Chasing investmentgrade - China Aircraft Leasing Group is ready to close on post-pandemic opportunities - Airfinance Journal
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March/April 2022
Chasing
investment-
grade
China Aircraft Leasing
Group is ready to close
on post-pandemic
opportunities
ISSUE no. 422
J olco su rvey | M o r e A B S a p p e ti te i n 2022? Ai r Inve stor 2022 r egi o nals
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Editor’s letter
(Cautious) optimism returns
Covid-19 restrictions are coming to an end in many countries, bringing much joy to the aviation industry,
although there will be other problems ahead for carriers. But as the recent weeks show with the Russian’s
invasion of Ukraine, another obstacle has presented potentially hampering a clear road to recovery.
T he Omicron variant of Covid-19 halted
the recovery of the aviation industry
in the final quarter of last year and dented
This represents almost two-thirds of its
orderbook, in terms of aircraft numbers.
BOC Aviation was more of a seller last
US Gulf Coast Kerosene jet fuel-type had
creeped up from 60 cents per US gallon
to almost $2.30 per gallon last October.
new hopes of further recovery in the first year. The Singapore-based lessor sold 26 The oil price trajectory reverted for a brief
quarter of 2022. As Airfinance Journal aircraft as it took delivery of 52 new aircraft. period, but has been on the rise since.
went to press, Russia invaded Ukraine Some argue there is an attractive As Airfinance Journal passed to press,
raising concern about how the leasing window in 2022 for investors to gain it had reached 2.68 per gallon. The IEA
industry would recover its assets by the exposure to the sector. member countries, led by the United
28 March deadline. However, days later The final quarter of 2021 saw multiple States, agreed to release 60 million
IATA released its forecast, insisting that lessors restarting their asset sales barrels of emergency stockpiles, but it
the spread of the Omicron variant did not programmes, following a relative quiet year. appeared to have had a limited effect on
change the “trajectory for the recovery There were more portfolios hitting the pricing.
in passenger numbers”. The forecast did market in the first quarter of this year, A higher oil price environment favours
not include the downside risks of the especially combined new- and current- new-technology assets.
Ukraine conflict because it is “too early to technology Airbus assets. But one leasing source says that airlines
determine” near-term consequences. But Leasing companies trade assets, it is in have enquired about further capacity in
the trade group anticipates rising energy their DNA, but the delays of new deliveries the first two months of this year as Covid
prices and the avoidance of Russian over the past two years have had an effect restrictions get lifted.
airspace as potentially having implications in their trading activity. Therefore there is a Another leasing source says placing
for the industry. lot of catching up to do. Boeing 737-800s is not a problem at the
Many people talk of the downgrading As one source suggests: “I think we will moment. Lease rates are similar to this time
of the Covid-19 pandemic to an endemic see a lot of portfolios on offer for a few last year, he adds. Airbus A320 inventory
status. New variants will still present a reasons. Revenues at lessors are still a bit is also “relatively OK” to place, although
threat but the aviation industry is more flat but should go up towards the end of this IAE-powered assets are proving more
equipped to deal with them. year as airlines come off power-by-the-hour challenging because of oversupply.
The industry continues to adapt and and aircraft on the ground get placed.” The potential repossession of more than
various indicators suggest its recovery will The source adds that, in the meantime, 500 aircraft from Russian operators could
pick up the pace again this year. Forward sales attract high prices at the moment and change this market dynamism and the
bookings, demand, traffic revenues, airline this will fill in a lot of the gaps in the bottom- Russian invasion of Ukraine has triggered
revenues, aircraft utilisation, new orders line profits. concerns about the leasing industry’s
and production rates are all pointing to a The recent merger and acquisition exposure to the region amid fears that
more positive outlook. announcements also suggest some future western sanctions could disrupt payments
Analysts say planned summer peak trading activity, whether to avoid credit-risk and impair efforts to recover assets.
capacity remains close to pre-pandemic levels. concentration, geographic concentrations or Bar the Russian/Ukraine conflict the
Increased new aircraft deliveries could simply taking advantage of the marketplace summer season could see a return to
lead to more trading activity between (and investor appetite) for tradeable assets, normality in capacity, at least on the short-
lessors and investors, something that has new or mid-life. and medium-haul operations.
slowed down over the past two years. Then there are the trading conditions.
Take the top public lessors. Like in 2014 As recently as October, investors Airline consolidation
when Aercap acquired ILFC, the market expected just a solitary interest-rate increase The merger of Frontier Airlines and Spirit
expects some asset sale activity from the from the Federal Reserve in 2022. But they Airlines, which is set to complete in the
GECAS portfolio. Post the ILFC transaction, have revised expectations as consumer- second half of this year, will create a
Aercap sold $2 billion-worth of assets price inflation surged in the final quarter. The competitive ultra-low fare airline, according
versus $1 billion initially anticipated. Fed could announce as many as five rate to Bill Franke, Frontier’s chairman and
“You will definitely see sales as this is rises over the course of this year. Treasury managing partner of Indigo Partners.
part of our business of recycling capital,” yields and interest-rate expectations in the Canadian carrier WestJet has also
Aengus Kelly, Aercap’s chief executive USA have marched higher since the end of agreed to Sunwing Vacations and
officer, tells Airfinance Journal. 2021, when the Federal Reserve announced Sunwing Airlines to bring a complementary
“We will employ the same asset disposal it would accelerate plans to taper its asset business and strengthen its leisure
strategy we had post the ILFC acquisition purchases. The yield on 10-year Treasuries offering. Could the airline industry see
and shape the portfolio accordingly.” climbed to 1.9% in mid-January. It reached more consolidation?
In January, Air Lease said it only sold 1.97% in mid-February, its highest level in There are headwinds for airlines that
five aircraft in 2021, but if production rates two years. could influence their trajectory. Business
continue to increase, it will sell $750 Could this influence aircraft trading, travel return is slow, fuel prices are on the
million-worth of assets this year. This is especially in a relatively high asset price rise and so are airport charges.
not surprising because ALC will take 266 environment?
new aircraft from the original equipment Another factor is oil prices, which have OLIVIER BONNASSIES
manufacturers over the next three years: dramatically increased over the past three Managing editor
85 in 2022, 84 in 2023 and 97 in 2025. months. Airfinance Journal
www.airfinancejournal.com 3
Contents
Cover story News Analysis Special Reports
CALC pumps up its muscles
Strong ESG credentials, access to 10 Will there be more appetite for
ABS this year? 24 Jol/Jolco light at end of runway
Japanese investors remain wary of the
cheap capital and the region’s largest Despite a good pipeline of transactions,
lessor orderbook will pave the way for aviation market. Yet, the major players are
which could include an inaugural issuance
China Aircraft Leasing Group to gain an cautiously optimistic that Jol and Jolco aircraft
in the aviation ABS market, this year’s deals
investment-grade rating, its founder and financings will pick up again this year, writes
may not reach the volumes of 2021. Olivier
chief executive officer, Mike Poon, tells Dominic Lalk.
