Leasing 201

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BOEING PROPRIETARY

Alex PhilipDirector – Marketing, Airline Economic AnalysisAugust 2016

Copyright © 2016 Boeing. All rights reserved. BOEING PROPRIETARY

• Lease versus Buy

• Leasing Trends

• Q & A


Airline Customer:

Should I lease the aircraft or

purchase it and what are the

pro’s and con’s to each?


Direct

purchase

Airline purchases

airplane from manufacturer

• Airline pays advance

payments directly to

manufacturer

• Airplane is financed

with loan secured by

a mortgage

Several financial institutions

usually participate in the loan

The airline gains

equity in the airplane as

it pays down the loan


Purchase costs

Capital costs

Advance payments

Cash down payment (equity)

Principal and interest payments

Maintenance costs

Paid directly to maintenance provider or performed in house.

Reflective of maintenance honeymoon, mature

phase, and aging phase

Residual value

Sale of aircraft at fair market value at end of study period or end of economic life offsets

initial capital costs


Operating

leases

• Lessor pays advance

payments

• Lessor funds or arranges

financing for the aircraft

at delivery

• Airline leases the aircraft from the lessor

• Airline usually pays maintenance

reserves to the lessor

• Airline returns airplane to

lessor when lease ends.

• Airline may have option

to renew lease or

purchase aircraft at fair

market value.

Lessor acquires the

airplane from a manufacturer


Financial details of an operating lease by element

7

Leasing$ • Typically about 0.80% to 1.00% of aircraft cost per month

• Actual lease rates are determined by aircraft supply and demand

Maintenance

reserves

• Paid to lessor and available for scheduled maintenance.

• Typically equal to mature maintenance cost for aircraft but

can vary widely.

• Excess may be withheld at end of lease to fulfill return

conditions

$• Typically equal to 3 months +/- of lease payments.

• Returned to airline at end of lease.

Security

deposit$


BuyPros

Asset control

Acquires equity

Tax benefits

L-R Financial attractive

Cons

Investment/finance requirements

Residual value risk

Loan covenants

Less fleet flexibility

LeasePros

Reduced investment

Fleet flexibility

No asset risk

Minimal financial statement impact

Cons

Lease rate fluctuations

Lease contract constraints

Other lease costs/taxes

No equity for airline


Operating Lease, 1970 to 2015

Source: AscendIncludes in-service & stored western built jets and eastern built jets (COMAC, Irkut & Sukhoi) managed by lessors (through direct purchase and SLB)

19703,722 aircraft

17 leased

0.5%

19806,037 aircraft

100 leased

1.7%

19909,160 aircraft

1,343 leased

14.7%

200015,032 aircraft

3,715 leased

24.7%

201021,341 aircraft

7,621 leased

35.7%

201523,151 aircraft

9,120 leased

39.4%


With a growing number of emerging Chinese lessors

http://www.amentum-capital.com/index.jsp

http://www.amentum-capital.com/index.jsp

http://www.smbc.aero/

http://www.smbc.aero/

http://www.aircastle.com/index.html

http://www.aircastle.com/index.html

http://www.intrepidaviation.com/

http://www.intrepidaviation.com/

http://www.msfl.com.cn/index.php

http://www.msfl.com.cn/index.php


30%

26%

50%

44%

25%

30%

46%

34%

59%

16%

Single Aisle

Twin Aisle

Africa

Middle East

47%

31%

NE Asia

Europe

Latin America

North America

91%

88%

50%

29%

Oceania

Russia

53%

39%

SE Asia60%

31%

S Asia

China

46%

28%

355%238%

140%

382%

Emerging markets driving growth


Deliveries from 2005-2015

BOEING AIRBUSRyanair AerCap/ ILFC

GECAS easyJet

Southwest Airlines GECAS

American Airlines China Eastern Airlines

AerCap/ ILFC China Southern Airlines

Lion Air AirAsia

ANA - All Nippon Airways CIT Leasing Corp

Delta Air Lines Air China

China Southern Airlines Lufthansa

Air China BOC Aviation

GOL LAN Airlines

Hainan Airlines US Airways

United Airlines IndiGo

Emirates Airline Turkish Airlines (THY)

Alaska Airlines Qantas

Continental Airlines TAM Linhas Aereas

BOC Aviation JetBlue Airways

Xiamen Airlines AWAS

Japan Airlines Corporation Iberia

Turkish Airlines (THY) airberlin


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

100

200

300

400

500

600

700

800

900

1000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Boeing Airbus % of Total Orders


Structure of lessor purchases for Boeing deliveries

Direct purchases

~54%

Sale lease-backs

~46%

2012 2013 2014 2015 2016F


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