WNG CASE

rough analysis of the proposed

1. Why does this airline want to enter a sale-and-leaseback transaction? Why the switch from being an owner to just the operator of the aircraft?

2. What does WNG bring to the deal other than money to buy the aircraft? What is WNGs business model? Does this deal fit the model?

3. In what way is leasing similar to borrowing to buy an asset? In what way is it different?

4. What are the cash flows for WNG? Using a 20% required rate of return, what is the NPV of the deal?

5. What drives the value of this deal? What should Mr. Su be most worried about? Why?

6. Should WNG go forward with this deal?

7. Now value the lease from the airlines point of view. What do you get as the NPV for the lessee?

VIVE Capital LLC Global Air Transport: Billions of Passengers Carried 19702015 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: Created by author from data provided by the World Bank from the International Civil Aviation Organization, Civil Aviation Statistics of the World, and ICAO staff estimates, http://data.worldbank.org/indicator/IS.AIR.PSGR (accessed Feb. 3, 2017). Exhibit 2 WNG Capital LLC Growth of Leased Aircraft 19702012 Growth of Leased Aircraft 19702012 100% 90% 80% 12,204 11,317 70% 60% 50% 40% 7,817 -3,705_ 5,937_ 30% 7,390 20% 10% 3,715 1,343 0% 100 1980 1970 1990 2000 2012 Leased aircraft Nonleased aircraft Exhibit 3 WNG Capital LLC Equipment to be Purchased and Leased Back Equipment Aircraft 1: Boeing 757-200 Aircraft 1: Boeing 757-200 Aircraft 1: Boeing 757-200 Spare Engine 1 Spare Engine 2 Source: Created by author. Rolls-Royce Engine (2) RB211-535E4 (2) RB211-535E4 (2) RB211-535E4 (1) RB211-53514 (1) RB211-53514 Exhibit 4 WNG Capital LLC Aircraft Capacity and Trip Costs of Selected Aircraft in the Short-Haul Sector 1,000 nautical miles (1,900 km) A320 169,800 150 150,000 1,915 3,064 0.0204 $ Aircraft type Maximum take-off weight (lbs) Seats Available Seat Miles Fuel burn-USG* Fuel cost @ $1.60/USG Fuel cost/ Available seat mile Maintenance cost $/FH** Maintenance cost-$ Flightcrew cost-$ Flight attendant cost-$ Landing & navigation cost-$ Total cash direct operating costs $ Cash direct operating costs/Seat-$ Lease rate-$ Trip lease cost-$ Total trip cost-$ Trip cost/seat-$ Unit cost (Cost per Available Seat Mile) 637 757-200 737-900ER 737-800 737-700 A321-200 255,000 187,700 174,200 154,500 205,000 190 177 160 128 180 190,000 177,000 160,000 128,000 180,000 2,805 2,350 2,100 1,700 2,200 4,488 3,760 3,360 2,720 3,520 0.0236 $ 0.0212 $ 0.0210 $ 0.0213 $ 0.0196 $ 1,140 662 632 602 652 2,887 1,677 1,601 1,534 1,652 965 910 910 910 1,455 1,273 1,091 732 1,273 1,129 922 868 823 973 10,924 8,542 7,830 6,719 8,328 48 49 53 350,000 385,000 350,000 320,000 390,000 4,000 4,400 4,000 3,654 4,457 14,924 12,942 11,830 10,373 12,785 - 79 73 74 81 71 0.0785 $ 0.0731 $ 0.0739 $ 0.0810 $ 0.0710 $ A319 166,450 124 124,000 1,791 2,866 0.0231 617 1,573 910 732 852 6,933 910 57 46 1,614 910 1,091 856 7,535 50 350,000 4,000 11,535 77 0.0769 $ 56 310,000 3,539 10,472 84 0.0844 $ *USG = U.S. gallons. **FH = flight hour. Exhibit 5 WNG Capital LLC Summary of Cash-Flow Assumptions Letter of Intent (LOI) Terms: Lease expiry Purchase price Monthly rent* 15-Dec-14 $15,000,000 $325,000 Side-Letter Adjustments: Published value of unserviceable engine Published value of items missing trace** Adjusted purchase price Additional rent of items missing trace (10% of value) ($750,000 ($1,400,000) $12,850,000 $140,000 Analyst Assumptions: One-year residual