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In the July-August Edition of AFJ's Bimonthly Magazine

In the July-August Edition of AFJ's Bimonthly Magazine

July/August 2021 ds 2020 war t next for Regional OEMs? Airfinance Journal A

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2021 is shaping up to be another big year for BOC lift off pandemic for post- Ready Ready 2021 Leg

Airfinance Journal July/August 2021 Ready for post-pandemic lift off ISSUE no. 418 A S I A P A C I F I C 2 0 2 1 3-4 NOVEMBER S A V E T H E D A T E

S C A N M E Editor’s letter

Technology comes to the fore

No air show, no problem as the new aircraft announcements just keep coming, writes Olivier Bonnassies.

une is traditionally marked by technology and United had already announced that it was Jcommercial announcements at the annual investing in urban air mobility start-up Archer with air show with aircraft and engine manufacturers a $1 billion order for up to 200 aircraft as part of an briefing the aviation community about their latest effort to change how people commute within major developments and future vision. metropolitan cities. And although this year’s air show was In an exclusive interview with Airfinance Journal, cancelled, this has not prevented a surge of ’s chief executive officer, Domhnal Slattery, technology announcements. said this project was a “continuation of a strategic First, on 3 June, United announced journey” toward net-zero emissions for the aviation plans to buy 15 new supersonic aircraft and “return industry. supersonic speeds to aviation” in 2029. “This is just the beginning of a multidecade Supersonic passenger flights ended in 2003 evolution in green , and I am taking a 50-year when Air and retired vision, and this is step one,” he says. , their flagship aircraft which entered Slattery believes these aircraft types will begin passenger service in 1976. The new Overture aircraft to reshape regional and short-haul , A S I A P A C I F I C 2 0 2 1 will be produced by a Denver-based company, particularly in regions such as , where the Boom, which has yet to flight-test a supersonic jet. average stage length is less than 300 miles. The deal with United comes less than a month since There are challenges to incorporating this new the failure of Aerion Corporation, which had built up technology in cities around the world. Infrastructure 3-4 NOVEMBER $11 billion in orders for a planned supersonic business investment will be needed to support eVTOL aircraft but announced in late May that it could not operations, particularly around busy control secure adequate funding to continue the programme. zones. Boom’s Overture orderbook, including purchases Supersonic passenger travel may have different and options, stands at 70 aircraft, with Airlines challenges such as noise, pollution and fuel S A V E T H E D A T E and placing preorders for the aircraft. consumption. Overture is expected to be the first large commercial aircraft to use net-zero carbon emissions New (conventional) aircraft in 2035? from launch, optimised to run fully using sustainable and are not in a hurry to launch aviation fuel (SAF). new programmes after amassing orders for their Capable of operating at Mach 1.7, the 65- to 88- A320neo and 737 Max families over the past seat aircraft is expected to cut travel time between decade. Recall that these programmes were S C A N M E more than 500 destinations nearly in half compared announced as improvements to their existing with current-generation models. successful families. The programme is slated to start rolling out in The ball has passed to the engine original 2025, with test flights in 2026. equipment manufacturers. “United continues on its trajectory to build a GE Aviation and Safran, which have renewed more innovative, sustainable , and today’s their CFM International partnership until 2050, have advancements in technology are making it more launched a technology development programme viable for that to include supersonic planes,” says called CFM RISE (Revolutionary Innovation for United’s chief executive officer, Scott Kirby. Sustainable Engines). RISE will combine both manufacturers’ single open eVTOL rotor concepts. The RISE engines will be developed Then a week later, Vertical Aerospace came to light in hydrogen burning, jet fuel and sustainable aviation (the company had been in existence since 2016) fuel versions. with a massive announcement for electric vertical The new programme, which targets more than take-off and landing (eVTOL) aircraft, VA-X4, the five- 20% lower fuel consumption and CO2 emissions passenger urban air mobility aircraft. compared with today’s engines, will be ready for Avolon will join Microsoft, Rolls-Royce, Honeywell, prime time by the mid-2030s. and American Airlines as equity investors in Vertical, It will be interesting to see how Airbus and Boeing OLIVIER BONNASSIES working with , a VA-X4 launch airline respond to this timeline. No doubt the 200- to 300- Managing editor customer in Europe. seat market will be revisited soon. Airfinance Journal

www.airfinancejournal.com 3 Contents

Cover story News Analysis Special reports and interviews Smooth operator Griffin targets sale and Market competitors - BOC Aviation was swift in enacting its 11 leaseback growth 41 Narrowbodies getting larger and going further “downturn plan” at the start of the Covid-19 The new asset management firm sees more pandemic, and 2021 is shaping up to be potential for newer asset classes when As Boeing gets to grips with returning the 737 another big year for the lessor, its managing building relationships with airlines in the Max to service, Airbus is seeking to maximise director and chief executive officer, Robert context of Covid-19, Griffin’s chief financial sales of the A321. Geoff Hearn assesses their Martin, tells Dominic Lalk. officer tells Hugh Davies. respective prospects.

Special reports and interviews Data Speedy lease deal key to MAG 43 restructuring 33 12 Pilarski A sense of urgency, trust and transparency 46 were the only elements that really mattered in Aviation Group’s negotiations with Guide to Aviation creditors. Lessors now have more options to 47 redeploy aircraft, chief executive officer, Izham Lawyers 2020 Ismail, tells Dominic Lalk.

Airfinance Journal Global 14 Awards 2020

People news Blockchain helps kickstart 6 32 international travel Mobile app IATA Travel Pass will help News Analysis travellers store and manage their verified certifications for Covid-19 tests or vaccines, ABS pricings reach new levels 8 reports Laura Mueller. Legal moves 2020/21 The capital markets are booming again as What next for Regional aircraft 48 aviation starts its rebound from Covid. Olivier OEMs? Bonnassies reports. 36 Legal survey 2021 Mitsubishi Heavy Industries has put its Spacejet 50 Airfinance Journal’s legal survey programme on hold indefinitely given changes Banks remain conservative in recognises the most active law firms in in the market environment. Airfinance Journal 9 lending 2020 by regions and financing structure. explores the incumbent players in the 70- to Bank appetite for the aircraft leasing business 100-seat market and their priorities. Hugh Rising stars has decreased in the post-Covid-19 pandemic Davies and Olivier Bonnassies report. 61 era, reports Elsie Guan. Airfinance Journal recognises six of the Values and lease rates trend: most promising legal associates for 2020. Truenoord eyes new-gen 39 Boeing 787-9 regional narrowbodies Recent private equity 10 Appraisers think values for the middle investment in aviation Anne-Bart Tieleman, Truenoord chief member of the Boeing 787 family will come 66 executive officer, tells Hugh Davies that under further pressure in the short term, but Private equity has been upping its game in smaller aircraft were on the Dutch lessor’s believe they will recover as long-haul travel aviation, writes David Berkery, partner, A&L radar long before the pandemic struck. returns. Geoff Hearn reports. Goodbody.