Bonnassies reports.
Dominic Lalk.
12 Irish lessor in growth mode
Aergo Capital’s chief risk officer, Antony
27 Regional boom
As the industry emerges from Covid-19,
21 Snelleman, delves into the company’s
ambitious expansion plans as the Covid-19
regional lessors will look to take advantage
of M&A opportunities as well as the improved
pandemic unwinds, Hugh Davies reports. economics of new-technology regional assets.
Olivier Bonnassies and Hugh Davies report.
13 Electric potential for regionals
As the leasing community continues to show
interest in innovative propulsion technology,
29 Investor poll 2022 regional
aircraft
ATR72-600 makes it three in a row
Heart Aerospace’s Anders Forslund details
The European manufacturer’s turboprop
the tech start-up’s vision for regional air travel
celebrates a hat-trick of wins in Airfinance
of the future. Hugh Davies reports.
Journal’s Investor Poll regional aircraft
category.
14 Home comforts
Chinese lessors will strongly support the
Chinese-manufactured C919 aircraft, believing 31 Values and lease rates trend -
Boeing 737 Max 8
it will not squeeze Airbus’s and Boeing’s With its return to service, Geoff Hearn reviews
narrowbody market share in China, reports the market for the lead model of the Boeing
6 People news Elsie Guan. Max family.
News analysis 15 ‘Kings of cargo’: assessing A350
and 777X freighters
33 Market competitors - Battle
intensifies for sub-150-seat
Airfinance Journal’s Olivier Bonnassies talks sector.
8 No liquidity challenges for
Avianca
to experts on the new factory-built generation
of freighters.
Embraer sees a large market for aircraft up
to 150 seats, but the Brazilian manufacturer’s
The Colombian airline has no plans to raise second-generation E-Jets face stiff competition
additional debt in the near term and is open
to financing alternatives outside of primary
17 Russia sanctions blow to lessors
Just as the industry starts recovering from
from Airbus’s A220 family. Geoff Hearn
compares the respective aircraft.
operating lease strategy. Hugh Davies reports
Covid, Russia’s invasion of Ukraine has
35
put a significant obstacle in the way of that Data
9 Asia’s apathy fails to slow ABS
market
recovery, particularly for lessors with assets in
the region. Laura Mueller reports.
Investors in Asia-Pacific continue to show little
interest in aircraft asset-backed securities
transactions. Elsie Guan asks why. 19 Opportunity knocks for
narrowbody freighters 38 Pilarski
Managing editor Group sub editor Senior marketing executive (Subscriptions) Printed in the UK by Buxton Press, Buxton,
Olivier Bonnassies Peter Styles Wilson Eva-Maria Sanchez Derbyshire.
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Michael Duff without the written permission of the
Asia editor +44 (0)7736 804460 Publisher. The Airfinance Journal Ltd.
Dominic Lalk mduff@theairlineanalyst.com Production editor Registered in the United Kingdom 1432333
+852 2842 6941 Tim Huxford (ISSN 0143-2257).
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Greater China reporter Chris Gardner Divisional CEO Airfinance Journal (USPS No: 022-554) is a full
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管沁雨 (GUAN Qinyu); Elsie Guan Jeffrey Davis
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Senior reporter George Williams Subscriptions / Conferences hotline Although Euromoney Institutional Investor
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+44 (0)20 7779 7346 george.williams@airfinancejournal.com hotline@euromoneyplc.com accuracy of this publication, neither it nor any
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Head of Asia subscriptions for consequences that may arise from errors
Customer services
Consulting editor Harry Sakhrani or omissions or any opinions or advice given.
+44 (0)207 779 8610
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8 Bouverie Street, London, EC4Y 8AX, UK This publication is not a substitute for specific
harry.sakhrani@airfinancejournal.com
Content director, AFJ and industry chair professional advice on deals. ©Euromoney
aviation finance Senior product marketing manager Board of Directors: Leslie van de Walle Institutional Investor 2022
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laura.mueller@airfinancejournal.com sarah.smith@euromoneyplc.com Tilbian, Colin Day and Wendy Pallot.
4 Airfinance Journal March/April 2022
News analysis
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A FORCE WITH NATURE
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materials help to deliver a double-digit reduction in fuel consumption
and the lowest level of CO2 emissions. Inside the cabin and outside,
it’s the quietest aircraft in its class, delivering a 65% reduction in noise
levels around airports and the biggest margin to ICAO noise limits.
The E2 Profit Hunter is a force with nature, not against it.
E2sustainability.com
#ConnectToOurWorld
www.airfinancejournal.com 5
People news
Former leasing executives form new company
L ynn Guiney and Gerard (Garry) Burke
have registered a new company, Soleir
Aviation Capital, with Companies House
origination responsibilities.
She has held various aircraft leasing and
finance positions, including several senior
Ireland. origination and management roles at AWAS
The move marks the first female-founded and SMBC Aviation Capital (formerly RBS
aircraft operating lessor and should attract Aviation Capital).
environmental, social and governance- Guiney declined to comment on the
focused investors looking to support company registration.
diversity in the sector. Burke is the secretary, according to
The company was registered on 11 the registration. He previously worked as
November in Dublin, Ireland. the global head of structured finance at
Guiney, who previously served as the head Standard Chartered Bank, responsible for
of Europe, Middle East and Africa (EMEA) at aviation and shipping portfolios. Burke was
Avolon, is listed as the company director. the chief executive officer of Pembroke
She stepped down from her Avolon role Capital when Standard Chartered Bank
in September 2021. Guiney previously acquired it in 2007. He had previously
worked at Standard Chartered Bank as a held various positions at aircraft leasing
managing director in its aviation finance companies GPA Group and GE Capital Lynn Guiney
division with global remarketing and EMEA Aviation Services.
