The bond issuance by Germany today should be of interest to anyone dealing in aircraft and/or engines – for Germany has set a zero per cent coupon on its €5bn two-year bond auction which is selling off as I write and is expected to pass off without a hitch.
The point is of course that investors will not be paid for the privilege of lending to the German state and they are not alone as the UK and the US are also throwing out zero percent coupons. These governments are of course providing a safe haven for investors in a storm and the investors cannot get enough of it. This points to investor disenchantment with financial assets and points once again (if any pointing were needed) to the fact that paper assets are not offering a good risk and reward balance.
So investors are being tempted across the globe to move towards non-paper assets and that means aircraft and engine assets are looking better than ever as the Eurozone once again balances the global economy on the edge of a blackhole. Investors also need to be aware of investing in parts without getting involved in aircraft break-up – the returns on some programs is a staggering 28% at the moment with a solid risk profile – now that is worth a good look.
On another note following on from the TAP IPO news yesterday, it is worth mentioning that Brazilian airlines are still being held back. Even though the aviation market in Brazil is expected to grow 7% this year, twice the expected GDP growth rate, aviation fuel taxes remain 30%-35% higher than in other countries. Brazilian airlines really do need to rush to come together to find a solution for this problem. The Brasil Maior package of tax incentives has so far not given airlines any gain whatsoever and even though Gol has obtained discounts on aviation fuel purchases from state-controlled oil producer Petroleo Brasileiro it still remains at a disadvantage against other regional carriers. Gol's policy of fuel hedging continues with 40% of consumption hedged for the next 12 months but this is not set to make a dent in losses as it is the same as the 2011 policy in all facets.
All this means Gol cannot make a bid for Portugal's TAP.
A full aircraft investment update will show in the July issue of Airline Economics with Gol mentioned in the airline investment feature coming out next week along with parts investment options. Moreover, our investment conference schedule for the rest of 2012 and 2013 will be out next week which will take in Hong Kong in October, Miami in February with our Aviation 100 Awards Gala Dinner, Monte Carlo in May, Africa and the Middle East in June and Asia Pacific in October. There will also be aerospace investment private schools for investors between these dates and ETS and Fuel Hedging schools in addition. Get your sunglasses out.