Prudence the watchword, for lessors, OEMS, and airlines
Prudence can be the foundation for stability in the light of the volatility seen in the aircraft financing market in the first two months of this year, and, as evidence of continuing investment, and capital committment continues, there are clear signals of ambitions by many to grow significantly while taking a long term perspective on the sector.

US Government signals increased financial support for aircraft manufacturing
Financial difficulties continue to surface as US Government signals increased financial support for aircraft manufacturing.

Is shipping a warning signal for aircraft assets?
Aircraft manufacturers have reported record order books over the past two years. Senior executives in the leasing sector, have been cautious about the rate of production being planned by OEMs in response to order flow in recent years. The aircraft market should perhaps take heed of developments in recent years in the shipping sector where a glut of new capacity ordered in the period up to 2008 saw significant downward pressure on prices as demand failed to match supply.

In this issue: "a positive for investment in the right place in the aviation finance complex"
A recurrent theme of recent months have been the warnings, many of them emanating from the lessor community, of the dangers of overproduction by OEMS of aircraft worldwide. In this publication in recent issues we have published such warnings from the CEOs at AWAS, and FLY, and, in this issue, by AerCap's Aengus Kelly.

Helicopter leasing firms in growth phase
The helicopter leasing sector has seen several recent developments as Lease Corporation International placed a substantial helicopter order with AgustaWestland for their new helicopter division and Milestone, the helicopter financing company, announced several large orders notably with Eurocopter. ICBC Leasing and ALAFCO also signed large Airbus orders, COMAC, the Chinese manufacturer, secured more contracts for its hotly-anticipated C919 and rating agencies assessed ILFC's €900 million secured term loan.

RBS deal likely to sharpen investor focus on modern generation portfolios says JP Morgan
Analysts at JP Morgan have released an assessment of the aviation leasing industry, hot on the heels of the Initiation Research Report by Morgan Stanley, referenced in the last issue of Aviation Finance. The JP Morgan report says that the RBSA-Sumitomo deal 'is a positive for the sector'.

Sumitomo RBSA acquisition for $7.3 bn. of major significance to aircraft leasing sector
The acquisition of RBS Aviation Finance by Sumitomo Misui Financial Group is a groundbreaking moment for the aircraft leasing industry. It is historic in a number of ways; it is the largest ever transaction in the leasing space, while also, incidentally, being the seventh largest overseas M & A in Japan's corporate history. That the price achieved is in excess of book value is a statement of the investor interest there is in the sector.

Aircraft Transitioning: a cutting edge service potential for aviation finance
Although aircraft leasing is centred on complex financial details it involves the ownership and operation of physical aircraft. These aircraft move between lessors and airlines on a regular basis and those exchanges require material checks and administrative tasks. This is an area that could form the basis for a strategic investment, says Sean Flannery, the EVP Technical & General Manager of GECAS, the world's largest aircraft lessor.

Aercap's CEO: 'There is still real money to be made by prudent lessors'
Aercap's CEO Aengus Kelly talks to Aviation Finance about the point we are at in the leasing cycle, aircraft values, delivery times, post-petition leases, and the 'funding gap', and says aircraft leasing 'is still a really profitable business'. In the interview he also dismisses the idea that used aircraft, particularly narrow-bodies, are suffering from a significant fall in lease rates and value. He paints a positive picture for prudent lessors and expresses AerCap's confidence in its leases with American Airlines, currently under the protection of Chapter 11.

Asset trades continue in leasing industry
Recent asset trades highlight the ongoing interest in narrow body aircraft and also suggest that lessors can see value in used aircraft that are on lease with quality airlines over an extended period. Aviation Finance Consulting Editor Joe Gill quotes a recent perspective offered by AerCap's CEO Aengus Kelly on the difference between 2007 and 2012 with regard to lease margins.

Fears of aircraft overproduction highlighted as lessors repossess planes
AerCap chief executive Aengus Kelly warned against the overproduction of aircraft this month when he questioned the viability of huge orders made by small airlines. Another point of interest was Oaktree Capital Management's move to sell its majority stake in Jackson Square, which comes at an interesting times given the state of commercial lending but also the strength of the RBSA sale and IPO of Air Lease.

The supply and demand equation for aircraft
The prevalent view in the market that developing market growth will offset any weakness in developed markets and will ensure that the global marketplace expands, has driven OEMS to increase monthly production rates. However, data shows that demand in emerging markets is much more moderate than the supply of aircraft would indicate says JOE GILL, consulting editor of Aviation Finance.

Doric-like structures for Boeing 787s?
Aviation Finance looks at a proposal for the use of a Doric-like structure to provide a financing infrastructure to support the future of the Boeing 787 (ZA003). This structure could provide a leasing model that addresses issues of complexity and transparency for investors.

Morgan Stanley expresses confidence in long term prospects of the aircraft leasing sector
In a comprehensive survey of the aircraft leasing industry Morgan Stanley analysts expect 'softness before strength' in the leasing cycle but remain optimistic on the longer term drivers of leasing demand.

Why leasing is more profitable, and less risky
One of America's leading aviation and aircraft leasing analysts, Gary Liebowitz, of Wells Fargo Securities cites a chart published in the first issue of this publication in his latest (October 12th) regular commentary on the industry Leibo's Leasing Letter. The chart, supplied by Avolon's Dick Forsberg, shows that, as a group, aircraft lessors remained solidly profitable through cyclical economic downturns – 'unlike their global airline customers that have a 20-year cumulative net margin of approximately zero'. It should be noted though that the 'Airline Net Income Margin' line (see top line in the table) aggregates the performance of LCCs and legacy airlines. Also there is a feeling amongst some analysts that backward - looking profits in leasing may not be repeated in the future, as future residual value performance may not be as good as in the past.

Leasing can provide an attractive investment opportunity for long-term equity investors: Forsberg.
The aviation leasing sector can provide an attractive investment opportunity for long-term equity investors looking to achieve steady risk-adjusted equity returns while participating in the growing global aviation business writes Avolon's DICK FORSBERG.