Skyworks Leasing Q&A with Anders Hebrand. Comments on the A320neo, B747-8, consolidation and more

Skyworks Leasing President and COO Anders Hebrand spoke to CAPA about the hot issues of the leasing industry including his opinion on the B747-8 as a freighter, the C series and COMAC 919, the competitiveness of sale and leaseback opportunities, the fuel environment and the new ASU regulations.

Can you comment on how successful you think the B747-8 will be as a freighter or passenger aircraft? Is SkyWorks interested in this aircraft?

We are following this aircraft type very closely given the B747-8F order by our client Atlas Air. We believe it will be a very efficient freighter and an important addition to their fleet. As a passenger aircraft, I’m sure it will find its niche as well eventually, but at the moment it does seems as if the A380 is a formidable competitor on trunk routes while the B777-300ER is more efficient on slightly thinner routes.

Do you agree with ILFC’s comments that the A321neo could potentially replace the B757? Why or why not?

I think that both the B737-900ER and the A321neo have the characteristics to eventually fill the gap after the B757. The original A321 lacked in range for certain operator’s mission requirements, but with sharklets and new engine technology the range is much improved.

Would you be less or more inclined to finance an A320 in the face of a neo?

A careful analysis of the effect that the introduction of the neo will have on its residual value is required. Short to medium term the changes should not be as material, but as the neo gradually becomes the new standard the residual value impact on the A320 will grow.

Do you see the C Series and the COMAC 919 becoming serious contenders in the narrow-body market? Would SkyWorks be interested?

Serious competition has been almost absent from the manufacturing market the past 15 –20 years. We welcome the new entrants and the competing products by existing manufacturers and believe the market will gain as a whole from it. Clearly, these are very competent companies with a well defined mission and there is no reason why they cannot succeed and become serious contenders.

Do you see consolidation as a big part of the aircraft leasing industry’s future?

Consolidation is a natural progression of a maturing business, so yes, I think some consolidation is likely. However, among the existing lessors and many new entrants there are vastly different business models which will not necessarily be compatible.

How do you think globalisation has affected the industry?

Aircraft leasing is a naturally global business and has been well ahead of most industries in the globalisation process. We are dealing with fairly standardised products which are, by their very nature, easy to move! More transparency, increased competition, lower cost of financing are some of the effects which at the end of the day benefit the passenger.

CAPA: Is scale something you believe is important in the leasing sector?

I believe it depends on your business model. There are some clear advantages of scale when it comes to purchasing power but a low cost of funds and tax efficiency are also important. But if you are not contemplating new aircraft orders then being small, nimble and opportunistic, may also be a competitive advantage.

83.3% of your in-storage fleet are regional/commuter aircraft, which is a considerably high percentage compared to your competitors. What are SkyWorks’ plans for these aircraft?

One of the lessees in our managed portfolio has temporarily parked some of its regional aircraft while they are undergoing a fleet reorganisation as a result of a merger and are considering various options going forward. We have no near term plans for any action as a result.

With almost all of your aircraft placed in North American markets, do you have plans to expand into other regions?

As a third party manager the geographic location of the leased aircraft are entirely dependent on our customer. Currently we are very concentrated to the US but that is likely to change in the near future as we add additional lease portfolios.

The average age of SkyWorks’ fleet is slightly older than the international lessor average. Are there any advantages to retaining older fleet? Is part of SkyWorks’ strategy to acquire any younger aircraft?

Again, as a third party manager, our approach is different than other lessors in this respect. We formulate strategies for each of our customers’ specific requirements and return requirements.

Have you found sale and leaseback opportunities becoming more competitive? How do you think the situation stands here?

Compared to 12-18 months ago, yes. As the financial industry has regained its health, both equity capital and, more recently, credit has returned. The result is temporarily more competitive situations for the most attractive airlines. This is also partly driven by the number of new entrants. We would expect to see this at this time in the cycle.

Do you agree with the new ASU regulations? Do you think there was a need in the market to address the financing issue? Is it fair that China and Russia are exempt from the ASU in light of their current and future aircraft programmes?

The new ASU should bring better balance to the commercial aircraft lending markets. It would appear premature to judge the appropriateness of China and Russia being exempt as it is still unclear what if any export credit or other financing support they will provide.

How do you see the fuel environment being played out in 2011? Do you think this will be a boon or bust to the leasing industry?

In the short term fuel prices are very, very unpredictable. It will largely depend on whether the current unrest in the Middle East reaches any of the larger oil producing nations or in other ways affects the production or distribution of oil. The possibility of such spikes is very troubling for the airlines as it is almost impossible to prepare for. A sustained level of high oil prices will likely dampen aircraft demand and accelerate the phase out of older, less fuel efficient aircraft for newer fuel efficient aircraft. In general however, volatility in oil prices is likely to drive airlines further in favour of leasing as they seek to warehouse liquidity.

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