By Scott Hamilton
March 11, 2020, © Leeham News: Some airlines already are asking for rent relief as a result of widespread groundings of aircraft because of the coronavirus.
BOC Aviation, Avolon and Air Lease Corp are just three lessors acknowledging they’ve already been asked for relief. They spoke on the sidelines of an aviation industry conference in Austin last week.
In an extended interview, Domhnal Slattery, CEO of the Irish lessor Avolon, said, “Every lessor is being asked every day, various types of requests, whether it’s rental deferrals or rental reductions. Some of them are legitimate, ‘Hey, we need we really need help.’ Others are going, ‘Everyone else is asking, why don’t we,’ sort of thing.”
Like most lessors, executives and staff that have been around this industry, Slattery has seen this movie before.
“We’ve been in this business 30 years,” he said. “We’ve seen these situations before. They are often the moments of truth in the relationship between the lessor and the airline. It’s easy be great friends on the upside.
“I remember that post-9/11 situation very well. Every one is different, the intensity of it, how long this goes on. My gut says this is the time to circle the wagons, because my sense is this is going to get worse before it gets better. We will be very thoughtful and considerate about how we can bring to bear our balance sheet,” Slattery said.
The UK’s flybe regional airline, which was on the brink already, quickly collapsed once the impacts of the virus began to emerge.
Slattery sees more failures.
“There’s a very high possibility that we’ll see airlines tip over, particularly in emerging Asia, particularly in the countries that are periphery to China,” he said. “We’re not concerned really about the Chinese airlines, even though, I think, 70% to 80% of the fleet is still on the ground. We believe they’ll be fine, because there’s going to be de factor or the invisible hand at the stage, whether it’s HNA or otherwise, whether it’s direct liquidity infusion, or deferrals of taxes or whatever it is, Chinese government will ensure that the Chinese aviation transportation system remains intact, because it has a validity and a franchise.”
Slattery declined to name names, but the airlines operate in Korea, Thailand, Malaysia, Indonesia, Vietnam and the Philippines.
“It’s too early to say in Europe,” Slattery said. “Clearly, if Alitalia wasn’t already bankrupt, we would be saying they were at risk, just given the epicenter in Northern Italy.
“You have to look at how the European traffic flows, for planning up to summer. The TUIs of this world, whose entire existence is basically flying people to the sunspots of Europe, make their money in June, July and August. I suspect that their former bookings are probably dropped off quite dramatically.”
Opens up a bag of worms. My take is you can’t save a bad op and its better to ensure mfg than those.
And when they come a calling to the Government?
China also has an asset many do not, lots of money (though it would be interesting to see a report on the limits)
China doesnt have ‘lots of money’ in the way you suggest. It along with any other government can create money. Its a regular thing in China for the government to provide large amounts of credit both nationally and regional governments. If anything China has more experience at giving out the money as a vast portion of the economy is state owned including the major airlines
US Treasury did the same in 2008 with the TARPS program.
I believe China has a huge amount parked in US Bonds.
Lessors can try to “quarantine risk away” by insisting on their dues. short term.
If they do it they will get hit by delayed action when the lessee founders.
Hurt shared is a path to lesser hurt overall.
( not accessible to everyone. some think they sit in their own private boat.)
I suspect that folks in Europe and Australia should comment more stridently on the deficits of their own mendacious leadership than worrying about President Trump. Merkel has been totally useless on the issue. Mortality rates for corona virus in Italy are running at 6.4%.
A: This is about lessor/lessee relations.
Afaics: The US ( DR 3+% currently ) has all the makings of being able to catch up to Italy.
(Northern Italy is a clusterfuck. The how and why will have to be researched carefully. strain dependent?)
Rest of Europe looks much better. Which at moment is nothing to boast about ( and is not done )
while things develop.
Trumps speech builds on the same mechanics below Boeing’s failings: Lots of bluster, PR bubbles and accusations to take attention away from massive lack of substance. Are there actually any professionals at work that are adequately qualified ( Trump, Pence are not )?
Things in US are starting to ramp to a National Emergency though not declared.
While not by itself huge, NBA suddenly cancelled season on one infections.
That is going to ripple in all venues, sport is just an indicator.
Two weeks from now its going to be a starkly different realization.
With <1000 known cases but 30+ dead already things do look sinister. Blocking traffic from Europe is a valid measure.
The Trump Twit on that less so.
IMU the US is going to be raised on their own petard.
Lots of private Airlines does not have the cash and assets to survive this loss of pax revenue if it is to last until summer. 23-35% can quickly be gone.
I reckon Boeing Embraer joint venture is off…where will they find $5 bill for the financial consideration in these circumstances…not that anything could happen till the EU did it’s investigation..
Boeing is going to circle it’s wagons, cancel some planes like the 747, it’s between a rock and a hard place with the 777, likely with white tails on the old model and delayed deliveries on the new one.
Smart companies keep product development going.
Embraer is chump change though I have yet to see how it fits in with Boeing simply as a business.
777X is in testing and by the time certification is (agree on now) ready, the upswing will have begun.
How well it fits in and demand of a VLA vs smaller more flexible 787/A330/A350-900 different question.
777X may fail, but not because of C-19.
“Smart companies keep product development going”
777X , Max , NSA , Embraer …..all at once .
Something has to be sidelined in major disruption like this
No, nearly $5 bill isnt chump change even for Boeing. Its a lot of money now for a minor long term benefit. The other point is there is a new CEO who has suddenly realised the business is in a mess.