ISTAT Jetrader - Summer 2020 - 14

PERSPECTIVES

Jetrader: What are your thoughts
on the current ABS market and
the existing ABS transactions?
NH: I am not an expert on tradable
securities, having spent most of
my working life on private loans.
But the enormous spike in spreads
bears witness of falling aircraft
values, eroding airline credits, less
reliance of regional and aircraft
type diversification, and higher
risk premia.
Jetrader: We are experiencing
currently (and maybe extended)
lower fuel prices. What is the
impact on the economic useful
life of aircraft and deliveries of
new aircraft?
NH: Low fuel prices favor older
planes, but low interest rates favor
newer kit. So, then you need to
figure out where oil prices and
interest rates will go. Oil may
stay low in the wake of economic
weakness, and so may interest

Jetrader: Do you expect
fundamental/structural changes in
the commercial aviation market/the
air finance market as a result of the
current crisis, or will it be business
as usual once it is over?
NH: I think that we will see
consolidation. Many smaller lessors
that never lived through a downturn
will not make it, and their portfolios
will be picked up by others. Scale is an
advantage, asset prices don't show on
the Bloomberg screen and most airlines
are not rated, so you need to see a lot
of trades, lease placements, and know
a lot of airlines from the inside to get
enough data to make smart decisions.
Generally, risk will be repriced, and that
is not going away for a long time.
Jetrader: Unfortunately, ISTAT PDP
has been postponed until next year,
but can you tell me about your role
as program director and the goal
behind the program?
NH: I keep my fingers crossed that we

It's very important that people remember that
this is a cyclical industry, and it is a fragile industry,
but there is an inherent desire for people to travel, and
I don't think desire is going to go away.
rates. Airlines will undoubtedly strive
for streamlining their fleets and
concentrate on keeping only the core
aircraft types.
Jetrader: Aircraft finance used to
be a specialized niche activity. Has
it become mainstream now and, if
so, what does this mean?
NH: Yes, it really became
mainstream - what could possibly
go wrong? I wonder if it is not going to
get a little more niche and specialized
again for a while.
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* T H E O F F I C I A L P U B L I C AT I O N O F I S TAT

can run this in 2021 and also launch
the Americas version of the program.
We have 31 very qualified professionals
signed up for Europe, and I hope they
will all have the opportunity when we
can kick this off. The idea is to develop
promising talent with one to five years
in the business and transfer some of
the deep knowledge and experience
from instructors drawn from the ISTAT
membership. At the same time, the
students will have an opportunity to
network and meet several exciting
dinner speakers.

Jetrader: There's a lot of uncertainty
in the world. What wisdom can you
impart on the industry?
NH: There is a tendency where every
time we are at a peak in the cycle a lot
of people say it's a sea change - that
things have really changed and this is
going to last forever with no clouds on
the horizon. "The cycle is dead." But,
that never happens. So now, on the
other hand, when we are at a trough of
the cycle, a lot of people say "This is it.
It's never going to be the same again."
I remember this from 9/11. People who
were quite experienced in the industry
said "People are never going to want to
travel to the same extent again."
It's very important to remember that
this is a cyclical industry, and it is a
fragile industry, but there is an inherent
desire for people to travel, and I don't
think desire is going to go away. This is
not the end of aviation. I've read a lot of
gloomy articles lately about how this is
completely changing the face of aviation
forever, and I don't think that's true.
This is the worst downturn that
we've experienced in the jet age. We've
never seen this type of decline in air
traffic. But the planes are there, and
the pilots still have their skills. Only the
coronavirus knows when, but gradually
people will start traveling again.
I think this downturn started slowly
before the virus broke out. We had
a phenomenal spell of traffic growth
from 2014-2018 that was fueled by
the emergence of a lot of people in
Asia who became rich enough to fly.
That created growth and the need for
airplanes. There was also a step up
in technology of airplanes with new
models being offered with 15% better
fuel burn. These planes were launched
at a time when oil prices were US$120
a barrel. A lot of airlines said, "We
cannot miss this train. We have to
order airplanes." The manufacturers
started to build like crazy and had a
high production rate and an enormous
backlog of airplanes. This has been a
concern, that this backlog is a little bit
oversized. Then, this event happens,
ISTAT Jetrader - Summer 2020

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