Aircraft lessors could be unexpected winners of the US airline crisis as operators turn to them for sale and leaseback deals in an effort to raise capital.
Many airlines have been unable to raise money for purchases from traditional sources like investors and lenders, said Franklin Pray, senior vice-president of lessor CIT Aerospace, at IIR USA's Annual Aircraft Finance Conference in New York in early December. He said many commercial lenders have stopped providing finance for commercial jets, forcing airlines to seek operating lease-based financing and sale/ leaseback deals with lessors.
In addition, many airlines, for example Air France, responded to the 2001 crisis by quickly announcing they would increase their reliance on leased as opposed to owned aircraft. Not only does this reduce exposure to the aircraft market, but it also keeps the balance sheet heavy on cash and light on assets - always a good idea in a downturn.
"There is a very active sale/leaseback market," says Pray, with unexpected benefits for lessors. Values have plummeted as the market flooded with unwanted aircraft, so the sale prices the airlines are obtaining are much lower than in the past, making the risk-adjusted returns for lessors much higher.
Pessimism over aircraft values can make it "very difficult to find a cash buyer", says Avitas chief executive John Vitale. In one example, a would-be seller under no duress wanted to sell an aircraft for $16 million, but the only offer was for $8 million and no sale took place.
But lessors are only reaping the benefits if they offer the right product, says Alan Coe, president of lessor GATX Air. Coe believes lease rates on used aircraft have fallen sharply because manufacturers only offer support packages on new aircraft, which makes them easier for lessors to place than used aircraft.
Lease rentals and values are particularly low for used widebodies such as the Boeing 767-300ER and 777. In this case, this may mean lessors will be urgently seeking takers for new aircraft being delivered now, and be willing to accept low rentals in short-term leases.
Source: Flight International
