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.
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.”
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.