The Continued Evolution of Commercial Operating Leasing Rob Morris, - PowerPoint PPT Presentation

The Continued Evolution of Commercial Operating Leasing Rob Morris, Head of Consultancy, Ascend Worldwide

The Continued Evolution of Commercial Aircraft Operating Leasing Rob Morris Head of Consultancy 20 th January 2016

On the Menu…. Operating Leasing Growth Trend The Operating Leasing Competitive Landscape Operating Leasing Outlook 3

On the Menu…. Operating Leasing Growth Trend The Operating Leasing Competitive Landscape Operating Leasing Outlook 4

Operating lease fleet market share stagnated since 2008 Share of Fleet Managed by Operating Passenger Jet Fleet in Service / Stored 20,000 50% 18,000 45% 16,000 40% 14,000 35% 12,000 30% Lessors 10,000 25% 8,000 20% 6,000 15% 4,000 10% 2,000 5% 0 0% Operating Lease Fleet Owned Fleet Source: Flightglobal Fleets Analyzer – western built jets only (excludes RJs) 5

Operating lease fleet market share stagnated since 2008 50% 45% Passenger Jet Fleet in Service / Stored 40% 35% 30% 25% 20% 15% 10% 5% 0% Single-Aisle Source: Flightglobal Fleets Analyzer – western built jets only (excludes RJs) 6

If trend to 2008 were projected, then 50% share would have been achieved last year 60% Share of Fleet Managed by Operating 50% 40% Lessors 30% 20% 10% 0% Source: Flightglobal Fleets Analyzer – western built jets only (excludes RJs)

So can we get to 50% from where we are today? Resumption of the trend to 2008 60% Share of Fleet Managed by Operating 50% 40% Lessors 30% 20% 10% 0% Source: Flightglobal Fleets Analyzer – western built jets only (excludes RJs)

What would this require in arithmetical terms? 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) Source: Flightglobal Fleets Analyzer / Fleet Forecast (passenger aircraft only, excludes RJs) 9

However, the leased fleet has continued to grow in line with overall fleet growth 9000 Operating Leased Fleet in Service / Stored 8000 7000 6000 5000 4000 3000 2000 1000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 A320 Family 737 Family Other SA A330 Family 777 Family Other TA Source: Flightglobal Fleets Analyzer, passenger aircraft only 10

Operating lessor share of deliveries from direct OEM orders averages 23% over the past 10-years 350 35% Operating Lessor Share of Total Deliveries 300 30% Operating Lessor Deliveries 250 25% 200 20% 150 15% 100 10% 50 5% 0 0% Single-Aisle Deliveries Twin-Aisle Deliveries Source: Flightglobal Fleets Analyzer – western built jets only (excludes RJs) 11

Purchase and leaseback at delivery is a popular method of lessors acquiring new aircraft 600 60% Operating Lessor PLB Share of Total 500 50% Operating Lessor PLB at Delivery 400 40% Deliveries 300 30% 200 20% 100 10% 0 0% Single-Aisle PLBs Twin-Aisle PLBs Single-Aisle Share Twin-Aisle Share Source: Flightglobal Fleets Analyzer – western built jets only (excludes RJs) 12

Lessors have acquired around 54% of new deliveries overall over the past ten years 800 80% Operating Lessor Share of Total 700 70% 600 60% Operating Lessor Deliveries Deliveries 500 50% 400 40% 300 30% 200 20% 100 10% 0 0% Single-Aisle Dels + PLBs Twin-Aisle Dels + PLBs Source: Flightglobal Fleets Analyzer – western built jets only (excludes RJs) 13

Used aircraft PLBs are less popular but still present some element of fleet growth opportunity 300 250 Used Aircraft PLBs 200 150 100 50 0 Single-Aisle "Used" PLBs Twin-Aisle "Used" PLBs Source: Flightglobal Fleets Analyzer – western built jets only (excludes RJs) 14

Operating leasing growth trend summary The current share of the commercial passenger airline fleet managed by operating lessors is around 42% The linear growth trend seen through 2008 has stagnated in recent years If that growth trend were to have continued, then 50% share would have been achieved last year ~75% of deliveries will have to be acquired by lessors over the next seven years if 50% share is to be achieved by 2022 To maintain a 42% market share lessors will have to acquire an estimated 57% of new deliveries over that same period 15

On the Menu…. Operating Leasing Growth Trend The Operating Leasing Competitive Landscape Operating Leasing Outlook 16

