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Wednesday, Sep 24, 2014

World

Aircraft lessors wary as new rivals crowd into aviation

Reuters | Wednesday, Sep 24, 2014

ISTANBUL - Aircraft leasing companies voiced confidence in steady jetliner demand, but warned new aviation investors that they may take a painful hit when central banks start unwinding their efforts to stimulate the economy.

Deterred by poor returns elsewhere as interest rates remain at rock bottom, new money has been pouring into aviation in the hope of capturing greater profits thanks to a combination of ample liquidity and demand for jets.

"Established lessors have enjoyed a positive interest rate environment but at the same time, the industry has been a magnet for money," said Steven Udvar-Hazy, chief executive of Air Lease Corp, seen as a founder of the jet leasing industry.

Aviation leasing companies account for up to 40 per cent of aircraft being delivered and say they help to smooth swings in the market by renting out jets where demand is strongest. Many have overhauled their balance sheets to avoid new market shocks.

But other investors such as sovereign wealth funds, private equity, real estate firms and non-specialist institutions are increasingly taking an interest in the US$100 billion (S$127 billion) jet market. "The interest rate environment has been tremendously positive for the leasing community and airline industry," Udvar-Hazy told the Istat Europe air finance conference in Istanbul on Tuesday.

"The counter-effect is that low interest rates have attracted a lot of other investors." An unofficial gauge of interest was the record attendance at this week's aviation conference, which drew over 1,000 jet traders, manufacturers and financiers to the Bosphorus. Over 40 per cent polled in one session said they were attending the annual event for only the first or second time.

It is Europe's version of an even larger US gathering that started out three decades ago as a meeting of a group of second-hand jet sellers, which they nicknamed the "Junkdealers' Ball".

Now, worldwide meetings of the International Society of Air Transport Aircraft Trading support an ecosystem with financial solutions for every part of the aircraft business, from loans for new jets to selling and leasing back their spare parts.

"Five years ago, there would probably be 300 or 400 people in this room. We are closing on 1,100, so clearly there is interest in this space," said Jeff Knittel, president of CIT Transportation and International Finance.

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