Leasing community remains wary, fearing proposal will be used to ‘lock in’ customers
Imminent moves by Rolls-Royce to offer more reassurance to engine lessors are failing to impress the leasing community, already unhappy with manufacturers’ ability to protect their own financial security through “lock-in” repair and overhaul packages.
Sue Walton, head of structured finance at Rolls-Royce Capital, speaking at the Aircraft Finance and Commercial Aviation Conference in Geneva last week about the latest developments in the aircraft powerplant market, said that moves are under way at the UK engine manufacturer to offer by as early as next month a new financial safety mechanism to engine lessors.
“Watch this space. This will be between the engine manufacturer and lessor that only comes into effect when the airline customer defaults and will essentially offer comfort to the financier community, which fears being caught financing a glider,” said Walton.
The move has failed to impress some in the leasing community.
Jon Sharp, Engine Lease Finance chief executive, says R-R’s move will do nothing to lessen the growing discontent of lessors, unhappy at the effect original equipment manufacturers (OEM) are having on the market through their lucrative hourly cost support packages, which essentially lock in airline customers. “The proliferation of ‘total care’ packages is becoming increasingly controversial. Designed to protect the OEM’s own aftermarket business, they ultimately reduce liquidity in the assets that lessors want to invest in by limiting future trading opportunities.
“Offering this mechanism to cover only defaulting airline customers is frankly not enough. We have to have access to some of that airline payment for total care to the OEM at the natural end of the lease. There has to be an assignment of the rights of a total care package to the lessor.”
While Boeing’s attempt to boost the attractiveness of the 787 to the financial community by building in the ability to re-engine the aircraft with an alternative manufacturers’ powerplant are ongoing, Sharp says lessor exposure to the engine OEMs is increasing “by the day”.
Sharp raises the spectre of a future trade dispute over what many lessors regard as abuse of market position. “At some point we should expect a challenge at the European level for anti-competitive behaviour under the Treaty of Rome,” he says.
“Action could be taken either independently or jointly by a large independent maintenanance, repair and overhaul companies, parts manufacturers or an independent lessor,” Sharp adds.
AIMEE TURNER / GENEVA
Source: Flight International
