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Industry analysts, airlines and all aviation industry participants have revised their forecasts for a return in air travel demand several times over the course of 2020, and there is no clearer picture at the start of 2021. However, short-term indicators will be forward airline bookings for the Easter/Passover and Spring break, expected later in January, followed by the all-important summer booking numbers in April. 

“We are hoping that after the virus peaks (according to experts) in January, we will see enough people vaccinated for countries to want to reopen to get those tourist dollars,” says Cowen analyst Helane Becker. “In addition, without knowing how to open their companies, we do not see how business travel can re-start. We think companies are trying to figure out how to safely get their employees back to work; once they do that, they’ll be able to figure out how to accept visitors.”

The industry – like the rest of the world – rests on the successful roll out and efficacy of the various vaccinations programmes currently in place, which it is hoped will enable the creation of vaccination passports that will free up air travel once more. 

Robert Korn expects that scenario to lead to a significant recovery in the second half of 2021 or in the first half of 2022, but notes that this is a global issue and economies will remain depressed, with major business around crippled under debt levels that have become unsustainable. 

The revival in domestic travel is expected to continue and recover first – good news for airlines in countries with a strong and sizeable domestic market. China is already recovering well, with the Russian market also showing strong signs of recovery. International travel will remain depressed until vaccinations programmes are fulfilled. 

There has been much debate about the future of business travel – especially long-haul, and transcontinental travel. The industry is divided on this issue. Although many extol the virtues of virtual platforms and the considerable savings made by businesses – which will remain attractive in the coming economic recession – others, while admitting the benefits of virtual contact with existing clients, remain convinced that there is no substitute for face-to-face business meetings, especially for generating new business relationships. Global downturns will create a much more competitive marketplace with success resting on winning new clients. Yet, even the most bullish of supporters for business travel, admit that the recovery of the business air travel segment will be slow and be much reduced since it is likely intracompany travel – approximately 30% of the segment – will suffer more and there will be fewer connections as airlines cut back their networks, which will mean higher fares.

“Once [the vaccines] start to work their way throughout the world, people will regain the confidence to fly,” says Paul Sheridan, CEO of AMCK Aviation. “Leisure and discretional, personal travel demand will increase, but it’ll take a bit longer for business travel to kick off.”

Speaking at the Airline Economics Growth Frontiers Dublin 2021 virtual conference, ALC’s Steve Udvar-Hazy, commented that the “longer companies and government agencies are able to function in some semi normal manner without having to travel, the greater time it will take [business travel] to recover. He added that return of meaningful business travel levels depends on the global economic recovery in GDP and if the virus can be controlled by the vaccines to enable passenger confidence to travel. “There will be a long-term recovery in long-haul travel, but the question is if it will be a two-year recovery or a five-year recovery and certain markets will recover better than others,” says Udvar-Hazy. “The North Atlantic market may recover better than others, but it is very difficult to predict. It is possible that for the next five years, we will not get back the level of high yield, business travel on the intercontinental operations.”

He adds that one way for airlines to combat the phenomenon that business travel will not recover to pre-pandemic levels will be to reduce the gauge of aircraft: “On the intercontinental networks, the average number of seats per departure in 2019 summer versus 2022 summer we will probably see as much as a 25 to 30% reduction in the average number of seats for departure on these long-haul intercontinental schedule. Where [airlines] were flying in A380s before, maybe now they’ll fly in 777 or 787s, or an A350; or where they were flying in an A340-600, maybe now they’ll fly A350 or in some cases, even an A321neoLR or XLR.”

Once [the vaccines] start to work their way throughout the world, people will regain the confidence to fly. Leisure and discretional, personal travel demand will increase, but it’ll take a bit longer for business travel to kick off.

Paul Sheridan
CEO
AMCK

A leasing opportunity

Over the past decade, the aviation industry has often referred to the wave of liquidity that has entered the sector. Heading into 2021, the perception is that wave has been depleted. And with good reason. The airline industry has taken on more cumulative debt in a year than it has over the last 40 years. The sheer scale of debt is truly breath-taking, as is the realisation that this debt burden will need to be paid back or refinanced over the next five-to-six year time period, with as yet no certain path to recovery. 

