The impact of the election of Donald Trump as president of the USA has raised a big question mark for aircraft finance markets.
The yield on the 10-year treasury note, the benchmark for many capital markets deals, jumped more than 14% to 2.15% from election day on 8 November through 10 November, when markets closed for the Veterans Day holiday.
In addition, president-elect Trump has said that the US fed funds rate is “artificially low” at 0.25% to 0.5%, suggesting that he intends to push the US Federal Reserve to raise rates after he takes office in January 2017.
But beyond the market moves and Trump’s past comments – some of which, including those on the Affordable Care Act, he has already backtracked on since the election – there is little known about how his administration will impact aircraft finance markets.
“The one thing in the EETC markets [is] we haven’t seen a lot of trades,” said Ted North, managing director of corporate finance at United Airlines, at the FlightGlobal Finance Forum West Coast in San Francisco on 10 November. “You would expect with the 10-year treasury having come up over 10% now, that that next EETC is going to be marginally more expensive but we don’t have a really good feel for how much.”
The Chicago-based carrier is a frequent EETC issuer, having raised $1.97 billion in the market to date in 2016. Its $920 million 2016-2 transaction in September achieved a historic low coupon of 2.875% - the first EETC to price below 3% - on the $637 million senior AA notes.
“EETC rates have been so low over the past couple [of] years that we can easily afford to have some increase to the interest costs,” says North.
Ben Millard, a senior credit analyst at FTN Financial, agrees that there is room for coupons to rise on capital markets debt.
“I still think the economics are pretty good to do a pre-funded EETC when the planes are not delivering for nine months out, notwithstanding where interest rates go,” he says at the forum.
Millard expects 10-year treasury rates to return to their pre-election levels in time. However, he thinks 2017 will be a “very interesting market” with all of the unknowns about Trump’s plans.
US treasury yields have hovered in the range of roughly 1.6% and 1.85% since the beginning of October, US Department of Treasury data shows.
NORMALISATION
Markets are expected to return to a semblance of normalcy over the medium term, despite the current uncertainty about the in-coming Trump administration.
“Things like this tend to be disruptive in the short term and then tend to normalise,” says Tom Doxey, vice-president of fleet and corporate finance at Allegiant Air, at the forum.
While the Las Vegas-based low-cost carrier is unlikely to go out to raise new financing “this week” he jokes, Doxey does see them returning to financing markets – whether the commercial bank or capital markets – soon.
Allegiant is working on at least one bank deal for some of the used Airbus A320 family aircraft that it continues to add to its fleet, he says.
The airline’s last bank deal was a $42 million loan from SMBC secured by three Airbus A319s that closed in July.
Allegiant has added one A319 to its fleet since the beginning of July, the Flight Fleets Analyzer shows. It plans to add another 10 used A319s and A320s in 2017, its fleet plan shows.
Yields to the USA improved at Iceland-based long-haul low-cost carrier Wow Air in the days immediately after the election, says its head of leasing Palli Borg at the forum.
“I think this doesn’t have to be as bad as we thought it might be,” he says, pointing to the fact that Reykjavik elected comedian Jón Gnarr mayor in 2010 and life continued as normal.
One topic that received little attention at the forum is the future of the US Export-Import Bank (Ex-Im). The export credit agency was reauthorised for five years in December 2015 but lacks a quorum on its board of directors that blocks it from approving any loans or guarantees worth more than $10 million.
However, one lender says that the head of Ex-Im’s transportation division Robert Roy indicated that the ECA could meet its quorum requirements from December.
Source: Cirium Dashboard
