Resilient Aircraft Finance Market
While 2020 was a year of unprecedented challenges for the industry, Boeing Capital remains optimistic in aviation as its resilience, and its ability to rise from every crisis stronger, has proven itself time and time again. Though aircraft finance recessed at the onset of the pandemic, by the latter half of the year capital flowed back into the space in a significant way as the industry adapted and new investment opportunities emerged. We continue to believe that in the long run, the thesis for investing in aircraft remains intact. The 2021 Current Aircraft Finance Market Outlook recaps the trends seen in 2020 and explores financing developments and their potential impact on the market.
Overview
The aircraft financing environment was strong going into 2020, with abundant liquidity and low cost of capital. With the emergence of COVID-19, all sources of aircraft financing quickly reevaluated their exposures and their appetites as the entire industry, airlines, original equipment manufacturers (OEM), lessors and financiers worked to ensure liquidity.
Credit spreads widened significantly, capital markets closed to aviation, and bank capacity was used up quickly as facilities were drawn and new facilities were created. As the crisis continued to unfold, banks retreated, lessors provided sale-leaseback (SLB) liquidity and worked with airlines on payment deferrals. Capital markets came back, and new sources of funding from institutional investors and funds came to market.
Financing Sources
Export credit agencies
Institutional funds
The combination of steady cash flows, relatively higher yields, global diversification, strong industry fundamentals and the unique characteristics of mobile aircraft assets has continued to attract institutional investors and funds. Private equity, hedge funds, sovereign wealth funds, infrastructure funds and other types of funds all continued to seek aviation exposure in their deployment of capital.
In 2020, new institutional and fund capital stepped into the space as some in the bank market paused and as sector credit spreads widened relative to pre-pandemic levels.
Tax equity
Prior to the pandemic, the Japanese Operating Lease (JOL) and Japanese Operating Lease with Call Option (JOLCO) markets were evolving at a rapid pace, accepting new airline and lessor names and introducing innovative products. 2019 saw the closing of the first-ever credit enhanced-supported JOLCO and innovative ECA and enhanced equipment trust certificates (EETC) supported JOLCOs.
During the pandemic, the tax equity market, particularly JOLs and JOLCOs, effectively shut down to new deals while previously committed deals continued to close. The safe return to service of the 737 MAX has begun to attract Japanese investors. A gradual recovery, in line with Japanese economic growth and return of air travel demand, is expected.
Credit enhanced
Airframe and engine manufacturers
Commercial solutions, export credit and government support were available for new aircraft deliveries in 2020, and consequently, we saw no need for manufacturer funding support for Boeing deliveries.
