Playing the long game

admin
By admin October 5, 2015 21:26

Playing the long game

Shares in various lessors have seen quite a bit of movement lately with Aircastle, Avolon, Air lease and FLY all trading up, and why not, with interest rates going nowhere in the immediate term and cheap money flooding the industry there really is no doubt that we might look back on 2015 as the high water mark for the leasing sector. Much of this driven by low oil prices giving lessors the opportunity to trade older aircraft at good rates of return.

But in all this we cannot lose sight of the fact that in eight-to-12 years’ time there will be a reckoning for many on a significant number of deals agreed in the past 24 months with very low yielding rates. One cannot escape the fact that someone somewhere has to be left holding these aircraft when the music stops. At that point those companies that are unable to make the numbers work on aircraft should be able to sell-off their portfolio at rock bottom prices, in the process both coming out of it with a margin and providing the more cautious lessors in the market with a significant means of growth.

So those prudent lessors playing the long game should not in any way be looked down upon by investors impatient for growth and return, but they should be looked upon as the white knights in waiting that will in the end save everyone’s bacon and reset the cycle. Those investors that want to be the biggest and best at all costs would do well to play the far more logical long game, hold for the next five years and then grow rapidly at far reduced costs. I argue that there is a distinct possibility that the old aircraft leasing money of US insurance companies and Japanese banks will in all this be the real winners and will return at the expense of the Chinese and others to the top ranks below GECAS and AerCap within this decade.

admin
By admin October 5, 2015 21:26