American Airlines has adjusted its view on how to manage its most important assets - its aircraft - over the long term, shifting to lease financing with the aim to reduce risk and increase flexibility down the road.
Peter Warlick, treasurer of the Fort Worth, Texas-based carrier, says that it only recently began to actively participate in the operating lease market as part of a strategy to create balance in its long-term obligations, on the sidelines of the delivery ceremony for its first Airbus A319 in Hamburg on 23 July.
"We look at a balance," he says. "The source of capital and the terms we can drive are very competitive."
American has historically been active in the enhanced equipment trust certificate (EETC) and leverage lease markets, Warlick adds.
With standard lease terms that often include 10- to 14-year deals, the airline has been able to offload a lot of the residual risk that comes with holding the title of ageing aircraft. This benefits its balance sheet down the road while also giving it the flexibility to keep, remove or replace aircraft as needed when the leases come up.
As a result of this increased use of operating leases, American a decade from now will likely have a much younger fleet and the flexibility to keep it that way compared to the airline of the 2000s, when it was known for having one of the older fleets in the US industry.
American's proposed merger with US Airways is the big unknown in the equation. Tom Weir, treasurer of the Tempe, Arizona-based carrier and future treasurer of the new airline, said in March that sale and leasebacks would be a "very small component" of how the airline finances aircraft going forward.
"The EETC market has continued to improve to the point where it's, hands down, the most efficient source of financing for us," he said at the annual ISTAT Americas 2013 conference.
US Airways has financed all of its pending deliveries through June 2014 with EETCs, Weir told Flightglobal in April after the airline achieved a then record law coupon on its $819.6 million 2013-1 EETC deal.
The merger is slated to close by the end of the third quarter, subject to regulatory approval.
American has financed 69 of its 72 new aircraft deliveries since the beginning of 2011 with leases, Flightglobal's Ascend Online database shows. Only three of its Boeing 777-300ER deliveries have been financed with debt from its $663 million 2013-1 EETC issue during this period.
The airline's most recent delivery - its first A319 - was leased from Airbus who then sold the title and lease on to Avolon. The European OEM plans to do the same with the leases for the majority of the 130 A319s and A321s that American has on order, with 30 already sold on to either lessors or investor funds, Airbus Americas vice-president of sales finance told Flightglobal at the delivery.
American has relationships with AerCap, GECAS, Guggenheim Aviation Partners, ILFC, ORIX Aviation, in addition to Avolon.
The carrier will lease 25 of its remaining 33 aircraft deliveries this year, Ascend, Airbus and bankruptcy court filings show. Of the remaining aircraft, one, a 777-300ER, is financed under the 2013-1 EETC with the balance undecided.
American remains active in debt capital markets. It launched a $1.41 billon 2013-2 class A EETC private placement on 24 July. However, the debt will be used to refinance three outstanding past EETCs and is secured by 75 aircraft that are already in its fleet.
Warlick will remain at American after the merger, assuming the role of vice-president in charge of fleet planning at the combined carrier.