As 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.)