ISTAT Jetrader - Summer 2021 - 23

2. The present value of the Residual Value of the aircraft
at the end of the lease.
3. The present value of adjustments subject to
negotiated lease terms, maintenance reserves and/or
expected cash compensation at lease end.
What Factors Influence an LEV?
The above-mentioned pillars of an LEV are dependent on the
following variables:
* The lease rate and the time remaining to the end of
the lease. This is the variable that an LEV is typically
most sensitive to.
* The expected Residual Value at the end of the lease.
The Residual Value could be a balanced market
assessment - such as a Base Value - or a more
conservative assessment. Some appraisal firms have
specialized value terms that can provide for more fitfor-purpose
analysis. Needless to say, this is the other
variable that the LEV is typically very sensitive to.
* The inflation rate used in determining the
Residual Value.
* The physical return conditions at the end of the
lease and whether or not maintenance reserves are
being collected or covered by letter(s) of credit and/
or some other financial instrument(s) to ensure that
the physical return conditions will be met in full or in
part at lease end. The larger and more expensive an
aircraft is to maintain, the bigger the impact of return
conditions on the LEV.
* The inputs used to develop the discount rate, which
can include:
❯ The client's cost of equity (actual or implied).
❯ The cost of the aircraft's debt financing (actual
or implied).
The relative cooldown in trading activity since the early days of the pandemic
makes this an opportune time to clarify the concept and explain the inner workings of an
LEV, how it is derived and how it can be meaningfully applied.
set of variables, which are broken down below, and the LEV
has a different level of sensitivity to each of these variables.
A Lease-Encumbered Value is essentially a discounted
cash-flow analysis of an aircraft that is currently or expected
to be on lease. There are three key components:
1. The present value of the remaining lease stream and
security deposits (if applicable).
❯ The aircraft's perceived market liquidity throughout
the lease term - specifically how easy or hard it
will be to monetize when needed.
❯ The lessee's likelihood of defaulting on the lease
(their credit rating).
* The payment structure (monthly, quarterly, in advance, etc.).
* The amount of security deposit held by the lessor.
Jetrader * SUMMER 2021 * 23

ISTAT Jetrader - Summer 2021

Table of Contents for the Digital Edition of ISTAT Jetrader - Summer 2021

ISTAT Jetrader - Summer 2021
From the President
ISTAT News & Events
Perspectives: Q&A With Dean Gerber
Reunited in the Magic City
Understanding Lease-Encumbered Values
ISTAT Foundation: Supporting UN Humanitarian Air Service Efforts
Appraisal: 737 MAX 8 and DHC-8-400
At a Glance: Dezhi Zhu
From the Vault: ISTAT Latin America Forum 2017-2019
Advertiser Index
ISTAT Jetrader - Summer 2021 - Intro
ISTAT Jetrader - Summer 2021 - ISTAT Jetrader - Summer 2021
ISTAT Jetrader - Summer 2021 - Cover2
ISTAT Jetrader - Summer 2021 - 1
ISTAT Jetrader - Summer 2021 - From the President
ISTAT Jetrader - Summer 2021 - 3
ISTAT Jetrader - Summer 2021 - 4
ISTAT Jetrader - Summer 2021 - 5
ISTAT Jetrader - Summer 2021 - 6
ISTAT Jetrader - Summer 2021 - 7
ISTAT Jetrader - Summer 2021 - ISTAT News & Events
ISTAT Jetrader - Summer 2021 - 9
ISTAT Jetrader - Summer 2021 - Perspectives: Q&A With Dean Gerber
ISTAT Jetrader - Summer 2021 - 11
ISTAT Jetrader - Summer 2021 - 12
ISTAT Jetrader - Summer 2021 - 13
ISTAT Jetrader - Summer 2021 - Reunited in the Magic City
ISTAT Jetrader - Summer 2021 - 15
ISTAT Jetrader - Summer 2021 - 16
ISTAT Jetrader - Summer 2021 - 17
ISTAT Jetrader - Summer 2021 - 18
ISTAT Jetrader - Summer 2021 - 19
ISTAT Jetrader - Summer 2021 - 20
ISTAT Jetrader - Summer 2021 - 21
ISTAT Jetrader - Summer 2021 - Understanding Lease-Encumbered Values
ISTAT Jetrader - Summer 2021 - 23
ISTAT Jetrader - Summer 2021 - 24
ISTAT Jetrader - Summer 2021 - 25
ISTAT Jetrader - Summer 2021 - ISTAT Foundation: Supporting UN Humanitarian Air Service Efforts
ISTAT Jetrader - Summer 2021 - 27
ISTAT Jetrader - Summer 2021 - Appraisal: 737 MAX 8 and DHC-8-400
ISTAT Jetrader - Summer 2021 - 29
ISTAT Jetrader - Summer 2021 - 30
ISTAT Jetrader - Summer 2021 - 31
ISTAT Jetrader - Summer 2021 - At a Glance: Dezhi Zhu
ISTAT Jetrader - Summer 2021 - 33
ISTAT Jetrader - Summer 2021 - From the Vault: ISTAT Latin America Forum 2017-2019
ISTAT Jetrader - Summer 2021 - 35
ISTAT Jetrader - Summer 2021 - Advertiser Index
ISTAT Jetrader - Summer 2021 - Cover3
ISTAT Jetrader - Summer 2021 - Cover4
https://www.nxtbookmedia.com