Jet Airways’ troubles leave Irish lessors’ plans up in the air
Cantillon: Avolon and SMBC will need to find new homes for their planes – quickly
Having these expensive assets sitting in a hangar generating no return for their owners is as bad as having them in the hands of a non-paying airline. Photograph: iStock
It is not surprising that a number of Irish aircraft lessors are caught up in Indian carrier Jet Airways’ troubles. The Republic is home to most of the industry’s biggest players, and they lease craft across the globe, so some exposure when a significant airline goes under is almost inevitable.
Jet Airways is unable to pay rent on many of the craft it has leased. Ultimately this gives lessors the right to take back their planes and, hopefully from their point of view, give them to another airline that can pay for them.
Reports say that several Irish lessors, specifically Avolon and SMBC, have taken the initial steps in doing this, including asking India’s airline regulator to deregister individual craft.
Assuming the craft are returned, the problem for lessors is then how quickly they can find a new home for the planes, as having these expensive assets sitting in a hangar generating no return for their owners is as bad as having them in the hands of a non-paying airline.
So far the experience with recent airline failures, such as Air Berlin, Primera and Monarch, has been that it is not much of a problem at all. Somebody else has taken the craft. Following a pause for maintenance and repainting they took off again to continue earning money for the lessors.
Global aviation is under pressure following several years of growth
If Jet Airways is not rescued, this may well be the case with its craft. In fact, there are grounds for believing it could unfold that way, as airlines are growing in Asia as the region’s economies expand, driving up demand for air travel.
Nevertheless, global aviation is under pressure following several years of growth. Higher fuel and borrowing costs have combined with greater competition with predictable consequences for some businesses.
Those threats are particularly strong in Europe, but Jet Airways shows that other global regions are not immune either. Thus there is always the risk that the industry will reach a point where it is not so easy to place craft following an airline’s failure. The question for Irish lessors is: just how immediate is that risk?