Leasing Notes Final: What is CAMP?

Continuous Airworthiness Maintenance Program (CAMP) is a compilation of the individual maintenance and inspection functions utilized by an operator to fulfill its maintenance needs.

aircraft inspection scheduled maintenance unscheduled maintenance engine, propeller and appliance repair & overhaul structural inspection program/airframe overhaul required inspection items maintenance manuals

Final: if you were on the board of the directors of the $400 million company, would you approve the acquisition of a corporate airplane? (Rationale behind this) Final: Why would you need an FMV buyout value when you intend to extend your lease? Answer: To see what the residual value of equipment is in lessors estimations, if residual value is high there is room for negotiation on extension of lease since lessor thinks equipment will be of value in the market place. Return on Asset considerations: What type of lease to choose if you want to improve your ROA. What happens when you add 20 million dollar worth of assets? operating lease (it might actually add on ROA because of average return on added assets). Return might be less due to the decreased profit margins in market of particular good, then in order to maintain current margins, an operating lease might be better choice than directly adding equipment to the assets. Section 1110 of Federal Bankruptcy Act: This is a federal statute and gives lessor the right to repossess the assets of lessee Securitization: A method of risk management as you are distributing the debt / spreading debt Crane leasing: Tower cranes used for large construction projects / cherry pickers lift The height of the crane is called the mast, bottom is called the counterweight, there is a counter jib, a jib and a horizontal crane runway.

Crane leasing is a promising industry because of construction in emerging markets Caterpillar is the largest manufacturer of leasing equipment / largest supplier Different countries force different regulation standards: this is driven by different weather Difficulties in transportation and reconstruction Uncertainty of the lease term The Mast or Tower: high value, structural importance, and significance: defines lifetime/price As capacity and jib increase, the price of the crane increases Safety: systems include load monitors, load moment indicators, and wind speed indicators and boom angle indicator systems Crane operations are key players to ensure safety (they go through training and must pass exams to become operators) Benefits of crane leasing Asset management, balance sheet management, current technology, customized solutions, flexible end of terms, flexibility, tax benefits -Fleet leasing: one vehicle belonging to a group of vehicles that an employer is leasing from a third party leasing company The employer is making these vehicles available Most common form of fleet leasing is known as TRAC
What is TRAC Leasing? A Terminal Rental Adjustment Clause (TRAC) lease is for vehicles used more than 50% of the time in the trade or business of the Lessee (customer). A TRAC Lease is a unique version of the FMV lease. The risk and reward of ownership is transferred to the Lessee through the TRAC clause. The TRAC clause stipulates a residual value of the leased vehicle upon lease maturity. A TRAC lease has a preset residual value, eliminating the Lessee's exposure to a Fair Market Value settlement at lease maturity.

-No down payment required; lessor gets tax benefit of ownership, retain full control of vehicle, guaranteed residual price, open-ended lease, 2-5 years term structure

Open-end lease: large payment at the end vs. closed-end lease Benefits: Tax, cash availability, administration costs Disadvantages: limits business expanding, higher service rates, higher insurance premiums, fleet management Maintenance requirements are critical to fleet leasing Fluctuating prime rates are driving sales figures Shake-out within industry of those lessors who do not have absolute control over internal expenses Airline leasing industry overview: -Strong market (today: 5000 leased aircraft worldwide) -Move towards operating leases (40% of total leases) -Success factors: the right backers / company size -Challenges: risk of catastrophic event (like airline industry, but more volatile) Influences: macroeconomic, new aircraft pricing, limited choice of aircraft manufacturers, lagtime between aircraft ordering and delivery -Aircraft leases covenants: possessing appropriate insurance Decision making factors: -aircraft usage (how often used, and current cost of travel) and organizational structure -financial status (ACMI lease: lessor retains control of aircraft; Dry lease: pose substantial more risk to the lessor) -ACMI: lessor provides the lessee with the ACME -Provides training of crews and engineers -Air Operators Certification allows for commercial use -Dry Lease: beneficial for companies that can provide crews, maintenance (Dry lease is operational) -Sources of Aircraft leases: aircraft leasing & management companies (GE Commercial finance and ILFC)

Typical Leveraged Lease