Aircraft lessors are expected to support a large share of 2015 deliveries while driving significant innovation in aircraft finance. Over the past three years, leasing companies shifted the bulk of their leverage from commercial bank debt to more efficient capital market funding. This expanded capital market liquidity is attracting new institutional investors and stimulating interest in the creation and evolution of aircraft portfolio securitization structures.
An expanding investor base, a healthy balance between secured and unsecured funding, innovative financing structures, and a growing private placement market are helping to propel the growth of capital markets in aircraft finance. In 2015, the capital markets are expected to support nearly a third of new deliveries through both secured and unsecured funding. Capital markets will be the primary source of leverage for lessors, who are a conduit to the public markets for many airlines. For new deliveries, global airlines will rely on both secured and unsecured issuances, with lessors primarily using unsecured structures. We expect refinancing activity to remain strong, with a variety of secured structures for both airlines and lessors.
In 2015, commercial bank debt is expected to remain the second-largest source of financing for new deliveries. The rise of new participants, especially from the U.S. and Australia, along with the continued participation of existing lenders, should help maintain balance, diversity and strength in the bank markets for 2015. First-tier airlines and lessors should continue to be the primary beneficiaries of robust competition among banks.
Commercial market strength and the higher fees and equity requirements resulting from the 2011 Aircraft Sector Understanding are expected to keep export credit usage at historically low levels in 2015. Export credit usage will likely be limited to emerging market players, new lessor platforms, and a modest amount of funding needed for diversification by established carriers.
We created the Current Aircraft Finance Market Outlook (CAFMO) to provide a forecast of the sources of financing for new commercial airplane deliveries in the coming year and the industry’s total delivery financing requirements over the next five years. Each year, we strive to improve the CAFMO, with the aim of enhancing its utility. Our seventh annual forecast brings several notable changes, including the replacement of historical forecast data with actual funding levels. This adjustment highlights two notable trends in 2012-2014: Bank debt liquidity was higher than expected and export credit usage declined faster than was previously forecast.
The Lessor Self-Fund category, which was previously used to capture deliveries funded through parent companies, has been rolled into the lessor segment of Capital Markets to simplify the forecast and more accurately reflect the ultimate source of capital used to fund these deliveries. A side benefit of this change is that the segmentation of the Capital Markets category between airlines and lessors now provides an indication of the type of funding being used, with leasing companies primarily depending on unsecured capital markets transactions to support deliveries.
With the emergence of new market participants, we increased granularity in our forecast for commercial bank debt, breaking out expected contributions from banks in the U.S. and Australia.