MUFG names new Heinemann joins NAC
head of aviation N ordic Aviation Capital (NAC) has
hired Klaus Heinemann as a strategy
worked for 11 years. He then served as
joint general manager at Long Term Credit
asset management consultant pursuant to naming him
non-executive chairman of the board on
Bank from 1988 to 1998, where he built its
aviation financing franchise. In 1998, he
emergence from Chapter 11. joined DVB Bank and was on the executive
G eraint Sampson has joined MUFG
Bank as director and head of aviation
asset management within the bank’s global
Heinemann brings more than four
decades of aviation financing and board
board until 2002, driving its transformation
into a global transportation-focused bank.
expertise to NAC, having held senior Since retiring from Aercap, Heinemann
aviation finance office.
leadership roles throughout his career. has been an independent director at
Sampson has more than 30 years’
He was chief executive officer (CEO) of multiple firms over the past decade. He
experience in the aviation sector, having
Aercap for 10 years to 2012, where he was is an independent board member of
previously held positions at General Electric,
instrumental in building the firm into a top Hamburg Commercial Bank. He is also
Virgin Atlantic Airways, Royal Aero, CIT,
global aircraft lessor. a former chairman of Ingrid Hotels and
Avolon and, most recently, Boeing Capital,
A banker, Heinemann began his career Finnair and a former board member of
where he was senior manager, powerplant,
in 1976 at Bank of America, where he Algeco Scotsman.
handling aircraft transitions and returns.
His long-standing expertise spans
aircraft and engine management, including
maintenance, airline, leasing and manufacturer.
Blueberry expands
Sampson is responsible for creating an
asset management capability to further
with ex-Airbus VP
strengthen MUFG’s technical and lease
management offering and support the
structured finance
lending platform with necessary detailed
operating lease and aircraft condition
analysis, in line with strategic ambitions to
F ormer Airbus finance executive Yann
Ballet has joined asset management
and remarketing company Blueberry
provide cross-border solutions for aviation Aviation as a senior adviser.
clients globally. Ballet has more than 30 years’ financing
Based in London, he reports to Vicente experience in aircraft and structured
Alava-Pons, MUFG co-head of global finance with experience covering aircraft Yann Ballet
aviation. financing structures, including mortgage
“Geraint’s wealth of experience will be debt, leasing, capital markets, Islamic for Airbus aircraft, which has supported the
key to differentiating MUFG in the market financing, investment funds and corporate financing of 23 aircraft over the past three
as we continue to build out a best-in-class financing. years.
team,” says Alava-Pons. He previously served as vice-president Ballet also advised commercial teams for
“We take pride in our ability to tailor of structured finance at Airbus, which he several airlines on restructuring schemes
solutions for clients, and Geraint’s joined in 1987. He held various senior implemented during the Covid-19 crisis.
appointment will further enhance our positions in France, the USA, Ireland and Francois Gautier, founder and chief
technical expertise, providing added value the UAE, building strong relationships executive officer of Blueberry Aviation,
to our offering to airlines, operating lessors, within the financing communities. says: “I am delighted that Yann is joining
investors, airframe and engine manufacturers, He was more recently responsible for Blueberry Aviation’s team to support
traders and MROs [maintenance, repair and designing and implementing Balthazar, a our customers as well as assist us in the
overhaul companies],” he adds. private non-payment insurance programme development of new exciting projects.”
6 Airfinance Journal March/April 2022
News analysis
www.airfinancejournal.com 7
News analysis
No liquidity challenges
for Avianca
The Colombian airline has no plans to raise additional debt in the near term
and is open to financing alternatives outside of primary operating lease
strategy. Hugh Davies reports.
C olombian flag carrier Avianca is
optimistic for 2022 as it looks to
develop its post-Chapter 11 business
As for long-haul, Colombia-Europe is
Avianca’s key market, according to Philip.
“In March, we will reactivate flights
Avianca unveiled plans to streamline its
widebody operations around the Boeing
787-8 model late last year, however a
plan based on profitable, sustainable from Medellín and Cali to Madrid, and we number of A330s will remain in the fleet
growth over the long term, the airline’s will also resume our flight to London. We until the end of the year, he adds.
chief financial officer, Rohit Philip, tells also continue to fly between Bogota and “The Boeing 787-8 is the widebody
Airfinance Journal. Madrid, as well as Bogota and Barcelona,” aircraft of choice for Avianca, as it offers
“We are happy with the market he says. a very comfortable flight experience for
recovery so far and cautiously optimistic It will also look to grow its network in our passengers, significant belly cargo
for 2022. By the start of the summer North America, having launched its first capacity, fuel efficiency and efficient
season in April, we will be flying 610,000 direct Bogota-Toronto route in December operating costs, making it the ideal aircraft
seats per week, which is 96% of the and strengthening its presence in the for Avianca’s network,” says Philip.
capacity we had available in the same USA with the launch of direct routes to Avianca operates a fleet of 14 787s,
month in 2019,” says Philip. New York, Orlando, Los Angeles, Ontario including one 787-9 leased from SMBC
He notes that there continues to be and Washington, DC. Aviation Capital (SMBC AC), while seven
a recovery of demand in all markets in Philip tells Airfinance Journal that 787-8s are owned.
which the carrier operates. Avianca has no current plans to raise The carrier will look primarily at
“By the end of the summer season, additional debt. operating leases for additional aircraft
in October, we will be flying more than “We have successfully restructured the but will remain open to reviewing other
676,000 seats per week, which is entire capital structure of the company financing alternatives available, says
more than 10% higher capacity than we and have a solid liquidity position that Philip.
operated in the same month in 2019.” allows us to execute our business plan,” Roughly half of Avianca’s fleet is made
Coming out of Chapter 11 in December, he adds. up of operating leases with names
Avianca wants to combine its 100 years’ The company raised about $1.7 billion including SMBC AC, Jackson Square
industry experience with the “practicality of new investment during its restructuring Aviation, Seraph Aviation Group, ICBC
and flexibility of the modern low-cost world”. process, reducing its debt pile while Leasing, Avolon, Castlelake and Aercap,
He says: “We are always analysing rejecting around 50 aircraft, including according to Airfinance Journal Fleet
opportunities to connect point-to-point ATRs, Airbus A330s and A321s. Tracker.
routes to Colombia and Latin America Avianca retained $1 billion of liquidity as Avianca agreed new aircraft leases for
with new destinations, and also to of the end of November. five new A320neos from CDB Aviation
increase our presence on those routes “We have all learned from the as well as four aircraft of the type with
that our customers prefer. pandemic that we are susceptible to Aviation Capital Group.
