1. Why does this airline want to enter into a sale-and-leaseback transaction?
2. Why switchfrom being the owner of the aircraft to just the operator?
3. What does WNG bring to the deal other than money to buy the aircraft?
4. How does thedeal fit into WNG's business model?

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CASE 41 WNG Capital LLC Page 513 WNG succeeds because we create value for all our stakeholders. Our model allows both airlines and investors to achieve their financial objectives. -Michael Gangemi, CEO WNG Capital LLC In late 2013, Wenbo Su, an analyst at WNG Capital LLC (WNG), a U.S.-based asset management firm, was reviewing the terms of a proposed transaction for his employer. WNG specialized in aviation leases, and Su was evaluating the terms of a proposed purchase and leaseback deal with a small private airline based in the United Kingdom. The essence of the transaction would be to transform the airline from being the owner of certain aircraft in its fleet to being the lessee of the aircraft for 12 months (through the end of 2014). WNG would be the new owner of the equipment and would act as the lessor in the deal. The airline would have full use of the aircraft, but would not own the aircraft or have use of the aircraft after the end of the lease. The cash flows to all parties were complicated, and Su planned to conduct a thorough analysis of the proposed lease terms before making a recommendation to WNG's CEO, Michael Gangemi. WNG was established in 2009 as an operating lessor of used commercial aircraft manufactured by Airbus Group and Boeing Corporation. The company had offices in Dallas, Boston, and Dublin, Ireland, where Su worked. Since its first investment in 2011, the firm had invested approximately $805 million in 54 aircraft using special-purpose entities (SPEs). The small firm of 15 employees had global reach, with leases to 34 airlines operating in 22 countries around the world. At the time of the proposed deal, the firm was managing 41 aircraft valued in excess of $735 million in four SPES. In its marketing materials, WNG informed potential investors that it sought an unlevered, pretax net-annual internal rate of return (IRR) on invested capital of 11% to 14%. The challenge of analyzing and setting lease terms was not new to Su, who was aware that the aircraft-leasing market was both small and competitive. Beyond structuring a deal that was profitable for both WNG and its investors, Su understood the importance of reputation in such a small market. A deal that proved too costly for an airline could cost the firm future deals not only with that airline but also with others. Protecting the firm's reputation in the industry was as important as protecting the firm's capital; and structuring a deal that benefited WNG, its investors, and the airline presented an interesting challenge given the opaque nature of older aircraft values. Page 514 Aviation Industry The aviation industry launched on December 17, 1903, in Kill Devil Hills, North Carolina, when inventors Wilbur and Orville Wright successfully piloted their heavier-than-air machine on four flights ranging from 12 to 59 seconds. Within 11 years of this historic event, the commercial airline business had begun, and it quickly evolved into an industry dominated by regulation. Routes and fares were controlled by governments, and airlines competed on food and service, including frequency of flights. Fares were high and the load factor-the percentage of seats filled-was low because the price of air travel was beyond the reach of many. The passage of the 1978 Airline Deregulation Act in the United States ushered in a new age, making it CASE 41 WNG Capital LLC Page 513 WNG succeeds because we create value for all our stakeholders. Our model allows both airlines and investors to achieve their financial objectives. -Michael Gangemi, CEO WNG Capital LLC In late 2013, Wenbo Su, an analyst at WNG Capital LLC (WNG), a U.S.-based asset management firm, was reviewing the terms of a proposed transaction for his employer. WNG specialized in aviation leases, and Su was evaluating the terms of a proposed purchase and leaseback deal with a small private airline based in the United Kingdom. The essence of the transaction would be to transform the airline from being the owner of certain aircraft in its fleet to being the lessee of the aircraft for 12 months (through the end of 2014). WNG would be the new owner of the equipment and would act as the lessor in the deal. The airline would have full use of the aircraft, but would not own the aircraft or have use of the aircraft after the end of the lease. The cash flows to all parties were complicated, and Su planned to conduct a thorough analysis of the proposed lease terms before making a recommendation to WNG's CEO, Michael Gangemi. WNG was established in 2009 as an operating lessor of used commercial aircraft manufactured by Airbus Group and Boeing Corporation. The company had offices in Dallas, Boston, and Dublin, Ireland, where Su worked. Since its first investment in 2011, the firm had invested approximately $805 million in 54 aircraft using special-purpose entities (SPEs). The small firm of 15 employees had global reach, with leases to 34 airlines operating in 22 countries around the world. At the time of the proposed deal, the firm was managing 41 aircraft valued in excess of $735 million in four SPES. In its marketing materials, WNG informed potential investors that it sought an unlevered, pretax net-annual internal rate of return (IRR) on invested capital of 11% to 14%. The challenge of analyzing and setting lease terms was not new to Su, who was aware that the aircraft-leasing market was both small and competitive. Beyond structuring a deal that was profitable for both WNG and its investors, Su understood the importance of reputation in such a small market. A deal that proved too costly for an airline could cost the firm future deals not only with that airline but also with others. Protecting the firm's reputation in the industry was as important as protecting the firm's capital; and structuring a deal that benefited WNG, its investors, and the airline presented an interesting challenge given the opaque nature of older aircraft values. Page 514 Aviation Industry The aviation industry launched on December 17, 1903, in Kill Devil Hills, North Carolina, when inventors Wilbur and Orville Wright successfully piloted their heavier-than-air machine on four flights ranging from 12 to 59 seconds. Within 11 years of this historic event, the commercial airline business had begun, and it quickly evolved into an industry dominated by regulation. Routes and fares were controlled by governments, and airlines competed on food and service, including frequency of flights. Fares were high and the load factor-the percentage of seats filled-was low because the price of air travel was beyond the reach of many. The passage of the 1978 Airline Deregulation Act in the United States ushered in a new age, making it

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Based on the information in the case studythe airline is considering entering into a saleandleaseback transaction with WNG Capital LLC for a number of ... View the full answer