Aircraft lessors face higher borrowing costs, Apollo Aviation says

The Republic’s aircraft lessors are likely to face higher borrowing costs as interest rates rise this year and a number of other factors come into play, the principals of Irish-based Apollo Aviation believe.

Indications that the US Federal Reserve could hike interest rates this year and the longer-term prospect that a change in banking rules could increase lenders’ charges point to a likely boost to the cost of borrowing, according to Apollo’s president, Robert Korn.

However, he believes that the changes are unlikely to damage the industry, as he argues that lessors, who borrow much of the money that they use to buy aircraft, are prepared for the changes.

“The industries you see fracturing because of some disruption do not have time to react to change,” he said on Friday. “The people in this industry are sophisticated and they are looking at what is coming and can plan for those changes.”

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US rate rises

The US is likely to have two interest rate rises this year, driving up the cost of borrowing in dollars, the currency in which aircraft lessors do business. Further down the road, Basel IV reforms include new rules demanding that banks put aside more capital to protect themselves against risk when they lend money against assets such as aircraft and ships.

The Republic is a key centre for aircraft leasing with players such as Gecas, SMBC, Aercap and Avolon based in Dublin and Shannon.

Apollo now employs 25 people in Dublin out of a total of 65. It has a policy of hiring graduates direct from local universities such as Trinity and UCD. The company has assets of $3.5 billion and 131 aircraft, largely narrow-body Airbuses and Boeings.

The business is backed by institutional shareholders, including pension funds, life companies and university endowments.