Asset Management and Remarketing
Upcoming SlideShare
Loading in...5
×
 

Asset Management and Remarketing

on

  • 1,391 views

 

Statistics

Views

Total Views
1,391
Views on SlideShare
1,391
Embed Views
0

Actions

Likes
2
Downloads
36
Comments
0

0 Embeds 0

No embeds

Accessibility

Categories

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

Asset Management and Remarketing Asset Management and Remarketing Presentation Transcript

  • mba morten beyer & agnew Asset Management & Remarketing R.F. Agnew rf@mba.aero President & COO School of Intl. Aviation Finance April 23, 2004 School of Aircraft Finance – Page 1
  • mba morten beyer & agnew Overview • Assessment of exposure • Selection of re-marketing services provider • On-going management of exposure School of Aircraft Finance – Page 2
  • mba morten beyer & agnew Assessment of Exposure • What is it? – Aircraft – Engine – Debt/Equity – Other • What are your rights? – Senior/Junior – Equity Holder School of Aircraft Finance – Page 3
  • mba morten beyer & agnew Asset vs. Dealing with Asset Cash Flow What is Where is What is it The Condition the Asset? it? doing? Operator Aircraft In operation Operations Maintenance Retention Engines Parked Long haul Airframe Rejection Spare Parts Long Term Domestic Engines New schedule Gates/Slots Short Term New operations Market segment Return Conditions Economics Tangible vs. Jurisdiction Change, if any Fleet Intangible Operating Replacement If aircraft, environment How old is it? correct engine? Rationalization Labor Issues School of Aircraft Finance – Page 4
  • mba morten beyer & agnew Overview • Assessment of exposure • Selection of re-marketing services provider • On-going management of exposure School of Aircraft Finance – Page 5
  • mba morten beyer & agnew Plan of Action Aircraft Sales and Leasing Program Course of Action Marketing Execution Closing Asset Management Closing Remarketing Operating Lease Return Ancillary Technical Support School of Aircraft Finance – Page 6
  • mba morten beyer & agnew Remarketing Aircraft Sales and Leasing Action Plan – Develop course of action based on ING’s financial requirements and market conditions » Sale/ Lease » Marketing time horizon » Level of continuing involvement » Level of risk – Marketing Execution » Analyze current existing worldwide fleet for potential upgrading or expansion opportunities » Direct Mail campaign to all current/potential operators » Personal direct or voice contact with high potential operators – aircraft on order/ known in the market airlines » Advertise as appropriate – trade publications, distribution databases » Support potential customer aircraft analysis/requirements and alternative comparison research » Assist in ancillary support as needed: financial, technical,spares, training, short-term “CMI” support, etc. » Develop competitive pricing strategy and aggressive sale/lease terms and conditions » Develop benchmark for Operating Lease – analyze and develop airframe and engine accrual content » Vet all prospective purchase/lease customers for financial and operational stability/capabilities – Source and arrange credit enhancement, if required. » Work with manufacturers – aircraft/ engine » Liaise with Operating Lessors School of Aircraft Finance – Page 7
  • mba morten beyer & agnew Remarketing Aircraft Sales and Leasing Action Plan – Closing » Develop negotiating strategy » Develop term sheet » Open negotiations, draft term sheets » Liaise with legal counsel on contract development and negotiation » Attend and assist with closing and delivery » Deliver the aircraft, memorialize the delivery conditions School of Aircraft Finance – Page 8
  • mba morten beyer & agnew Asset Management • Remarketing Period – Audit and receive the aircraft – Develop baseline component and condition file – Arrange ferry and storage – Monitor asset – Advise on maintenance requirements and obtain third-party bids – Show aircraft and provide oversight of asset during buyer inspection – Arrange Interim Insurance School of Aircraft Finance – Page 9
  • mba morten beyer & agnew Asset Management • Operating Lease • Monitor monthly usage • Accept lease payments • Monitor/ analyze/receive reserve payments • Review operator requests for maintenance • Monitor lease compliance • Corroborate and approve 3rd party maintenance School of Aircraft Finance – Page 10
  • mba morten beyer & agnew Asset Management • Return – Inspect for return compliance – Document for potential legal position – Capture necessary records – Locate and secure other assets not currently attached to asset – Obtain appropriate permits, retain flight crew and ferry aircraft – Store and oversee any maintenance performed on assets School of Aircraft Finance – Page 11
  • mba morten beyer & agnew Overview • Assessment of exposure • Selection of re-marketing services provider • On-going management of exposure School of Aircraft Finance – Page 12
  • mba morten beyer & agnew Asset Management • Ancillary Technical Support • Inspect asset on a routine basis (predicated on operator stability) for contract compliance, airworthiness, operator records security and supporting documentation. School of Aircraft Finance – Page 13
