Jet leasing boss warns of ‘all-in turmoil’ from US trade war
The continuing trade wars between the US, China and Europe could lead to “all-in economic turmoil” if they result in a wider currency crisis, according to Domhnal Slattery, the chief executive of the world’s third-largest aircraft leasing firm, Dublin-based Avolon.
But he insisted that Avolon is insulated in the short-to-medium term from any such potential scenario.
Mr Slattery also said that Avolon has “ample liquidity” and that it would make “no sense” for it now to refinance a $1.75bn tranche of its bonds that fall due in 2022.
“They’re actually trading in now at very attractive prices,” he said. Earlier this year Avolon was under the spotlight amid concerns that its ultimate parent firm, China’s HNA, could strip it of cash to shore up its own finances. But Avolon had dispelled any such notions and later amended its guarantee structure to ringfence its financial resources from its immediate parent, Bohai, and HNA.
Last month, Japanese firm Orix sealed a deal to buy a 30pc stake in Avolon for €2bn.
“We like to keep our average debt profile five years out,” said Mr Slattery. “We don’t want any near-term balloons. We don’t want any stress points: no cliffs, no near-term maturities; keep pushing it out, [an] extremely prudent approach.”
Mr Slattery was speaking last week before the company announced the new issue of $1bn of unsecured notes with a 5.125pc coupon and which will mature in 2023. Through its subsidiaries, Avolon currently has $4.75bn in bonds in issue.
Avolon has a fleet of 890 owned, managed and on-order aircraft, with clients all over the world.
Mr Slattery said that the current trade war between the US and China is “getting more complicated” and that it’s not clear what the end-game is for the United States.
“But I do know that Boeing, who sell 25pc all their aircraft into China, is very concerned about the impact of tariffs that China may or may not put on Boeing equipment,” said Mr Slattery, adding that there’s a “food chain” that includes manufacturers of other equip- ment such as engines and avionics.
“Some of the implications of what is going on, when you think about, is the concerns of the trade war are now flowing into emerging market currency concerns,” said Mr Slattery. “So you’ve Argentina, Brazil, Turkey, Indonesia, India and the Chinese renminbi has weakened – there are some similarities there with the Asian currency crisis of 1997. So the spark for this could be the trade war, then you have a currency crisis, then you have all-in economic turmoil.”
He said that there’s an immediate issue for airlines whose local currency has lost value against the dollar, as they have to pay for fuel, airline rentals and many other services in US dollars.
“So, you start off with noise around trade, then you have concerns around emerging market currencies, and then you could have a run,” he said.
“It’s an unnecessary noise, an unhealthy backdrop, but is it something that we’re fundamentally concerned with in terms of the profitability of our business? Not in the short to medium term.”