Finance
Cheap financing bonanza over, leasing boss tells airlines
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DUBLIN (Reuters) – Airlines have been warned that the days of abnormally cheap financing costs are over, pointing to higher lease rates amid changes in the way risk is managed after the war in Ukraine.
DUBLIN (Reuters) – Airlines have been warned that the days of abnormally cheap financing costs are over, pointing to higher lease rates amid changes in the way risk is managed after the war in Ukraine.
New money has poured into aviation over the past decade as investors sought refuge from low bond rates in the higher yields available from dollar-denominated hard assets like aircraft.
“For a lot of investors, getting a mid-single-digit return on an aircraft lease is a lot better than getting negative interest rates in bank accounts or 1 to 2% returns on government bonds,” industry veteran Steven Udvar-Hazy, chairman of Air Lease Corp, told a UK Aviation Club dinner in Dublin.
“I think that’s all changing … The airline industry, from a credit rating point of view did not really deserve those kind of rates. And now I think the sense of reality is coming back in; I think lease rates will go up, interest rates are going up.”
Udvar-Hazy, a founder of the leasing industry who began his career advising Aer Lingus while still a student in 1973, said airlines would have to adjust to higher lease rates in the same way as they absorb fuel, labour and other operating costs.
Air Lease last week posted a quarterly loss after an $800 million write-off of jets stranded in sanctions-hit Russia.
Russia has effectively seized hundreds of foreign-leased jets after changing the law to prevent their repossession.
“I think as lessors and financial institutions, we have to pay more attention to these risks. And that’s another reason that (lease) rates will go up,” Udvar-Hazy said.
“Because every leasing company, every bank that’s lent money or assets to Russia, is going to build in a cushion on every future transaction. We will all pay a price for that.”
Udvar-Hazy and other financiers are holding large back-to-back gatherings in Dublin for the first time since the pandemic.
Lease rates fell some 30% during the pandemic but have reached a turning point, Rob Morris, head of global consultancy at Ascend by Cirium, told the Airline Economics conference.
(Reporting by Tim Hepher; Editing by Mark Potter)
Aircraft leasing is a financial arrangement where airlines rent aircraft from leasing companies instead of purchasing them outright. This allows airlines to manage costs and operational flexibility.
Lease rates refer to the cost associated with renting an asset, such as an aircraft. These rates can fluctuate based on market conditions, demand, and risk factors.
Risk management in finance involves identifying, assessing, and prioritizing risks followed by coordinated efforts to minimize, monitor, and control the probability or impact of unfortunate events.
Interest rates are the cost of borrowing money, expressed as a percentage of the principal amount. They can influence economic activity and are set by central banks or determined by market forces.
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