AIR LAW, REGULATION AND COMPLIANCE MANAGEMENT
COURSE DESIGNED FOR
ISTANBUL TECHNICAL UNIVERSITY AND TURKISH AVIATION ACADEMY
BY McGILL UNIVERSITY INSTITUTE OF AIR AND SPACE LAW
AIRCRAFT FINANCE AND REGISTRATION OF
SECURITY INTERESTS (Part 1)
Marios Seretis, DCL Candidate, McGill University
Artur Eberg, IAL&G, LL.M., McGill University
ISTANBUL, 14-19 NOVEMBER 2016
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© 2016
Institute of Air and
Space Law
PLAN
1. Challenges for Aircraft & Airline Financing
2. State Ownership & State Aid
3. Debt & Equity Financing
4. Leasing
5. Export Credit Financing
6. Cross Investments in Airlines
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Institute of Air and
Space Law
Specific Learning Objectives
To describe the recent trends in aircraft
financing
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Institute of Air and
Space Law
Challenges for Aircraft & Airline Financing
• The airline industry is highly cyclical, and its performance is
significantly more volatile than other sectors.
• Its performance is subject to external shocks beyond its
control (primarily demand fluctuations and fuel price surges).
• It can often accumulate substantial cumulative losses that
require years of profitability to be reversed.
• It is subject to intense, cut-throat competition.
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History of financial performance in the US
2000 - U.S. profit $2.5 billion 2010 – U.S. profit of $3.7 billion
2001 - U.S. losses $8.3 billion 2011 – U.S. profit of $1.4 billion
2002 - U.S. losses $11.4 billion 2012 – U.S. profit of $0.4 billion
2003 - U.S. losses $1.7 billion 2013 – U.S. profit of $12.8 billion
2004 - U.S. losses $9.1billion 2014 – U.S. profit of $8.5 billion
2005 - U.S. losses $27.2 billion 2015 – U.S. profit of $25.6 billion
2006 - U.S. profit $18.2 billion
2007 - U.S. profit $7.7 billion
2008 - U.S. losses $23.8 billion
2009 - U.S. losses $2.6 billion
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Challenges for Aircraft & Airline Financing
• Airline industry is
capital intensive
• Its ROIC is lower
compared to other
capital-intensive
industries
Source: IATA
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Aircraft are expensive to buy…
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The early days (outside the United States)
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State ownership / Financing
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State Financing
Source: Emirates
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Debt & Equity Financing
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Debt Financing - Straight Loan
• Can be syndicated (where many banks/institutions
contribute to the raising of funds)
• Amounts and repayment periods can vary
• Basel III requirements on the leverage/exposure of
financial institutions can impede availability of credit
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Debt Financing - Bond/Debenture
• Bonds
• Debentures
• Notes
• not directly secured on aircraft equipment
• secured on aircraft equipment
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Equity Financing
External investor purchases stock in the airline and
acquires partial ownership thereof
• Common Shares
– direct ownership and voting rights
• Preferential Shares
– limited control
– priority in case of insolvency
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Equipment Trust Certificates
Enhanced Equipment Trust Certificates: different classes of
bonds for investors
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Equipment Trust Certificates
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LEASING
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Leasing
• Financial Leasing
• Operating Leasing
– Dry Leases
– Wet Leases
• Engine Leasing
• Subleasing
• Sale and Leaseback
Reasons for Leasing?
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Leasing
An introduction to Aircraft Leasing by Capital Aviation which
provides an overview of finance, leasing and investment within
the aviation industry
23 Sept 2014
https://www.youtube.com/watch?v=p0-uemCze3E
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Leasing
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Export Credit Financing
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Export Credit Agency (ECA) Support
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Export Credit Agency (ECA) Support
Governments help aircraft manufacturers by offering foreign
airlines cheap financing, also known as export credits.
A new set of rules, negotiated at the OECD, went into effect in
February 2011.
24 Feb 2011
https://www.youtube.com/watch?v=dSNGYxdKJ50
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Export Credit Agency (ECA) Support
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Other Sources
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Cross-Investments Between Air Carriers
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Types of Aircraft Financing (ex. Boeing deliveries)
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LEARNING REFLECTION
What are your key takeaways?
What are the main trends?
_____________________________
What questions do you have?
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Space Law
Thank you!
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Institute of Air and
Space Law
