Aviation Industry and Aviation Financing in Emerging Markets. May 2011

Transcription

1 Aviation Industry and Aviation Financing in Emerging Markets May 2011

2 About Standard Chartered Bank Global Network, Local Presence Listed on both the London Stock Exchange and the Hong Kong Stock Exchange Top 25 companies in the FTSE-100 by market capitalisation Over 1,700 branches and offices in over 70 countries with 85,000 employees We work seamlessly across borders and product groups, giving you full access to the resources of our bank Unrivalled network, tailored solutions Core strength in Asia, Africa and the Middle East Over 150 years of on-the-ground experience in many of the world s fasting growing economies We deliver world-class, award-winning solutions built on innovative and comprehensive financial products 2

3 Standard Chartered Bank in Middle East SCB has an unbroken history of 90 years in the Middle East: Oman (1968), Bahrain (1920), UAE (1958), Qatar (1950), Lebanon (2000), Jordan (1925) and Saudi Arabia (2011), and with over 150 years on the continent One of the largest foreign bank networks in the region Lebanon Retail presence in 6 countries (UAE, Oman, Qatar, Bahrain, Jordan and Lebanon) and WB Capabilities extended to include Egypt (1 rep office, 2008), Iran (rep office, 1992) and Iraq (1 rep office). Network of 29 branches, 170 ATMS Jordan Commenced operations in Saudi Arabia in Feb-11 Bahrain Qatar UAE 4,000 staff in the region with the highest diversity within the Group (70 nationalities) Oman 3

4 Aviation Finance Team SCB has a multi-product platform to offer financing solutions and meet the growing demand for aircraft leasing and financing in its markets across Asia, Africa and the Middle East. Acquired Pembroke in 2007, adding operating leasing to finance capability We have dedicated and first class Aviation Finance professionals in Ireland, London, Singapore and Hong Kong. In-house expertise includes remarketing, technical, legal, structured finance and lease management Owned fleet of 48 aircraft, management of 34 aircraft (excluding financing). Dublin London Hong Kong Singapore 4

5 Aviation Finance Product Range Range of Products Selected Awards 1 Operating Lease Commercial jet aircraft (passenger and freighter) Aircraft engines Finance lease PDP Deal of the Year 2010 Tiger Airways Multi currency Pre-delivery Financing Loan Deal of the Year Middle East Debt Solutions Management Services Debt financing Islamic financing solutions Export credit financing Aircraft finance advisory and structuring services Lease marketing and management advisory Aircraft sales, repossession and technical advisory Company administration services Asia Deal of the Year 2009 Air India Bridge Financing for 7 x B777 and 3 x B Africa Deal of the Year 2008 Ethiopian Airlines Purchase and Operating Lease of 2 x B ER Middle East Deal of the Year 2008 Qatar Airways USD500 million Finance Lease for three B777 Etihad Airways USD102 million Senior Secured Commercial Loan Facility for one A Qatar Aviation Lease Co. USD650 million Revolving Credit Facility Best Islamic Structured Financing Deal 2010 Qatar Airways USD150 million Islamic Facility Aircraft Finance Recent Transactions Country Deal of the Year (Qatar) 2009 Ijarah Deal of the Year 2009 Tiger Airways Holdings Ltd USD80 million COFACE Facility for twoa Sole Arranger Tiger Airways Holdings Ltd USD68 million Pre-Delivery Payment Financing Facility for six A Sole Debt Arranger QALC USD200million Finance Lease for eight A320 family 2010 Sole Arranger, Structuring Bank, SWAP provider. Air India USD905 million Bridge Financing Facility for seven B777 and two B Lead Arranger Aircraft Debt Deal of the Year, Middle East, 2010 Qatar Airways USD150m Islamic Facility Aircraft Equity Deal of the Year 2008 Acquisition of Pembroke By Standard Chartered 5

