New banking rules to increase aircraft lessors’ borrowing costs

Basel IV reforms will make lending against aircraft more expensive

The annual  Global Airfinance Conference is held at the Convention Centre in Dublin. Photograph: Dara Mac Dónaill

The annual Global Airfinance Conference is held at the Convention Centre in Dublin. Photograph: Dara Mac Dónaill

 

Tough new banking rules will increase borrowing costs for the Republic’s aircraft leasing industry, a conference heard on Thursday.

Proposed Basel IV reforms of the rules governing how banks manage their risks are likely to make it more expensive for lenders to provide cash for assets such as aircraft and ships.

In a discussion at the Global Airfinance Conference in Dublin, Stephan Sayre, managing director of aviation investment management at DVB Bank, said it was too early to assess the exact impact of the proposed change. He also pointed out that individual local regulators could apply the rules differently, potentially creating more difficulties for borrowers.

“The trend is absolutely that capital is going to be more expensive,” he said.

Basel IV will require banks to set aside more money to cover the risk of airlines defaulting on repayments for their aircraft. This in turn will make borrowing money to pay for those craft in the first place more expensive.

Leasing centre

The Republic is a key centre for aircraft leasing, with big players such as Gecas, SMBC and Avolon based in Dublin and Shannon. Basel IV threatens to have an impact on their activities.

These companies generally borrow the money to buy aircraft and repay the debt with the rent paid by the airlines that lease the planes. A number of players, including SMBC, have recently used bonds as well as banks to raise money.

The Basel IV rules will only apply to banks and not to capital markets. Many in the industry point out that this gives lessors other options for raising finance.

Earlier, Aeromexico’s chief financial officer, Ricardo Baker, told the gathering that US airline Delta expected to complete its acquisition of 49 per cent of the Mexican flag carrier in the second quarter of this year.

Ling Li, managing director of Bocomm Leasing, which set up a base in Dublin in 2014, told the conference that the company was named China’s largest aircraft lessor this week. Bocomm was founded in 2007 and has total assets of $24 billion (€22.6 billion).

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