Investing in Engines Euromoney Round Table London, 7 April 2009 Alternative Engine Financing Lothar Ratei, Managing Director and Partner GSI Group
Investing in EnginesEuromoney Round Table
London, 7 April 2009
Alternative Engine FinancingLothar Ratei, Managing Director and Partner GSI Group
GSI Fonds GmbH & Co. KG
• GSI, a German fund company well known for new products with innovative structures in the German closed end retail fund market.
• 50% owned by the management50% owned by the German M.M.Warburg Bank
• Main product lines:- assets of aviation sector- assets of regenerative energy plants- assets of other transport sectors
General Situation in the German Investment Market
2008 estimated
Equity and Loan in German Fund Business
Investments in Total Market in Mill. EUR
Source: VGF Market Data 2008; Scope Annual Study
Trends 2009 according to Fund Issuing Houses
Source: Scope Annual Study 2008/2009; 50 Initiators
Different Sorts of Funds
• 1 Asset Funds
• Portfolio Funds
• Direct investments (fund entity purchases the assets directly)– More influence on the assets– Favourable fee structure– More flexibility (decisions,
remarketing)– Higher administrative
expenditures but also– Higher possible upsides
• Fund structures
• Indirect investments (fund entity invests in another fund (participation)– Less influence– Additional fees– Less flexibility
– Less administrative expenditures but also
– Limited upside potential
GSI Fonds main aviation investment transactions after GSI started to reopen the German equity market in 2006
(after 9/11)
• Acquisition of almost 50 aero spare engines with a volume of about $ 300 Mio.
• Common engine types with leases attached (medium and long term), e.g. CFM56-3, -5, -7, CF6-80‘s, IAE V2500-5‘s, RR AE 3007‘s, Trent 700, PW 4000‘s
• Investment in a few regional aircraft as private placement
GSI-Engine Fund Structure (Aero Spare Engine Portfolio)
GSI Triebwerke …. GmbH & Co. KG (Limited Partner)
GSI Engines …. LimitedPartnership (LP)
Airline 1
Airline 2
Airline 3
Airline N
Bank(s)
Investors (Limited Partners)
Germany
UK
International
Engine Purchase
Agreements
Engine Leases
Loan Agreementof about 65 % of total asset costs and Equity
Bridge Loan
100%
Equitiy of about 35 % of total asset costs
GSI Fonds GmbH & Co. KG
(Initiator)
GSI Triebwerke …GmbH
(General Partner)
Financing Agent Consulting Agreement
Management Agreement
Different Mana- gement TasksEquity Provider
GSI Engines … Ltd.
(General Partner)
ManagementAgreement Asset Manager
Seller
Engine Leasing – Investors‘ Advantages
• Attractive equity distributions– Comparatively "safe" lease returns– Cost-intensive maintenance is with the lessee– Shop visit – Return conditions
• approx. 60 % spare parts• approx. 20 % cost of repair / maintenance• approx. 20 % direct labour cost
• Engines as assets with long lasting in value– „Engine“ means the sum of its parts– Further high level of employment is estimated
on the long run– Possible value enhancement due to inflation
and employment situation
Market Shares Engine Leasing
• The engine leasing market for spare engines actually leases engines amounting to more than 8 bn US $.
• Up to now the market is dominated by 6 great leasing companies with portfolios of more than 100 spare engines.
Rolls-Royce Partners Finance
17%
Pratt & Whitney8% Others
16%
Shannon Engine Support
11%
Engine Lease Finance11%
GE Engine Leasing
27%
Willis Lease Finance10%
~1,600 leased ~1,600 leased enginesengines
• Sales in order to finance growth– Lessors speculatively buy spare
engines • Leasing companies solve
logistic and capital problems for the airlines– Pooling of engines– Pooling of smaller airlines
• Need always to keep in mind future developments of aircraft fleets
Leasing Companies‘ Requirements
Other Environmental Challenges
• Fuel consumption– Open rotor concept– Variable turbofan gearbox– New upgrade kits– Use of fuel alternatives
• Emissions– Reduction of green house gas CO2– Reduction of nitrogen oxides– Reduction of noise– Use of biofuels
Conclusion: Aviation assets remain interesting for the future German Fund Business.
Thank you very much for your attention!
Contact:Lothar RateiGSI Fonds GmbH & Co. KGAlt-Heerdt 10840549 Düsseldorf Germany
Phone: +49 211 60 18 46 [email protected]