Asset Management Maximising returns from aircraft operating leases With over 0 years of experience and a portfolio of over 00 aircraft, IBA is ideally placed to manage your existing aviation portfolio or support the establishment of your platform. No other provider of aircraft management services has IBA s combination of independence, breadth of expertise and depth of data. Our expertise is focused around: Pre-transactional support. We reduce your risk exposure and maximise your returns by advising on the most appropriate structure, asset type and rent, deposits and reserves, through analysing the risk profile of lessees, including the lessee s track record, jurisdictional and legal/political concerns and maintenance options. Oversight of fleet. Aircraft are complex assets. IBA augments and reduces the pressure on in-house resources by advising on the key processes necessary to maintain value throughout the lease. We are experts in monitoring payments, optimising cashflow and ensuring the assets and records are correctly maintained to positively impact residual value and minimise default risk. Remarketing and transitions. Finding the next lessee, securing a sale at the value expected, or negotiating an extension at favourable terms, are critical steps in the realisation of value on an operating lease. Additionally, we are specialists in the management of redeliveries and repossessions, minimising the negative impact of such events on your bottom line. IBA adding value at every stage : Pre-closing Due Diligence : On-Lease Management : Lease-End Process PF conversion Member of ISTAT UK CAA Approval No. UK.MG.06 www.iba.aero
Pre-Closing Due Diligence Selecting the correct operator, platform or aircraft is a critical and integral step in the aircraft investment process. Uniquely at IBA, we combine appraisal expertise with aviation management experience and technical advisory skills to provide expert opinion on issues such as: the risk profile of the prospective fleet, objective insight into the operator, cashflow implications for investors, maintenance events, and a commercial review of leases for technical language and terms that might negatively impact the all-important residual values or transactional efficiencies. By conducting robust research on the operator, assets and jurisdiction before a deal progresses, we can identify the risks in a deal and factor this into pricing. We are also able to find value through such research by highlighting if risk is not as high as that perceived by the market. Our combined appraisal and technical expertise enables us to deliver valuations provided by ISTATcertified appraisers and independent inspectors. These assess the true condition of the aircraft, and provide negotiation leverage, or alternatives if the aircraft are sub-standard. Our relationships with lessors and operators, combined with our proprietary lease end and new orders data, allows us early warning of secondary acquisition opportunities. When ordering new aircraft, we liaise closely with the OEM to ensure correct specifications and timely delivery, to avoid delays or additional costs. Once in use we advise on how the aircraft will be managed by the airline for example whether it outsources MRO or performs maintenance in-house, and what the value and remarketing implications of that decision are likely to be. Equipped with this information, the investor has a clearer view of the value and of the potential of the investment. Alongside informing selection decisions, IBA participates in roadshows as part of the fundraising team. In a little more detail, IBA typically: Assesses the current and future market value of acquisitions and provides guidance on lease rate trends to optimise investments. Conducts maintenance cash flow analysis, and Fly-Forwards to provide a snapshot of the critical maintenance events in the asset s life. Reviews leasing documents to highlight areas of leverage, negotiation, concern, or exposure. Reduces your exposure by auditing the maintenance and operational experience of selected lessees to assess their ability to meet obligations. Audits aircraft and records for evidence that all is up-to-date; and ultimately that the value of your asset is being maintained. Sources, negotiates and oversees the build and delivery of new aircraft. IBA Maximising returns from aircraft operating leases
