Almost two years on from the beginning of the COVID-19 pandemic, the world seems to be gaining traction in the battle against the virus. Vaccination rates are impressive and growing, although perhaps too slowly in some jurisdictions to counter the impact of different variants that are spreading around the world, forcing governments to introduce more countermeasures and once again restricting travel.

The latest Omicron variant – initially scaring countries into reinstating many restrictions on travel including mandatory quarantine, testing and vaccination certificates – although more easily spread, is beginning to look milder than previous strains, which could signal the beginning of the end for the coronavirus pandemic. 

The human cost of the COVID-19 pandemic has been significant. Globally, as of January 7, 2022, there have been almost 300 million confirmed cases of COVID-19, including 5.47 million deaths. The good news in the fight against the disease is that globally more than 9.1bn vaccine doses have been administered globally as of January 5. The latest data shows that almost half of the world is fully vaccinated (defined as having received two doses of a WHO-approved COVID-19 vaccination) and that many countries are well on the way to an 80- 90% fully vaccinated population. 

The global economic impact of the pandemic been substantial but not as deep as first feared. In fact, most global economic activity has returned, or is close to, pre-pandemic levels in many countries around the world, with some even performing above pre-pandemic levels. The prompt and extensive financial support for companies and individuals, as well as the rapid development and rollout of vaccines, has protected the world from falling into a deep global recession.

Economic growth (measured in GDP) from the middle of 2020 exceeded all expectations (see Chart 4; the black line tracks world GDP). The recovery is well under way, strong headwinds remain. Growth and vaccination rates vary between jurisdictions and the world remains fearful of the impact of the next variant of concern.

As Ursula von der Leyen, President of the European Commission, noted: “A global pandemic requires a world effort to end it – none of us will be safe until everyone is safe.” Even in areas of growth, the spectre of inflation and rising interest rates has added to the delayed impact on employment levels due to the cessation of government payroll support schemes, which may yet derail the gains made thus far. 

To have a robust economy, you need a robust airline industry, The airline industry is so important to the world. Air freight is the only reason we’ve been able to distribute about 10 billion vaccinations, and because passenger airlines rapidly turned to cargo to move PPE around the world.

Helane Becker
Cowen & Company

The aviation industry has proven its resilience throughout the pandemic, and its recovery is also progressing, even if intermittently. Air travel is among the first sectors impacted whenever variants of concern emerge and governments react to protect their citizens and halt the spread of the disease.

As lockdowns were slowly lifted in Spring 2021, airlines began to prepare for an influx of summer bookings, only to be thwarted by the Delta variant again causing travel to be curtailed. Reports of summer holiday makers being stranded abroad as countries updated red travel lists and imposed quarantine restrictions at short notice eventually deterred people from travelling. Indeed, US borders remained closed to most foreign travellers until as late as November.

As the end of the year approached, airlines were once again looking forward to capitalising on festive holiday bookings as travellers signed up for summer sunshine breaks, ski vacations and trips to visit family, only to be deterred again by the Omicron variant that emerged from South Africa and spread throughout the UK and into Europe, leaving border closures in its wake. UK travellers were banned from travelling to France and the Netherlands entered total lockdown on December 18, with restrictions only eased on January 15, after the festive period.

In China, an outbreak in Xi’an resulted in the total lockdown of the city from December 23, which remains in place in line with China’s dedication to its dynamic zero-COVID strategy especially ahead of the Beijing Winter Olympics. 

While worry over variants of concern is understandable, the logic and effectiveness of travel bans is open to question. Even the World Health Organisation (WHO) has stated that travel bans are not effective in controlling the spread of the virus. The WHO noted in the aftermath of the various Omicron related restrictions that: “Blanket travel bans will not prevent the international spread, and they place a heavy burden on lives and livelihoods. In addition, they can adversely impact global health efforts during a pandemic by disincentivizing countries to report and share epidemiological and sequencing data. All countries should ensure that the measures are regularly reviewed and updated when new evidence becomes available on the epidemiological and clinical characteristics of Omicron or any other variants of concern.” 

COVID-19 impact

Chart 1: Total cases and deaths from COVID 19
Chart 2: Regional fully vaccinated persons
Chart 3: Countries with the highest fully vaccinated persons

In relation to these WHO comments and the general reaction to Omicron, Willie Walsh, the Director General of IATA, reasoned that “the goal is to move away from the uncoordinated, evidence absent, risk-unassessed mess that travellers face. As governments agreed at ICAO and in line with the WHO advice, all measures should be time-bound and regularly reviewed. It is unacceptable that rushed decisions have created fear and uncertainty among travellers just as many are about to embark on year-end visits to family or hard-earned vacations.” 