The previous chapter referred to the decline in commercial bank debt capacity, which is likely to remain the case until meaningful demand increases. The capital markets should remain open for airlines with strong business models and prospects for the recovery period to refinance their debt and issue new equity – the success of this hinges on the timeframe and strength of the recovery. 

The leasing community has been very active in assisting airlines to raise more funding and this is predicted to become an increasingly important source of funding as deliveries of new aircraft ramp up and the traditional means of support for aircraft financing in a downturn is restricted. Bank debt for export credit related financing is reduced, insurance-backed products will become much more important but again require bank debt. OEMs have been impacted severely by the pandemic and are no longer expected to have the financial capacity to have their captive financing companies provide PDP or bridge financing. The lack of OEM support places an even greater burden on the commercial banks and the aircraft leasing companies to finance that gap. 

Even though profit margins at aircraft leasing companies have diminished during the pandemic as they work with customers to defer and restructure their leases, overall they have a much stronger credit rating than airlines and so have access to financing, debt and hybrid equity, at significantly lower rates than the airlines. Moreover, operating leasing is a good solution for airlines to help minimise capital expenditure, retain fleet flexibility and ease balance sheet pressure. 

S&P’s Betsy Synder notes that so far, lessors have been less impacted by the crisis. “For the most part, they have maintained access to liquidity and their need for additional debt has been aided by reduced levels of capital spending as they have cancelled or deferred orders,” she says. “They learned from the financial crisis to stretch out their debt maturities and maintain large pools of unencumbered assets. Those aircraft lessors that could enter some form of restructuring are those that do not have access to capital and/or unencumbered assets, and who have substantial near term debt maturities, will have difficulty refinancing.”

All leasing company executives interviewed for this report agree that demand for sale-leaseback transactions – from all airlines but importantly from tier one credits that are new to the space – is high and increasing, and which offer a reasonable yield opposed to the ultra-low lease rate factors that were being reported pre-crisis, as certain lessors sought to bump up market share at any cost. 

“The biggest change to the marketplace will be the lessors will control a greater portion of the market going forward than they have in the past,” says Cowen’s Becker. “A year ago we thought it would take seven to 10 years for the lessors to control half the aircraft ownership market (based on projected deliveries and projected retirements), now we think it will be in three years, maybe four as some countries attached “green” strings to financial aid, i.e., we’ll give you US$1.0 billion in grant money but between 2022 and 2029 you have to re-fleet and buy US$6 billion in new aircraft. The airlines don’t have the balance sheet to do that, so they’ll turn to the lessors.”

Mike Inglese, CEO of Aircastle, maintains that, even with diminished returns, aviation assets remain an attractive investment on a relative basis compared to other asset classes. “Aviation is still a very attractive relative value investment target. We will still see a fair bit of capital coming into the sector and there are those have been positioning themselves for a different form of downturn that will be well positioned to take advantage of opportunities, whether it’s sale leasebacks or picking up portfolios at discounts from companies that may not otherwise make it through.”

Lessors that have substantial liquidity have been taking full advantage of this increase in demand. Aside from the larger players, such as AerCap, GECAS and ALC, smaller leasing companies are using this opportunity to build a portfolio of in-demand aircraft with stellar credits. Once such company is SKY Leasing, which executed a sale-leaseback deal for six A321-200neos with JetBlue. 

“We’ve seen airlines that haven’t traditionally used the lessor channel in a major way, utilising it to fund deliveries,” says SKY CEO Austin Wiley. We see a recognition of a more balanced approach for the different financing channels that the airlines want to use. This will translate to an increase in sale-leaseback activity in the developed markets. We see that trend continuing to give that balance sheet and fleet flexibility, the ability to return aircraft at the scheduled lease expiry.” 

