The Mystery of VH-VQS

[Capt Kremin]

Looking at the CASA aircraft registry, VH-VQS, a Jetstar A320, was recently returned to Qantas Airways from its ALLCO leasing company;

ASIC Free Company Name Search

There are five other A320's that are now owned by Qantas and operated by Jetstar, but they appear to be the newest A320's and hence one is inclined to believe that a leasing company just hasn't been set up for them yet.

But VQS is a funny one. It is not the oldest A320 in the fleet, and since the older ones are all still owned by leasing company's one wonders why this one has suddenly been transferred to QF.

I don't believe it is due for heavy maintenance, but if it is then a few theories about cost transference might suddenly gain some momentum. And if the other five really are being owned by QF, some other questions might be asked about who is paying the costs for them as well.

Does anyone know?

[Iron Bar]

Joyce was asked that specific question about those newly bought aircraft, (bought by Qantas) at a meeting at the Melbourne airport Hilotn late last year.

He maintained these A320's were leased to JQ from QF and the full lease charges were being financed by JQ.

I don't believe a thing this treacherous individual says.

Investigations are ongoing.

['holic]

Yeah, I've been asking the same thing for a while now.

1. Why does QF own aircraft that it doesn't even operate? How does this improve QF mainline's bottom line?

2. As an aircraft lessor, isn't the idea to make a profit from the lessee, to cover things like unforeseen maintenance, the risk of owning an aircraft etc. So theoretically, QF should be making a profit from JQ. If JQ really wanted to minimise their costs, wouldn't they just own the aircraft themselves?

3. Alternatively, if owning aircraft doesn't fit the JQ business model, wouldn't JQ minimise costs by leasing from a company that specialises in leasing aircraft, rather than QF which does it minimally and on an ad hoc basis?

[swh]

1. Why does QF own aircraft that it doesn't even operate? How does this improve QF mainline's bottom line?

They would get a better return than keeping money in the bank, the same reason why banks buy aircraft and lease them to airlines, the returns are good. Also QF being a large Airbus customer, it would get significant discounts that Jetstar and some other leasing companies would not be able to achieve.

2. As an aircraft lessor, isn't the idea to make a profit from the lessee, to cover things like unforeseen maintenance, the risk of owning an aircraft etc. So theoretically, QF should be making a profit from JQ. If JQ really wanted to minimise their costs, wouldn't they just own the aircraft themselves?

Maintenance costs would be paid by Jetstar, and they would also need to pay whatever costs associated with getting it back to "almost" zero hours, i.e. a calculation of the percentage used out of a heavy check or significant engine maintenance. Lease terms in these sort of cases normally run for 12 years.

3. Alternatively, if owning aircraft doesn't fit the JQ business model, wouldn't JQ minimise costs by leasing from a company that specialises in leasing aircraft, rather than QF which does it minimally and on an ad hoc basis?

Most LCCs lease their aircraft, some have a 100% leased fleet. Airlines, especially LCCs have generally good cash flows, that is good for paying for leases. If they used their cash for buying aircraft, they would not be able to expand as quickly.

[Sunfish]

SWH:

Most LCCs lease their aircraft, some have a 100% leased fleet. Airlines, especially LCCs have generally good cash flows, that is good for paying for leases. If they used their cash for buying aircraft, they would not be able to expand as quickly.

And when there is a downturn, and the lease payments cannot be made, the LCC airline implodes very quickly. Borrowed money is cheap, but the payments must be made - or else. Equity is expensive, but there is no risk attached.

The rotten and artificial trick that QF management might be playing is to buy the aircraft with Qantas equity dollars (ie expensive money) and then lease the aircraft to Jetstar at "market rates" (ie at rates based on cheap debt) - and of course Jetstar bears no risk does it? There is no way Qantas is going to foreclose on its lovechild if it doesn't pay its lease payment on time.

To put it another way, Jetstar is entitled to pay "market rates" for its leased aircraft if it is leasing from a Third party at "arms length" and with no recourse to, or guarantee from, Qantas.

If, on the other hand, Qantas is enmeshed in the Jetstar lease, then QF is entitled to demand a premium (above market rate) return from Jetstar.

