Inflation is key without Basel III adjustments in deals

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A new year doesn't necessarily mean a better one for aviation financing, particularly with new Basel III adjustments possibly weighing down returns, says an aviation financier.

"There are a lot of new transactions being closed at debt and rental terms that pre-date the Basel III adjustments, so I fear some are now relying on inflation to make their returns on aircraft deals," he says.

Basel III regulations demand lenders have stronger core Tier 1 ratios of capital. The reforms agreed last year set minimum bank equity between 4.5% and 7% of risk-weighted assets.

On the positive side, low interest rates are providing a "cushion" for these aircraft deals, he notes. However, he stresses "relying on inflation is a tricky game to be in" especially with a "shorter life asset in an environment where fuel prices are increasing."