Mediterranean Business Aviation A Lender s Perspective on Valuation

Transcription

1 Mediterranean Business Aviation A Lender s Perspective on Valuation Don Walsh Managing Director Guggenheim Partners, LLC Business Aircraft Investments donald.walsh@guggenheimpartners.com mobile

2 Historical Overview of Guggenheim The Guggenheims earned international recognition for innovative thinking, great determination and their resulting success in investments, business and finance Meyer Guggenheim paid $5,000 for a one-third interest in two Colorado lead and silver mines. By the end of World War I, the family business controlled more than 80% of the world s supply of silver, copper and lead Meyer Guggenheim s sons reorganized into Guggenheim Brothers Daniel Guggenheim embraced a vision of going where no man had gone before and, on the recommendation of Charles Lindberg, bankrolled Robert Goddard s obscure research on rockets. Goddard s work eventually led to the development of modern rocketry When Solomon Guggenheim sought a permanent new home to display his vast personal collection of non-objective art, he engaged the respected architect Frank Lloyd Wright to design a unique contemporary art museum. The partnering of these two visionaries resulted in one of the most famous and recognizable structures in the world, itself a work of non Harry Guggenheim adhered to the family formula by enlisting the services of the most preeminent horse trainers of the time to successfully achieve his goal of winning the Kentucky Derby with a horse named Dark Star The Solomon R. Guggenheim Foundation together with the Basque government engaged the renowned architect Frank Gehry and challenged him to design a new Guggenheim Museum that would be so innovative and spectacular that it would transform Bilbao, Spain from a struggling city into a vibrant cultural destination. objective art. 2

3 Guggenheim Family Contributions to the Development of Aviation Beginning in the 1920s, Daniel and Harry Guggenheim helped transform the infant aviation industry. Together they funded and/or helped develop: Seven schools of aeronautical engineering in the United States A model airline The first aviation weather service Instruments that allowed flight with zero visibility Charles Lindbergh s national tour following his historic trans-atlantic flight Robert Goddard s pioneering rocketry efforts and subsequent jet propulsion work Aviation will always owe a debt of gratitude to Daniel Guggenheim -Charles A. Lindbergh Western Air Express,

4 Guggenheim Partners Who We Are Guggenheim Partners is a privately held, global financial services firm with 2,500 employees and more than $180 billion in assets under management*. We combine innovative thinking and experienced advice to produce customized solutions for our clients, which include institutions, governments and agencies, corporations, investment advisors, family offices and individual investors. Investments Insurance Services Securities Premier asset manager and investment advisor with expertise in: Fixed Income Equities Alternatives Managed Accounts Advisory Solutions Advisor to insurance company management teams on topics including: Asset Liability Management Capital and Expense Management Transactions and Products Full-service investment banking and capital markets capabilities including: Advisory Financing Sales and Trading Research * Assets under management are as of June 30, 2013 and include consulting services for clients whose assets are valued at approximately $39 bn. 4

5 Post-Financial Crisis: Aircraft Financing Recovery All-cash acquisitions have increased to an estimated 75% of purchases from approximately 50% historically Financing widely (if not easily) available Liquidity Gap Flight to Safety Specialization into niches Competition and internal institutional factors have led financiers to focus on core products Increased interest in leasing Regulatory & legal challenges, especially in emerging markets 5

6 Fixed Wing Global Market Distribution: 2008 vs Recent aircraft delivery trends indicate slowing demand in the developed markets and more growth potential in the emerging markets 70% 60% 62% 50% 50% 40% 30% 20% 10% 20% 18% 6% 15% 8% 12% 4% 5% 0% North America Europe Asia Pacific Latin America Middle East / Africa Source: GAMA 6

7 Business Aircraft Market: Segmentation of Recovery There is industry-wide recognition of a segmented market recovery in the business aviation market. Deliveries, preowned pricing, and new programs by OEMs all reflect a shift toward larger cabins and longer range aircraft Segmentation of New Business Aircraft Deliveries % -45% +33% Non-Target Business Guggenheim Aircraft Target Market Target Business Aircraft (No ULRs) Not Guggenheim s Ultra Long Range Target Aircraft Market Ultra Long Range Aircraft ( ULR ) Large/Mid-Size Cabin Small Cabin/Very Light Jet ( VLJ ) Ultra Long Range ( ULR ) Large/Mid-Size Cabin Small Cabin/Very Light Jet ( VLJ ) Sources: JETNET, VREF, and Guggenheim estimates 7

8 Installed Base and Value Retention 9,000 8,000 7,770 Business Aircraft in Global Service 7,000 6,000 5,000 4,000 Lower Supply = Value Stabilization 5,076 3,000 2,000 1,000 1,045 0 Ultra Long Range Large/Mid-Size Cabin Small Cabin/Very Light Jet Guggenheim Target Market Not Guggenheim Target Market Note: Fleet data is for year-end 2012 Source: Ascend 8

9 The Mediterranean: Encompassing Three Regions Southern Europe Middle East North Africa Spain Turkey Gibraltar Syria France Lebanon Monaco Israel Italy Malta Slovenia Croatia Bosnia-Herzegovina Montenegro Greece Cyprus Egypt Libya Tunisia Algeria Morocco 9