At the beginning of 2021, the world hunkered down for a slow winter while it waited for vaccination rates to increase. By the summer, there was a clear acceleration in air travel demand. 

“The summer was quite strong in terms of domestic and regional travel, especially in the domestic US market, US into Europe and some other key markets, but it was a turbulent year due to the uncertainty caused by government restrictions and travel rules around international movement,” says Helane Becker, managing director, Cowen & Company. “As international restrictions were removed, we saw a significant amount of pent-up demand but at the close of 2021 new variants again caused volatility, which will continue into early 2022. The industry will recover to maybe half of where it was, mostly driven by domestic recovery while international traffic is still down by close to two thirds.” 

The volatile operating environment has been a rollercoaster of a ride for those beleaguered airlines. However, after two years, airlines that have survived have proven their adaptability. 

The road to recovery

At the onset of the pandemic crisis in early 2020 and throughout the subsequent year, the expectation was that the aviation industry would suffer tremendously from the sudden and widespread restrictions on global air travel - and understandably so. IATA initially predicted aviation industry losses to peak above $118bn in 2020; however they actually ended up exceeding $137bn, devastating the industry. Airlines bore the brunt of the pain as passenger demand (measured in revenue per passenger kilometres (RPKs)) tumbled below 40% of 2019 levels. The forecast for 2021 is for losses of $51bn, a significant improvement but still the second worst financial performance ever recorded. 

Net losses are expected to reduce to $11.6bn in 2022 but they are not expected to turn positive until end of 2023 or even into 2024 depending on how different world governments handle the virus as it enters an endemic phase. IATA expects total passengers numbers to reach 3.4bn in 2023, up from 2.3bn in 2021 but still a long way from 2019 levels of 3.4bn air travellers. 

The figures (see Chart 4) clearly show that the industry is past the depths of the crisis and entering 2022 – almost two full years after the beginning of global restrictions – aviation has proven its resilience and is on the road to recovery. A rocky road for sure with variants of concern curtailing gains made after lockdowns were lifted but nonetheless a solid start to the recovery. 

The resilience of many over this period has been astounding given the pandemic’s impact on air travel. Going into the crisis, airlines were continually downgraded and expectations of large scale bankruptcies and deep liquidity issues were widespread. Although there have been some bankruptcies and many restructurings, the overall impact on airlines has been curtailed somewhat by the overwhelming support of national governments, banks, capital markets and private investors, and most importantly by the leasing sector. 

Credit supports

Reflecting on the past 24 months, Betsy Snyder, senior analyst at S&P Global Ratings notes that at the beginning of 2020, the rating agency expected a severe negative impact on the airline sector. “In the spring of 2020 when COVID-19 first hit, we took several downward rating actions on the airlines because we expected a greater impact on their cashflow, cash generation and liquidity than on the aircraft lessors. The airlines successfully raised a great deal of liquidity during the pandemic using many assets as collateral for secured financings – even coming up with new forms of collateral such as the frequent flyer programs. In the US and elsewhere, airlines were also provided substantial government aid through payroll support programs and funding in terms of loans and equity infusions, which aided their liquidity.” 

Government support has been critical to the survival of many airlines. Even those airline companies that have not received state-backed loans, many have been assisted by varying government payroll support schemes. The strength of the capital markets has been a major lifeline for airlines – especially those without access to government support. Another surprising factor over the past two years has been the sustained flow of capital supporting the industry, which has been undeterred by the restrictions placed on air travel in the search for yield. But many airlines may not have been able to survive at all without the extensive support provided by the leasing sector. 

Leasing companies have demonstrated throughout this crisis period that they are not to be judged by the same credit metrics as airlines. Although all lessors have had some exposure to defaulting airlines and because of the global nature of the crisis have been restricted in their ability to repossess and re-lease aircraft to new clients owing to the global nature of the crisis, they have succeeded in negotiating inventive ways to preserve cashflow and raise unprecedented amounts of liquidity from various sources including banks, new alternative lenders, the capital markets and the private sector. 

“It was both surprising and positive that both airlines and aircraft leasing companies were able to go to the capital markets and raise large amounts of both secured and unsecured debt,” says Marjan Riggi, senior managing director and Global Head of Transportation and Commercial Finance at Kroll Bond Rating Agency (KBRA). “It defied logic somewhat given the context, the capital markets and investors clearly thought very positively about the aviation market over the long term, even at a time when much of the world fleet was on the ground. That speaks to the fact that investors think more long term and that the fundamentals of air travel still remain very strong nearly two years into this crisis.” 