Managing editor Group sub editor Senior marketing executive (Subscriptions) Printed in the UK by Buxton Press, Buxton, Olivier Bonnassies Peter Styles Wilson Eva-Maria Sanchez Derbyshire. +44 (0)207 779 8062 +44 (0)207 779 8450 [email protected] Managing director, The Airline Analyst [email protected] No part of this magazine can be reproduced Mike Duff without the written permission of the editor +44 (0)207 779 8058 Publisher. The Airfinance Journal Ltd. Dominic Lalk [email protected] Production editor Registered in the 1432333 +852 2842 6941 Tim Huxford (ISSN 0143-2257). [email protected] Advertisement manager Greater reporter Chris Gardner Divisional CEO Airfinance Journal (USPS No: 022-554) is a full +44 (0)207 779 8231 service business website and e-news facility 管沁雨 (GUAN Qinyu); Elsie Guan Jeffrey Davis with printed supplements by Euromoney +852 2842 6918 [email protected] Institutional Investor PLC. [email protected] Head of sales Senior Reporter George Williams Subscriptions / Conferences Hotline Although Euromoney Institutional Investor Hugh Davies +44 (0)207 779 8274 +44 (0)207 779 8999 / +1 212 224 3570 PLC has made every effort to ensure the +44 (0)20 7779 7346 [email protected] [email protected] accuracy of this publication, neither it nor any [email protected] contributor can accept any legal responsibility Head of Asia subscriptions Customer Services for consequences that may arise from errors Harry Sakhrani or omissions or any opinions or advice given. Consulting editor +44 (0)207 779 8610. +44 (0)207 779 8203 Geoff Hearn 8 Bouverie Street, , EC4Y 8AX [email protected] This publication is not a substitute for specific Content Director, AFJ and Industry Chair professional advice on deals. ©Euromoney Aviation Finance Marketing Manager Board of Directors: Leslie van de Walle Institutional Investor 2021 Laura Mueller Alyssa Yang (chairman), Andrew Rashbass (CEO), Tristan +44 (0)207 779 8278 +44 (0)207 779 8542 Hillgarth, Jan Babiak, Imogen Joss, Lorna [email protected] [email protected] Tilbian, Colin Day and Wendy Pallot.

4 Airfinance Journal July/August 2021 E2 PROFIT HUNTER. A FORCE WITH NATURE

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Widener served as CEO of Irish-charter During nearly a decade and a half at Airbus names new airline Cityjet after its takeover by Air Citi, working from both the New York and France in early 2017. London offices, O’Connor coordinated head of leasing While at she pushed a fleet the execution of structured debt financing restructuring and oversaw the sale of the transactions for aviation clients, including irbus has appointed Sinead Cormican airline to the consortium, public bond and loan issuances for US Aas its new head of leasing customers, backed by Virgin Atlantic and Stobart airlines and aircraft lessors. replacing Isabelle Floret. Group along with Cyrus Capital. Cormican has been the head of pricing João Weber Gameiro was selected as and customisation Airbus since May 2017. chief financial officer during the AGM. She joined the European manufacturer in Gameiro previously worked as the head Jetblue appoints 2012 after more than 10 years in the leasing of investment banking at BBVA industry. and has held various management roles Kopylov as VP Cormican was the vice-president trading in M&A and corporate relations at Credit at AWAS for a short spell. Before that, Agricole-CIB and Santander. strategic sourcing she spent almost nine years at Aercap as Ourmières-Widener’s nomination comes vice-president portfolio management and as TAP’s financial struggles continued in and fleet trading. the first quarter of 2021 because of the She also spent three years at Covid-19 pandemic. PricewaterhouseCoopers as an audit Its operating loss widened to €228 supervisor. million ($272 million) from a €155 million Floret had been Airbus’s head of leasing loss in the same quarter last year. since 2015. Airfinance Journal understands The airline posted a 74% year-on-year she left the company after almost 25 years’ decrease in operating revenue to €150 service. million, as the experienced an increase in Covid-19 cases and new travel restrictions during the period. TAP’s cash position stood at €237.6 Ex-Flybe chief to million as of 31 March 2021, including the loan received from the Portuguese state in head up TAP Air 2020. The government has increased its stake in the airline to 72.5% to support the Portugal carrier during the pandemic. Net financial debt grew to €2.4 billion, he Portuguese government has compared with €2 billion at the end of Dmitry Kopylov Tselected former Flybe chief executive December. officer (CEO) Christine Ourmieres-Widener etblue Airways has named Dmitry as the new CEO of TAP Air Portugal for a JKopylov as vice-president, strategic three-year term. sourcing and fleet. The appointment was officially confirmed Citi banker joins Vmo Kopylov has been with Jetblue since during the airline’s annual general meeting 2017 as the airline’s director, strategic on 24 June. Aircraft Leasing sourcing. He will lead all sourcing and fleet She will succeed Ramiro Sequeira, who management, including initiatives to source was chosen to head up the airline in an mo Aircraft Leasing appointed Meghan and optimise aircraft engines and any interim capacity last September. Before VO’Connor on 15 June to the newly additions of next-generation technologies. leaving Flybe in summer 2019, Ourmières- created role of senior vice-president and In addition, Kopylov will lead the sourcing head of capital markets. O’Connor will of all products and services for Jetblue. oversee corporate finance transactions “Since joining Jetblue in 2017, Dmitry and capital markets activities for the San has proven to be a true ambassador of Francisco-based aircraft leasing company. our culture and values, and we are happy O’Connor, who joins Vmo from Citi Dmitry is taking on this role,” says Ursula where she was managing director in the Hurley, Jetblue’s acting chief financial industrials corporate and investment officer. banking group, brings an impressive track She adds: “Dmitry has made great record of conducting transactions for strides in his role as our director, strategic transportation clients across the airline, sourcing, as he and the team have played aircraft leasing and shipping sectors. an integral role collaborating with teams “Meghan’s tremendous talent and across Jetblue to achieve our structural capital markets expertise will pave the cost savings. We are looking forward to way for the continued deepening of our him bringing that same expertise at an relationships with existing corporate and important time in our fleet’s evolution.” investing partners while spearheading Kopylov will use his experience and skill initiatives to expand Vmo’s capital markets to identify and allocate resources across presence, progress portfolio diversification, technical, commercial and operating and advance environmental, social and groups both within Jetblue and with governance-related efforts,” says Sean aircraft manufacturers and other business Sullivan, Vmo Aircraft Leasing chief partners while achieving optimal value and Christine Ourmières-Widener commercial officer. efficiency.

6 Airfinance Journal July/August 2021 WORLD-CLASS PRACTICE The Global Asset Finance Group at Clifford Chance is proud to have advised our clients on the following deals recognised by the Airfinance Journal Awards, demonstrating the depth and breadth of our truly international, sector-focused practice.

Airline Unsecured Bond Deal of the Year | Sukuk | $600m

Asia-Pacific Deal of the Year Airways | Recapitalization Plan | HK$39bn

Equity Deal of the Year Norwegian Air Shuttle | Recapitalization | $1.6bn

Europe Deal of the Year Virgin | Recapitalization Plan | £1.2bn

Guaranteed Financing Deal of the Year Skywest Airlines | AFIC-Supported Financing | $80m | 4xE175

News Event of the Year GECAS-PIMCO | Aviation Fund | $3bn

Overall Capital Markets Deal of the Year SAPA 2020-1 | ABS | $620m | 21xA/c

www.cliffordchance.com

2106-000589_Airline Advert.indd 1 23/06/2021 17:07:52 News analysis

ABS pricings reach new levels The capital markets are booming again as aviation starts its rebound from Covid.