6 % growth rate (GDP) % growth rate (RPK's) RPK's (trillions) Demand for Air Travel World GDP and Air Passenger Traffic (RPK*) Growth World Airline Traffic Forecast (RPK s) Historical Forecast Source: IMF, ICAO, IATA GDP Growth RPK Growth F Demand for air traffic is closely linked with the global economic cycles. Air passenger demand (RPK s) has grown at around 1.5 to 2.0 times the trend long-term growth rate in GDP. Last cycle resulted in 2.5% decline in traffic (2009). Strong recovery in Growth 5.1% pa Source: Airline Monitor, Boeing Long-term Growth Global GDP = 3.2% pa Passenger traffic = 5.3% pa (Cargo = 5.9% pa) 20 yr traffic growth forecast of 5.3% pa driven by long term global economic growth of 3.2% p.a, Other Key drivers: - Global trade and tourism - deregulation of air travel markets, - growth of low cost carriers - Emerging economies *RPK Revenue Passenger Kilometre (a measure of passenger demand, representing each kilometre each passenger is carried) - 6

7 Number of Aircraft Number of Aircraft Long-term Global Demand for Aircraft Airbus projections of global aircraft demand ( ) Boeing projections of global aircraft demand ( ) 35,000 40,000 30,000 35,000 25,000 20,000 15,000 25,850 new aircraft* USD 3.2 trillion 30,000 25,000 20,000 15,000 30,900 new aircraft USD 3.6 trillion 10,000 10,000 5,000 5, New deliveries by type ( ) New deliveries by type ( ) Twin Aisle (24%) Large Widebody (7%) Twin Aisle (23%) Regional Jet (2%) Large Widebody (6%) Single Aisle (69%) Single Aisle (68%) * Airbus forecast excludes Regional Jets Source: Airbus GMF / SCB estimates Source: Boeing current market outlook

8 Emerging markets are driving air traffic growth Traffic growth (RPKs) by region Air traffic forecast by regional flow ( ) 25% Asia/Pacific 2009 Traffic Added traffic % North America 15% Europe Domestic China 10% N. America - Europe 5% Europe - Asia Middle East - Asia 0% -5% -10% N.America - Asia Latin America N. Am - L. America Europe- Mid East RPK Growth Emerging Markets + 6.1% p.a Mature Regions + 3.7% p.a Asia Middle East Latin America Africa Europe N. America RPK's (billions) Source: IATA Source: Boeing, Airbus, Standard Chartered 8

9 Aircraft Demand from Emerging markets Mix of Backlog by Region in Different Cycle New Aircraft Deliveries ( ) 17% 11% 7% 11% 19% 13% 32% Number Value ($million) Asia/Pacific 10,320 $1,320 22% 31% 18% 28% N. America 7,200 $700 Europe 7,190 $800 Middle East 2,340 $390 50% 42% 57% 21% Latin America 2,180 $210 20% CIS 960 $ N. America Europe Asia Other Africa 710 $80 TOTAL 30,900 $3,590 Source: Ascend On-line Source: Boeing GMF 2010 Emerging Markets account for around 60% of current order backlog Emerging Markets long term financing requirement of $2 trillion 58% of total demand 9

10 US$ Billions Need for External Finance Global Airline Net Profit Margins ( F) Airline Industry Financing Requirement Forecast 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% Source: Airline Monitor Historic profitability is highly cyclical and rarely exceeds 3% Average annual net profit margin of 0.05% since 1980 Net profit of $16Bn estimated for 2010 (a 2.9% margin). Emerging markets net profit for 2010 of $9.8Bn (Asia $7.6Bn, Middle East $1.1Bn, L. America $1.0BN) $120 $100 $80 $60 $40 $20 $ Cash Flow Capital Expenditure External Capital Required F 2012F 2014F Generated cash flows only partially cover capital expenditure needs (historically around 52% on average). Airlines currently facing a financing shortfall opportunity for external financing. Demand for external capital is forecast to increase. 10

