Jason Caldwell, Wencor Group, Presentation

PMA Parts & Leasing in International
Markets
With a Focus on Latin America
Jason Caldwell
EVP Global Sales and Marketing
March 31, 2011
Why Use PMAs?
•
•
•
•
Cost Savings
Availability
Product Improvements
Bottom Line:
– More choice, more savings, better efficiency
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Objections to PMA Use
• “I don’t have the engineering staff to
approve PMAs”
• “The OEM says my warranty will be
voided and my aircraft will fall out of the
sky”
• “My lease does not allow the use of
PMAs”
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The Lessor Argument
• The use of PMA Parts ‘Devalues’ the A/C or
Engine
§
§
The available lease market is diminished due to the quantity of
airlines who do not want to utilize PMA
PMA parts have a lower cost, therefore, they reduce the value
of the commodity
• Regulatory authorities are unclear on PMA
legitimacy
• PMA parts impact aircraft reliability
• Standard contract language cannot change
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Objections to PMA Use
• “My lease does not allow the use of PMAs”
• Impact to the operators
– Must weigh the higher cost of OEM
replacement parts
– Higher cost and inefficiencies of a dual stocking
strategy
– Possible monetary consequence of ignoring the
prohibitive terms of the lease
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Pushing PMAs in Leased Aircraft
• Level I– Change the contract: Use purchase
leverage to assure lowest total cost of ownership, not
just lowest lease rate. Use groups or alliances to add
negotiating power.
• Level II– Know the real terms: What are the
restrictions? All PMAs? Critical parts? LLPs? Components?
Airframe? Interiors? License PMAs? Educate the decision
makers!
• Level III– Use PMAs for the interim, until
lease expires. When lease is up, go to level I.
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PMA Users With Leased Aircraft
A Few Examples
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PMA Users With Leased Aircraft
A Few Examples
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Lessors Allowing PMA Use
A Few Examples
United Airlines
Delta Air Lines
American Airlines
•AAR Aircraft Sales & Leasing
•AWAS
•Babcock & Brown Aircraft Management LLC
•Banc of America Leasing & Capital LLC
•CIT Aerospace
•First Greenwich Kahala Ltd
GECAS
Macquarie AirFinance
ORIX Aircraft Corp
ORIX Aviation Systems
Pembroke Group
Q Aviation LLC
•Banc of America Leasing & Capital LLC
•CIT Aerospace
•GECAS
•Global Knafaim Leasing Ltd
•Global Principal Finance Company LLC
•Guggenheim Aviation Partners
ILFC
Jet Trading And Leasing
Pacific AirFinance
Sky Holding LLC
SkyWorks Leasing LLC
Vx Capital Partners
•AerCap
•AWAS
•Banc One Capital Corp
•Boeing Capital Corp
•RPK Capital Management Group LLC
•Global Knafaim Leasing Ltd
•Jetscape Inc
Macquarie AirFinance
Pacific AirFinance
Pembroke Group
RBS Aviation Capital
GECAS
Volito Aviation AB
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Latin America & Caribbean
vs World
ECONOMIC CLIMATE AND AIR TRAVEL
LATIN AMERICAN AIRLINE FLEET
STRATEGY FOR LEASING COMPANIES
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Size Comparison
World
Latam & Carib.
%
Passengers
2.4 billion
148 million
6.1%
Fleet
25,000
1,254
5.0%
Revenues
480 billion
21 billion
4.3%
Airlines
1,500
80
5.4%
Population
6.9 billion
589 million
8.5%
GDP
60,587 billon
4,247 billion
7.0%
Source: World Bank, ALTA airlines
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Regional Comparisons
Source: IMF, ALTA, U.S. DOT, AEA
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RPK CAGR 2004-2009
Latin America Growth Outpaced
US and Europe
Source: ALTA, U.S. DOT, AEA
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2010 Industry Growth
2010 YTD international traffic growth
25%
20%
15%
10%
20.1%
13.2%
5%
11.5%
10.5%
10.2%
7.9%
5.9%
3.3%
0%
M. East
Africa
LatAm
(ALTA)
APAC
LatAm
(IATA)
Industry N. America
Europe
Source: IATA (except LatAm (ALTA) data point)
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Consolidation
15 Years Ago vs. Today
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Latin American Airline Fleets
Leased vs Owned Aircraft - Top 25 Latin American Operators
TAM Linhas Aereas S.A.
Gol Linhas Aereas Inteligentes
LAN Airlines
Aeromexico
Avianca
Copa Airlines
Trip Linhas Aereas
Aerolineas Argentinas
TACA International Airlines, S.A.
