The mood music was more upbeat in San Diego than in Dublin two months ago. Aviation finance executives took to the stage at ISTAT Americas to tell the story of an industry that still appears very healthy.
Their gathering in Dublin in January had been only days before US president Donald Trump took office, and the apprehension was palpable that week in the Irish capital. However, two months into Trump's four-year term, aviation does not seem to be suffering, even despite the since-overturned travel ban executive order and second one subsequently issued.
The fundamentals continue to be strong, with traffic figures robust and liquidity abundant. So far a downturn is just a bugaboo and no one can yet pinpoint its likely timing, despite rising nationalism globally.
Avitas chief economist Adam Pilarski predicted in his keynote address at the start of ISTAT Europe that the aviation downturn would not occur until 2018, with the effects visible only another year after that as the industry adjusted to the slowdown in traffic.
Pilarski says aviation is "coming to the peak of the cycle but not at the peak yet", adding that growth is likely in the short term but that long-term problems lie in wait as the bubble expands and uncertainties increase.
Following a year of record-breaking airline profits, Pilarski says yields are weakening while operating costs such as fuel and labour are rising, which could spell problems for the industry.
Some have expressed worry about interest rates, but as the panelists in ISTAT Americas' CEO lessor session pointed out, so far airlines and lessors have been able to adjust to the increase. But this is partly because the hikes have been steady and modest.
Moreover, with plenty of capital available to fund aircraft, margins remain competitive on deals.
Inflation could benefit asset owners. But lease rates will be tougher to renegotiate in the middle of a long-term contract, which is one of the reasons it is important for lessors to match their funding terms with the tenors of their leases and to have interest-rate hedges in place.
The strength of the dollar remains a concern, with airline expense times such as aircraft and fuel priced in dollars while revenues are often received in various currencies. This will require carriers to pay particularly close attention to foreign-currency management.
While asset managers are always hoping to call the bottom in the hope of picking up aircraft at depressed prices and selling them at the peak for a profit, it is stubbornly difficult to predict the bottom in this industry.
As people who have weathered several industry cycles know, it is usually something exogenous that sends the industry into crisis mode. With that element of unpredictability, it is essential that airlines and lessors alike to adapt to changing circumstances.
They must manage their businesses to be in the best and most flexible shape to withstand the downturn when it hits. For the most part, during the global financial crisis, this was the case, with very few aviation businesses going bust.
So, while there will be a cycle, it has not hit yet. For now, the industry is exemplifying sound and robust fundamentals. Therefore, the positive vibrations coming out of ISTAT are not a shock. The music will continue to play – until it stops.