VideoAs America's financial caldron threatens to boil over, Genesis Lease Ltd. CFO Alan Jenkins sees little chance that his company will get scalded.
In a stroke of good timing, it secured a $241-million debt facility in recent weeks — provided by three European aviation-specialist banks — covering 11 of the commercial aircraft-leasing company's planes. Genesis also has a well-diversified $1-billion revolving credit facility, maturing in April 2010, to keep it out of the short-term market. Plus, its close working relationship with GECAS, the airline leasing and finance operation of mighty General Electric, offers some protection. And only 12 percent of the aircraft Genesis owns are now leased to airlines in the U.S., the market most vulnerable to economic disruption.
One further positive note: Genesis is based in Shannon, Ireland, although its American Depositary Shares trade on the Big Board. Indeed, Jenkins is a Dubliner who has never had a regular duty station in the U.S.
"I won't be rethinking that strategy, right now at least," he says, although he adds with a laugh that the comment is just a joke.
Despite his company's apparent insulation from much of the crisis, Jenkins takes its challenges very seriously. "These are unprecedented times," he says. "And if I were someone who needed to go back to the short-term financing markets right now, I'd be very concerned."
As it is, however, "from our perspective we can be cautiously optimistic here."
For now, his main concerns relate to the damage that the U.S. financial crisis could inflict on the U.S. and global economies on which air travel depends. "We see the global economy contracting relative to the growth expectations 6 or 12 months ago," says Jenkins. "And the expectation is that fuel costs will be higher going forward." He adds, "I wouldn't underestimate the challenges outside the U.S.," although the problems facing U.S. airlines are clearly worse. But that excludes any potential damage from a lengthy Congressional deadlock over a financial rescue plan, of course.
"There's been overcapacity in the U.S. market for some time now. After 9/11 there probably was a business case for some of that capacity to go away in the U.S., but it didn't happen for a variety of reasons," he explains. And in a downturn, "there's going to be a shakeup in the U.S."
- "The 'holy cow' moment for me was that Sunday-Monday [Sept. 14-15] when Lehman Brothers failed and Merrill Lynch was bought by Bank of America." — Genesis Lease CFO Alan Jenkins.
Still, some are warning that global air-travel may be in for a much worse time. The International Air Transport Association this week called for lower taxes for carriers, and higher operational efficiencies by them, "a matter of survival" — and it predicted that at least 20 international airlines are at risk of bankruptcy. (Airlines that are competitively challenged, or are without strong levels of cash on the balance sheet, or that operate older less fuel efficient aircraft "will be under significant pressure through the Northern Hemisphere winter period," Jenkins agrees.)
In both the global and U.S. environments, he argues, though, Genesis is well-positioned. Not only is its fleet of 54 planes assigned largely to non-U.S. carriers, but nearly all the planes are of the fuel-efficient variety being sought by airlines as they trim older models from their flight lines. "When airlines do come out of the far side of this [slump], their interest will be in fuel-efficient aircraft," the CFO says.
Further, the connection with GECAS represents something of an insurance policy. "Clearly, we own aircraft [in] a capital intensive industry. And we're only coming up on our second anniversary," Jenkins notes. But his company was spun off as a public company by the GE operation, which retains an 11-percent stake in Genesis. And operationally, the much-larger GECAS "brings a lot of leverage to bear in slightly tougher times. We have someone like GECAS negotiating on our behalf, and if you have a default situation — like with [failed Hawaii-based airline] Aloha earlier this year — GECAS manages that on our behalf" and keeps the damage minimal. "That's the wonderful thing about aircraft," says Jenkins. "You can move them around the globe."
Meanwhile, he says, "We have $1 billion of dry powder to finance our acquisitions" through its long-term credit facility, with 16 banks. Indeed, the $241-million, seven-year debt that it closed recently wasn't a required refinancing. "We thought the debt markets were only going to go one way; they were going to deteriorate," according to Jenkins, and so Genesis chose that time to do the deal, announcing it on Sept. 23. "Clearly, the week we closed was a pretty tumultuous week. We were quite satisfied by that transaction."
It's "a little early to say" what impact on Genesis or the aircraft leasing business will come from American International Group's recent bail-out, he says. The diversified insurer's government takeover has put the future of its giant aircraft-leasing unit, International Lease Finance Corp., in some question. ILFC, a healthy if highly leveraged company, is widely expected to be sold as a part of AIG's reorganization. ILFC has said it is borrowing $6.5 billion in emergency funding — the maximum available under its three unsecured revolving credit facilities — to repay its commerical paper and other obligations, and allow it to get through the 2009 first quarter.
Reader Comments» Post a comment