Leasing questions

According to the New York Times leasing companies own or manage more than one-third of the commercial aircraft fleet and after the fallout from the GFC are facing higher borrowing costs.

Predictions abound that in the next ten years leasing companies could control 50% of the market.

Over the past 20 years aircraft leasing has grown from a niche market to a US$150 billion industry according to Ascend, London-based aviation consultancy.

The rush of orders from new and old leasing companies was a reminder of the 1990 Farnborough Air Show when Guinness Peat Aviation (GPA) stunned the aviation world with a combined US$17 billion order for 700 aircraft to be delivered over the rest of the decade.

That all came unstuck when its float failed due to the travel downturn associated with the 1991 Gulf War.

GPA was restructured in November 1993 with GECAS, taking some aircraft and the operational management of GPA’s fleet along with technical and marketing staff.

GPA was able to repay all debts over the next ten years and today is part of debis AirFinance.

And the rush of orders at this year’s Farnborough was in stark contrast to the call for restraint from the IATA AGM just four weeks earlier.

Virgin Atlantic chief commercial and financial officer Julie Southern told Flightglobal in an interview
on June 4 at the IATA AGM said that “there hasn’t been any signs of a mass rush of aircraft coming back to the market yet because we are still in recovery mode.”

IATA DG Giovanni Bisignani also cautioned the industry on the number of new aircraft due over the next two years and called for restraint.

But on the second day of the IATA AGM Emirates shock the aviation world with a mega order for the mega A380 and the flood gates opened.

Within a month orders were announced or placed for a further over 650 aircraft.

According to the Centre of Asia Pacific Aviation Airbus came out of the Farnborough Air Show with 133 firm orders and 122 commitments with Boeing boasting 103 orders, and commitments for 90.

Embraer chalked up 81 aircraft, ATR 41 orders and commitments and Bombardier seven Q400s for Qantas.

Sukhoi secured 82 Superjet 100 orders and commitments, while Irkut announced 28 MS-21s, as well as confirming another order for 50 made earlier in the year.

And of the 650 orders leasing companies accounted for just under 300 aircraft orders according to CAPA with Steven Udvar-Hazy’s new Air Lease Corporation acquiring 105 single-aisle aircraft and GECAS adding 100 .

Correspondingly Airbus and Boeing announced increases in production rates as they anticipate the tempo of ordering to pick up from the low levels of the past two years.

The good news was balanced by cancelled orders from Dubai Aerospace Enterprise (DAE) which has slashed over 70 Airbus and Boeing aircraft from its 200 aircraft buy of November 2007.

And there may well be more cancelations in the wind with doubts expressed at Farnborough by some analysts about ILFC’s outstanding orders for 10 A380s and 74 787s with AIG trying to spin the unit off as part of its restructure.

At the same time the business model by which these aircraft were acquired with cheap interest rates is changing and thus cost to airlines of aircraft will rise.

Analysts are predicting that the higher costs of capital will translate into higher lease rates and other fees that
lessors typically charge airlines for the use of their aircraft.

Adam Pilarski SVP with AVITAS told the New York Times that “the cost of leasing will be going up and this will increase the cost of flying.”

Clearly more and more airlines are turning to leasing companies to insulate them from shocks which appear to be coming part of daily business so it is to be hoped the leasing companies find some smoother air.