Aircraft lessor Avolon has a $5 billion cushion to protect it from any fallout from its Chinese parent’s troubles, according to its chief executive Dómhnal Slattery.
HNA, the Chinese conglomerate that controls Irish-based Avolon’s owner Bohai, faces a cash crisis following a buying spree and slowdown in its country’s economy.
Mr Slattery told Wednesday’s Annual Global Airfinance Conference in Dublin that Avolon last year insulated itself against problems likely to hit its parent. “To my mind that insulation framework works today; nothing has changed in Avolon.”
Mr Slattery pointed out that Avolon had $5 billion in cash and undrawn credit at the end of September.
He explained that the rules governing China’s Shenzen stock exchange barred any part of Bohai from loaning money to its shareholder HNA.
Mark Streeter head of US bank JP Morgan's aircraft credit business, earlier argued that Avolon's bond rates were unsustainable. The return on the bonds rose to 5.5 per cent to 6 per cent as their price fell following news of HNA' s difficulties.
Mr Slattery remarked that anyone who bought Avolon’s bonds at their current returns “should be buying me dinner”.
He told the conference that its scale and ties to HNA helped cut Avolon’s borrowing cost and the price it paid for aircraft.
"HNA has transformed our negotiating leverage with the manufacturers. That has enabled us to secure attractive contracts with Boeing that will lock in good prudent growth for this business from 2021 onward."
Avolon combines its own cash with loans to buy aircraft from Boeing and Airbus that it then leases to airlines.
Market’s efficiency
Addressing the same conference, Peter Barrett, chief executive of another leading Irish lessor SMBC Aviation Capital, argued that the failure of European airlines – Italy's Alitalia, Britain's Monarch and Germany's Air Berlin – reflected the market's efficiency.
“Ultimately they found themselves in an increasingly competitive market where they did not have the efficiency or the financial model to survive.”
Mr Barrett pointed out that other airlines acquired Air Berlin’s and Monarch’s fleets, indicating that the market was working efficiently.
Tore Ostby, chief financial officer at Norwegian Air Shuttle, whose Irish subsidiary offers cheap flights from Ireland, Europe and Britain to the US, said that the group's long-haul business would seek further growth in Asia.
He noted that Norwegian already had a presence on transatlantic routes. “It’s natural that we are probably going to look more east this year.”
