View Full Version : Ryanair B737 leases
As a matter of interest anyone else noticed that Ryanair are selling a lot of their second tranch 737-800's on to financial institutions then leasing them back on an operating lease. The agreement wiith Boeing for these aircraft seem very vague, I wonder what they are up to; anyone know?
italianjon
25th Apr 2005, 15:02
As a matter of interest anyone else noticed that Ryanair are selling a lot of their second tranch 737-800's on to financial institutions then leasing them back on an operating lease. The agreement wiith Boeing for these aircraft seem very vague, I wonder what they are up to; anyone know?
I dunno - if jail is a real possibility, reduction of asset value?
Taildragger67
25th Apr 2005, 15:16
Sky9 and Italianjon,
Might just be a more efficient use of capital/cash to lease them.
It's arguably surprising that they're not leased as of delivery.
Leasing is sooooo common these days. Sure, it frees up cash - but that may not be a sign of trouble at all - if I were a finance director and someone wants to pay me USD 50 million and I can find a better use (ie. higher internal rate of return) for it than having it tied up in an asset (so a better return havingit in one asset as opposed to another), then I'd be failing in my duty not to go for it (as long as it was allowed by my corporate constitution and articles of association).
The airline would still be bound to pay the rentals for the contracted lease period.
italianjon
25th Apr 2005, 15:32
Just thought I'd stir the pot... :ok:
The point is that the aircraft were ordered by Ryanair and MOL claimed an excellent price was negotiated at the time. If they were then passed on to a 3rd party it might be that they were sold on at the normal price and the surplus brought into the profit and loss account. I have looked at the accounts and do not know what has happened, but I am aware that Air Europe spent man happy years inflating their profits by doing that then went bust in a big way.
Anybody interested can download the accounts from the Ryanair website.
Ballymoss
25th Apr 2005, 20:55
sky9
'tis true AEmade money from shuffling aircraft around their various European subs however, IMHO I believe their ultimate demise may have had more to do with Harrys liking for 'the white stuff' and Big Airways dislike for anyone playing in their backyard.
Rgds
The Moss:ok:
unwiseowl
25th Apr 2005, 23:21
Easyjet are selling their 319's to a leasing company at full list price and then making lease payments based on full list price. Why would Ryanair be any different?
Oshkosh George
25th Apr 2005, 23:30
I could be wrong,but I don't believe that any Easy aircraft are,or have ever been OWNED. Glad to be corrected.
10002level
26th Apr 2005, 08:58
In the past many easyJet aircraft were owned, though now the company prefers to lease.
As far as I am aware, all aircraft are owned by easyJet upon delivery, but thereafter they are sold to a leasing company on the same day.
Torquelink
26th Apr 2005, 10:33
Unwiseowl
I'm quite sure that "list price" has nothing whatsoever to with the sale/leaseback price that lessors are paying.
:D
The point that I am trying to make is that the profit announcement is not always what it seems. If I remember correctly Air Europe made more out of its leasing deals than it did out of operating the aircraft. I am just wondering how much of the headline profits that are announced are due to the selling and lease back deals that go on.
Groundloop
26th Apr 2005, 12:58
I believe Easy own their 319s's for about an hour! They take delivery from Airbus in Hamburg, pay for them then sell them on to a leasing company. It's in their accounts somewhere.
unwiseowl
26th Apr 2005, 22:21
What I'm saying is this: buy at £20m? sell to leasing co. for £30m. Each a/c generates £10m? profit now and a huge liability for the future. JUST LIKE AIR EUROPE.
batninth
27th Apr 2005, 08:33
Unwiseowl,
Why is it a "huge liability"? Leasing a school or a football ground, now that it is a huge, and stupid, liability but leasing a bus, car or aircraft gives much better use of cash, and flexibility at the term of the lease.
If MOL deploys plane 737-xxx, and finds he's sitting on a goldmine route, then leasing lets him switch to 737-yyy much easier than having all the problems of asset disposal.
Given the current lease deals out there, I would say that leasing is a much better way of making your cash work for you.
