ISTAT: Lessors look at consolidation, market stability

The closing panel at ISTAT is the popular lessors panel, an unscripted conversation and Q&A among the industry leaders. Lessors typically do not favor higher production rates at Airbus and Boeing.and pay close attention to market instability or stability.

The lessors also talk about consolidations among the lessors.

The panelists:

  • Moderator Ron Wainshal, CEO of AirCastle (RW)
  • Peter Barrett, CEO SMBC Aviation Capital, a major Japanese lessor (PB)
  • Aengus Kelly, CEO of Aercap, which last year acquired ILFC (AK)
  • Jeff Knittel, CEO of CIT Aerospace (JK)
  • Norman Liu, president and CEO of GECAS (NL)
  • Steve Udvar-Hazy, CEO of Air Lease Corp (SUH)

A paraphrased synopsis is below.

  • PB sees a stable market over the next several years.
  • AK: I would agree we generally see a stable market and low trading in recent years, an indicator of stability. The debt markets have been very supportive and their understanding of lessors has increased.
  • JK sees the market as stable as it has been the last several years. We measure stability by lessees extending leases, and today that’s 70% vs 50% in weaker markets.
  • NL sees lots of money chasing aircraft deals. Every single aircraft model is undergoing a technology shift.
  • SUH: Virtually all the fundamentals are very strong. Traffic is very strong, and that means more airplanes. Many airlines that held back in the financial crisis are updating their fleets. We’ve had relative labor peace among the airlines, though that might change in the near future.
  • RW: There have been a lot of new entrants into the leasing field, especially from the Far East. What are the barriers of entry?
  • SUH: Asia has been the fastest growing area in the region. Naturally many of the Chinese financial institutions saw opportunity. The question is whether this is a permanent of transitory situation.
  • NL: China has a gigantic aviation market at home. They will be formidable competitors because of the cost of funds. With a pile of money and a phone you can get into this business. The question will be sustainability.
  • JK: People have been talking about consolidation in this business for years. Macquarie Airfinance acquired a $4bn portfolio from AWAS, adding to its $5bn portfolio.
  • AK: If you look at the industry, it hasn’t changed much in 10 years. Top two guys account for 40% of the business and the next 10 35%. Through the financial crisis, the lessors kept getting paid throughout. Consolidation is difficult because owners want to hold on to these prized assets. They are always hard to do because people want to hold on to these assets.
  • PB: I’m more bullish on consolidations. In my experience, the owners’ strategies do change and I think a number of these companies will change hands.
  • NL: 75% of our markets are in Asia. I see increasing presence in Asia.

 

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