One thing that emerged from this year’s Global Airfinance Conference in Dublin is that aircraft lessors feel misunderstood by the equity markets despite delivering the steady returns beloved of investors.
Not only that, they are remarkably secure, despite dealing with customers – airlines – that are traditionally volatile. A recent report by US ratings agency, Kroll, shows that over the last 20 years years lenders lost just 0.1 per cent to 0.3 per cent of debts secured against aircraft, far lower than the rate at which airlines were bankrupted over the same period.
Ruth Kelly, chief executive of aircraft lessor, Goshawk, pointed out the industry should not be so surprised at the lack of attention, as it accounts for about 3 per cent of the world's financial services industry (aircraft leasing is effectively a financial service).
“It’s not just that we are small, we are actually tiny,” she argued, pointing out analysts are not going to spend a large amount of time looking at a sector that accounts for 3 per cent of where investors put their money.
Peter Barrett, head of SMBC, pointed out leasing is a niche business, albeit one with a much bigger niche than when he started in the 1990s. Whatever the explanation, Barrett, Kelly, Air Leasing Corporation's Steve Udvar Hazy and Avolon's head of finance, John Higgins, all agreed the equity markets don't seem to be able to quite grasp their industry or the best way of valuing it.
None of which should really matter that much. For now at least, aircraft leasing enjoys the best of all worlds. Low interest rates mean it gets easy access to finance. Many players, including SMBC, have added new sources of cash, such as bonds, to the bank debt they have traditionally used. They clearly have backers who do value their returns.
A consequence of the lack of regard from equity markets is that few of the industry’s players float. However, this allows them to enjoy the benefits already listed without the hassle and bureaucracy of running a plc, which also means running from quarter to quarter, a different dynamic from what most lessors do, which is invest for the long term.