Specialist
Former EVP at Aviation Capital Group LLC
Agenda
- Operating environment for aircraft lessors, including capital cost and aircraft value trends
- Relative positioning and potential performance of key players – Air Lease (NYSE: AL), AerCap (NYSE: AER), Aircastle and others
- Collections rates under pressure
- Outlook as travel industry recovers
Questions
1.
What are your expectations for aircraft valuations in the coming years? Narrow-body aircraft are being used more relative to their wide-body counterparts, by my understanding. How might that impact valuations, given factors such as maintenance cycles being moved up?
2.
You mention 7,500 aircraft currently have no operator, half of those being narrow-body. What are the implications of this for lessors, and why is anyone ordering new aircraft when so many are just idly held by lessors?
3.
How are airlines and OEMs [original equipment manufacturers] reacting to the supply overhang? How is capacity adjusting to the lower-demand environment?
4.
How should we assess OEM delivery delays and the potential continued impact on aircraft valuations?
5.
Could you estimate where lease rates are sitting across narrow- and wide-body?
6.
You suggested the model isn’t quite sustainable for lessors. What do you think comes next? How might they react as it becomes more evident that it’s not sustainable?
7.
How do you expect lease rates to trend in the coming quarters and years? How should we frame a positive vs a negative scenario? How might lease rates evolve for a 3-6-year-old narrow-body portfolio, specifically?
8.
Is there still significant pressure for airlines pushing for the PBH [power-by-the-hour] contracts or even temporarily cutting lease rates across wide- and narrow-body, relative to a couple of months ago? What percentage of leases do you expect to be PBH in the coming months and years?
9.
How might the increase in PBH impact the competitive landscape across lessors? Is any particular segment across the mid-sized to largest lessors best-positioned to manage this?
10.
How important might sale-leaseback transactions be for lessors driving greater market share? Are certain players better-positioned based on their approach to sale-leaseback?
11.
How are key lessors such as AerCap, ALC [Air Lease Corp], Aircastle and SMBC positioned in this demand environment? How would you grade their relative positioning by geography and fleet composition?
12.
Which lessors might potentially be at risk of losing that investment-grade rating?
13.
How should we frame market share shifts and their underpinning catalysts? Who do you expect to be the longer-term winners and losers in this market? Presumably, this comes back to the credit-rating factor.
14.
Do you think the AerCap-Gecas merger will significantly impact the broader industry, given we’re shifting to one very large competitor rather than two large competitors?
15.
I agree on AerCap-Gecas’s likely minimised ability to drive benefits in areas such as cost of funds. How should we consider the combined entity’s ability to grow in Asia? I believe both companies have about 20% of their business in Asia already. How might they fare in penetrating that market further?
16.
What are the key challenges for the combined AerCap-Gecas to grow in Asia? Do you think it will have any competitive edge over more regional players in China and Japan?
17.
What’s your 3-5-year outlook for industry consolidation? Which pairings do you think are most likely or complementary? Might any lessors combine to even come close to competing with AerCap-Gecas’s scale?
18.
What’s your outlook for total leasing penetration over the next 10 years? Delta Air Lines dipped back into the leasing market in mid-July. What percentage of the wider existing global fleet might be leased?
19.
Are there any final topics that investors commonly misunderstand about the aircraft leasing industry?