Banks returning slowly

The aviation industry has been buoyed enormously by the flood of private, nonbank capital into the space, setting up new leasing platforms and start-up airlines, which has more than offset the withdrawal of certain banks and investors.

“The traditional commercial aviation banks, which were always part of the spectrum of lenders in this industry, historically have taken a long time to come back for a number of reasons, and that space has largely been taken by the alternative lenders,” says Patrick den Elzen, CEO and founding partner of Arena Aviation Capital. “But the banks are returning slowly. Some Japanese and Korean banks are active again. French banks have never been completely inactive, but they’ve been very slow to proactively source new business. Aviation banks are coming back, which is a positive development because commercial banks tend to be a bit cheaper than alternative lenders, even though they tend to be more conservative. The alternative debt providers have clearly taken a big piece of the market and there is no reason why that will change.” 

As well as enhanced financial support, airlines have also mastered cost cutting, with many becoming far more streamlined and efficient businesses. “In some ways COVID-19 has helped airlines to become much more focused on cost cutting, and almost all of them have reduced their fleets and costs, especially labour and capex costs,” observes Riggi. Airlines today are in a much stronger position to cope with the multiple waves of the pandemic have hit different geographic regions at different times, but the volatile operating environment has made it necessary for airlines to hoard as much cash as as possible in order to ride out these waves of uncertainty until the operating environment stabilises and the recovery is free from disruption.  

Chart 3: Countries with the highest fully vaccinated persons
Airline Country
Air Namibia Namibia
Sky Regional Airlines Canada
Mango Airlines South Africa
Interjet Mexico
Ethiopian Mozambique Airlines Mozambique
Air Iceland Connect Iceland
Amaszonas Uruguay
Stobart Air Ireland
Air Antwerp Belgium
Atlantis European Airways Armenia
Fly My Sky New Zealand
Orange2Fly Greece
Great Dane Airlines Denmark
Alitalia Italy
Blue Panorama Italy
ITA Brazil
Airline Country
Philippines Airlines (PAL) Philippines
HNA (parent of Hainan Airlines) China
Garuda Indonesia (restructuring) Indonesia
AirAsia X (restructuring) Malaysia
Airline Country
AeroCentury US
Nordic Aviation Capital Denmark

Analysing Air Travel Recovery

The three sectors of the airline industry – cargo, domestic, and international passenger travel – have each displayed very different trajectories throughout the crisis period. 

Air cargo continues to show its resilience as it has done throughout the pandemic and although experiencing some softening in demand by the end of 2021 due to global supply chain issues, the market remains a more stable investment than it has been prepandemic both in terms of demand and profitability. 

“To have a robust economy, you need a robust airline industry,” commented Becker, who gives an impassioned defence of the airline industry as a force for good in the world, demonstrated in recent times by its role in transporting vaccines and personal protective equipment (PPE), and its innate ability to join people and businesses together. “The airline industry is so important to the world,” she says. “Air freight is the only reason we’ve been able to distribute 10 billion vaccinations, and because passenger airlines rapidly turned to cargo to move PPE around the world.” 

Cargo & passengers

Belly cargo capacity for international passenger aircraft remains at low levels boosting demand for dedicated air freight. The e-commerce phenomenon – already growing rapidly – soared during the pandemic as shops closed. These factors are predicted to continue to feed demand for air cargo in the recovery period and beyond. Likewise, the broad reaction to global supply chain issues and rising labour costs, is forcing many companies to transfer manufacturing from locations in Asia to closer jurisdictions such as Mexico and Canada for US companies, feeding demand for regional air cargo.

Domestic passenger markets are in full recovery and for many jurisdictions, levels have returned to within 20% of pre-pandemic figures. Airlines located in regions with strong domestic markets, such as the US, Russia, China and Brazil, have profited from the strong demand for air travel as many international borders remain closed or restrictions and quarantines deter travellers. 

“We have seen a strong recovery in much of the world,” says Robert Korn, president of Carlyle Aviation Partners. “In regions with large domestic operations, such as in the United States, Brazil, China until very recently, and in Russia, we have seen a great recovery. We’re now seeing India start to come back online. Where we see the world struggling is intra-Asia, to and from Europe, and North America into Asia. Those are the areas where the world is looking for a recovery of traffic and reopening of borders and routes.” 


Short-haul air travel demand is expected to surge strongly in 2022 as there is ample evidence of that oftquoted pent-up demand whenever restrictions are eased. Long haul travel, however, is not expected to recover to meaningful levels until at least 2023. 

“Throughout 2021, there was a steady improvement in the performance of the airline industry,” observes Aengus Kelly, chief executive officer of AerCap. “The lack of requests for deferral agreements and the demand for additional aircraft began in the fourth quarter of 2020. We saw there was a fair bit of optimism in the United States and in Europe regarding the summer of 2021 and indeed the summer of 2022.