“The fundamental pillar of our business factors beyond our control. There will More recently, New York City-based
plan is that we will have a very efficient always be uncertainty. An example of this Fortress Transportation and Infrastructure
cost structure, which enables us to was the impact on the airline industry, Investors (FTAI) closed nine A320 sale
profitably fly several new point-to-point of the Omicron variant. Avianca was no and leaseback transactions with Avianca.
markets. We will, as always, make sure exception, though the consequences The firm says an additional 10 sale and
our capacity growth is in line with overall for us were less due to some proactive leasebacks with Avianca were expected
market demand.” measures that we took,” says Philip. to close by the end of February.
8 Airfinance Journal March/April 2022
News analysis
Asia’s apathy fails to slow
ABS market
Investors in Asia-Pacific continue to show little interest in aircraft asset-backed
securities transactions. Elsie Guan asks why.
A ircraft asset-backed securities (ABS)
are common in the US and European
markets. They have been for years. In the
In 2018, CALC launched China’s first $170
million ABS which was denominated and
settled in US dollars. The ABS was listed on
Asia-Pacific region, however, and China in the Shanghai Stock Exchange, and Tianjin-
particular, there is decidedly less appetite registered China Asset Leasing was the
for ABS that generate cash flows from issuer, while Huatai Securities (Shanghai)
aircraft leases or receivables. Asset Management was the manager. The
“Setting up and servicing an ABS ABS was rated AAA by China Cheng Xin
transaction is very troublesome for us,” a International.
director at a Chinese bank-backed lessor “I think it is a matter of how you
tells Airfinance Journal. appreciate liquidity and credit. In the
“The process is long, and the legal western world, all these ABS papers have
fees are not cheap. Good and bad aircraft good credit-rating agencies which put
assets are put in a portfolio for financing,
which is definitely a consideration [because
The Asian market is reasonable ratings on these ABS. But here
in Asia, there is not enough expertise to do
the lessor would prefer not to touch the different because investor that,” says Lau.
‘bad assets’]. We have strong credit and Lau notes that ABS experts are largely
strong liquidity; we are popular with banks appetite and behaviours based in the US and in Europe, not in the
doing long-term financings, so it seems
unnecessary for us to launch an ABS
are different. I think most Asia-Pacific.
“Even the issuers are Asian companies
transaction,” says the director. Asian investors would like – they will choose to issue their ABS
“I am personally very interested in the products in the US or Europe. Some
ABS market, but operating an US dollar- to target higher returns Asian rating agencies I know have limited
denominated ABS faces relatively large than US investors. knowledge about aircraft ABS. They have
restrictions under the Chinese regulatory to refer cases to their headquarters in New
environment,” says another Chinese Johnny Lau, chief aviation consultant of York or London in order to get ratings and
lessor. PwC Aviation Services valuations,” he says.
Johnny Lau, chief aviation consultant Another element, adds Lau, may be
of PwC Aviation Services believes Asian differences in business management
investors prefer higher-yield and more in 2022 with E-notes sold and that will philosophy. In Asia, lessors like to hold on
liquid products than aircraft ABS. be part of our asset sales target for this to their assets, building large portfolios to
“The Asian market is different because year,” says DAE’s chief executive officer, conquer market share.
investor appetite and behaviours are Firoz Tarapore, during an earnings call in “In China, leasing companies like assets.
different. I think most Asian investors February. They want to have as many aircraft as
would like to target higher returns than US Separately, in December 2021, Kuwaiti possible. So, if they are going to sell assets
investors. And they are less patient. They aircraft leasing company ALAFCO said it through aircraft ABS, their portfolios will
don’t like to put money in very long-term was “currently active in tapping the ABS decrease. That means it will have an impact
investments,” says Lau. market”. In its outlook for 2022, ALAFCO on their appraisals or their evaluation of
Even if the global aviation market is noted that “lessor financing and the ABS performance,” says Lau.
under continuing assault from the Covid-19 market continue to be very robust, reflective He adds: “I think a lot of the larger
pandemic, the global aircraft ABS market of increasing appetite from investors”. global leasing companies which opt
has seen a good recovery over the past Back in the Asia-Pacific, Hong Kong SAR- for ABS transactions are already strong
year and is expected to launch many new based China Aircraft Leasing Group (CALC) enough and have diversified their risks
‘transactions this year, prospectuses show. returned to the ABS market in 2020 with well enough to weather almost any
In February, Dubai-headquartered DAE its first renminbi-denominated issuance, crises thrown at them. Chinese and
Capital confirmed plans to return to the for Rmb5 billion ($710 million). Airfinance Asian investors may learn from them that
ABS market in 2022 with a “nice-sized” Journal understands that most of the income stream and risk diversification
transaction that will include equity notes. aircraft in the ABS pool are operated by can be more important than the size of
“For issuers such as DAE, whose ABS Chinese carriers. the fleet.
transactions have outperformed in the past, This was China’s first ABS denominated “Regional players in the Asia-Pacific and
I believe we have a very compelling story and settled in renminbi currency. It was China should reset their focus and double
to tell E-note investors. It is my expectation structured in eight tranches, with the down on risk management and the overall
that we will see a nice-sized transaction longest maturity at 7.65 years. return of the portfolio.”
www.airfinancejournal.com 9
News analysis
Will there be more
appetite for ABS this year?
Despite a good pipeline of transactions, which could include an inaugural issuance
in the aviation ABS market, this year’s deals may not reach the volumes of 2021.
Olivier Bonnassies reports.
T he aviation asset-backed securities
(ABS) market could see its first issuance
in the first quarter.
Volume
“One issuer may tap the market in the first
quarter and then in the second quarter,”
refinance date at the end of year seven.
The source recalls that two transactions are
coming up for refinancing in the first half of
Airfinance Journal understands there says another source. this year.
are seven transactions in the pipeline that However, he is not sure 2022 will match DCAL 2015-1 was up for refinancing
include five more traditional issuances and last year’s aircraft ABS volumes. in February, while ECAF I transaction
a pair of loan format deals. “I am putting volumes slightly under. refinanced debt is up in June.
