‘At the same time, you've seen aircraft retired, taken out of service
perhaps sooner than they would in a normal environment. So you’ve got airlines that
need time to heal, and the only way to heal is by growth, and the only way you grow
is by acquiring aircraft. So you’ve got strong demand for new metal and
stretched balance sheets – and that creates opportunity for finance providers.
‘Aircraft financing has been moving towards the leasing sector anyway –
it now represents around 50 per cent of the total market – and I’m convinced that
in this search for growth by airlines lessors are going to play an even bigger role
in the future. From an investable asset class, I still think the fundamentals
of aircraft as a good investment are there, you just need a management team
that knows what they're doing.
These things are not bonds, you have to be able to pick the assets and
the credits and actively manage them, which is why a platform like HRA is
valuable.’
Growth ambitions
Conlon is reluctant to put numbers on growth aspirations at this stage,
but clearly has significant ambition. ‘We're certainly open to looking at portfolios.
I think there will be increased activity and some trading on the portfolios,’ he
says. ‘You're seeing interest rates effectively doubled from when there was
very inexpensive money and a lot of capital coming into the space, bidding up
asset values driving down yields. A lot of new entrants came in and we're
seeing some of those new entrants now exiting, either because their return
requirements weren't met or their capital structure wasn't efficiently tailored
to the assets they were going after. So I think there are going to be
opportunities not only with the airlines, but also with other leasing
portfolios coming on the market, which we'll certainly look at.’
He also sees significant opportunity for LRA in the current marketplace. ‘LR
AirFinance is very similar to the PK model, with maybe a slight change in that it
has more efficient funding for a debt platform. It's going to be a big part of
our strategy and one of our main differentiators is that we know that space well.
We did it for over 20 years at GECAS. In fact, I was with PK when GE Capital acquired
it. So I was there from day one when it became part of GECAS and I saw how very
thoughtful they were about keeping information walls between investor information
and client information, how they kept the leasing side of the business separate
so we were able to serve both customer bases – investors as well as airlines.
