Our industry is reverberating from the effects of Covid-19 and across the board there has been unprecedented stress, financial loss and resetting of plans. Commercial aviation had been expanding at an ever increasing pace and aircraft leasing and financing growing commensurately. Last year in Dublin, the two January conferences were bursting at the seams and it was difficult to find a place to sit during the panels, let alone move through the venues. Major financial institutions were busy moving into the crowded aviation space that until a decade ago was dominated by GECAS, a few Irish entities and one in Beverly Hills. Everyone more or less knew each other. Since the global recession of 2008, aviation and technology have been blossoming and the potential for profits as air travel increased globally.
Between the Dublin conference and the early March Istat conference in Texas the world changed. The first effects of the Covid stoppage seemed as if they would pass relatively quickly but then time dragged on and so did the virus with ever more shocking statistics. Considering the built in efficiency of the operational world of an airline it seemed impossible to have whole fleets on the ground for days then weeks and then months. The financing cost of these assets does not bear commercial inactivity. But there was no way out. Eventually a standoff among lenders, lessors and operators had to give way to survival dialogue and working together.
Airlines focused on major lines of credit whether from the government or more realistically from the owners of their leased aircraft. Major commitments were made to keep companies afloat and airlines have had to focus on significant restructuring of costs. The major airlines seem to be positioned to weather the crisis but many of the carriers who operated successfully but without the same access to capital have gone down. The weak airlines or ones with significant leverage are gone, leaving financiers scrambling to figure out what to do with parked aircraft and no re-marketing opportunities. The last thing you want to have right now is an airplane to market.
It appears that the vaccine is having a positive effect on the health of the human population and its success is engendering hope for a return to some of the activities of the past. Travel is certainly at the top of this list for most people and while they aren’t ready just yet to go to a far away location, domestic options appear to be opening up in the spring. Airlines who have been in full triage mode for a year are now trying to assess their asset requirements. Most forecasts see a return to 50% of 2019 traffic levels in 2021. Not bad but still highly damaging to the finances for most airlines.
Having effected major refinancing of fleets we are starting to see interest in the engine business re-emerge. As these transactions are smaller they were pushed aside over the past year for the most part but now they offer airlines additional capital to keep them running. We are actively engaged on multiple large scale transactions and have found that the longer term leases appeal to investors who believe in the rebound.