programme, which involved resizing the airline’s capacity and leasing out aircraft, when Pichler came on board as CEO in June 2009. The previously loss-making airline hit profitability in the third quarter of 2010 and has maintained this growth for six consecutive quarters. “We redesigned the network and switched to a business model that works in this part of the world,” Pichler explained, attributing the airline’s growth to its 20% profit margin. “We are commercially-driven, focused on maximising returns for our shareholders,” he said.

Over the next three years the airline will be following what Pichler describes as a “strategic master plan” to ensure further profit growth. This will not necessarily involve further expanding the airline’s fleet; “we’ll be fine tuning our product, introducing a loyalty programme and other such initiatives to keep costs low. If there is an opportunity to grow our network we will take it,” he said.

Jazeera Airways reported an operating profit of KD 7.5 million ($26.9 million) in the third quarter last year, representing a 121% increase compared with the same quarter in 2010.
By Fay Sanders

RBS set to consider new aircraft types

2012-01-17T11:14:22Z

RBS Aviation Capital is likely to consider the acquisition of other aircraft types, including the Mitsubishi Regional Jet (MRJ), following its $7.3 billion sale to Japan's Sumitomo Mitsui Banking Corporation (SMBC) on 16 January, a source close to the situation said.

However, another industry source questioned RBS’ real interest in ordering MRJ aircraft, suggesting the newly-acquired entity would entertain a letter of intent merely to appease the company’s new Japanese shareholders.

SMBC had been competing to acquire RBS alongside China Development Bank Leasing and Wells Fargo in a hotly-fought auction process run by Goldman Sachs, as previously reported on this news service.

During the next few weeks the RBS Aviation Capital management team will discuss its future strategy with the new owners. RBS Aviation Capital was acquired for $7.3 billion, according to a press release issued last night. Future order commitments of $3.7 billion will transfer with the business. The risk weighted assets associated with the aviation business are $2.5 billion, according to the statement, which added that the sale is expected to complete before the end of Q3 2012.

According to Ascend’s database, the RBS portfolio comprises Airbus A320 family aircraft and Boeing 737s, as well as two A330-200s and two 777-300ERs. The lessor also has one Bombardier CRJ-700, five Embraer 145s and several 170s and 190s.
RBS Aviation Capital, which is understood to be maintaining its Dublin headquarters, generated gross assets of $7.2 billion on 30 June 2011, according to the group’s press release.

By Olivier Bonnassies

Aviation financiers at risk through ignoring insurance clause

2012-01-13T11:13:40Z

The current climate of financial uncertainty is highlighting the importance of a key aviation insurance feature, known as the cut-through clause, which is often ignored by certain members of the aircraft financing community.

The cut-through clause is designed to protect aircraft owners when confronted by a major loss. Most local insurance companies are unable to foot the full aircraft insurance risk themselves, so they turn to re-insurance companies. When correctly implemented, the cut-through clause allows financiers to receive any loss payment directly from the re-insurers of local insurance companies, rather than risk the money being diverted via the insurance companies.

Aviation financiers failing to understand the full implications of the cut-through clause are sitting on a ticking time bomb, according to Glen Brighton, executive director at Willis Aerospace Advisory Services. “The likelihood of an insurance company being insolvent at the same time as a major aircraft loss is increasing in today’s perilous financial landscape,” argued Brighton, warning that the threat to the aircraft financing community should be taken more seriously.

Further complicating matters, it has been difficult to obtain cut-through clauses in countries such as China, Japan and France owing to national legislation. However, some countries have begun to address this complicated issue, Brighton remarked. “Brazil, for, example, has recently changed legislation so that a cut through clause is enforceable as long as the primary insurer is insolvent, which avoids domestic insurance firms missing out on investment,” he said.

Yet many banks and smaller leasing outfits are ignoring the risk inherent in failing to properly investigate a clause preventing re-insurers from making loss payments to an insurance company that is in financial distress or unwilling to transfer the payment to the correct party, Brighton noted.

“It’s not that high on our order of priority of concerns when putting a lease together,” admitted one European lessor. “It probably should be, but we tend to focus on other counterparty credit risk such as the lessee, guarantor, LC providers and other immediate risks such as jurisdictional risks.”

The big leasing companies that have their own insurance departments tend to understand the risk, but some financiers can’t appreciate how wrong it could go, Brighton said. Part of the lack of awareness can be attributed to the fact that there has yet to be a major case brought to court, where administrators have taken the money instead of the rightful loss payee. “Until there is a high profile failure to pay out due to insurer insolvency, cut-through clauses are not going to get the attention that maybe they should,” the European lessor said.

By Fay Sanders

ORIX acquires TUIFly B737-800 from ACG

2012-01-12T11:10:58Z

ORIX Aviation has acquired a Boeing 737-800 from Aviation Capital Group (ACG), two sources close to the matter told this news service. The 2011 vintage aircraft (MSN 37252) continues to be operated by TUI Travel PLC’s German subsidiary TUIFly, which received delivery of the aircraft in February last year.

TUIFly, which operates both charter and scheduled low-cost flights, is expecting eleven new 737-800s and three new 737-700s, all with winglets, to be delivered over the next two years, according to Ascend data. The airline's current fleet of 20 aircraft exclusively comprises 737-800s; the vast majority of which are being leased from firms such as AerCap, CIT, BBAM, RBS Aviation and ILFC.

Based at Hannover Airport, TUIFly is reported to be the third largest airline in Germany, behind Lufthansa and Air Berlin. The carrier was formed in 2007 through the merger of Hapag Lloyd Flug and Hapag Lloyd Express. Two years later, it signed a strategic partnership with Air Berlin, which led to TUI Travel taking 9.9% stake in Air Berlin and the latter owning a 9.9% interest in TUIfly.

By Fay Sanders

Aerolineas revamps fleet renewal strategy with new B737-800s from AWAS

2012-01-11T15:51:53Z

The delivery of Aerolineas Argentinas’s tenth Airbus A340-300 on Monday, with an eleventh penned to arrive next month, is just a taste of what is to come.

]]> To see the full article please contact fleets@ascendworldwide.com to subscribe to Aviation Exchange or visit ascendworldwide.com/aviationexchangefor more information.

Analysis: Etihad Airways' push into Europe carries risks

2012-01-06T09:04:07Z

Reuters

Wednesday January 04, 2012

Airline Insurance Claims Tumble 45% in Safest Year, Ascend Says

2012-01-05T14:19:03Z

Bloomberg Business Week

Wednesday January 04, 2012

IT WAS ALMOST ORDAINED AS DUFF SOYUZ LAUNCH DAMAGES ROOF

2012-01-04T14:47:15Z

Debris from failed Soyuz launch of the Meridian 5 communications satellite (see headline) caused a bit of damage as it fell back to Earth. Parts of the satellite and launch vehicle which survived re-entry included a 5kg titanium pressure vessel which reportedly smashed a hole through the roof of a house in the village of Vagaitsevo, 100 kilometers from the city of Novosibirsk in Siberia.

The homeowner, Andrei Krivorukov, whose family lived at the house was intent on making a claim against Russian Space Forces or Roscosomos but could not wait for them to repair the hole in his roof – well it is jolly cold in a Russian winter – so he did it himself. By the way, what was the launch-damaged house’s apt address? No 5A Cosmonaut Street.

Air Travel Safer Than Ever: Industry Report

2012-01-04T10:33:41Z

mysinchew.com

Wednesday January 04, 2012