sset-backed securitisation (ABS) $540.12 million of secured notes by MAPS 110bps over US Treasury – represented Aissuers are benefiting from capital 2021-1 Trust. the lowest credit spread achieved in a markets again as they fund growth plans at The offering consisted of three series of bond issuance by SMBC Aviation Capital. a low cost of borrowing. notes: $417.65 million class-A with an interest Investor orders reached $3.9 billion, June saw the closing off three ABS rate of 2.521%; $72.23 million class-B with an according to early data, indicating that the issuances that reached record coupons interest rate of 3.425%; and $50.24 million transaction was oversubscribed 5.8 times. and yields. class-C with an interest rate of 5.437%. Dubai Aerospace Enterprise closed SLAM 2021-1, the ABS transaction by MAPS, which is the third aircraft a $1 billion unsecured notes issuance sponsor Sky Leasing and its affiliates, securitisation serviced by Merx Aviation via its affiliate DAE Funding in June. The priced on 26 May at a 2.43% coupon on after MAPS 2018-1 and MAPS 2019-1, priced 144A Regulation S, three-year fixed-rate the senior tranche. The tranche achieved a at the tightest-ever all-in yield for a three- senior unsecured issuance carries a 1.55% 2.447% yield. tranche syndicated aircraft portfolio ABS. coupon. Investor orders reached $3.7 Guidance was MS+160-170 basis points The high-quality and diverse portfolio billion, according to early data. (bps). The tranche was sold at a 99.99674 backing MAPS consists of 18 narrowbody Airfinance Journal’s Deal Tracker issue price. The transaction represented the aircraft and two freighters, with a weighted recorded 22 lessor issuances in the bond lowest-ever coupon across all aircraft ABS. average age of 5.8 years overall and 4.3 market between 1 January and 23 June. The $592.43 million senior tranche has a years excluding freighters, and weighted About $13.7 billion was raised and the 67% loan-to-value (LTV). average lease term of 8.4 years. average issuance is $622 million. The $70.34 million B tranche, which “Blackbird Capital II achieved a 2.44% The average tenor is about 4.75 years, has a 75% LTV, priced at a 3.42% coupon coupon on its $745 million ABS senior while the blended rate is 2.15%. and a yield of 3.447%. Guidance was tranche that features a 63.7% initial loan-to- The macro environment has improved MS+285-300bps. The tranche was sold at a value (LTV) ratio on 22 June. since the beginning of this year with 99.99729 issue price. Early data indicates that guidance was vaccine deployment key to a return to a Airfinance Journal understands that the 160-170 basis points (bps) on the A tranche more normal environment. final subscription on the A class was 1.9x with a spread at 150 bps over Treasury. The One source points to the normalisation but reached over 4x in orders at one stage. $115 million B tranche, which has a 75.3% of the short-haul segment of the market, Orders for the B class reached 9.05x in LTV, priced at 3.45%. The yield is 3.47%. The particularly for the US domestic and certain subscriptions. spread was 250 bps over Treasury. other domestic markets. Keith Allman, managing director, MUFG As of 31 May, the initial portfolio had an There are still some dark zones, notably Securities Americas Securitised Products, initial weighted average age of approximately South-East Asia, but overall there is tells Airfinance Journal that SLAM 2021- 2.9 years, the second youngest weighted improvement and a demonstration of a 1 was one of the tightest spreads of average age for an aviation ABS transaction strong rebound. any modern commercial aircraft ABS ever rated by KBRA. The portfolio had a The weeks and months ahead will also transaction on both tranches. weighted average remaining lease term of see more reopenings of some internal “The deal is a unique combination of 8.3 years, extending beyond the seven- routes in some parts of the world. very strong assets, well-written leases and year ARD and the secondlongest weighted The source also says that rating agencies a top-tier servicer,” he says. average lease term among any previous have recently revised their outlook to In SLAM 2021-1, the pool of aircraft has KBRA-rated aircraft transactions.” positive for airlines and stable for lessors. a weighted average age of 1.6 years. This Lessors are diving into capital markets “Capital market investors have integrated represents the youngest weighted average again after the January frenzy. all this and consider the risk reward as age for an aviation ABS transaction. SMBC Aviation Capital, via SMBC attractive,” says the source. “The only The weighted average remaining term Aviation Capital Finance DAC, closed a caveat is the quality of the issuer accessing of the initial leases was about 11.1 years, seven-year $500 million issuance at a 2.3% this market and for ABS the quality of extending well beyond the seven-year coupon. The bond placement – priced at portfolio and servicer/sponsor.” anticipated repayment date (ARD) and representing the longest weighted average (April-June 2021, Airfinance Journal’s Deal Tracker) lease term among previous transactions. Lessors bond issuances Allman adds that Sky Leasing is an Deal Name Product Amount Coupon Tenor Financial “excellent servicer” with experience in the Type ($m) Close Date ABS market. DAE Capital | Bond issuance | 06-21 | $1bn Unsecured 1,000.00 1.55 3 22-Jun-21 SMBC Aviation Capital | Bond issuance | The lessor originated and serviced SJET- Unsecured 500.00 2.3 7 15-Jun-21 2017, which was later sold to Goshawk. 06-21 | $500m CIB Leasing | Green bond issuance | 05-21 “The portfolio is the youngest ever done, Unsecured 547.46 3 26-May-21 | CNY3.5bn and there has never been a pool of aircraft | Bond issuance | Unsecured 1,200.00 1.875 5.25 17-May-21 of that quality in an ABS,” he adds. 05-21 | $1.2bn Taiping and Sinopec Financial Leasing | Unsecured 310.64 3.45 3.00273 17-May-21 MAPS 2021-1 Bond issuance | 05-21 | RMB2bn A few days later, funds managed by BOC Aviation | Bond issuance | 04-21 | $1bn Unsecured 1,000.00 1.625 3.02 22-Apr-21 affiliates of Apollo Global Management Fortress Transportation | Bond issuance | Unsecured 500.00 6.75 7.00547 12-Apr-21 and Merx Aviation closed the issuance of 04-21 | $500m

8 Airfinance Journal July/August 2021 News analysis

Banks remain conservative in lending

Bank appetite for the aircraft leasing business has decreased in the post-Covid-19 pandemic era, reports Elsie Guan.