Azul Linhas Aereas Brasileiras S.A.
Cubana Airlines
Austral
Searca S.A.
Owned
Aeronaves TSM
Leased
Volaris
Aires Colombia
Aerogaviota
Webjet Linhas Aereas S.A.
Interjet
VRG Linhas Aereas S.A.
Aerocaribbean
Passaredo Transportes Aereos S/A
LIAT (1974) Ltd.
Conviasa
Aerogal
0
20
40
60
80
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100
120
140
160
16
Latin American Airline Fleets
By Aircraft Model
A320 Fam
B737 NG
B737 300-500
ATR 42
EMB 190
B737-200
B767
ERJ-145
Dash 8
Owned
MD-80
Leased
A330
CRJ
EMB 195
A340
A318
B757
B777
0
50
100
150
200
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250
300
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Top Leasing Companies
for Latin American Fleets
Leasing Company
GECAS
ILFC
CIT Aerospace
Aviation Capital Group
Aviation Leasing Inc
RBS Aviation Capital
AWAS
ATR
BBAM LLC
Macquarie AirFinance
Aergo Capital Ltd
Nordic Aviation Capital
AerCap
Aircastle Advisor LLC
Sky Holding LLC
Leased
Aircraft
Allow
PMA
141
57
35
34
32
30
29
24
19
19
18
17
14
14
14
YES
YES
YES
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YES
YES
YES
YES
YES
YES
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Latin American Market
Active Fleet
American Airlines, Inc.
Top 8 Latin America Operators
Delta Air Lines, Inc.
United-Continental
Top 8 Latin America Operators
American Airlines, Inc.
United-Continental
Delta Air Lines, Inc.
560
580
600
620
640
660
680
700
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720
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• Meet with Lessors to discuss the importance of PMA use
• New Agreements
• Existing Agreements
• Utilize the arguments provided
• PMA suppliers would be glad to also participate in discussions
• Engage the assistance of alliance partners
• Use existing agreements as leverage
• Meet with Lessors together as a group
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Engage The Leverage of Alliances
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Leveraging the Alliance
ALTA
Member
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES*
YES
YES
Operator
TAM Linhas Aereas S.A.
Aeromexico
Gol Linhas Aereas Inteligentes
Avianca
Aerolineas Argentinas
Volaris
VRG Linhas Aereas S.A.
Copa Airlines
TACA International Airlines, S.A.
Trip Linhas Aereas
Lineas Aereas del Estado
Webjet Linhas Aereas S.A.
Aires Colombia
Aerogal
LAN Airlines
Number of
Leased
Aircraft
Average Age
of Leased
Aircraft
81
73
63
48
34
26
21
20
20
19
17
17
16
15
15
8.3
8.7
9.1
13.5
15.1
4.3
9.3
5.4
5.6
12.1
35.4
17.2
9.8
17.3
10.6
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Use PMAs
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
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Conclusion
Airlines view cost savings to be a major driver of PMA usage
Other benefits include:
• Improved part performance or reliability
• Just in time delivery
• Airlines agree that safety, reliability, or ‘bogus parts’ are not an issue
• Most don’t have safety/technical concerns, but also don’t want to be early
adopters of engine hot section PMA parts
• OEM/MRO and Lessor contract restrictions are cited to be major factors
limiting PMA use
• Airlines and PMA community can focus on three levels of PMA acceptance on
leased Aircraft:
•
•
1.
2.
3.
•
Change lease contracts to accept PMA– use leverage of new lease, and of alliances
Use PMA where contract restrictions allow (non-critical, components and airframe, license)
Use PMA until leases expire
Latin America case study shows some success
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APPENDIX
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Lessor Top Concerns
with Use of PMA Parts
Source: SH&E Survey
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Exceptions
•
•
Nearly every lessor’s default policy
•
is to not allow permit PMA parts;
however, exceptions are
made, depending upon:
– Lessee Credit Quality and Lease
Return Conditions
– Fleet Size (bargaining power)
– Desired PMA Penetration
Other exceptions are made if the
transaction makes financial
sense, and are more inclined to
include:
– Sale/leasebacks
– Long-term leases
– Older aircraft
– Instances where the next lessee
Group Confidential
is known to accept theWencor
alternate
parts
Some lessors perceive
lessees to have increasing
leverage to utilize PMA parts
due to:
– Increased acceptance of
the safety and testing
standards of PMA parts
– Shift in the
supply/demand dynamic
for aircraft (operators
have more negotiating
strength)
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