10 Mediterranean Based Jets: 3.06% Annualized Growth Since 09 Malta s fleet grew 78.93% annualized from 4 to 41 Turkey s fleet grew 12.23% annualized from 87 to 138 Algeria s fleet grew 11.37% annualized from 26 to 40 Business Jets by Base % CAGR 810 reg. 1.89% 864CAGR reg. 175 reg reg reg reg % CAGR 3.06% CAGR Southern Europe Middle East North Af rica 6.04% CAGR June 2009 June % CAGR Source: JetNet 10

11 Mediterranean Registered Jets: 3.15% Annualized Growth Since 09 Malta s fleet grew 69.05% annualized from 6 to 49 Lebanon s fleet grew 15.47% annualized from 9 to 16 Algeria s fleet grew 11.76% annualized from 25 to 39 Business Jets by Registration % CAGR 189 based 239 based 121 based 156 based based 970 based 175 Southern Europe Middle East North Africa % CAGR June 2009 June % CAGR % CAGR 7.34% CAGR Source: JetNet 11

12 The Mediterranean Business Jet Fleet Today Country Base Reg. France Italy Spain Greece Malta Cyprus 17 3 Slovenia Croatia 10 9 Montenegro 5 4 Gibraltar 4 0 Bosnia and Herzegovina 3 3 Monaco 1 3 Southern Europe Turkey Israel Lebanon Syria 2 2 Middle East Egypt Morocco Algeria Libya Tunisia 5 5 North Africa % CAGR Total Note: As of June 30, 2013 Source: JetNet 12

13 Guggenheim s Asset Based Loan Product Overview Asset based lending opportunity enhanced by financial crisis, depressed values, and growth in non-traditional global markets Non-recourse for payment default (asset versus credit is primary exit strategy) Limited recourse triggered for breaching asset value protection covenants Value proposition: less invasive underwriting process, non-contingent liability, stand alone transaction (no investment relationship required) A boutique approach to deal sourcing and portfolio growth Front loads the majority of any workout into the structure beforehand 13

14 Guggenheim s Underwriting Paradigm Asset Stage One Determine the value Tier System determines structure Aircraft Management, Jurisdiction, & Security Stage Two Protect the asset Functions as repossession agent in the event of a default Borrower and Credit Stage Three Financial wherewithal of the borrower Borrower s reputation 14

15 Asset Review and Valuation Process Data Sources Output 1 Market Analysis Participate in conferences and events Research and review industry publications Interact with brokers NBAA, EBACE, MEBACE, JP Morgan, UBS, JETNET, Corporate Jet Investor, OEM Reports, Broker Reports Prepared to value specific aircraft Understanding of market dynamics 2 Class Analysis Analyze entire class of aircraft Asses functional/economic relevance of subject aircraft against competition Aircraft Bluebook, VREF, Ascend Online, OEM news releases Understanding of competitive market Assessment of future viability of the model Price points of competitors vs specific aircraft 3 Model Analysis Research specific aircraft market Contact broker for nearly every aircraft for sale Asses off-market supply Identify key value differentiators Determine typical depreciation with age Same sources as above Cold calling listing brokers Broker network Aircraft Post Percentage of fleet for sale and time to sell Assessment of market interest Price points of comparable assets Expected depreciation 4 Aircraft Specific Gather information on aircraft specification Determine ownership history Asses physical depreciation (hours, cycles, paint, interior) Broker network Seller/Referral source Client Thorough understanding of aircraft condition Selection of comparable sales aircraft 5 Value Grade aircraft against comparables Determine FMV Should Sell Analysis Same as above Fair Market Value Orderly Liquidation Value ( OLV ) Advance and amortization for initial terms 6 Verify Commission third party appraisal Desktop if new and physical if pre-owned ASA Certified Appraisers with Aircraft Specialty and familiar with specific aircraft market Independent assessment of value Verified understanding of aircraft condition 15

16 Asset Based Loans: Structure Matters Conservative advance rates and amortization schedules provide ample protection to the lender over the life of the loan. Meaningful obligor equity also protect the loan. Structuring to include Supplemental Amortization covenants and Liquidity Reserve Accounts provide further protection for the loan. Loan Characteristics Aircraft Finance Collateral Coverage Purchase Price $25,000,000 Assessed Value $24,800,000 millions $25.0 $24.8 Advance Rate 75.00% Initial Loan Balance $18,600,000 $20.0 $22.3 $18.6 $17.3 Term 7 years $15.0 $15.6 Spread 6.00% Balloon 45.00% Depreciation Rate 5.00% $10.0 $5.0 $8.4 $0.0 Today Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Loan Balance Estimated Orderly Liquidation Value Estimated Fair Market Value Typical loan structure for mid-size cabin business aircraft 16

17 Other Structural Considerations Depending on where the asset and management company fall within tier system plus transaction considerations, additional structural elements may include: Supplemental Amortization Liquidity Reserve Accounts Maintenance Reserves or Hourly Cost Maintenance Programs Usage limitations Additional Insurance Coverage(s) Financial Covenants 17

18 Mediterranean Business Aviation A Lender s Perspective on Valuation Don Walsh Managing Director Guggenheim Partners, LLC Business Aircraft Investments donald.walsh@guggenheimpartners.com mobile