Wiley also sees further opportunities from airlines that had good business models, but didn’t have the balance sheets to withstand this kind of crisis. SKY is focused on dealing with the US majors as well as selective asset type – namely the A321Neo – which Wiley views as the best long-term narrow-body asset type to own. “By owning the best aircraft type, we’re protecting ourselves, even in the event that the airline needs to restructure its fleet or ask for at least deferral.”

This focus is similar to Aergo Capital, which is another lessor in the fortunate position of having a small legacy fleet and available liquidity. Aergo acquired one A321-200 from Global Knafaim Leasing, which was on lease British Airways. The aircraft was financed by Volofin Capital Management.

Despite enhanced demand, some lessors maintain that the competition in the sale-leaseback market is depressing yield. “Deals are much more attractive than they were, but they’re still pretty competitive,” says Paul Sheridan, CEO of AMCK. “There are no slam dunk deals out there right now, but that’s also because of the contraction in the markets. As there is more and more supply, you might start to see some of those better deals. Nobody seems to be forced to sell just yet.”

Wings Capital’s Hannahs concurs: “We have actually reviewed quite a few transactions to acquire assets since the pandemic began,” he says. “Since July 2020, Wings has probably looked at 80 different opportunities, some from other lessors, some from sale-leaseback opportunities, some from banks, but there was still only half dozen that we thought met our investment criteria. There is still surprisingly a lot of competition for investments because there is so much capital available.”

Not all leasing companies will benefit from this swing to operating leasing. Some are busy working out defaulting lessees and are overwhelmed by deferral requests, and there are others that don’t have the capital to hand to pursue new business. 

Becker notes that this changed environment “will ‘wash-out’ some of the poorly-capitalised lessors, especially the ones that haven’t taken maintenance reserves or don’t have strong liquidity. We expect to see portfolio sales over the next year, and it is likely to accelerate once the recovery starts in earnest.” 

New money

That wave of liquidity the industry has enjoyed is not expected to fall away completely but it will reduce in size and alter in composition. What Aengus Kelly has termed “tourist capital” – investors that entered the sector in the boom years – is expected to exit the market altogether but there is a renewed interest from higher yield investors that will become more important as the bank funding gap becomes more apparent.

Investec’s Derek Wong has observed clear opportunities in the financing space, especially for lenders ready to take asset risk and finance non-Tier 1 airline credits. “The current crisis will accelerate the trend to boost non-bank lending,” he says. “We have already seen various lessors get into the debt financing space and become solution providers across debt and equity.”

One such leasing company is Castlelake, which launched its Aviation Lending Program in December, which is focused on providing financing solutions for aircraft buyers, utilising mezzanine, senior secured and high LTV financing. “The best time to enter a lending business is when you know that the demand for capital exceeds the supply,” Evan Caruthers, chief investment officer and managing partner at Castlelake, told Airline Economics on the launch of the new programme. “Airlines are burning anywhere between $200 to $250bn of cash this year so there is a significant need for capital to flow to the sector.” 

Castlelake will handle the debt origination process as well as build and manage the portfolios. As a long-term investment manager in the aviation sector, Castlelake’s philosophy remains vested in the longevity of the industry and as Caruthers notes it is all about managing through the cycle. “Aviation remains a good industry to be invested in over the long-term so long as you are comfortable with and can manage the risks presented by the cyclicality of the industry or some of the idiosyncratic risks, which includes unfortunate situations like 9/11 or COVID-19,” he says. “One of our kind of core principles is to build out a lending business alongside our servicing business. That is critical. Obviously, there is heightened awareness today around the risk profiles of investing in aviation and specifically in airplanes, which makes it an attractive period to leverage on our servicing capability and history with a lending business because if there’s another pandemic or downturn in the aviation leasing industry, investors are going to be keen to understand how they ensure they are investing in a risk controlled manner.”

