Analysis

Investor perspectives on engine leasing

Roger Welaratne, SVP & General Manager, GECAS Engine Leasing, talked to MRO Network at Engine Leasing, Trading & Finance about engine leasing from an investor’s perspective.

Market calls for all-inclusive deals

I think all-inclusive deals are market-driven and add value. I see them as quite a positive development for the airlines it helps airlines eliminate some risk, get more certainty on costs and cash flows and help them focus on their core business. Sometimes an airline can ask for the engine leasing piece to be included in engine maintenance deals too. For us this is simply something the market is looking for as a value adding service and being part of GE, we are in a strong position to structure and deliver a comprehensive product.

Investor perspective

The investors have no issue because what they want is to ensure a return on the lease and protect residual value. The leased engines need to be maintained properly so when they come back at the end of the lease they can be redeployed to another airline. The engines can also be sold at any point in time, so the investors are really only concerned about the quality of the maintenance and they need to be sure the maintenance programs are protecting the residual value of the assets.

Impacts for OEM and aftermarket

Spare engines are an important part of the aftermarket for the OEMs and one can understand why the OEMs are involved. However, each engine OEM has its unique involvement. 

The biggest concern for engine leasing community is a tight control of the aftermarket. For example, if the aftermarket is fairly locked for engine trading, then the engine lessors and investors cannot freely choose the exit time. Asset owners will only be able to trade out of an engine only when lease terminations occur and only with limited available options. This inevitably means lower price. The engine leasing market needs liquidity and active trading with a large number of players definitely help better residuals.

Japanese banks return to leasing

I think the more people enter the market – so long as they are astute lessors  –  the better. The market needs liquidity and for that you need more players. From an airline point of view, one would want to have five or six strong players because that is a good way to get better engine financing or leasing deals. From an investor point of view it gives more opportunities to trade too. 

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