RBS 2009 Annual Report Download - page 142

Business review continued
RBS Group Annual Report and Accounts 2009140
Credit risk continued
Credit risk assets*continued
Corporate sectors continued
Aviation
2009 2008
Core Non-Core Total Total
£m £m £m % £m %
Operating leases (1) — 7,126 7,126 46 10,270 50
Secured debt 1,360 3,352 4,712 30 5,252 26
Sovereign guaranteed debt — 2,774 2,774 18 3,324 17
Unsecured debt 910 — 910 6 1,093 5
Other ————405 2
2,270 13,252 15,522 100 20,344 100
Note:
(1) Operating lease assets, which are included in property, plant and equipment, represent the net investment in aircraft owned and on order. A smaller figure, £1 billion, is included within credit risk
assets, representing the risk of customer default on lease agreements.
The aviation portfolio comprises a number of activities, but is primarily
focused on the Dublin based Aviation Capital business, which has been
designated as Non-Core.
The aviation sector has been under considerable pressure owing to the
global downturn and compounded by the impact of the H1N1 virus
(particularly in South America), overcapacity (notably in India and North
America) and intense competition. Despite the publicised failure of
several airlines, within the Group’s portfolio there have been very low
incidences of payment defaults and exposures requiring restructuring.
The Group’s strategy is to focus on modern assets that are widely used
across airlines and to maintain relationships with the strongest operators
with the most flexible cost base. The majority of the portfolio is secured
on modern aircraft and, although asset prices have weakened,
exposures remain fully secured.
Aviation exposure on the Group’s watch list, where there is an increased
level of management control and oversight, totalled £1.4 billion at 31
December 2009. Notwithstanding reduced passenger volumes, the
leased fleet remains fully utilised. The young age and commodity nature
of the assets and the quality of the lessees, result in a limited
expectation of aircraft being returned.
* unaudited