Aviation Finance

Developments

In the latest edition (April 1st): further evidence of a new springtime optimism
April 1st 2021: We explore how well ABS transactions have done, in relative terms, over the past six to nine months, why regional aircraft operators and lessors may be in the vanguard of recovery, the progress being made by Boeing with the return of the MAX and the trend towards further consolidation amongst lessors: The Carlyle Aviation Partners acquisition of Fly Leasing for $520m: Traffic recovers in Europe, but LCCs still sharply curtailed: AerCap Dreamliners for Norse Atlantic; American repays US Treasury Cares Act loan.


In the latest edition (March 18th): Aercap's acquisition of GECAS - a ‘once in a lifetime opportunity'
March 18th 2021: The deal between GE and AerCap creates an industry leader across all areas of aviation leasing, encompassing passenger and freight aircraft, engines and helicopters. While aircraft leasing will be by far the largest component in this much enlarged business, the added diversity of revenue streams and customer touch points from the new business units will benefit the whole. That it also has been engineered by an 'Exchange- Traded lessor' helps balance the flightpath of global aviation financing. As this issue also reveals in other stories, there is strong evidence that the tide is turning in relation to the impact of the pandemic. IPOs by three LCCs is one example of this. Sun Country Airlines saw its shares rise by 51 per cent on its debut; Norwegian start-up Flyr raised $70 million with an IPO in Oslo and Frontier Airlines, a carrier acquired by US investment group Indigo in 2013, has also filed for an IPO.

 

Perspectives

GECAS's Anton Tams on lessors' electronic maintenance records

Since its introduction the ATA Aircraft Transfer Records Working Group’s Spec2500 standard is finding a growing audience with both airlines and lessors. Anton Tams on the challenges involved in developing the new standards.

Trevor Ricards, GECAS on ABS
DVB's Kieran O'Keefe on the lease rate factor (LRF)
IBA's Dr Stuart Hatcher on lease rates

Analysis

AerCap pays $25bn cash for GECAS, with GE retaining c.$6bn stake in enlarged business
March 10, 2021: AerCap has entered into a definitive agreement with General Electric under which AerCap will acquire 100 per cent of GE Capital Aviation Services. Under the terms of the agreement, which has been unanimously approved by the boards of directors of AerCap and GE, GE will receive 111.5 million newly issued AerCap shares (with a market value of approximately $6 billion as of March 9, 2021), $24 billion of cash and $1 billion of AerCap notes and/or cash. GE will be subject to a staged lock-up agreement allowing it to dispose a portion of its stake after nine months and the entirety of its stake after 15 months. GE also will be subject to a customary standstill and other provisions.


AerCap acquisition of GECAS would be biggest ever aircraft leasing transaction
Monday 8th March 2021: Bloomberg is reporting that General Electric is close to agreeing the sale of GECAS to AerCap in a deal speculated as being worth approximately $30 billion. GECAS has approximately 1,650 owned, managed and leased aircraft and had about $35.9 billion in assets at the end of last year while AerCap has about 1,330 aircraft and and assets of $42 billion. A merged portfolio, therefore, would give it a total portfolio of 2,980, a combination of the two largest aircraft lessors in the world by fleet numbers.


In the latest edition of Aviation Finance (March 4th): admiration from lessors for the resilience of the airline industry
March 4th 2021: Emanating from their Q4 Earnings Calls, CEOs from the exchange-traded aircraft leasing firms express admiration for the resilience of the airline industry and sound an upbeat note about the strength of the coming recovery. Also: Industry economics analysis: Boeing's latest Commercial Market Outlook; Freight trends; Financial Reporting: the Impact of Covid for lessor assessment of expected credit losses - EY’s Niamh Tobin on how lessors' collectability considerations should be reflected in their impairment assessments, and, much more.

 

Aircraft Leasing & Lessors

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Aircraft & Airlines

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In the February 18th edition of Aviation Finance: details of the ongoing cash burn highlighted by loss data.
February 18th 2021: The extent of the ongoing cash burn is again highlighted by reported losses, the latest coming from Air France-KLM, with a net loss of €7.1 billion in 2020. But successful fund raisings by Lufthansa, which issued four and seven bonds to the value of €1.6 billion, and equity issues by UK’s Jet2 and Norwegian start-up Flyr, show that investors remain positive; MAX groundings mean 737NG values have fallen less than A320ceo – up to now; Vaccinated-Only Flights could enjoy high load factors; Latest 'Data Snapshot' from Eurocontrol says the vast bulk of aviation emissions are by long haul flights; ESG impact - the focus of governments on the climate change agenda is putting pressure on equity investment managers and debt providers to seek compliance with ESG criteria from the companies they invest in or lend to. CORRECTION: In the E-zine sent to subscribers of the February 18th issue the headline "Aero acquires 20 aircraft from easyJet as lessors continue to acquire and place aircraft" originally erroneously referred to "Aergo" rather than "Aero" as the acquirer.


In the February 18th 2021 edition of Aviation Finance
February 4th 2021 The severity of the third wave of Covid-19 mitigated by daily improvements on the vaccine news front have combined to clarify the nature and scale of the challenges facing aviation financing. But a combination of steadfast resilience and the courage to persevere with sound business plans, along with innovation and creativity in finance, are key to the successful recovery. Examples such as AFIC's innovation, new approaches in securitisation, to legal remedies, such as NAS's reorganisation, as reported in this issue, will hasten the recovery when it comes. Also: Aircastle prices $750m senior notes; DAE prices $300m, redeems $500m notes; Anderson to become CCO at AerCap; Board changes at Nordic Aviation Capital; BOC sells five aircraft to Sirius; GOAL sells two E190-100LRs to US lessor; Flair Airlines adds 13 new 737 MAX 8s; Oliver Wyman predicts 2030 fleet of over 36,500 units; Doric in engine securitisation; easyJet Q1 sale and leasebacks raise $1bn; SMBC Aviation Capital deliveries; Thomas Cook Balearics to dissolve.


