Lessors offer different opinions about Q3 impairment charges

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

Lessors have mixed views about whether the recent spate of third quarter impairment charges is due to a systemic issue facing the leasing community or something else.

"I think you need to decide which lessors we are talking about and how they bought their planes," said John Willingham, chief executive officer of Macquarie Air Finance, at the Ascend Finance Forum in San Francisco today.

According to him, the traditional depreciation policy of 25 years to 15% was set at a time when inflation rates were higher than they are now.

"Over time, though, the industry has retained this depreciation profile despite the fact that we now are in a non-inflationary world," he says.

Willingham says even though it "very much depends on your entry point, or how much you paid for your aircraft" there is "no doubt at 25 year to 15% - you can't call that conservative. If you book maintenance reserves aggressively as well, that certainly is not conservative."

In the case of Aircastle and ILFC, Frank Pray, chief exeutive of Intrepied, noted the third quarter impairment charges were directly related to specific aircraft - the Boeing 747-400F and Airbus A340, respectively.

Pray says he would be surprised if the industry were to take "massive writedowns" on assets other than specific aircraft, such as the 747F and A340, "which are good examples of assets that we all wish had better value retention."

Guggenheim Aviation Partners' chief believes a lack of liquidity is putting pressure on lessor trading and possibly impairment charges.

"Aircraft leasing has always relied on an element of trading, or rolling the fleet over, and what we have seen in recent years is a lack of liquidity to trade out of aircraft," he said, adding: "So, with ILFC, its aircraft portfolio has aged much more than its early model of existence would have allowed."

According to Rimmer, "people are holding their assets longer" because the liquidity needed to trade is absent.

"Over last four years there has been a lack of liquidity financing older assets and I think we have this dichotomy where really young aircraft have been heavily competed for at a discount," he says, adding: "I don't think it is a nightmare situation, but the fundamentals are changing, and it will be harder for people to trade out, if some of the economics on new aircraft are repeated."