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Airline Economics Growth Frontiers Conference 2018 – key takeaways

On January, 23rd and 24th, The Panel attended the Airline Economics Growth Frontiers Conference at the Shelbourne Hotel, Dublin. Our Aviation & Leasing Manager Richie Goggin was there, here is his summary from the event.

Global Risks in 2018

Peter Morris, Chief Economist from Flight Ascend Consultancy spoke about global risks in 2018.

During this presentation the following was noted:

  • Overall OECD lead indicators suggest stability and a slight improvement in the Aviation market in 2017/2018
  • People are spending on experiences rather than goods and that is contributing to passenger growth numbers
  • Passenger growth numbers are expected to slow in 2018
  • Slight concern about oil price increases in 2H17 and increasing environmental concerns
  • Political risk was a hot topic in Aviation and there were increased concerns about natural disasters and cyber-attacks

Keynote Speaker – Air Lease Corporation

John L Plueger, CEO of Air Lease Corporation, was the keynote speaker on Day 1 and he was very positive about the aircraft leasing market for the future.

Key points:

  • Major economies are experiencing dynamic growth – China & India experienced 6.8% & 6.3% growth respectively
  • The main drivers of air traffic are affordability of air travel, increased consumer spending and emerging “middle class” economies
  • 160 million people a year will join the middle class by 2030 and this will have a huge impact on future growth in passenger traffic
  • Highly favourable trends for sector – passenger traffic increased by 6% in 2018, Global GDP by 3.7% and global airline profitability was 38.4 billion USD
  • Interest rates were expected to be c. 2.9% at the end of 2018 – still very low
  • Oil price is projected at 60-70 USD a barrel
  • The GE business review and growth of Chinese lessors will be big in 2018
  • Aircraft Leasing is vital to the stability of aviation market and economy – as evidenced by redistribution of Monarch / Air Berlins assets post – insolvency
  • Aircraft Leasing acts as buffer for airline industry, aids production stability and are introduces Investors by providing good returns and attracting added capital

Q&A with Aengus Kelly, CEO, AerCap

Tom Woods (Partner in KPMG) held a Q&A with AerCap CEO Aengus Kelly and the discussion was centred on KPMG & Airline Economics recently published report “Navigating the Cycle”.

Link to full report below:

https://assets.kpmg.com/content/dam/kpmg/ie/pdf/2018/01/ie-aviation-industry-leaders-report-2018.pdf

Key points:

  • Parts of the world can expect a slow-down but if lessors are well funded they can navigate market cyclicity
  • There is a huge demand in the APAC region at present particularly in the “New” and “Mid Life Markets”
  • European carriers (BA in particular) are extending the life of 747s
  • In the Far East / China there is a strong demand for new aircraft
  • The strengthening of the Euro currency (c. 15%) has shielded against increased fuel prices
  • There is an extremely robust demand for Boeing 767s and AirBus 330s
  • The most versatile family group of planes are those that retain their residual value
  • Lessors should buy assets for a developed user base
  • Wide-body market presented a significant opportunity and would be in huge demand if it was the right widebody plane

Lessor CEO Panel

This discussion opened by asking if it was a dangerous time for operating leases and how did each company manage risk?

  • Fred Browne of Aergo Capital said you had to consider the different cost of funds and respective I.R hurdles
  • It is acceptable to take more credit risk as long as they generated the I.Rs desired
  • The key is differentiation from your competitors and then sticking to your niche
  • David Waldron of BOC Aviation said that companies should pursue a business that suits their capital model, find a value proposition for customers and just say no to risky propositions
  • Peter Chang of CDB Aviation said they are an “all-weather” customer focused lessor. They are a full service operator for their customers and do not “cherry pick” assets
  • It was also noted that because of the low IR environment the market is flooded with capital and a desire to acquire assets
  • Lessors must navigate the waters carefully, discipline is key and they need to have a sense of where they are in the cycle

The “narrow-body” v “wide-body” debate.

  • Consensus was that there was a general confidence in placing narrow-body planes as they are less bespoke than wide-body
  • Should invest in wide-body where you have the customers lined up for them
  • Need to analyse wide-body on a long term basis as it is a cash generative investment /a lumpy asset – some felt that you need to specialise to be in that particular market

Chinese Market

  • On the topic of the growth of the Chinese leasing market the panel said that there will still be a lot of new entrants to the market, it will be tougher to compete with higher pressure on yield and that dynamic won’t change soon

GECAS – Hold, Sold, Listed?

  • The future of GE assets was the closing topic of discussion – the consensus was that the portfolio of assets was too large to be sold wholesale.
  • That the likelihood was a partial sale in blocks and the retention of part of the portfolio particularly engine assets

Talent / Recruitment

In the aforementioned KPMG / Airline Economics report (Lessor CEOs wish list) AerCap, CDB and SMBC highlighted the need for investment in training to attract and retain talent in the sector.

Despite Aircraft Leasing now being recognised as a mainstream sector, there are still skills shortages and companies need to invest in education and training staff to remain competitive.

The Panel work with the leading lessors in Dublin and strive to attract the best talent and offer a “best in class” recruitment service for our clients.

Peter Morris, Chief Economist of Ascend talking airline economics
Peter Morris
Keynote speaker John L Plueger, CEO, AirLease Corp.
Q&A with Aengus Kelly (Director, AerCap Holdings) by Tom Woods (Partner) in KPMG.
Airline CFO discussions on 2018 deliveries.
Keynote speaker Gerry Laderman – SVP Finance of United.
Lessor Panel Discussion