(article by Fay Sanders) Aircraft lessors are tapping alternative funding sources amidst a dearth of banks specialising in operating leases.
"There is a limited pool of capital providers that are deeply knowledgeable in the sector owing to the macroeconomic issues they are currently facing," Aengus Kelly, CEO of Aercap told delegates during the lessor session at the ISTAT Europe conference in Barcelona yesterday.
The lack of dedicated commercial banks in Europe and the US has led the likes of Kelly to turn to Asia for funding aircraft deals. "We've raised money in China, Singapore and Taiwan, and Russia will come soon," he said.
"The banking market in the Far East is still relatively untapped, but it will take time before it is experienced in the sector."
In a similar way, Steven Hazy, CEO of Air Lease Corporation (ALC), believes the solution lies in accessing Asian banks on an unsecured and a secured basis. "We need to be more creative and resourceful to avoid being dependent on European banks," he said.
In the short term, the US institutional market houses the deepest pool of capital, according to fellow panellist Ron Wainshal, CEO of Aircastle. Yet even this is not without its complications. "There are a whole bunch of restraints, such as the necessity for a credit rating. Asset-backed securities are niche and dependent on an investor base," he said.
Although confident the capital markets would return as a viable source of funding aircraft deals, Kelly noted they were "too expensive at the moment".
In spite of the funding constraints, panellists were confident there would be the capacity to finance order books. "Sources of capital will always be there and leasing companies are in the forefront to use it," Kelly said.
The strong financial performance displayed by operating leases, together with the "tremendous cycle of older, less efficient aircraft being replaced by newer models" promise a bright future for the operating lessors in Hazy's eyes.
Operating leases are increasingly being viewed a lifeline for cash-strapped airlines. "In good times the airlines need our aircraft; and in bad times they need our balance sheet," Hazy said.