11 Primary Sources of Industry Financing Traditional Sources Developing Sources Commercial Banks Regional / Local Banks and Lessors Capital Markets Islamic financing Export Credit Agencies Sovereign Wealth Funds Operating Lessors Pension Funds Airlines cash Private Equity / Hedge Funds Manufacturers 11

12 Financing Trends Impact of Financial Crisis Boeing Aircraft Deliveries Impact of Financial Crisis Source: Boeing Capital Corporation (May 2011) Total funding requirement (Airbus and Boeing) of $62Bn in 2010 Forecast to increase to $77Bn this year Demand dropped as airlines tried to reschedule deliveries Liquidity became restricted and expensive Number of Banks exited the market Capital markets limited Lessors remained active but inadequate access to debt funding Concern over funding gap for new deliveries Heavy reliance on ECAs doubling of capacity Manufacturer financing came back 12

13 Commercial Banks Evolution of Aircraft Banking The 60s-80s primarily US based banks Chase, Citibank, Wells Fargo, NationsBank The 80s dominated by Japanese banks Sumitomo, Fuji Bank, IBJ The 90s to today European banks KfW, Calyon, Natixis, DVB, BNP Next Generation eg. SCB, ICBC, Bank of China Impact of financial crisis Focus on existing customer base and better quality credits. A number of banks existed the market, reducing industry participants. Restrictions on market liquidity increased pricing. Increased support from Export Credit Agencies (ECAs) to fill funding gap. Current Market Trends Pricing remains high, lower LTVs, low interest rates, cost of liquidity. Expected higher cost of capital due to Basel III will increase debt pricing. New sources of financing Islamic Banks, regional banks in Asia / Middle East, rise of Chinese banks into aviation market 13

14 New entrants Bank Financing Regional Banks - Asia Initially set up to provide finance for domestic airlines but moving to establish a global presence. ICBC closed a SLB for two B ERs with British Airways China Development Bank provided $358m debt facility to AerCap for 4 x A330s CCB participated in an islamic lease to finance two B777s for Emirates ICBC provided debt for JOLs for three A321s with Lufthansa Regional Banks Middle East Developing regional aircraft financing appetite and capability. Al hilal Bank provided Islamic Finance Lease for A340 for Etihad. Noor Islamic Bank participated in Islamic lease to finance Emirates B777s. Emirates Bank was lead arranger for DAE $800m loan and credit facility. Arab Banking Corp. co-arranger for loan for Etihad A340s. 14

15 Islamic Financing Islamic banks in Asia and the Middle East are an additional source of aircraft financing and increase the pool of liquidity available to the sector. Most common structure is the Ijara finance lease. This has been used by Emirates and Qatar Airways. Standard Chartered arranged an Islamic financing for Qatar Airways in This $160m deal for one B LR combined an Ijara finance lease and a murabaha. Banks involved in the structure included Maybank & Bank Islam (Malaysia), Sumitomo Mitsui Banking Corporation, DBS (Singapore), Masraf al Rayan (Qatar) Emirates financed two A aircraft in 2003 using Islamic Operating Leases Some points to note: The longer tenor nature of aircraft financings (typically 10 to 12 years) can be a constraint for some Islamic banks Documentation is more complex than conventional aircraft financings. Shariah scholars may have differing views on acceptable transaction structures 15

16 Operating Leasing Effectively provides 100% financing. Available to weaker credits Sector continues to grow accounts for c. 36% of global market. Increasingly Important source of financing for emerging market airlines. Lessor access to liquidity restricted post-crisis. Long-term debt still challenging for most lessors. Increase in use of ECAs for lessor deliveries. Increase in sale / leaseback transactions. New entrants backed by private equity bringing additional liquidity and competition to the market. Growth of Chinese lessors 16

