Sumisho Aero Engine Lease B.V. - aviationnews-online.com•Engine stand-by agreements •Engine...
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation Sumisho Aero Engine Lease B.V. Sumisho Aero Engine Lease B.V. 21 st March 2018 2ND AIRLINE ECONOMICS GROWTH FRONTIERS KOREA Investing in Engines “A comparison with investing in Aircraft” Tony Kondo 1
Transcript of Sumisho Aero Engine Lease B.V. - aviationnews-online.com•Engine stand-by agreements •Engine...
Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Sumisho Aero Engine Lease B.V.
21st March 20182ND AIRLINE ECONOMICS
GROWTH FRONTIERS KOREA
Investing in Engines“A comparison with investing in Aircraft”
Tony Kondo
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Agenda• Introduction• Engine market• Engine lease market overview• Comparison between aircraft and engine• Exit strategy• Conclusion• Q&A
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Agenda• Introduction• Engine market• Engine lease market overview• Comparison between aircraft and engine• Exit strategy• Conclusion• Q&A
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Long Term LeaseSale & Leaseback
Engine Portfolio
Short Term LeaseEngine Pooling
Engine Parts Trading
MTU Engine Pool
2 JVs – 2 Business Models, in Amsterdam from 2013
80%20%10%90%
Lease Services
Sumitomo as Majority Shareholder MTU as Majority Shareholder
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Sumisho (SAEL)Long-term lease (over 1 year lease period)
Corporate structure & business model
Sumisho Aero Engine Lease
Sumisho Aero Engines Lease offers comprehensive financial solutions for engines
Target Engine Portfolio
• CFM56-5B/7B• V2500-A5• LEAP-1A/B
Service portfolio
• Long-term leasing• Sale & lease-back transactions• Financing services
• GE90-115B• GEnx-1B• CF34-10E
• Joint-venture between MTU (10%) and Sumitomo Corp. Group (90%)• Holds mid- and long-term assets
• Looking for engine purchase opportunities to grow portfolio
*Other engine types can be supported on request
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
MTU-MLSShort-term lease (less than 1 year lease term & part out)
MTU Maintenance Lease Services
Benefits: Growing engine pool, increased availability for airline customers
Corporate structure & business model
Service portfolio• Short-term leasing (spare engine support)• Pool solutions
• Engine stand-by agreements
• Engine Parts Trading
• Joint-venture between MTU (80%) and Sumitomo Corp. Group (20%)
• Holds short-term assets and assets for teardown
• Strong backing from MTU’s MRO business
Engine types*• V2500-A5/D5• PW2000• CF6-50/-80C2• GE90-115B
• CFM56-3/-5B/-7• CF34 Series
*Other engine types can be supported on request
Lease Services
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Agenda• Introduction• Engine market• Engine lease market overview• Comparison between aircraft and engine• Exit strategy• Conclusion• Q&A
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Engine Market
Limited players
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Engine Market
• Oligopoly Market.• Strong Entry Barrier. (Safety, Huge investment, etc…)• Different from other free competitive market.
⇒ Supplier controlled market.⇒ Stable residual value.
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Agenda• Introduction• Engine market• Engine lease market overview• Comparison between aircraft and engine• Exit strategy• Conclusion• Q&A
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Comparing with Aircraft leasing,
Engine lease market is relatively small,But,
Value of engines is stable.
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Why small??
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Target asset for engine lease is(mainly) Spare Engine
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Overview of engine lease market
• Total Spare engine Market size is $50bil�
• $25bil� is market size of engine lease.($350bil� for aircraft)
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
…but market is growing
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Why stable??
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.Business model of engine OEM (CF image)
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v Huge initial investment.v Sale installed engine with loss and get profit from sale of spare engine, spare parts.v Long term business case (50+years)
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
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Aftermarket is crucial for engine OEM for whole economics of each engine program.⇒ Continuous escalation and market dominance is existing.
Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Escalation
• Life Limited Parts (LLP) is major parts for engines
• Escalation on LLP represents same on other engine parts
• Escalation rates are normally between 5-7%
• Parts prices are doubled every 10-12 years.80
100
120
140
160
180
200
220
240
260
280
2003 2005 2007 2009 2011 2013 2015 2017
Escalation on LLP for CFM56-7B
Source : CFM
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Different Value carve (engine vs aircraft)
0.00
20.00
40.00
60.00
80.00
100.00
120.00
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Appraisal Value
737-800 vin 2012 CFM56-7B26E Source : AVAC, AVITAS
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Agenda• Introduction• Engine market• Engine lease market overview• Comparison between aircraft and engine• Exit strategy• Conclusion• Q&A
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Aircraft Lease Engine Lease
Market size n$350bil�nAdditional $40bil� per year
n$25bil�nAdditional $2bil per year
# of Lessors nManynLess (OEM related,
independent Lessors)
Residual Value nDecline nStable
Unit Cost n45mil~ (NB), ~200mil(WB) n10mil~(NB), ~35mil(WB)
OwnershipRegistration nYes at lessee’s jurisdiction nInternational Registry
Lease Term nMainly Long TermnShort term (2-3months) to
Long Term (10YR+)
Transition Cost nExpensive nMinimal
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Agenda• Introduction• Engine market• Engine lease market overview• Comparison between aircraft and engine• Exit strategy• Conclusion• Q&A
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
For both Aircraft and Engine,exit strategy is key.
Exit Strategy≒Extract value from asset as much as possible.
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Lease or Sale?
Engine is easy to extract value.
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Lease• For aircraft, short term lease is difficult due to transitional
cost and time (change of configuration including seat, livery, etc…)
• For engine, because of minimal transition cost, short term lease is good method to maximize value. And airlines have demand for short term lease to cover one shop visit only.
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Sale• Value of airframe (aircraft minus engine) has been
declining over their age.
• Value of engine is stable due to maintained or escalated value of parts.
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Data Source : Avitas
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
• User of used parts is engine MRO for shop visit.
• Because 70-80% of engine performance restoration cost is for materials.
• Many parts players in the market. ($2bil size market)⇒ Maintain liquidity of engine parts.
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
As engine investor, we need to have a good access for these market.
⇒ Reason why set-up JV with MTU
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Agenda• Introduction• Engine market• Engine lease market overview• Comparison between aircraft and engine• Exit strategy• Conclusion• Q&A
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
• Relatively small market, but, • Stable residual value (Escalation etc…)• Growing market along with Aircraft.• Exit Strategy is always important.• Different method from aircraft to maximize value.
(short term lease/ part out)• Good asset to invest.
“ENGINE LEASE” IS …
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Sumisho Aero Engine Lease B.V. - A Group Company of Sumitomo Corporation
Sumisho Aero Engine Lease B.V.
Agenda• Introduction• Engine market• Engine lease market overview• Comparison between aircraft and engine• Exit strategy• Conclusion• Q&A
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