Aircraft Finance Strategies for Managing Capital Costs in a Turbulent Industry
, by Vasigh, Bijan; Taleghani, Reza; Jenkins, DarrylNote: Supplemental materials are not guaranteed with Rental or Used book purchases.
- ISBN: 9781604270716 | 1604270713
- Cover: Hardcover
- Copyright: 6/1/2012
One of the largest assets that an airline has are aircraft, therefore it is critically important to develop a methodology that estimates an aircraft¿s value and determines efficient utilization to ensure an acceptable rate of return on the asset. Aircraft Finance provides a comprehensive review of aircraft finance and valuation and presents a detailed methodology for accurate valuations. The methodology measures return on investment, improves the efficiency of managing operating costs and more effectively determines revenue analysis.
Bijan Vasigh is professor of Economics and Finance in the College of Business at Embry-Riddle Aeronautical University, Daytona Beach Florida. Dr. Vasigh received a Ph.D. degree in Economics from the State University of New York and he has written and published many articles concerning the aviation industry. The articles have been published in numerous academic journals such as the Journal of Economics and Finance, Journal of Transportation Management, National Aeronautics and Space Administration (NASA) Scientific and Technical Aerospace Reports, Transportation Quarterly, Airport Business, Journal of Business and Economics, and Journal of Travel Research. Bijan is also author of North America's leading aviation textbooks entitled An Introduction to Air Transport Economics: From Theory to Application and The Foundations of Airline Finance: Methodology and Practice.
Reza Taleghani is currently a Managing Director with J.P. Morgan Securities in New York where he has spent the majority of his career as an investment banker to the air transport sector. He also has a deep understanding of the operational aspects of the industry, having recently served as President and CEO of Sterling Airlines, a leading Scandinavian low cost carrier. His expertise in aircraft finance arises from his experience originating and structuring financings of transportation assets in J.P. Morgan's Securitized Products Group, as well as operating a fleet of jet aircraft at Sterling. During his time at J.P. Morgan, he has also worked on mergers and acquisitions; initial public offerings; secured, unsecured and ECA-backed financing in the syndicated finance and capital markets; leveraged finance; restructuring; and risk management for airline and lessor clients in Europe, the United States and Latin America. Mr. Taleghani holds dual AB degrees in History and Organizational Behavior and Management from Brown University. He received his JD and MBA from Villanova University.
Darryl Jenkins's aviation experience covers over thirty years. Recent work includes extensive merger and acquisition experience at United Airlines and Delta Air Lines. Previously, he was at GWU for fifteen years and served as director of the Aviation Institute and was the Director of the Graduate Certificate Program in Aviation Management from 2001 to 2003. He was visiting faculty at Embry Riddle Aeronautical University in 2004. As a consultant he has worked for the majority of the world's top fifty airlines. He is a regular commentator for the major media (ABC, NBC, CBS, Fox, CNN, MSNBC, and CNBC) on aviation issues and is regularly quoted in the print media as well. He is a regular speaker at trade and other conferences and is the author of several books.
About the Authors | p. xiii |
Acknowledgments | p. xv |
Foreword | p. xvii |
Preface | p. xix |
Prologue | p. xxiii |
Web Added Value™ | p. xiv |
The Globalization and Evolution of the Commercial Aircraft Industry | p. 1 |
Early Contributions to Commercial Aircraft Manufacturing | p. 3 |
Ford Tri-Motor | p. 3 |
Junkers German Transport | p. 4 |
Commercial Aircraft Manufacturing | p. 4 |
