Lessors warn of future diminishing financial options

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By admin September 24, 2014 20:03

Lessors warn of future diminishing financial options

Aircraft leasing companies have voiced confidence in steady aircraft demand, while at the same time warning potential new investors in the sector that they may lose out when central banks start unwinding their efforts to stimulate the economy.

Deterred by poor returns elsewhere as interest rates remain at historic lows, new money has been flooding into aviation in the hope of capturing greater profits thanks to a combination of ample liquidity and demand for aircraft.

“Established lessors have enjoyed a positive interest rate environment but at the same time, the industry has been a magnet for money,” said Steven Udvar-Hazy, chief executive of Air Lease Corporation, while speaking at an industry conference in Europe.

Lessors currently account for up to 40% of aircraft being delivered, and many insist they help to smooth fluctuations in the market by renting out aircraft where demand is strongest. Many have overhauled their balance sheets to avoid new market shocks.
But other investors such as sovereign wealth funds, private equity, real estate firms and non-specialist institutions are increasingly taking an interest in the $100 billion jet market.

Udvar-Hazy said: “The interest rate environment has been tremendously positive for the leasing community and airline industry. The counter-effect is that low interest rates have attracted a lot of other investors.”

Debt markets are not pricing in a US rate rise before the second half of 2015, but aviation financiers are beginning to think about what happens when the tide turns.
“The entire economy including airlines have got very used to low interest rates and no matter how [Federal Reserve Chair] Janet Yellen manages this process, I think it is going to be difficult and there will be winners and losers,” said Peter Barrett, chief executive officer of SMBC Aviation Capital.

The risks are not limited to financiers but airlines that have placed risky bets for aircraft, he said.

“If it is a gradual, predictable rate of change I think we can all cope with it… If it is radical we are all going to have to put on our seat belts,” Udvar-Hazy said.

admin
By admin September 24, 2014 20:03