One source says one transaction could There will be repeat deals in 2022 but I am “Those deals are likely not going to
see an inaugural issuance in the aviation interested at what rate they get closed and refinance by the dates they should, and this
ABS market. the ability to finance the transactions at the may cause investors to ask for more in new
“Around four proposed deals are levels they [issuers] need. issue deals,” says the source.
frequent issuers, while the remaining two “Some issuers have been originating Airfinance Journal Deal Tracker shows
are occasional issuers,” says the source. portfolios at the same pace. Some that that 15 transactions (of which two were
Marketing is in place for the seven executed in early 2021 originated their engine deals) were issued last year with
potential deals but the source does not portfolio at great prices,” he adds. more than $8.65 billion of debt raised in the
expect any issuance being announced For him, refinancing deals may be ABS market.
before the beginning of next month. difficult. “When rates are 2.5% there will More than $7 billion-worth of debt was
“The first transaction will not hit the market be appetite for refinancings but when issued on the senior tranches last year.
before next month and then the market will they creep back up, it is not going to be Appetite for the B tranches totalled more
see how it feels,” adds the source. acceptable to refi those deals,” he says. than $1.2 billion-worth of financings while
All seven deals could be announced Post-financial crisis (2007-10) ABS another $416 million was invested in ABS C
before the end of the first quarter, though. transactions have typically featured a tranches.
2021 ABS issuances per aircraft securitised (Airfinance Journal Deal Tracker)
Aircraft type
Q400 12
ATR72-500 2
CRJ900 5
E195 8
E190 17
E175 12
747-400F 1 1 1
777F 1 1
777-300ER 3 8 2
777-200ER 1
A350-900 6
A330-900 3 1
A330-300 2 2 1 4
A330-200 1 1
787-9 17
787-8 1 1
737 Max 8 6 2 1
737-900ER 5 2 2 1
737-800 2 16 17 8 4 20 1 2 3 2 3
737-700 1 1 4
A321 1 2 2 5 1 4 1 3
A320 9 10 6 3 8 53 9 3 7 9
A319 5 4 5 14 1
A321neo 2 4 6 5 10
A320neo 5 5 1 21 1 2
A220-300 1
A220-100 5 2
Number of aircraft
AASET 2021-2 | ABS | 11-21 | $619.7m | 15xA/c SOLRR Aircraft 2021-1 | ABS | 11-21 | $706m | 22xAc Sprite 2021-1 | ABS | 11-21 | $633m | 35xA/c
AASET 2021-1 | ABS | 11-21 | $817m | 34xA/c Navigator 2021-1 | ABS | 11-21 | $716m | 22xA/c Stellar 2021-1 | ABS | 10-21 | $282m | 21xA/c
SALT 2021-1 | ABS | 10-21 | $893m | 150xA/c CLAS 2017-1R | ABS | 07-21 | $450m | 33xA/c Blackbird II 2021 | ABS | 06-21 | $745m | 18xA/c
MAPS 2021-1 | ABS | 06-21 | $540m | 20xA/c Thrust 2021-1 | ABS | 05-21 | $485m | 24xEngines SLAM 2021-1 | ABS | 05-21 | $663m | 16xA/c
WEST VI | ABS | 04-21 | $336.7m | 29xEngines,1xA319 Regional 2021-1 | ABS | 04-21 | $255m | 39xA/c CLAST 2021-1 | ABS | 01-21 | $595m | 27xA/c
10 Airfinance Journal March/April 2022News analysis
This compared with 2020 when the
market paused after five deals in the
ABS have focused on asset types, underlying credits
first quarter, worth $2.04 billion of debt, and, to a certain extent, asset manager over the past
including two transactions including
engines only. few years, but in the final quarter of last year we saw
In 2019, Airfinance Journal recorded 17
transactions worth $8.8 billion, up from $7.3
a move back to more mid-life or older asset types with
billion the previous year. shorter and sometimes close to end-of-life leases.
The year 2021 had many firsts.
The SALT 2021-1 transaction was the
inaugural ABS transaction serviced by
Bellinger Loan Management, an affiliate of featured, versus 30 older technology Loan-to-values (LTVs) were slightly more
Bellinger Asset Management, in partnership widebodies such as the A330 and 777 conservative with single-A bonds in the
with Stonepeak. It was also the first ABS families and 747-400F model. mid-60 percentage range, about 75% LTV
comprised entirely of aviation loans. Narrowbodies accounted for the largest for BBB bonds and 80% for BB versus 85%
SLAM 2021-1, the transaction by sponsor share with 330 units, or 73% of aircraft pre-Covid.
Sky Leasing and its affiliates, priced at a assets, although no transaction uniquely Pricing was inside of where the market
2.43% coupon on the senior tranche. The featured narrowbody aircraft, the data was before the pandemic, although some
transaction represented the lowest-ever shows. protections were added for noteholders.
coupon across all aircraft ABS at the time. Liquid narrowbody aircraft, which make For example, the debt service coverage
MAPS 2021-1, the transaction by funds up 70% of the overall pools securitised, ratio (DSCR) was halved to a three-month
managed by affiliates of Apollo Global are considered strong leasing assets trailing average and minimum numbers
Management and Merx Aviation, priced at because of their large diversified installed of aircraft were specified for certain
the tightest-ever all-in yield for a three- or expected operator bases. structures.
tranche syndicated aircraft portfolio ABS. Given the nature of some ABS Towards the end of the year, issuer focus
The Regional 2021-1 transaction, transactions, the A320 and the 737-800 reverted to mid-life or older assets, rather
sponsored by Falko, was the first ABS were the lead aircraft last year, accounting than the young assets featuring in some
comprised entirely of regional aircraft. for 43% of the assets. transactions in the second quarter.
In the light of the Covid-19 pandemic, The data shows that 117 A320s featured “ABS have focused on asset types,
the focus has been on new-technology on last year’s ABS transactions along with underlying credits and, to a certain extent,
equipment along with good credits. 78 737-800s. asset manager over the past few years, but in
But some argue that future ABS The A320neo family accounted for 62 the final quarter of last year we saw a move
transactions could feature more used aircraft: 35 A320neos and 27 A321neos. back to more midlife or older asset types
equipment, as lessor trading continues. In 2020, 61 aircraft assets featured in with shorter and sometimes close to end-of-
three of the five ABS transactions. All were life leases. The market was open to those
Narrowbody-centric narrowbody aircraft, except four A330- structured deals,” observes another source.
