DUBLIN (Reuters) – The airlines have been told that the time of unusually low financing costs is over, and they have been shown that lease rates are going up because of changes in risk management after the war in Ukraine.
During the last decade, investors seeking safety from low bond returns turned to dollar-denominated hard assets like airplanes, which offered greater yields.
At a UK Aviation Club dinner in Dublin, Steven Udvar-Hazy, chairman of Air Lease (NYSE: AL) Corp, told a UK Aviation Club member: “For many investors, a mid-single-digit return on an aircraft lease is much superior to negative interest rates on bank accounts or yields of 1 to 2 percent on government bonds.”
“I believe everything is changing… From a credit rating perspective, the aviation business did not merit ratings of such magnitude. And now I believe a sense of realism is returning; I believe lease prices will increase and interest rates are rising.“
Udvar-Hazy, who started his career as a student in 1973 by giving advice to Aer Lingus, was one of the people who started the leasing industry. He said that airlines would have to deal with rising lease prices in the same way that they deal with rising costs for fuel, labor, and other operational costs.
Last week, Air Lease said that planes stuck in Russia because of sanctions cost them $800 million for the quarter.
Russia has taken hundreds of foreign-leased planes after changing the law to make it impossible to get them back.
“As lessors and financial institutions, I believe we must pay more attention to these dangers. And there is just another reason why (lease) rates will increase, “Udvar-Hazy said.
“Because any leasing firm and bank that has provided money or assets to Russia will include a buffer on future transactions.” For this, we shall all pay a price. “
Since the epidemic, Udvar-Hazy and other investors are having major back-to-back meetings in Dublin for the first time.
Rob Morris, Ascend by Cirium’s head of global consulting, told the Airline Economics conference that lease rates had reached a tipping point after a 30% drop during the epidemic.