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Jason CaldwellEVP Global Sales and Marketing
March 31, 2011
PMA Parts & Leasing in International Markets
With a Focus on Latin America
Why Use PMAs?
• Cost Savings• Availability• Product Improvements• Bottom Line:
– More choice, more savings, better efficiency
Wencor Group Confidential 2
Objections to PMA Use
• “I don’t have the engineering staff to approve PMAs”
• “The OEM says my warranty will be voided and my aircraft will fall out of the sky”
• “My lease does not allow the use of PMAs”
Wencor Group Confidential 3
The Lessor Argument
• The use of PMA Parts ‘Devalues’ the A/C or Engine§ The available lease market is diminished due to the quantity of
airlines who do not want to utilize PMA§ PMA parts have a lower cost, therefore, they reduce the value
of the commodity
• Regulatory authorities are unclear on PMA legitimacy
• PMA parts impact aircraft reliability• Standard contract language cannot change
4Wencor Group Confidential
Objections to PMA Use
• “My lease does not allow the use of PMAs”• Impact to the operators
– Must weigh the higher cost of OEM replacement parts
– Higher cost and inefficiencies of a dual stocking strategy
– Possible monetary consequence of ignoring the prohibitive terms of the lease
Wencor Group Confidential 5
Pushing PMAs in Leased Aircraft• Level I– Change the contract: Use purchase
leverage to assure lowest total cost of ownership, not just lowest lease rate. Use groups or alliances to add negotiating power.
• Level II– Know the real terms: What are the restrictions? All PMAs? Critical parts? LLPs? Components? Airframe? Interiors? License PMAs? Educate the decision makers!
• Level III– Use PMAs for the interim, until lease expires. When lease is up, go to level I.
Wencor Group Confidential 6
PMA Users With Leased AircraftA Few Examples
7Wencor Group Confidential
PMA Users With Leased AircraftA Few Examples
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•AAR Aircraft Sales & Leasing GECAS•AWAS Macquarie AirFinance•Babcock & Brown Aircraft Management LLC ORIX Aircraft Corp•Banc of America Leasing & Capital LLC ORIX Aviation Systems •CIT Aerospace Pembroke Group•First Greenwich Kahala Ltd Q Aviation LLC
United Airlines
•Banc of America Leasing & Capital LLC ILFC•CIT Aerospace Jet Trading And Leasing •GECAS Pacific AirFinance•Global Knafaim Leasing Ltd Sky Holding LLC•Global Principal Finance Company LLC SkyWorks Leasing LLC•Guggenheim Aviation Partners Vx Capital Partners
Delta Air Lines
•AerCap Macquarie AirFinance•AWAS Pacific AirFinance•Banc One Capital Corp Pembroke Group•Boeing Capital Corp RBS Aviation Capital•RPK Capital Management Group LLC GECAS•Global Knafaim Leasing Ltd Volito Aviation AB•Jetscape Inc
American Airlines
Lessors Allowing PMA UseA Few Examples
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ECONOMIC CLIMATE AND AIR TRAVELLATIN AMERICAN AIRLINE FLEETSTRATEGY FOR LEASING COMPANIES
Latin America & Caribbean vs World
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Size Comparison
World Latam & Carib. %
Passengers 2.4 billion 148 million 6.1%
Fleet 25,000 1,254 5.0%
Revenues 480 billion 21 billion 4.3%
Airlines 1,500 80 5.4%
Population 6.9 billion 589 million 8.5%
GDP 60,587 billon 4,247 billion 7.0%
Source: World Bank, ALTA airlines
11Wencor Group Confidential
Regional Comparisons
Source: IMF, ALTA, U.S. DOT, AEA
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Latin America Growth Outpaced US and Europe
Source: ALTA, U.S. DOT, AEA
RP
K C
AG
R 2
004-
2009
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2010 Industry Growth
Source: IATA (except LatAm (ALTA) data point)
14
20.1%
13.2%11.5% 10.5% 10.2%
7.9%5.9%
3.3%0%
5%
10%
15%
20%
25%
M. East Africa LatAm (ALTA)
APAC LatAm (IATA)
Industry N. America Europe
2010
YTD
inte
rnat
iona
l tra
ffic
gro
wth
Wencor Group Confidential
Consolidation
15
15 Years Ago vs. Today
Wencor Group Confidential
Latin American Airline Fleets
16
0 20 40 60 80 100 120 140 160
Aerogal
Conviasa
LIAT (1974) Ltd.
Passaredo Transportes Aereos S/A
Aerocaribbean
VRG Linhas Aereas S.A.
Interjet
Webjet Linhas Aereas S.A.
