40 years of ATR financings - OEM evolves with insurance financing structure - Airfinance Journal
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May/June 2022 40 years of ATR financings OEM evolves with insurance financing structure ISSUE no. 423 Net zero hurdles | Air Lease interview | FTZs seek innovative solutions
events.airfinancejournal.com @AirfinanceNews airfinance_journal Airfinance Journal
Editor’s letter
Will lessors continue to
order this year?
L essors continue to build orderbooks and,
as of mid-April, had placed almost 350
aircraft orders since December, according to
Aengus Kelly, Aercap’s chief executive
officer, recently said demand is “very robust
around the world”.
asked Boeing in late March to submit a new
projected timeline for seeking the federal
agency’s approvals.
Airfinance Journal’s Fleet Tracker. He adds: “We have seen elsewhere in Avolon chief executive officer, Domnhal
Between December 2021 and April the world that demand to travel has not Slattery, recently told Airfinance Journal
2022, Airfinance Journal estimates that gone away, and it comes back faster than that “it’s another item on a long list of
lessors placed combined gross orders for the airlines realise in every region.” certification issues” that Boeing is trying to
349 aircraft out of 661, or 52% of the Airbus navigate. “And it feels that they are making
and Boeing orders. Challenging year for Boeing little progress,” he says.
This included 299 Airbus orders and 50 Demand for new efficient aircraft continues Airfinance Journal’s Fleet Tracker
Boeing orders from lessors. to increase among airlines and lessor records 554 Max 10s on order or about
Air Lease’s confirmation of a memorandum customers. 13.7% of the Boeing narrowbody backlog.
of understanding for 32 Boeing Max 8/9 For the first three months of 2022, Airbus
aircraft on 4 April was another sign of was ahead with 253 gross orders versus 3. The Max 7 certification is also on the
confidence from leasing companies in the 167 for Boeing, but no doubt the 737 Max cards this year. The programme has close
narrowbody sector. The order added to models have benefitted from a renewed to 300 orders or represents about 7.4% of
another for 18 units in February. appetite over the past 15 months. the OEM narrowbody’s backlog, the data
Last month BOC Aviation entered into Despite demand signals improving shows.
an agreement with Airbus to purchase 80 with supported medium-term skylines,
new Airbus A320neo-family aircraft for the manufacturer will need to catch up on 4. Last, the waiting game continues around
delivery between 2027 and 2029. This is clearing its 737 Max backlog. the 787 deliveries.
the largest single order that BOC Aviation Boeing delivered 240 Max aircraft in
has ever placed. 2021 – an average of about 20 aircraft The FAA ultimately determines the
Aviation Capital Group placed orders for a month. Lessors represented 30% of resumption of 787 customer deliveries and
40 Airbus A320neo-family aircraft late in commercial aircraft deliveries. no timeframe had been given as Airfinance
December 2021. The OEM continues to face a slower- Journal went to press.
In February, Aviation Capital Group signed than-expected ramp in Max deliveries, with Boeing did not deliver any 787s in the
a firm contract for 20 A220s and has now an average of 27 aircraft a month since the first quarter. In a research note, Jefferies
75 aircraft commitments with Airbus and beginning of the year. This compares with said it had assumed an April restart (but
another 15 on order from Boeing. 20 average in the first quarter of last year. as Airfinance Journal went to press this
US lessor Azorra Aviation signed a Boeing delivered 81 Max aircraft in the was unlikely) and could now be pushed
purchase agreement with Airbus for 22 first quarter including 34 units in March, to the second half of this year. Jefferies
A220-family aircraft in January. 27 in January and 20 in February. Boeing assumed Boeing ended the first quarter
Avolon placed orders in 2021 for will face a challenging year in 2022 with with approximately 114 787s in inventory (up
Airbus aircraft. The Ireland-based lessor four potential milestones, which could from around 111 at the end of last year).
committed for four A320neo and four be subject to an update at the July In a recent note, Leeham News
A321neo aircraft in March 2021, before Farnborough air show. wrote that lingering certification delays
adding 14 A320neo and eight A321neo Its management plan a ramp up in also tie engineering resources that
aircraft to its orderbook a month later. production to 31 a month this year but four would otherwise be available for a new
Boeing booked gross orders of 742 737 hurdles could hamper the planned increase programme
Max units last year. Airlines accounted for in deliveries. Aercap’s Kelly is not fussed about delays
583 orders while the Chicago-based regarding the delivery of Boeing products.
original equipment manufacturer 1. The return to operations of the Max He says the pace of the deliveries matters.
(OEM) recorded another 51 orders from family in China, which continues to “From our own unique position in the
undisclosed customers. be delayed despite the Civil Aviation industry as the largest marginal supplier of
Leasing companies and private equity Administration of China (CAAC) issuing an capacity to the airlines, on the supply side,
firms represented 108 Max orders in 2021, airworthiness directive on 737 Max aircraft the longer airplanes don’t deliver, the more
or 14.5% of the gross orders tally. in December 2021, which would remove positive it is for us. That’s a fact, simple
Two lessors, Griffin Global Asset barriers for the model to return to service fact,” he commented during the company’s
Management and Dubai Aerospace in China. fourth-quarter earnings results.
Enterprise, placed their first-ever direct No doubt a lift of those hurdles would
OEM orders in 2021, both with Boeing, 2. Then Boeing faces an uphill battle increase Boeing’s cash flows. Last year, the
while private investment firm 777 Partners against time on the certification of the Max manufacturer generated positive cash flow,
committed for 68 737 Max units. 10, the extended version of the Max family. of $716 million, for the first time since 2019,
Aercap did not order any aircraft last The Max 10 must be approved by the because of increased deliveries of the 737
year, nor did GECAS. As of 31 December Federal Aviation Administration (FAA) by Max.