In 2021, a total of 453 aircraft assets were 200s and a pair of A330-300s, therefore One banking source says, historically,
refinanced via the ABS market, the data accounting for 91% of total aircraft assets. pricing has been yield-based but since
shows. Regional aircraft accounted for Among the narrowbody securitised the middle of last year when rates were
64 units last year with the ATR72-500, assets, only two units were new-technology low, issuers argued for spread-based
De Havilland of Canada Dash 8-400, aircraft. transactions.
Bombardier CRJ900 and some E-Jets One source says a differentiator in this “Now the benchmarks have been
featuring as collateral for the first time. year’s ABS issuances could be the credit shooting right back up, banks and issuers
Last year also saw the Airbus A220 family quality, compared with the deals in the first may reverse course and opt for yield-
in some ABS transactions. Regional aircraft half of 2021. based,” he says.
accounted for more than widebodies. “Some deals were like 175-200bps [basis
Issuers included the new-technology Structures points] on spread basis and rates were
A330neo, A350-900 and Boeing 787 Aircraft ABS structures underwent some 50-60bps a year ago,” he adds. “But if you
products in some ABS transactions. In changes in 2021, with additional protection apply 200bps over five-year treasury, the
total, 29 new-technology widebody aircraft for noteholders depending on the collateral. cost of financing is tremendously higher.”
2021 ABS low coupon transactions
Senior tranche Size (m) WAL GDNC (bps) SPRD (bps) CPN (%) YLD (%)
SLAM 2021-1 592.43 5.49 160-170 150 2.43 2.447
BBIRD II 630.00 5.20 160-170 150 2.44 2.456
MAPS 2021-1 417.65 4.99 170-180 170 2.52 2.535
Junior tranche Size (m) WAL GDNC (bps) SPRD (bps) CPN (%) YLD (%)
SLAM 2021-1 70.73 5.49 285-300 250 3.42 3.447
BBIRD II 115.00 5.30 270-280 250 3.45 3.471
MAPS 2021-1 72.23 4.99 - - 3.43 3.45
MAPS 2021-1 (C tranche) 50.24 3.46 5.75 area - 5.44 5.5
Source: Airfinance Journal Deal Tracker 2021
www.airfinancejournal.com 11News analysis
Irish lessor in growth mode
Aergo Capital’s chief risk officer, Antony Snelleman, delves into the company’s
ambitious expansion plans as the Covid-19 pandemic unwinds, Hugh Davies reports.
I rish lessor and asset manager Aergo
Capital has been poised for rapid growth
since the start of the pandemic, after
as that space evolves that will remain an
important part of our portfolio. Then as we
move onto entirely new technologies again
having shrunk its portfolio significantly we will look at those as well and find new
between 2017 and 2019. opportunities to invest,” he adds.
In an interview with Airfinance Snelleman explains that Aergo’s portfolio
Journal, Aergo’s chief risk officer, Antony variety, which spans widebody 787s
Snelleman, explains that the company has through to the De Havilland of Canada
increased its owned portfolio from 40 to Dash 8-400, helps deploy capital as
more than 100 aircraft in the past 15 to 18 efficiently as possible to generate returns.
months with exposure of about $1.8 billion “We look for value across the spectrum.
across 31 lessees in 26 countries. At times there’s pockets of value in
It also manages another 80 aircraft worth different places. While some lessors
more than $2 billion. specialise in certain areas, we will go
“Leading up to the crisis, from around where there’s efficiency and where we
2018 to 2019 it was very hard to write new can generate quality returns for our
business and find new deals and so we shareholders rather than saying that we
found it was better to be selling because have to be in a certain area of the market,”
we were seeing better execution in selling adds Snelleman.
deals than we were able to buy,” explains
Snelleman. We’ve had a really Financing
“Like everybody, the first few months Snelleman says debt retrenchment during
of the crisis were hard work dealing with substantial increase in the peak of the pandemic “played to our
deferrals and so on, but after about six advantage” as the lessor began to increase
months we saw opportunities arise and we
the size of the portfolio its exposure and expand its relationship
started to invest. and improvement in the with lenders.
“We’ve had a really substantial “There’s no doubt that in the early days
increase in the size of the portfolio and average credit quality of banks were hunkering down and trying to
improvement in the average credit quality work out their exposure. There was a gap
of the portfolio during the pandemic,”
the portfolio during the about 15 to 18 months ago where there
he adds, noting that Aergo has added pandemic. wasn’t a lot of competition in the space and
with new names such as British Airways, a lot of the lenders just weren’t lending.
Singapore Airlines, SAS and Iberia and, Antony Snelleman, chief risk officer, Aergo “They’re now powering back and so
more recently, Canadian start-up Lynx Air Capital there’s a lot of money in the market that
and established regional carrier Porter is creating a lot of competition,” says
Airlines in Canada. Snelleman.
Snelleman says this rapid growth is set New technology “We’re constantly exploring new ways to
to continue with the company potentially Aergo delivered the first of three Boeing finance and broaden the debt portfolio so
reaching 300 to 400 aircraft over the 737 Max 8 aircraft to Lynx Air under a it’s exciting to bring on new partners and
coming years. Portfolio acquisitions are an purchase and leaseback transaction in new relationships.
important candidate for growth. mid-February. “Only about half our portfolio has debt
“We would certainly consider an M&A Each of the three aircraft will be financed on it so we’re able to acquire aircraft with
play and if there was an opportunity to with equity provided by Carval investment cash and hold it with cash or back lever
acquire a whole portfolio, we would look at funds and debt arranged by AV Airfinance. it later which reduces the execution risk
that. We’re confident with the platform we The remaining two 737 Max units to be sold significantly,” he adds.
have now that we can lever it up. to and leased back from Aergo will arrive in Investment-grade status for Aergo
“There’s a lot of M&A activity in that early 2022. is on the cards to finance growth more
space, so we expect some aircraft will drop Snelleman says the company expects to efficiently, says Snelleman.
out of that,” says Snelleman. be a growing player in the new-technology “We have a project that looks at exactly
He notes environmental, social and area, both with the Max but also crossover that to review what is the most effective
corporate governance (ESG) factors will regional aircraft such as the Airbus A220, way to raise equity and raise debt.”
also create opportunities for mid-life and which has attracted a significant amount of He adds: “We’re seeing some of our
end-of-life equipment. interest in the past 12 months. competitors have amazing execution
“A number of lessors are rebalancing “We’ve been studying the A220 and it’s through reaching investment-grade status,
their portfolios in line with ESG criteria only a matter of time before we enter that so we’re looking at that and that’s definitely
so we think that will create some good space,” says Snelleman. an opportunity we’ll work towards in this
opportunities,” he says. “Similarly, for the turboprop market, calendar year.”