  • mba morten beyer & agnew Asset management & remarketing – Questions that will be addressed: What is the asset life cycle ? What are the phases of the asset life cycle? How does asset management work? What do you need to know about the industry? What do you need to know about the operator? What do you need to know about the asset? What is the role of remarketing? School of Aircraft Finance – Page 14
  • mba morten beyer & agnew Asset management is the tool that guides the aircraft through the various stages of its life cycle. End of lease / beginning of lease Remarketing & Bridging Delivery Redelivery Inspection Initial Inspection Pre-Redelivery Inspection Technical records audit Monitoring of compliance with lease terms Mid-Lease Inspection Monitoring of market and value fluctuations and trends The New York School of International Aviation Finance School of Aircraft Finance – Page 15
  • mba morten beyer & agnew OPERATING LEASE RISK COMMERCIAL TECHNICAL FINANCIAL LEGAL POLITICAL Asset management addresses the inherent risk mainly from the commercial & technical perspective of the lease. The tool to implement is a lease monitoring program. The New York School of International Aviation Finance School of Aircraft Finance – Page 16
  • mba morten beyer & agnew Initial Phase of the asset life cycle: The inspection and audit process should be performed based on an understanding of the economics involved for both parties to the lease. The inspection and audit further establish a baseline that will apply to the asset throughout the term of the lease. Delivery and initial inspection of the asset: An initial assessment of the aircraft’s condition. Establishes the true physical condition of the asset at the time of delivery. Confirms the asset complies with all requirements and specification stipulated to in the lease agreement. Verifies the quality of maintenance performed by the lessee. Bridging: Carrier-specific Jurisdiction The New York School of International Aviation Finance School of Aircraft Finance – Page 17
  • mba morten beyer & agnew Technical records audit: Technical status of the asset must be verifiable by complete, accurate and up-to-date documentation. Establishes the level, type and frequency of required maintenance. Confirms the existence of a complete maintenance and repair history. Highlights financial exposure due to required maintenance such as C and D-Checks. Provides assurances as to the ability for certification in major jurisdictions such as the U.S. and Europe. Verifies the recording of flight hours, cycles, and time. Confirms the status of Airworthiness Directives. School of Aircraft Finance – Page 18
  • mba morten beyer & agnew Asset management is the tool that guides the aircraft through the various stages of its life cycle. End of lease / beginning of lease Remarketing & Bridging Delivery Redelivery Inspection Initial Inspection Pre-Redelivery Inspection Technical records audit Monitoring of compliance with lease terms Mid-Lease Inspection Monitoring of market and value fluctuations and trends School of Aircraft Finance – Page 19
  • mba morten beyer & agnew The Lease Monitoring Program Objectives: Maximize portfolio value Ensure adherence to payment schedule Minimize risk and exposure Maintain the ability to remarket the asset Protect asset value Ensure compliance with lease terms Reduce maintenance expenses Process: Structured proactive cycle of commercial and technical management Physical inspections of asset and records School of Aircraft Finance – Page 20
  • mba morten beyer & agnew The lease monitoring program provides flexibility throughout the asset’s life cycle by providing up-to-date and accurate information about the asset to the lessor. This is accomplished by: Mid-lease inspection review of current technical status detailed physical inspection compliance with maintenance requirements Status of maintenance reserves - Have any draw downs been made? - Were draw downs justified? - Examine reserve invoices Monitoring of market and value trends Monitoring of lessee conduct Detecting initial warning sign or trouble ahead School of Aircraft Finance – Page 21
  • mba morten beyer & agnew Because aircraft related expenses are one of the major cost drivers for airlines, operators will attempt to take actions in this area during economically challenging periods. Major Cost Drivers for Airlines' Operating Expenses Other Labor 27% 30% Insurance 0% Com m unications 2% Advertising 1% Fuel Maintenance 15% Food 6% 3% Com m issions 5% Aircraft Rent & Depreciation 11% Source: The Airline Monitor, February 2002 School of Aircraft Finance – Page 22
  • mba morten beyer & agnew Especially during economic downturns, anticipate the operator’s actions. Such actions may include: Seek bankruptcy protection Seek governmental protection Cannibalize the aircraft for parts Lower maintenance standards Renegotiate the terms of the lease Renegotiate return conditions Default on the payments Return the asset These actions can have a significant negative impact on the value of the asset. School of Aircraft Finance – Page 23
  • mba morten beyer & agnew Economic downturns have a direct impact on aircraft values, in this case a portfolio of older narrowbodies. Relationship between GDP and Narrowbody Historic Values 5.0 $7.00 4.5 Recession & Gulf War $6.00 4.0 3.5 $5.00 Portfolio value in US $ 3.0 in percent $4.00 2.5 $3.00 2.0 1.5 $2.00 1.0 Beginning recession & Afghan War $1.00 0.5 0.0 $0.00 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2 per. Mov. Avg. (Changes in GDP for OECD Countries) 2 per. Mov. Avg. (NB Values in US $) Source: OECD monthly statistics and MBA historic values School of Aircraft Finance – Page 24
