Shipping and Aviation Asset Valuation

Shipping And Aviation

Shipping and aviation assets should be valued under the same market value principles as real estate; that is, on the basis of market value at point of sale. Market value is defined as the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.

Market value should be based on industry benchmarks for asset values by type such as Clarkson for shipping and Avitas for aviation. For aviation particular focus should be on airplane model, age and specifics around the engine and the fuselage. For shipping, focus should be on vessel type, size and age. It is critical that the reported values from these benchmarks should not be taken directly. Specific aspects around the asset in question should be taken into account, including crucially:

• Adjusting for specific characteristics of the asset that are not reflected in the benchmark that may have a material impact on price (e.g. time to next D-check and age of the fuselage for aviation);
• Adjusting for situations where benchmarks have been distorted from market value by transactions that do not meet the definition of “market value” above. For instance where manufacturers have transacted at above market value to maintain residual values so as not trip leasing covenants;
• Ships and planes under construction will be valued corresponding to the status of construction.

Where crucial information is missing, appropriate conservatism will be applied.

For ships and planes chartered to an investment grade charter party for >5 years, a DCF approach may be taken:

 * The net effective charter rate during the charter period is discounted by the yield to maturity of a senior unsecured exposure to the charter party;
 * A residual value is determined at the end of the charter based on market rates;

Similarly to real estate, a thorough review of the name level valuations should be carried out by the NCA ensuring that appropriate benchmarks have been applied for specific assets and that prudent adjustments have been made to these benchmarks. A template for delivering this information will be provided. The template will also be provided to the CPMO (T5).