Aircraft leasing values to affect lessor sale prices – Supplier Share Wrap

Uncertainty over aircraft leasing values have added another potential downside to the price that parent companies hope to achieve from the sale of their aircraft leasing units.

Over the past 12 months, several major leasing companies have been put on the market, including ILFC, CIT Aerospace, Babcock & Brown Air and Allco Finance, as a result of their parent companies committing to major restructuring exercises as a result of the financial crisis. RBS is set to join these sellers shortly, reportedly appointing Goldman Sachs to help find a buyer for its RBS Aviation Capital unit.

The prices for these businesses are expected to be well under their book values, with buyers concerned about debt levels and the availability of capital for refinancing. But aircraft values too are playing their part in chopping down the values of these companies.

Lease rates have fallen by better than 10% over the past 12 months for most aircraft. Prices for older aircraft have plummeted even further, with some cut by a fifth, as used aircraft become increasingly difficult to place.

Boeing and Airbus are expected to deliver nearly 1,000 aircraft this year, a combined record. Smaller manufacturers may add another 200 regional aircraft to this total. At the same time, airlines are committing to further capacity cut backs, particularly for the upcoming Northern Winter schedule, and grounding more aircraft.

As a result, aircraft values and lease rates are expected to stay relatively soft through early 2010, although small to medium sized lessors, with comparatively lower debt burdens, are still expressing confidence in the outlook for the market.

Aircraft lessors had a mixed day yesterday on equity markets. At the close of trading on Monday, Aircastle lost 0.2%, while Genesis Lease was up 0.1%. Aercap and Babcock & Brown Air posted more solid gains, up 0.5% and 1.3% respectively. 

The Centre for Asia Pacific Aviation, in partnership with Ascend Worldwide, now offers daily updates on aircraft, fleets, financing, values, MRO and much more through its new AVIATION INVESTOR DAILY publication. Sign up today for a free trial subscription to AVIATION INVESTOR DAILY.

Selected Aviation suppliers’ daily share price movements (% change): 12-Oct-09