devonplay
04 Apr 2019
Diversification DNA3 looks intersesting. If you can take the increased risk, but the vield looks good. DL
badnews
22 Jan 2015
Re: Diversification Excellent point Tops about the margin of safety on the residual value of the plane. To be honest I would be quite happy to treat this as a bond and just get back the 109p a share I paid 2 weeks ago should it be sold in 2022. Your other point about the aircraft being unencumbered at the end of the lease is also a nice reminder. For me it hadn't sunk in (goodness know how) that this would mean 0 interest/capital payments from thereon, and thus the potential for the dividend payments to be retained at the current level should the plane be re-leased at a reduced rate.I won't be adding to my holding, but nor will I lose much sleep over it either.
triceratops
21 Jan 2015
Re: Diversification to your other point, after 12 years the loan is fully amortised so when the time comes to re-negotiate a lease (probably not with emirates as they maintain a very new fleet) it would be acceptable to take a much lower lease fee and still mainatin a decent yield. I read that 30 years is a reasonable life for many aircraft, after which time the plane could be retired/scrapped.
triceratops
21 Jan 2015
Re: Diversification Hi Badnews,Totally agree on the residual value being a big unknown, some recent comments by the makers casting some doubt on whether they will continue with the A380 hasn't helped.I'm much less worried about the credit worthiness of Emirates though, national flag carrier and all means the risk of them being unable to pay is minimal in my view.The running yield is now 8.5% and the latest accounts estimate a £69.2m residual value for the plane in 2023 (giving 160p capital back) the residual value would have to drop by 35% to £45m before the capital value drops below 106p which it currently trades at. Thats enough of a safety margin for me so am happy to continue with my small holding.tops
badnews
11 Jan 2015
Re: Diversification I have come on board (no pun intended), but I would say that there are 2 key unknown risks. The first is that the aircraft residual value must be quite difficult to estimate. The A380 is a relatively new model and it would be difficult to ascertain the market at the end of the lease period. I would be interested to know if there have been any recent secondary market deals for the A380, and if so the prices agreed. The second risk is that Emirates may not wish to renew the lease at the end of 12 years, and if they did they would want a reduction in the lease as the aircraft would be half way through its useful life. If the lease expires without a keen tenant, with an illiquid market for A380s, the combination could be quite difficult.Anyway, I like the idea behind the fund, and nothing is without risk, so I'll keep a little bit in it.
