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Credit analyst: with no rebound in aircraft sector visible, avoid GATX
By Ronda Fears
Nashville, Nov. 12 - As earnings season winds down, Kathy Shanley, senior bond analyst at Gimme Credit, said to continue to avoid GATX Corp. as she sees no rebound in the aircraft sector anytime soon.
"One credit that is still a concern, despite an uneventful third quarter, is GATX Corp. (Baa3/BBB). A balance sheet skewed toward aircraft leasing investments, and an increased reliance on secured financings, remain credit concerns," Shanley said in a report Tuesday.
"Debt-to-capital ratios are stable, but the mix of funding is shifting toward secured debt. GATX issued both convertible and unsecured corporate debt earlier this year, but it is increasingly relying for funding on Export-Import Bank and European Credit Agency aircraft financing, and an aircraft warehouse facility and secured railcar financing.
"A large aircraft impairment charge could put further pressure on credit ratings. As we see no near-term rebound in the aircraft sector, we'd continue to avoid this credit."
Rebounding from one-time charges in 2001, including telecom write-offs, GATX earned $19 million in the September quarter, improved from a loss of $7 million a year ago.
Like CIT Group, GATX is upbeat about the performance of its aircraft. The average age of a GATX plane (8.5 years) is a bit older than at CIT (7.4 years) or GE (about 6 years), but assets are concentrated in popular narrowbody planes, such as the B737 and A320 families.
But GATX is more dependent on the aircraft sector than its larger rivals, Shanley pointed out.
Joint venture exposure is another credit risk factor for GATX, Shanley said.
At Sept. 30, joint ventures totaled nearly $920 million, down 4% from the end of 2001, but equal to 107% of equity.
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