12 Airfinance Journal March/April 2022News analysis
Electric potential for
regionals
As the leasing community continues to show interest in innovative propulsion
technology, Heart Aerospace’s Anders Forslund details the tech start-up’s vision for
regional air travel of the future. Hugh Davies reports.
L essors and the investor community will
play an “integral role” in the success of
future aircraft propulsion programmes as
will assist with the sale of Volocopter’s
family of eVTOLs.
Brazilian carrier Azul aims to enter
the global air transport industry commits to the eVTOL market under a strategic
net zero by 2050, according to Swedish partnership signed with German aerospace
aerospace company Heart Aerospace. company Lilium last summer. The deal
“We’ve had discussions with several includes a fleet of 220 Lilium eVTOL aircraft
leasing companies already,” Anders expected to start operating in 2025.
Forslund, chief executive officer of Heart
Aerospace, tells Airfinance Journal. Regional profitability
“We are at the stage in the product Forslund explains that Heart’s ES-19, which
where we can engage with the market has secured backing from major airlines
further and so we are in the process such as Finnair, Mesa Airlines and United
of understanding how to create those Airlines, is not just focused on sustainability,
collaborations,” says Forslund. but also on reinvigorating the regional
The company is developing its 19-seat The pace at which aviation market by improving profitability
ES-19 electric aircraft with certification for regional carriers and enhancing
expected in the third quarter of 2026 and these aircraft come accessibility in underserved areas of the
commercial availability later that year. world.
“We look at the programme from a de-
will depend on early The first-generation ES-19, which has the
risk perspective – the biggest risks for the development of future potential to operate up to 250 miles, aims
programme are technological, so our efforts to compete with 70-seat regional aircraft.
so far have been building an engineering technology programmes, Its electric motor is expected to reduce
team to demonstrate elements such as
electrical propulsion and other subsystems
which means some significantly engine cost of ownership and
maintenance expenses compared with
we are looking at,” says Forslund. companies will have to go traditional turboprop and turbofan engines.
He points out that different types of While initially starting with 19-seat aircraft
financing structures such as green project out of their comfort zone. to facilitate certification processes and
financing are becoming more common, but take advantage of technological overlap
notes it is also important for airlines and Anders Forslund, chief executive officer of with current electric charging and motor
leasing companies to realise that they have Heart Aerospace designs, the company is planning for larger
an important role to play as well. aircraft in the future.
“The pace at which these aircraft come The company says it is seeing strong
will depend on early development of future Several major lessors and airlines have interest from regions such as Canada, New
technology programmes, which means started in a different direction around Zealand, the UK and Indonesia.
some companies will have to go out of electric propulsion. “Regional aircraft have been getting
their comfort zone to make these types of Embraer’s urban air mobility division, larger and larger and more routes are
engagements,” adds Forslund. Eve, has secured 400 commitments from getting shut down, which is diminishing the
Quizzed on the pace of future lessors for its eVTOL aircraft, including value proposition of regional travel. We’re
technology programmes such as electric Azorra Aviation and Falko Regional Aircraft. starting to see that it’s the 70-seat ATRs or
vertical take-off and landing (eVTOL) Last year, Irish lessor Avolon teamed up Dash 8s that are around the limit of where
gaining interest from the lessor and with Vertical Aerospace, a UK aerospace airlines operate profitably,” adds Forslund.
investor community, Forslund says it is manufacturer, with a $2 billion order for up “It’s a similar situation we’re seeing with
important for industry players looking at to 500 of Vertical’s VX4 eVTOL. our relationship with Mesa Airlines, who
building their climate investments to think Of these, placements have been secured used to be the largest operator of 19-seater
of it as an investment portfolio. with Gol for 250 aircraft, Japan Airlines for aircraft in the world… they don’t operate
“Some of it carries higher risk but up to 100 aircraft and a minimum of 100 those aircraft anymore.
potentially higher reward, whereas other units with Air Asia. “We believe,” he adds, “that by replacing
programmes may not be making the best California-based Aviation Capital Group the jet engine, which is just as expensive
risk-reward proposal. It’s all about adding recently agreed with urban air mobility for a 19-seater as for a 70-seater, with an
variation and diversity to make sure you’re (UAM) provider Volocopter to develop electric motor, we can change the equation
covering all your bases,” he says. financing solutions of up to $1 billion that of regional travel.”
www.airfinancejournal.com 13News analysis
Home comforts
Chinese lessors will strongly support the Chinese-manufactured C919 aircraft,
believing it will not squeeze Airbus’s and Boeing’s narrowbody market share in
China, reports Elsie Guan.
T he C919 manufactured by Commercial
Aircraft Corporation of China (COMAC)
will be delivered to its maiden airline
operators this year, the company’s deputy
general manager, Yongliang Wu, confirmed
in early 2022.
The project, designed to take on Airbus’s
A320neo-family of aircraft and Boeing’s 737
Max programme, is years behind schedule
and has so far only garnered firm order
commitments from airlines and leasing The C919 project is still in the airworthiness certification
firms in China.
“The C919 project is still in the stage and is expected to be delivered in 2022.
airworthiness certification stage and is
expected to be delivered in 2022,” says Yongliang Wu, deputy general manager, COMAC
Wu, who adds that the first delivery is
pending certification of the programme. In China, several lessors have placed removed, I doubt that operating the C919
Founded in 2008, COMAC offers two C919 commitments with firm orders and would be profitable for airlines,” says a
current types of aircraft, the C919 and the purchase options, including ICBC Leasing director who wishes to remain anonymous
ARJ21, as well as the widebody CR929 (100), Bocomm Leasing (30), CCB Leasing from a Shanghai-based lessor (lessor B).
model in development in a joint venture (50), CMB Leasing (30), Everbright Leasing “We definitely support the C919 strongly,
with Russian state manufacturers. (30), ABC Leasing (75), AVIC Leasing (30) although this doesn’t necessarily mean that
The ARJ21 entered into passenger and Huaxia Financial Leasing (20). we have to reduce the proportion of Airbus
service in 2016, with 66 units of the model ICBC Leasing confirmed it has 30 firm and Boeing aircraft in our fleet. In other
delivered so far. They are in service with orders while others did not specify. words, supporting the C919 is one thing,
Chengdu Airlines, Genghis Khan Airlines, China Eastern Airlines will be the launch there are no conflicts with other models,
Jiangxi Airlines, China Express, Air China, operator of the C919. Industry sources and other models will not be affected by
China Southern Airlines and OTT Airlines. tell Airfinance Journal that COMAC will the C919,” says another Shanghai-based
The largest current operator is Chengdu prioritise airline deliveries before attending lessor.
