CDB Leasing aims for 500-600 aircraft portfolio

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Introduction

March 16, 2017, © Leeham Co.: China’s evolving commercial aerospace and aviation industry has high-profile companies such as AVIC and COMAC, and its expanding supplier based, combined with joint ventures with Western companies is well known.

Less well known is the growth in the aircraft leasing business. Increasingly, Chinese lessors are showing up on the order lists of the Big Four aircraft manufacturers. Still, there remains a bit of a mystery about the lessors and dynamics within China.

LNC spoke with the newly appointed CEO of CDB Leasing during the ISTAT conference last week in San Diego.

Peter Chang has been in the Western leasing business for decades, employed in key positions with Aviation Capital Group, ILFC and Aircastle—usually with responsibility for China.

He was named CEO of CDB in December, a move that was announced during the January Dublin conferences of Airlines Economics and Airfinance Journal. More key personnel announcements were made during ISTAT.

In an exclusive interview, LNC asked Chang about the origins of CDB, other Chinese lessors, the current policy of restricting flow of Chinese cash outside the country, the Boeing 737-10 and the Bombardier CSeries.

Here is this interview.

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Pontifications: Boeing MAX 10, “797” NMA dominated ISTAT headlines

By Scott Hamilton

March 13, 2017, © Leeham Co.: The soft launch of the Boeing 737-10 and the prospective Boeing “797” Middle of the Market aircraft easily were the headline news items to come out of the annual ISTAT conference in San Diego last week.

The “797,” as the MOM-sector aircraft was unofficially dubbed, brought enthusiastic reaction.

The MAX 10, not so much.

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NMA “important step” for Boeing, says leading lessor

John Plueger, CEO of Air Lease Corp. Photo via Google images.

March 9, 2017, © Leeham Co.: Proceeding with a New Mid-range Airplane (NMA) is “an important step for Boeing,” says the CEO of one of the world’s preeminent leasing companies. On the other hand, Airbus probably is covered in the Middle of the Market sector.

John Plueger, CEO of Air Lease Corp, agrees with Airbus claims that it has the MOM sector covered.

“From Airbus’ perspective, I think that’s true,” he said in an interview with LNC during the ISTAT annual general meeting in San Diego this week. “I don’t think they feel they have a gap. They’re quite happy with the A321neo. The success of that airplane speaks for itself. They’ve got the A330neo. It would be very easy for them to just do a lighter weight version of the A330neo and whack $7m to $10m off the price of that airplane to compete.

“The question is whether operators will need the range of the neo in that equation,” he said.

“I also think…they are looking at modifying the wing for the A321 possibly even a new wing, which could increase the performance capability of that airplane significantly. For the Airbus product line, I would agree, I don’t think there is a need.”

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If Boeing builds MAX 10, will customers come?

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Introduction

March 7, 2017, © Leeham Co.: If Boeing builds the 737-10, which appears increasingly likely, will customers come?

This is always the multi-billion-dollar question for any aircraft and engine manufacturer.

For Boeing, launching the 737-10 is a low-risk, and in the eyes of many, futile effort to stem the bleeding of market share between the MAX 9 and its rival, the Airbus A321neo.

  • “That’s the most absurd thing I’ve ever heard. What is he, flying downhill?” Airbus’ John Leahy reacting to claims by Boeing’s Randy Tinseth that the 737-10 has more range than the A321neo.

Depending on who’s counting and how the numbers are calculated, the A321 sales outpace the MAX 9 by a factor of four or five to one. LNC calculated last year that the ratio is more likely 3:1, identical to the market share split between the predecessor airplanes, the 737-900ER and the A321ceo.

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Pontifications: Boeing 737-9 roll-out–Nothing Special in the Air

By Scott Hamilton

March 6, 2017, © Leeham Co.: Boeing rolls out its 737-9 MAX tomorrow.

Last week, I received a call from one of the network/cable news organizations asking, What’s special about this airplane?

The answer is: Nothing.

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Is Emirates in trouble?

Introduction

Jan. 12, 2017, © Leeham Co.: There are a growing number of articles around the Emirates airline that points to recent weaknesses in the airline’s operating model. Here are just two:

We decided it was time for a deeper look at this locomotive from the Arab Emirates. Is Emirates in trouble? How solid is it?

We studied the economics for the last decade and took a deep look at the fleet needs, including, has  Emirates committed to too many aircraft being delivered over the next several years?

They have just deferred Airbus A380’s for the first time. Used to be they could not get them fast enough?

Summary:
  • Emirates has been profitable since start 1985.
  • Its unprecedented growth in revenue and passengers has slowed down.
  • The low fuel price has kept profits up for now, but yield and load factors are down.
  • With a flexible fleet structure and a strong balance sheet Emirates has a strong position to weather any storm going forward.

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Market, other factors emerging, creating Boeing 787 concern

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Introduction

Jan. 4, 2017, © Leeham Co.: Despite a rosy picture painted by Boeing about the future of the 787 and the ability to recover more than $29bn in deferred production

Boeing photo.

and tooling costs, there are signs that cause concerns over the next 3-5 years.

Summary
  • Near-term production outlook solid, weakness begins in 2020, big gap in 2021.
  • Boeing doesn’t see wide-body sales recovery until next decade.
  • Company foregoes increasing 787 accounting block; sales won’t support it.
  • Market talks about deferring 787s.

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US, EU ignore Chinese, Russian subsidies

Nov. 15, 2016, © Leeham Co.: Government subsidies to commercial aircraft companies appear to be increasing despite the 12-year disputes before the World Trade Organization between Europe and the US over Airbus and Boeing aid.

Yet the US and Europeans appear to be doing little to try and curb the subsidies to new competitors.

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Less desirable aircraft for lessors

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Introduction

Part 3: Oct. 24, 2016, © Leeham Co.: Lessors select aircraft to add to their portfolios based on several basic criteria:

  • Is it a good airplane?
  • How are the economics?
  • Is there, or will there be, a broad customer base?
  • How “liquid” is the airplane?
  • How broad is the customer base?
  • Reconfiguration costs.
  • Commercial terms of the acquisition.

Lessors often conclude that while an airplane may be good technically and perfectly acceptable for airline use, failure to meet their specialized key criteria—notably liquidity and customer base—they may pass on the aircraft.

Summary

  • A surprising number of in-production jets and those in development don’t make a lessor’s list of desirable leasing assets.
  • The planes all are technically good aircraft.
  • Markets may evolve for some of the aircraft on the list.

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Engine industry clamoring for road back

By Bjorn Fehrm

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Introduction

October 13, 2016, ©. Leeham Co: The airline engine industry is like a ticking bomb. Over the years, a business practice of selling the engines under manufacturing cost and planning to recover costs and make a profit on the aftermarket developed. This goes back decades.

The practice was fostered by fierce competition over the engine contracts for aircraft which offered alternative engines. The losses of the engine sales could be made up later by selling spare parts and services at high margins.

trent-7000

Figure 1. Trent 7000 from Rolls-Royce. Source: Rolls-Royce.

These “jam tomorrow” practices have several implications. The engine industry is now confronted with these and wonder how it could put itself in such a bind. How to handle these and what is the way back?

Summary:

  • High competition in engine sales forced ultra high discounts for the up-front engine sale.
  • Aftermarket schemes was created that should recover profits over spare parts and services.
  • But these maintenance practices create all sorts of problems in the used engine market.
  • The engine industry now wants to return to more normal business practices. But how do they find the way back?

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