ISTAT Jetrader - Summer 2021 - 24

Typical Assumptions and Requirements
Used in Determining an LEV
Although each ISTAT Certified Appraiser has their own set of
assumptions and requirements, there are a few key ones that
many agree on in determining an LEV:
1. The lease runs its full term and rent is paid on time
until the end of the lease.
2. The Residual Value of the aircraft is in line with the
appraiser's Residual Value forecasts. This could be
a Base Value or, in some cases, if the appraiser is
comfortable providing, a Market Value forecast, or
even a Soft Market (or equivalent) value forecast.
3. The lease return conditions are defined and fully
explained in the report. The appraiser must either
be given access to the lease document or given a
summary of the return conditions. Each appraiser will
then adjust for return conditions according to their
internal maintenance cost and value assumptions.
4. All cash flows are discounted to the date of the
next payment due after the date of valuation or as
instructed by the client.
5. Any expenses incurred in managing the leased aircraft
are generally not considered in calculating a LeaseEncumbered
Value.
the customer - provided that the appraiser deems such a
discount rate to be reasonable - but this should be clearly
stated in the assumptions for any third parties to be aware.
The Difference Between Lease
Encumbered and Market Value
The ISTAT definition given earlier is followed by a note that
states LEV " ... may be more or less than the Appraiser's
opinion of Current Market Value. " Lease Encumbered
Values tend to be higher than an aircraft's corresponding
CMV, as aircraft with leases attached are often traded with
rental rates set in place several years prior to a sale and
commensurate to the rates reflective of a newer aircraft.
Therefore, lease stream revenues are generally higher on an
aircraft with an existing lease than if one were to place an
equivalent " naked " aircraft on a new lease under prevailing
market conditions. Although there are exceptions, this
usually holds true because aircraft are depreciating assets,
and the rental rates achievable when signing a new lease
typically decrease as an aircraft ages. Despite this, most
aircraft leases have fixed rental payments, so once the
rental rate is written into a contract, the lessee generally
pays that same rate until lease end, regardless of natural
stepdown in value as the aircraft ages. Even when leases
Individual appraisers may have differences in methodology, especially when it
comes to their approach in determining the discount rate, as well as the decision on
what Residual Value to use.
Individual appraisers may have differences in
methodology, especially when it comes to their approach
in determining the discount rate, as well as the decision on
what Residual Value to use. There are many options, even
among a single appraiser's own figures, and decisions such
as what inflation rate to use adds further variance. It is
possible for the appraiser to use a discount rate requested by
24 * THE OF F I C I AL PUBL I CAT I ON OF ISTAT
have variable rent, this is normally formulated to vary with
financial metrics such as LIBOR or swap rates rather than the
age of the aircraft.
For example, if an aircraft is six years old and has been
on lease since new, with another six years remaining on the
lease, it is likely to command an encumbered value premium
because the expected rental rate for a naked six-year-old

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
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