Airlines. to lessor orders. Lessor A feels that the C919 will become
COMAC has two ARJ21 production lines. “When COMAC begins to deliver the more competitive in the long run, when and
While the Chinese manufacturer does not C919, airline orders will come first. Our if it gains acceptance from regulators and
officially disclose production rates, it targets lessor orders will follow,” says lessor A. operators regionally and worldwide.
a production of 30 ARJ21s a year on the Lessors and financial institutions are The duopoly of Airbus and Boeing
second line. keen to provide C919 financings, he adds, “is very unfriendly to aircraft leasing
“To obtain an airworthiness certification especially for top-tier credits such as China companies, especially to Chinese lessors”,
is no easy feat, especially for a brand-new Eastern. he notes. “If the C919 enters into service,
aircraft like the C919. It is not necessarily Another Shanghai-based lessor agrees, there will be a lot of policy support. For
due to the aircraft itself, but because of saying C919 financing requests would see example, Chinese companies do not
some external factors,” says an anonymous fierce competition. need to apply for import approvals for the
director from a Shanghai-based lessor As a wholly owned leasing arm of China C919, which will cut out many complicated
(lessor A). Eastern, China Eastern Financial Leasing procedures,” according to lessor A.
“Some certification work for the C919 has been mandated to finance China “However, in terms of asset liquidity, the
needs to be proceeded under extreme Eastern’s first C919 delivery. A source at C919 is not an ideal aircraft type for the
environments overseas. It is not easy to do the lessor says it has sufficient funding to time being. It definitely will take time for the
the work overseas under the continuing finance the delivery. C919 to be accepted by the mainstream
situation of the Covid-19 pandemic. As Airfinance Journal went to press, markets in Europe and the US. Before that,
Therefore, we are not sure when the COMAC claimed 876 order commitments the liquidity of the asset will be somewhat
aircraft will really be delivered,” he adds. for C919 aircraft. limited, with most of the aircraft only
The C919 will have a capacity of 156 Lessors quizzed by Airfinance Journal operated in the Chinese market, which is
to 168 passengers – the A320neo can do not believe the C919 will give real also a consideration,” says lessor A.
accommodate 140 to 170 passengers. The competition to A320neo-family and 737 “As a lessor, we will always select aircraft
737 Max has a wider range, seating 138 to Max sales, at least not in the coming years. types according to customer demand. If
204 people. “As far as I know, the cost of the C919 customers want an aircraft, we will find
The list prices for the ARJ21-700, C919, is relatively high. However, airlines which ways to provide it to them,” he adds.
A320neo and 737 Max is $38 million, $50 will operate this aircraft type will get lots “What will be most crucial is passenger
million, $110.6 million and $99.7 million, of government subsidies. But, if these acceptance,” says lessor B. “The people
respectively. supporting factors were completely who fly will need to like the plane.”
14 Airfinance Journal March/April 2022News analysis
‘Kings of cargo’: assessing
A350 and 777X freighters
Airfinance Journal’s Olivier Bonnassies talks to experts on the new factory-built
generation of freighters.
B oeing formally launched the freighter
version of the Boeing 777X in late
January, responding to a threat from Airbus,
with its Airbus A350F but also making
sure that, by 2027, it will have a factory-
built widebody freighter meeting ICAO
emissions in the marketplace.
The US manufacturer announced Qatar
Airways as the launch customer with an order
for 34 777-8Fs and deliveries starting in 2027.
As part of the deal, Qatar Airways converted
Boeing formally launched the freighter version of the Boeing 777X in late January
20 777-8 passenger orders into freighters.
Boeing has been dominant in the
widebody factory-built freighter market. three in-production aircraft will not meet the 319 tonnes, a 250-tonne maximum landing
In a statement, Boeing Commercial standard by the end of 2027. weight while its fuselage width is 19ft 5in.
Airplanes chief executive officer, Stan Deal, Airbus’s A350F fully meets ICAO’s The A350F has a 232ft 4in (70.8 metres)
noted that the US manufacturer provides enhanced CO₂ emissions standards. overall length, and a 212ft 5in wingspan.
more than 90% of the world’s dedicated The 777-8F will carry about 10 tonnes The A350F can carry 30 pallets 96” x
freighter capacity. more payload and with more range than 125” or 30x AM-base containers on the
It still produces the 767-300ERF, the 777- the A350F, which has a predicted 118 main deck as well as 12 pallets 96” x 125”
200F and the 747-8F models and during tonnes payload. or 40x LD3 containers on the lower deck.
the pandemic it further increased its market Its cargo volume is 27,000 cubic feet The fuselage width of the 777-8F is
share with new orders. versus 24,500 cubic feet for the A350F. greater than the A350F. The aircraft has
But as per the 2017 adoption of the new The Airbus freighter has a 300-nautical similar dimensions as the A350F: 232ft 6in
aircraft CO₂ emissions standards, which will mile (nm) advantage at 5,400nm (8,700km), overall length, a 212ft 8in wingspan.
reduce the impact of aviation greenhouse however. Boeing says maximum payload is 112.3
gas emissions on the global climate, all It features a maximum take-off weight of tonnes over 4,410nm.
Potential replacement fleets (Airfinance Journal Fleet Tracker, Feb 2022)
Number of aircraft Axis Title
250 40
38
37 37
217 35
211 35
200 31 32
30
31 30
28 29 30
26
25
150
119
20
107
20 99 16
100
16 17 15
10
50 9
50 10 40
37 33
7 7 28 5
16 16 12 9 8 6 5 4 4 1
0 0
777-200F
767-300F
747-400F
767-300ERBDSF
747-8F
767-200BDSF
747-400ERF
A330-200F
747-400BCF
747-400BDSF
767-300BDSF
747-200F
767-300BCF
A330-300P2F
747-200SF
767-200ERSF
767-200SF
A330-200P2F
747-400LCF
747-300SF
Aircraft type Count of MSN Average age or aircraft
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