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As Coronavirus Disease (COVID-19) Weighs on Airlines, Lease Payment Deferrals Are Likely to Rise

With passenger traffic down sharply, the duration and severity of travel moratoriums will play a major factor in determining whether aircraft lessors' asset-backed securities (ABS) will maintain their ability to make payments to bond investors and whether these aircraft lessors can fulfill their obligations as servicers. Airline insolvencies will increase with the pressure on profitability due to the material reduction in revenues from lower passenger demand. DBRS Morningstar sees the broad customer bases, sound cashflow generation, solid balance sheet fundamentals, and demonstrated risk management capabilities of most of the 13 aircraft lessors it follows as important considerations to their ability to navigate a level of turbulence. However, lessor credit profiles could be pressured should the challenging operating environment created by COVID-19 become more prolonged than anticipated leading to a sustained and meaningful reduction in demand for air travel resulting in an elevated level of rental deferrals and a material increase in airline defaults.