17 Operating Lease Evolution Operating Leasing as % of Total World Jet Fleet (In service aircraft) 40% 35% (Number of operating lease aircraft in service) 5,335 6,709 World Airline Passenger Jet Fleet (2010) Ownership Pattern 30% 25% 20% 15% 10% 1,009 2,221 21% 3,452 25% 33% 36% Owned (26%) Owned Finance (26%) (39%) Leased (36%) Finance (38%) 5% % 88 2% 0% 4% Source: Ascend Online Source: Ascend Online, Pembroke estimates Operating lease proportion has tripled since 1990 and is now a major component of the financing mix. 17

18 Growth of operating leasing in Emerging Markets Airline Passenger Jet Aircraft Emerging Markets ,488 aircraft 1,866 aircraft 2,787 aircraft 3,780 aircraft 4,433 aircraft 6,341 aircraft 3% 15% 22% 26% 37% 40% 47 leased 284 leased 601 leased 892 leased 1,648 leased 2,521 leased Airline operational fleet has grown rapidly in the last 15 years to over 6,000 aircraft At the same time the proportion on operating lease has doubled to now be 40% of the total fleet 18

19 Leasing is established in all regions Passenger Jet Aircraft on Operating Lease (May 2011) Africa Asia Middle East Latin America 33% 40% 35% 48% Europe N. America Australasia 48% 28% 39% Source: Ascend Online 19

20 New entrants - Leasing Emerging Market Lessors Numerous leasing companies have been set up in China to provide equipment leasing ICBC, CDB Leasing and Minsheng. BOCA and Hong Kong International Leasing already active. Establishment of Free Trade Zones to support leasing/financing industry. Chinese lessors primarily focused on domestic finance lease market but plans to expand internationally and development operating lease capability. Private Equity Air Lease Corporation: raised $1.3Bn equity, $2.0Bn debt. Successful IPO. Avolon: backed by Oak Hill. Raised $750m in equity in 2010 and a further $250m in Q1 2011, over $1.5Bn in debt. Jackson Square Aviation: backed by $500m in equity from Oaktree, $400m in debt. RPK Capital Partners backed by $600m from Carlyle Group. HKA Capital: secured a portfolio of nearly $3.0bn in assets by completing its acquisition of Allco Aviation 20

21 Export Credit Agency Financing Guarantees / financing provided by US EX-IM and European ECAs (Coface, ECGD, Hermes). EDC and BNDES in regional aircraft sector. Home Country rule excludes US and certain Europe Airlines (UK, France, Germany) from accessing ECA guarantees. ECA support increasingly important immediately post financial crisis. Accounted for around one-third of all aircraft deliveries in 2010 (approximately $23Bn) and up to 78% of all eligible deliveries. Around 65% of ECA transaction to airlines, 35% to lessors. Introduction of new Aircraft Sector Understanding (NASU) should lead to increased pricing and lower LTVs for airlines. This is likely to result in lower volumes after 2012 and a move back towards more commercial debt. 21

22 Capital Markets Corporate bond markets remain volatile but capacity available for good credits. Limited due to investment grade rating requirements. EETC markets open to aircraft financing but still primarily US based transactions. Approximately $1.7Bn raised in 2010 (vs. $4bn in 2009). Aircraft securitisations still limited. Equity / tax investors focusing on strong credits. JOL/JOLCO investors still active for the best credits KG market available Private equity funding returning for new leasing ventures 22

23 Emirates Airlines Financing Example Op Lease 43% Sources of Funding Bonds 10% Islamic 5% $22 bn in last 14 years Commercial 20% ECAs 22% 199 Aircraft on order Financing Structures going forward Exim /ECA guaranteed loans & Bonds Operating Lease, inc. German KG market EETCs / securitization Commercial loans inc. Islamic structures Bonds, Sukuks, Private Placement Source: Emirates Presentation 8 th Annual Middle East & Africa Airfinance Conference Sept Diversity of Funding Sources is Key 23