Project Brentmoor — Aircraft Lessor Valuation
A 2-hour Transportation Finance / Strategic Alternatives case study with a complete model answer
Modeled After
Citi
Strategic alternatives and board materials for an aircraft lessor: a discounted dividends analysis run in base, higher-growth and lower-growth cuts, net asset value per share built off the fleet, a dedicated cost of equity page with a five-year beta regression and re-levering formula, and precedent transactions explicitly excluded from the football field with the reason stated on the page
Structure and exhibit set are modeled after Citi. The company, the financials and every figure in this case are entirely our own.
The Situation
Brentmoor Aviation Leasing Limited (NYSE: BMA) is a Bermuda-domiciled aircraft lessor listed in New York and reporting under United States generally accepted accounting principles.
Brentmoor Aviation Leasing Limited
- Sector
- Transportation finance — commercial aircraft operating leasing, across new-technology and current-generation narrowbodies, passenger widebodies and a converted freighter fleet
- Size
- Geography
- Bermuda-domiciled and New York-listed, with a United States domestic filer's reporting obligations and a US-dollar funding stack; lessees are airlines worldwide
- Ownership
- Situation
The Prompt
00 per share in cash. Value the company and recommend a response.
Supporting Materials
What you are handed at the start of the case, in the format a real process would use.
What You Have to Produce
The deliverables, in the order the committee will read them. The exercise runs 120 minutes.
PART 1
The fleet, and what its schedule implies
PART 2
The reported year, rolled rather than assumed
PART 3
Three forecast cases on one set of identities
PART 4
The cost of equity, with no weighted average cost of capital
PART 5
The discounted dividends analysis
PART 6
Net asset value off the fleet
PART 7
The market, screened and regressed
PART 8
Precedents, the summary and the recommendation
How to Approach It
The order a strong candidate works in, and why. This is the shape of the answer — the finished answer deck and Excel model are in the solution set below.
- 01
Decide what kind of company this is before you value it
- 02
Read the depreciation policy as an assumption, not as a fact
- 03
Depreciate on original cost, not on net book value
- 04
Make the reported year roll before you forecast anything
- 05
Discount dividends at what shareholders require
- 06
Strike the terminal value on book, not on a multiple you assume
- 07
Reconcile the two multiples instead of picking one
- 08
Let the precedent screen return nothing, and say so
- 09
Derive both recommended prices, and round them the right way
Key Concepts
The ideas this case is built on. Know these cold and the case becomes a question of execution rather than knowledge.
Why a lessor has no enterprise value
Enterprise value is the value of a business independent of how it is financed, and it is a useful idea when debt is a financing choice laid over an operating company. For an aircraft lessor the debt is the product: the company borrows against long-lived assets and earns the spread between the lease yield and the cost of that debt. Remove the debt and you have not isolated the operating business, you have removed the business. That is why the sector is valued on equity throughout — on dividends, on book value and on the return the balance sheet earns — and why an enterprise value bridge, an EV/EBITDA multiple and a weighted average cost of capital do not appear at all.
Why EBITDA tells you nothing about a lessor
A lessor's revenue is rent and its costs are interest, depreciation and a small administrative line. Take out interest, taxes, depreciation and amortization and what is left is essentially the rent, which is a restatement of the size of the fleet rather than a measure of what the fleet earns. Worse, the charge the measure removes — depreciation — is exactly the one that decides whether a lease is profitable, because it is the consumption of the asset that produces the revenue. An earnings measure struck before depreciation measures gross rent, not profit.
The discounted dividends analysis, and its terminal value
The sector's substitute for a discounted cash flow. Forecast the dividends the company can pay, discount them at the cost of equity, and add a terminal value that is the terminal book value per share at the price to book the terminal return justifies: (return on equity less growth) over (cost of equity less growth). A company earning exactly its cost of equity is worth exactly its book; one earning more is worth more, in proportion to the spread. So the terminal value is a statement about the spread and nothing else, which is what stops it becoming the assumed exit multiple that a terminal value usually is.
Lease rate factor and lease yield
Two ways of quoting the same rent against two different denominators. The lease rate factor is monthly rent as a percentage of the aircraft's ORIGINAL cost, and it is the number lessors quote when they price a lease. The lease yield is annual rent as a percentage of NET BOOK VALUE, and it is the number that drives a model, because net book value is what the balance sheet carries. An older aircraft carries a higher lease rate factor on original cost and a higher yield on a depreciated book, and neither statistic on its own tells you whether the lease is a good one — for that you need the depreciation charge the yield has to cover.
Depreciation policy, residual value and why they are the answer
Flight equipment is depreciated straight line from manufacture to a residual value, so the annual charge is (one less the residual) divided by the life, applied to original cost. Two consequences follow. First, the accumulated depreciation on the balance sheet is the charge times the fleet's age, which makes the fleet age recoverable from the accounts rather than a separate assertion — and gives you a check. Second, book value, reported return on equity and therefore every multiple of book move directly with the residual assumption, which is why a lessor case that does not sensitize it has left its biggest lever unexamined.
