Law 792 Aircraft finance Fall 2015
Exam: Policy question + a partner asks us to spot issues. Take a home exam for a week.
o At the end of WW2, companies moved from military to commercial aircraft esp. in the U.S.
o Boeing, Airbus, Rocky, McDo.. consolidation (Boeing, Rocky, McDo.. ended up being Boeing) and new manufacturers.
o These days, new player is China, Russia, Canada, Brazil; regional jets
· Early Sales and Financing of Aircraft Fleets
o Industry Regulation: I?? was rural adequate air service,
o Deregulation and its effects: in 80’s deregulations -> new players come in, price cut. After deregulation, huge capital requirements come in. 747 list price cost 24M and now costs 350M. They require progress/advance payment (Ex. x year before delivery x % payment). Most components (engines, landing gear, seats, etc) are manufactured by suppliers.
§ Delays of aircraft: ?
§ Foreign airlines: usually govt backing and it is source of financings (?)
o Funding of Capital Requirements:
§ Asset-based financing: use assets (aircraft) as securities for loan to the borrowers. Key to the devt of aircraft financing
§ Export credit agencies: US Export & Import Bank. US was the principle of manufacturer but Airbus comes in and Japan (J Ex&Import bank) comes in.
o Intro of structured financing:
§ Structures enhance credibility of creditworthiness
§ Equipment trust:
· Came from railroad industry; allow them to access capitals where lenders are secured by assets so that they can be protected when airline is on default (bankruptcy). A certificate holder gets priority over others on default; less risk so less interest.
· Manufacturer sends purchase agreement to airlines. PA goes to Trustee and Trustee leases back to Airline. Trustee sends money to Man and Man sends aircraft to Trustee. Trustee borrows money from equipment trust certificate holders (ETC). If after x period of time, AL pays off lease payment and Trustee gives back the title to the airline. AL gets depreciation on airlines (ex. 16 yrs) for tax and accounting purposes.
· Tax policy: incentivize (investment t
Im bank – and its counterpart export credit agencies in the UK, France, Germany and Spain – that they will not offer export credit to airlines based in their own or each other’s countries.
· Airlines in the USA and parts of Europe which did not qualify for export credit because of a so-called “home market” or “home country” rule
· Ex. Emirates were gaining an unfair advantage – because those carriers were not in a “home” country and so could access cheaper export credit.
o International Conventions – Cape Town Convention
§ Provides mechanism for getting your securities and assets recognized to parties
§ Rules about how to raise money internationally and get protected. In US there is a bankruptcy code, but in other countries may not be protections.
o Forecast of Financing Needs
§ Price has gone up; there is many forecast that next 20 years, price will continue to go up