In January 2020, Airline Economics in partnership with KPMG, published its annual Aviation Industry Global Leaders Report, which assessed the general state of the industry based on interviews with a variety of industry leaders.
Now that the aviation landscape has changed dramatically with the devastating impact of the COVID-19 pandemic continuing to ravage the industry, Airline Economics and KPMG are returning to those same leaders for their reaction to the current crisis in a series of podcast interviews.
In this latest podcast, Joe O'Mara KPMG's Head of Aviation Finance, speaks to Bénédicte Bedaine-Renault, who is head of aviation finance within Natixis covering the Europe, Middle East and African regions. Her team, based in Paris and London, covers both airlines and lessors in the EMEA region. Natixis has four decades of experience in aviation finance and has a current portfolio of 850 aviation assets worth approximately $5bn.
Bedaine-Renault says that the quality of client relationships has been key for both operating lessors and banks during the past few months. “Banks, including Natixis, during this particular phase, has been to support to the strongest relationships, which are those that have been built in a trustworthy environment for the past few years,” she says. “It doesn't always mean highly-profitable relationships, but must have that strong element of trust.”
Natixis has been supporting operating leasing companies with various facilities that were already in place as airlines turn to lessors for deferrals and other means of support, Bedaine-Renault believes that more airlines will now turn to the commercial banks for help as a second step in raising cash to survive this crisis. “It’s going to be interesting to see how that develops notably after the summer season.”
She notes the industry-wide challenge regarding asset valuations, which were already considered to be high before the crisis. She expects there to be an increased scrutiny of aviation asset exposures for banks. “It is difficult to determine what is the real exposure at risk. It will be interesting to see how the different financiers in the industry will react to the new level of risk, and if there can be a significant incremental amount of debt poured into this sector.”
Valuing aircraft is difficult in this market, she adds, suggesting that one way is to determine values and NPV from recent sale-leaseback deals conducted between airlines and lessors, which can be cross-checked with the different appraiser values. “To have a view on the asset class and the asset prices using the different metrics, it's a call that you take on the airline creditworthiness, maybe looking at the level of state support it has received and how you value the firm with an NPV type of mechanism to determine aircraft residual value.”
Bedaine-Renault adds that the additional challenge to this will be ESG elements: “We clearly see a trend of moving towards younger, more efficient aircraft. And because some of the state guaranteed loans came with strings attached to regarding carbon emissions, there is an open question regarding residual value.” She notes that this is a challenge for airlines and banks but also present new opportunities in the field of green finance.
In terms of more immediate financing, Bedaine-Renault sees the increase in the importance of the export credit agencies, which she says will certainly “come back into fashion” noting the innovative transactions the ECAs have closes in the past few years using different collateral and financial structures. “There is an opportunity for certain players to gain market share and to keep exposure in the aviation sector, while limiting dramatically the risk, thanks to the offset of the export credit guarantee.”