Maria Wagland / London
ILFC, GATX predict sluggish economy will force some smaller players without wealthy parents to leave market
US lessor International Lease Finance (ILFC) expects to ride out the current market downturn but believes some of its competitors will bow out as the global economy limps towards recovery.
ILFC vice-president marketing Philip Scruggs says: "We expect to emerge from the crisis stronger and with fewer competitors. Not in 2003, but 2004 will be telling for some of our competitors."
Scruggs says lessors that do not have the backing of a parent or access to cash will be forced to drop out of the market.
ILFC benefits from the support of its parent, international insurance giant AIG. Scruggs says ILFC is in a strong credit position to source its own financing, having an "AA" credit rating, while AIG is even better placed to assist if the need arises, with its "AAA" rating.
"We have financial support that is not comparable to some of our competitors," he says. In a downturn, maintaining sufficient cash flow can become a problem for "anyone that doesn't have a ready committed access to debt and equity", adds Scruggs.
GATX Air advisory board chairman Glenn Hickerson agrees there will be fewer players and he expects some will be sold. He adds: "Smaller leasing companies will be seeking niches and I see there being fewer leasing companies."
Many lessors have already made a push to find their niche. Some have elected to increase management of third-party portfolios in place of speculative orders and sale and leaseback transactions.
Irish lessor Pembroke Group has increased its remarketing and fleet management activities and Amsterdam-based Debis AirFinance has also said it is focusing its efforts on building third-party work.
Debis's new chief executive from April, Klaus Heinemann, says he hopes to grow aircraft management to make up 50% of the business from only one-third of its portfolio. He adds there are other growth opportunities for Debis in remarketing, contract management, technical supervision and risk assessment.
Leasing giant GE Capital Aviation Services (GECAS) is also hunting down new opportunities as well as continuing its debt-financing activities, which have grown dramatically over the past 18 months. Airlines rely on the assistance of manufacturers and lessors in difficult times and many have turned to GECAS with its debt-financing capabilities. GECAS executive vice-president Norman Liu says: "We are ready to take advantage of select financing opportunities. Because of war and terrorism there will be more liquidity needs [from airlines]."
* Abbey National is continuing talks with potential buyers for its aircraft leasing arm IEM AirFinance and insists it is prepared to wait to secure the best possible price. The UKbank revealed its plan to leave the leasing business in November and recently wrote down £38 million ($60 million) against the value of IEM's portfolio.
Source: Flight International