North America | p. 5 |
Western Europe Aircraft Companies: Evolution and Constellation | p. 22 |
Russia and Eastern Europe | p. 30 |
Asia | p. 42 |
Regional Jet Markets | p. 44 |
Embraer | p. 45 |
Bombardier Aerospace | p. 48 |
Mitsubishi Aircraft Corporation | p. 51 |
Summary | p. 52 |
References | p. 53 |
Aircraft Variants and Manufacturing Specifications | p. 57 |
Boeing Commercial Aircraft | p. 58 |
Boeing Existing Fleet | p. 59 |
Boeing Retired Fleet | p. 65 |
Airbus Commercial Aircraft | p. 71 |
General Characteristics of the Fleet | p. 73 |
Physical Characteristics of the Fleet | p. 73 |
Operational Characteristics of the Fleet | p. 76 |
Comparative Analysis of the Airbus Aircraft Family | p. 76 |
McDonnell Douglas Commercial Aircraft | p. 78 |
General Characteristics of the Fleet | p. 78 |
Physical Characteristics of the Fleet | p. 80 |
Operational Characteristics of the Fleet | p. 80 |
Comparative Analysis of the McDonnell Douglas Aircraft Family | p. 80 |
Lockheed | p. 83 |
Regional Jets | p. 83 |
Embraer | p. 83 |
Bombardier | p. 87 |
Summary | p. 90 |
References | p. 91 |
Aircraft Efficiency: Operating and Financial Metrics | p. 95 |
Airline Fleet Composition | p. 96 |
Single Factor Ratios | p. 97 |
Aircraft Technical Performance Ratios | p. 99 |
Operating Ratios | p. 102 |
Fuel Efficiency | p. 103 |
Aircraft Utilization | p. 103 |
Average Stage Length | p. 107 |
Financial and Operational Performance | p. 112 |
Aircraft Financial Performance through Financial Ratios Analysis | p. 113 |
Comparative Analysis of Efficiency | p. 118 |
Narrow-body: Boeing 737NG vs. Airbus A320 | p. 119 |
Wide-body: Boeing 777-200 vs. Airbus A330-300 | p. 127 |
Regional Jets: CRJ100/200 vs. ERJ 145 | p. 130 |
Summary | p. 133 |
References | p. 133 |
A Methodology for Aircraft Valuation | p. 135 |
Intricacy and Resourcefulness | p. 136 |
Current Market Practices | p. 140 |
Aircraft and Data Selection | p. 140 |
Boeing Aircraft | p. 141 |
Airbus Aircraft | p. 142 |
Potential Sources of Revenue | p. 142 |
Passenger Revenue | p. 143 |
Cargo Revenue | p. 144 |
Ancillary Revenue | p. 145 |
Aircraft Total Cost Structure | p. 147 |
Total Operating Costs | p. 149 |
Direct Operating Costs | p. 149 |
Indirect Operating Costs | p. 151 |
Non-operating Costs | p. 151 |
Aircraft Valuation Methodology | p. 152 |
Weighted Average Cost of Capital | p. 152 |
Discounted Cash Flow Model | p. 153 |
Summary | p. 155 |
References | p. 155 |
Aircraft Valuation and Sensitivity Analysis | p. 157 |
Value of Physical Assets | p. 158 |
Theoretical Value of Airbus Aircraft | p. 160 |
Theoretical Aircraft Value vs. List Price | p. 160 |
Theoretical Aircraft Valuation Trends | p. 162 |
Aircraft Value Volatilities | p. 164 |
Impact on Theoretical Aircraft Valuation of Input Changes over Lifespan of Aircraft | p. 171 |
Theoretical Value of Boeing Aircraft | p. 173 |
Theoretical Aircraft Value vs. List Price | p. 173 |
Aircraft Value Volatilities | p. 178 |
Theoretical Aircraft Valuation Trend Comparison | p. 180 |
A320-200 vs. 737-700 | p. 180 |
A330-200 vs. 767-400ER | p. 181 |
Elasticity | p. 182 |
Summary | p. 183 |
References | p. 183 |
Appendix to the Chapter | p. 184 |
The Principles of Effective Cost Management and Capital Structure | p. 185 |
Fixed Assets Financing | p. 186 |
Equity Financing | p. 188 |
Common Stock | p. 188 |
Preferred Stock | p. 189 |
Debt Financing | p. 193 |
Bonds | p. 194 |
Yield to Maturity | p. 198 |
Cost of Debt (Bonds) | p. 198 |
Strategic Labor Cost Management13 | p. 199 |
Financial Crew Cost Analysis | p. 200 |
Operational Crew Cost Analysis | p. 201 |
Rules of Thumb | p. 207 |
Summary | p. 210 |
References | p. 211 |
Aircraft Secured Bond Transactions and Securitization | p. 213 |
Aircraft Secured Bond Products | p. 214 |
Asset-backed Securities | p. 217 |
Conventional Equipment Trust Certificates and Pass-through Certificates | p. 220 |
Bankruptcy Protection Issues | p. 221 |
