Air Finance Journal
July/August 2008 -
2008 Operating Lease Survey: Preparing for a downturn
While the world suffers an economic crisis of confidence, lessors have made crucial moves to ensure their funding is maintained. Janet Du Chenne reports.
It was more than a year ago when subprime mortgage lenders in the US hit the financial wall. Although the Federal Reserve and the companies which invested in these subprime structures began to prepare for the worst, the implications for aviation were still in the pipeline.
The impact on the industry might have been further delayed had the demand for fuel not forced the cost of the commodity to unprecedented high levels. But as the increased cost of borrowing and fuel began to take their toll, flights were scrapped from consumers' budgets and airlines responded by cutting capacity.
Despite these moves, the operating lessors kept their cool. After all, one of them had closed the most innovative portfolio securitization of the year, with the equity fully sold to institutional investors and hedge funds. Nobody was immune to the liquidity crisis, though, and it was towards the end of 2007 when the industry realized that the operating lease bubble might burst.
As the liquidity squeeze continues, the question of how lessors will be funded in a likely downturn becomes more pertinent. This year's Operating Lease Survey shows that lessors have made some vital decisions to make their fleets more bankable.
Funding
Lessors can be categorized into three groups. The first are those whose parents are sovereign wealth funds or strong corporate entities. They include BOC Aviation, Dubai Aerospace Enterprise, Alafco, Gecas, ILFC, Waha Leasing and Aviation Capital Group.
The second group are the liste ...