[600ft-lb]

You could probably liken this situation to America and its Federal Reserve Bank.

America gov asks the bank for money to pay for everything, the bank says sure here you go have as much as you want. Pressing print on the machine and out the money comes.

Of course the Federal Reserve never expects America to actually pay the money back even at the 0.00% interest rate, which is a strange phenomenon for a bank why would it lend money to a party without expectation of getting it back and on infinite terms.

Unless of course there's more to it then just a simplistic commercial relationship with other factors in the mix...

[TIMA9X]

VH-VQS Airbus A320

Civil Aviation Safety Authority - Home

The following 59 aircraft match your search criteria.
Note: A record on the Civil Aircraft Register does not constitute proof of ownership for either the certificate of registration holder or property interest holders.

I find this statement interesting... My question, internally, can Q group change the status of ownership/leasing arrangements cost structures assigned to it's fleet making one airline look better than the other ones in the group?
Sorry I am not a bean counter, but suspect ownership arrangements can be adjusted to suite the owners and it's subsidiaries with some form of paperwork.

Aircraft model A320-232 currently registered in Australia
The above link is the leasing structure for some of J*s fleet. For me very confusing. For example, for the life of me, Wombat leasing in Brisbane, very hard to find any details about this company.
Aircraft owned by WOMBAT 3668 LEASING PTY LTD currently registered in Australia

[Nose wheel first]

What about the A320 operated by Jetstar but owned by "Jessica Leasing Ltd" .... Jessica Leasing Ltd's address is in Dublin, Rep of Ireland.

Does AJ moonlight as Jessica when he's back in Dublin?

[Hempy]

Originally Posted by TIMA9X

For example, for the life of me, Wombat leasing in Brisbane, very hard to find any details about this company.

The Wombat companies are all subsidiaries of ILFC, the largest Aircraft Leasing company in the world.

INTERNATIONAL LEASE FINANCE CORP - FORM 8-K - EX-1.1 - August 12, 2010

[TIMA9X]

Thanks for that Hempy, so why don't they not just call it ILFC?

['holic]

They would get a better return than keeping money in the bank, the same reason why banks buy aircraft and lease them to airlines, the returns are good. Also QF being a large Airbus customer, it would get significant discounts that Jetstar and some other leasing companies would not be able to achieve.

Firstly, JQ get the same discounts as QF, otherwise what would be the advantage of being part of the group? Also, what you have stated is a pretty good argument for JQ owning their aircraft as opposed to leasing them

Maintenance costs would be paid by Jetstar, and they would also need to pay whatever costs associated with getting it back to "almost" zero hours, i.e. a calculation of the percentage used out of a heavy check or significant engine maintenance. Lease terms in these sort of cases normally run for 12 years.

This would be correct if it was a finance lease. JQ lease the aircraft under an operating lease, which means the lessor pays for maintenance, depreciation etc. But once again, the point of my second question was wouldn't JQ's bottom line be better if they owned the aircraft?

Most LCCs lease their aircraft, some have a 100% leased fleet. Airlines, especially LCCs have generally good cash flows, that is good for paying for leases. If they used their cash for buying aircraft, they would not be able to expand as quickly.

I think most LCCs lease instead of buy because they don't have an established major airline to bankroll them. JQ can expand however quickly the board tell them to, regardless of their cashflow. They could also take advantage of QF's credit rating to finance their operations, if they genuinely wanted to keep the finances seperate. I fail to see how the current leasing arrangements, if kosher, can possibly increase JQ's profits.

[swh]

Originally Posted by Sunfish

And when there is a downturn, and the lease payments cannot be made, the LCC airline implodes very quickly. Borrowed money is cheap, but the payments must be made - or else. Equity is expensive, but there is no risk attached.

Care to cite an example of this happening ? airlines in general are good at generating cash flow, that is basically how the airlines in the USA that went Chapter 11 were allowed to continue to trade.

If the airline does close up, the Lessee has paid a deposit with the lease company to pay for the reconversion of the aircraft to another airlines requirements.

