By Colin Sach.

A few comments on how we see the world of operating leasing at the moment.

The economics of operating leasing are simple. When two lessees chase one aircraft, good returns are made. When two lessors chase one airline, poor returns are made. I suspect that not until late 2004 and probably early 2005 will we see any shortage of capacity. We see this first emerging in the 737 new generation and then later in the A320 series.

Then for a period of 5 – 7 years good returns can be made as an operating lessor.

At the current time all the major banks have withdrawn to a greater or lesser degree from aircraft finance either because of a general cut in lending business or because they are pulling out of aircraft lending.

This will mean that in late 2004, 2005 and 2006 even good quality airlines will not be able to secure debt at advance levels that are attractive. The only way to expand will be to take operating leases.

There is a window of 3 – 4 years from late 2004 for operating lessors to earn above average returns from good quality airline credits.

After that banks will start to enter the markets, orders will rise and manufacturers will increase production, and the cycle starts all over.

It is probably not possible for a smaller lessor to acquire new aircraft at a price that gives an attractive return, but it certainly is possible to acquire ones 3 – 6 years old.

This just represents a few quick thoughts on the leasing business – more will follow.