On-Lease Management While aviation operating leases continue to provide impressive returns compared to other asset classes, few other assets are as complex or critical to maintain as aircraft and their engines. Inadequate or inefficient maintenance not only has serious implications for safety, but also impacts residual values and increases the risk of delay around future transitions. RUNNING an aircraft fleet requires three distinct skills:. Oversight of financial and legal processes. At IBA we are experienced at managing contracts, in particular balancing the requirement of the lease with the MPD. We also oversee the collection of critical receivables such as rent, reserves, deposits and letters of credit where appropriate.. Oversight of maintenance and utilisation. We gather and analyse maintenance and utilisation data to ensure the aircraft is being used and maintained as per the agreement. Such analysis can also provide early warning of potential issues because utilisation and maintenance can change when cashflow dries up. We also manage records. Full traceability is essential both for redelivery and remarketing. Reporting surrounding the financial and technical oversight (overview) process is undertaken on our own platform, or a platform selected by the client.. A proactive effort to optimise cost management. IBA s Maintenance & Exposure Forecasting Solution is a unique cash and maintenance system designed to provide visibility of maintenance events and costs for all aviation assets within a portfolio. Accurate forecasting ensures sufficient cash flow to cover events such as airframe heavy checks, engine shop visits, LLP replacement, landing gear and APU overhaul. It also provides opportunities for the proactive management of maintenance exposures or the realisation of surpluses through trading, lease/ re-lease time, or part-out decisions. Secondly, we deliver tangible savings through data analysis. In one recent review of Maintenance Reserve Claims, we reduced the quantum from $.6m to $00k by demonstrating that the work performed was not to a sufficient level to draw down all of the accrued reserves. Thirdly, our combined data and technical expertise enables us to fully optimise parts and engine management and save $milllions, be that swapping engines or using PMA parts where permitted. Finally, we are also adept at negotiating with OEMs in relation to claw-back around warranty claims. MONITORING When monitoring aircraft and engines we talk of building a moving picture. We combine the technical and regulatory aspects of lease management with commercial and externally-focused analysis to provide a comprehensive overview of how the aircraft is being utilised, and if the risk of grounding or default is increasing or decreasing. Alongside utilisation rates, which is the key aspect to monitoring red-flags, other warning signs might include: Key staff changes Route changes and cancellations Records and maintenance systems issues Economic and regulatory changes Order deferrals, and Rumours of payment difficulties
Lease-End Process Remarketing or transitioning aircraft at the correct price or rate is vital to extract maximum value for investors. IBA can draw on a depth of expertise to ensure this happens. We advise clients on whether to extend or return by analysing supply, demand, reserves and lease rates. If extending is the best option, we review the operator s plans and assist with negotiations around new lease terms. If the aircraft is returned, we oversee redelivery and help the lessor decide the next steps, be that securing a new lessee, selling the aircraft, or moving it to part out or conversion. Depending on aircraft type, we will commence remarketing in parallel with overseeing redelivery to minimise downtime. The complementary backgrounds of IBA s asset management and remarketing professionals, combined with our proprietary data access, allows us to quickly assess the potential market interest in any given aircraft, and to recommend the appropriate sales campaign and strategy. Whilst we would always advise repossession as a last resort, IBA is able to provide a wealth of technical and strategic support including re-registering the aircraft, assessing the aircraft return conditions, and the robustness of local legal systems where the aircraft is currently sited and at its future destination. Be clear on the level of support and advice needed at each stage of the cycle. Pre-Closing Due Diligence On-Lease Management Lease-End Phase Level of Support and Advice Technical Manager Lease Manager Asset Manager Servicer Servicer/ Advisor Quasi Lessor (IBA) Pre-lease DD of Lease, Lessee and Jurisdiction Valuations, Deal Economics, Investment Paper Delivery, Aircraft Spec and Legal /Process Liaison Tax, SPV Set-up, Funding Structure. Lease Negotiation Liaison with Lessee Legarding All Payments, Claims, Request Per Lease Invoicing & Payments Cash Manager Utilisation, Financials Required from Lessee Per Agreement Liaison with Lessee Regarding Qualifying Shop Visits Inspection of Asset and Records Redelivery Remarketing, Extension Negotiations, Aircraft Sales IBA offers technical, leasing, asset and servicer advisory across the cycle.