Chapter 11 Reorganization | p. 221 |
Chapter 7 Liquidation | p. 224 |
Aircraft Lease Securitization | p. 225 |
Aircraft Lease Portfolio Securitizations | p. 225 |
Enhanced Equipment Trust Certificates | p. 231 |
Tranching | p. 234 |
Liquidity Facility | p. 235 |
Cross-default | p. 236 |
Ratings Agencies | p. 236 |
Standard & Poor's | p. 236 |
Moody's Investors Service | p. 237 |
Fitch Ratings | p. 238 |
Altman Bankruptcy Index | p. 239 |
Summary | p. 240 |
References | p. 240 |
General Aviation Aircraft and Appraisal | p. 243 |
General Aviation Aircraft | p. 244 |
General Aviation Aircraft Manufacturers | p. 246 |
Appraisal Standards and Requirements | p. 253 |
American Society of Appraisers | p. 254 |
International Society of Transport Aircraft Trading | p. 254 |
Appraisal Company Requirements | p. 255 |
General Aviation vs. Commercial Aviation Appraisal Methods | p. 255 |
Aircraft Bluebook Values | p. 256 |
Scope of Appraisal | p. 258 |
Diminution of Value Assessment | p. 262 |
Diminution of Value Scope of Work | p. 262 |
Fixed-base Operators | p. 264 |
Scope of FBO Appraisals | p. 264 |
Summary | p. 265 |
References | p. 266 |
Aircraft Leasing and Finance | p. 269 |
Commercial Aircraft Leasing | p. 270 |
Characteristics of Aircraft Leasing | p. 274 |
Advantages of Aircraft Leasing | p. 274 |
Disadvantages of Aircraft Leasing | p. 276 |
Classification of Leases | p. 277 |
Operating Lease | p. 277 |
Financial (Capital) Lease | p. 279 |
Cross-border Aircraft Leasing | p. 281 |
Sale and Leaseback | p. 281 |
Dry and Wet Leases | p. 283 |
Financial Considerations for Aircraft Leasing | p. 284 |
Buy vs. Lease Analysis | p. 284 |
Business Jets Market and Fractional Ownership | p. 291 |
Summary | p. 292 |
Appendix: Major Commercial Aircraft Leasing Companies | p. 292 |
General Electric Capital Aviation Services | p. 293 |
International Lease Finance Corporation | p. 293 |
CIT Aerospace | p. 293 |
RBS Aviation Capital | p. 294 |
Babcock & Brown Aircraft Management | p. 294 |
Ansett Worldwide Aviation Services | p. 294 |
Aviation Capital Group Corporation | p. 294 |
Boeing Capital Corporation | p. 295 |
References | p. 296 |
Airline Fleet Selection Process | p. 299 |
Network Planning and Aircraft Selection | p. 300 |
Operating Environment | p. 301 |
Market Forecast and Route Analysis | p. 305 |
Analyzing the Competitive Dynamic | p. 306 |
Choosing an Aircraft Type | p. 310 |
Aircraft Selection Methodology | p. 311 |
Detailed Aircraft Performance | p. 312 |
Cost Efficiency | p. 312 |
Payload vs. Range | p. 320 |
Modeling Techniques and Issues | p. 322 |
Assessing Aircraft Profitability-Cost Components | p. 322 |
Assessing Aircraft Profitability-Revenue Components | p. 326 |
Sensitivity Analysis | p. 327 |
Summary | p. 328 |
References | p. 329 |
Export Credit Agencies and Aircraft Finance | p. 331 |
Background of Aircraft Export Credit Finance | p. 332 |
Export Credit Agencies throughout the World | p. 333 |
Overview of Large Aircraft Sector Understanding Rules | p. 334 |
ECA Finance Supported by the U.S., EU, Brazil, and Canada | p. 335 |
Cape Town Convention | p. 339 |
Overview of UNIDROIT Convention | p. 339 |
ECA Financing and the Cape Town Treaty | p. 340 |
The 2011 Aircraft Sector Understanding | p. 340 |
Export Credit Rules and the New Aircraft Sector Understanding | p. 340 |
Grandfathered Transactions | p. 344 |
Financing Alternatives Utilizing ECA Support | p. 344 |
How Aircraft Financiers Utilize the ECA Guarantee to Lower Borrowing Costs | p. 344 |
Loan and Bond Instruments and Structures | p. 346 |
Summary | p. 349 |
References | p. 350 |
p. 353 | |
Top 20 Commercial Airline Leasing Companies | p. 353 |
Top 4 Commercial Aircraft Manufactuers, 2011 | p. 354 |
Top 20 Airlines, 2011 | p. 354 |
World Airline Vital Statistics, 2011 | p. 355 |
Aircraft Seat Capacity by Manufacturer, 2011 | p. 358 |
Glossary | p. 363 |
Index | p. 371 |
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