That optimism proved to be well founded until the end of this year, when we had the onset of the Omicron variant, which has paused the progress, but hasn’t knocked it backwards. I feel very confident about the outlook for 2022 as a whole. We will see a return to 2019 traffic levels in many parts of the world as we go through the summer of 2022, which will be focused on the shorter haul networks. The long haul market will follow, but not in 2022. There has been a steady improvement. Airlines are extraordinarily adaptable companies, which they have proven over many cycles.” 

Chart 8: Total market air passenger travel growth
Chart 9: Domestic air passenger travel growth
Chart 10:: International air passenger travel growth

The recovery of international travel remains muted as borders closed at the end of 2021 in reaction to new variants. The latest figures from London Heathrow airport show that at least 600,000 passengers cancelled their trips in December due to the Omicron variant. The erratic changes to travel rules in 2021 caused the main UK airport to serve fewer passengers in 2021 than in the first year of the pandemic. The real stumbling block to the significant return of international travel is the effective continuing lockdown of countries in Asia, many of which have been adhering to zero- COVID policies with varying degrees of success.

Although lockdowns have been lifted in Australia and New Zealand, these countries continue to have strict entry restrictions in place for vaccinated travellers. China and Hong Kong follow a similar zero-COVID strategy and are deterring most foreign visitors with a mandatory 21 day quarantine, even for fully vaccinated travellers. 

South-East Asia

The difficulties facing airlines in South East Asia have been well documented. Philippine Airlines filed for bankruptcy protection towards the end of 2021, while AirAsia X and Garuda Indonesia are also undergoing difficult restructurings as they struggle to survive while international air travel remains limited. 

“There’s evidence of recovery in many markets. Unfortunately, some segments of the market remain in a very challenged position, particularly South East Asia where generally the government response and indeed individual airline responses have been less surefooted than some other markets,” says Peter Barrett, chief executive of SMBC Aviation Capital. “But even in those regions we are beginning to see some sense of these restructurings and the rebuilding of airlines is taking shape, but it’s going to take time. 2022 will be another year of recovery for airlines; it will be well into 2023 and 2024, before the market returns to pre-pandemic levels of travel.” 

One aviation banker expects to see more airline failures in South East Asia, mainly due to the lack of government support for flag carriers to avoid defaults. In 2020, the refusal of the Thai government to support Thai Airways shocked the market but that general lack of state support in the region has now become more widespread as international air travel remains restricted and countries continue to generate less revenue from international tourism. 

There are clear signs that airlines in regions where air travel is recovering, are no longer just surviving but improving and planning for the future. “We have seen airlines now starting to plan for the future,” says Thomas Baker, chief executive of Aviation Capital Group (ACG). “We’ve seen survivors looking at their capacity and start to plan ahead for what they expect to be a very strong recovery. Airlines are also starting to migrate to new technology aircraft, or they have new technology aircraft delivering in the medium term and are extending current aircraft to bridge any capacity gaps. So we are seeing airlines starting to plan around the future again; and that future requires more capacity.” 

Business and leisure travel

COVID-19 is here to stay and as such the world and airlines will have to adapt in permanent ways to manage the health risk while driving economic growth. For the airline industry, this may mean permanent vaccination passports for air travellers, mandatory testing requirements, and wearing masks on board. 

“We will likely see other variants emerge over the course of the next two or three years,” says John Plueger, CEO of Air Lease Corporation (ALC). “But I still broadly see an overall recovery going forward. We will move as an industry towards an international vaccine passport and, although annoying, taking a COVID test before an international trip will become just a part of normal international travel, just like going through security, which didn’t exist until 20 years ago. This is just a by-product of the world that we live in.” 

The debate over whether business travel will see the same resurgence as leisure travel once restrictions are completely removed has diminished somewhat as evidence shows that when people have the opportunity to travel for whatever reason, they tend to do so in large numbers. There is also the suggestion that leisure travellers that have taken the opportunity to fly in business class during the pandemic as fares reduced will be willing to pay more for their more luxurious seat and service for leisure trips. And the reverse trend is also true, lower business travel budgets may push business class passengers into economy. Airlines and lessors are both optimistic for all cabins to return to profit as air travel demand continues to ramp up. 

“I’ve always thought it was more important for airlines to make their money on leisure travel and view business as gravy rather than rely on it to make their money,” says Becker. “Business travellers should use the same airline they use for business travel for leisure travel with their families. The problem is that this model has been twisted by the astronomical difference between business and economy fares. But a far as business travel goes we see that it is about 60% recovered but there is a lot of pent-up demand so it will certainly recover to at least 85% or 90% of pre-pandemic levels.”

