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Fleet selection and portfolio acquisition, February 2017

It is a unique time in aviation finance. Risk and volatility are on the increase, yet the sector rightly continues to interest new investors attracted by the returns plus the liquidity and mobility of assets. Do not underestimate the complexity of aircraft, however. While they can offer a great return and mobility in challenged times, they can also lose 80% of their value if they are missing records or are improperly maintained.

IBA has pulled together a short list of key lessons it has learned during its 30 years of advising on aviation investments. The list if neither exhaustive nor a substitute for the necessary due diligence exercises, but will hopefully prove insightful. We have broken our thoughts into the two areas we feel are the most important: fleet selection and portfolio acquisition.

Fleet selection

  • Select assets carefully. Single aisle aircraft are easier to place, twin aisle aircraft can offer a better return until the lease ends but having a stored twin aisle at lease end can quickly become an expensive liability. Both can be very tricky to re-lease if they are non-standard specifications. Reconfiguration costs can run to tens of millions of dollars for the widebodies and will impact liquidity in the secondary market.
  • Select engines carefully. The wrong choice can cost millions more in the maintenance/fuel burn/shop visits and or generate millions less in residuals.
  • Ensure the specification of the aircraft provide the mission requirement for now and the future. We often see compromise in selection that lead to inefficiencies that create additional fuel burn, increase costs or accelerate operational reliability.  There is almost always a compromise between cost, weight and efficiency but make sure your operations and maintenance are optimised.

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