Saturday, November 7, 2009
They Never Learn
"CIT Aerospace, a profitable division of stuggling CIT Group Inc., faces a problem plauging much of the $147 billion airplane-leasing industry: The business model that underpinned it and a handful of rival giants is broken. Their approach, built on short-term debt, was battered by the financial crisis. Turmoil in credit markets has hamstrung most of the biggest lessors, including CIT, [AIG's] International Lease Finance Corp. [ILFC] and Royal Bank of Scotland Group PLC's RBS Aviation Capital. ... The giants' problems are now aggravated by a deliberate mismatch in debt duration that was profitable for many years. ... 'Many big leasing companies had a fundamentally unstable business model that focused on spreads,' says Stephen Hannahs, CEO of Aviation Capital Group. 'They needed constantly to roll over their liabilities, which worked well as long as nothing was wrong with the parent company,' Mr. Hannahs said", my emphasis, Daniel Michaels at the WSJ, 12 October 2009, link: http://online.wsj.com/article/SB125530482036579237.html.
The analysts should have realized what Hannahs said years ago. These leasing companies never made sense. See my 30 September 2009 comments on ILFC: http://skepticaltexascpa.blogspot.com/2009/09/kill-aig-now.html.