Aviation faces too much liquidity: sources

Source: Flightglobal.com
This story is sourced from Flightglobal.com

Finding cash to finance the aviation market is no longer an issue as the headlines warned just a year ago; instead, the sector must now contend with too much liquidity that is driving down spreads, according to financial sources in Dublin last week.

"This is silly season. Everyone is looking to deploy capital and that is resulting in some crazy deals. Remember, we are still reeling from cost of funding issues," says a banker.

The abundance of liquidity has led to rumours of US airlines looking to issue unsecured debt in the captial markets to take advantage of the "hot demand" for aviation - a move that the banker source suggests is "irrational if true".

Another source points to an aviation financing at a top-tier airline that recently closed at Libor plus 150 basis points. He says the pricing "does not reflect risk or cost of funds adequately".

A financier adds: "If you look at the markets and where they are pricing a 'BB' credit you will see it is the lowest we have seen in years. It is as if aviation has become trendy."

On the bright side, the banker says "my inbox is full to the brim with names of people wanting to purchase paper, so even though I am worried about spreads, there is no panic for a buyer."