Originally Posted by Nose wheel first

Jessica Leasing Ltd's address is in Dublin, Rep of Ireland.

Ireland is very attractive from a taxation point of view for offshore companies, one of the reasons why names like Microsoft pay less than 5% tax in the US, they hold their IP in Ireland.

Originally Posted by TIMA9X

Thanks for that Hempy, so why don't they not just call it ILFC?

It is very common for aircraft to be owned by a shelf company(s), and not directly by a parent entity.

Originally Posted by 'holic

Firstly, JQ get the same discounts as QF, otherwise what would be the advantage of being part of the group?

Do not think so, I do not think Jetstar has ever purchased an aircraft in its own right.

Originally Posted by 'holic

Also, what you have stated is a pretty good argument for JQ owning their aircraft as opposed to leasing them

No, no LCC is better off owning its aircraft directly, then again no airline is.

Originally Posted by 'holic

This would be correct if it was a finance lease. JQ lease the aircraft under an operating lease, which means the lessor pays for maintenance, depreciation etc.

No, this is a typical clause from an operating lease (some words changed to protect identities)

"Maintenance. Lessee, at its own cost and expense, shall service, repair, maintain and overhaul, test or cause the same to be done to the Aircraft during the term of this Agreement (i) to keep the Aircraft in good operating condition and appearance and (ii) to keep the Aircraft in such operating condition as may be necessary to enable the airworthiness certification of the Aircraft to be maintained in good standing at all times under all applicable governmental rules and regulations. Lessee shall maintain all records, logs and other materials required by the Borg or the Intergalactic Alien Council to be maintained in respect to the Aircraft and shall promptly furnish to Owner, upon Owner's request, such information as may be required to enable Owner to file any reports required to be filed with any governmental authority because of Owner's interest in the Aircraft. Owner shall not be under any liability or obligation in any manner to provide service, maintenance, repairs, or parts for the Aircraft."

Originally Posted by 'holic

But once again, the point of my second question was wouldn't JQ's bottom line be better if they owned the aircraft?

That would not be the view of their owners, it is a vehicle to generate cash, not somewhere to generate more overheads and debt.

Originally Posted by 'holic

I fail to see how the current leasing arrangements, if kosher, can possibly increase JQ's profits.

Jetstar only exists to increase their owners profits.

[drpixie]

My question, internally, can Q group change the status of ownership/leasing arrangements cost structures assigned to it's fleet making one airline look better than the other ones in the group?

TIMA9X: Any corporate bean counter worth their salt will ask "what do you want the number to be?"

Corporate accounting is appallingly flexible - one can choose what costs/incomes are allocated to various entities/accounts, and at what rates. (There are accounting standards but these are pretty flexible.)

That kind of accounting is entirely legitimate and provides an easy means to produce almost any desired outcome (as long as no dollars get lost along the track). One sets up multiple legal entities (J*, operating companies, frequent flier companies, leasing companies, ...) and report on them separately - now you can choose to report whatever you want.

It's the complete opposite to what the public assume accounting is about - and it's perfectly legal by accounting

[Bright Spark]

The first 3 A320 Jet* put into service, JQL, JQG and JQX are own by SALE the next 20 VQZ thru VQG were all Qantas group owned. Exactly how and what company I not privy to. Some aircraft had lease plate attached to the cockpit wall that read they were leased to Jetstar by VH-VQ* PTY LTD ,which are presumably QF shelf companies for leasing. Lost track and interest of the remaining aircraft, but my best guess would be they are all QF group owned.

Why lease from the mother ship? So it makes it easier for the bean counters to make their figure read what ever they want. Jet* makes too much money, QF charge higher lease fees, - QF make too money they lower the lease fees. Jet* get into trouble with the regulator or falls out of favour with joe public, just shut up shop, pay out lease penalties all over - no assests easy liquidation.

Regulator or Government or Union gets to hard to deal with move to ASIA - no assests in Aust. EVERYTHING is leased.

[gobbledock]

Perhaps there are links between person(s) inside QF and some aircraft leasing companies ?
Just a mere thought.