he capital markets have gradually inclination to Chinese banks compared business volume has not gone up too Tbecome a better route to funding than with western banks for her company in the quickly,” says Lau, who notes that there bank lending since the outbreak of the post-pandemic era. has been a shift of Chinese lessors from Covid-19 pandemic, according to lessor “On the financing side, we usually mix both being very aggressive internationally to panellists at the Airfinance Journal China Chinese banks with western banks, but we becoming more conservative. 2021 virtual event last month. saw western banks are very conservative in “As Johnny said, they have pulled back “Capital market is the most efficient and the aviation sector. We use more Chinese for a little bit but we still see commitment to easy way for us. If we talk to commercial bank financing nowadays compared with doing good credit deals with larger airlines banks, I think most banks which were western banks. That is the change,” says Li. worldwide,” says Bradley Dailey, director of involved in the aviation sector last year “We used both capital market and bank Alton Aviation Consultancy. are a little bit more cautious,” says Ma Jie, financings. Since the pandemic, we have “Fundamentally, if you think about a executive director of CMB Leasing. tapped into bank financing,” adds Li. broader landscape, you will want to put “For new aircraft deliveries, CMB Leasing “Chinese banks were very supportive to money into aviation because of the huge just uses bridge loans to make sure the help airlines which have liquidity requests. domestic market that Chinese airlines aircraft can be delivered as soon as possible. We do not see many deferral requests from provide for lessors or lenders. We have That is basically what we target in the short Chinese airlines,” says Jasper Tan, head of seen obviously that Chinese lessors who term and in the long term,” adds Ma. aviation finance of Asia-Pacific at NORD/LB. can get access to the market continue to be Zhu Limi, assistant general manager of the “We are seeing more acceptance from committed to that market space,” says Dailey. financial markets department of Minsheng bank sides as well. Bankers are trying to do Lau also notes that Chinese lessors Financial Leasing, says the company relies business despite all the challenges, picking remain very active. increasingly on its own funding. the right assets and getting the right “They have money in hands to spend; “One issue is that less and less structures,” says Li Gang, chief executive they want to invest further. We have also commercial banks will accept aviation officer of Aerdragon Aviation Leasing. seen many transactions which were also assets as mortgages to provide long-term Li Gang thinks that the fundamentals of brought into China from originally in Ireland loans. Another thing is that efficient liquidity aircraft leasing did not change because of or somewhere else,” adds Lau. in the US dollar market is kind of easy for the pandemic. “It is still very fundamental to Peter Huijbers, director of PH Aviation financial leasing companies to raise money the world economy. And the fundamentals Asia, thinks that it will not be difficult for at low costs,” says Zhu. of the financing market did not change as Chinese carriers to access debt. “The fact is that we need to find more well,” says Li Gang. “The airlines themselves and banks in funding from capital markets or from short- Li Gang says that Aerdragon was able to China have always loved each other so it is term loan markets,” adds Zhu. close deals with both Chinese banks and not a significant difficulty to obtain financing “Now, in the downturn market, banks are European banks during the pandemic. for the aircraft that Chinese carriers would not always positive players, so in that case “In addition, we also cooperate with need,” says Huijbers. they will reduce their exposure. That is Chinese sovereign funds on some other “The question I would have is, why not why we saw lots of banks are not willing to financing deals. So, the sources are still tap overseas lending markets, including provide liquidity financing for narrowbody there and the capital market remains very private equity, institutional money and aircraft,” comments Martin Lu, director of strong,” adds Li Gang. hedge funds to see what they will get aviation business services at PwC. “Traditional banks are still conservative, back,” adds Huijbers. “For some ongoing deals which are still but there are some new players having “The landscape has changed since under mortgage loan, aircraft owners want additional liquidity as a pool to invest into Covid-19. I will say the conservative to have more refinancing on their current the sector. They may be able to chase approach will still be maintained, and fleets. They are looking for mezzanine some high-yield deals,” says Summer Li. maybe some of the smarter lessors will debt. But most banks are not willing to Lessors in and around China appear try to undergo some strategic changes, cooperate on that,” adds Lu. more bullish than other aviation financiers, including that they may spend some time Lune Wang, director and deputy general although their appetite for foreign deals has doing restructures or future expansion,” manager of Comsys (Tianjin) Leasing notes diminished, some panellists have observed. says PwC’s Lau. that the most important thing is to match “Some Chinese banks are affected by Lau also notes that most COMAC C919 assets with money. some default situations worldwide and the financings will be done through Chinese “It raises very big challenges to Chinese HNA situation. So, the appetites of Chinese lessors and Chinese banks. lessors on how to deploy your money banks basically shrank last year,” observes “I guess for a long period of time, C919 smartly. That is why we always have an Johnny Lau, chief consultant of aviation will become probably the most important overseas platform,” says Wang. business services at PwC. new investment by Chinese financiers,” he Summer Li, general manager of aviation “But we see that lessors are not too says. “Everybody will take a fair share of at Haitong UT Leasing HK, saw an worried about that because overall what the three major carriers will deliver.”

www.airfinancejournal.com 9 News analysis

Truenoord eyes new-gen regional narrowbodies

Anne-Bart Tieleman, Truenoord chief executive officer, tells Hugh Davies that smaller aircraft were on the Dutch lessor’s radar long before the pandemic struck.

he Covid-19 crisis has prompted a shift in dominates the E2 in terms of market Tfocus to smaller narrowbody aircraft, or traction, with 168 aircraft in operation and larger regional aircraft, as operators attempt almost triple the backlog of the E2 with 494 to rationalise how the pandemic has altered on order, compared with 47 for the E2 and the economics of flying. 163 units on order, according to Airfinance In particular, the and Journal’s Fleet Tracker. E2 have garnered attention Tieleman notes the A220-300, in recently due to their competitive operating particular, provides greater fuel efficiency costs and ideal capacity to cater for a and range while offering smaller capacity recovering regional and short-haul segment to cost-effectively link a larger range of city of travel. pairs in regions with thinner demand. Dutch regional leasing specialist Africa has seen significant interest for the Truenoord says many operators were A220, with several carriers pursuing various already headed in that direction prior to financing options for the aircraft type, the pandemic as a way of bolstering the including Air , Air and Ibom flexibility of their short- and medium-haul Air, the latter under a wetlease agreement fleets. with Air. “It wasn’t because of Covid that people Kyrgyzstani carrier Air Manas also all of a sudden started to realise that It wasn’t because of became a new A220 operator in April, with smaller aircraft might actually make sense,” plans to build up its fleet to five A220-300s Truenoord’s chief executive officer, Anne- Covid that people all of a by 2023. Bart Tieleman, tells Airfinance Journal. sudden started to realise Delta Air Lines operates the largest A220 During the pandemic last year, Tieleman fleet with 50 units and another 45 on order, recalls that an advantage for the lessor that smaller aircraft might Fleet Tracker shows. was that larger airlines with the ability to Breeze Airways also has orders for 60 right-size their fleets continued to operate actually make sense. aircraft while Jetblue Airways, which began thinned-out routes with smaller aircraft, receiving its A220s last December, has 67 including both regional jets and turboprops. Anne-Bart Tieleman, chief executive on order and three in the fleet. “That has helped us in that airlines have officer, Truenoord’s Outside of North America, Swiss and Air kept flying with smaller regional jets, I think Baltic operate the largest A220 fleets. Air especially in Europe but also in the US,” he Baltic, which still has another 23 units on says. “Even the E1 series is still state-of-the-art, order, operates a uniform A220-300 fleet The lessor remains focused on the it’s fly-by-wire, and I think that is proven by with 25 units. 50- to 150-seat market and is eyeing new Embraer still delivering E1s,” says Tieleman. Swiss, which has concluded its A220 technology as part of its growth plans. “It’s an asset that is not extremely acquisition programme as of May, operates However, the company does not rule expensive when you compare it with the a mix of 30 smaller and larger models. out E1-generation aircraft, with Tieleman new assets… if you buy an E2 or an A220 has orders for 60 A220- predicting a “renaissance of interest” in new, capital costs will be way higher,” he 300s, with deliveries scheduled to begin in E190- and E170-class equipment, particularly adds. autumn this year. in Europe as larger carriers look to build While both are relatively new to the Lessors with significant A220 orderbooks greater flexibility in their fleet structure. market, the former CSeries aircraft currently include Air Lease, Macquarie Airfinance and He reveals that the lessor is already in . talks with airlines which are looking to retain Truenoord, for its part, aims to at least their E1 fleets for another five years, and double its fleet size in the next three some even until the end of the decade. years from 50 aircraft currently, targeting Tieleman explains that while savings can a balance sheet of about €2.5 billion ($3 be achieved longer term by investing in billion). While the lessor has not yet acquired new-generation, more fuel-efficient aircraft, either A220 or E2 models, Tieleman says current market uncertainty over capital costs that both form a substantial portion of the and maintenance and overhaul programmes lessor’s target market. for new-generation aircraft means that for He adds: “We have been looking at some operators, it makes sense to “stick Africa has seen significant several transactions… over time we’ll with what you know at a decent price.” interest for the A220 definitely get those aircraft in our fleet.”

