Aviation Finance

Developments

In the latest edition of Aviation Finance (May 28th 2020)
Downward pressures on aircraft supply continue to grow as AerCap reschedules 100 aircraft deliveries, while SAS and Air New Zealand are among the latest batch of airlines to announce similar delays. The restructuring of Norwegian Air Shuttle and the decisions by LATAM and Avianca to enter Chapter 11; Growing consensus behind guidelines for return to ‘normality’ in European airspace – UK and Ireland excepted; With a threatened action in the European Court by Ryanair over state funding of Air France KLM, Simon de Broise, and Gurpreet Chhokar at Collyer Bristow LLP, consider the extent to which state aid is permissible under EU regulations.


In the latest edition of Aviation Finance (May 14th 2020)
At last we can say that green shoots are beginning to appear for aviation, as airlines begin to envisage the beginnings of a recovery to a new normal, lease payments resume, and financing initiatives begin to bear fruit. Setbacks are still possible, indeed probable, but as we report across this issue there can be hope that the 'end of the beginning' is in sight. Other 'green shoot' signs: BOC Aviation has signed a purchase-and-leaseback agreement with Southwest Airlines for 10 Boeing 737 MAX 8 aircraft, all 10 aircraft being powered by CFM LEAP-1B engines. BOC Aviation has also signed a purchase-and-leaseback agreement with Wizz Air for six new Airbus A321neo aircraft; Cargo provides a ‘bright spot in a dark sky’ with new opportunities for P2F conversions; Regional aircraft and VLAs bear brunt of crisis; Ryanair and other LCCs set to seize network opportunities in Europe.

 

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
Virginia Fox on GECAS' risk model
Milestone's Greg Conlon on the rotorcraft business model
Peter Chang on relationships between OEMs and lessors

Analysis

In the latest edition of Aviation Finance (April 30th 2020)
As the Covid turmoil continues, we focus on progress as the airline financing industry battles to ensure sustainability of a healthy industry after the pandemic. We also examine practical questions of concern to investors and consider the position of the many investors in aircraft ABS in the still unlikely event that they might come under stress, compared with lenders and lessors. State bailouts and Government finance packages across the world continue to be a key part of the response to the crisis, as are posited solutions, such as aircraft recycling. The end of the Boeing-Embraer JV is assessed, as are the first emerging crisis-affected financial results from airlines, and from the major OEMS, Boeing and Airbus.


In the April 16th 2020 edition of Aviation Finance
Stock markets may be showing a degree of confidence that the worst of the covid crisis is over, but uncertainty continues to prevail for aviation, for whom the crisis is more acute than other industry segments. In this issue we speak with Fitch analysts about this, and elaborate on their views as to the nature of this uncertainty. They say lessor liquidity is key, of course, for that sector, but, of most immediate concern is the financial health of airlines, which IATA continues to monitor with great authority. The actions of governments around the world in plugging the cash gaps in airline finances will be key to the outcome, and we survey their actions to date around the world in this issue.


Irish aircraft leasing industry acts to secure and deliver PPE to the Irish healthcare system from China as part of the response to the Covid-19 crisis
17th April-20th April: Three charter flights from China to Ireland supported by Irish leasing firms, and ALI, the aircraft leasing unit of IBEC, representing 33 lessors in Ireland have delivered much needed PPE equipment for the Irish healthcare system. Among the firms stepping up were Avolon, Aercap, GECAS, and SMBC. Assisting in the airlift have also been Aer Lingus, the Irish embassy in China and IDA Ireland.

 

Aircraft Leasing & Lessors

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Aircraft & Airlines

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Avolon CEO says loss figure for world airlines will be ‘far greater’ than the $252bn forecast by IATA last week
8th April 2020: Avolon CEO Dómhnal Slattery said today his ‘gut instinct’ is that losses for global airlines as a result of Covid will be ‘far greater’ than IATA’s most recent estimate of $252 billion. In an interview he said that of the lessor’s 160 airline customers globally, over 150 are not flying a single aircraft ‘and the marketplace is in turmoil.’


