International Lease Finance Corp (ILFC) and AerCap are both competing in the same industry, but have very different near-term outlooks about the current operating environment, according to Wells Fargo Securities research.

The research firm highlights ILFC's "extremely cautious language" in its 10-K filing with the US Securities and Exchange Commission.

"We are currently seeing financial stress to varying degrees across the airline industry largely precipitated by recent volatility in fuel costs, lower demand for air travel, tightening of the credit markets, and generally worsened economic conditions," says ILFC.

The lessors believes these conditions "will continue through most of 2010 and will have a negative impact on future operating results" through increased costs associated with repossessing and deploying aircraft.

Wells Fargo compares ILFC's comments to those of AerCap's CEO Klaus Heinemann, who remains upbeat about market conditions, during the lessor's 24 February earnings call:

"We have observed continuing improvements during the last 12 months, as is also indicated by our increased rental sales activity. I do believe we are well into the recovery," says Heinemann.

He adds: "While we remain cautious, we still expect a broader market recovery in 2010, with a potential of such a recovery being much stronger than currently anticipated."

However, even with its cautious language, Wells Fargo notes ILFC does identify some positive events in the industry including rebounding freight traffic and customers willing to extend their existing leases.

ILFC also says in the 10-K "the rate of contraction" in lease rates has generally slowed as of 25 February.

However, this comment, according to Wells Fargo, "is still less positive than those of various lessors and appraisers who have said that lease rates for new aircraft are now at least stable, if not improving."

Source: Commercial Aviation Online