2021, it had 417 new aircraft on order, the end of this year or could face redesign-
including 67 Max aircraft, 10 A220s, 265 associated costs. The FAA is concerned OLIVIER BONNASSIES
A320neo-family aircraft, 12 A330neos, 25 the Max 10 programme “will be significantly Managing editor
787s, 33 Embraer E2s and five regional jets. challenged” to meet the deadline and Airfinance Journal
www.airfinancejournal.com 3
Contents
Cover story News Analysis
‘Investing in aircraft assets remains
attractive’ 13 Cash is king
Owain Jones, Wizz Air’s chief supply chain
22 Supply chain hold-ups add to
delivery pain
Air Lease’s executive chairman, Steven
ATR turned 40 last November, and its and legal officer, discusses the carrier’s cash Udvar-Hazy, and ALC’s chief executive officer,
chief financial officer, Giovanni Tramparulo, management strategy, funding opportunities John Plueger, tell Laura Mueller about the
reveals in an exclusive interview with and recovery trajectory in an interview with latest problems delaying the delivery, and
Airfinance Journal that the Franco-Italian Hugh Davies. production, of much-needed aircraft.
manufacturer is ready with more financing
tools to support its customers.
14 From banking to starting an airline
The former Natixis Transport Finance chief
24 Financiers likely to shun Russia for
significant time
financial officer, Marc Bourgade, will apply Avolon chief executive officer (CEO) Domhnal
25 lessons learned in air finance to launch Slattery does not expect aircraft lessors
Aeroitalia. Olivier Bonnassies reports. or banks to return to Russia quickly after
sanctions are lifted. Laura Mueller reports.
15 Bain Capital, Griffin launch ULCC
Arajet
Arajet, a new ultra-low-cost airline, takes flight
30 Airfinance Journal 2021 Awards
shortlist
as the Dominican Republic’s new flag carrier
following an equity investment from Bain Special Reports
Capital, writes Dominic Lalk.
16 Kingpin of Jol and Jolco deals 28 Lessors see A330 cargo conversion
appetite
6 People news
The market for Japanese aircraft financings
remains depressed, but it is in difficult times
Olivier Bonnassies examines Avolon and
CDB Aviation moves to convert some of their
Airbus A330 passenger aircraft into freighters.
News Analysis when responsible asset managers such as
ABL Aviation add the most value to investors,
9 Finance institutions launch
sustainability initiative
its founder and chief executive officer, Ali Ben
Lmadani, tells Dominic Lalk.
31 Values and lease rates trend - Single-
aisle aircraft values recovering
Current generation narrowbody values
18
The non-profit organisation for aviation Cargojet sees future with 777 are returning to pre-pandemic levels, but
finance specialists aims at tackling the ESG freighters the impact of the war in Ukraine on 737NG
challenges of the aviation finance industry. The Canadian cargo carrier focuses on the 777 models and the original A320 family is as yet
Olivier Bonnassies reports. converted freighter as its strategy for long-haul unclear, writes Geoff Hearn.
operations, writes Olivier Bonnassies.
10 Air Astana goes for Airbus makeover
33 Market competitors - Advantage
turboprops
Modern-technology aircraft leases are driving
profitability. Soon Airbus A320neo leases from
20 No recovery on horizon for aircraft
lending in China
China’s zero-Covid policy is slowing aviation
The regional aircraft market proved relatively
resilient during the Covid pandemic, but rising
Aviation Capital Group and CDB Aviation will development in the Asia-Pacific. fuel prices make the older generation aircraft
join the fleet, Air Astana Group chief executive Capital and talent have taken flight, and increasingly expensive to operate. Geoff
officer, Peter Foster, tells Dominic Lalk. lending has slowed. Elsie Guan reports. Hearn considers whether a new-generation
turboprop might offer a solution for airlines
11 Net zero drive faces steep hurdles
21 FTZs in China seek innovative
aircraft solutions
seeking a 90-seat aircraft.
Hugh Davies examines the challenges
the industry faces in the quest for net zero,
including the European Union’s proposed
To remain competitive, Chinese free-trade
zones now offer broader and more 35 Data
innovative lease financing solutions for
taxonomy on sustainable financing. aircraft, reports Elsie Guan.
38 Pilarski
Managing editor Group sub editor Production editor Registered in the United Kingdom 1432333
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or omissions or any opinions or advice given.
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Senior reporter 8 Bouverie Street, London, EC4Y 8AX, UK
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4 Airfinance Journal May/June 2022
News analysis
www.airfinancejournal.com 5
People news
Pegasus Airlines names Öztürk as new CEO
T urkish carrier Pegasus Airlines
appointed Guliz Ozturk as its new
chief executive officer (CEO), effective 1
A member of the board of advisers of
Ozyegin University’s Faculty of Aviation
and Aeronautical Sciences, Ozturk is also
May 2022. Ozturk, who has been serving co-chair of the Women in Sales (WiSN)
as chief commercial officer since 2010, social project, which was established in
succeeds Mehmet Nane. 2019 to further gender balance in company
Nane had been Pegasus’s CEO since sales departments, under the umbrella of
2016. He was named a member of the the sales network platform.
board of directors at the carrier’s ordinary Nane says: “I am delighted to be
meeting of the general assembly on 31 passing the CEO baton, which I received
March, as well as vice-chairperson of the in 2016, to Guliz Ozturk, who has made
board (managing director) following the significant contributions to the growth and
decision by the board of directors. development of Pegasus for many years.
Ozturk becomes the first woman air “I wholeheartedly believe that she will
transport CEO in Turkish civil aviation history. continue to wave the flag of Pegasus
She began her career at Turkish Airlines brightly in the skies. This appointment
and, between 1990 and 2003, she served holds great value and significance also as
as manager of international relations and Guliz Ozturk is to become the first woman
contracts, alliance coordinator, as well as CEO of an airline in the history of Turkish Güliz Öztürk, Pegasus Airlines CEO
sales and marketing director. civil aviation.”