Aerogaviota
Aires Colombia
Volaris
Aeronaves TSM
Searca S.A.
Austral
Cubana Airlines
Azul Linhas Aereas Brasileiras S.A.
TACA International Airlines, S.A.
Aerolineas Argentinas
Trip Linhas Aereas
Copa Airlines
Avianca
Aeromexico
LAN Airlines
Gol Linhas Aereas Inteligentes
TAM Linhas Aereas S.A.
Leased vs Owned Aircraft - Top 25 Latin American Operators
Owned
Leased
Wencor Group Confidential
Latin American Airline Fleets
17
0 50 100 150 200 250 300
B777
B757
A318
A340
EMB 195
CRJ
A330
MD-80
Dash 8
ERJ-145
B767
B737-200
EMB 190
ATR 42
B737 300-500
B737 NG
A320 Fam
By Aircraft Model
Owned
Leased
Wencor Group Confidential
Top Leasing Companies for Latin American Fleets
18
Leasing CompanyLeased Aircraft
Allow PMA
GECAS 141 YESILFC 57 YESCIT Aerospace 35 YESAviation Capital Group 34Aviation Leasing Inc 32RBS Aviation Capital 30 YESAWAS 29 YESATR 24BBAM LLC 19 YESMacquarie AirFinance 19 YESAergo Capital Ltd 18Nordic Aviation Capital 17AerCap 14 YESAircastle Advisor LLC 14Sky Holding LLC 14 YES
Wencor Group Confidential
Latin American Market
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560 580 600 620 640 660 680 700 720
Delta Air Lines, Inc.
United-Continental
Top 8 Latin America Operators
American Airlines, Inc.
Active Fleet
Delta Air Lines, Inc.
United-Continental
Top 8 Latin America Operators
American Airlines, Inc.
• Meet with Lessors to discuss the importance of PMA use• New Agreements• Existing Agreements
• Utilize the arguments provided
• PMA suppliers would be glad to also participate in discussions
• Engage the assistance of alliance partners• Use existing agreements as leverage• Meet with Lessors together as a group
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21
Engage The Leverage of Alliances
Wencor Group Confidential
Leveraging the Alliance
Wencor Group Confidential 22
ALTA Member
OperatorNumber of
Leased Aircraft
Average Age of Leased Aircraft
Use PMAs
YES TAM Linhas Aereas S.A. 81 8.3 YESYES Aeromexico 73 8.7 YESYES Gol Linhas Aereas Inteligentes 63 9.1 YESYES Avianca 48 13.5YES Aerolineas Argentinas 34 15.1 YESYES Volaris 26 4.3 YESYES VRG Linhas Aereas S.A. 21 9.3 YESYES Copa Airlines 20 5.4 YESYES TACA International Airlines, S.A. 20 5.6
Trip Linhas Aereas 19 12.1 YESLineas Aereas del Estado 17 35.4Webjet Linhas Aereas S.A. 17 17.2
YES* Aires Colombia 16 9.8 YESYES Aerogal 15 17.3 YESYES LAN Airlines 15 10.6 YES
Conclusion• Airlines view cost savings to be a major driver of PMA usage• Other benefits include:
• Improved part performance or reliability• Just in time delivery
• Airlines agree that safety, reliability, or ‘bogus parts’ are not an issue • Most don’t have safety/technical concerns, but also don’t want to be early
adopters of engine hot section PMA parts• OEM/MRO and Lessor contract restrictions are cited to be major factors
limiting PMA use• Airlines and PMA community can focus on three levels of PMA acceptance on
leased Aircraft:1. Change lease contracts to accept PMA– use leverage of new lease, and of alliances2. Use PMA where contract restrictions allow (non-critical, components and airframe, license)3. Use PMA until leases expire
• Latin America case study shows some success
Wencor Group Confidential 23
APPENDIX
Wencor Group Confidential 24
Lessor Top Concernswith Use of PMA Parts
Wencor Group Confidential 25
Source: SH&E Survey
Exceptions• Nearly every lessor’s default policy
is to not allow permit PMA parts; however, exceptions are made, depending upon:– Lessee Credit Quality and Lease
Return Conditions– Fleet Size (bargaining power)– Desired PMA Penetration
• Other exceptions are made if the transaction makes financial sense, and are more inclined to include:– Sale/leasebacks– Long-term leases– Older aircraft– Instances where the next lessee
is known to accept the alternate parts
• Some lessors perceive lessees to have increasing leverage to utilize PMA parts due to:– Increased acceptance of
the safety and testing standards of PMA parts
– Shift in the supply/demand dynamic for aircraft (operators have more negotiating strength)
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