Banks urge caution in a competitive market full of liquidity

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

Bankers stress caution as an abundant supply of liquidity in the aviation market, all chasing the same deals, is putting pressure on annual targets.

"We have a $2.6 billion loan production target, but we will probably be a bit late [in meeting the target], due to the competition in the market that is often more aggressive than we are on loan to values," says DVB Bank's, member of the board, Bertrand Grabowski at the Ascend Finance Forum in London.

However, Grabowski says he prefers to put "risk control and quality before growth".

Fraser Chestney, head of aircraft finance SMBC, agreed. "Markets are competitive right now because there is a lot of liquidity out there, but despite this, we need to stay disciplined," he says, adding: "I hope I am not beginning to see signs that the market is losing discipline as banks look for growth."

Last week an aviation banker told Flightglobal Pro that despite banks on both sides of the Atlantic now being made clear on how the international Basel III rule book on capital will be digested, pricing has not budged to communicate this move.

"We all thought, due to the impact on liquidity under Basel III and regulation, we would see pricing increase, but it hasn't," he says, adding: "If anything, pricing has come down but we have the same LTVs [loan to value ratios] on financings."

The source says tier-one airlines are pricing at 200 basis points "and sometimes below", while pricing on tier-two carriers range from 225-250 basis points "which is extremely attractive".

His comments followed a busy fortnight of financings in the capital markets, including deals from British Airways and Doric Asset Management.

However, turbulent bond markets forced operating lessor Avolon to postpone its capital markets financing, as "rates remain volatile".

Also, Air Canada pulled its $1.1 billion offer to buy back outstanding debt because recent volatility in the debt and capital markets "was such that available terms were no longer attractive" to the carrier.