The rebuilding of airlines is taking shape, but it’s going to take time. 2022 will be another year of recovery for airlines; it will be well into 2023 and 2024, before the market returns to pre-pandemic levels of travel.

Peter Barrett
SMBC Aviation Capital

Headwinds to recovery

There are other more potentially damaging headwinds that airlines will need to tackle on the road to recovery. Rising costs are a major challenge. The price of oil has been slowly ticking upwards as supplies remain constrained, maintenance costs will rise as slots are tied up with aircraft grounded for two years, while labour shortages are leading to wage inflation. Rising interest rates will only add to the already significant debt burden facing airlines, which is considerable. Airlines have raised record numbers of debt since the beginning of the pandemic period in early 2020. Bloomberg figures show global airlines raised as much as $250bn in 2020 and more than $340bn in 2021. 

Lessor counterparties are very aware of the heightened credit risk of their airline counterparties and are applying careful metrics when taking on new customers. 

“Clearly, there has been significant distress for airlines during this crisis,” observes David Butler, CEO of Seraph Aviation Group. “At this point, more than 60 airlines have effectively gone through a bankruptcy or a restructuring process through the course of the pandemic. 

“A recent study of the 2021 financials of the Top 100 airlines showed that balance sheet debt (including operating lease liabilities under IFRS 16) increased from $392 billion to $596 billion and the debt/equity ratio more than doubled from 2.3x to 5.4x.” 

Butler notes that: “A number of airlines are still operating on extremely thin liquidity and poor access to capital: 29 of the 100 airlines in the study had liquidity of less than 5% of normalised revenues,” he says. “Further shocks could cause further distress, which ultimately leads to restructuring and bankruptcy.” 

Reducing debt burdens

Airlines are mindful of the need to reduce leverage but they aren’t able to do so with any confidence while the operating environment is still being disrupted by the virus, creating the need to conserve large cash reserves. 

Speaking on a panel for Airline Economics Growth Frontiers Dublin virtual conference on January 17 2021, American Airlines treasurer Megan Montana, said that not only was almost a third of the debt raised by the airline prepayable but it was also efficiently priced at around 4.5%, providing the airline with a lot of flexibility in reducing the debt burden at a time that make sense for the company.

“When we think about how to achieve our goal of paying down $15 billion by the end of 2025, we will be focused on paying down the front end of the curve, freeing up high-quality, unencumbered assets and making sure that we do it as efficiently as possible so focusing on paying down that prepayable debt. Today, it’s a little frustrating for our treasury team because they’ve got all these great ideas to reduce our debt but we need to be thoughtful and prudent about when we start that process to make sure that we are through the last wave or newest variant before we start facilitating that debt pay down in earnest.” 


United Airlines is in a similar situation in that it is holding a lot of liquidity but it is also upgauging its fleet to position the airline for the recovery. “As part of our United Next plan we are upgauging and retiring a number of our regional aircraft to mainline aircraft,” says Pam Hendry, vice president and treasurer at United.

“The math is just easy. When we fly more seats on a route, we are going to make more money. Certainly increasing ticket prices come with an improving economy. But we remain incredibly focused on cost cutting [and] leverage is a huge issue that we need to be very thoughtful about. In the old days, we used to look at our cash back balance as sort of equal to what our advanced ticket liability was plus a little bit more to deal with short term impacts such as fuel price changes.

Now we look at cash as so much more than that. Historically, I would not have looked at net debt as one of my metrics, but today, because we do have so much cash and because so much of it will be used to pay down debt, I do take some of that benefit. I’m not going to prepay debt unless there’s a really compelling economic reason to do so.” 

Capacity problems

Airlines – especially those with a strong domestic market – have had to grappling with varying capacity plans to ensure they have the right level to meet demand. Given the nature of the virus, the emergence of new variants and varying travel restrictions, often from state to state, this has been something of a moving target. At the same time, airlines are juggling short-term capacity problems with the longer term expectations as they embark on re-fleeting programmes.

Speaking on the same panel discussion, Nat Pieper, senior vice president – fleet, finance and alliances, and treasurer for Alaska Airlines, pointed to the difficulties of calculating capacity when attempting to rightsize the fleet. “This is a major struggle given that the focus is so much on the short term right now due to Omicron,” he says, adding that rationalising the fleet has been a major initiative during this downturn, which has allowed the airline to retire older aircraft and bring on more efficient aircraft.

He notes: “You can’t do big fleet initiatives with a short term focus. You have to believe longer term that we’re going get to normal capacity again, and then move forward and execute your fleet rationalization plan which is a multiyear process.” 

