Short-Term Sale and Leasebacks to Manage Fleet Transitions / By Jonathan Cauff
Short-term sale and leaseback transactions have evolved into an enormously valuable fleet transition, management tool, and residual risk mitigation tool for airlines. Never before have short-term sale and leasebacks been more prevalent and more crucial to the success of many of the world’s airlines. Many airlines had previously planned on retiring specific narrow-body aircraft from their fleets beginning in 2019 and continuing well into the next decade. Some airlines had been counting on the cash generated by the sale of such assets to acquire their future fleets. However, as a result of the uncertainty of the availability of replacement aircraft, airlines have had to solve short-term capacity and balance sheet issues. For example, many airlines have recently been looking to exit older generation aircraft and transition into newer aircraft and have had to delay those plans unexpectedly. As a result, this delay has disrupted every facet of these airline’s operations. On the other hand, the recent onslaught of short-term sale and leasebacks has provided a much-needed boost to their balance sheets, while still affording these airlines the flexibility they need from a fleet management perspective as they eventually transition into newer aircraft.
A short-term sale and leaseback transaction can offer airlines tremendous advantages:
- The ability to generate cash now and maximize value in a robust market.
- A broader base of potential buyers to work with, as most of the equity capital raised by lessors in the space is dedicated to acquisitions of assets subject to leases.
- Capitalizing on a seller’s market and the certainty that comes with a sale now, versus an unknown result in the future.
- The attributed value of the lease income stream provides greater value than off-lease “naked” aircraft.
- Airlines can run a sales process and select one or two buyers to purchase an entire mini fleet of aircraft, making the transition process much more efficient from a commercial, legal, and technical standpoint – the airline does not have to transact with several different counterparties.
- The residual risk of owning an aircraft gets passed onto the buyer/lessor.
Any airline entering into a short-term sale and leaseback transaction must incorporate sufficient lease extensions into the contract. This is a must, especially in times like these, where there is a great deal of uncertainty surrounding the near-term future of narrow-body availability. Increasing capacity demand can also be solved through these lease extensions, as airlines who experience unpredicted growth, can utilize short-term lease extensions to fill the gap, while newer replacement aircraft are procured.
For cash strapped airlines, with clear visibility on retirement dates for certain aircraft within their fleet, entering into short-term sale and leaseback transactions unlock equity trapped in these aircraft, providing access to often much-needed capital. GA Telesis is well-positioned to work with its airline customers on their short-term sale and leaseback needs. The company specializes in transitioning aircraft from one airline customer to another and optimizing the value of mid-life and end of life aircraft. The GA Telesis Ecosystem includes a global customer reach and unique product offerings that put it in a position to offer creative solutions to its airline customers. This, of course, translates to the competitive pricing of short-term sale and leaseback transactions, as GA Telesis truly appreciates the value of the assets.