Difficulties in the financial markets are forcing mid-sized operating lessors to readdress their business plans, reports Flight's specialist aircraft finance publication Commercial Aviation Online.
Financial troubles at CIT Group have prompted whispers about the future of CIT Aerospace of the USA.
But while parent CIT Group says it is considering various options for its entire portfolio, it denies having to conduct “quick” sales on new aircraft to shore up liquidity.
“Over the next few weeks, we will be looking at various options to refine the mix of assets and businesses in our portfolio, which will enable us to focus on our go-forward core commercial finance franchises,” CIT tells CAO.
At a recent investor conference, CIT Group CEO Jeffery Peek did not deny that a sale was part of possible options to help restore the company.
The company however denies market talk that it is being forced to engage in a “quick” sale of new aircraft assets to boost its cash position.
“No, we are not offering new airplanes for quick sales,” says CIT. “In fact the planes we are offering for sale are part of our normal course of business. We have strong liquidity and are currently reviewing the sale of non-strategic assets and/or business lines. CIT Aerospace remains focused on working with its clients to meet their financing needs.”
CIT says one of the reasons it drew down it bank lines “was to remove the pressure around day-to-day liquidity concerns and to ensure that our clients have the financing they need”.
Operating lessors Aircastle and Genesis Lease were recently downgraded by JP Morgan from “overweight” to “neutral”.
The investment bank says the downgrades reflect both the “continued credit and equity market challenges coupled with their collective business model[s]”, which are “less optimized in a market where aircraft values may soften”.
JP Morgan admits that while “perhaps the bulk of the equity damage has been done” the growth rates at both lessors are tied to their abilities to “raise equity capital” as dividend payers.
Aircastle has already announced its decision to cut its first quarter cash dividend on its common shares to $0.25 per share from $0.70 per share. The lessor also amended the terms on two of its credit facilities, reducing the available commitments under both instruments. JP Morgan says the lessor "succumbed...to the pressures of a dividend policy that proved unrealistic in light of looming pre-delivery deposits and a still-inhospitable equity market.”
“Management clearly erred, in our view, in not being more proactive in refinancing in the bank market in 2007,” the banks adds.
CEO Ron Wainshal says the lessor is “committed to maximizing shareholder value” and the recent volatility in the capital markets “creates attractive opportunities for the company to deploy capital".
He adds: “As a result of decreasing our dividend, we will retain additional capital that can be used to increase our liquidity position and make opportunistic investments More specifically, the $0.25 per share dividend reflects roughly one third of the estimated cash flow available for distribution.”
While JP Morgan does not believe the risk to a dividend cut is high at Genesis, particularly due to its credit facility and planned aircraft purchases, it notes that the lessor itself has acknowledged the potential challenges ahead, “given its decision not to continue growing its dividend, at least for now”.
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Source: FlightGlobal.com
