The last several years have not been kind to the aircraft finance market. The number of aircraft loan opportunities had declined drastically as borrowers were feeling the pinch of a contracted economy. With historically low consumer confidence, high taxes and burdensome regulations, small businesses and consumers had taken a hiatus from aviation financing. Consequently, the months following the economic collapse and its fall out were painful for many in the aviation finance industry. The comeback has been very slow. Historically speaking, the recovery is the flattest in history. We have seen the average growth rate at an anemic 2.1% in the last 8 years. There were several managers in the market that would remark to me “We are having a great year!” I would smile and think to myself, “compared to what?” Sure, 2014 was better than 2013 and 2015 was better still… Last year was a good year for my company as well; if you compare it to the production of years 2010 through 2015. In fact, 2016 was a great year, unless you compare it to the production of each of the years from 1997 through 2009!
As Alexander Pope’s poem “An Essay on Man” proclaims “Hope springs eternal in the human breast!” We have seen a market increase in activity since November 8. It is clear to me that the activity is directly related to the outcome of the very contentious and raucous election. Small businesses and consumers are confident that the new administration will be addressing three of the big drags on the economy; Obamacare, taxes and regulation. This confidence translates into economic activity.
With this new confidence in the economy, there has been another result that consumers who are looking for financing may not like as much. The inevitable rise in interest rates has arrived. Since November 8, mortgage rates have climbed as much as 70 basis points. Historically, these rates are still extremely low. But if you are interested in taking advantage of these rates, the time may have arrived that you should consider moving forward with your purchase, refinance or upgrade. Fed Chairman Yellen has announced that she expects 3 quarter point rate hikes in 2017. Kiplinger’s forecast calls for 30 year mortgage rates to rise to 4.60% in 2017.
The lending environment is good and the banks are anxious to grow their consumer portfolios. There is still some “economic collapse hangover” carrying forward with some senior lenders. As we have all seen, post collapse regulations, lenders’ fear of recriminations and over caution has many lenders buried in indecision and regulatory paperwork. This translates into a slower approval process and sometimes gratuitous and redundant paperwork. But in the end, the good deals get done.
I am looking forward to another “good” year with the hope that production levels approach that of the early 2000s. Our underwriters are all looking to expand their portfolios and some have promised to beef up their departments in anticipation of increased activity. Some have even promised to try to streamline some of the burdensome paperwork. I look forward to the time when my friends exclaim “We had a great year!” and know that truly it was a great year!