Between 2003 and 2005, Ozturk was Ozturk says she will continue with Ozturk will also focus on gender equality.
aviation and tourism project coordinator and the principles of the carrier’s success: “We will make every effort, institutionally
director of human resources at Ciner Holding. technology and people. and individually, to contribute to the equal
She joined Pegasus in 2005 as head “As Turkey’s digital airline,” she adds, “we participation of women and men in all
of sales and marketing, to manage the will continue to offer digital technologies areas of social life and to enable women to
launch of the airline’s scheduled services and unique innovations that will enhance express their full potential,” she says.
and, in 2010, she was appointed chief the travel experience, with our approach “As a company, we have been committed
commercial officer with responsibility for that focuses on guest experience. Without to gender equality for many years, and we
the commercial department, which includes compromising the basic principles of have been at the centre of the struggle,”
sales, network planning, marketing, our business model, we will continue to adds Ozturk. “This change is also proof of
revenue management and pricing, cargo manage our operations and activities with a the importance our company attaches to
and guest experience. sustainable environment approach.” gender equality.”
Ex-Natixis banker Castlelake makes functions, including governance and
execution of systems and processes that
support its investment mandate. Farrell
jumps to MUFG C-suite changes joined Castlelake in 2019.
He previously held the role of chief
M UFG has hired Benoist de Vimal as a
director and head of origination for
aviation in the Americas, based in New
C astlelake has named Joe McConnell
and Isaiah Toback as deputy co-chief
investment officers (CIOs) and Brad Farrell
financial officer and will continue to
report to the managing partner and chief
executive officer, Rory O’Neill.
York. as chief operating officer. “We are pleased to recognise the
Reporting to Olivier Trauchessec, the McConnell and Toback currently serve in experience, strategic skillset and
co-head of global aviation, Vimal will portfolio management roles at Castlelake, leadership that Joe, Isaiah and Brad
be responsible for managing aviation overseeing the firm’s value and aviation bring to Castlelake,” says O’Neill. “As
origination, including supporting MUFG’s funds and value and income funds, Castlelake looks toward the future and
originate-to-distribute business model respectively. explores broader opportunities to provide
through capital markets and syndication As deputy co-CIOs, McConnell and capital solutions to asset sellers and
and facilitating effective cross-sell with Toback will continue to partner closely borrowers in asset-rich private markets,
product partners. with the firm’s managing partner and Joe, Isaiah and Brad bring the expertise
With more than 15 years of investment chief investment officer, Evan Carruthers, and leadership to drive our goals
banking experience, he joined from Natixis, directing and managing Castlelake’s global forward while maintaining the focus on
where he was a senior member of the investment strategy across the risk-return relationships for which our counterparties
Aviation Group, responsible for arranging, spectrum and supporting the growth and have come to know us.”
syndicating, and restructuring a wide development of its investment teams. Carruthers says: “In addition to their
variety of aircraft finance transactions. They will continue to report to distinguished individual track records,
He had been at the Natixis Paris office Carruthers, collectively comprising the Joe, Isaiah and Brad have demonstrated
since 2007 in manager and vice president office of the CIO. consistent personal commitment to our
roles before moving to New York in 2014. Toback joined Castlelake in 2015, and firm’s success, values and delivery of its
In 2016 he was promoted to director head McConnell joined the firm in 2007. investor-focused mission. I am excited to
of Latin America-Aviation. Last year Natixis As chief operating officer, Farrell’s title continue partnering with them as we realise
named him executive director aviation reflects his responsibilities for Castlelake’s the next chapter of Castlelake’s evolution
finance. financial, operational and administrative and accelerate our growth.”
6 Airfinance Journal May/June 2022
News analysis
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the LEAP engine family is realizing today our clear ambition for a more
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*Based on customer feedback
www.airfinancejournal.com 7
People news
KLM names new CEO
A ir France-KLM’s board of directors
have approved the proposal of the
KLM supervisory board to appoint Marjan
of the group and her leadership qualities
convinced the board that she is the right
person to continue the work started
Rintel as its new chief executive officer by Pieter Elbers to transform KLM into
(CEO), replacing Pieter Elbers. one of Europe’s leading airlines and a
Rintel is currently CEO of NS, the powerhouse for the Air France-KLM Group
leading passenger railway operator in the as a whole,” says Air France-KLM.
Netherlands. Rintel will take up her new role on 1 July.
Before joining NS in 2014, she held The group’s board of directors also
various managerial, operational and agreed the anticipated renewal of
commercial positions at KLM and Air Benjamin Smith’s mandate as the group’s
France-KLM, such as hub operations at CEO for an additional term of five years
KLM and senior vice-president strategic – until the general meeting called to
marketing at Air France-KLM. approve the financial statements for the
“Her extensive experience in the year 2026, expected to take place in May
airline industry, her intimate knowledge 2027. Marjan Rintel
SAS appoints Former Airbus El Al promotes Ben-
Hilden as new CFO executive Floret Tal Ganancia to CEO
joins Amedeo
S AS appointed Erno Hilden as executive
vice-president and chief financial officer I sraeli flag carrier El Al has promoted Dina
Ben-Tal Ganancia to the position of chief
(CFO) in late March.
Hilden has held several operational
leadership positions in the global airline
A medeo appointed Isabelle Floret as an
independent non-executive director to
its board in late March.
executive officer (CEO), making her the first
woman to head up the company following
the resignation of Avigal Soreq in late March.
industry. He was the CFO of Finnair Floret held multiple senior leadership Ganancia joined El Al in 2008 and has
between 2010 and 2015, having been roles throughout her career at Airbus, most recently served as the carrier’s vice
promoted from chief operating officer. More most recently serving as head of leasing president for commercial and industry affairs.
recently, he held a position as executive markets. She has previously held other
vice president for privatisation at Saudia commercial and finance roles at El Al,
Airlines. including director of revenue management
“I am very pleased to welcome Erno and fleet planning manager.
Hilden to SAS. Erno’s extensive financial Her predecessor, Soreq, was appointed
experience combined with aviation CEO in late 2020 and stepped down last
expertise makes him a valuable addition to month to become CEO of energy company
SAS’s top management team. He will play a Delek US Holdings.
key role during the current transformation
plan, SAS Forward, where we are
securing a long-term financially stable and
competitive SAS,” says Anko van der Werff,
president and chief executive officer.
SAS says current CFO Magnus Ornberg
will leave the carrier during the spring but
is remaining in his current role to ensure a
seamless transition for Hilden.