IBA predicts a contraction in outstanding aircraft leases in 2020 for first time in over a decade, as investor opportunities are evaluated for the $21 billion aviation ABS paper market
3rd April 2020: IBA in a Seminar, in conjunction with aviation finance advisory firm Split Rock provided an in depth assessment of the aviation ABS market as of April 3rd. It can be seen here. In it IBA President Phil Seymour predicts a contraction of aircraft leases this year - which will make it the first year in over a decade where the number of outstanding aircraft leases will contract. This year''s predicted decline will follow 2019 which saw a decline in the rate of growth in new leases to a net number of about 240. This was significantly down on what we now can say was the peak of the cycle, 2018, when some 2,250 lease start events took place, compared with 1,400 lease ends, for a net increase that year of 850.


In the April 2nd 2020 edition of Aviation Finance
The scale and shape of the crisis begins to emerge - and it is not an encouraging picture. Liquidity issues are to the fore, but most lessors and certain airlines are set to emerge strongest from the inevitable cull. At the same time the aviation complex as a whole must look to a relative downgrade for a time in capital markets. Cowen managing director and senior research analyst Helane Becker predicts that it will take perhaps 18 to 24 months for traffic to start to recover and much longer for any kind of return to normalcy in an interview with Aviation Finance. Also: Stronger airlines well positioned to grasp opportunities in post-pandemic world.

 

Analysis

IATA calls for governments to provide aid as severity of cash crisis grows
IATA now believes that its ‘worst case scenario’ warning, issued earlier this month, that passenger revenues worldwide will fall $113 billion in 2020, will be exceeded. It says that before COVID-19 much of the industry was fragile, with only around 30 airlines achieving economic profit improvements and a long tail of weaker airlines. Now it is calling on governments worldwide to provide financial aid to the industry. In the April 2nd issue of Aviation Finance: 'This is apocalypse now’ warns IATA’s DG


Aviation Finance.aero: Markets view - 'airline casualties, market value and lease rate corrections'
March 26th 2020: IATA increased its estimate of the cost for airlines from last week's $113 bn to $250 bn, this in addition to an assessment that one third of the commercial fleet will be in storage by the weekend, cuts in flights, and downgrades of credit ratings of lessors. IBA in an assessment of the industry said: "for 2020 we expect airline casualties, especially amongst those that have been limping along over recent years......Their full assessment is at: iba.aero/insight.


In the March 19th edition of Aviation Finance
The scale of the crisis is only beginning to sink in. Two weeks ago IATA estimated COVID-19 would cost the world’s airlines some $113 million in revenue. Now it will only say that ‘things are clearly worse than this.’ .


People Moves: IBA Group appoints Ian Beaumont as Chief Executive Officer of IBA Group
11th March 2020: IBA Group has appointed Ian Beaumont as Chief Executive Officer, effective today. Phil Seymour, IBA’s former CEO will continue to serve as Company President. In a statement IBA said: "For the past five years the business has been successfully led by Phil Seymour and has seen a period of rapid growth with both its core professional and advisory services, as well as the powerful data platform, IBA.iQ.


In the March 5th edition: Steven Udvar-Hazy speaks of ALC’s willingness to help airlines by purchasing aircraft, either for cash
Special focus on the evolving financing and financial consequences in the Covid-19 crisis in the aviation complex, including the effect on lessors, airlines and the aviation finance sector generally. "As we write, a number of the blue chip stocks in the aviation complex tracked in Aviationfinance.aero's Listed Aviation Stocks page are today (March 5th) showing declines of circa 25% off all time highs recorded in the second half of February (e,g, Aercap and Delta airlines). Financial strength is going to be key in the survival and recovery."


In the February 20th 2020 issue of Aviation Finance
A number of articles reflect on the importance of pricing risk appropriately and the implications for investors when this is a mismatch. This concern comes at a time when the industry is still in a robust position overall. But the potential impact of Covid-19 on airlines and their ability to meet lease commitments, coming on top of the still unresolved MAX crisis, underscores the potential vulnerability of the sector.