PGberkshire

Just so we are clear, they still own the aircraft - they just have a debt (mortgage) attached to them.

This is not BA ending routes or BA selling aircraft.

Simply put, you can either lease an Aircraft (low Capex / high Opex) or Buy one (high capex, low opex). This is the process of releasing that trapped CAPEX to be in turned used as liquidity or short term OPEX.

The basis being that come repayment day - the wider business has cash to settle the balance.

13901

It doesn't work like this for leased aircraft, why would it be so for owned planes that are working as a collateral?

TedToToe

I’m curious if the inclusion of G-EUNA is significant at all. I think that we can all agree that, if BA were looking for an excuse to end LCY-JFK, then COVID-19 fits the bill! Could it be that ‘NA’ goes the same way as ‘NB’ and is removed from the fleet whilst remaining on the books?

1010101

I'm quite surprised at this. Not because of what might happen to the aircraft (nothing, at least for now) but because it shows BA/IAG is chewing through it's cash pile at a faster rate than I had thought.

NextWhiteDeath

I think might of be as much we need the cash now as more building up extra reserves. As these kind of collateralized loans take some time to be build and syndicated. So it might still be from the first wave of cash building.

milkyway88

Or they are thinking longer term, not wanting to use unsecured credit lines if they don't have to, as you'd assume these secured loans will be at a lower interest rate than their unsecured credit facility.

NextWhiteDeath

A financial institution can extract money from the aircraft in many ways while with the LHR slots it sell them or lose them.
Renting them out can provide cash flow but with defaulted debt they try to settle it as soon as possible so they would have to sell the cash flow at a discount to the market. Selling the slots in the current market would be thought as everyone is cutting costs and expenses. The slots are also harder the value.
In short the slots can be hard to sell in a market where BA defaults, if rented there are more steps to get back the money and LHR slots would be seen as an exotic asset and hard to value.

Schind

It's purely hypothetical but imagine one of the mortgaged A320s has an engine fire and needs a replacement. Are they gonna fit a new £8 million engine knowing that if they default they lose that asset or are they going to use a 10 year old engine from another frame that isn't mortgaged thus 'only' losing a £2 million part? (All numbers are plucked out of thin air).
I'm sure there's not going to be a default but the clause is in the document so..

13901

Engines are in a pool. In facts I daresay that the ratio of engine sets to frames is 1:1 or even lower than that depending on the utilisation rate. Additionally, some of those planes might have engines on power-by-the-hour agreements, so BA doesn't own the powerplants per se (don't know if that's the case). If a bank needs to repossess these birds it'd mean that BA defaulted on 3/4 of a billion USD's worth of a loan, which means they've got much larger fishes to fry than finding the slightly less used IAE-2000 to swap onboard.

What I take those paragraphs to mean is that the plane is to be considered with all its components. I've seen similar things on dry-leases and, cleaning all the legal baroque English, they mean "You will give us a functioning - flyaway - plane, not some cannibalized hulks".

Confus

So how do you explain the inclusion of specific engine serial numbers in the Companies House filing document, alongside the registration number of the aircraft to which they are fitted?

I dare say there is a clause that would allow for one to be switched for one of equal standing if it broke irreparably, but on the whole it remains the case in this agreement that specific engines are to remain with specific aircraft.

WHBM

I understood that EUNA was surplus but there were no purchasers for it, and breaking for spares would have been a large book loss in one year. Titan took it, but paying only on a lease by the flying hour. They haven't got a lot of use out of it. I think they expected to hire it back when EUNB was in the hangar for periodic overhauls, but BA seem to prefer to cancel the LCY-JFK service when that is scheduled, and indeed for any unscheduled unserviceability.

13901

It doesn't negate what I've written.
It's the same with leases: documentation tells you what you're getting.
If one of those engines blows up when a flock of seagulls flies into it, you change it with another one in the pool. And I repeat, this is a mortgage backed with a collateral. If the bank needs to seize the collateral it's because of a default. And if BA defaulted on the mortgage, it means it's gone bust. So swapping the engines will be a moot point.

Jagboi

When you finance a car the VIN of the car is in the documents rather than just year, make and model, that's so the bank knows exactly what car they are lending money against. The same with an aircraft, the documents will detail the serial numbers of the major components that are in the scope of the security.

With the traceability of things like engines, they will have a very good idea of the condition of the engine at the time the money was loaned against it. The value will be different if it is a 10 hour runtime engine than a 10,000 hour engine for example.

choosethedrew

Qantas raised circa 800M pounds against just 10 x 789s, I am wondering how they did that?!

Raffles

Very easily, given that the list price before discounts of ONE 789 is $292m.