Dina Ben-Tal Ganancia
Isabelle Floret
In mid-March, El Al signed a non-binding
During her time at Airbus, she also agreement with UK insurance company
served as senior vice-president for the Phoenix for a $130 million loan secured
Pacific region. against the airline’s Matmid frequent flyer
Mark Lapidus, Amedeo’s chief programme. The loan will bear interest
executive officer, says: “We are delighted in the range of 5.5-7%, to be determined
and honoured to welcome Isabelle to when the final agreement is signed,
the board. Isabelle brings extensive according to a filing.
commercial aviation and broad business An optional mechanism has been
experience that will be invaluable to established in which Phoenix will receive
Amedeo.” options for the purchase of 25% of El Al’s
Floret left Airbus’s leasing team after 17 shares in Matmid, which can be exercised
Erno Hilden at any time until the end of 2027.
years’ service in 2021.
8 Airfinance Journal May/June 2022
News analysis
Finance institutions launch
sustainability initiative
The non-profit organisation for aviation finance specialists aims at tackling the ESG
challenges of the aviation finance industry.
A team of 26 institutions from the
aviation finance sector have launched
Impact (initiative to measure and promote
• tracking the progress of decarbonisation
through metrics;
• maintaining comprehensive reporting of
as the “world’s first” transition bonds in the
aviation industry.
The carrier plans to issue two ¥10 billion
aviation’s carbon-free transition), a new the industry’s decarbonisation progress; ($81.6 million) series of five- and 10-year
and independent association dedicated to • building strong networks with aviation sustainable development goal (SDG)-linked
achieving net-zero CO₂ emissions by 2050. industry stakeholders; and unsecured corporate bonds. Proceeds from
The not-for-profit initiative is recruiting new • knowledge management to ensure that the SDG bonds, which are aligned with the
members from the aviation finance community important studies and data are available 2015 Paris Agreement, will be allocated
and aims to have representation from 40 to to all of its members. to “advance the transition to carbon-free
50 companies over the next 12 months. operations in its air transport business”, such as
Members of the financing community Impact will publish a comprehensive investing in upgrading the carrier’s fleet to more
include Apollo/PK Airfinance, Atoz Aviation annual report on aviation’s decarbonisation fuel-efficient widebody aircraft and securing
Finance, Castelake, Dr Peters Group and progress and the consistency of its sustainable aviation fuel (SAF) supplies.
Muzinich. Among the banks are Bank of financing rules. It will also seek a close JAL intends to allocate fully the net
China, Commonwealth Bank of Australia, relationship with all stakeholders in proceeds to eligible projects within 36
HSBC, Helaba, ING, KFW Ipex Bank, LBBW, aviation to encourage participation and months of transition bond issuance.
Natixis, NordLB and MUFG. diversity of thought, to test the feasibility Unallocated proceeds will be managed in
Board members include Jörg and effectiveness of proposals and to join cash or cash equivalents until the proceeds
Schirrmacher (Helaba), Hugo Kanters (ING), forces toward the goal of sustainability. are fully allocated.
Peter Smeets (360AF), Jean Chedeville The initiative will also use modern digital Lessor China Merchant Bank
(Natixis) and Philipp Goedeking (Avinomics). knowhow management technologies to International Leasing closed a ¥15 billion
Impact president, Ulrike Ziegler, says: compile centrally and share important denominated Samurai sustainability-linked
“The time to act is now. Impact is determined studies and data, accessible to all members. green loan with MUFG Bank and SMBC in
to promote credible change to ensure a The organisation recalls the challenges the final quarter of last year.
sustainable future for our industry. We look for the industry. The structure of the deal is novel in its
forward to engaging with our aviation finance Between 2004 and 2019, CO₂ emissions combination of Japanese yen-denominated
colleagues across the globe to develop an from aviation increased by 2.5% a year, debt financing (which are typically US dollar
independent and viable route to net zero.” while global aviation traffic grew by more denominated) for leasing companies coupled
Impact will promote new, sustainable than 5.2% annually – that faster growth more with the first known “green/sustainability”-
aircraft financing measures designed to than cancelled out the benefits of more linked covenant package committed by an
drive fundamental change across the efficient aircraft and engine technologies. aircraft leasing company. This was also the
global aviation finance community. The International Energy Agency first known Chinese National Development
“Aviation is critical to the mobility of estimates that aviation needs to reduce and Reform Commission-approved cross-
modern society, but it is also a carbon- its CO₂ emissions to 210 million tonnes border loan with a Chinese (aircraft) leasing
intensive industry,” adds Ziegler. “As by 2050 or by 2.4% a year to achieve the company with such characteristics.
aviation financiers, it is our responsibility goal of net zero in 2050 set out in the Paris Societe Generale-CIB closed the first
to contribute to the global transition to Climate Agreement and reaffirmed by the sustainability-linked aircraft-secured term
a low carbon economy and to promote International Air Transport Association. loan provided to an airline – Air France – in
sustainability through responsible lending “Immediate action is needed. Impact January. The French bank financed a new
practices that encourage innovation and is willing to meet this challenge and Airbus A350-900 delivery – in December
carbon reduction.” tackle the many questions it poses: which – for the French carrier in the form of a
Impact has a mission to promote new, benchmarks should be used to financially sustainability-linked debt facility.
sustainable aircraft financing measures, support sustainable aircraft, airlines, Last November, Crianza Aviation
with the intention of driving fundamental infrastructure and business models? Which arranged sustainability-linked operating
positive change across the global aviation rules should manufacturers, airlines and leases for certain Boeing 787 and A350
finance community. financiers use to report the sustainability aircraft. Banco Santander acted as the
It is comprised of five collaborative working of their commitments in aviation? How ESG structurer of the deal, which is the
groups designed to deliver a credible can decarbonisation progress be first sustainability-linked operating leases
and transparent roadmap to reduce CO₂ reported credibly, comprehensively structured for an airline. The transactions
emissions from aviation to net zero by 2050. and transparently? And how can mere are linked to an MSCI ESG rating, which will
The areas of focus include: greenwashing be avoided?” undergo periodic review and validation.