Lessor overall fleet share is 39% including RJs, 42% excluding RJs 6% 13% Other RJ Other 22,773 active SA 28% & stored Other TA commercial Lessor passenger 35% RJ jets Lessor SA 5% Lessor TA 13% Source: Flightglobal Fleets Analyzer, “Other” includes all non-operating lessor managed aircraft 17

Lessors are relatively under-represented in firm order backlog 3% 5% 15% Other RJ Other 1% 13,508 SA Other TA commercial 16% passenger jet Lessor RJ backlog Lessor 60% SA Lessor TA Source: Flightglobal Fleets Analyzer, “Other” includes all non-operating lessor managed aircraft 18

Lessors share of installed fleet highest for current generation types 60% Lessor Share of Fleet in Service 50% 40% 30% 20% 10% 0% Source: Flightglobal Fleets Analyzer, passenger aircraft only 19

Lessors backlog share broadly consistent for current generation types 45% 40% Lessor Share of Firm Order Backlog 35% 30% 25% 20% 15% 10% 5% 0% 224 984 160 588 92 30 55 70 20 0 22 142 Source: Flightglobal Fleets Analyzer, passenger aircraft only 20

Leasing penetration varies by region of operator 60% 50% Operating Leasing Fleet Penetration 40% 30% 20% 10% 0% Africa Asia Pacific Europe Latin America Middle East North America and Caribbean Single-Aisle Twin-Aisle Source: Flightglobal Fleets Analyzer – western built passenger jets only 21

Share growth was largely driven out of Europe and Asia-Pacific 60% 50% Operating Lessor Share of Fleet in Region 40% 30% 20% 10% 0% Africa Asia Pacific Europe Latin America and Caribbean Middle East North America Source: Flightglobal Fleets Analyzer – western built jets only (excludes RJs) 22

Although the operating leasing market appears highly competitive it is also highly concentrated 100% Cumulative Operating Lease Portfolio Value 90% 80% 70% 60% 50% 40% 30% 20% 80% of the fleet (by value) is 10% managed by top 20 lessors 0% 0 10 20 30 40 50 60 70 80 90 100 110 120 130 Number of Operating Lessors Source: Flightglobal Fleets Analyzer – western built jets only (excludes RJs) 23

Competitive landscape hardly changed numerically over last five years 100% Cumulative Operating Lease Portfolio 90% 80% 70% 60% 50% 40% 30% 2016 20% 2011 10% 2006 0% 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 Number of Operating Lessors Source: Flightglobal Fleets Analyzer – western built jets only (excludes RJs) 24

Six new entrants in top 20 lessors chart, plus one new name, since 2011 2016 Ranking 2011 Ranking Current Fleet Order Backlog Current Fleet CMV (by Fleet + (by Fleet + ($mn) Backlog) Backlog) 1 AerCap 1,240 366 32,601 8 2 GECAS 1,084 266 27,766 1 3 Air Lease Corporation 229 389 9,877 13 4 SMBC Aviation Capital 388 206 11,202 6 (as RBS) 5 BOC Aviation 248 234 9,852 10 6 CIT Aerospace 282 132 9,091 5 7 BBAM LLC 398 15,358 3 8 Aviation Capital Group 254 105 6,303 4 9 Avolon Aerospace Leasing 207 136 8,499 33 10 AWAS 251 2 7,120 7 11 Macquarie AirFinance 192 40 5,060 12 12 ICBC Leasing Co 179 41 7,318 31 13 Boeing Capital Corp 191 1,574 9 14 ALAFCO 50 125 1,533 17 15 China Aircraft Leasing Limited 64 104 2,375 84 16 ORIX Aviation 157 3,734 15 17 Aircastle Advisor LLC 143 4,734 14 18 CDB Leasing Company 115 4,731 25 19 Jackson Square Aviation 109 4,447 70 20 Standard Chartered 100 2 3,771 22 Source: Flightglobal Fleets Analyzer – western built jets only (excludes RJs) 25

Developments over the past few years AerCap acquired ILFC SMBC Aviation Capital acquired RBS Avolon grown significantly, IPO, acquisition by Bohai Leasing and assumption of HKAC portfolio Air Lease IPO CK Holdings entered the market via Accipiter / Vermillion (aircraft currently managed by BOC Aviation, GECAS, JSA, MCAP) from whom aircraft have been acquired Goshawk JV formed between Chow Tai Fook Enterprises, NWS Holdings and Investec Bank ICBC Leasing portfolio more than doubled in size 26