Aircraft Valuation: Airplane Investments as an Asset Class

✍ Scribed by David Yu

• Publisher: Palgrave Macmillan
• Year: 2020
• Tongue: English
• Leaves: 360
• Edition: 1
• Category: Library

✦ Synopsis

This book is one of the first to explore aviation and aircraft leasing and its values establishing it as a standalone investable asset class within the larger real assets industry. Airplanes are a crucial but capital-intensive component of the global economy. The author, as an academic, researcher, appraiser, advisor and businessperson in the industry, bridges a gap in the existing literature with his analysis of the underlying aviation asset class return and risk profile. The book describes the characteristics, dynamics and drivers of the global, Asia and China specific aviation and leasing landscapes. Recent effects of COVID-19 on aviation and an analysis of the drivers affecting cross border mergers and acquisitions in the industry are also investigated. The book includes 20+ years of empirical aircraft valuation evidence and analysis of its characteristics establishing the aircraft and sub-segments as asset classes. In addition, characteristic comparisons to other real asset subclasses and benchmarks are examined. This book will be of interest to academics, financiers, investors, industry participants and more general aviation enthusiasts.

✦ Table of Contents

Preface: In the News Today - On-going Significance of the COVID-19 Impacts on the Aviation Industry
Initial Responses to Covid-19: Phase I Virus Life Cycle (Impact on China and Interlinked Countries and Industries)
Current Situation: Phase II Virus Life Cycle (More Severe Global Impact)
Severe Acute Respiratory Syndrome (“SARS”) 2002/2003
Great Financial Crisis (“GFC”) 2008/2009
Preliminary Outlook Going Forward: Virus Lifecycle Phase III (Global Peak and Virus Regression and Beyond)
Bibliography
Acknowledgments
Contents
About the Author
List of Figures
List of Tables
Chapter 1: Introduction
Bibliography
Chapter 2: Background Concepts and Definitions
1 Accounting and Tax Treatments
2 Operating and Finance Lease
3 Typical Operating Lease Structure
4 Why Lease?: Advantages and Disadvantages to Operating and Finance Leasing from Practice
5 Lease Versus Own or Debt from Practice
6 Upcoming Amendments to Accounting Standards for Leases and Its Effects
7 Brief Academic Literature Review: Leasing
8 Aircraft Values, Liquidity, and Operating Leasing
9 Economic and Business Cycles
10 Real Assets Portfolio Theory
Bibliography
Chapter 3: Global Aircraft Leasing Industry Characteristics
1 Background and History of the Aircraft Leasing Industry
2 Jurisdictions for Leasing: Ireland, Singapore, Hong Kong
3 Aircraft and Airline Market Drivers
4 Overall Demand Drivers
4.1 Economic Drivers
4.2 Business Cycles in Aviation and Industry Profitability
4.3 Exogenous Shocks
4.4 Fuel Prices
4.5 Traffic Flows and Population Demographics
5 Overall Supply Drivers
5.1 Manufacturers and Parked or Retired Aircraft
5.2 Financing Environment and Current Trends
5.3 Global State of Aircraft Funding
5.4 Export Credit Financing
5.5 Capital Markets
5.6 Commercial Banks: Financiers and Re-Entering as Investors
5.7 New Aircraft Operating Leases and Aircraft Secondary Trading
6 Sidecars and Joint Ventures
6.1 Parties Involved in Sidecars and Joint Ventures
6.2 Benefits Of Sidecars and Joint Ventures
6.3 Controls and Restrictions
6.4 Issues and Conflict Management
6.5 Exits and Trends
7 Airline Business Model Changes and Foreign Exchange
7.1 Airline Business Model Changes
7.2 Foreign Exchange
8 Current and Future Market Outlook
9 Participants Characteristics
10 Characteristics and Review of M&A and Cross Border Trends of the Aircraft Leasing Industry
11 Conclusion
Bibliography
Chapter 4: China Aircraft Leasing Industry Characteristics
1 Background and History of Aircraft Leasing in China
2 China Jurisdiction: Tax and Regulations
3 Drivers
