United Airlines, in an effort to raise cash, sold 22 of its jets to Bank Of China Aviation. It plans to lease them back.
Bank of China (BOC) is one of the largest state-owned commercial banks in China. The deal includes:
- 6 Boeing 787-9
- 16 Boeing 737-9 MAX
No purchase prices were announced, but BOC indicated that United would lease the aircraft under long-term agreements. The 737-9 MAX aircraft that were sold under this deal have not yet been delivered to United.
BOC is based in Singapore and originally a Singaporean company, though acquired by BOC in 2006. It owns 567 aircraft.
Is United That Desperate For Cash?
As I wrote about earlier today, United is reducing both domestic and international schedules, with its May 2020 flight schedule representing a 90% cut from its May 2019 schedule. The reduced schedule will likely continue into this summer.
Even though United accepted funding from the CARES Act in exchange for continuing payroll through September 30, 2020, United claims this isn’t enough money to keep the lights on and revenue is virtually at zero right now.
Most startling, United flew 200,000 passengers over the first two weeks of April, down from 6,000,000 a year earlier over the same period. That’s a 97% drop! It expects to fly less people during the entire month of May this year than it did on any single day in May last year.
In short, United needs cash.
CONCLUSION
United’s move has Scott Kirby’s name written all over it. United raised cash early and will continue to do so. This fits its narrative that demand will not soon improve, even if travel restrictions are lifted. While consumers won’t notice any difference, United now owns 22 fewer aircraft.
Finance is very much not what I do. So perhaps I am missing something here. But does anyone else understand why a bank would want to invest in 16 undelivered 739 MAXs?
If they can buy them low enough from United, they’ll get a good enough ROI on the lease payments for it to be an attractive deal for them investment-wise.
How many cents on the dollar they bought them for, not sure if/when we will know that.
As in the article. It is a 2 fold revenue stream. They will be making money as United will be leasing back the planes. So it becomes a exotic form of a bond. They paid X to United now to receive Y payment every month the aircraft is under the agreement. If they got it for cheap enough then they will be able to sell the plane if united does not renew the lease and in so recovering part of the principle. As the bank at no point will have to store or take delivery of the plane personally it becomes a purely financial transaction to them. Anyone could do it if they had the cash to make the deal.
Planes not being delivered isn’t a problem if the terms are good enough or the price low enough that it is worth it to them to not receive the lease payments for a number of months.
Seems to me that the undelivered 739 MAX represents such a huge risk that the terms and/or price had better be pretty darned good! But given their situation, perhaps United was willing to be bargained down pretty far …