Jetrader - March/April 2009 - (Page 12)

lessor to an investment almost equal to the value of the existing asset and requires a thorough understanding of market dynamics before proceeding. Is Investing Necessary? As indicated previously, one option available to a lessor is an asset part out. If the aircraft type is not a viable conversion candidate or the market is not favorable for conversion, then this option may well be the best (or least painful) option for the lessor. The need for capital infusion is avoided and the investor has the ability to write down the asset while the airframe, landing gear and engines are harvested. Even if the market conditions are favorable for conversion, the lessor must determine if there is sustainable demand for the aircraft type as a freighter. Converted freighter market demand is largely dominated by the three integrators (FedEx, UPS and DHL) who together operate almost 45 percent of the current jet freighter ﬂeet. On the other end of the spectrum, 70 percent of the 200-or-so freighter operators have ﬂeets of less than 10 aircraft. In between these extremes are ﬂag carriers that typically self-ﬁnance their aircraft. Therefore when the integrators and ﬂ ag carriers are excluded as potential lessees, the remaining market is primarily small operators that usually lease for shorter periods, require higher reserve balances and struggle to compete against their larger competitors. While there are exceptions to every rule, the lessor considering a freighter conversion should proceed only with a comprehensive understanding of the risks and rewards of this niche market. When is the Ideal Time to Invest in a Freighter Conversion? Like ancient rituals that require a precise alignment of the planets to be effective, the ideal time to consider a conversion investment requires the presence of the certain ingredients in the right proportions: Candidate Aircraft. Success in the passenger market does not guarantee success as a freighter conversion. Despite almost identical characteristics in a passenger conﬁguration, aircraft types in the same class may have considerably different qualities as a freighter. Fuselage cross section, operating weights, engine variants, ﬂeet dispersion, OEM support, and freighter market payload/range requirements are just a few of the factors that deﬁne a successful conversion candidate. Unsuccessful or marginally successful aircraft types abound and include the L1011, 707, and MD80. Alternatively, aircraft types that are suitable candidates must also be at a price point in the market that is likely to yield a profitable post conversion asset. Overpaying for the right aircraft type can be just as devastating in the long run as converting the wrong aircraft type. Needless to say, given the cost and ﬁnality of the conversion, choosing the right aircraft type at the right price is absolutely essential. Capital. Debt and equity come in many shapes and sizes. The mere mention of rendering an aircraft temporarily unﬁt to ﬂy while a multi-million-dollar-hole is cut into the fuselage sends many lenders running for the exits. While equity may be readily available to acquire aircraft for conversion, and the buyer may already have a post-conversion lessee lined up, Complete Turbine Service, LLC • Engine Module Performance Restoration Maintenance (PRM) • World Wide AOG/On-site Quick-Turn Field Service Support (QTFS) and Hospital Repair Maintenance (HRM) for Turbine Engines. • Turbine Engine Lease Return Inspection and Evaluation • On-wing Maximum Power Assurance (MPA) Certiﬁcation • Top Case Inspection and Repair • Engine Module Unit (EMU) Replacement and Repair • Video Borescope Inspection and Digital Measurement • Borescope Blade Blending • Airworthiness Directive (AD) and Service Bulletin (SB) Inspections/Compliance • Engine Removal and Installation • NDI/NDT • Engine Management • Engine QEC Reconﬁguration, Removal and Installation • Engine Sales/Purchasing/Leasing Services • Engine Storage and Preservation Program Repair Station Certification Numbers: FAA CRS # K0WR728X/EASA.145.5555 Complete Turbine Service, LLC Ofﬁce: 954-764-2616 • Fax: 954-764-2516 www.completeturbine.com Forever Forward>>> 12 The ofﬁcial publication of the International Society of Transport Aircraft Trading http://www.completeturbine.com

Table of Contents Feed for the Digital Edition of Jetrader - March/April 2009

Jetrader - March/April 2009 A Message from the President Contents Calendar/News Crunching the Numbers World Air Cargo Forecast Brain Drain in the Transportation Industry Aircraft Appraisals From the ISTAT Foundation Aviation History Advertising Index

Jetrader - March/April 2009

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