KUALA LUMPUR (Jan 21): The improved health of global airlines will help aircraft lessors maintain stable performance in 2015, according to Moody’s Investors Service.
In its industry outlook entitled “Improved Airline Performance Provides Lift for Lessors, but Increased Competition Limits Upside," released Jan 19, Moody's outlook for the aircraft leasing industry is stable.
Moody's industry outlooks reflect the rating agency's expectations for fundamental business conditions in the industry over the next 12 to 18 months.
A Moody’s vice president and author of the report, Mark Warsden said he expects that the aircraft leasing companies Moody’s rate will maintain stable average net finance margins and operating cash flows in 2015.
"Lower fuel prices will significantly strengthen the financial performance of airlines, which will reduce lease default risk.
“To the extent passed through to travelers in the form of lower airfares, lower fuel prices could also stimulate air travel demand, which is positive for aircraft utilization, values and lease rates over the next 12 to 18 months,” said Warsden.
At the same time, Warsden said that abundant liquidity and improved returns had attracted new entrants to the sector, whose growth objectives and competition for yield would dampen further improvements in returns.
“The drive for growth and yield runs the risk of lower returns in a down cycle.
“Additionally, while Moody's expects that air travel volumes will continue to increase, regional differences in economic strength and airline performance will persist, requiring lessors to carefully manage geographic and carrier concentrations,” Warsden wrote.
He adddd that rated lessors would continue to de-risk fleets, aided by abundant liquidity, and utilize less secured debt to finance their aircraft, which will improve financial flexibility.
“However, the drive for fleet growth and stronger yields could pressure leverage levels,” said Warsden.