Alaska took the opportunity presented by the pandemic period to phase out all of its Airbus aircraft and move to an all- Boeing fleet: “We took the decision to take advantage of the crisis and the fall in demand to park all kinds of a A320s and A319s, and ultimately not bring them back,” says Pieper. “When things ramp back up we want to have the most efficient aircraft possible and that’s the Boeing 737 family and really moving back to a single fleet type. The key there is having that long term focus on when to take deliveries.” 

Alaska is also focused on its own balance and how to balance the need to invest in new aircraft with the increased debt on its books. “We have to balance taking delivery of these new aircraft with the excess cash all of us are carrying, and we’ll all have different ways to, to meter that down to a more normal level. I think there will be a lot of rockiness going forward.” 

Airline Finance

After initially opting for government backed financing in 2020, utilising its loyalty programme and IP as collateral for a treasury loan rather than a privately-placed financing, American Airlines leveraged its AAdavantage loyalty programme to raise $10bn and repaid the government loan. 

The American AAdavantage package consisted of a $6.5bn bond offering – $3.5bn 5.50% five-year senior secured notes and $3bn 5.75% eight-year senior secured notes – as well as a new $3.5bn seven-year term loan B facility led by Barclays. The package was upsized by $2.5 billion from the anticipated original $7.5bn transaction size, at a blended average annual coupon rate of 5.575%. 

Plane in sky with financial graph overlaid

Joint lead bookrunners for the notes were Goldman Sachs, Barclays and Citigroup. Joint bookrunners were BofA Securities, Credit Suisse, Deutsche Bank, ICBC Standard Bank, JPMorgan, Morgan Stanley, SMBC, BNP Paribas, Credit Agricole, HSBC, MUFG, Standard Chartered, US Bancorp and BOK Financial Securities. Goldman Sachs acted as the sole structuring agent for the deal. 

The offering was substantially oversubscribed, attracting more than $45bn worth of orders. The timing of the offering coincided with a new US Treasury stimulus bill and tapped into investor demand for yield as interest rates remain low. 

American used the proceeds to repay the $550m drawn amount outstanding under its term loan facility with the US Department of the Treasury that was secured by the AAdvantage program collateral and terminated the loan agreement. 

Although American has already paid off its government debt, European and other airlines are still working through government-backed loans but are prioritising their repayment. Lufthansa announced in November 2021 that it had repaid or cancelled all remaining government stabilization funds (ESF) – some €1bn – loaned from the Federal Republic of Germany much earlier than planned thanks to its “fast restructuring” and “the capital markets confidence in the company”.


ESF has committed to sell its stake in the airline by October 2023 at the latest. After a successful comeback issuance in November 2020, which raised €600m by way of a convertible bond and a €1bn corporate bond, last year Lufthansa raised €6.3bn in the capital markets – a €1.6bn bond in February and again in July, and a capital increase in October that generated €2.2bn, boosted by another €1.5bn bond in November. 

Also in November, Air Canada announced its exit from government financial support, withdrawing from the C$3.975bn financing facility, which was undrawn since the airline successfully raised C$7.1bn through the issuances of C$2bn 4.625% eight-year senior secured notes, US$1.2bn 3.875% five-year senior secured notes, as well as a US$2.3bn term loan B due 2028 and a US$600m revolving credit facility due 2025. 

Bond markets

Investment grade airlines have continued to tap into the bond market. In the first quarter of 2021, easyJet raised £1.2bn under its Euro Medium Term Note (EMTN) seven-year senior bond issuance with a 1.875% coupon. The bond was five times oversubscribed and competitively priced for the time.

Capitalising on the success of its rival and on the back of improved financial results, Ryanair also went to the bond markets in May 2021, raising €1.2bn through the issuance of a five-year senior unsecured bond that priced at a record low coupon of 0.875%.

Pricing tightened significantly from initial price talk set around mid-swaps +150bps on the back of soaring demand. The fourfold oversubscription with high-quality accounts and several triple-digit orders, enabled the pricing to be reduced significantly without losing orders. 

Rights issue

Later in the year, easyJet also launched a rights issuance and at the same time confirmed to the market that it had rebuffed an unsolicited preliminary takeover approach from rival Wizz Air, which it described at the time as a “low premium and highly conditional allshare transaction” that was “carefully evaluated and then unanimously rejected”.

Shaking off the takeover approach, easyJet succeeded in raising £1.2bn in a fully underwritten rights issue, alongside signing commitments for a new four-year senior secured revolving credit facility of $400m, which had a two-year extension option that was conditional on the success of the rights issue. 

