Jetrader - September/October 2008 - 13

our future, and healthy levels of demand will remain with oil at current levels. Manufacturers will be far more resilient and will weather this economic downturn more easily than in the past as airlines will have no choice but to modernize or die. Hedge funds and investors who were in love with the phrase “25 percent to 30 percent IRR,” had better re-value their portfolios. Our old portfolio would still perform; I suspect that many others would not. Classics will be parked and most will never ﬂy again. Lease rates will plummet and even breakup values will be diminishing. There are thousands of aircraft parked in the desert. Of those less than 0.2 percent are modern, new-generation aircraft (Boeing NGs and Airbus A320 family). I suspect that many of those are sitting waiting for slots to be converted to executive aircraft for some oligarch somewhere or are part of some tax scheme that has to be unravelled. In case you still believe in aged equipment, one should look at the credit proﬁles of the airlines that operate such aircraft and the jurisdictions in which they trade. This is not to say that there are not people who know how to manage such assets and deal with the risks but you do need expert teams, and the current fuel pricing is no match for individual skills. More worrying from my point of view are those playing with newer assets leasing to tertiary players. In one recent case, whilst the aircraft was bought for a very fair market price, the buyer was heard at dinner saying that if the airline defaults, they will actually have the advantage of taking the asset back and re-leasing at a higher rate. Good luck with that one! Anyone who has had to repossess an aircraft knows the costs and time involved, leaving aside the missing records and the disk in the former technical director’s pocket. Aircraft are a commodity like any other, and if you have too many speculative orders in a poor market, you may have to lease in territory you never imagined you would venture. I still remember ﬂy-by-the-hour and summer/ winter rates from the last downturn. Cautious growth, rather than headline grabbing, is always the wiser course. INTERNATIONAL Aviation Services PROTECTING YOUR AIRCRAFT’S VALUE Around the World 366166 The LongbowAround theLLC Group Clock 1/2v 4C p 13 J: Where does LCI stand in all of this uncertainty? TM: LCI sold a substantial part of its portfolio in November of last year. The buyer inherited some great assets and names, and our timing could not have been more perfect thanks to the direction of our shareholders. We have been very active in rebuilding our portfolio and having reaped the beneﬁts of our labor are in a very strong position to react to market opportunities very quickly. We recently bought six A330-300s, which we will lease to Singapore Airlines. Again, our strategy is to seek to work with the best and most reliable players in the industry. I hear stories of distressed sellers and credit issues, and there is no doubt that there are many more sellers in the market at present. That said, good assets on lease to performing airlines sell at fair market prices and can be ﬁnanced. There is still a very competitive situation for newer assets. Just because a parent has given instructions to its leasing company subsidiary to realize assets, that doesn’t mean that they are giving them away. The story concerning older equipment is more complicated as valuers have downgraded values leading to ﬁnance issues, and lease rates will be affected by the abundant over supply sitting in the desert. 366166_longbow.indd 1 Aviation Consulting Asset and Lease Management Technical Services Main Ofﬁce Memphis, TN USA +1 (901) 405-1353 www.TheLongbowGroup.com Jetrader 13 2/14/08 7:46:59 AM

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Jetrader - September/October 2008

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