ANA to stay with Boeing? After losing Japan Airlines to Airbus, analysts are split over whether ANA will also defect. Some say JAL’s order will give ANA cover to defect. Others say JAL’s order will increase the pressure on ANA to stay with Boeing. The Seattle Times this story. Our take: compare this with what happened following American Airlines’ order with Airbus. The Delta Air Lines competition was next, and Boeing was determined not to lose that competition–and it didn’t. Market talk says Boeing’s price to Delta was 10%-15% below Airbus’ offer, though this has never been confirmed. We understand there were other considerations besides costs. Regardless, both sides are going to go all-out to win.
SuperJumbo Era: The Financial Times has a story about whether the era of the super-jumbo (the Airbus A380 and the Boeing 747-8) is over (free registration required). Bloomberg has a story about the Boeing 777X being a jumbo killer.
Repo Wars: Here’s an departure from our usual coverage–tactics used to repossess an airplane from a delinquent airline. A decade ago, we were involved in a similar situation, planning the repossession of a Boeing 767-300ER from a South American airline. The lessor obtained a court order while we did some behind-the-scenes plotting to “arrest” the airplane at Miami. It was at the gate, full of passengers when the sheriff served the pilot with the court papers. Secrecy was imperative, as the story linked above references. Once the airplane was seized, the airline rescheduled a second 767 to stay on domestic service so the lessor couldn’t seize that airplane, too.
With the announcement by Alaska Airlines for 20 737 MAX 8s, 17 737 MAX 9s (and 13 Next-Generation 737-900ERs), Airbus and Boeing continue their battle for the US market.
There are still a number of customers who have not ordered either aircraft. US Airways has been exclusively an Airbus customer. Airbus lost a hard-fought battle to Boeing in the competition for the A321-737-900ER order. ILFC orders seem to be on hold pending its Initial Public Stock offering.
No Order Yet
Aviation Capital Group**
Delta Air Lines
Air Lease Corp
Aviation Capital Group
*To be affirmed in bankruptcy court**Commitment, not yet converted to firm order
ANA 787s: Market Watch quotes an ANA official saying the Boeing 787-8 is saving 21% in fuel over eh previous airplanes. The article didn’t ID the previous planes, but they were the Boeing 767-300ER. Note, too, that the initial 787-8s are heavy and with Rolls-Royce engines that don’t initially meet specs.
Airbus to benefit from Boeing: The latter is closing its Wichita operations. The former will likely hire some of Boeing’s soon-to-be-out-of-work engineers. Here’s the article. Note that former Kansas Sen. Sam Brownback, who is now governor, was present garbed in Airbus colors. This is the same Brownback who couldn’t diss Airbus enough during the EADS-Boeing tanker competition. Now Airbus seems to be Brownback’s best friend.
China-EU showdown over ETS: China continues to refuse to comply with the European Union’s demand that carbon emissions information be provided. China, which already refused to firm up orders for 45 Airbus A330s, threatened to impound European airplanes if the EU retaliates against China’s refusal to comply.
Air Lease Corp to order MAX: Steve Udvar-Hazy, CEO of the lessor, plans to order the 737 MAX within the next few weeks. Boeing wants to firm up orders from ALC, CIT Aerospace, ILFC, GECAS and Aviation Capital Group by or at the Farnborough Air Show.
The final panel at the ISTAT meeting is the much-anticipated lessors’ panel consisting of:
Jeff Knittle, president of CIT Aerospace, moderator;
Henri Courpron, Chairman of ILFC;
Ray Sisson, CEO of AWAS;
Norman Liu, CEO of GECAS; and
Steve Udvar-Hazy, CEO of Air Lease Corp.
HC: All hell broke loose in Europe and upended aviation. Looking at consolidation in Europe. America now had a lot of stability and discipline, and we’ll see that happen in Europe. More fuel efficient aircraft will be required in Europe. I see a lot of opportunity and challenges to come in Europe.
NL: Asia has been by far our most active market, with 70% of our airplanes going there. You have to look at different parts of Asia–you can’t generalize. LCCs in Japan. Always something going on in China. SE Asia, good organic growth. Philippines and Indonesia very interesting. South Asia has had travails.
SUH: North America is going through an interesting time. Canada is a duopoly situation with new Asian and Middle Eastern carriers entering the market. The US is very mature having gone through a lot of trial and tribulation, more disciplined [than before]. After 9/11 there was a slow-down in US carriers taking new airplanes. We have a bow wave of a requirement for new fleeting.
RS: Latin America is under-appreciated. We see rapid growth there. By 2015 may be 17%, 20% of our fleet. There is a remarkable amount of demand and opportunities for lessors.
