RISConsulting Announces New Models for Aircraft Risk

The Boston-based RISConsulting Group LLC (RISC), a transactional consulting firm specializing in complex risk, announced the introduction of two new models to its Web site – (www.aircraftrisk.com), for the aircraft finance industry, traders, risk managers and investors.

“The revised EETC Model is designed to assist investors in performing analysis of over 50 pre-programmed EETC issues and is available in deterministic and stochastic versions,” said the announcement. “The deterministic version allows the user to enter an individual scenario by specifying various assumptions (e.g., aircraft valuations, interest rates, performing asset designation and liquidation timing – in the case of default). The model then generates output that reflects the financial impact (e.g., losses and returns) to the various tranches for the specified scenario. The stochastic version of the EETC model automatically generates properly correlated values for all of the key assumptions in order to develop a probabilistic distribution of issue results (e.g., losses and returns).

The new Aircraft Loan Model is designed to support the analysis of user-specified loans that are secured by any of over 70 different types of commercial aircraft. To use this model, the user must enter a description of the loan to be evaluated, such as principal amount, amortization schedule, credit rating of the borrower, type and year of build of the collateral aircraft, and choice of appraiser. The Aircraft Loan Model then combines rigorous, properly correlated stochastic analyses of borrower default and of underlying aircraft market values to estimate the full distribution of potential outcomes for the loan specified.
Model output includes:
— An analysis of loan principal at risk (i.e., potential credit losses) over time,
— An analysis of losses given default,
— A presentation of model-generated credit (loan) risk in rating equivalent terms,
— An analysis of expected losses, and
— An estimate of capital required at any specified confidence interval.

The company stressed that its “methodology incorporates strict scientific analytical disciplines as well as input from clients, industry, academia, rating agencies, insurance underwriters and actuaries. The models “should prove valuable aids not only to traders and investors, but also to those involved in valuing and risk assessing assets for reserving and risk-based capital estimation.”

Additional information on RISC may be obtained on its Web site at: www.risconsulting.com.