  • mba morten beyer & agnew Change in Real GDP versus Aircraft Orders / Deliveries 2,500 8 6 2,000 Aircraft Orders / Deliveries Change in GDP in Percent 4 1,500 2 1,000 0 500 -2 - -4 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 Aircraft orders Aircraft deliveries Change in real GDP Source: The Airline Monitor, December 2002; Bureau of Economic Analysis, April 2003 School of Aircraft Finance – Page 25
  • mba morten beyer & agnew Aircraft Returns vs. Total Transactions 65.0% 250 September 11 55.0% R etu rn ed A ircraft in Percen t o fT o tal T o tal N u m b er o f T ran sactio n s 200 45.0% T ran sactio n s 150 35.0% 25.0% 100 15.0% 50 5.0% O ct-01 N o v-01 O ct-02 N o v-02 A u g -01 A u g -02 D ec-01 Jan -02 F eb -02 Ju n -02 Ju l-02 D ec-02 Jan -03 F eb -03 Sep -01 A p r-02 M ay-02 Sep -02 -5.0% M ar-02 0 Returned Aircraft Transactions Source: BACK AvSolutions - JetMart Steep inclines in the number of total transactions after 9 - 11 were to a large degree driven by aircraft returns. Since April 2002, this trend has reversed itself, only to return in the latter part of 2002. Transactions, as well as return levels, have retreated to levels recorded prior to the terrorist acts. School of Aircraft Finance – Page 26
  • mba morten beyer & agnew The key to a successful asset monitoring and remarketing program is to know and understand the market and its driving forces during the entire duration of the lease. Change in Real GDP versus Airline Profits (Losses) 8,000.0 8 6,000.0 6 4,000.0 Airline Profits (Losses ) in billions Change in GDP in Percent 2,000.0 4 - 1970 1975 1980 1985 1990 1995 2000 (2,000.0) 2 (4,000.0) 0 (6,000.0) (8,000.0) -2 (10,000.0) (12,000.0) -4 Net Profits (Loss) Change in real GDP Source: The Airline Monitor, February 2002; Bureau of Economic Analysis, April 2002 School of Aircraft Finance – Page 27
  • mba morten beyer & agnew The end of the lease is marked by the return of the asset. Final inspections during this phase improves the transition of the asset from one lease to the next without exposing the lessor to undue financial risk. Pre-redelivery inspection: Determine the asset’s ability to meet the lease redelivery and maintenance covenants. Report potential for lessor’s financial exposure. Asses AD sharing issues. Determine reserve reconciliation. Clarify redelivery conditions. Complete audit of associated records. Redelivery inspection: Last inspection before physical exchange of asset. Assure asset’s compliance with all rules and regulations. Check all documents. School of Aircraft Finance – Page 28
  • mba morten beyer & agnew Actively managing the asset allows for smooth transitions from lease to lease and thus avoids idle time and the loss of rental income. Remarketing a crucial phase in the asset’s life cycle. Begins several months before the lease term expires. Especially difficult phase during economic recession: Demand for assets declines Values become depressed Number of stored aircraft increases School of Aircraft Finance – Page 29
  • mba morten beyer & agnew Asset management is the tool that guides the aircraft through the various stages of its life cycle. End of lease / beginning of lease Remarketing & Bridging Delivery Redelivery Inspection Initial Inspection Pre-Redelivery Inspection Technical records audit Monitoring of compliance with lease terms Mid-Lease Inspection Monitoring of market and value fluctuations and trends School of Aircraft Finance – Page 30
  • mba morten beyer & agnew Total Aircraft in Storage As a percentage of World Fleet 8.0% Passenger Aircraft 7.0% Freighter Aircraft Total Aircraft in Storage 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 School of Aircraft Finance – Page 31
  • mba morten beyer & agnew A remarketing campaign will be successful if: Asset is in excellent condition Market conditions are favorable Refurbishment and maintenance expenses are minimal Records are complete, up-to-date, and in good condition Registration is possible in several key markets Service provider has strong knowledge of the asset and the market Goal: Minimize the time the asset is off-lease School of Aircraft Finance – Page 32
  • mba morten beyer & agnew Difficulties that might arise during the remarketing process: Reconfiguration costs Re-registration rules & regulations Certification requirements Environmental standards Operator expertise Legal obstacles Political circumstances School of Aircraft Finance – Page 33
  • mba morten beyer & agnew Conclusion Importance of a solid understanding of the asset and the market forces. Good relationship and communication between lessee and lessor vital. Pro-actively manage the asset, especially during times of economic downturn. Know the lessee and anticipate its actions. Lessee actions and economic conditions directly impact asset value. Asset management addresses commercial & technical risks. A lease monitoring program guides the asset through the term of the lease. Remarketing starts long before lease expiration date. Successful remarketing campaign will minimize the off-lease time. The New York School of International Aviation Finance School of Aircraft Finance – Page 34
  • mba morten beyer & agnew Thank You School of Aircraft Finance – Page 35