• establishing standards to be applied Sustainability innovation in the aircraft The leases include a two-way step-up/step-
in transition finance. What are the core finance sector is gaining momentum. down pricing mechanism to incentivise
characteristics of sustainable finance? In the first quarter of this year, Japan improvements in ESG performance and
Which standards should apply and how Airlines (JAL) announced plans to issue demonstrate commitment to a sustainability
can adherence to them be monitored? sustainability bonds in a move it describes strategy.
www.airfinancejournal.com 9
News analysis
Air Astana goes for Airbus
makeover
Modern-technology aircraft leases are driving profitability. Soon Airbus A320neo
leases from Aviation Capital Group and CDB Aviation will join the fleet, Air Astana
Group chief executive officer, Peter Foster, tells Dominic Lalk.
A fter returning a strong financial
performance to shareholders in 2021,
Kazakh flag carrier Air Astana Group and
will enable Air Astana to fly to the USA.
Foster notes that the existing 767s will be
sold or converted to full freighters when
low-cost subsidiary Flyarystan are poised to the 787s arrive.
continue growing as the pandemic recedes. As Airfinance Journal went to press,
Group chief executive officer, Peter and before the 10 Airbus Neo aircraft were
Foster, tells Airfinance Journal that four due, Air Astana had a fleet of 27 aircraft
key factors are at play driving Air Astana’s comprising 767, A320neo, A321/A321neo/
success: huge domestic growth (Flyarystan A321LR and E190-E2 models. Flyarystan
grew at 553% in passenger numbers); operated a fleet of 10 A320s, including a
strong regional yields (suppressed single A320neo.
supply, returning demand); ‘lifestyle route’ In April, Airfinance Journal broke the
growth; and complete fleet renewal (total news that Air Astana’s E190-E2 fleet had All flights to Europe
retirement of all Boeing 757 and Embraer changed ownership after Aercap sold avoid Russian airspace;
190 aircraft, additional Airbus A321neo the whole portfolio comprising five units
long-range units). with leases attached to the flag carrier to we will try to make up
Brisk business is expected ahead for
Air Astana Group because its airlines are
new leasing entrant Azorra Aviation. The
disposal completed Aercap’s exposure
some of the extra cost with
mounting new destinations as the new to the E190-E2 series, although it remains fuel surcharges.
A320neo-family arrives. involved in the larger E195-E2 programme.
Peter Foster, chief executive officer,
New lease deals Soaring revenues Air Astana
Foster disclosed exclusively to Airfinance For the full year to 31 December, Air Astana
Journal that Air Astana has awarded Group swung to a profit of $36.1 million, Russia challenge
A320neo operating lease mandates to with revenues soaring 92% to $756 million. Living in proximity with Russia means Air
California-based Aviation Capital Group The group carriers flew a record 6.6 million Astana is heavily impacted by President
(ACG) and Chinese bank-backed CDB passengers: Air Astana accounted for 3.5 Putin’s war against Ukraine.
Aviation, covering seven deliveries in million and Flyarystan for 3.1 million. “Aside from the horrendous human cost
2022-23. The seven A320neos will be “We had a very good year last year,” of the war, the invasion (which I witnessed
assigned to the Flyarystan subsidiary, says says Foster. “Far, far better than expected. first-hand in Kyiv) has caused us to lose
Foster. ACG and CDB Aviation are new Flyarystan grew at 553% in passenger all flights to Ukraine and Russia, the latter
lessors to Air Astana Group. numbers.” because of withdrawal of insurance cover,”
In addition, Foster notes, mainline Air The pandemic may have forever resulting in an approximate loss of 12% of
Astana is due another three A321neo changed Air Astana’s business model, the group’s international route network,
long-range aircraft from another California- says Foster, noting that point-to-point flying says Foster.
based lessor, Air Lease (ALC), also in is the way forward for the airline. In that The Kazakh flag carrier, however, says
2022-23. vein, the group has inaugurated many new it is bridging that lost capacity with extra
For CDB Aviation, the new Flyarystan “lifestyle routes”: to the Maldives, Phuket, flights and new services to South Korea,
A320neo deal continues the lessor’s push Sri Lanka, Egypt, Montenegro, Heraklion Germany, Turkey, Greece, Montenegro,
into the CIS; for ACG, Air Astana will be in Greece, in addition to existing ones to Georgia and Uzbekistan. Naturally, most of
the first lessee in the wider CIS region, Antalya, Bodrum and Dubai. these new flights are still impacted by the
excluding Russia, where it had moderate “We call them ‘lifestyle routes’ because they war, however.
exposure before the invasion of Ukraine. are leisure destinations no longer restricted “All flights to Europe avoid Russian
Daily utilisation rates for Air Astana to holiday periods. We are finding that many airspace and follow the southern route
Group’s Airbus narrowbody fleet are up people are keen to travel for extended through the Caucasus, south of the Black
to 11.5 hours, says Foster, and the airline’s periods to agreeable places and run their Sea coast, Turkey and north from there.
three 767-300ERs are operating at “high businesses and, in some cases, educate their Greece, Montenegro and Turkey are
utilisation rates”, too. One 767 that had children remotely from there,” explains Foster. hardly affected; however, Frankfurt and
been temporarily converted for cargo-only “Regional routes and, of course, our Amsterdam have an extra 90 minutes flying
usage was repurposed in late 2021. low-cost Flyarystan network are performing and London has to make a fuel stop on the
From 2025, Foster confirms three 787 extremely well, too. There is very high Caspian,” says Foster, noting that he will
aircraft are scheduled to arrive, subject to demand and therefore high load factors “try to make up some of the extra cost with
final discussion with Boeing. The aircraft and yields,” he says. fuel surcharges”.
10 Airfinance Journal May/June 2022News analysis
Net zero drive faces
steep hurdles
Hugh Davies examines the challenges the industry faces in the quest for net zero,
including the European Union’s proposed taxonomy on sustainable financing.
