Overview
Two years into the global pandemic, aviation financing trends marked 2021 as a year of industry recovery. Boeing Capital remains optimistic and forecasts there will continue to be sufficient liquidity to support new aircraft deliveries.
The 2022 Commercial Aircraft Finance Market Outlook shows commercial aviation required about $64 billion in delivery financing during 2021, up from $59 billion in 2020. Lessors shifted from negotiating lease deferrals to bidding for new business and the capital markets gave a vote of confidence by providing most issuers with pricing near pre-pandemic levels. Where there were shortfalls, export credit and institutional investors provided the necessary financing to support airlines.
Financing Sources
Leasing
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%.
Capital markets
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 banks
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.
Export credit agencies
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.
Institutional investors and funds
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.
Tax equity
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
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.
Airframe and engine manufacturers
Ample availability of commercial solutions and export credit were available for new Boeing deliveries in 2021. Consequently, there was no need for manufacturer funding support for Boeing deliveries in 2021.
