Lessors and investors disagree on transparency

Special to Leeham News

By Jack Dutton

Jan. 25, 2018, © Airfinance Journal, Dublin: The opacity of the industry in regard to asset prices is one of the main challenges for aircraft lenders and investors, according to a panel of investors speaking at the 20th Annual Global Airfinance Conference in Dublin.

“The lack of transparency on pricing is your biggest challenge as an aircraft lender or holder. The leasing companies were in the best position to hold good pricing information,” said David Andrews, managing partner of transport, Hudson Structured Capital Management.

Little pricing transparency

In response to a question from Airfinance Journal about whether the industry will see more transparency on pricing in the future, Andrews said: “I think the answer is no. I think the lessors benefit greatly by having control over that information flow. I believe that a long time ago, there was a requirement in the US that every aircraft sale had to be registered with some part of the FAA. I can’t remember when that disappeared, but I don’t see any airlines pushing to have that reversed and I don’t see lessors doing that.”

He does not anticipate that investors will create a political bloc to force that kind of change, adding that the appraiser community “is hoping to God there isn’t a change, because it will destroy their business.”

He adds: “I wish the answer was yes, but I really don’t see it.”

Bob Peart, portfolio manager, Magnetar Capital, who was also on the panel added: “It all starts at the top with published list prices for airplanes. It’s very protected and you really can’t tell what sort of price that airline or lessor paid for those planes. Discounts vary: you’ve got the airframe and the engine which can make it even more complex.”

Clandestine nature

He also highlights the clandestine nature of airlines in regard to how much they are paying to lease aircraft.

“There’s so many barriers right now, so it’s very difficult to see that changing in the near future.”

However, Ryan McKenna, chief financial officer of Air Lease Corp (ALC), refuted the investors’ views on asset values, using the lessor’s Thunderbolt asset-backed securitisation transaction as an example. The Thunderbolt deal detailed aircraft value and lease rates to investors and McKenna said that he hoped other lessors would follow ALC’s example of disclosing more information on values to the market.

“I think we do a tonne of disservice to ourselves in not being transparent about this,” he says. “What I mean by that is that I don’t know what value you create by having this issue of ‘I’m not telling you what the price or lease rate is.’ I think it creates illiquidity and the lack of transparency creates reduction in price and we’re the ones who suffer from that.”

He adds that ALC is looking to change that and be less opaque with investors about what the lessor is doing, hoping other lessors will follow suit.

5 Comments on “Lessors and investors disagree on transparency

  1. Public disclosure of aircraft sale or lease prices of any form is not mandatory nor should it be a requirement.

    In line with the forum’s discussion, it should recognized that there is a remarkable difference between “we would like to know” vs “we need to know” these prices.

    For those who need to know (e.g., investors), hiring a consulting firm would be an excellent move. Consulting firms can develop pricing formulas and other strategies to help alleviate the concerns presented during the forum. The best part is the information will be accurate, unbiased, and delivered under a mutually-agreed timeline.

    Another solution would be to follow ALC’s example or require that lessors reveal pricing information before completing any investment transactions.

    • “The first thing we do, we kill all the lawyers.” (Kudos, and hat tip: William Shakespeare.) Add consultants to the list next. LOL

  2. There must be a limit to where transparency goes into business. The success of a business whether a manufacturer, lessor or direct purchaser depends on the skills of negotiation, and control of all cost in every stage of manufacture and acquisition. This will determine the cost plus profit percentage of the selling price per item. The cost to the individual lessor will depend on how much the manufacturer is prepared to cut their profit and how much the lessor is prepared to pay through skilful negotiations. All these information are trade secrets and kept away from competitors at all cost. This is business and there exists what we call industrial espionage to try and obtain such information. If transparency on pricing is the call of the day and it is mandatory then it is and will be the end of business as the once highly guarded information of the company is now public and competitors can get hold of them easily.

  3. I don’t talk to anyone about my finances, why would or even should anyone else.?

    As long as the tax laws are met that’s the end of it.

    If someone chooses to that’s their business.

    Anyone that puts money into something they can’t get the data needed for is soon out of business.

Leave a Reply

Your email address will not be published.