Guggenheim Partners, Business Aircraft Investments - Ukintpress ...
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<strong>Guggenheim</strong> <strong>Partners</strong>, <strong>Business</strong> <strong>Aircraft</strong> <strong>Investments</strong><br />
The <strong>Business</strong> <strong>Aircraft</strong> Valuation Cycle<br />
Chris Miller<br />
Managing Director<br />
<strong>Guggenheim</strong> <strong>Partners</strong>, <strong>Business</strong> <strong>Aircraft</strong> <strong>Investments</strong>
<strong>Guggenheim</strong> <strong>Partners</strong>, <strong>Business</strong> <strong>Aircraft</strong> <strong>Investments</strong> - OVERVIEW<br />
The <strong>Guggenheim</strong> name has a rich legacy of contributing to the development<br />
of aviation. Beginning in the 1920s, Daniel and Harry <strong>Guggenheim</strong><br />
transformed the infant aviation industry. Together they:<br />
• Funded seven schools of aeronautic engineering in the United States<br />
• Established a model airline and the first aviation weather service<br />
• Formed a “Full Flight Laboratory” to develop the instruments needed to fly with zero visibility<br />
• Funded Charles Lindbergh’s national tour following his historic trans-Atlantic flight<br />
• Funded Robert Goddard’s pioneering rocketry efforts and subsequent jet propulsion work<br />
“Aviation will always owe a debt of gratitude to Daniel <strong>Guggenheim</strong>”<br />
-Charles A. Lindbergh<br />
Western Air Express - 1928<br />
2
<strong>Business</strong> <strong>Aircraft</strong> Value Cycle - Global Evolution<br />
1400<br />
1200<br />
Global demand<br />
peaks<br />
New aircraft<br />
introduced<br />
Growing<br />
economies<br />
Financial<br />
crisis<br />
fallout<br />
Industry growth<br />
resumes<br />
1000<br />
Post 9/11<br />
slowdown<br />
Deliveries<br />
800<br />
600<br />
400<br />
200<br />
Speculative<br />
buying<br />
New technology<br />
Growing economies<br />
New product offerings<br />
(e.g. fractional, charter)<br />
No new aircraft<br />
Transition to a<br />
substantive<br />
transportation<br />
sector<br />
Economies<br />
rebuild<br />
Continued<br />
expansion<br />
overseas<br />
New<br />
technology<br />
introduced<br />
0<br />
Early market – 75% USA<br />
1964<br />
1967<br />
1970<br />
1973<br />
1976<br />
1979<br />
1982<br />
1985<br />
1988<br />
1991<br />
1994<br />
1997<br />
2000<br />
2003<br />
2006<br />
2009<br />
2012<br />
2015<br />
2018
1987 Gulfstream IV Historic Value Trend
Asset Review and Valuation<br />
1<br />
Market Analysis<br />
Process<br />
Participate in conferences and events<br />
Research and review industry publications<br />
Interact with Brokers<br />
Data Sources<br />
NBAA, EBACE, MEBACE, JP<br />
Morgan, UBS, JETNET,<br />
Corporate Jet Investor, OEM<br />
Reports, Broker Reports<br />
Output<br />
Prepared to value specific aircraft<br />
Understanding of market dynamics<br />
2<br />
Class Analysis<br />
Analyze entire class of aircraft<br />
Asses functional/economic relevance of subject<br />
aircraft against competition<br />
<strong>Aircraft</strong> Bluebook, VREF, Ascend<br />
online, OEM News Releases<br />
Understanding of competitive market<br />
Assessment of future viability of the model<br />
Price points of competitors vs specific aircraft<br />
3<br />
Model Analysis<br />
4<br />
<strong>Aircraft</strong><br />
Specific<br />
5<br />
Value<br />
6<br />
Verify<br />
Research specific aircraft market<br />
Contact broker for nearly every aircraft for sale<br />
Asses off-market supply<br />
Identify key value differentiators<br />
Determine typical depreciation with age<br />
Gather information on aircraft specification<br />
Determine ownership history<br />
Asses physical depreciation (Hours, Cycles,<br />