Lets face it, FR's fiscal policy on other things is so tight that they will have gone through this *so* carefully
unwiseowl
27th Apr 2005, 10:55
but what they are doing is getting a wedge of cash now in return for higher than normal lease payments over the life of the aircraft. Makes the airline very proffitable now but proffits will be hit when the deliveries stop. Or put it another way: The benefit of cheap aircraft is being used up in one go, rather than being spread over 20 years.
Unwiseowl
You have the point exactly. What I find surprising is that financial journalists and others tend to miss this point when they report company profits. I suspect that the reason is that they copy the press release rather than analyse the accounts. In the past, "ytravel" Air Europe and others have hit the buffers with massive losses and everyone has been surprised.
In the case of Ryanair they currently have sold and leased back 13 aircraft on operating leases which would imply that there has been an opportunity to inject a substantial amount into the profits. What I am interested to find out is how much and where is it shown.
LGS6753
27th Apr 2005, 15:18
Under various accounting protocols, these things have to be declared, albeit in the 'small print'.
Future lease payments are contingent liabilities, which appear on the balance sheet (looked at by financiers more intensively than the Profit and loss account). Also, if sold, the aircraft is no longer an asset.
If I were operating an airline, I would lease all aircraft. By doing so, I would be matching my payments for the asset with its revenue-earning life. Otherwise, your cash flow suffers (£25m outflow on day one, repaid over n years).
Profits made on selling the aircraft to leasing companies are really 'extraordinary items'. If an auditor failed to pick this up, the shareholders would lose confidence in them rather rapidly. And auditors are re-appointed annually by shareholder at an AGM. (Unless, of course the airline is not publicly owned, in which case it's different).
FR, EZY, MYT, BA are public. Others, like BMI, VS, are private.
LGS6753
No sign of the aircraft appearing on the balance sheet however at the end of 2004 they had 13 737-800 on 7 year operating leases. Take a look on the Ryanair website and see if you can see what is happening; or are these 13 leased aircraft in addition to the Ryaniar order?
LGS6753
28th Apr 2005, 16:38
Sky,
The operative word is 'operating' as in 'operating lease.
An operating lease is not shown on the balance sheet, whereas a finance lease is.
In my experience, an operating lease is one where the owner of the asset provides services over and above the financing of the aircraft (such as some form of maintenance). However, I think the proper accounting definition is to do with which party takes the financial risk.
LGS6753
My understanding of an operating lease is that it is the same as hiring a car from Hertz. As such it is "Off Balance sheet" because the company has no financial interest in it. My understanding of the 13 737 -800's refered to in the Ryanair accounts is that they are on a 7 year lease with no requirement for Ryanair to re-lease them at the end of the 7 years. Their costs are clearly shown in the accounts as aircraft rental. If they are part of the second tranch of 737's ordered from Boeing they could well have been sold on at a one off profit with the undertaking to lease them back for 7 years. Is so there has been an opportunity to boost the profits in the year that they were sold.
unwiseowl
2nd May 2005, 08:28
I'm told that the same process is visible in the Easyjet accounts, though I'm no accountant.
I wonder whether it would be better to classify them as Aircraft Brokers rather than Lo Cost Carriers if the majority of their profits come from this source.
Strange really as it was only 15 years ago that an Irish leasing company came on the scene with hugh aircraft orders that were supposed to tie up the Boeing production line to 2005. Now whatever happened to them, and who were the shareholders?
Which is the leasing company for RYR? I have a sneaky suspicion that the leasing company involved in some ej B737 deals, i.e that which bought the a/c from ej, was a Stelios owned venture. If so, then the 'family' still have many fingers in the pie.
Rat 5
The answer to that question is not in the accounts it should however be on the owners plate above the forward doorway.
alibaba
21st May 2005, 11:16
Lombard leasing I was told by a colleague within ryr?
Don't know who they are:confused:
caa19
21st May 2005, 14:21
does this shed any light?
no mention of RYR but answers the "off balance sheet" part
http://www.lombard.co.uk/lombard/uk/business_customers/aircraft/finance/operating_lease/index.html
Didn’t Airtours sell all their owned aircraft to a leasing company and then lease them back?
If memory serves, they owned all the ex Premair DC10’s, some B757’s including the desert rats, (G PIDS etc) and an ex Intereuropean A320, G SUEE if I remember correctly.
This would have been about ’98 or ’99.