W hile the aviation industry has proved
its resiliency throughout the Covid-19
pandemic, the sector is still beset by the
Everyone is asking
ever-looming climate crisis – in particular,
about the ESG aspect
its impact on aircraft financing. of financing and there
The aviation finance community is
increasing the drive towards environmental, has been a marked
social and corporate governance (ESG)
metrics as scrutiny grows over its role in the movement on the
climate crisis, with demand for ESG-linked
financing products on the rise.
investor side.
“Everyone is asking about the ESG
Nick Swinburne, partner, Milbank
aspect of financing and there has been
a marked movement on the investor
side over the last 12 months in terms of
commitment to ESG,” Milbank partner Nick of disclosures required in relation to are unlikely to have recourse to green
Swinburne tells Airfinance Journal. their investments in the aviation sector, benefits under the taxonomy. However,
“We are seeing on a lot of transactions but may also serve as a tool for investor newer aircraft lessors are “likely to steer
discussions around whether these engagement with companies by opening to younger fleets for greater taxonomy
transactions need sustainability-linked up discussion around the proportion of benefits for financial and strategic reasons,
features,” he adds. revenues and capital expenditure that can and therefore offload aircraft to midlife
On the lessor side, sustainability features be defined as low carbon. lessors earlier”, says Bell.
are less common but still being analysed as Jim Bell, partner at global law firm One source points out that a lot will
the companies look to engage further on Watson Farley & Williams, says it is critically depend on how the European Commission
the topic of sustainability. important for the EU to get the taxonomy decides to approach the technical
“We have certainly had discussions right. screening criteria (TSC) for aircraft financing
around how you would measure it against “It is vitally important that the aviation to qualify as a “transition activity”.
a lessor’s portfolio but as a lessor you’re sector steers the EU’s classification system He notes the draft TSCs published
slightly less in control of your portfolio into the correct position as otherwise it in August 2021 were not well received
because it’s mostly up to the airlines how will cause problems in the future,” he tells by the market, particularly in relation
they operate,” says Swinburne. Airfinance Journal. to the proposed decommissioning
While demand is growing, investors “Currently, its implications are limited to requirements, which include the so-called
lament the fact that there is no clearly green financing and disclosure requirements “scrapping rule”. This rule requires that
defined framework for transactions to but, in the future, it is likely to extend to an old, non-taxonomy-compliant aircraft
comply with ESG criteria. capital adequacy and accounting treatment, is decommissioned to make way for new,
However, there is one multilateral and possibly also taxation,” adds Bell. more efficient ones until 2030.
framework being developed by the Is the taxonomy likely to usher similar Bell explains that the EU approach is set
European Union (EU) that could have wide- legislation in other parts of the world? on decommissioning aircraft and will only
ranging implications for aircraft financiers in According to Bell, the extent to which the support new aircraft investment as part of
the future. taxonomy impacts aviation finance globally the taxonomy up to a certain ratio.
largely depends on whether the USA “The EU’s originally proposed solution
EU taxonomy follows with a similar approach. was by only supporting qualifying aircraft
First published in 2020, the EU Taxonomy “The US is behind the EU in their where another non-qualifying aircraft is
Regulation is a sustainable finance approach to sustainability to date, but it is evidenced as decommissioned in its place,
framework introduced to support the EU’s well known that President Biden is keen to but this will now likely move to a global-
Fitfor55 climate agenda with the aim of move further down this path. based system where qualifying aircraft
directing funding towards environmentally “The EU tends to be a first mover but are supported by reference to the global
sustainable activities. when the US does something it often ratio of decommissioned aircraft to new
The taxonomy will provide the becomes a global position. If the US were deliveries, which is around 40%. Outside
underpinning language of what is green to follow suit then it would completely that limit, you will not get support under the
and what is not green in the context of change the aviation financing landscape,” taxonomy, even where the aircraft meet its
financing, including for the airline industry. he adds. other qualifying criteria,” explains Bell.
Once fully legislated, it will have a Lessors specialising in mid-life, green Another component of the taxonomy
direct impact on EU investors in terms time and end-of-life aircraft and engines relates to the take-up of sustainable
www.airfinancejournal.com 11News analysis
aviation fuel (SAF) as part of the transition players already invested in assets they It’s the single biggest and
to zero emission aircraft by the middle of thought were going to be worth a decent
this century. amount of money for the next 25 years. most audacious goal I think
The Aviation Working Group, which has “How does it work if you’re five years we can have as an industry
engaged with the European Commission’s in and some legislation comes in that
technical working group (TWG) developing ultimately determines that your asset is – unquestionably. And
the taxonomy, says the EU’s proposal on maybe unfinanceable or financeable at
SAF introduction post-2030 would only a far greater cost going forward? The
anybody who thinks that it’s
work if based on availability of alternative potential impact would be huge and so not a central issue is, well,
fuels on reasonable commercial terms. a mistake or a wrong approach by the
The organisation notes that proposed EU could have a devastating effect on an
we know what happened to
SAF requirements are unrealistically aircraft owner,” adds the source. dinosaurs, right?
high, compared with forecast production, “I haven’t a clue whether the industry will
logistics, and availability, arguing that get to net zero,” Avolon’s chief executive Domhnal Slattery, chief executive officer,
the additional cost of SAF in the current officer, Domhnal Slattery, tells Airfinance Avolon
environment far outweighs the benefits of Journal when quizzed whether the industry
green financing, meaning the take-up for can achieve the target.
green financing will be extremely limited. He adds: “I do believe that the industry However, a recent report published by
“The obligation to use SAF should apply will strive to get there because I think the Climate Action 100+, which represents
in respect of the airline’s fleet or, where it key stakeholders, the key thinkers and the 615 investors responsible for more than
relates to an aircraft lessor, the fleet of the key strategic influencers in this industry will $65 trillion in assets under management,
airline such aircraft is leased to… Given try to do so. said action needs to be taken in aviation
that exact SAF production, logistics and “But we are starting the journey; the demand management areas for the
availability are unknown, it is necessary key people in this industry are focused on industry to reach the net zero target.
to link the requirement to a market- solving this problem. It’s the single biggest These include capping business travel
based measure, rather than an absolute and most audacious goal I think we can at 2019 levels, curtailing long-haul flights of
percentage,” states the organisation. have as an industry – unquestionably. And more than six hours for leisure travel at 2019
The TWG is expected to publish its final anybody who thinks that it’s not a central levels and shifting demand to high-speed
position on the details of the classification issue is, well, we know what happened to rail infrastructure where possible, measures
system later this year. dinosaurs, right?” the industry does not want to hear.