Paint, Interior)<br />
Grade <strong>Aircraft</strong> against comparables<br />
Determine Fair Market Value +/- 500 k<br />
Should sell analysis<br />
Commission 3 rd Party Appraisal<br />
Desktop if new and Physical if Pre-Owned<br />
Same sources as above<br />
Cold calling listing brokers<br />
Broker Network<br />
<strong>Aircraft</strong> Post<br />
Broker Network<br />
Seller/Referral Source<br />
Client<br />
Same as above<br />
ASA Certified Appraisers with<br />
<strong>Aircraft</strong> Specialty and familiar with<br />
specific <strong>Aircraft</strong> market<br />
Percentage of fleet for sale and time to sell<br />
Assessment of market interest<br />
Price points of comparable assets<br />
Expected depreciation<br />
Thorough understanding of aircraft condition<br />
Selection of comparable sales aircraft<br />
Fair Market Value<br />
Orderly Liquidation Value<br />
Advance and Amortization for initial terms<br />
Independent 3 rd Party Assessment of Value<br />
Verified understanding of <strong>Aircraft</strong> condition<br />
Source: <strong>Guggenheim</strong>
<strong>Business</strong> <strong>Aircraft</strong> Market Segmentation<br />
The business aircraft market values performance.<br />
9000<br />
8000<br />
Ultra-Long Range<br />
Global 8000<br />
7000<br />
Target Market<br />
G650<br />
Global 7000<br />
Range (Nautical Miles)<br />
Range (Nautical Miles)<br />
6000<br />
5000<br />
4000<br />
3000<br />
2000<br />
1000<br />
Mid-Size Cabin<br />
Challenger 605<br />
Legacy 650<br />
H4000<br />
Legacy 600<br />
Small Cabin<br />
G150<br />
Challenger 300 G200<br />
Legacy 500 Challenger 850<br />
H800XP Sovereign<br />
Learjet 60 XR<br />
Legacy 450<br />
Learjet 45 XR<br />
CJ3<br />
Phenom 300 XLS+<br />
Learjet 40 XR<br />
Premier 1A<br />
Phenom 100<br />
Very Light Jet<br />
Large Cabin<br />
F2000LX<br />
G450<br />
Global 5000<br />
F900LX<br />
G550<br />
Global 6000<br />
F7X<br />
Non-Purpose Built<br />
Lineage 1000<br />
ACJ<br />
BBJ<br />
0<br />
0 10 20 30 40 50 60 70<br />
Acquisition Cost (Millions USD)<br />
Purchase Price (millions USD)
<strong>Business</strong> <strong>Aircraft</strong> Demand – Tiered Rating System<br />
A tiered system is used to group aircraft by expected depreciation. Each tier is characterized by an<br />
advance rate and amortization schedule appropriate for each aircraft’s past and expected value<br />
performance. Based on resale performance, the tiers favor the following:<br />
• Longer Range<br />
• Larger Cabins<br />
• Higher Production Rates<br />
• OEM Experience in Class<br />
• Newer <strong>Aircraft</strong><br />
Highest<br />
Advance and<br />
Balloon<br />
Lowest<br />
Advance and<br />
Balloon<br />
Case by Case<br />
Advance and<br />
Balloon<br />
Tier 1<br />
Tier 2<br />
Tier 3<br />
Tier 4<br />
Ultra-long range and other highly desirable<br />
large cabin aircraft under 3 years of age<br />
Large cabin aircraft and established midsize<br />
cabin aircraft<br />
Mid-size cabin aircraft and older variants of<br />
Tier 1 and Tier 2 aircraft<br />
<strong>Business</strong> aircraft with small, semi-illiquid or<br />
less predictable markets<br />
G650<br />
Global XRS<br />
Falcon 7X<br />
Falcon 900LX<br />
Challenger 605<br />
Legacy 650<br />
GIVSP<br />
Legacy 600<br />
Cessna Sovereign<br />
Falcon 2000DX<br />
Hawker 4000<br />
BBJ
2008 Global 5000
<strong>Business</strong> <strong>Aircraft</strong> Value Cycle – OEM Orders and Speculators<br />
G550 Value Trend (New Models)<br />
$60,000,000<br />
$55,000,000<br />
$50,000,000<br />
$45,000,000<br />
$40,000,000<br />
$35,000,000<br />
$30,000,000<br />
$25,000,000<br />
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012<br />
est<br />
Manufacturers List<br />
Retail Value Trend<br />
9
