Finance changes cloud aircraft pricing outlook: lessor

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Pricing levels on aircraft deliveries are almost "impossible" to predict given the number of changes ahead set to impact aviation financing.

According to a European-based lessor, "changes to the aircraft sector of understanding (ASU), possibly the US Export Import Bank (Ex-Im) 'take-out' option and the introduction of Basel III could leave many airlines and lessors in a very difficult position."

"The universe of financiers is growing leaner, lessors are under incredible pressure as Basel III adjustments will impact funding costs and their return on rentals, while export credit agency deals are becoming more expensive," he says.

Basel III adjustments mean "leasing rentals have to go up across the board", he says. "Lessors will face increasing residual value risk profiles but residual values always go down over time, so there is a huge mismatch they must be prepared to fix through increased rental rates."

Another stress on financing, he says, is potentially the demise of Ex-Im's take-out option for export credit loans.

"There is talk in the market that Ex-Im, understandably, is reviewing commercial bank's ability to purchase a take-out option that allows the bank to sell loans, which are guaranteed by Ex-Im, back to the ECA, at par, if there are changes in their credit spreads and funding costs."

The option allows the lending banks to clear the loan off their books for a small fee while Ex-Im provides a direct loan.

"Manufacturers will have to step up their efforts, there is no other way around it," the lessor says.

On a positive note, low interest rates are still providing a "cushion" for aircraft deals, he says.