3.1 Economics (Urbanization, Growth of the Middle Class, Globalization)
3.1.1 Economics
3.1.2 Urbanization and Globalization
3.1.3 Growth of the Middle Class
3.1.4 Visas
3.1.5 Passports
3.2 CAAC, CAAC Airlines, and the “Big 3” State-Owned Airlines
3.2.1 CAAC
3.2.2 CAAC Airlines and the “Big 3” Airlines
3.2.3 China Airspace and Delays
3.3 Traffic Flows, Business Models, High-Speed Rail, and Foreign Exchange
3.3.1 China Aircraft Leasing Industry Characterist
3.3.2 Foreign Exchange in China
3.4 Local Government Policies Affecting Aviation
3.4.1 One Belt One Road (OBOR)
3.4.2 Supply Side Structural Reforms
3.4.3 Airports Infrastructure and Construction
3.4.4 Opening Up of the Domestic Economy
4 Financing Environment and Current Trends
4.1 Export Credit Financing
4.2 Capital Markets, Sidecar, and Joint Ventures
4.3 Differences Between Domestic Onshore and International Structures
5 Current and Future Market Overview
6 Industry Participants’ Characteristics
7 Conclusion
Bibliography
Chapter 5: Empirical Aircraft Asset Pricing
1 Introduction and Research Questions
2 Aircraft Asset Values and Valuation Methods Discussion
2.1 Types of Aircraft Values
2.2 Valuation Methods
2.3 Aircraft Depreciation and Economic Useful Life
2.4 Salvage and Scrap Value
2.5 Inflation
2.6 Maintenance Condition Value
2.7 Sensitivity of Inputs and Variables
3 Data and Methodology
3.1 Methodology
4 Results and Analyses
4.1 Baseline Index 1 (All Aircraft Types) and Time 1 (6.1996–6.2017)
4.2 Cross Index Comparisons (Time 1—6.1996–6.2017): Index 2 (All Narrowbody Aircraft)
4.3 Cross Index Comparisons (Time 1—6.1996–6.2017): Index 3 (All Widebody Aircraft)
4.4 Cross Index Comparisons (Time 1—6.1996–6.2017): Index 4 (All Narrowbody Classic Aircraft)
4.5 Cross Index Comparisons (Time 1—6.1996–6.2017): Index 5 (All Narrowbody NG Aircraft)
4.6 Cross Time Comparisons Groups: Index 1 (All Aircraft Types)
4.7 Cross Time Comparisons Groups: Index 2 (All Narrowbody Aircraft)
4.8 Cross Time Comparisons Groups: Index 3 (All Widebody Aircraft)
4.9 Cross Time Comparisons Groups: Index 4 (All Narrowbody Classic Aircraft)
4.10 Cross Time Comparisons Groups: Index 5 (All Narrowbody NG Aircraft)
4.11 Correlations Between MV and BV
5 Conclusion
5.1 Cross Index Comparisons (Time 1—6.1996–6.2017)
5.2 Cross Time Comparisons Groups: Index 1 (All Aircraft Types)
5.3 Cross Time Comparisons Groups: Index 2 (All Narrowbody Aircraft)
5.4 Cross Time Comparisons Groups: Index 3 (All Widebody Aircraft)
5.5 Cross Time Comparisons: Index 4 (All Narrowbody Classic Aircraft)
5.6 Cross Time Comparisons Groups: Index 5 (All Narrowbody NG Aircraft)
5.7 Correlation Between MV and BV
Bibliography
Chapter 6: Comparative Examination Between the Aircraft and Other Asset Classes
1 Introduction and Research Questions
2 Comparative Asset Classes Discussion
2.1 Publicly Listed Aircraft Lessors
2.2 Real Assets Overview
2.3 Shipping
2.4 Real Estate
2.5 Infrastructure
2.6 Commodities
2.7 Agricultural Land and Timberland
2.8 Interest Rate Products
2.9 Sector-Specific and Broad Equity and Debt Indexes
3 Data and Methodology
3.1 Month over Month Simple or Equal Weighted Average Index Total Return Calculations
3.2 Capital Assets Pricing Model
4 Results and Analyses
4.1 Return and Volatility Comparative Analysis
4.2 Return and Volatility Comparative Analysis: Time 1 (6.1996–6.2017)
4.3 Return and Volatility Comparative Analysis: Time 2 (6.1996–6.2007)
4.4 Return and Volatility Comparative Analysis: Time 3 (6.2007–6.2010)
4.5 Return and Volatility Comparative Analysis: Time 4 (6.2010–6.2017)
4.6 Correlation and Covariance Observations
4.7 Correlation and Covariance Observations: Time 1 (6.1996–6.2017)
4.8 Correlation and Covariance Observations: Time 2 (6.1996–6.2007)
4.9 Correlation and Covariance Observations: Time 3 (6.2007–6.2010)
4.10 Correlation and Covariance Observations: Time 4 (6.2010–6.2017)
5 Conclusion
5.1 Correlation and Covariance Observations
Bibliography
Chapter 7: Conclusion
Appendix
Bibliography
Index