An uptick in aircraft deliveries in Latin America in 2018 is creating opportunities for lenders in a region that has needed little in the way of new secured debt in recent years.
Deliveries are expected to pick up from the second half of 2018, said lenders at the ISTAT Latin America conference in Bogota on 16 November. This comes after nearly two years of capital commitment reductions and aircraft deferrals by many of the region's largest carriers, including Avianca, Azul, Gol and LATAM Airlines Group, in response to a weaker economic climate.
"They've been able to weather the storm and come out stronger than a few years ago," said Benoist de Vimal, director of the aviation group for the Americas at Natixis, at the conference.
At the beginning of 2016, Latin American carriers reduced capital commitments through delivery deferrals and other actions to cut costs in response to a weakening economic environment. Avianca slashed commitments by about $1.4 billion and LATAM by more than $2.3 billion through the end of the decade, while the latter also wet leased four Airbus A350-900s to its equity partner Qatar Airways.
Brazilian carrier Azul shifted 17 aircraft, including two Airbus A330-200s, six ATR 72-600s and nine Embraer 190s, to its partner TAP Portugal from 2016.
Gol reduced its fleet by roughly 30 aircraft from 2015 to the end of this year, both by returning aircraft to lessors and selling delivery positions.
"You've seen Avianca and LATAM, depending on whether you're an investor or an OEM, do an excellent job in terms of pushing out their deliveries," said Rafael Kuhn, a director at Deutsche Bank, at ISTAT Latin America. "That is a key driver as to why we haven’t seen much financing for new aircraft… I do expect that to change. My view is that it's been a massive pause button."
RISING TIDE
Avianca, Azul, Gol and LATAM – four of the region's largest carriers – all reported double-digit operating profit increases in the third quarter, and are forecasting stronger results next year. As a result, they are ready to resume taking delivery of aircraft and growing – if measured at first – from 2018.
"There are a lot of good aircraft on order that would fit," said Claudia Ziemer, senior director of aircraft finance origination for the Americas at Nord/LB, on the bank's secured lending structures at ISTAT.
Airlines in Latin America are scheduled to take delivery of 122 aircraft in 2018, up from just 67 aircraft this year, Flight Fleets Analyzer shows.
Avianca is scheduled to take delivery of five aircraft in 2018 and nine in 2019, an August fleet plan shows. It took six aircraft this year, including three financed with Japanese operating lease with call option (JOLCO) structures.
Lucia Avila, senior director of fleet financing at the Bogota-based carrier, said at ISTAT that the airline is considering JOLCOs, as well as other funding options, to finance some of its roughly $519 million in aircraft commitments in 2018.
Gol will take five Boeing 737 Max 8 in 2018, its first deliveries in more than two years. The aircraft, as well as five due in 2019, are financed under sale-and-leasebacks with AWAS and GECAS.
However, Gol director of asset management Andre Goncalves da Cruz said at ISTAT that the airline would like to return to the debt market and is considering other financing options for three 737-8s due in 2019.
LATAM will take delivery of 14 aircraft in 2018 and 13 in 2019, after taking only four this year, its latest fleet plan shows. It will finance all of its 2018 deliveries with either SLBs or finance leases, but is still evaluating funding options for 10 aircraft due in 2019.
"We're expecting the trend to go back to what we were expecting, albeit with a slight delay," says Kuhn, adding that increased activity means additional opportunities for all financiers.
A rising tide of aircraft deliveries raises the boats of all lenders.
Updated with latest LATAM 2018 delivery numbers as of November
Source: Cirium Dashboard
