Strong capital markets are proving to be a boost for airlines looking to raise funds this year, but this positive market sentiment should be met with guarded optimism as the financial recovery is anything but ordinary.
First, the good news. Airlines looking to finance their regional fleets could see more opportunities in the capital markets thanks to Franco-Italian turboprop manufacturer ATR. The regional manufacturer says it is working to bundle aircraft financings into larger deals in order to attract more investors to its product line.
"While smaller deals may be more accessible for a wide range of investors and financiers [and they] allow for a more diversified approach and are easier to place and market, such deals may not reach the volume and visibility needed to access the largest players," ATR finance chief Giorgio Moreni tells Flightglobal. "We are currently exploring ways to overcome such hurdles, such as packaging several deliveries to meet certain minimum entry levels."
Moreni says this is particularly true where "access to capital markets is concerned". However, he sees "significant short-term potential" for ATR financings in the public markets. "Some of our lessors are already tapping capital markets to finance their ATR acquisitions together with other aircraft types," he says.
Last year, the asset-backed securitisation (ABS) market generated its first-ever deal featuring turboprop aircraft when investment firm Castlelake, formerly known as TPG Credit, issued a $516 million non-recourse deal. The financing – which covered 35 aircraft including ATR turboprops, Bombardier Dash 8s and Q400s – was oversubscribed.
Airlines in the narrowbody and widebody sectors will continue to find relief from lessors, which have been busy tapping the capital markets for funding during the past couple of years.
Operating lessor AWAS says it is looking to issue its first ABS this year to take advantage of favourable pricing levels to boost its cash pile, which means increased spending power for aircraft financings.
"We are certainly looking at one very seriously, but we haven't made a decision – we are in a very deep analysis stage," said the lessor's chief executive Ray Sisson in an interview. "Nothing is stopping us, but we are a small company and have been focusing efforts on the Macquarie sale, but I would presume if the analysis continues to look positive, we would think: 'Why wait?'"
This thinking represents a marked change from the lessor's comments at the Farnborough air show last year, when Sisson said the financing returns on an ABS did not surpass what the lessor achieved through aircraft sales.
Lessor heavyweight GECAS is also rumoured to be looking at an ABS deal to flush out its older aircraft types. However, GECAS chief Norm Liu would not be drawn upon whether the lessor has such plans in place.
"We always look at channels. We are an active seller of assets and we look at different end-markets in Asia, existing trade players, securitisation-type structures – we are always looking at different venues to sell assets," he says. "We maintain the servicing rights to those assets – this is our ordinary course of business."
Tempering this rosy view of the financial markets, however, are a few worrying signs, beginning with the March jobs report out of the USA.
The Bureau of Labor Statistics reported that the economy created 126,000 new jobs, the lowest since December 2013 and around half the level analysts' were estimating. The unemployment rate remained at 5.5%.
The news means that US Federal Reserve's first interest-rate hike could be much later or indeed smaller than expected.
Meanwhile, Switzerland became the first country to sell 10-year debt at negative yield, meaning investors were charged money for lending to a government. Due to inflation, investors are more likely to accept negative yields, say analysts. The European market has seen short-term debt sold at negative yield before, but the Swiss sale is the first benchmark 10-year issue to be auctioned in such a manner.
But even with much market see-sawing going on, airlines should can take comfort that further relief is on the horizon for lessors.
Hong Kong is due to approve tax changes imminently that could transform the aviation leasing industry in the region. A more competitive taxation regime would make Hong Kong a valuable base for lessors serving China and markets worldwide.
The tax changes are also rumoured to be more advantageous than the level lessors currently receive in Singapore and Dublin.
Source: Cirium Dashboard