We’ve spent a lot of our time exploring opportunities with start-ups or very low-cost or ultralow- cost carriers. We think those business models really make sense going forward. They are disruptive to incumbents and there is certainly demand for those airlines as leisure travellers want to get to their destination in as cost effective way as possible. We have spent a lot of time trying to support carriers that fit that profile throughout the pandemic, which we will continue to do.

Ryan McKenna
Griffin Global Asset Management


The aborted takeover attempt drew the attention of arch rival Ryanair chief Michael O’Leary, who commented at the time that he believed rivals Wizz Air and easyJet would need to merge or risk being taken over by the larger flag carriers, which he expects to buy smaller rivals as the industry moves towards consolidation. 

“Both easyJet and Wizz will either need to be taken out or . . . coalesce together,” O’Leary said. “Consolidation needs to happen and will happen. It’s an inevitability, particularly coming out of COVID.” 

Wizz Air

Although the leasing sector has seen more consolidation in 2021 and into 2022, airline consolidation has not made headlines over the past year, save for IAG cancelling its acquisition of Air Europa due to regulatory issues. One aviation banker doubts that there will be any M&A activity in the airline market “so long as the COVID-19 crisis is bringing too many uncertainties on air traffic”. 

Wizz Air has performed strongly throughout the crisis and even launched a new airline Wizz Air Abu Dhabi in 2021. The airline continues to go from strength to strength and its most recent bond issuance demonstrates its resonance with investors. 

The latest issuance from Wizz Air – rated BBB- by Fitch and Baa3 by Moody’s – a €500m offering of notes due 2026 executed within its Euro Medium Term Note Programme, priced at just 1.00% on January 19, 2021. Wizz Air intends to use the proceeds to pay down its government debt first, repaying the £300m CCFF facility in February 2022. The offering, arranged by joint bookrunners, Barclays, BNP Paribas, Citigroup and JPMorgan, was multiple times oversubscribed. 

In January 2021, Wizz Air had successfully re-opened the corporate primary markets with its inaugural issuance of €500m 1.350% threeyear bond. That offering was also substantially oversubscribed, attracting an orderbook of almost €2bn, which allowed the airline to price at a yield of 1.350% (achieving 40bps tightening from IPTs). This was the first ever benchmark offering from a CEE airline issuer. 

Funding in Asia

In Asia, airlines also continued to tap into the bond markets with both Singapore Airlines (SIA) and Cathay Pacific issuing US dollar bonds for the first time. In January 2021, SIA successfully raised US$500m via its first US dollar-denominated bond issuance. The issuance was oversubscribed with the final demand at more than US$2.85bn. The five-year bonds priced with an annual coupon of 3.0%. 

Singapore Airlines raised approximately S$13.3bn in additional liquidity in its fiscal year 2020-2021, including S$8.8bn from a rights issue, S$2bn from secured financing, S$850m via a convertible bond issue, another S$500m via a private placement of new 10-year bonds, and more than S$500m through new committed lines of credit and a short-term unsecured loan. Heading into 2022, the airline is reported to be preparing to issue a new US dollar bond with the goal of raising between US$500m to US$750m. 

The sheer scale of funding raised by airlines in the pandemic period continues to be significant – with too many issuances to mention within the confines of this report. Much of the emergency funding raised in 2020 has been refinanced at lower rates in 2021 with more manageable tenors. But the debt burden remains significant and should interest rates rise – as they are widely predicted to do – that burden could increase even further as air travel demand and revenue remain depressed. 

Labour issues

A more immediate issue is the increase in work absences due to COVID-19 related illness and isolation requirements. Most airlines are also currently suffering from acute labour shortages, as demonstrated by the cancellations of hundreds flights by US carriers over the festive holiday period. 

Data from Cirium shows that between December 24, 2021 and January 3, 2022, some 59,240 flights were cancelled as airlines struggled with operational challenges around the Omicron surge and winter weather.

Plane on pink background pulling mask with Omicron on it in red letters

This resulted in the most December cancellations for the past decade – six times higher than in 2019 and two and half times more than 2020.  In total, 20,500 flights were cancelled in the first three days of the new year alone. Flight cancellations by the big four US airlines – American Airlines, Delta Air Lines, Southwest Airlines and United Airlines – soared to 7,040 over this period. 

The payroll support programs initially helped airline keep staff on the payroll but airlines still reduced their headcounts significantly. As demand returns, airlines are attempting to hire at scale but COVID-related illness and self-isolation rules are a constant challenge for airlines and all companies as the current variant continues to spread rapidly. Many airlines have announced reductions to their January schedules by 10-20% in some cases and are operating a more flexible schedule to account for the large proportion of staff currently and expected to be on sick leave as Omicron takes hold. 

