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One Year Later, Will Structured Aircraft Transactions Make a Soft Landing?

DBRS, Inc. (DBRS Morningstar) released a commentary titled “One Year Later, Will Structured Aircraft Securitizations Make a Soft Landing?” that addresses the current state of the aviation market and aspects of how the pandemic has affected structured aircraft transactions.

“Despite some optimistic trends and the ongoing vaccine roll-out, the substantial recovery of the aviation industry is a longer-term prospect, contingent upon air traffic, aircraft storage, and airline liquidity,” said Mark Hirshorn, Senior Vice President, U.S. ABS.

DBRS Morningstar expects to see a shift toward cleaner fuel-burning, more efficient aircraft, and a consolidation of the weakest of industry players. At the same time, governments, sovereigns, and industrial conglomerates will likely continue to support airlines to weather the storm through the coronavirus crisis.

While domestic air traffic in the U.S. has stabilized, albeit at a low baseline of flying activity that provides some revenue to airlines, certain primary concerns persist, including lease rate reduction and aircraft value pressure. “DBRS Morningstar has observed obligor credit deterioration, particularly by weaker operators, as well as reductions in lessor cash flow because of payment holidays and the generally lower lease rates,” said Paul Fazi, Vice President, U.S. ABS.

DBRS Morningstar expects to see newer and more stable collateral versus what was included prior to the pandemic, and, in some cases, more robust structures. While 2020 saw a range of smaller private transactions, we expect 2021–22 to provide larger financings, including renewed growth in Aircraft Lease ABS, and the continued popularity of smaller, private deals.