of Commercial Operating Leasing 18 th January 2017 Rob Morris, - - PowerPoint PPT Presentation
The Continued Evolution of Commercial Operating Leasing 18 th January 2017 Rob Morris, Global Head of Consultancy flightglobal.com/consultancy 1 Definitions Operating Leasing Fleet & Dynamics Competitive Landscape Operating Leasing
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18th January 2017 Rob Morris, Global Head of Consultancy
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Definitions Operating Leasing Fleet & Dynamics Competitive Landscape Operating Leasing Outlook
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Operating leasing is what share of the market?
32.2% 38.4% 37.2% 21.1% 27.3% 45.4% 32.3% 20.5% 42.4% 42.3%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% All jets, all status All Jets, in service All jets, stored All jets, on
RJ, pax
service & stored SA, pax
service & stored TA, pax
service & stored Freighters, in service & stored SA & TA, pax only, in service & stored SA & TA, pax only, in service & stored, by value
Operating Lessor Share of Fleet
Typically use single and twin-aisle, in service / stored, by units = 42.4% today
Source: Flight Fleets Analyzer, 6th January 2017
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Operating lessor share of fleet has stagnated since peak in 2009
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
Operating Lessor Fleet as Ratio
Passenger Fleet Managed by Operating Lessors
Single-Aisle Twin-Aisle Share of Fleet
Source: Flight Fleets Analyzer (passenger aircraft in service / stored)
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737-800 & A320ceo represent more than half of the lessor fleet today
500 1,000 1,500 2,000 2,500
Operating Lessor Fleet
Source: Flight Fleets Analyzer (passenger single and twin-aisles only, in service / stored)
737-800 and A320ceo actually represent ~35% of the total fleet today
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How do lessors select their assets?
Lessors favour assets that have liquidity The aircraft most preferred by lessors today are single-aisles
A320 and 737 families
Lessors business model drives portfolio strategy, can differentiate on
Age Aircraft category (Regional, Widebody, Turboprop, Helicopter)
Volatility of values must be considered in hand with depreciation
Ratings estimate downside risk on future base value
Capital markets are the main financing source to purchase these assets
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The Herfindahl-Hirschman Index (HHI) is a recognised measure of liquidity
500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500
HHI
Source: Flight Ascend Consultancy analysis
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Ratings use historical volatility to forecast a downside risk envelope
Source: Ascend Values & Ratings, 2008 build A330-200 (PW), 2% future inflation
10 20 30 40 50 60 70 80 90 100 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Value, US$ Mn Downside Volatility BV CMV
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750 aircraft added to lessor portfolios in 2016….
20 40 60 80 100 120 140 160 180 200
Operating Lessor Fleet Change
Source: Flight Fleets Analyzer (passenger single and twin-aisles only)
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….but 400 aircraft exited the portfolio
10 20 30 40 50 60 70
Operating Lessor Fleet Change
Source: Flight Fleets Analyzer (passenger single and twin-aisles only)
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Operating lessors acquired 43% of new commercial jet deliveries in 2016
50 100 150 200 250 300 350 400 450 500 A320ceo A320neo 737NG CSeries A330 A350 787 777 747 A380
2016 Deliveries Lessor Direct Delivery Lessor PLB at Delivery Non Lessor Delivery
Source: Flight Fleets Analyzer (passenger single and twin-aisles only)
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Speculative backlog includes >2,300 aircraft
100 200 300 400 500 600 700 800
Operating Lessor Backlog
Source: Flight Fleets Analyzer (passenger single and twin-aisles only)
A320neo and 737 Max 8 dominate the backlog but A321neo is also significant
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The top 20 lessors account for close to 80% of the total lease fleet today
Source: Flight Fleets Analyzer (passenger single and twin-aisles only) 2017 Ranking (by Fleet + Backlog) Manager Current Fleet Order Backlog Current Fleet CMV ($mn) 2016 Ranking (by Fleet + Backlog) 1 AerCap 1,150 348 30,713 1 2 GECAS 979 311 23,699 2 3 Avolon (Inc CIT) 571 260 20,217 9 4 SMBC Aviation Capital 446 200 14,677 4 5 Air Lease Corporation 262 365 11,449 3 6 BOC Aviation 276 188 11,260 5 7 BBAM LLC 388 16,531 7 8 Aviation Capital Group 257 126 5,852 8 9 ICBC Leasing Co 266 47 11,769 12 10 AWAS 236 15 6,415 10 11 Macquarie 202 40 5,181 11 12 Aircastle 192 5,447 17 13 ALAFCO 59 125 1,812 14 14 Boeing Capital Corp 177 1,412 13 15 China Aircraft Leasing 82 91 2,888 15 16 CDB Leasing Company 142 23 5,357 18 17 ORIX Aviation 163 4,173 16 18 Standard Chartered 116 12 3,952 20 19 Jackson Square Aviation 119 5,088 19 20 BoCom Leasing 111 4,595 21
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China is a huge source of new lessor capital
Domestic domiciled Chinese lessor
ICBC, CDB Leasing, Minsheng, AVIC International Leasing, Bo Comm Leasing, CMB Financial Leasing, Changjiang Leasing Company, Ping An Leasing, ABC Leasing, SPDB Leasing, CITIC Securities, Everbright Financial Leasing, CCB, Industrial Bank, etc
Chinese money invested offshore
Accipiter, Avolon ICBC Leasing and Bohai’s “bid” for AWAS
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5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115 120 125 130 135 140 145 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Number of Operating Lessors Cumulative Operating Lease Portfolio
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Although the operating leasing market appears highly competitive it is also highly concentrated
Source: Flight Fleets Analyzer (passenger single and twin-aisles only)
80% of the fleet is managed by top 20 lessors
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5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115 120 125 130 135 140 145 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Number of Operating Lessors Cumulative Operating Lease Portfolio 2017 2011 2006
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The competitive dynamic has hardly changed in the recent past but more competition than 10-years ago
Source: Flight Fleets Analyzer (passenger single and twin-aisles only)
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Aviation demand cycle
Demand side weakening, trends suggest may be past cyclical peak
Indicator Current level Trend Passenger traffic
Above trend growth for sixth year running; 6.1 estimate for
Growth rate was above 6% for most of 2015 and >7% during
Freight traffic
Recovery seen in 2015 slowed in H1/2016. YTD to Nov 2016 = 3.2%. Express/regional freight performing better. Capacity significantly exceeding demand YTD. However, October and November showed much better growth. May have turned corner?
