One thing that Donald Trump's ascension will definitely mean is change.
The US Federal Reserve's policy on hiking interest rates is only one area where a shift is likely. Some analysts are therefore preaching action.
A prominent proponent of this approach is Mark Grant, a bond strategist known to some as The Wizard thanks to his success in seeing clearly before others such events as the Greek debt crisis.
In his most recent "Out of the Box" investor note, Grant asserts that the equity markets look like they will boom. However, he warns: "On the flip-side are interest rates. They are going HIGHER! The short-term inflection points for the 10-year Treasury are 2.28%, 2.35% and then 2.50%. I now expect we will breach them all."
He adds: "Consequently, if you need to borrow money, for whatever reasons, do it now. I would give this advice to any corporation, to any municipality, to any person, because I believe the days of central-bank-manipulated low interest rates are about to become programmes of the past. They were already losing steam. They have now lost power. The chapter is quickly coming to an end, in my estimation."
Grant puts the likelihood of interest rates staying level or being pushed lower at 20%. Fundamentally, he is saying that the landscape is about to shift.
If an airline or lessor wants to take advantage of certainty and lock in debt at the rate it has been in the recent past – and crucially still is today – then it looks like they are better off borrowing now, by Grant's argument.
Economically, the repercussions of Trump will, Grant predicts, be felt more in Asia and Europe than America – food for thought to those regions' airlines and lessors.
Of course, there are some within the air finance community who hold the view that the industry adheres to its own cycle, and that any changes to the cost of debt for airlines and lessors will be slow.
But a rebuff to that might simply be: "What makes airlines and lessors so special?"
The regulators drafting Basel IV regulations certainly do not seem to mind if they constrain banks' ability to lend on aircraft going forward, likely resulting in either higher pricing on loans or a greater reliance on institutional investors and the shadow banking system to provide capital.
And, even if Grant is wrong, why not look to lock in substantial debt before year-end at a cost with which most businesses are currently comfortable?
A theme of 2016 has been the rubbing out of old certainties and truisms. Why take a gamble that 2017 will be any different?
Source: Cirium Dashboard