In January there was a wave of new leasing companies and new aircraft investment funds announced. Ex-Vx Capital co-founders linked up with Ares Management Corporation to create Vmo Aircraft Leasing, a new company committed capital of $500 million to invest in a global and diversified portfolio of next-generation aircraft. 

Most recently, Arena Aviation Capital announced a strategic partnership with Kennedy Lewis Investment Management, described as an “opportunistic credit manager”, for a $1.5bn aircraft leasing platform, named KLA Aviation Finance (KLA), that will also acquire modern technology, young and new narrow-body aircraft.

Patrick den Elzen, Co-Founder and CEO of Arena said: “Our partnership with Kennedy Lewis, a world-class investor who shares our vision and investment strategy in aviation finance, represents a significant milestone in our development and we believe KLA is well positioned to address the substantial liquidity issues across the aviation industry as a result of COVID-19.”

These deals show the types of new investors the industry is already attracting, which will command a premium. “Investors will continue to want the most desirable aircraft, but will probably try to extract a premium to compensate for (what has turned out to be) the risk, which is clearly greater than they thought,” says Helane Becker. 

But aside from opportunistic investors, there will be a mix of investor types coming into the market – from pensions funds, of which many have already realised the long-term benefits of investing in the sector – to sovereign wealth funds, which have played in this space before. Aircastle’s Inglese opines that investors who had “cashed out” of the industry before the crisis, may take another look at the sector and decide now is a good time to come back in. “There are always a handful of ex-aircraft leasing CEOs looking to raise funding or a new fund to buy aircraft, which will continue. With the right team, the right investors and the right outlook, you’ll find both new and familiar people continuing to drive investment into the space.”

Inglese adds that it will be the “grey hair” brigade – those with decades of industry experience of downturns – that will experience the most success in the volatile post-COVID operating environment.

There are always a handful of ex-aircraft leasing CEOs looking to raise funding or a new fund to buy aircraft, which will continue. With the right team, the right investors and the right outlook, you’ll find both new and familiar people continuing to drive investment into the space.

Mike Inglese
CEO
Aircastle

Airline winners

The prevailing sense is that investors will want to invest in young, fuel-efficient aircraft in the short term for leisure passenger travel, which plays into the business models for ultra- and low-cost carriers. The confidence in this sector is clearly demonstrated by the success of Wizz Air’s debut €500m three-year eurobond, which built a book of $2bn, and squeezed pricing to 1.35% - substantially tighter than rival Ryanair’s €850m five-year eurobond, which was also oversubscribed. 

“The winners will be the big players that have the ability to tap the capital markets and which are operating in large domestic markets,” says CDB Aviation’s Hannigan. “The low-cost carriers in Europe – namely Ryanair and Wizz Air – are probably better positioned because the market is likely to be domestic or short-haul international.” He adds that geographically there will be different speeds of recovery and different types of airlines that benefit. “There is going to be different recoveries depending on the different geographies of the world. The winners will predominantly be domestic, short-haul airlines, and the losers will those airlines that generate the bulk of their revenues from a long haul network, heavily reliant on business travel.”

Helane Becker foresees a big increase in airline alliances and partnerships. “A year ago we thought that alliances would be less important going forward, but clearly they will be more important. For example, American was going to fly Philadelphia - Casablanca in summer 2020 and cancelled that plan. Now, without a 757 available (they retired the fleet) they don’t have a suitable aircraft. As a result, they’ll fly people to London so they can connect with a British Airways flight. There are many such examples; airlines will once again rely on their partners.”

Many industry experts are also predicted a wave of new airline start-ups to enter the market. Beker says: “The fact that many airlines are smaller than they were a year ago will lead to opportunities for now airlines. In the US, we think of Xtra Airways, Global Crossing and Breeze as having an opportunity to fill the void left by the larger US airlines shrinking to their hubs. There will likely be others in Europe as well.”

The current crisis will accelerate the trend to boost non-bank lending. We have already seen various lessors get into the debt financing space and become solution providers across debt and equity.

