Blain’s Morning Porridge – The Property Chronicle
Select your region of interest:

Real estate, alternative real assets and other diversions

Blain’s Morning Porridge

The Macro View

“I was going to buy you a thousand red-roses my darling Mrs Blain.. but they were a bit expensive..  ”

In the headlines this morning:

There was a girl selling very expensive roses outside the Royal Exchange y’day for an awful lot of money and the basis they’d come all the way from Ecuador. Really? Jumbo jets clogging the atmosphere to deliver the flowers! I tried it with She-Who-Is-Now-Mrs-Blain this morning to explain the absence of Roses. I’m not sure she was impressed with my sudden green credentials.

This morning Airbus announced the end of the A-380 Super-Jumbo programme! Shame. The last aircraft will roll of the production lines in 2021. They are lovely comfortable airplanes – veritable cathedrals of the Sky – but they just doesn’t make sense to operate unless they’re full, which limits their usefulness to routes that fill 550 seats. Smaller types, particularly the Boeing Dreamliner (B-787) have proved more adaptable and equally popular, while Airbus has been pushing its’ A-350. 

The cancellation of the programme is bound to impact aviation investors who’ve bought deals backed by A-380s. Last year we saw the first of the planes retired, and because no one was particularly interested, the first two aircraft were scrapped for “part-out” (where systems can be reused as spares). I’ve been told they realized a considerable scrap value for the bits can be reused: $10mm for each of the 4 engines, and a further $40mm plus for the avionics, gen-sets and systems like the undercarriage which can all be used as spares. (If anyone is a holder of A-380 backed deals, I’ll be happy to talk you through the likely scenarios and options.) 

The A380s might be majestic, but they are going the same way as the magnificent ocean liners of the 1930s – the scrap yard. Too costly to fly anything but near full, and unusable on any less dense sectors, they’ve struggled to find a niche. Quantas has cancelled orders, Air France are handing theirs back. BA say they are too expensive. Virgin never completed its orders. Emirates owns half of them and signed the death warrant when it cancelled its latest order.

Investors that subscribed for the early planes confidently expected their money back when the planes were sold or re-leased at the end of their initial leases. Instead the first few aircraft will take a few years to pay back as the “part-out” spares find buyers. Within a few years there will be more bits of A380s for sales than there are A380s.. It could therefore be many years before investors receive all or some of their money back – and the amounts could be considerably less than expected.

On the first few A380s deals its largely German retail and high net worth retail investors who will suffer, but the lessons will be learnt across the market – putting investors on edge on future aviation financings – but creating opportunity for those who do their homework properly and seize the opportunities to finance the right aircraft.

There are two key issues when it comes to aviation investment:

The Macro View

About Bill Blain

Bill Blain

Bill Blain is Strategist for Shard Capital, a leading investment firm. Bill is a well known broadcaster and commentator, with over 30-years experience working for leading investment banks and brokerages at senior levels. He's been closely involved in the growth and development of the global fixed income markets, and pioneered complex financial products including capital, asset-backed securities and private placements. Increasingly, he's involved in the Real and Alternative Assets sector seeking to explain their complexity, how to generate decorrelated returns, and create liquidity in non-listed assets. Bill is a passionate sailor, talentless painter, plays guitar badly, is learning the bagpipes, and built a train-set in his attic.

Articles by Bill Blain

Subscribe to our print magazine now!