KBRA Comments on Nordic Aviation Capital DAC’s Exposure to Alitalia

NEW YORK--()--Kroll Bond Rating Agency (KBRA) currently carries issuer and senior unsecured debt ratings of BBB+ and BBB, respectively, with a stable outlook for Nordic Aviation Capital Designated Activity Company, (NAC), an aircraft lessor based in Denmark. Following the May 2, 2017 announcement that the shareholders of Italy’s flag carrier, Alitalia, voted unanimously to file for extraordinary administration in Italy, KBRA commented on the situation with respect to the impact on aircraft lessors and KBRA-rated ABS transactions.

NAC currently has exposure to Alitalia as a general lessor as well as via the two securitization transactions it manages, ATLAS Series 2014-1 (ATLAS) and Eagle I Limited, Series 2014-1 (Eagle), following the acquisitions of Aldus Aviation Limited and Jetscape Aviation Group. NAC currently has 11 aircraft (Embraer E170s and E190s) on lease to Alitalia. Two of these aircraft are in ATLAS and three are in Eagle; however, NAC has residual exposure only to Eagle as it is solely a manager on the ATLAS transaction—therefore, the lessor’s overall on balance sheet exposure is limited to nine of the E-Jets. KBRA notes that these nine1 owned aircraft are a relatively small portion of NAC’s overall fleet, which in total consists of 351 aircraft as of December 31, 2016. As such, risks related to the potential for the early return of all or some of these aircraft are expected to be contained given the moderately low overall level of exposure to Alitalia in respect to NAC’s much larger fleet. Moreover, NAC has solid security packages in place including maintenance reserves and cash security deposits on these aircraft. As such, it is KBRA’s understanding that if Alitalia were to reject these aircraft, the net impact to NAC’s bottom line would be benign. Furthermore, NAC’s management team of aviation experts possesses a long and successful history of managing risks in this industry. Nonetheless, KBRA remains in contact with NAC’s management and continues to monitor the situation for developments.

On a larger scale, additional downside risks include potential pressure placed on the liquidity and the value of E-Jets, as well as their lease rates, if Alitalia rejects these type of aircraft. While the airline is in an early stage of the extraordinary administration proceedings, such a worst-case outcome poses a potential risk to lessors with large E-Jet exposures. Nevertheless, the overall market impact is unlikely to be major as Alitalia has 20 E-Jets in its fleet compared to over 1,300 E-Jets in service.

1 NAC also leases 4 aircraft to Etihad regional, which subleases to Alitalia

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Contacts

Analytical:
Kroll Bond Rating Agency
Leah Hallfors, Associate Director
301-969-3242
lhallfors@kbra.com
or
Danise Chui, Director
646-731-2406
dchui@kbra.com
or
Marjan Riggi, Managing Director
646-731-2354
mriggi@kbra.com

Contacts

Analytical:
Kroll Bond Rating Agency
Leah Hallfors, Associate Director
301-969-3242
lhallfors@kbra.com
or
Danise Chui, Director
646-731-2406
dchui@kbra.com
or
Marjan Riggi, Managing Director
646-731-2354
mriggi@kbra.com