A different type of investor is stepping into the operating lease space because the days of 20-25% return on equity (ROE) targets for sale and leaseback deals are over, says Air Lease Corporation's chairman and chief executive officer, Steven Udvar-Hazy.
"These days a well-managed operating lessor, and I emphasise well-managed, can expect to achieve an ROE of 12-15%, and ALC seeks to outperform [this]," he says. "And this is inviting a different type of investor; we see a lot of evidence of more institutional investors in the space and fewer private equity firms, which need that 20-25% ROE."
On the debt side, Udvar-Hazy admits European banks have pulled back on lending to the space; however, they are "still active" but "extremely relationship-driven."
The British, German, Swiss and French Banks "have supported ALC in a very strong manner since the company was formed and that continues unabated in 2012," he says.
"There has been a bank flight to the highest quality lessors and European banks have actually increased their ALC credit line commitments in 2012 at very attractive rates and terms with light covenants," he says.
Udvar-Hazy says ALC's ability to raise debt has not been impaired by its on-going lawsuit with International Lease Finance Corporation.
"We have raised $1 billion in unsecured debt since the lawsuit," he says.
The dislocation in the European banking market is being "helped out" by Asian banks from Taiwan, Japan, Singapore and Hong Kong, he says.
"I am not saying it is enough to fill any gap left by the European banks, but the momentum is going that way."
However, he believes mainland Chinese banks "are a different story" as they tend to favour domestic airlines or those with "some Asian flavour."
In addition, he believes some caution needs to be exercised when dealing with Chinese banks, as many own leasing companies or want to enter the space.