Aircraft Financing: Leasing & Financial Evaluation

• Practical hands-on modelling under the guidance of an expert financial modeller
• Making financial maths simple on aircraft leasing financing
• Understand the principles behind buy vs lease decision
• Modelling of Maintenance Reserve accounts
• Exercises to put into practice what is covered in each module

• Briefly revise financial mathematics on aircraft leasing financing
• Learn about the leasing vs. buying decision
• Work through the advantages and disadvantages of lease vs buy
• Learn about maintenance reserve accounts
• Understand risk profiles
• Understand the concept of leveraged leasing
• Gain an understanding of evaluating options in aircraft finance lease

Session 1 - Introduction & Course Objectives

• Brief review of aircraft financial evaluations and their objectives

Session 2 – Brief Revision of Financial Mathematics in commercial aircraft financing

• Principles of time the value of money
• Opportunity cost
• NPV & IRR - what exactly do they mean?
• Use of residual values
• Impact of tax on financial calculations

Exercise – from a given set of cash flows, calculate NPV and IRR; then add the effect of a residual value and a given tax rate

Session 3 – The Lease vs Buy Decision for Aircraft Finance

• Cash flow reasons
• Tax issues influencing the decision
• The certainty of cost vs risk
• Weak vs strong balance sheets
• Next-best alternative investments
• Strategic reasons to lease or buy

Session 4 – The Lease vs Buy Analysis for Aircraft Finance

• How to work out the cost of finance
• Calculating cash flows, including residual values
• Tax–deductibility of payments
• Capital allowances for taxation
• Applying financial maths to calculate and analyse the cash flows

Exercise – from a given set of criteria, perform a lease vs buy analysis

Session 5 – Maintenance Reserve Accounts (MRAs) in Aircraft Finance

• Principle underlying concept of MRAs in aircraft finance guide
• Cash flow impact of MRAs
• Timing of payments
• Using corkscrews in Excel to calculate and track MRAs

Exercise – from the previous calculations, add an MRA into the calculation and re-calculate the results

Session 6 – Evaluation of Aircraft Finance Proposals in international aircraft financing

• Sensitivity analysis
• Set up and tools that make the analysis easier
• Cash available for debt service ("CFADS") and free cash flow ("FCF")
• Covenants and ratios used by banks:

• Debt service coverage reserve ratio (“DSCR”)
• Interest cover ratio ("ICR")
• Lease payment cover ratio
• Debt to EBITDA

• Exposure vs value calculations

Exercise – from a pair of given cash flows and debt profiles, calculate the above ratios and contrast the two deals

Session 7 – Leveraged Leasing in Aircraft Finance

• Use of debt and 3^rdparty participation
• Effective transfer of capital allowances to 3^rdparties

Example - review an example of a leveraged lease

Session 8 – Risk Analysis in Aircraft Finance

• Identifying critical risks
• Using probabilities to assess risk
• Quantifying risk
• Calculating weighted average risk values
• Example of a risk model
• Statistical techniques – e.g. Monte Carlo analysis

Exercise – from previous exercises, perform a risk analysis using the above format

Session 9 - Wrap-Up

• Overall review
• Key points to re-iterate
• Final questions and issues to discuss

The aircraft finance course trainer has over 30 years of experience in a wide range of finance roles. He has delivered training courses on behalf of many international training companies since 2005.

He trained as a Chartered Accountant at KPMG in South Africa and New Zealand, before moving into industry with Ford Motor Company. He held various positions there in financial analysis, budgeting and forecasting until he was appointed sales planning manager, responsible for forecasting models, production planning and supply logistics. He joined a multinational private consultancy group in Australia, as their general manager (finance); in this role, he guided the group through a period of major change and financial turnaround.

For the past 21 years, he has worked as a freelance financial modeller, analyst and trainer for a range of blue-chip clients. Assignments have included financial modelling for two major LNG projects in the Middle East, numerous renewable energy projects in both Europe and developing countries, structured financing for a large-scale property development, restructuring and outsourcing projects in the retail gas sector, and PPP transactions in the utilities, health and support services sectors.

With an extensive accounting background, he brings accounting knowledge and analytical skills to transactions and financial modelling. He has built up a great deal of experience in financial modelling in numerous sectors, including gas production, electricity generation, energy retailing, waste processing and property development sectors, as well as building financial models in central government departments, retail enterprises and high-volume online environments. He has built, developed and used models to support commercial negotiations, analyse risk, test scenarios and forecast results.

He has trained others in his specialism of financial modelling, and runs public courses on behalf of major training companies all around the world.

Aims

The aircraft finance course is designed to support middle- and senior-level employees dealing with financial models from different sources, to enable them to assess risk, profile debt and sensitise modelled data for use in aircraft finance evaluations.

The principal aim of the course is to enable participants to assess the cash flow profile, returns and risks in a financing proposal, and use these skills to support credit approvals, documentation and reviews. This will be done by reviewing the principles behind the buy vs. lease decision and using tools to highlight areas of risk and to perform sensitivity analysis.

Methodology

The learning methods used are a combination of the didactic and practical; the principles will be discussed and demonstrated with examples and new learning will be cemented effectively through practical exercises. Suggested solutions to each exercise will be provided and discussed, and participants will be encouraged to review their work independently. Further supporting materials will be available for further in-depth learning and post-training refreshing.