Net asset value off appraised values, and the leverage in it
The second valuation: take the appraisers' maintenance-adjusted current market value of the fleet, add the other assets, deduct every liability, and divide. What makes it treacherous is the leverage. A fleet funded with more than two turns of net debt to equity turns a single-digit percentage move in the appraisers' marks into a high-teens percentage move in what the equity is worth, so a net asset value quoted without a sensitivity is a point estimate on the wrong side of an amplifier. It is also why two independent appraisals are commissioned rather than one.
An appraisal below carrying value is not an impairment
United States generally accepted accounting principles test flight equipment for recoverability on UNDISCOUNTED future cash flows, not on appraised value. So an aircraft type the appraisers mark below its carrying value has not been written down and does not have to be: the test is whether the undiscounted rents and residual proceeds recover the carrying amount, and they frequently do even when a market value does not. The gap belongs on the page, with the amount, as a warning that the test is close. Calling it an impairment is wrong about the accounting rather than wrong about the number.
Secured debt, unsecured debt and the unencumbered asset ratio
Which aircraft are pledged is not a detail. Unsecured aircraft notes are lent against whatever is not already pledged, so they carry an unencumbered asset ratio covenant — unencumbered assets over unsecured debt — and a secured debt to total assets cap alongside it. Pledging young narrowbodies to raise secured money subordinates the existing notes without changing total leverage by a cent, which is why a lessor's credit is analyzed on the composition of the balance sheet as well as its size.
Price to book regressed on return on equity
The sector's standard cross-check, and the instrument that reconciles the two multiples. Because price to book equals price to earnings times return on equity, a set's median multiple of book only prices a company earning the set's median return; anything else is mispriced in a direction the identity fixes in advance. Regressing price to book on return on equity across the peers estimates what the market pays per point of return and evaluates it at the subject's own return. Two cautions belong on the page with it: a five-company regression has a standard error worth printing, and every observation in it is a minority stake trading in the market rather than a control price.
Why a precedent transaction set can be empty
Aircraft leasing platforms are usually bought privately, so most transactions are announced without a price and the ones that are priced are rarely comparable: an asset portfolio has no book value to strike a multiple on, a court-supervised sale is a liquidation outcome rather than a negotiated one, an engine lessor is a different asset on a different residual curve, and a transaction struck four hundred basis points of ten-year yield ago prices a different spread. A screen that leaves nothing is a legitimate result, and it is more useful stated than replaced with a median off rows you have already excluded.
What Makes It Hard
The specific traps in this case — the places candidates lose the assessment without noticing.
Check Your Answer
Type the figures you produced and find out how many are right before you open the worked answer. You get a verdict and, where you are off, a pointer to the part of the build to re-check — never the number itself. Everything you type stays on this device.
How to type a figure. Digits, with an optional unit: 1,234.5, $1,234.5, 2.6x, 21.4%. For a negative use (20.0) or -20.0. Enter as many decimals as you carried — precision is never penalised.
What the Case Asked For
The arithmetic is only half of it. Tick off what you actually produced — this half is yours to score, because nothing can grade a written recommendation from a checkbox.
The Model Answer
The worked answer in full: answer deck and Excel model, built the way a banker would actually build them. It is a reference, not a submission — a strong answer under the clock is far shorter.
What the Solution Covers
- —Discounted dividends analysis across growth cases
- —Net asset value per share off the fleet
- —Price to book and dividend yield in place of EV/EBITDA
- —Dedicated cost of equity page
- —Beta regression and re-levering
- —Excluding precedents with a stated reason
Answer Deck
Full model answer, banker-formatted
Upgrade to Diamond
Sign up and upgrade to Diamond to unlock the answer deck, the Excel model and the audio walkthrough.
Get StartedThe Excel Model
The model is linked and tied out end to end — every schedule, every formula and every check, in the file itself.
Downloads are available to Diamond members
Excel Model and PowerPoint Deck and Answer Deck (PDF) — yours to open, edit and rebuild
Walkthrough
A conversational walkthrough of how to approach the case under time pressure — where to start, what to cut, and how the recommendation gets defended.
Audio Walkthrough
How to approach Project Brentmoor — Aircraft Lessor Valuation
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
What is an aircraft lessor case study in an investment banking interview?
It is a sector case in which the subject is a balance-sheet financial company rather than an operating business, so it is valued on dividends and on book value instead of on an enterprise value. You build the fleet from a schedule, roll it through a depreciation policy, forecast the earnings and dividends it produces, discount those dividends at a cost of equity you have to construct, and cross-check the answer against the appraised value of the same fleet and against what the market pays for a lessor's return on equity. It appears in transportation, aviation finance and financial institutions groups, and it tests something the generalist cases do not: whether you can tell when the enterprise-value toolkit does not apply.
How should you allocate 120 minutes across this case?