Airfinance Journal asked Air Lease’s The report finds that without these
executive chairman, Steven Udvar-Hazy, his demand management measures or
Is net zero possible? view at the ISTAT Americas 2022 event. alternatives with an equivalent impact on
Many financiers and industry stakeholders “None and nil,” he replied during a emissions, residual emissions in 2050
are sceptical that the aviation sector can fireside chat on the probability of aviation could be over double than what is required
achieve net zero by 2050, a goal which, hitting IATA’s net zero target by 2050. under the International Energy Agency net
although subscribed to by the International He believes that the cost of zero target.
Air Transport Association (IATA) and the implementing and achieving those targets Ben Pincombe, head of stewardship
wider aviation community, is challenging for is “virtually impossible”. for climate change at Principles for
the airline industry as one of the hardest “The reason for that is, even if you Responsible Investment (a UN-supported
sectors to decarbonise. take a low GDP growth of 2-3% a year on international network of investors),
One legal source observes there will be average, in the next 25 years, the demand admitted the industry must face some “hard
implications for asset impairment as new for air transportation products will be so truths” if it is committed to reaching net
legislation is brought forward on the basis great that it will be impossible to create zero by 2050.
of the EU taxonomy. enough production, enough innovation to “The industry holds its future in its own
He believes the only way aviation will achieve those target emissions,” he says. hands,” says Pincombe, who adds: “The
reach net zero is by governments providing “I just don’t think they are achievable amount of demand management required
large amounts of support to swap out unless we had a static situation where we depends on the rate and scale of SAF
assets, where they effectively pay for froze the world where it is today and said rollout in the short term, alongside well
decommissioning. ‘Okay, we will take what we have now and thought through technology deployment. If
“The problem is aviation assets are we’re not going to grow the industry and the sector fails to respond effectively, it is
very expensive and the amount of capital we’ll achieve this target’,” adds Udvar- likely to face significant and rapid regulatory
needed to swap out aircraft is huge for Hazy. tightening, and ever greater scrutiny and
challenge from capital markets.”
The organisation also argues that
engaging with companies on the issue of
It is vitally important demand management should not be seen
to conflict with financiers’ fiduciary duties.
that the aviation “By constraining air traffic growth, it is
sector steers the EU’s more likely that the sector can become
aligned with the 1.5°C pathway, which
classification system into ultimately helps mitigate the long-term
systemic risk to investors’ portfolios resulting
the correct position as from climate change,” says Pincombe.
otherwise it will cause Regardless of whether the industry
can reach net zero, it is clear aircraft
problems in the future. financiers will increasingly have to consider
regulatory frameworks being proposed as
Jim Bell, partner, Watson Farley & Williams part of these ambitious targets.
12 Airfinance Journal May/June 2022News analysis
Cash is king
Owain Jones, Wizz Air’s chief supply chain and legal officer, discusses the carrier’s
cash management strategy, funding opportunities and recovery trajectory in an
interview with Hugh Davies.
J ust as the aviation industry started to
emerge from the Covid-19 pandemic,
the outbreak of war in Ukraine and
“This is reflected in the fact that we used
Jolco financing structures for 10 of our new
aircraft deliveries in 2022,” adds Jones.
subsequent economic sanctions imposed Wizz Air has been tapping Japanese
on Russia dampened the recovery runway investor funds to finance its incoming new-
for European carriers. technology aircraft throughout the pandemic.
For ultra-low-cost carrier Wizz Air, the In 2021, Credit Agricole-CIB arranged the
ability to maintain strong cash reserves debt portion of a Japanese operating lease
was a key element of the airline’s success financing covering two Airbus A320neo
during the pandemic and will remain the aircraft with JP Lease.
strategy to brace for future economic Earlier in 2022, Airfinance Journal also
downturns, the company’s chief supply reported that BNP Paribas, Marsh Insurance
chain and legal officer, Owain Jones, tells and AVIC Leasing are financing four
Airfinance Journal. A321neo deliveries for Wizz Air this year.
“We implemented a number of other That transaction was the first Balthazar-
important measures to further safeguard backed financing in Asia and the first
the business,” recalls Jones, “including Balthazar full recourse lessor facility.
supplier payment term extensions, contract In March, MUFG agreed Jolco financings
renegotiation, early redeliveries of older covering three A321neo aircraft for Wizz Air,
aircraft and salary reductions for all the first MUFG transaction completed with
employees, including senior management. the carrier.
“This cost discipline and focus on Wizz Air’s delivery backlog comprises
cash-positive flying resulted in Wizz Air firm orders for 34 A320neos, 244 A321neos
maintaining a strong liquidity balance and 47 A321XLR aircraft, with four A321neos
of around €1.4 billion [$1.5 billion] as Owain Jones delivered to the airline in March, according
of 31 December 2021 and maintaining to the Airbus data. The carrier has purchase
our investment-grade balance sheet existing €3 billion Euro Medium Term Note rights for another 75 A321neos.
throughout the pandemic,” he adds. programme if it does participate in the
Jones says Wizz Air’s strategy of keeping capital markets. Recovery
a high cash balance and ensure all flying Wizz Air has already issued two €500 Wizz Air has seen demand largely recover
was at least cash positive was vindicated million notes, which mature in January from the onset of the Ukraine crisis at the end
during the pandemic. 2024 and 2026 with coupons of 1.35% and of February, with Jones noting the airline is
“Some of the measures we have since 1.05%, respectively. on track to increase capacity in the April-June
implemented, such as renegotiated “Both of these bond offerings were quarter of 2022 by 30% compared with 2019,
agreements and extended payment terms, heavily oversubscribed, reflecting Wizz Air’s measured in available seat miles.
