Jetrader - March/April 2010 - 12

The Return to a NEW Normal Preparing for a Post-Recovery Aviation Industry By R. Stephen Hannahs, Group Managing Director and Chief Executive Officer, Aviation Capital Group “All of us have been severely tested in the past 15 months as the global financial system proceeded to effectively shut down.” uring the past ﬁve months, many individuals, corporate business partners, bankers, airline executives and associates have asked me, “When do you believe that the ﬁnancial markets will return to normalcy?” All of us have been severely tested in the past 15 months as the global ﬁnancial system proceeded to effectively shut down. This virtual collapse ushered in the grandest scale of global government intervention not seen in 80 years. Few of us have lived through this scale of ﬁnancial trauma in our business careers, and this question is critically important for a capital-intensive industry. It is my view that the problems that have been exposed in the ﬁnancial system will not provide for a return to the norm of the past 10 years. The ﬁnancial system will heal, and there are signs of this now. However, the ﬁnancial system will be a different functioning entity. It will be stable and functioning but not as forgiving. It will be a “New Normal.” Regulations Galore The aftermath of all crises typically yields more regulation. As we continue to pick up the pieces and rebuild the economy, there will be extensive modiﬁcation of the current regulatory system, both domestically and globally. There will be a concerted effort to create international standards and even perhaps a global international regulatory body. This additional regulation will throw aside the view that completely free markets will be self regulating. The belief is now that mankind, left to our devices, will always go too far. The alignment of mathematics, ﬁnance and physics will be called into question. It’s clear from the failure of long-term capital in the late ‘90s, CDOs, CLOs and synthetic CDOs in the early part of this decade and the extensive use of exotic derivatives in recent years that there are more Black Swans than anyone ever imagined. The models that created the various instruments were clearly ﬂawed in their formation. As such, various government regulations will attempt to walk a line between too much and too little. In fact, as I write this article, the U.S. Congress is drafting new regulations for ﬁnancial institutions. In this legislation, provisions have been proposed to disassemble even healthy institutions if it’s deemed that they have engaged in risky behavior that could be systemic. If 12 The ofﬁcial publication of the International Society of Transport Aircraft Trading

Jetrader - March/April 2010

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