Higher interest rates could be a net positive for aircraft lessors that have secured long-term debt funding matched to their lease rates, participants in the sector have suggested.
Speaking during the recent ISTAT Asia event in Singapore, Goshawk chief executive Ruth Kelly said that while higher rates would push up funding costs, this could be partially offset by inflation driving asset prices higher.
"Rising interest rates means, more often than not, increased inflation, which means increased valuation on the assets you acquired, so there is a counterbalance," she says.
SMBC Aviation Capital chief executive Peter Barrett indicated that rising rates could put some upward pressure on market lease rates, while the lessor is also taking comfort in having its floating-rate debt tied to floating-rate leases.
"We do 'match fund' so I know our business is probably neutral to slightly positively exposed to interest rates," he says.
He sees more of an issue with the pace at which rates rise, although that remains unclear.
"I think the pace of interest rate change will be a factor. If that accelerates – and I don't know if that will be the case – that could catch some people out," says Barrett.
The US Federal Reserve has started to raise rates in recent months, and signalled that further credit tightening may be on the way over the medium term.
BOC Aviation chief executive Robert Martin warns that some players using short-term debt will be caught out if rates rise quickly.
"I see the same mistake being made again in our market, where we have players focusing on using short-term debt to finance long-term leases. This is dangerous," he says.
Barrett adds that rising rates would also likely divert some of the capital that has flowed into the aviation market, as yields in other asset classes rise.
That echoes a number of other industry observers, who expect that some of the recent new cash flows into aircraft finance will move back to their traditional investments.
Source: Cirium Dashboard