<strong>Business</strong> <strong>Aircraft</strong> Value Cycle – OEM Orders and Speculators<br />
CL 605 Value Trend (New Models)<br />
$35,000,000<br />
$33,000,000<br />
$31,000,000<br />
$29,000,000<br />
$27,000,000<br />
$25,000,000<br />
$23,000,000<br />
$21,000,000<br />
$19,000,000<br />
$17,000,000<br />
$15,000,000<br />
2006 2007 2008 2009 2010 2011 2012 est<br />
Manufacturers List<br />
Retail Value Trend<br />
10
International Growth<br />
Global business aircraft deliveries<br />
peaked in 2008 for the target market.<br />
While some international destinations<br />
slowed in 2011, deliveries to Asia<br />
continue to grow.<br />
Off Shore<br />
11%<br />
Europe<br />
20%<br />
2011 2005<br />
Asia<br />
16% Africa<br />
3%<br />
Australia<br />
0%<br />
MENA<br />
4%<br />
South America<br />
4%<br />
Off Shore<br />
5%<br />
Europe<br />
20%<br />
Asia<br />
4%<br />
Africa<br />
2%<br />
Australia<br />
1%<br />
MENA<br />
5%<br />
South America<br />
1%<br />
North America<br />
42%<br />
North America<br />
62%<br />
Target <strong>Business</strong> <strong>Aircraft</strong> Target Deliveries <strong>Business</strong> <strong>Aircraft</strong> into Other Deliveries Markets into Other Markets<br />
Target <strong>Business</strong> <strong>Aircraft</strong> Deliveries into Traditional Markets<br />
Target <strong>Business</strong> <strong>Aircraft</strong> Deliveries into Traditional Markets<br />
160<br />
350<br />
140<br />
300<br />
120<br />
100<br />
80<br />
60<br />
40<br />
Off Shore<br />
South America<br />
MENA<br />
Australia<br />
Africa<br />
Asia<br />
250<br />
200<br />
150<br />
100<br />
Europe<br />
North America<br />
20<br />
50<br />
0<br />
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011<br />
0<br />
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011<br />
Delivery locations are by the country of the purchasing entity
<strong>Aircraft</strong> Market Attributes<br />
Cyclical Inefficient Regulated<br />
• <strong>Business</strong> aircraft market<br />
historically has been closely tied<br />
to the GDPs of the world’s<br />
economies, corporate profits,<br />
wealth trends and stock markets<br />
• Historically predictable recovery<br />
• Resale market transactions and<br />
inventory levels are leading<br />
indicators for a broader market<br />
recovery<br />
• Market recoveries are typically<br />
led by newer larger aircraft<br />
• Deliveries are trending more<br />
outside the traditional recovery<br />
markets of the US and Europe to<br />
emerging markets<br />
• There is no dominant clearing<br />
house in the market<br />
• Largest dealers transact 2-3% of<br />
all deals in market<br />
• No wholesale market (buy/resell)<br />
operating currently<br />
• Brokerages have become the<br />
norm where listing the account is<br />
key success factor<br />
• Existence of subjectivity on<br />
aircraft values<br />
• Creation of arbitrage for undervalued<br />
“in demand” aircraft<br />
• OEM pricing for new aircraft can<br />
vary by region or country<br />
• Transfer of ownership is highly<br />
regulated<br />
• Documentation of aircraft history<br />
is stringent<br />
• <strong>Aircraft</strong> operation and<br />
maintenance is highly regulated<br />
• International Registry (Cape Town<br />
Convention) provides additional<br />
security / central registration<br />
control for financiers
<strong>Guggenheim</strong> <strong>Partners</strong>, <strong>Business</strong> <strong>Aircraft</strong> <strong>Investments</strong><br />
The <strong>Business</strong> <strong>Aircraft</strong> Valuation Cycle<br />
Chris Miller<br />
Managing Director<br />
<strong>Guggenheim</strong> <strong>Partners</strong>, <strong>Business</strong> <strong>Aircraft</strong> <strong>Investments</strong>
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