Yields
US has seen declines of 5-10%, but still well above 2008/09
increasing (US labour, jet fuel up 50% in Jan 2017), so yields need to increase. Yields have been falling since December 2014; However, this has not been a major concern yet, as costs are down by >10% as a result of falling oil prices. Now costs are increasing, yields have stabilised.
Load Factors
Still near historically record levels. Asia much lower – emerging evidence of overcapacity in some areas? US, Middle East load factors showing slight decline. Europe
New aircraft orders
Around 1,570 net orders for commercial jets. In 2016 with book to bill around 1.0. 2016 Single-aisle still >1.0 (GREEN), but twin-aisle and RJ around 0.5 (AMBER) Order intake fallen sharply from the levels of 2011-2014, but new programmes sold out for several years, with limited slots now available, driving downward trend
Deferrals & cancellations
Deferrals have ticked up following recent airline capacity adjustments from prior low level. Cancellations now just above average, although this is lower if normalised for fleet size Both cancellations and deferral rate increasing in H2 2016. Most canx due to OEMs cleansing order book but deferrals reflect fleet plan adjustments (Southwest, American, Turkish, Emirates, etc)
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1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 5000 10000 15000 20000 25000 30000 35000 40000
Commercial Passenger Jets in Service Single-Aisle Twin-Aisle
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Passenger jet fleet forecast to increase by 10,600 units in next ten years
Source: Flight Fleets Analyzer, Flight Fleet Forecast
If leasing share remained at today’s 42.4% share then the portfolio would grow by a net 4,000 aircraft over the next ten years
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50% penetration is unlikely to be achieved any time soon
Global passenger fleet at end of 2022 (excluding RJs) is predicted to be ~25,500 aircraft Leasing fleet in service would need to be ~12,750 aircraft Equivalent leasing fleet today is 7,220 aircraft So net addition of 5,530 aircraft required over next seven years Flightglobal Fleet Forecast predicts delivery of 11,500 commercial passenger jets through 2022 ~40% of the operating lease fleet from seven years ago has been replaced; on today’s fleet this equates to 3,100 aircraft that could be expected to exit the leased fleet in the next seven years So to achieve 50% fleet market share by 2022, under this scenario lessors would need to add 8,450 new aircraft (5,530 growth plus 3,100 replacement) to their portfolios over the next seven years – that’s equivalent to 75% of new deliveries predicted over that period (and worth US$643 billion in 2015EC) Even to maintain today’s 42% market share under this scenario would require ~6,600 new deliveries – 57% of all new deliveries (US$490 billion)
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50% penetration is still unlikely to be achieved any time soon
Global passenger fleet at end of 2026 (excluding RJs) is predicted to be ~28,900 aircraft Leasing fleet in service to achieve 50% would need to be ~14,470 aircraft Equivalent leasing fleet today is ~8,300 aircraft So net addition of ~6,200 aircraft required over next ten years Flight Fleet Forecast predicts delivery of ~17,100 commercial passenger jets through 2026 ~40% of the operating lease fleet from seven years ago has been replaced; on today’s fleet this equates to 3,300 aircraft that could be expected to exit the leased fleet in the next 7-10 years So to achieve 50% fleet market share by 2026, under this scenario lessors would need to add 9,500 new aircraft (6,200 growth plus 3,300 replacement) to their portfolios over the next ten years – that’s equivalent to 55% of new deliveries predicted over that period Even to maintain today’s market share under this scenario would require ~7,300 new deliveries – 43% of all new deliveries
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Operating lessors acquired 43% of new commercial jet deliveries in 2016
50 100 150 200 250 300 350 400 450 500 A320ceo A320neo 737NG CSeries A330 A350 787 777 747 A380
2016 Deliveries Lessor Direct Delivery Lessor PLB at Delivery Non Lessor Delivery
Source: Flight Fleets Analyzer (passenger aircraft only)
Lessor direct delivery in 2016 was 20%, backlog for 2017 indicates same level of delivery expected
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Conclusions
The share of the commercial passenger fleet managed by operating lessors is unlikely to achieve 50% within the next ten years The net leasing portfolio growth is estimated to be around 6,200 >100 seat aircraft over the next ten years Further portfolio additions (estimated around 3,300) will be required to replace aircraft that will exit the fleet through sale at end of lease and retirement / part-
At current delivery levels the portfolio is expected to remain at ~42% - 43% of the
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Rob Morris Head of Consultancy +44 (0)20 8564 6735 +44 (0)7730 213189 rob.morris@ascendworldwide.com