2012 OUTLOOK – LESSORS

Victoria
By Victoria December 20, 2011 15:15

2012 OUTLOOK – LESSORS

The leasing market in 2011 has been one of many worries, some lessors are thinking about a return to the problems of 2008 when parent companies got into trouble. Already the economic problems in the Eurozone have helped put off the ILFC sale/IPO. AIG most likely took one look at the performance of Air Lease shares post IPO and realised that investors would not wish to take another gamble on a horse from the same stable after the first bet turned sour. The Air Lease IPO was a huge success but the performance since then has been poor even by market standards (the return since the IPO has been -21.04%), we can lay off some of the blame for this onto the Euro crisis reverberating through the market, however.

Management at ILFC have done a very good job of putting the company in line for a sale. ILFC has also moved into the regional market as it knows that the big problem for the aircraft and engine leasing market at this time is overcapacity. This is leading lessors to become full service partners to major customers in a way that would not have been considered only five years ago. Some lessors are shifting from asset-spread focus to a client focus and the long-term effect of this should not be underestimated.

Jackson Square Aviation has been rolling out facility after facility in 2011 and now has quite a pot of cash in hand going forward. GECAS has been concentrating to an extent on training lawyers of the future in Africa so that they may reap the rewards over the next five to ten years of this potentially huge market. Avolon has grown steadily and the likes of Volito and Alafco have shown some very good deals in 2011.

Going forward:
2012 will bring with it some very interesting leasing news: For a start Klaus Heinemann the former CEO of AerCap is said to be planning an immediate return to the market…….that will be interesting.

The big story in aircraft leasing remains the sale of RBS Aviation – RBS is still holding out for the best deal even though there have been some very good options on the table for a while. The fact of the matter is that this sale is political. The British government must be able to show that it got a good price for the outfit. This is taking place against the backdrop of significant A320 value and lease rate decline and the RBS book is fully exposed to this, making the sale on asset value problematic for RBS as the reality is that the value is a good $1.4bn lower than what RBS are looking for. This service has watched with an amount of humour some of the names that have been thrown into the market on this deal. It is safe to say that RBS currently have four offers for the book as a whole with the original split offer that came so close to agreement still sitting in the background. HNA Group, the front runners a few months ago have pulled back with RBS playing the sales game very well as if this were a sellers market and it was 2006 all over again (fair play to them). The front runners are currently China Development Bank Corp., Wells Fargo & Co. and Sumitomo Mitsui Financial Group Inc with many seeing the latter as the winner in waiting. The longer the process drags on though the more chance there is of these three offers being revised which would then see the best bet return to the original split offer.

The best performing lessors in 2011 remain for us the ones to watch in 2012: FLY Leasing from an investment perspective is way out in front and to this day remains undervalued. Aviation Capital Group is building fast to become a core global player without a terrific debt burden. It also has the added value of a very safe, secure and supportive parent in Pacific Life. We said it in 2010/2011 and now we say it for 2012 – Look out for Orix Aviation – this lessor has developed either by very well timed design or wonderful luck a perfect template to hedge against falling asset values. If values and lease rates decline in 2012, the lessor stands to gain market share, and if they do not then it will remain on course. Orix Aviation still has one of the best facilities in the market, a huge war chest which it can deploy at any given time should the correct situation arise – For Orix Aviation the only way is up.

Victoria
By Victoria December 20, 2011 15:15
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