BOC Aviation Concludes PLB Deal with Virgin Blue

[Simon L.]

BOC Aviation has closed a purchase-and-leaseback (PLB) deal with Virgin Blue Airlines for one late-2008 vintage aircraft and three new Boeing 737-800 aircraft. The aircraft will be leased for an average lease term of 10 years, with delivery of the three new aircraft scheduled for the fourth quarter of this year.

Source: http://en.carnoc.com/list/10/10104.html

[Michael Morrison]

Good news for Virgin I guess. Some more cash in the bank and less debt on the books.

[Marty H]

Originally Posted by Michael Morrison

Good news for Virgin I guess. Some more cash in the bank and less debt on the books.

Michael,

could you explain how it works

Cheers

[Michael Morrison]

Normally airlines will sell and leaseback for a couple of reasons

- Cash flow (Which isn;t DJ's issue as they have positive cash flow)
- To meet capital requirements for new aircraft or investments (poss the 77's)
- To realise the current value of the aircraft/ this is done especially when the market price of said aircraft may decline significantly in the near future.

It is usually bansk that do these deals and they structure them in such a way that they get numerous tax breaks etc as well.


Both Air NZ and Singapore Airlines have done similar deals in the last 6 months.

[Craig Murray]

Marty,

Purchase and Lease Back (PLB) or Sale and Lease Back is a quite common practice across many industries.

The most simple method of describing the process is:

1) Customer identifies need to free up capital tied up in owned assets for other interests

2) Customer approaches a financial/leasing institution with a view to selling the said asset to the organisation

3) The Customer then leases the asset back for a weekly/monthly/annual cost

4) Negotiation on sale price and lease cost occurs

5) Customer is paid for the asset and is free to utilise the capital raised as required

6) Finance institution enters into a lease agreement with the Customer over a prescribed period on the asset.

End result, Customer has freed up capital to utlise elsewhere within the business and has an asset on lease at an agreed lease rate over a pre negotiated term. Generally, the option to "hand back" the asset should it become surplus is also negotiated into the arrangement.

Obviously, these transactions are quite complex and I don't suggest that the above may be accurate in this specific instance however it gives you a general overview of how a sale and leaseback would work. Nor should my post be construed or interpreted to question the financial viability of the organisation in question. I would ask any posts that do suggest this be removed by the mods.

I hope my post has given some insight into the PLB agreement mentioned above.

Well there you go, two answers to the one question! Cheers Michael :-)

[Marty H]

No worries, thanks both Craig and Michael sounds like a good move by VB I can breathe maybe a lil easier for awhile

[Craig Murray]

No probs Marty, sure times are tough, but DJ is even tougher (oh, that's someone elses slogan at the moment isn't it? Whoops!) and will ride out the current economic situation.

PS: I don't think you needed to quote me in your reply! People got it the first time

[Tom PER]

Their was brief mention in the current issue of AA about QF doing a similar deal with one of the domestic A332's -EBJ or EBK can't remember which.

[Simon L.]

Originally Posted by Tom Barber

Their was brief mention in the current issue of AA about QF doing a similar deal with one of the domestic A332's -EBJ or EBK can't remember which.

Actually, Qantas Group has been a long time client of BOC Aviation. For instance, both parties reached a lease deal about a year ago on eight new A320s (to be used by Jetstar), detailed press release on that particular transaction is available at http://en.carnoc.com/list/6/6370.html

Being someone who worked at BOC head office in Beijing before (not BOC Aviation) and is likely to be working for another BOC subsidiary very soon, it's good to see the old SALC continues its expansion with greater supports from the banking group. In fact, since BOC bought SALC in 2006, a lot of the deals done by BOC Aviation were fully or partially financed by BOC and its overseas branches.

Regards.

[Simon L.]

Originally Posted by Tom Barber

Their was brief mention in the current issue of AA about QF doing a similar deal with one of the domestic A332's -EBJ or EBK can't remember which.

I think that must be the one arranged by Macquarie Capital (under agreement between Macquarie AirFinance and Qantas)... [Someone please correct me if I am wrong on this]