Attendances have soared at this European conference and if numbers increase at this rate it won’t be long before they match the North American gathering of 1,000 plus delegates. Munich had a bit of a hangover from the recent Oktoberfest but nothing that a dose of warm autumn sunshine, a couple of painkillers and the prospect of three days of conference couldn’t alleviate. Readers may be surprised by some facts on Munchen. It has ten Universities and 45 museums, is the largest publishing city in Europe and has the distinguished feat of having five home-grown Nobel Prize winners.

The optimistic mood within the Industry was confirmed by Steven Udvar-Hazy who addressed the opening Industry Outlook presentation. He confirmed predictions of traffic growth at between 4% and 6.5% in the next 5 years and more importantly the expectation that 50% of the Jet Fleet population will be owned or managed by Operating Lessors by 2020, an increase of 16% over 2010. Hazy, as well as many other speakers during the conference, appeared concerned at the increasing amount of regulations facing the aviation market including distortions in Treaties, labour unrest and airport and Air Traffic Control (ATC) restrictions. A lack of new infrastructure including few new airports and little building of extra runways also is of concern.

Julian Balaam from Skytech-AIC addressed the conference with an update on ISTAT Airlink, the humanitarian initiative from ISTAT and thanked the many operators who have donated aircraft and freight space, in particular for the Haiti Earthquake. However, there is a growing need for more support from airline and freight operators throughout the world, many of which fly with some empty freight space on many of their routes and which could be put to practical use with charities such as ISTAT Airlink. If you are an operator who could help in any way please visit the ISTAT site at www.istat.org for more information.

The CFO of Hungarian-based Wizz Air, Michael Powell gave an overview of his Airline. Sale & Lease-Back aircraft transactions have supported Wizz Airs’ A320-200 fleet acquisitions to-date and is contemplating ECA (Export Credit Agency) support when the balance sheet improves.

Lufthansa’s Nico Bucholz gave the delegates his thoughts on Global Airline Management and was very pleased to announce that their A380s are operating without hitch on a 90% Load Factor. At the top of their list of concerns was the lack of infrastructure and in particular ATC delays costing airlines millions in fuel. He did not exactly mention the French Air Traffic Controllers strike which was in full flow the same day but I suspect French wine was off the lunch menu.

First mention was made of the viability of older aircraft in light of financing restrictions, a topic which would be discussed throughout the remainder of the conference. Lufthansa firmly believe that they have an important role to play and can prove themselves more economic on certain short-haul operations.
The Financiers panel drew representatives from Credit Agricole, DVB Bank, Deutsche Bank, HSBC and Sumitomo Mitsui Banking Corporation. American Banks were conspicuous by their absence but the panel commented they would continue to shy away from Aircraft Financing after their massive recent losses. With the aircraft trading market spinning around on US Dollars their absence is being felt.

My hearing may be going a bit but mention was made of some bloke called Basil* quite a lot who has been causing further restrictions in the flow of liquidity. Apparently Basil has been regulating the banking sector (not very successfully I gather) but I find it amazing how one person could do this all on his own?

The Financiers agreed that the lack of support for the re-financing of older aircraft may come back to bite the manufacturers as airlines will be forced to keep these aircraft rather than decide to purchase new. This remains to be seen. The biggest challenge rests with the 2nd and 3rd tier operators who traditionally operate the ‘older’ fleets and who will find financing near impossible.

Several financiers with mixed portfolios agreed that aircraft are performing better than ships and that credit committees are encouraged by this. Okay, from a financing point of view, aircraft are probably better than ships. But let’s face it, you’re unlikely to get Deep Vein Thrombosis (DVT) on the Queen Mary and you’re probably risking your mental health if you try to swim a couple of laps inside an Airbus A320. So performance is one thing but comfort levels are another.

The Financiers agreed that lessors are King, with most banks only prepared to lend to them rather than Airlines and only for new aircraft. A debate on the Economic Life of aircraft sprung into motion from this point with delegates pointing out that the refusal of banks to lend on used aircraft would result in the Economic Life shortening significantly from the current 25 years. Airbus consider a shortening in Economic Life as unlikely but at the end of the day it was pointed out that it will be the Auditors who will inevitably dictate the outcome.

Both the engine lessors and aircraft manufacturers panels brought to the fore the debate on the likelihood of Airbus and Boeing launching re-engined aircraft. The question remains if a proposed (up to) 15% fuel burn efficiency is enough to counteract an estimated $7m to $8 million price tag. Boeing admitted a mixed customer response to such a program which estimates to save 30% on maintenance costs. The general consensus appears to be that the manufacturers need to concentrate on their existing and proposed replacement aircraft rather than diverting expensive research and development and resource on upgraded variants which will be replaced by entirely new aircraft in the near to medium future. The B787, A350, a replacement for the B777 and new A380 variants could prove to be much more important to the OEMs than a narrowbody engine replacement.

The lessor panel again highlighted the previous debates on engine replacement and the economic life of aircraft but also reminded us of the huge financial incentive to manufacturers to keep production levels high as research and development costs need to be met.

The Trading Panel highlighted the barriers to trading, in particular the 10 and 15 year rules which exist in an increasing number of countries including India and Indonesia whereby aircraft in excess of these years of age are effectively being prohibited from entering the country. Many countries are wary of becoming a ‘dumping’ ground for the older aircraft and thereby the parting-out industry awaits many of these.

The Appraiser panel led some interesting discussions including how to appraise a new design aircraft from Doug Kelly of Avitas and an overview of the regional jet market from Ascends’ Les Weal.

So to sum up, the industry is a lot more optimistic than a year ago, there is plenty of equity floating around but no debt, the lessors continue to dominate the market and the re-engining decision is close to reaching its conclusion.

After a very successful three days delegates moved on to the world famous Bayerischer Hof Hotel for a reception and Gala Dinner sponsored by Lufthansa, Lufthansa Technik and GOAL and to the accompaniment of a four-piece orchestra a good time was had by all. Thoughts now turn to ISTAT Phoenix in March 2011 where no doubt the sunglasses, golf clubs and Factor 50 sun tan lotion will be brought out of storage.



*Editors Note: Basil does not actually exist but in fact refers to the Basle Treaties which were put in place to ensure banks have minimum levels of capital reserves. We apologise for this misunderstanding.