Derek Wong
Aviation
Investec

The sustainability impact

The Environment Social Governance (ESG) and sustainability agenda was front and centre of the world agenda in 2019 and in the early months of 2020. Airlines and air travel were subjected to flygskam, or ‘flight shaming’ with calls for airlines to reduce carbon emissions and pursue greener technologies. 

As a carbon emitter, aviation is an obvious target for environmentalists. Airports and aircraft were targeted by protesters in 2019. And despite statistics proving that net carbon emissions from the aviation industry are around 2% of the global total, the industry had slowly begun to emphasise how it was move to cleaner, more efficient new-technology aircraft, which can be recycled more easily, as well as investing into research exploring the use of biofuels. 

The coronavirus pandemic pushed the sustainability agenda somewhat into the background, in terms of media headlines, while the world began to comprehend the impact of the virus on the global economy. As the world fleet was grounded for much of 2020 and the predicted slow recovery, aircraft emission levels have been reset to pre-2019 levels. Many older, less fuel-efficient aircraft have been parked for the long-term or permanently retired, with a focus on re-fleeting with newer technology aircraft. 

The subject has not taken a backfoot in the industry, is the main message from airline and leasing company leaders. This has been clearly demonstrated in the environment and sustainable caveats included in many government support packages, particularly for Air France, KLM and SAS, with carbon emissions targets and commitments to utilise more sustainable aviation fuel (SAF). 

But even without government directions like those seen in Europe, airlines are taking the initiative to reduce their carbon emissions in a bid to prepare for coming legislation. United Airlines for example has pledged to become 100% green by reducing its greenhouse gas (GHG) emissions by 100% by 2050 and has committed to a multimillion-dollar investment in revolutionary atmospheric carbon capture technology known as Direct Air Capture – rather than indirect measures like carbon-offsetting – in addition to continuing to invest in the development and use of sustainable aviation fuel (SAF). 

Paul Sheridan says: “Government money is not coming without environmental related strings attached. It had to happen, and we have all calculated our carbon footprint this year. We’ll see the difference between this year and last year when it comes to the leasing and the aviation world to meet the challenge that is coming.”

Investors too are imposing ‘green’ caveats on clients. “Some banks have already self-imposed some restrictions when financing mid-life aircraft (such as a limit on maximum age of aircraft) and favour new technology aircraft with 15-20% fuel consumption saving,” explains one aviation banker. “The green bond market has not yet started for aircraft finance but we believe that some “transition bonds/loans” market could emerge based upon the best current technology available to mitigate the CO2 emissions (as for LNG for shipping) when no alternative transportation mode is available. Some “sustainable linked bonds/loans” in relation to some sustainable corporate objectives of the airlines will be developed as unsecured corporate funding tools not linked to a specific asset type.”

As an industry, airlines, manufacturers and aircraft owners, all need to make sure that people understand the work that is happening in the industry to improve our carbon footprint. We have to start telling our story in a way that’s constructive.

Peter Barrett
CEO
SMBC Aviation Capital

Given that some very high profile pension funds have exited carbon-emitting investments, Paul Sheridan expects more aviation companies to continue to advance their carbon reduction policies in expectation of regulation and investor demands. “Eventually, at some point, we’ll have a big problem when it comes to attracting investment. Dealing with that is going to be very difficult because there’s no getting around that they are financing aircraft, which for people who fly a lot, is by far the single biggest contribution to their carbon footprint. There is a lot more work to be done in this space.”

Betsy Snyder agrees that the environment issue will continue to become more pressing on airlines and aircraft owners. “This is not going away – in spite of the pandemic,” she says. In fact, recent, the US Environmental Protection Agency recently finalised new standards for greenhouse gas emissions for large commercial aircraft and business jets that match those of the International Civil Aviation Organization proposed in 2017. This will result in the ongoing need for more fuel efficient aircraft and should benefit those airlines and lessors that own these more efficient aircraft.”