IBA. April 08. E&OE. Aircraft Operating Leasing. The Transition Management Minefield Managing the process : Pre-purchase : Running 4: Transitioning : Monitoring Do you RETURN or EXTEND? Analyse: Market lease rates Fuel price outlook Cost of meeting redelivery conditions Deal economics Top 0 contributors to transition challenges. Poor contract drafting around redelivery conditions.. Lack of Lessee planning and early engagement with Lessor.. Inadequate focus on assets during operations. 4. Lessee operational demands consuming redelivery resource. 5. Decentralised, missing or incorrectly completed records. 6. Underestimation of the total workload. 7. Discovery of additional work required during maintenance input. 8. Lack of Lessor appetite for returned aircraft. 9. Engines failing final borescopes carry out precautionary borescope much earlier. 0. Mismatch of current Lessee redelivery conditions to next Lessee delivery. ENGINES Months before lease end 4 Assess replacement options 0 The last 5 months prior to redelivery ACTIVITY 5 4 0 09 08 07 06 05 04 0 0 0 INITIAL PHASE Always complex to assess, forecast and maintain given the myriad of variables. Manage cycles and shop visits more strategically. Late decisions on engine build WILL lead to increased costs and late redelivery. 8 Engines: assess condition 0 Confirm lease return, engage Lessor 5 Interior & Configuration 9 Confirmation of Lease Return PRE-REDELIVERY PHASE Analysis of Redelivery Conditions MRO Selection (Lessee) Initial Meeting with Lessor Project Plan Cabin & Cargo Bays - Inspection Preparation of Aircraft Records Preliminary Workpack Preliminary Engine & APU Borescope Inspections Final Workpack (Lessor approval) Pre-Input Meeting with MRO REDELIVERY PHASE Maintenance Plan from MRO DOCUMENTATION Records, where are they? Use of PMA/DER repairs. Local approved mods versus OEM sourced data. 00% $ 0% $ Modifications & Repairs 6 0 Late delivery lease premium Dependent on contract Average overspend at lease end $4.m $.85m Perform Workscope (MRO) Aircraft Records Review Engines - High Power Run Demonstration Flight Engine & APU Borescope Inspections Final Discrepancy List Commercial Resolution AIRCRAFT RETURN Typical overspend, it soon adds up Engines 700,000 General 55,000 Components 00,000 Fuselage, windows and doors 50,000 Landing gear 50,000 Corrosion 45,000 Interior and carpet 5,000 APU 0,000 Wings and empennage 0,000 $,845,000 For more information on how IBA can help your business with Redeliveries and Transitions contact marketing@iba.aero www.iba.aero
Selecting the appropriate service level IBA offers a breadth of services, from adhoc advice and support on specific topics, to a fully-outsourced facility. Full Service Best used when: Lessor has limited in-house resources. Examples of support: Utilisation rates, Quarterly reporting against asset and lease compliance, Liaison with lessee over drawdown reserves, Six-monthly valuations/ fly forwards. Limitations: Few. Ad hoc Best used when: In-house lessor has extensive in-house resources, or leases to top-credit airline. Examples of support: Mid-lease surveys, Annual valuations, Redeliveries. Limitations: Not keeping up with potential influencers of aircraft value e.g. engine changes, modifications. Standby Best used when: Existing lessor remains as the servicer but you need an independent assessment of the robustness of the work, and a second opinion of the data being presented. Examples of support: Review of reports, Provision of additional support. Limitations: Reactive. Only focused on lessor rather than fleet directly. To conclude: managing the complex variables. The ASSET We know the details and anomalies that create differences in asset value the aircraft specification and configuration, the engine variants, thrusts, and on-wing times. We provide the long-term foundation to optimise asset value. The OPERATOR How reliable is the lessee who will operate and maintain the asset? You may have a great asset but how good is the operator? A great lessee at the start of the deal may not be one by the lease end. Conversely, a riskier credit, well managed, can be extremely rewarding. The LEASE A great asset, a great credit, but a poor lease doesn t make great sense. We analyse the technical details of the lease, the definitions, the covenants, and the obligations for lessor and lessee. For further information please contact the team at marketing@iba.aero, or call +44 (0) 7 44 88 IBA House, 7 The Crescent, Leatherhead, Surrey KT 8DY, UK T: +44 (0) 7 44 88 marketing@iba.aero 8- Pembroke Street Upper, Dublin, Ireland T: +5 (0) 7 46 90 marketing@iba.aero Member of ISTAT UK CAA Approval No. UK.MG.06 www.iba.aero