Wednesday 17 July 2019

Equity investors 'nervous' on aircraft-leasing stocks

Conference told jet-leasing firms need to raise up to $120bn to fund orders

Photo: PA
Photo: PA
John Mulligan

John Mulligan

Aircraft-leasing company stocks are being hit by "fear in the marketplace", according to JP Morgan Securities managing director of airline and aircraft credit research.

Mark Streeter also told the 'Airfinance Journal' convention in Dublin yesterday that the rated aircraft-leasing companies - most of which are either headquartered in the capital or have major offices in Ireland - need to raise a between $100bn and $120bn (€88bn and €105bn) in coming years to finance their aircraft orders. At least half of that will be raised via bonds, said Mr Streeter. The JP Morgan executive pointed to the poor share performance of lessors such as Dublin-headquartered AerCap, while shares in jet-maker Boeing have performed relatively well.

"Equity investors are very, very comfortable with the Boeing equity story, which is inherently tied to the aerospace cycle," he said.

But he added that based on the recent performance of lessor equities such as AerCap, which is listed in New York, "the market is very, very nervous about the prospects for aircraft leasing".

"Equity investors are very comfortable that the aerospace cycle will continue to benefit Boeing, yet on the aircraft-leasing side there's a lot of fear in the marketplace," said Mr Streeter.

"Boeing investors might be taking the longer-term view and so forth," he added. "With AerCap or with Air Lease, we have all the immediate concerns of what's going on with the deceleration, perhaps, in China and increasing receivables in airline bankruptcies and the like. There's a lot of near-term factors that could be influencing aircraft-leasing performance.

Warning: Mark Streeter, JP Morgan Securities managing director of airline and aircraft credit
research, was speaking at a Dublin event
Warning: Mark Streeter, JP Morgan Securities managing director of airline and aircraft credit research, was speaking at a Dublin event

"This disconnect can't continue," he added. "So one of two things is going to happen. You're going to see the aircraft-leasing stocks rebound, or you're going to see Boeing and Airbus stocks roll over."

Mr Streeter also said that he doesn't believe Gecas will be bought by an existing large lessor. It was recently reported that private-equity giant Apollo could table a bid for Gecas, which has its operational HQ in Shannon.

Gecas has a book value of about $40bn, but needs $20bn to fund aircraft orders. Gecas is funded, for now, by its parent, but an acquirer would probably have to look at raising debt to pay for the jet purchases. "It's going to be interesting to see what happens with Gecas," said Mr Streeter. "The question mark [is] on what the market value is of those assets. I don't think any of the public lessors are going to make a run, because I don't necessarily see what it does for many of them. Someone like Air Lease and AerCap - they already have their own order books."

He said that if Gecas is acquired by a private equity player, he could "absolutely see" that their eventual exit might be via a stock market listing.

Irish Independent

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