Management at AirTran Airways believes carriers evaluating aircraft orders need to give careful consideration to the still-challenging financing environment compared to a couple of years ago.
Responding to a question regarding AirTran possibly changing aircraft purchase decisions in 2010 if a stronger economic recovery than expected ensues, carrier CFO Arne Haak says: "It depends, are there aircraft available?"
Speaking during the recent Raymond James Boston Fall Investors Conference Haak explained if a carrier decides to invest more capital in aircraft, then the equipment is available.
Although he warns aircraft are more expensive today. "The capital markets are much tighter."
Haak explains if you "go back two -to-three years ago AirTran as a single B- credit could borrow probably 85% of the purchase price of an airplane", at an all-in interest rate of 5%.
Today he says borrowers can expect to get 70% of an aircraft's value at interest rates that are 200-400 basis points higher.
AirTran was in a particularly favourable position when it placed its aircraft order in 2003, says Haak. "I don't think I could have picked a better time to order an aircraft". It was the beginning of the war in Iraq, Asia was battling the SARS crisis and "Boeing was losing sales campaign after sales campaign of low cost airlines to Airbus", Haak notes.
The carrier ultimately selected Boeing for its fleet replacement and current operates a mix of 717s and 737-700s.
AirTran has the option of converting some of its -700 on order to larger 160-seat 737-800s.
"Obviously a bigger airplane has more revenue risk," says Haak, who also notes the larger aircraft also lowers unit costs.
"What we have done is given ourselves a fleet plan that gives us modest growth that can be managed," he explains, "If things get worse you could sell airplanes."
AirTran during the third quarter cancelled the planned sale of two 737s delivered in September after uncertainty arose in the purchaser's ability to finance the aircraft. The two narrowbodies are fully financed, and AirTran plans to end the year with 138 aircraft in its fleet.
Source: Air Transport Intelligence news
