Airlines and lessors must collaborate to survive: AFJ North America 2020
Airlines and lessors need to collaborate to survive the current crisis rather than using the “old tools” of confrontation, a panel session has been told.
Speaking during the Airfinance Journal North America 2020 virtual conference, Split Rock Aviation partner Andy Mansell said that the industry is facing a “multi-year” crisis and airlines and lessors will need to share the pain.
“The unilateral approach of airlines saying ‘this is what you will take’ I think is a tool of yesterday. The unilateral approach of lessors to say ‘no’ is also a tool of yesterday,” Mansell says.
“This is a time when collaboration and partnership become really important,” he adds.
Mansell says lessors will pursue different strategies. Some will take a look at the legal option more than ever before.
Some will take “retrenched hard nose” approach, while others will seek more “strategic outcomes” focused on relationships.
This could be simple as taking back some of “aircraft A” and replacing it with “aircraft B” which suits the lessee in the current environment.
“That may not match on a dollar for dollar account but does contribute towards solutions on both sides,” he comments.
“Asking an airline to repay a rental deferral in 2020 when they are not flying yet or they ate flying 1%, or 10% or 40% of their capacity, I understand why you want it, but it’s not very achievable,” he adds.
John Luth, chairman, Accenture Aviation and chairman, president and chief executive officer, Seabury Capital Group said the industry facing a period of “damage control” and then “rebuilding and healing”.
For him the first priority for lessors will be protecting their assets – ensuring that aircraft are insured and maintained. But for Luth it is “nonsensical” to “go after” airlines for rent as soon as the opportunity arrives.
Luth warns that not every airline “deserves to exist” and they need to justify their existence and commercial capability to drive sufficient cash flows to service their debts.
“Otherwise you end up in serial restructuring”, Luth says, noting the long-running travails of Pan Am, which needed to be “resuscitated” multiple times.
Ryan McKenna, chief executive officer, Griffin Global Asset Management, says airlines and lessors share the same objectives and lessors will do “whatever you can do to help a viable business”.
“I think the objectives are the same thing, which is how do you get from here to the other side where businesses can strart to heal and grow and then thrive again " says McKenna.
The strategy of having a broad diversified spread of one or two aircraft across the globe “doesn’t really seem to make a lot of sense to me in this environment”, he notes.
“It strikes me that picking a handful of management teams and business models that we think have a possibility of surviving, if we can provide liquidity and capital in the near term to help get to the other side of it, seems to make more sense for the way we think about investing in partners,” he adds.