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.”