A working budget that sums to 120: about 15 minutes reading the prompt, the fleet schedule, the appraisers' summary and the raw extract, and deciding which companies and which transactions survive before you type anything; about 80 minutes at the keyboard, split roughly 10 on the fleet, 22 on the sixteen-column operating model, 15 on the cost of equity and the discounted dividends analysis, 17 on the sensitivity, the net asset value and the screened company set, and 16 on the precedent screen, the summary and the price ladder; and about 25 minutes on the presentation, which is the second deliverable. The template measures 1,478 cells to fill, which collapse to 240 distinct formulas once the fill-right and fill-down repetitions are counted properly — most of the workbook is one formula copied across fifteen forecast columns, down nine aircraft types or over a five-by-five grid.
Why is there no EV/EBITDA multiple in an aircraft lessor valuation?
Two reasons, and the second is the one that matters. First, an enterprise value is not a meaningful quantity for a lessor: the debt funds the aircraft that produce the revenue, so removing it does not isolate an operating business, it removes the business. Second, a lessor's EBITDA is rent less a small administrative line, which makes it a measure of the size of the fleet rather than of what the fleet earns, and the charge it removes, depreciation, is the one that determines whether a lease is profitable. The sector uses price to book, price to earnings and dividend yield instead, and the primary valuation is a discounted dividends analysis.
How do you build a cost of equity when there is no weighted average cost of capital?
The same way you would build the equity leg of a WACC, but you stop there and use it as the discount rate. Take the peers' adjusted equity betas and their leverage, unlever each one, average them, and re-lever at the subject's target capital structure; then apply the capital asset pricing model. Two departures from the textbook are standard in this sector. Unlever with a DEBT BETA rather than assuming the debt carries no systematic risk — an unlevered aircraft lessor does not exist, and the zero-debt-beta formula would attribute the whole of a lessor's risk to its equity. And drop the tax term where the subject's marginal tax shield is not a statutory rate, which is the case for a Bermuda-domiciled lessor.
What is the justified price to book and why is it the terminal value?
The justified price to book is (return on equity less growth) divided by (cost of equity less growth). It falls straight out of the dividend discount model once you write the dividend as earnings times the payout ratio and earnings as book times return on equity, so it is not a second method — it is the same model expressed in book terms. Using it as the terminal multiple means the terminal value depends only on the spread between what the company earns and what its shareholders require, which is the correct driver. Assuming a terminal multiple instead imports an exit assumption the analysis has no basis for, and on a company trading below book it usually imports the market's current pessimism as a permanent fact.
Is an aircraft appraised below its book value an impairment?
No. Under United States generally accepted accounting principles, flight equipment is tested for recoverability against UNDISCOUNTED future cash flows — the rents the aircraft is contracted and expected to earn plus its residual proceeds — not against a market appraisal. An aircraft type can be marked below carrying value by an appraiser and still pass the test comfortably, because undiscounted rents over a long remaining life are a large number. The gap belongs on the page with the amount, because it tells the Board how close the test is; describing it as an impairment describes a charge that has not been taken.
Why would a precedent transactions analysis be excluded entirely?
Because the set can fail to produce a usable observation, and in aircraft leasing it usually does. Platforms are bought privately, so most announcements carry no consideration at all; an asset portfolio has no book value to strike a multiple on; a court-supervised sale is a liquidation outcome rather than a negotiated one; an engine lessor is a different asset class; and a transaction announced in a materially different rate environment prices a different spread, because a lessor is a spread business. The right response is to carry the transactions on the page with the reason against each one and to say that no range follows, rather than taking a median off rows you have already excluded. The absence of transaction evidence is itself a finding a Board needs.
How do you decide a counter and a walk-away price without guessing?
Each has to follow from a rule you state, and each is a bound rather than a measurement, so each rounds toward the side that keeps it true. A counter derived from the value of the company to a shareholder who does not sell — the discounted dividends value — rounds UP to a number a negotiator can say, because a counter set a cent below the value you just computed concedes the difference for nothing. A walk-away derived from the book value the shareholders already own rounds up to the cent for the same reason. Then check both against the market: a recommended price that lands on a round multiple of the unaffected price, the current price or a volume weighted average was picked rather than derived, and a reader will spot it.
About This Transportation Finance / Strategic Alternatives Case Study
Transportation Finance / Strategic Alternatives case study for investment banking interviews. 120-minute format covering discounted dividends analysis across growth cases, net asset value per share off the fleet, price to book and dividend yield in place of ev/ebitda. Includes the full prompt, a model answer deck, a tied-out Excel model and an audio walkthrough.
This case study sits in Investment Banking, under Real Assets & Infrastructure. Every case ships with the full prompt, the supporting materials, a complete model answer and an audio walkthrough of the judgment behind the recommendation.
120-Minute Format
The time limit a real assessment would give you
Answer Deck
Included in the model answer
Excel Model
Included in the model answer
Audio Walkthrough
How to approach the case under time pressure
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