value (at time of LOI) Haircut to residual value for unserviceable engine Haircut to residual value for missing trace Revised estimate of residual value $14,000,000 ($750,000 ($1,400,000 $11,850,000 Tax rate Annual RRR 0.0% 20.0% *Rent is due at the beginning of each month with the first payment due at closing. **trace = back-to-birth traceability. Source: Author estimates. VIVE Capital LLC Global Air Transport: Billions of Passengers Carried 19702015 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: Created by author from data provided by the World Bank from the International Civil Aviation Organization, Civil Aviation Statistics of the World, and ICAO staff estimates, http://data.worldbank.org/indicator/IS.AIR.PSGR (accessed Feb. 3, 2017). Exhibit 2 WNG Capital LLC Growth of Leased Aircraft 19702012 Growth of Leased Aircraft 19702012 100% 90% 80% 12,204 11,317 70% 60% 50% 40% 7,817 -3,705_ 5,937_ 30% 7,390 20% 10% 3,715 1,343 0% 100 1980 1970 1990 2000 2012 Leased aircraft Nonleased aircraft Exhibit 3 WNG Capital LLC Equipment to be Purchased and Leased Back Equipment Aircraft 1: Boeing 757-200 Aircraft 1: Boeing 757-200 Aircraft 1: Boeing 757-200 Spare Engine 1 Spare Engine 2 Source: Created by author. Rolls-Royce Engine (2) RB211-535E4 (2) RB211-535E4 (2) RB211-535E4 (1) RB211-53514 (1) RB211-53514 Exhibit 4 WNG Capital LLC Aircraft Capacity and Trip Costs of Selected Aircraft in the Short-Haul Sector 1,000 nautical miles (1,900 km) A320 169,800 150 150,000 1,915 3,064 0.0204 $ Aircraft type Maximum take-off weight (lbs) Seats Available Seat Miles Fuel burn-USG* Fuel cost @ $1.60/USG Fuel cost/ Available seat mile Maintenance cost $/FH** Maintenance cost-$ Flightcrew cost-$ Flight attendant cost-$ Landing & navigation cost-$ Total cash direct operating costs $ Cash direct operating costs/Seat-$ Lease rate-$ Trip lease cost-$ Total trip cost-$ Trip cost/seat-$ Unit cost (Cost per Available Seat Mile) 637 757-200 737-900ER 737-800 737-700 A321-200 255,000 187,700 174,200 154,500 205,000 190 177 160 128 180 190,000 177,000 160,000 128,000 180,000 2,805 2,350 2,100 1,700 2,200 4,488 3,760 3,360 2,720 3,520 0.0236 $ 0.0212 $ 0.0210 $ 0.0213 $ 0.0196 $ 1,140 662 632 602 652 2,887 1,677 1,601 1,534 1,652 965 910 910 910 1,455 1,273 1,091 732 1,273 1,129 922 868 823 973 10,924 8,542 7,830 6,719 8,328 48 49 53 350,000 385,000 350,000 320,000 390,000 4,000 4,400 4,000 3,654 4,457 14,924 12,942 11,830 10,373 12,785 - 79 73 74 81 71 0.0785 $ 0.0731 $ 0.0739 $ 0.0810 $ 0.0710 $ A319 166,450 124 124,000 1,791 2,866 0.0231 617 1,573 910 732 852 6,933 910 57 46 1,614 910 1,091 856 7,535 50 350,000 4,000 11,535 77 0.0769 $ 56 310,000 3,539 10,472 84 0.0844 $ *USG = U.S. gallons. **FH = flight hour. Exhibit 5 WNG Capital LLC Summary of Cash-Flow Assumptions Letter of Intent (LOI) Terms: Lease expiry Purchase price Monthly rent* 15-Dec-14 $15,000,000 $325,000 Side-Letter Adjustments: Published value of unserviceable engine Published value of items missing trace** Adjusted purchase price Additional rent of items missing trace (10% of value) ($750,000 ($1,400,000) $12,850,000 $140,000 Analyst Assumptions: One-year residual value (at time of LOI) Haircut to residual value for unserviceable engine Haircut to residual value for missing trace Revised estimate of residual value $14,000,000 ($750,000 ($1,400,000 $11,850,000 Tax rate Annual RRR 0.0% 20.0% *Rent is due at the beginning of each month with the first payment due at closing. **trace = back-to-birth traceability. Source: Author estimates