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00:00:00 – 00:24:52
The YouTube video discusses the Aviation Leaders Report 2024 with insights provided by industry experts, Joe Omara and Greg Conan. Key points include the recovery of airlines post-pandemic, challenges in the aircraft supply chain, increasing lease rates, importance of stable interest rates, growth in the Aviation Finance sector, the trend of leasing aircraft, and ESG considerations in aviation asset management. The overall theme emphasizes the resilience of the aviation industry, the importance of long-term investments, and potential growth opportunities despite challenges like global conflicts and supply chain issues.
00:00:00
In this segment of the video, Joe Omara, head of Aviation Finance at KBMG, is joined by Greg Conan, CEO of High Ridge Aviation, to discuss the Aviation Leaders Report 2024. High Ridge Aviation was founded by former GCAST leadership and specializes in asset management, structured products, operating and finance leases, and debt business. Greg discusses the performance of airline customers in 2023, noting a strong recovery in leisure travel domestically with international travel starting to pick up. Airlines faced financial challenges during the pandemic but are now focused on cash generation and balancing their balance sheets.
00:03:00
In this part of the video, the speaker discusses the outlook for the airline industry across different regions. They mention that Europe is expected to have a positive summer season, with airlines showing cautious optimism for 2024. In Asia, there is a divide between stronger and weaker airlines, with some facing challenges due to engine issues. In the Middle East, growth is tempered by higher fuel rates and costs. The speaker also touches on macroeconomic factors like global conflicts impacting economic uncertainty and the need for a long-term view in building a global airline portfolio. They highlight the strong demand in the market but note challenges in the supply chain, particularly around OEM delays and engine issues.
00:06:00
In this segment of the video, the speaker discusses the challenges in the aircraft supply chain, including OEM production levels, supply chain issues, and maintenance problems. The delayed production and retirements due to the MAX issue created pressure on asset values during the pandemic. Now, there is a drive for growth and replacement of aircraft, but OEMs are not producing at previous levels, leading to upward pressure on asset values. MRO issues, particularly with engines, are causing further delays. The speaker suggests that inflation, interest rates, and supply chain disruptions are driving up asset values, presenting both positive and tight opportunities for companies like HD looking to grow.
00:09:00
In this segment of the video, the speaker discusses supply chain constraints in the aviation industry, emphasizing potential impacts on engine and aircraft availability. They further touch on the unexpected pace of interest rate increases and the need for stable rates for long-term investments. The conversation delves into the normalization of interest rates after a period of low rates and its effects on lease rates and residuals. The speaker predicts a shift towards normalized behavior in response to market volatility and anticipates impacts on lease rates and residuals due to higher inflation and demand pressures.
00:12:00
In this segment of the video, the speaker discusses how lease rates are increasing due to higher extension rates and financing cost pass-through for initial leases. Supply and demand dynamics are pushing lease rates up in the aviation industry. Traditional commercial banks are stepping back from aviation exposure due to regulatory capital requirements, while the capital markets are not yet fully open for aviation transactions. Alternative lenders are divided into those seeking investment-grade capital projects and those handling traditional financing. The alt lending space involves structuring portfolios for different risk profiles to optimize returns.
00:15:00
In this segment of the video, the speaker discusses the importance of quickly building up collateralized loan obligations (CLOs) and attracting investors to the Aviation Finance sector. They mention that some capital in the aviation space was short-term and not suitable for long-term investments, but now there is a shift towards more selective and long-term investors like pension funds and mutual funds looking for stable returns over 7 to 10 years. Aviation Finance is considered attractive due to its stable long-term returns compared to other asset classes like commercial real estate or shipping, which have seen more volatility. The speaker also mentions the increasing popularity of leasing in aviation and the need for careful asset management to maximize cash flows.
00:18:00
In this segment of the video, the discussion centers around the trend of leasing aircraft in the airline industry. It highlights that leasing has been steadily growing over the past 15 years due to efficiency and effective balance sheet management. While airlines can own aircraft, leasing provides flexibility and helps manage balance sheet duration gaps. The conversation also touches on the importance of scale in asset management, indicating that scale matters, but the critical mass can be achieved without needing to reach a specific asset size. The focus shifts to efficiently managing the liability side of the balance sheet and ensuring a match between liabilities and long-term asset exposure.
00:21:00
In this part of the video, the speaker discusses the importance of ESG (Environmental, Social, and Governance) considerations in aviation asset management. They mention that banks and investors have ESG requirements, and transforming commercial aviation to be more environmentally friendly is a challenge. Sustainable aviation fuel is highlighted as a near-term solution, while electric and hydrogen options are seen as long-term prospects. The speaker expresses optimism for the aviation industry’s growth despite challenges like global conflicts and supply chain issues.
00:24:00
In this part of the video, the speaker mentions that airlines are generally well-positioned, having either restructured or performed well enough. There was a significant move out of assets during a certain period that is expected to be beneficial in the long term for airline and aviation investors. The speaker expresses optimism for good returns and growth in the coming years, with 2024 being highlighted as the starting point. The conversation ends with thanks and well wishes for Highr Aviation.