[TIMA9X]

Thanks for the reply drpixie and Bright Spark, much appreciated, helps me to understand more.
I found this very interesting,

Why lease from the mother ship? So it makes it easier for the bean counters to make their figure read what ever they want. Jet* makes too much money, QF charge higher lease fees, - QF make too money they lower the lease fees.

I admit, I don't fully understand how this side of the business works, it seems to add up in relation to the "out of the blue" sudden announcement by AJ that Q international was under performing. Prior to this announcement everything seemed fine and dandy. (say mid last year)

Perhaps there are links between person(s) inside QF and some aircraft leasing companies ?

Only my gut feeling, this thought did cross my mind as well, something is not quite right. Is this what the bean counters mean by "Qantas Group" these days? (move the figures around to prop up what they see fit) If my memory serves me right I thought that Qantas and Jetstar were supposed to be two separate identities by complementing each other with the premium & leisure markets?

http://www.aph.gov.au/senate/Committ...ions/sub06.pdf

The vast bulk of Jetstar’s facilities to support its operations are and will continue to be based in
Australia.
Jetstar currently employs more than 1,600 people, with the overwhelming majority based in Australia.
Earlier this month, a new $29 million A320 maintenance facility was opened at Newcastle – an
investment that will create additional skilled jobs and apprenticeship opportunities.
In addition, Jetstar’s long haul expansion will see the workforce grow further with the introduction of its
widebody long-haul international fleet.
It is important to the success of both Qantas and Jetstar that they continue to work closely to
maximise the Group’s financial performance and market shares. To this end, Qantas and Jetstar are
codesharing on each other’s international services to leverage brand and distribution systems and
optimise market penetration. The airlines operate on distinct routes to avoid “cannibalisation” of
yields.

The concerns expressed by Senator Fielding in the Second Reading Speech of “Jetstar being sold off
to overseas buyers” are unfounded and run counter to the Qantas Group’s strategy of retaining and
growing the complementary Qantas and Jetstar businesses. The prospect of the highly successful
Jetstar lower cost operating model competing directly with Qantas in Australian domestic and
international markets would clearly be an outcome that any owner of Qantas would be highly unlikely
to pursue.Qantas would be happy to answer any questions the Committee may have at its public hearings on 13
March 2007.
Qantas Airways Limited
9 March 2007
Contact Details:
Brett Johnson David Hawes
General Counsel GGM Government & International Relations

email: [email protected] Email: [email protected]

my bold.


I find this document interesting to read again, it appears the goal posts have moved somewhat since 2007. I now fully understand one thing, hard to trust a word that comes out of Q head office at Mascot, that's for sure.

[QFinsider]

To work it out why lease the asset out, versus owning it.

From QAN annual report,

"operating segments do not report borrowings as these are managed centrally (mainline)...

Further if one thinks about the depreciation these assets attract, it makes more sense for the parent to absorb the write down. A quick check of QAN annual report shows where the assets all live, it isn't in J*...Wonder what the profit would actually look like if they had to absorb depreciation?

[Capt Kremin]

Another two A320 have been added to the register as being owned by QF and leased by JQ for a total of 8.

[Old but not bold]

Excuse me if someone has already mentioned this but with creative accounting anything is almost possible. I have seen the following done on several occassions with seperate compnies with a common ownership.

Company No.1 is very profitable and paying too much Tax.
Company No.2 Is a loss maker and not only pays no tax but also can acumualte tax losses which can be used to offset future profits.

Company 1. buys new equipment and pays costs and lease write offs to minimise their profits and hence pays a lower tax rate. They then lease them to company 2. for a minimal ammount so that company can produce a profit for which it pays little or no tax and can also use accrued write offs to keep their tax bill to a minimum.

Simple little trick that simple little Irishmen use????????

[TIMA9X]

from last year

Another two A320 have been added to the register as being owned by QF and leased by JQ for a total of 8.

for the record..... I believe AJ & Co hoped this story would go away.... it's a sleeper and I believe the media will raise it again in 2012.. many questions still unanswered/avoided by Q management.

If you want to look back at all the drama last year, a media playlist has been created here.....

Qantas Dispute & Grounding 2011 - YouTube

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