A combination of watertight leasing contracts and management experience of market downturns makes lessors better placed to deal with the Covid 19 pandemic than their airline customer base, according to Betsy Snyder, director at Standard & Poor’s US corporate ratings team.
“My biggest concern previously about lessors was too much liquidity chasing these assets and it's allowed a lot of new entrants to come in who don’t have the right platforms,” said Snyder speaking on an analyst call.
“Now we are going to see who the survivors are and who are not, but you will see that the leases are an absolute commitment and the airlines have no legal right to discontinue payments.”
According to Snyder while there has been a lot of talk around rental deferrals for airlines the impact on lessors had been overplayed. She said that while there has been a number of requests for rental deferrals, but this does not mean they will be agreed to, and even when such arrangements are made it will be via mechanisms such lease extensions which means lessors will receive the full payment over time
“And lessors are not agreeing to all of these requests [for rental deferrals], they are agreeing to ones where they think that the airline will survive, and of the ones they don’t think will survive they will repossess the aircraft.”
Snyder conceded that the market for repossessed aircraft would be smaller in the current environment, with prices also lower but she said typically lessors would enter into shorter term contracts which will enable them to release the aircraft at a higher rate when the market strengthens.
The S&P director said that while the current crisis was the worst she had seen, lessors’ revenues and cashflows had been remarkably stable through previous industry downturns and consequently management teams have learnt from the past to match up their leases with backstop liquidity.
“The larger lessors have seasoned management teams they have been around for a long time and have been through downturns before.”