One of the major trends during the pandemic period has been for airlines to rationalise their fleets. Taking advantage of the enforced grounding in 2020 and reduction in capacity into 2021, airlines took the opportunity to retire older aircraft type perhaps earlier than planned and then lease new aircraft or amend existing orders to ensure deliveries of new technology aircraft, which are then often financed in the saleleaseback market. Given the continued focus on environmental concerns and some government funding having carbon emissions reduction targets baked into the contracts, all airlines are moving to a more fuel-efficient fleet, which includes transitioning to new generation aircraft as well as investing in brand new technology such as electric aircraft currently development. 

Many airlines, in the US in particular, have reached the end of their re-fleeting programmes, which have been conducted successfully through the pandemic period, benefitting from the ready availability of financing both from the capital markets and from lessors.

As one airline treasurer noted in a panel for Airline Economics Growth Frontiers Dublin virtual conference on January 17 2021, the headwinds noted above are the sorts of “high class problems” traditionally facing airlines and a welcome departure from the “pandemic problems of 15 months ago of keeping the lights on”. 

We have seen multiple new airlines in the US, which is relatively unique given the stability of the market in the past five to seven years.

Darren Hulst

Challenger airlines

Debt and equity investors are confident about the return of air travel, evidenced by the creation of new leasing platforms as well as the amount of start-up airlines launched over the past two years. A downturn is usually the best time to begin an airline but especially so during this period given the keen equity backers and great aircraft purchasing and leasing deals available, many offering power-bythe- hour deals to assist with cashflow. 

“We’ve seen multiple new airlines in the US, which is relatively unique given the stability of the market in the past five to seven years,” says Darren Hulst, Vice President, Commercial Marketing at Boeing. “We’ve seen start-ups in emerging markets as well, including India and other parts of the global market. History has proven that a lot of start-up activity has come out of recessions and global shocks, such as 9/11 and the Global Financial Crisis, and this period will be very similar.” 

Many of these new airlines are filling voids in schedules created by the demise of predecessors or cuts to networks made due to the need to reduce capacity as air travel demand fell: “Equity is at a premium these days for airlines and it can be spent on many different things,” notes Carlyle Aviation Partners president Robert Korn. “If they can obtain off balance sheet financing from a lessor, it allows them to deploy their precious capital in other areas. During a downturn there are opportunities for airlines to use their capital in some pretty dynamic ways, such as grabbing market share, buying up competitors, investing in partners and building infrastructure. We want to be good partners to those airlines.” 

Griffin Global Asset Management, formed as a long-term strategic partnership with Bain Capital Credit to create an aviation leasing and asset management platform, has also been exploring investments in airlines. CEO Ryan McKenna notes that he has spent the pandemic period looking at originating new opportunities. “We’ve spent a lot of our time exploring opportunities with start-ups or very low-cost or ultra-low-cost carriers,” he says. “We think those business models really make sense going forward. They are disruptive to incumbents and there is certainly demand for those airlines as leisure travellers want to get to their destination in as cost effective way as possible. We have spent a lot of time trying to support carriers that fit that profile throughout the pandemic, which we will continue to do.” 

Although the ultra-low-cost market has a compelling business model going into the recovery, one banker warns that only well capitalised low-cost airlines or ultra-low-cost start-ups with a strong sponsor would be attractive investment opportunities. “Start-ups can access aircraft capacity at low lease rentals and benefit from crew at lower costs,” he says. “But they need to be prepared to burn cash in the first year of operation until the overall market grows again.”

Airline Country
Avelo US
Breeze US
PLAY Iceland
Aha! US
Islas Air Spain
Wizz Air Abu Dhabi UAE
Northern Airlines Sweden
EGO Airways Italy
Flyr Norway
Canarian Airways Spain
Vietravel Airlines Vietnam
Burundi Airlines  
Uep Airlines Spain
Norse Atlantic Airways Norway
Waltzing Matilda Aviation US
SkyAlps Italy
GlobalX US
Grecian Air Greece
JetSmart Peru Peru
Ecuatoriana Airlines Ecuador
Air Montenegro Montenegro
Green Africa Airways Nigeria
ITA Brazil
Air Catalogne France
Flylili Romania
ETF Airways Croatia
Alvir Airways Pakistan
United Nigeria Nigeria
Qanot Sharq Uzbekistan
WestAF Algeria
Africa Airline Republic of Congo
Air Astra Bangladesh
Uzbekistan Express Uzbekistan
ITA Airways Italy
Greater Bay Airlines Hong Kong
FlyOne Armenia Armenia
Zambia Airways Zambia
Go2Sky Slovakia

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More in the Aviation Leaders Industry Report 2022