Operating lessor CIT Aerospace is beefing up its lending mandate with airline and lessor borrowers.
"Our loan business has been extremely strong, so we are building our loan book," says Jeffrey Knittel, president of CIT Group, transportation finance at today's Paris air show. "We want to rebalance our offerings, so we have relatively more loan products compared with operating leases, which have been our main focus during the past several years."
According to Knittel, the move will not see CIT 'doing fewer" operating leases. "It just means we will increase our loan products."
CIT made inroads into the airline loan market following the 2008 financial crisis with the purchase of several loan portfolios from European banks, which were looking to deleverage. However, Knittel rules out similar opportunities arising again.
"There are fewer opportunities to buy loan books, as we are in a better economic environment, so we will work on structuring our own loans," he says.
CIT's lending mandate encompasses narrowbody and widebody aircraft as well as mid-life and older units. A "significant amount" of new loan volume has been funded by CIT Bank, says Knittel.
The lessor's decision to focus on loan financing comes as the sale and leaseback market has become increasing competitive.
"It is a very hot market right now and we are not going to compete with generic products that don't make sense. We are not interested in being commoditised," says Knittel.
He acknowledges the industry's practice of entering six-year sale and leaseback transactions is one that he is watching.
"We look at expiries constantly," he says.
Various market observers speculate the introduction of new technology aircraft, such as the Airbus A320 Neo and Boeing 737 Max, as current technology aircraft are being returned under six-year sale and leaseback deals could negatively impact values in the leasing market.
However, Knittel believes there will be adequate demand for both products, mitigating any value hiccups during the transition to new technology aircraft.
"Between the retirements of previous technology aircraft such as the 737 Classics and expected traffic growth over the next several years, as well as the slow ramp-up of new technology aircraft production rates, we believe the market will still require current technology aircraft and airlines are likely to extend their current leases"
But even with more liquidity floating around the aviation market, Knittel believes the global economy is still on the mend.
"The world economy is still fragile, but clearly we are in a more positive place. There are certain events that could cause downward pressure, but there is more upside than downside."