In the January 21st 2021 edition of Aviation Finance: A growing sense of optimism
January 21st 2021: The continued availability of ample debt provision at ultra low costs due to Central Bank actions is still in evidence. In a move that signposts return to some degree of normality, Castlelake has marked the re-opening of the aircraft securitisation market with the launch of a $595 million, 27 aircraft ABS. Other signals are the launches of two new leasing platforms, a $1.5 billion platform created by Kennedy Lewis Investment Management in partnership with Arena Aviation Capital, and a $500m platform established by Ares Management Corporation. The rising sense of opportunity is also evident in Alan Joyce’s insistence that the Qantas ultra-long-haul Project Sunrise will be even more relevant in the post Covid world to the enthusiasm of Norwegian start-up Flyr; In Avolon’s 2021 Outlook its Head of Portfolio Management, Jim Morrison, predicts that traffic may recover more quickly than expected. On the (needed) caution side, IBA President Phil Seymour is saying nevertheless that there is a still 'a long road ahead' for the sector.

 

Analysis

In the January 7th 2021 edition of Aviation Finance: Cash rich private equity investors await in the wings
January 7th 2021: Our Interview with SMBC Aviation Capital CEO Peter Barrett outlines its capital deployment strategy; Airlines, lessors remain focussed on liquidity; Contributing Editor Joe Gill says cash rich investors are in the wings, awaiting opportunities to buy modern aircraft at prices not seen for years; Leading lessors are taking a long-term perspective; The Green agenda goes beyond the MAX, neo A350 and 777X programmes; Covid difficulties offer start up airline and lessoropportunities; Lessor restructurings highlights value of specialist financial advisors in positive outcomes.


In theDecember 10th 2020 edition of Aviation Finance: Growing optimism as deals begin to materialise again
December 10th 2020: Interview: CDB Aviation's Pat Hannigan takes heart from arrival of vaccines, but tempers optimism with caution; Cash burn may lift state holdings in Europe's carriers; Leasing forecast: Lessors’ share of the market will grow, with airlines focusing more on leasing to de-risk their balance sheets with consolidation in the fragmented end of the leasing market; Covid and climate change stimulate demand for smaller jets; Norwegian Air secures court protections in Ireland and Norway; Ryanair deal far more than an order book boost for Boeing; Goshawk deferrals low, BOC Aviation raises RCF to $3.5bn; Vaccine boost for airline share prices.


In theNovember 26th edition of Aviation Finance: Thanksgiving - a turning point has arrived
November 26th 2020: Boeing's 2020 Commercial Market Outlook is upbeat - predicting annual 4.1% growth in air freight over next 20 years and China’s passenger traffic growth will grow at 5.5%; Norwegian’s Examinership; SMBC AC transacts over $2bn in sale and leaseback deals as credit losses and impairments clip profits; former CEO of IAG, Willie Walsh new Director General of IATA in April 2021 - 'his leadership style and actions are likely to differ markedly from those of his predecessor'; Avolon prices TLB, upsizes debt tender offer; new investors enter sale & leaseback market; PE fund enters sale & leaseback market with Allegiant deal; Castlelake launches aviation lending programme; ACG in four plane deal with SKY express; SIA raises raises further $1bn; Korean Air bid for Asiana; EXIM back in business; Virgin Australia exits administration; CDB Aviation enters P2F market with two A330 conversions; ALC in 23 plane deal with Alaska Airlines, prices $1.5bn of Senior MTNs; Boeing MAX may be about to stage a timely return.


In the November 12th edition of Aviation Finance : Impairment looms
November 12th 2020: Q3 results from a number of leading platforms reveal the extent which Covid-19 is feeding through into the aircraft leasing sector and more widely. AerCap, for example, took an impairment charge of just under $1 billion and reported a net loss of $850 million. EY's Niamh Tobin examines from an accounting perspective the impact of the important issue of impairment, which is a theme as we look to build the new foundations of a recovering sector in 2021. In an interview in this issue the chairman of ALI, Declan Kelly, speaks about this. Aviation consultancy IBA has produced an interesting chart showing that the number of airline failures is tailing off, and that is a hopeful sign of what is to come.


In the October 29th edition of Aviation Finance: - the shape of things to come in 2021
October 29th 2020: As the second wave of the pandemic rises, underlying indicators across the industry point to the shape of things to come in 2021, the first year of the new reality in aviation finance. We provide an overview of investment experiences so far this year, as airline and lessor share prices continue to fall. With Investor focus on airlines shifting from analysing revenue and profit trends to monitoring liquidity and cash flows a key metric for investment analysts is how many months can airlines exist in prevailing revenue conditions without resorting to additional liquidity measures.

PIMCO & GECAS to create $3bn Aircraft Leasing Platform
October 19th 2020: PIMCO, one of the world’s premier fixed income investment managers, and GE Capital Aviation Services (GECAS) have reached a preliminary agreement to develop an aviation leasing platform to support up to $3 billion in aircraft asset financings. The platform will enable PIMCO and GECAS to acquire new and young aircraft to lease, It is aimed to provide financing to help airlines upgrade their fleets at 'a critical time for the aviation industry'. The transaction is subject to customary closing conditions and regulatory approvals.