NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) has released a report on aircraft leasing entitled “Aircraft Leasing Industry: Recap of 2015 and Outlook for 2016.”
KBRA’s credit outlook for the sector remains positive, underpinned by continued abundant demand for air travel (especially from Asia and other emerging markets), improving airline credit profiles, budding investor appetite, and healthy funding markets. In addition, the demand for technologically advanced aircraft on a global scale is expected to remain strong bolstered by the need for replacement of older aircraft. KBRA notes that lower fuel prices have also created an opportunity for lessors of mid-life to older aircraft (at least in the short-term) to extend maturing leases for such aircraft.
Downside risks continue for lessors engaged with airline customers operating in troubled regions that have to cope with the industry’s inherent risks, fuel price volatility, economic/regional downturns, and geopolitical and event risks.
Key trends discussed in the report include:
- Sector consolidation – mergers into larger scale lessors as well as small and large portfolio sales
- Increasing penetration of lessors as owners of aircraft
- Emergence of multiple aviation funds – joint ventures, side-cars, aviation asset managers
- Emerging smaller lessors – with specialized products (mid-life, regional aircraft, etc.)
- Growing investor appetite – both from financial investors and conglomerates from Asia
- Stronger/more flexible balance sheets – unencumbering assets, more senior unsecured debt
- Improving credits – airlines as customers of lessors largely in better shape
- Regional pressures – leading to a number of aircraft repossessions/returns and/or lease restructuring
The report also details the themes behind sector consolidation and regional challenges which have been the overarching themes of the last 18 months. KBRA further adds that the airline sector is continuing to reap the benefits of the strong growth in global air traffic trends, particularly propelled by growing demand in emerging markets (predominantly Asia), strategic mergers, cost rationalization, deleveraging, and lower fuel prices, which have translated to overall stronger credit profiles among airlines as the main customers of lessors. KBRA believes the overall penetration of lessors’ ownership of aircraft (currently an estimated 42% of total global fleet) will also continue to grow as airlines rationalize costs and choose leasing as an attractive and more flexible financing option.
To view the full report, please click here.
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About Kroll Bond Rating Agency
KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).