At the end of 2020, the European Commission presented its plan for a more sustainable transportation infrastructure. The Sustainable and Smart Mobility Strategy sets out the EU’s intention to decarbonise transportation to deliver on its Green Deal promise of cutting emissions by 90% by 2050. This plan includes a shift to the increased use of SAFs and limits on domestic short-haul air travel, as well as a milestone to have a zero-emission large aircraft ready for market by 2035. This likely refers to the concept aircraft developed by Airbus, three aircraft concepts codenamed ZEROe – two turbofans and one blended wing body design – which rely on hydrogen fuel as a primary power source. When the concept was released in September 2020, Airbus claimed that it aimed to put hydrogen-powered aircraft into service by 2035 “together with the support from government and industrial partners”.

The plan also tackles the much needed goal of improving the efficiency of air traffic management (ATM), which is acknowledged will help to cut excess fuel burn and CO2 emissions caused by flight inefficiencies and airspace fragmentation. The plan targets the completion and effective implementation of the Single European Sky (SES) “without delay”. 

Peter Barrett notes that air traffic control is a major area for improvement: “The industry needs to do more to improve its sustainability credentials. We need to do real things on the ground, including having a more fuel-efficient fleet, approving new air traffic control and better managing assets on the ground. As an industry, airlines, manufacturers and aircraft owners, all need to make sure that people understand the work that is happening in the industry to improve our carbon footprint. We have to start telling our story in a way that’s constructive.”

The pandemic has thrust the industry to move to focus on newer technology aircraft and that pressure will continue following the recovery as more governments place limits and reduction targets for carbon emissions. The onus is on the manufacturers – especially engine manufacturers – to advance the development of even cleaner aircraft. The pandemic has caused R&D investment in that space to be halted, however. But with such government pressure and regulations to come, government investment will likely be forthcoming. 

The best hope is currently for hydrogen-powered aircraft but that will involve a major change in the entire global air travel infrastructure. In the interim period, however, there will likely see a move to the use of more hybrid-electric technology, while the small regional sector may be the first to see all-electric powered aircraft. In the meantime, for international travel, on most routes aircraft still offer the most efficient way of transporting large amounts of people and cargo long distances, especially across oceans.

Our bond was well taken up by the markets and there was plenty of appetite, it was oversubscribed, and our eventual all-in price was about 150basis points. This reflects our experience for the year in terms of funding.

Patrick Hannigan
CEO
CDB Aviation

ABS

The aviation asset backed securitisation (ABS) product was predicted to have another record year in 2020 before the pandemic hit. ABS deals were being prepped to launch around the end of February and into March but COVID-19 suddenly shut down the market completely. One source states that two issuers actually tried to proceed in March in the hopes that this crisis was a short-term “blip” and by launching they would be ahead of everyone else in the market, but they realised by April that the market was going to remain closed for some time. 

New issuance for aviation ABS deals remain on hold, and existing deals have been downgraded as some deals had to rely on liquidity facilities to maintain payments to bondholders. However, it is worth noting that by the end of 2020, these liquidity facilities had been repaid. 

The debate now has turned to what the next iteration of the aviation ABS product will look like. The past few years, the market had been transformed by the creation of the tradeable E-Note structure. Many bankers are now convinced that those transactions are “dead and will be for some time” according to one banker. There is speculation that aviation ABS 3.0 will be much more simpler structures, with lessors retaining the equity slice or that being sold to one investor. 

One banker opines: “ABS transactions that are used by the issuer (lessor) to raise senior/junior debt only with the issuer retaining 100% equity and servicing, should have a future provided that the structuring be much more conservative (lower initial advance, etc) given the current experience of rental deferrals, pressure on the future residual values, expected deterioration of the lessees’ credit, less appetite for widebodies with high transition/remarketing costs for example.”

The timing of that return is open to debate, but one lawyer suggests this could be as far out as 2022. “My gut feeling is, based on lessons from prior crises, if the airline market doesn’t recover for the next six or 12 months, it could be well into 2022 as the earliest period for a true aviation ABS deal to come back to the market.”