10 Airfinance Journal July/August 2021 News analysis

Griffin targets sale and leaseback growth

The new asset management firm sees more potential for newer asset classes when building relationships with airlines in the context of Covid-19, Griffin’s chief financial officer tells Hugh Davies.

hile the opportunity sets for aviation comfortable with an asset that could be financing talks during the first stages of the Wleasing and asset management under pressure or could have significant pandemic because of lack of visibility for platform Griffin Global Asset Management upside.” the industry. may have changed during the Covid-19 Longer term, Beekman does not rule “When we first started the warehouse, pandemic, its goal of building a long-term out an eventual Griffin orderbook and says we weren’t exactly sure where it might sustainable business has not. it is also considering a lessor enhanced and what kinds of terms and flexibility we In an interview with Airfinance Journal, equipment trust certificates (EETC) structure might achieve. Griffin’s chief financial officer, John at some point in the future. “As we continued to advance, and Beekman, says the company’s recent $1 “We had a thought towards that when we particularly as we started to have vaccines, billion warehouse facility under its joint were negotiating the warehouse,” he says, then you saw the capital markets providing venture with Bain Capital Credit opens a highlighting its interest in the ability to be support to the businesses, I think then the range of options to build its portfolio. involved in more concentrated positions banks realised that there is an ability to He explains that Griffin’s main goal is to on certain credit types than a warehouse see through to some kind of recovery, or build up strong relations with airlines and facility would allow. at least a better time where airlines can be a provider of solutions for its customers. “There are multiple pathways that we support their businesses and their debt,” With that in mind, Beekman says the could use to grow the business, but I would he adds. warehouse facility in place is designed to say the predominate path is a relationship- He also believes government and target new-generation aircraft, as well as built business looking to do sale and shareholder support for airlines, as well as potentially adding in mid-life and freighter leasebacks,” he continues. continued support from the capital markets, asset opportunities. To date, the company has participated led the debt markets to feel “much more “We have the flexibility to do finance in four financing deals with airlines: a comfortable lending into this space”. leases, operating leases and loans all bridging loan for an Airbus A350 and two Beekman adds: “We have great banking within this facility… we even have the ability Boeing 787 sale and leasebacks with partners that were very supportive and to look at asset classes like freighters, so Virgin Atlantic, as well as delivery financing were able to work with us to craft a there’s a pretty wide range of flexibility,” with Greek carrier Sky Express for one warehouse that was able to do a lot of what says Beekman. A320neo signed in May. we wanted on attractive terms to help us He acknowledges there is “more meet our goals.” traction” on newer asset classes in terms of Financing The company aims to build its business building up relationships with airlines in the Former Air Lease (ALC) executive Ryan as one of the leading lessors worldwide context of Covid-19, noting that the more McKenna teamed up with alternative asset over the next five years, focusing on how sound business opportunities for mid- to investment firm Bain Capital Credit to it interacts with customers and meets their end-of-life assets are “not as plentiful out launch Griffin in January 2020, two months needs, says Beekman. there as you might think”. before coronavirus was declared a global “Top lessor doesn’t necessarily mean Beekman adds: “We’re not shy about pandemic. biggest balance sheet,” he adds. “For us, entering the space, but it just takes a little Beekman admits discussions were we want to be considered as the preferred more effort in terms of whether you’re not “overly constructive” regarding initial partner for airlines.”

Griffin delivered financing to Greek carrier Sky Express for one A320neo signed in May

www.airfinancejournal.com 11 CEO interview

Speedy lease deal key to MAG restructuring

A sense of urgency, trust and transparency were the only elements that really mattered in Malaysia Aviation Group’s negotiations with creditors. Lessors now have more options to redeploy aircraft, chief executive officer, Izham Ismail, tells Dominic Lalk.

ith (MAS) the when we didn’t even know we would have Wfirst Asian carrier to restructure vaccines ready. Creditors now have more successfully during the ongoing Covid choices. Lessors can just place the aircraft crisis, the chief executive of Malaysia somewhere else,” he adds. Aviation Group (MAG), the carrier’s parent, tells Airfinance Journal how he Do not burn bridges convinced lessors and other creditors to “What was also very important, what I kept give the legacy airline another chance. reminding people, was that we will need Izham Ismail, stresses that transparency new aircraft again from 2023-24. So, I and trust were the only elements that asked, do we really want to burn all our really mattered in the group’s negotiations bridges? Of course, the answer is no. So, with creditors. Without them, the national from the very beginning, I made it clear that carrier could already be in liquidation, he we are not ganging up against the lessors says. because we want the industry to survive. “We went to the English courts because That’s why we acted as openly as we we were not sure the Malaysian courts could,” says Izham. were familiar with our situation. After all, our MAS has 25 Boeing 737 Max aircraft on contracts are written in English law, so why order. The flag carrier has agreed a deal do we have to have conversations with with Boeing that allows it to transfer its Max courts in two venues?” recalls Izham. delivery slots to aircraft lessors directly, or it “What made our mission successful was could sell and lease back its Max orders on that we entered the conversation with delivery, subject to its own requirements, complete transparency. What this means adds Izham. is that if I were to offer you something and The Max deliveries will commence in 2023 you have a counteroffer, I put it in a shared or 2024, subject to travel recovery. They drive that the other creditors will be able will be delivered over three to four years. to view. That way creditor B can say, ‘Hey, I like what you’re giving to creditor A’, and I Lessors take note can respond, ‘OK, let’s have a conversation Izham reveals to Airfinance Journal that in on this’,” says Izham. the coming weeks MAS will issue a request This is in stark contrast to the talks at for proposals regarding the modernisation Lion Group in neighbouring of its widebody fleet. Izham says he is where communication and cooperation cognisant that the fleet needs by the airline group with lessors has been to start the replacement cycle. significantly poorer. While he would not disclose if this meant “The other airlines are having issues. more A350 aircraft were on their way, The key principal is trust and transparency. he did note that fleet harmonisation and You’ve got to be completely open with the efficiency were obvious considerations in The other airlines lessors, don’t try to hide anything. Of course, the group’s widebody selection process. what also helped us very much was that Izham says that MAG has “learnt its are having issues. The we had a shareholder who said, ‘OK, if you lesson” with regards to fleet financing key principal is trust and manage to talk to your creditors, we will give composition. The group plans to lighten its you new money, including interim funding balance sheet and opt for more leasing. transparency. You’ve got until the restructuring is agreed’,” says Izham. Izham reveals that as much as 80% of the He also observes that it was important future group fleet could be leased. to be completely open to secure agreement for the restructuring MAG hopes to end 2021 with a fleet of with the lessors. quickly. 27 widebodies comprising 21 A330s and “Look at North America, look at Europe, six A350s (22 operational), as well as 47 Izham Ismail, chief executive officer, look at . People need airplanes narrowbodies. The group’s six A380s will Malaysia Aviation Group now. They didn’t need them last year be decommissioned.

