Aircraft lessors play an important role in the industry and are vital in maintaining a fully-functioning aircraft finance ecosystem. At the onset of the pandemic, lessors provided critical capital to airlines through sale leaseback transactions and as air traffic recovered, lessors provided airlines flexibility to adjust capacity to meet growing customer demand. In 2021, lessors were responsible for over half of delivery financing volume. As a result, the total leased fleet grew to 47%.
The capital markets have been a bright spot over much of the pandemic. Following the COVID-19 outbreak and an initial surge in pricing, issuers tested the capital markets in the second half of 2020 and were well-received, raising record level volumes and achieving increasingly better pricing. In 2021, issuances stacked up comparably to the previous year’s highs, flagging another year of strong performance.
Commercial bank debt for aircraft deliveries remained constrained, with varied access across regions. Broad-based bank appetite for aviation continued to be cautionary, with loans extended mainly to stronger credits and strategic customers in their respective home markets. That said, there are signs that bank debt availability is improving.
Supporting about 9% of funding for the industry and nearly 5% of Boeing deliveries in 2021, export credit-backed financing plays a crucial role to instill confidence in times of market dislocations. Boeing has agreements with export credit agencies around the world to bring the benefits of aviation and boost local economies.
Aircraft are an attractive asset class and the pandemic created opportunities for institutional investors and alternative asset managers to expand their aviation exposure at their targeted levels of return. New funds and institutionally-backed leasing platforms took advantage of discounted asset prices and widened credit spreads, stepping in where traditional providers of capital retrenched.
Access to tax equity financing, especially for JOL and JOLCO, is sensitive to local jurisdictions and the overall economic health of respective home markets. Tax equity investors continue to be cautious due to the pandemic, recent restructurings and on-going litigation. A gradual recovery in line with local economic growth and an increase in deliveries from qualified airline credits is expected.
Credit enhanced products, such as aircraft non-payment insurance, continued to be an important financing alternative. While there were no transactions for delivery financing of Boeing aircraft in 2021, deals in the secondary market saw activity. While bank debt remains limited in the short term, credit enhanced backing may be looked upon to broaden access.