Lessors are more bullish on the return of the ABS product – at least those companies that are regular issuers in the market, and which are not reliant on it for portfolio management strategies, and or asset trading, and can retain the equity. Seraph’s David Butler comments: “Several leasing companies have become very reliant on the ABS product, as its seen as a reliable financing and portfolio management vehicle for lessors and allows for a further diversification of funding sources. The challenge for those lessors, if the ABS market is not going to be available or is going to be slow to return, will be coming up with innovative solutions for portfolio management to move risk and concentrations off their balance sheet. Without this market available, those lessors will need to revert to more-traditional asset trading venues which may not have sufficient capacity to provide for the amount of trading required.”

Stephen Hannahs, CEO of Wings Capital, has raised financing in the bank market and refinanced in the ABS market, executing transactions in 2017 and 2019. “Those ABS structures have proved to be very durable and very flexible. This is by design. Wings has benefited significantly by having this kind of a long-term debt profile for our asset base,” he says.

Commenting on whether the market will return, Hannahs is confident of the demand for the product but it less certain on timing. “There are some signs that in some of the non-aviation ABS products, containers for example, that there has been some very aggressive pricing on ABS issuance. This demand will eventually spill over to aviation ABS, but this will take some time. Too many investors and lenders still have many questions around which airlines are going to survive; and what the future aviation industry will look like to be aggressively seeking investments. Nevertheless there’s a huge amount of liquidity that people need to deploy. I’m hopeful that the ABS market returns sooner but I don’t think we’ll see a reasonably financeable market until at least the second half of 2021, and even then I’m not sure what the pricing will look like.”

The improved margins for aviation assets however have been atracting more high yield investors. Butler has seen more hedge funds taking an interest, seeing opportunities for the future. He adds that there is a clear division between two different groups of lessors. “Major lessors have had excellent access to both debt capital markets and the bank market for the last few months and should continue to have such access. In recent months we have seen several successfully tap the public bond markets. Smaller lessors with more challenging capital structures will continue to struggle to raise money from both banks and bond markets and will require innovative solutions to meet their financial goals.”ALC’s Plueger appears more confident that the ABS market will come back relatively rapidly in the spring/summer period of this year. “The ABS market has largely been shut off, understandably. Many are watching how various different funds that have had ABS financing are going to perform. It’s an important product for lessors and for our own funding – we find it to be a very efficient way for us to sell groups of aircraft as they approach mid-life. We’re not dependent upon it, but its efficiency and convenience is really helpful. I do think going into the spring and the summer we will see some green shoots and the debt marketplace will come back.”

Given the ABS market funded more than $20bn of aircraft purchases over the last three years, its return (in whatever form it takes) will be important in driving the trading market. Particularly given that the traditional aviation bank market will be likely constrained for a period of time following the crisis.

Airlines that ceased operations in 2020

Rank

Loyalty Program

Associated Airlines

2020

Valuation

(US$m)

Change

2017

Valuation

(US$m)

1

SkyMiles

Delta Air Lines

25,931

21,752

2

Advantage

American Airlines

23,440

19,582

3

MilegaePlus

United Airlines

20,172

14,687

4

Rapid Rewards

Southwest Airlines

8,013

6,353

5

Miles & More

Lufthansa Group

7,418

5,760

6

Flying Blue

Air France-KLM, Kenya Airways, tarom

6,675

6,270

7

Aeroplan

Air Canada

6,331

-

8

Avios

International Airlines Group

5,138

4,750

9

KrisFlyer

Singapore Airlines Group

5,032

2,739

10

Asia Miles

Cathay Pacific

4,701

3,531

16

TrueBlue

JetBlue Airways

4,029

3,095

41

Free Spirit

Spirit Airlines

623

523


Get in touch

If you have any queries on any topic raised in Aviation Industry Leaders Report 2021: Route to Recovery, please contact Joe O'Mara of our Aviation Finance team. We'd be delighted to hear from you.