have now become the norm,” he says. investment-grade balance sheet, strong The aggregate impact of Russia/Ukraine
“We believe that Wizz Air has been credit profile and investors’ confidence in was a 2% reduction in flights in February,
correct to ramp up expansion during the our business model,” says Jones. explains Jones, with operations in Ukraine,
downturn, as opportunities have facilitated Quizzed on upcoming aircraft financings, Moldova and Russia amounting to 7% of
network growth and diversification of our Jones says the airline has been able to flight capacity in March.
business into new markets as we have secure “ever-better pricing” over the past Wizz Air has since announced additional
continued to renew our fleet at a significant couple of years with “intense competition” deployment of aircraft to different locations
pace,” adds Jones. between aircraft lessors and banks to across its network and has capped a
provide financing for its new aircraft proportion of its fuel cost exposure for the
Financing opportunities deliveries. next four months with zero cost hedges in
Despite market conditions still impacted by “Looking ahead, Wizz Air will always look response to rising oil prices.
increased commodity prices, geopolitical to the market to compete for transactions The carrier reached 86.2% load factor
tensions, Russian sanctions as well as the so as to secure the best financing deals, during March, a significant improvement
pandemic, the industry is seeing a gradual and we look forward to continuing to compared with 62.5% in March last year.
pick-up of issuer activity in debt markets in engage positively with aircraft financiers in “There has also been a clear positive
the past few weeks with Wizz Air expecting the future,” says Jones. impact from the reduction in Covid-19 travel
more opportunities to raise funds in the He also notes there is “strong interest” restrictions,” adds Jones, “and, overall,
capital markets in the first quarter of fiscal from Japanese operating lease with call we have started to see a normalisation
year 2023. option (Jolco) financiers who are looking in demand with booking patterns starting
Jones notes the focus would primarily be participate in financing arrangements for to look more like those in 2019, pre-
on the euro debt market, using the carrier’s Wizz Air’s new aircraft. pandemic.”
www.airfinancejournal.com 13News analysis
From banking to starting an airline
The former Natixis Transport Finance chief financial officer, Marc Bourgade, will
apply lessons learned in air finance to launch Aeroitalia. Olivier Bonnassies reports.
T he transition from banking to airline
chairmanship is no easy task but former
banker Marc Bourgade sees an opportunity
it is not a congested market, like Spain for
instance,” he says.
At the time, Alitalia was up for sale but
2024, starting widebody operations
within two years could be risky. However,
Bourgade says it is the right time to invest.
in Italy with Aeroitalia, a start-up carrier that Bourgade decided to start from scratch. “We have demand for this type of
plans to begin services in the second quarter. “The advantage of starting from scratch,” operation but we need to position
Bourgade has worked in the aircraft he says, “is you know the cost aspect ourselves on certain routes and markets.
finance sector for more than 20 years, of the business. In our case, we start Not all routes or markets will recover by
having been the chief financial officer of conservatively.” 2024 but, with the right product, we could
Natixis Transport Finance bank for six years. The company has hired executive Gaetano start widebody services in 2023.”
As chairman, he has invested equity Intrieri as its chief executive officer. Intrieri is Pre-Covid lease rates were substantially
into the carrier and is the sole owner of a former adviser to Italy’s minister of transport. higher than now, he notes, adding that
Aeroitalia. Former Avianca owner, Germán Aeroitalia is seeking aircraft at competitive
The origin of his project dates back from Efromovich, has also joined the team as a rates.
his days as a banker. consultant and board member. He reveals that the carrier has looked
“I have loved my time in the banking “We needed a management team that at purchasing aircraft, but that export-
sector but one of the reasons I left after has experience in aviation, knows the credit-financed assets where the customer
20 years of service was the administrative Italian market and understands how an has defaulted take time to acquire. “We
aspect of my job. We had less time to airline functions,” says Bourgade. “We start felt that those repossessed aircraft could
look after our clients because banks have operations with a break-even objective in be remarketed sooner to save tax payer
become very regulated. It creates burdens our first year of operations.” money.”
to what we are meant to produce for the He adds: “Aeroitalia will focus on charter Based in Rome, Aeroitalia will perform
bank,” he says. operations first because this guarantees its first flight immediately after obtaining its
Bourgade says the “shadow banking” revenues from the day we have the AOC.” AOC, which, they hope, will be in the very
side of the industry is more reactive and near future.
flexible. Fleet plans Setting up an airline in Italy can be
“This is why I created Flying Solutions The carrier will have a Boeing 737-800 challenging but Bourgade says the local
in 2016. The objective was to continue fleet. “We looked at the Airbus and Boeing authorities have facilitated the process
serving clients as a consultant and close narrowbody products and we selected smoothly and, in particular, the Italian
financing deals like a bank.” Bourgade the 737-800. In my days at the bank, I Civil Aviation Authority, which has been
has closed more than $2 billion-worth of have always had a good relationship with “extremely professional”.
financing deals since then. Boeing,” he says. The carrier will fly international routes but
“I know the credit risk aspect of airlines Leasing was an obvious choice. has plans to operate domestically, too.
as well as management and commercial Bourgade reveals that Aeroitalia has signed Italy is one of the largest exporters in
models that work or not. Before the its first 737-800 lease with Macquarie Europe and the business market is very
Covid-19 pandemic, I started to work for an Airfinance. developed. Bourgade expects Aeroitalia
investment fund that looked at acquisition “The plan is to grow the fleet to six units to move from its charter services niche
opportunities in Europe. We studied airline by one year of operations,” he comments. and become a more “conventional carrier”
business plans for months. This was key But Bourgade has a vision of a mixed within three years.
to understanding different airline models fleet of narrowbody and widebody aircraft. He adds: “Once we have a track record
and markets. Then I realised that Italy has Given that traffic recovery in the of operations in Italy we will open the
growth opportunities for a new entrant as widebody sector is not anticipated before capital to further grow our operations.”
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