Aircraft lessors take financing lesson from crisis

* ILFC Chair: Lessors must tap all avenues of financing

* Fly CEO eyes equity issuance as stock recovers

* BOC Aviation: Asian capital markets viable source

By Paritosh Bansal

NEW YORK, Oct 5 (Reuters) - Aircraft leasing companies have learned a lesson from the financial crisis: tap every possible financing source as cheap funding backed by parents like American International Group Inc (AIG.N) and Royal Bank of Scotland (RBS.L) becomes a thing of the past.

Lessors such as AIG's International Lease Finance Corp (ILFC), one of the largest in the industry, for years relied on their parents' stellar credit ratings, but were left out in the cold in the financial crisis.

Now, as airlines turn profits again and traffic rebounds from the crisis, leasing companies are eyeing growth, but face a challenging financing environment where they must look at all avenues to fund operations, executives said at an industry conference on Tuesday.

"Leasing companies are going to need to be in a position where they will be able to tap all of the levers of financing available to them," ILFC Chairman and AIG director Douglas Steenland said at the Aviation Finance Summit 2010, hosted by marketing firm Winston Baker.

These avenues include secured and unsecured debt markets, bank lines, export credit agencies and asset sales, executives said at a panel discussion, moderated by veteran investment banker Marshall Sonenshine.

"This industry is not out of harm's way, but it is far better off than it was at this time last year," Sonenshine said.

Fly Leasing Ltd (FLY.N) CEO Colm Barrington said banks were willing to lend, but costs of borrowing in capital markets remained too high for his liking.

Fly, which bought some 20 percent of its shares through the crisis as its stock took a hit, may tap the equity markets.

"Our share price is getting back to a level where we might in the not too distant future be able to issue more shares in the company," Barrington said. "We have started looking very seriously at purchasing aircraft again."

"It is a smoother playing field for the non-AAA owned lessors," Barrington said.

BOC Aviation, a Bank of China (601988.SS) unit, is tapping the usual sources of funding, but also is on the lookout for new capital markets, such as in Singapore.

"Asian capital markets will be a viable source of funding in the future," CEO Robert Martin said.

Financing is also playing on the minds of start-ups like Avolon, a venture backed by private equity firms Cinven [CINV.UL], CVC Capital Partners and Oak Hill Capital Partners that was started in May.

"When we think about debt, the differentiator in this cycle for new startups is those that are able to demonstrate the capabilities to tap into as many sources of debt capital as they can within a reasonable period of time," CEO Domhnal Slattery said.

ILFC learned its lesson the hard way. The lessor got help from the U.S. government as part of AIG's $182.3 billion bailout, with the Federal Reserve Bank of New York lending it about $4 billion to meet its liquidity needs. But the Fed loan was collateralized by aircraft worth billions. ILFC raised more than $12.5 billion this year and repaid the loan.

Last week, AIG Chief Executive Robert Benmosche told Reuters that ILFC would start selling older aircraft to make the average age of its fleet of about a 1,000 planes younger.

AIG may at some point also consider a partial initial public offering of ILFC and would be open to a sale at the right time and price, Benmosche has said. [ID:nN30139597]

GROWTH AHEAD

Sonenshine, who in the 1990s advised on ILFC's sale to AIG and more recently Aercap Holdings NV's (AER.N) purchase of Genesis Lease Ltd, listed a series of factors as indicating better times were on the horizon.

These include a rebound in traffic and freight this year, a turnaround in airline profitability after a $10 billion loss last year, a bottoming out in rate of decline in lease rates and value of aircraft, and restructuring of order books in the last two years, he said.

The industry is expected to take delivery of more than 25,000 aircraft worth some $3.5 trillion in the coming two decades, said Sonenshine, who runs an investment bank by that name.

"In air finance, we are no longer in triage," Sonenshine said. "We remain, to be sure, in uncertain times. But we are once again a stable -- and even growth -- industry." (For more M&A news and our DealZone blog, go to www.reuters.com/deals) (Reporting by Paritosh Bansal. Editing by Robert MacMillan)