12 Airfinance Journal July/August 2021 CEO interview

How did the restructuring work? These could be extended by another 12 Izham recalls that there were five major months as part of terms agreed, although categories of creditors that needed the airline has “not pulled the trigger” on to agree to restructured deals: aircraft that yet. “We have a contingent deferral operating and finance lessors; maintenance option in 2022, which we will be evaluating providers; engine lessors; and financial based on market conditions,” explains the institutions. group chief. “We were able to secure about MYR15 “We’re not out of the woods – 2021 is billion [$3.6 billion] in savings from these worse than 2020. At least last year we had negotiations and remove about MYR10 a good quarter one. This year, however, will billion in debt,” says Izham, adding that this be a complete wipeout here in our region,” also included the restructuring of sukuk says Izham. bonds once used to finance the airline’s “We agreed on contingent deferrals. A380 acquisitions. We’ve established a baseline scenario In 2012, MAS brought the world’s first and a worst-case scenario. What it means Shariah-compliant offering of MYR2.5 is that if the capacity in the market is 40% billion perpetual sukuk to market for below baseline, then MAG could trigger the working capital and its A380 purchases; in contingency deferrals for all of 2022. We September 2020, the Ministry of Finance push everything back to 2024, with a 2% agreed to restructure the payment terms interest rate at the end of 2024,” he reveals on the bond as part of the flag carrier’s exclusively to Airfinance Journal. rehabilitation. “What we’re currently seeing in the The speed at which MAG marched marketplace here in our region is that through its restructuring was fundamental we’re in the worst-case scenario situation to its success. because of new lockdowns here in “We started as early as March last year. We’re not out of Malaysia and low vaccination rates through We are very fortunate that we achieved the region. the outcome we achieved. I don’t think the woods – 2021 is “I have conversations with my peers this would have been possible without worse than 2020. At in and I’m sometimes a bit such a young and motivated team. We frustrated because when I talk to Doug all had full conviction, were completely least last year we had a Parker [American Airlines CEO] and he tells aligned, including with our shareholder. I me that American is cash positive already. said that we needed to achieve this as fast good quarter one. This The same story with Alaska,” says Izham. as possible because our cash burn was year, however, will be a MAG is hoping a reversal of fortunes crazy and they said, ‘OK, we will support could occur by the fourth quarter of 2021, you if you get all your creditors to come complete wipeout here in or first quarter of 2022. together’.” our region. “I believe optimistically it may be quarter Industry leaders have bemoaned a four, but more likely quarter one next year lack of shareholder support to airlines will be when we see a meaningful recovery Izham Ismail, chief executive officer, in the Asia-Pacific amid the Covid crisis, for us. Initially, we were hoping to be at Malaysia Aviation Group particularly amid carriers in ASEAN. The approximately -40% pre-Covid levels by notable exceptions are Airlines, quarter four this year but I don’t think that’s which has secured more funds more feasible any more. Now I’m crossing my rapidly than any other airline during the fingers it will be -70% or -75% but more pandemic, and the now-restructured MAS, lease rates, deferrals and PBH [power- likely it will be -90% pre-Covid through the where shareholder Khazanah agreed by-the-hour]. We have achieved a very end of the year,” he forecasts. to recapitalise the airline if the carrier interesting outcome that is beneficial to Not all is bad news, however. As renegotiated with its creditors. both sides, especially the aircraft lessors,” observed by airline CEOs across the world, “The advisers only came in late says Izham. the cargo segment continues performing September. [Houlihan] Lokey only came in “To be honest with you, and as you know, very well throughout the pandemic. late October, early November. Until then, it this restructuring was long overdue. When MAS Kargo is benefiting from this strong was all just us,” says Izham. I started in 2017, during my first month, demand, too. “[Management consultants] Oliver this is when I already knew we needed “Cargo is my cash cow this year. Wyman was helping us on day-to-day cash to do something. When I saw the balance We’re also pushing very hard for MRO management as advisers, but the team sheet, the cost structure was still very high, [maintenance, repair and overhaul]. There’s running the show and burning the midnight way too high, so I knew we needed to do been good progress. Sometimes I lose oil was the MAG team itself. Time zones something to become competitive in the track which new clients are coming in. Just presented a big challenge. In the morning, marketplace,” he says. last week my team sent me a picture of a we were dealing with creditors in Korea “Before Covid, we had gained some Airlines A330 in our maintenance and China. At night, we were dealing with good traction with potential investors as facilities here,” says Izham. Europe and the UK. It was almost 20 hours you know, but then Covid-19 happened. I As part of its new long-term business every day. It paid off to have a very young believe this must be divine intervention,” he plan unveiled in May, MAG is hoping to team,” says Izham. laughs. reposition itself as a global travel group Houlihan Lokey provided restructuring to expand beyond the airline business, consultation services to MAG that More deferrals on the horizon becoming a “one-stop centre for all travel proved essential in the national carrier’s MAG’s usage-based rent agreements with needs”. For this, says Izham, the group is negotiations with aircraft lessors. “They aircraft lessors will expire at the end of redoubling its digital transformation have accepted the new terms: reduced 2021. efforts.

www.airfinancejournal.com 13 Airfinance Journal Global Awards 2020

Airfinance Journal’s 2020 deals of the year awards Airfinance Journal reveals the winners of our prestigious annual Awards, recognising the most innovative deals, individuals and teams in aviation finance.

Africa Deal of the Year: TAAG Airlines $145m commercial loan for six Dash8-400s the deal team was truly international and first PDP financing transaction by the South Borrower/issuer: TAAG Angola Airlines reached from Luanda to Cape Town to African bank, and one of its first aviation Structure: Commercial loan Johannesburg to Cairo to Dublin to London, transactions. The deal also marked the first Assets financed: Six Dash8-400s to the Caribbean, to Montreal to Vancouver PDP financing transaction for de Havilland Lawyers: Pillsbury, Walkers Global, and . Aircraft of . Miranda and Associates and Cliffe Walkers acted as Critically, it is understood to have been Dekker Hofmeyr acted for the lenders. counsel in connection with the financing the first new aircraft type delivered by any Norton Rose Fulbright represented by Absa Bank and African Export-Import commercial aircraft manufacturer to a new TAAG Angola Airlines and the Bank of six aircraft to TAAG Linhas Aereas customer during the Covid-19 pandemic. government of Angola de Angola Airlines. The deal is supported There were numerous complexities in Banks: Absa Bank and African Export- by a sovereign guarantee issued by the closing this transaction during the Covid-19 Import Bank acted as mandated lead government of Angola. pandemic, including: the manufacturing arrangers and lenders. Absa Bank was security trustee and facility agent The borrower, Cunene Ltd, a special facility came to a standstill, which resulted purpose vehicle incorporated with limited in a postponement in the delivery date; Amount: $145 million liability and existing under the laws of the there were difficulties with the aircraft Date mandated: 14 November 2019 Cayman Islands, entered into a finance lease deliveries as the manufacturing country Date closed: 13 May 2020 with TAAG, incorporated in Angola and the (Canada) and receiving country (Angola) operator and guarantor of the aircraft. were in lockdown – TAAG appointed a he financing in the commercial debt The lenders, Absa Bank and African third-party Canadian inspection delegate to Tmarket of six de Havilland of Canada Export-Import Bank, advanced the funds inspect the aircraft in Canada and ferry the Dash8-400 turboprop aircraft won the to the borrower and received a sovereign aircraft to Angola; and the transaction was Africa deal of the year category. guarantee from the Ministry of Finance of the then closed during the Covid-19 lockdown This is a uniquely African deal, with Republic of Angola for the total debt amount. period and TAAG took delivery of its first an African airline financed by an all- Absa provided the pre-delivery payments aircraft remotely from the de Havilland African banking consortium. However, (PDP) in the transaction. This was also the manufacturing plant in Canada. Asia-Pacific Deal of the Year: Cathay Airways HK$39bn recapitalisation plan availability period and 18-month repayment the global Covid-19 pandemic which has Borrower/issuer: Cathay Pacific period from draw down. created significant challenges for the airline Airways The transaction was the second-largest industry. Structure: Bridge loan facility, shares government-led airline recapitalisation The recapitalisation plan was essential subscription package in the Asia-Pacific region. to the airline’s survival, Cathay Pacific’s Financial adviser: Goldman Sachs Swire Pacific (owning 45% of Cathay chairman, Patrick Healy, said at the time. Lawyer: Clifford Chance Pacific’s shares), (29.99%) and Cathay Pacific reported an attributable Amount: HK$39 billion ($5 billion) Airways (9.99%) signed irrevocable loss of HK$9.9 billion for the six months undertakings to take up their pro-rata ended 30 June 2020, compared with an Date closed: August 2020 portion of the rights issue (HK$10 billion). attributable profit of HK$1.3 billion during The Hong Kong SAR government the same period in 2019. n 9 June 2020, Cathay Pacific Airways committed a total of HK$27.3 billion to Cathay Pacific started 2020 with about Oannounced a triple-tranche HK$39 Cathay Pacific. The rights issue was HK$20 billion in unrestricted liquidity, and billion ($5 billion) recapitalisation proposal oversubscribed by 137%. the current cash burn is in the region of involving: an issuance of HK$19.5 billion The bridge loan has security over certain about HK$2.5 billion to HK$3 billion a of preference shares and HK$1.95 billion aircraft and related insurances of the month. of detachable warrants to Aviation 2020 Cathay Pacific Group. The loan was made Healy notes that the government will Limited with an exercise price of HK$4.68; immediately available for draw down, while not have voting rights in Cathay Pacific. “It a rights issue of HK$11.7 billion on the basis the preference shares with warrants and is an investment by the government,” he of seven rights shares for every 11 existing the rights issue were subject to conditions says. “The government is expecting and shares held with a subscription price of precedent, including shareholder’s planning to make a reasonable return on HK$4.68, which represented a 35% discount approval at an extraordinary general the investment funds through preference to the theoretical ex-rights price (TERP) or meeting in July 2020. shares, warrants and loan facility. The 46.9% discount to the closing share price The multibillion recapitalisation was government does not have the intention to as at 8 June 2020; and a committed bridge proposed in response to a series of remain a long-term shareholder and also loan facility of HK$7.8 billion to be extended unexpected events outside the Cathay does not have the intention to engage in by Aviation 2020 Limited, with a 12-month Pacific’s control, including the outbreak of operations.”

