Posted January 26, 2010 9:10 AM
By Ascend Worldwide Admin
Gauging The Mood of Delegates in Dublin
By Paul Sheridan - Head of Risk Advisory EMEA, Ascend
The Dublin Air Finance Conference always serves as a good barometer of where we are in the cycle and this year was no exception. The more upbeat were trumpeting the record attendances, the banks with money to lend and the number of start up lessors there to explain their business plans. The less optimistic in the crowd were quick to point out that there was no sign of a bottoming out of airline losses, that banks still didn’t have enough money to go around and that most the new lessors still hadn’t done a deal. An even divergence of opinion like that probably means that things probably aren’t getting any worse but we shouldn’t be ordering the cases of champagne just yet.
Still, after what we’ve all seen over the past eighteen months, anything pointing to a return to normality is worth celebrating. At any time in the cycle an attendance of over 700 people at an aviation finance conference is impressive. Add in the unregistered masses gathering in the hotel lobby and you have an attendee list to rival any other conference. Just as importantly, and this is a big difference from 2009, many people were there to do business rather than just talk about it.
There were a number of attendees deservedly taking a bow for their efforts in avoiding a serious liquidity crisis in 2009. First among these were of course the export credit agencies. Next in line were the manufacturers although they tended to demur on taking a bow, preferring just to say that they were never worried about a funding gap in the first place. Everybody else was breathing a sigh of relief that they had survived the year in one piece.
The predominant themes of the conference were fairly predictable: the 2010 funding gap; airline profitability; and how lessors are faring during the downturn. There was some good news on the funding gap – banks do have higher budgets for 2010 compared with 2009 even though they are still nowhere near the highs of the past few years. Export credit agencies are still doing all they can to keep the planes in the air. Finally ExIm backed bonds, without a doubt the best innovation of 2009, have the potential to change the way in which aircraft are financed. These bonds, coupled with the successful tapping of the EETC markets in late 2009 mean that the capital markets should go a long way to mitigating the risk of a funding gap for new aircraft.
However, there is no sign that banks have much appetite to finance PDPs or older aircraft. Also, most bankers are still having to compete heavily with other departments in their banks for capital and it won’t take too many bad headlines before their prized budget allocations get cut. It seems that every deal has to be close to perfect to be approved and that conversations with risk management are getting longer and more complex.
On airline profitability the general feeling was that there is still a long way to go before we see profits returning. Somewhat curiously, the airlines that presented at the conference tended to avoid using the words ‘profit’ and ‘loss’ preferring to discuss their reductions in capacity and costs and their access to financing.
Among the gloom there was one way of finding an optimistic view – seek out a startup lessor. There were several startups at the conference to explain their business plans and talk up the opportunities that exist at the bottom of the cycle. There is still no sign that existing lessors are willing to sell aircraft at below their book values however and so it may take all of this year for the buy/sell spread to narrow enough for deals to happen. Most of the startups are Dublin based (with the RBS alumnus group now reaching a critical mass) with Chinese lessors expected to grow their activities in 2010 but not to become a global force for up to five years.
Overall the conference had an odd mood. Dublin has always been a brash conference and this year was no different. However people were being bullish about to a year in which they will do a level of business that would have been considered serious underperformance two or three years ago. It just shows how much re-building work needs to be done for a full recovery.
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