Warnings on the implications of Brexit for UK and European aviation were sounded at the Flightglobal Finance Forum in London yesterday.
Participating in the opening panel, Ascend Flightglobal Consultancy's chief economist Peter Morris identified an "unholy alliance of negativity" deriving from the referendum decision's probable impacts on demand, on supply, and on the regulatory framework. "No good news, all bad," ran Morris's summary.
Marjan Riggi, a managing director at Kroll Bond Rating Agency, foresees a "medium-term shock" from Brexit. But she adds: "I don't think the UK is going to pull out of Europe altogether."
A similar note was struck by S&P Global director Betsy Snyder: "I'm not so sure that there's not more to come on this."
Morris weighed in to agree. "It appears the German government was more prepared for this than the UK government," he complains.
Investec aerospace and defence analyst Rami Myerson points out that air traffic was already slowing before the referendum. "What happened at the back of last week wasn't a massive change in direction," he contends. "Yes, it may be more severe than expected, but a lot of the indicators have showed demand slowing down. That was something that would have happened anyway, and it's being accelerated in the current uncertain environment."
For another panellist – Doric managing director Sibylle Paehler – Brexit may at least mean "a period of good funding possibilities for airlines" if interest rates stay as low as they are currently.
Morris ultimately sees Brexit's impact as more local than global. "You're talking about a ripple that probably swamps various fishing boats here [but] by the time it reaches China, the liner doesn't even recognise there's a movement of the waves.”
A later panel brought forth another naval metaphor, courtesy of Accipiter's senior vice-president of risk and capital markets, Paul Sheridan, who recalled "that scene at the end of Titanic where – sorry to spoil it for people – the ship is sinking but they cut to a shot a few thousand feet above and you can see just a tiny little ship letting off flares". He adds: "Apologies to people who might think the UK is a lot more important in the global economy."
Sheridan stresses, however, that "nobody has any idea what's going to happen, not least Mr Gove and Mr Johnson", the leaders of the Leave campaign.
Shane Matthews, head of strategic and market analysis at Dublin-based lessor SMBC Aviation Capital, draws a warning from Ireland's experience. "Having been the victim of the tender mercies of the European Commission and the IMF as we were restructuring, my expectation is that Brexit will probably be done the hard way, not the easy way – mainly because it is a potential breaking point for the rest of the European Union."
Nonetheless, Matthews can find some positives. "The dollar has now suddenly become the safe haven," he notes. "The business we're involved in is a dollar business, it deals with a very hard asset – the owner of an aircraft can quite literally track his aircraft as it flies around the world, and if he can get airport clearance he may even be able to go and touch the actual physical asset. It's not a derivative industry."
He also makes the point that the UK is "a very important aviation market for the rest of Europe" and that its low-cost airlines "already have contingency plans and will be quick to implement them".
There is, Matthews acknowledges, a political vacuum and "a real possibility" that Scotland will become an independent nation. "But the reality is, in two or three years' time: the divorce is over, and who's got custody of the Scots?"
During a separate panel, Loftleidir Icelandic's senior vice-president Erlendur Svavarsson had words of comfort for an audience on whom his national football team would later inflict some pain. "I can confirm that islands in the Atlantic Ocean can thrive without being EU members," said Svavarsson.
Iceland, he notes, belongs to the European Free Trade Association, "which means we have a bilateral agreement with the European Union on what I believe will be the four main points that the UK will need to negotiate: the free movement of capital, labour, goods and services".
Svavarsson predicts that the UK will end up joining EFTA. In the meantime, he suggests, the nation could changes its tax regime to "make it more palatable for leasing companies to be based in the UK".
He also adds to the every-cloud-has-a-silver-lining files with this observation: "From the Icelandic point of view, when we had a currency crisis, that was excellent for tourism."
But the negative economic consequences of uncertainty were a theme throughout the Flightglobal Finance Forum, and Goldman Sachs executive director Michael Fox delivered a succinct analysis. "Markets hate uncertainty," he said.
Still, he takes reassurance from aviation finance's "position of relative strength". After all, it is, he emphasises, "underpinned by an asset that is global in nature, moveable, and dollar-denominated".
Source: Cirium Dashboard