14 Airfinance Journal July/August 2021 Airfinance Journal Global Awards 2020

Europe Deal of the Year: Virgin Atlantic £1.2bn recapitalisation plan

entitlement is paramount in any financial of other creditors provided their support Borrower/issuer: Virgin Atlantic and operational reconstruction. outside of the statutory mechanism by way Airways/Barbados Enterprises The London- slot of bilateral consensual arrangements with Assets financed: Take-off and landing portfolio secured in favour of the Virgin Atlantic Airways. slots at London-Heathrow airport and bondholders comprised the greater part of Under the terms of plan, the Virgin Group an Airbus A330 aircraft leased to Virgin Atlantic Airways the carrier’s operations and without which it provided £200 million, while Delta Air Lines would not be able to operate. was deferring or waive debts and charges Lawyers: Watson Farley & Williams, counsel to the bondholders and As part of the restructuring plan, the owed by the airline worth £400 million. various finance and operating lease existing bonds were upsized and amended, Hedge fund Davidson Kempner Capital creditors. Allen & Overy, counsel to with additional bonds being subscribed by Management provided £170 million of Virgin. Herbert Smith Freehills, co- funds managed by Davidson Kempner. secured financing while the largest counsel to Virgin. Linklaters, counsel The specialist nature of slot financings creditors supported the airline with more to bond trustee and security trustee. and the complexities of the underlying than £450 million of deferrals and Virgin Ashurst, counsel to Davidson Kempner; legal and regulatory basis on which said it continued to “have the support” of Raines & Co, counsel to Barbados take-off and landing slots are allocated, credit card acquirers Lloyd’s Cardnet and Enterprises. Clifford Chance, counsel to owned and retained by airlines, particularly First Data. Virgin’s lessors. Freshfields, counsel to in an insolvency situation, required the The recapitalisation takes effect over an revolving credit facility lenders. combined experience of Watson Farley & 18-month period and is tied to a restructuring Amount: £1.2 billion ($1.57 billion) Williams’ cross-discipline team, including plan which includes cost savings of about Date mandated: 1 April 2020 its structured finance, aviation finance, £280 million a year and about £880 million Date closed: 2 September 2020 regulatory, restructuring and insolvency of “rephasing and financing of aircraft specialists, all of which have market- deliveries” over the next five years. he £1.2 billion ($1.57 billion) leading knowledge of the European slots Virgin Atlantic Airways was the first Trecapitalisation of Virgin Atlantic Airways financing market. to use the new UK restructuring plan to wins the European Deal of the Year. The restructuring plan involved multiple implement its recapitalisation, making use Not only does Virgin’s London-Heathrow classes of disparate creditors who voted of Part 26A of the Companies Act 2006, slot portfolio represent its single most on the plan, including traditional lenders, which was introduced by the Corporate valuable asset, the preservation of the slot lessors and trade creditors. A number Insolvency and Governance Act 2020.

Latin America Deal of the Year: Azul R$1.74bn convertible bonds adding the proceeds of the offering to by ’s development bank, BNDES. Borrower/issuer: Azul its existing cash balance would allow the Azul and BNDES had agreed in September Structure: Convertible bonds airline to operate for more than five years 2020 that the bank was going to provide Lawyers: Hogan Lovells and Machado at its then-current cash burn levels. a R$2 billion financing from its emergency Meyer Advogados advised the anchor Anchor investors, Knighthead Capital programme created to support sectors investors. Shearman & Sterling and Management and Certares Management, affected by the Covid-19 pandemic. Pinheiro Neto Advogados advised structured, negotiated and documented the Knighthead and Certares also committed Azul. Pinheiro Guimarães advised the terms of an issuance of R$1.74 billion ($325 to ordering an additional R$560 million in underwriter, Banco Itau BBA million) principal amount of convertible convertible debentures if Azul decides to Banks: Banco Itau BBA as underwriter of debentures in September 2020 by Azul. carry out a new public offer on similar terms the offering The debentures are convertible into within the next 12 months. Adviser: Seabury Securities as financial preferred shares of Azul, mature five years Convertible note offerings to US adviser to Azul after issuance, are indexed to the US dollar investors by Brazilian issuers are Amount: R$1.74 billion ($325 million) and pay interest of 7.5% in the first year in exceedingly rare because of structuring Tenor: five years kind through an increase in the par value complexities related to a variety of issues, of the debentures, and thereafter at an including withholding tax and statutory pre- Date mandated: 1 September 2020 interest rate of 6% per year payable semi- emptive rights. Date closed: 12 November 2020 annually in cash. Hogan Lovells, which advised the anchor The debentures are redeemable for investors, says the specific structure any of Latin America’s biggest airlines cash at Azul’s option at any time, after 36 developed for the Azul convertible Mhave struggled during the Covid-19 months, but only if the last reported share debenture offering has never been used pandemic, with , LATAM Airlines price exceeds 130% of the conversion price before. and all filing for Chapter 11 for a specified period of time. The structure also includes a number protection in the US courts during 2020. The debentures have a conversion of innovative features designed to protect Azul’s convertible debenture offering, price of R$32.2649 per preferred share, the anchor investors’ downside, including however, should provide the airline with resulting in an initial conversion premium of a pledge of Azul’s loyalty programme, sufficient liquidity to survive the pandemic- 27.5% based on the 30-trading day volume TudoAzul, and other assets to secure the driven industry downturn. weighted average price. debentures, and a New York law payment Azul publicly stated in its third-quarter Azul elected to accept the financing guarantee in order to provide Knighthead 2020 earnings release, immediately proposal from Knighthead and Certares in and Certares with recourse to the New York following settlement of the offering, that lieu of alternative funding made available courts in the event of a payment default.

www.airfinancejournal.com 15 Airfinance Journal Global Awards 2020

Middle East Deal of the Year: $800m finance lease for seven 787-9s

financed and arranged exclusively by leasebacks for three 777-300ERs and Borrower/issuer: Qatar Airways Standard Chartered Bank. The bank also five 787-8s with the bank in a deal that Structure: Finance lease acted as facility and security agent. represented its first sale and leaseback The large transaction was one of – if transaction. Assets financed: Seven Boeing 787-9s not the – largest solely underwritten Standard Chartered was one of the joint Lawyers: Dentons acted counsel to loans advanced by a bank post the onset arrangers and lenders of a 12-year $500 Qatar Airways. Vedder Price acted as of Covid-19 at the time, which stands as million finance lease for two 777-300ERs counsel to Standard Chartered Bank testimony to the longstanding and deep and one 777-200LR deliveries for the Banks: Standard Chartered Bank relationship between the airline and bank. carrier in 2008. Qatar Airways is a long-standing client of In 2003, the Doha-based carrier signed a Amount: $800 million Standard Chartered Bank. $736 million interest rate swap transaction Date mandated: 29 March 2020 In 2016, Qatar Airways mandated the with Standard Chartered Bank. The sale and leaseback of eight new Airbus financing provided an interest rate hedging Date closed: 16 April 2020 A320s to Standard Chartered subsidiary facility to Qatar Airways to fix its long-term Pembroke Capital. The CFM International borrowing costs for a total of 12 aircraft. The tandard Chartered Bank closed a circa CFM56-5B4/3-powered A320s were transaction followed a long-term financing S$800 million senior secured financing acquired from the Doha-based carrier’s covering two A320 aircraft in which covering seven Boeing 787-9 aircraft for leasing arm, Qatar Aviation Leasing (QALC). Standard Chartered Bank participated as Qatar Airways. The deal was structured, In 2014, Qatar Airways closed sale and one of the lenders.

