Summary

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.

Author Biography

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
Table of Contents provided by Ingram. All Rights Reserved.

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