Steven Udvar-Hazy, co-founder of International Lease Finance Corp. and one of the most powerful voices in commercial aviation, retired on 5 February after more than 27 years in the leasing business.
His departure from ILFC was expected since the mega-lessor was plunged into a financial morass because of the massive scandal at its parent, AIG, which acquired ILFC in 1990 in what was then considered a masterful piece of timing. Only a year later, Iraq invaded Kuwait and aircraft, airline and lessor valuations plunged on the global economic crisis created by the subsequent Iraq War of 1991.
Update, March 26, 2:20PM PDT: Bloomberg News moved this piece in which ILFC’s CEO says he’ll get the lessor out from under AIG’s “cloud.”
Mega-lessor International Lease Finance Corp. filed its 2009 10K annual report March 25 with the Securities and Exchange Commission. In it, the company discussed possibilities that could create what’s called a “going concern” situation.
In accounting-speak, the reference is all about bankruptcy. If a company or its auditors raise questions about the ability to continue as a “going concern,” this means there is a possibility the company could seek protection in the US bankruptcy courts. This almost always is a Chapter 11 reorganization filing rather than a Chapter 7 liquidation action.
The countdown is underway for the outstanding order of 10 Airbus A380s by mega-lessor International Lease Finance Corp.
ILFC was an early customer for the super-jumbo jet and suffered two year delays along with the other customers when Airbus’ industrial production issues arose for the giant aircraft. As part of the restructured contract for the order as a result of the delays, ILFC obtained the option to cancel the orders in 2010.
Bloomberg News has a story quoting the head of mega-lessor saying he has a deal to buy International Lease Finance Corp. from insurance giant AIG.
ILFC is the largest customer of Airbus and Boeing. It owns and manages a fleet of slight more than 1,000 planes with a value of $55 billion.
This is a highly positive development for the airline industry. But as is often the case, the devil is in the details. The deal has to close (next year) and it remains to be seen how it is structured and what flexibility the company has in the future.
Mega-lessor International Lease Finance Corp. (ILFC) obtained a $5.7 billion commercial paper financing via the Federal Reserve Bank Commercial Paper Funding Facility.
This just goes to show what government ownership can do for you, after all.
ILFC, of course, is more than a little important to commercial aviation and to Airbus and Boeing in particular. ILFC has ordered more airliners from the Big Two manufacturers than any other customer–747 from Boeing (7-Series airplanes only) and 609 from Airbus. It is Boeing’s largest customer for the 787, with 74 on order.
ILFC is a subsidiary of insurance giant AIG, which narrowly missed filing for bankruptcy when the US government initially committed to loan $85 billion (with another $37 billion coming later). A Chapter 11 filing by AIG would almost certainly have meant a bankruptcy filing for ILFC, even though its financial condition was never in doubt; subsidiaries are routinely put into Chapter 11 if the parent files in order to protect assets from liens and seizures by creditors.
As a result of AIG’s troubles, the commercial paper market dried up for AIG and ILFC. ILFC had to draw down $6.7 billion from its credit lines to repay CP coming due; at the time, ILFC said this would provide enough liquidity “into” the first quarter of 2009, an alarming statement that suggested liquidity problems might arise by then.
With AIG’s troubles, ILFC’s cost of funds had been rising throughout 2008. Its medium term note interest rate in January was under 3.5%; by September, just before the markets and AIG collapsed, ILFC’s interest rate had risen to nearly 8.5%.
The interest rate obtained for the $5.7 billion CP issued by the Federal Reserve to its new government majority-owned partner: 2.78%.
Airbus and Boeing can breath easier: ILFC’s orders are safe.
The financing was revealed in an SEC 8K filed today.
As any aviation advocate knows, the future of International Lease Finance Corp. is uncertain due to the problems at its parent, AIG. The US government has bailed out AIG for $85 billion (which would fund the acquisition of 360 USAF tankers, BTW, but that’s a different issue) and plans to have an orderly sale of AIG assets.
ILFC’s CEO and founder, Steven Udvar-Hazy, is trying to arrange financing to buy the company back from AIG, which bought it from Hazy and his co-founders in 1990.
Today, Boeing stock is down on fears ILFC’s troubles will lead ILFC to cancel orders for 74 787s and some 30 737s. (Disclosure: we have a long-term holding in Boeing stock.)
We don’t think that will happen and we believe the stock market is off base on this one.
The orders, especially for the 787, are a great asset for ILFC and will be an important part of any sale of the company. Furthermore, even if ILFC were to cancel, other lessors and airlines will snap up these positions, resulting in no net loss in orders for Boeing.