SLB returns: Unlevered IRR and NPV analysis
The downloadable data sheet below is an illustrative look at net present values (NPVs) and unlevered returns (IRRs) for six hypothetical sale/leaseback (SLB) transactions informed by rumoured pricing terms of real SLB deals concluded between May and July 2023. The hypothetical SLB transactions are for new Airbus A320neo, A321neo, and Boeing 737 MAX 8 aircraft at lease rate factors of 0.6 and 0.65.
The table on page 1 shows NPVs and IRRs assuming deals where the aircraft is sold three years or five years into the lease, and after 12 years (at the end of the lease). The charts on page 2 represent the trends in NPVs and IRRs considering a sale after each year of the lease.
Results
From the analysis, Ishka found that the A320neo and 737 MAX 8 returned highest unlevered IRRs with a sale two years into the lease, while the A321neo saw the highest return at the end of the 12-year term. On the NPVs, five out of the six hypothetical transactions returned the highest NPV with a sale three years into the lease, an age which Ishka understands is popular for aircraft sellers.
Methodology
Ishka’s methodology comprises hypothetical SLB transactions for new Airbus A320neo, A321neo, and Boeing 737 MAX 8 aircraft, assuming a lease start date in June 2023 for a 12-year term, and looking at potential sale dates of the aircraft after each year of the lease. Ishka has considered two different LRFs of 0.6 and 0.65 to capture the range of winning bids on deals for a sample B+ rated carrier (strong second-tier airline credit). NPVs and IRRs are calculated using Ishka's algorithm and take into consideration Ishka's residual values, after applying a 4.75% asset discount rate and a 5% lessee discount rate. The outlined red box in the table on page 1 shows the input lease terms that could vary from quarter to quarter depending on rumoured average deal pricing.
For any questions or feedback, please email Joseph El-Helou at joseph@ishkaglobal.com or Dickon Harris at dickon@ishkaglobal.com.
Click here, or on the image below, to download the data sheet
Sign in to post a comment. If you don't have an account register here.