North America Deal of the Year: Jetblue Airways $550m revolving credit facility

In Jetblue’s financing, the US airline’s Jetblue has previously placed orders Borrower/issuer: Jetblue Airways borrowing costs depend on whether it for 70 Airbus A220s powered by Pratt & Structure: Senior secured revolving achieves a predetermined environmental, Whitney geared turbofan PW1500G fuel- credit facility social and governance (ESG) score. This efficient engines reducing emissions per Lawyers: Debevoise advised Jetblue score will be provided on an annual basis seat by 40%. Airways. Milbank represented the by independent third-party data specialist The SLL transaction built on Jetblue’s lenders Vigeo Eiris, a provider of ESG research sustainable finance strategy. Banks: BNP Paribas sole sustainability and services for investors and other In 2018, the US carrier started formally to structuring agent. Citibank was organisations. review its financial partners’ sustainability administrative agent. Other participating “Our owners, many of whom are also strategy and commitments, shifting banks included Morgan Stanley, Bank crew members, want to see how ESG business to financial partners with stronger of America, Goldman Sachs, Barclays, initiatives are connected to our financials. ESG policies. Credit Agricole, Apple Bank and As the first airline to accomplish this type The following year, BNP Paribas helped Columbia State Bank of transaction, we are directly linking our the company move to sustainable cash Adviser: Vigeo-Eris, ESG rating agency commitment to addressing environmental management by creating tailor-made and social issues with our bottom line. We solutions that meet the airline’s ESG and Amount: $550 million are proud of what we have accomplished, treasury guidelines. Tenor: Four years but also understand we have more to do in The SLL financing was well received Date mandated: 10 January 2020 reducing our carbon footprint and meeting by Jetblue’s bank group: the company’s Date closed: 20 February 2020 the needs of our stakeholders,” says nine existing lenders committed to the Sophia Mendelsohn, chief sustainability SLL feature as part of this amendment. As officer for Jetblue. sustainability structuring agent, BNP Paribas n February 2020, Jetblue Airways The transaction complements the advised Jetblue on various SLL options and Ibecame the first airline to deploy a company’s previous sustainability provided structuring advice. sustainability-linked loan (SLL) by amending commitments. BNP Paribas’ co-head of global banking its existing $550 million senior secured In 2020, Jetblue was the first US airline Americas, Florence Pourchet, says the revolving credit facility (RCF) due July 2023. to announce it would operate carbon Jetblue transaction is just one element The general mechanisms of an SLL – neutral on all domestic flights by offsetting of the airline’s comprehensive ESG and where the interest rate or commitment fee emissions from jet fuel, ramping up to sustainable finance strategy. paid on the RCF increases or decreases eliminate more than 17 billion pounds of “As a leader in sustainable finance,” she based on whether a company achieves CO2 emissions a year; says, “BNP Paribas is dedicated to working agreed-on sustainability metrics – give Jetblue will also start flying with sustainable with our corporate clients to identify borrowers a financial incentive to attain aviation fuel (SAF) on flights from San tailored solutions that align with their their targets as part of their corporate Francisco. SAF has up to an 80% smaller specific efforts and commitments toward sustainability strategy. carbon footprint versus regular jet fuel. achieving their ESG goals.”

16 Airfinance Journal July/August 2021 Airfinance Journal Global Awards 2020

Bank Loan Deal of the Year: Bleriot Aviation Funding $300m warehouse facility irfinance Journal’s bank loan-winning affected market conditions. For Airbus, it Borrower/issuer: Bleriot Aviation Atransaction is a leading example represents a strategic financing solution for Funding DAC of increased joint-venture activity in the its clients to support the optimisation of its Structure: Non-recourse secured, aviation finance and leasing market in light product line delivery schedules during the revolving warehouse facility of Covid-19 with Airbus capitalising on an health crisis. Lessor: JLPS Holding Ireland Limited as opportunity to further diversify its business For JP Lease, one of the major servicer with an aim to develop a foothold in the underwriters in the Japanese equity Equity sponsors: Airbus Financial aircraft leasing market. market, it is a conduit to secure aircraft Services and JP Lease Products and Bleriot Aviation Funding, a joint-venture lease transactions with major airlines for Services leasing vehicle of JP Lease Products & future distribution to Japanese investors. Banks: BNP Paribas as sole structuring Services and Airbus Financial Services (a The facility is designed for new-generation agent, sole global coordinator, agent, 100% subsidiary of Airbus), entered into Airbus aircraft such as A320neo family, A350 account bank and security trustee. BNP a $300 million limited recourse secured family and A330-900. Its first utilisation was Paribas and Credit Agricole CIB acted warehouse loan facility arranged by BNP one A320neo delivery to Spirit Airlines. as joint bookrunners, joint mandated lead arrangers, lenders and hedge Paribas and Credit Agricole Corporate and The transaction had a number of counterparties Investment Bank (Credit Agricole CIB). innovative features including on the financing Lawyers: A&L Goodbody acted as Irish JP Lease was appointed as the sole of deferred lease commencement aircraft. It transaction counsel to Bleriot Aviation servicer of the joint venture. provided the borrower with further flexibility Funding. Milbank as English counsel The facility has a two-year availability in running its business while also including to the lenders. K&L Gates as English period to 20 December 2022. The final additional protections for the finance parties. counsel to Bleriot Aviation Funding as maturity date is 20 December 2023. The timing of the transaction was borrower This was a significant transaction initially challenging at a time when a number Amount: $300 million sized at $300 million but with an accordion of warehouse facilities were being Tenor: Three years option feature which if fully committed to restructured. Financiers were more Date mandated: 1 October 2020 would increase the size to $750 million. demanding with respect to provisions Date closed: 10 November 2020 It is structured to address the strategic that they need in the facility documents to needs of each stakeholder under Covid- better protect their interests. Guaranteed Financing Deal of the Year: Skywest Airlines $80m AFIC-supported financing for four E175s ircraft Finance Insurance Consortium manufacturer. When AFIC was first Borrower/issuer: Skywest Airlines A(AFIC) closed its first non-Boeing established in 2017, it exclusively focused on Structure: AFIC-supported financing transactions in late December with four supporting the financing of new and almost Advisers: AFIC Credit Specialties (of Marsh Embraer E175 aircraft. new Boeing aircraft. However, for AFIC to UK) acted as non-payment insurance The transaction, covering four deliveries be as successful as possible, the intent was adviser to BNDES. AFIC Advisory & for Skywest, was underwritten by AXIS always to expand AFIC’s product offering to Operations (of Marsh USA), as aircraft Insurance and Sompo International. Brazilian include other types of aircraft. This is because finance adviser to the AFIC insurers Development Bank (BNDES) was the lender. the AFIC insurers highly value diversity, in Insurers: AXIS Capital, as AFIC In the January-February issue of terms of aircraft types, the number and types insurer (risk mitigator) and as insurer Airfinance Journal, AFIC managing director, of airlines, airline business models, regions of representative. Sompo International Robert Morin, said the firm extended its the world and sources of funding. acted as AFIC insurer (risk mitigator). offering to Embraer aircraft last year and The transaction was also the first AFIC- Endurance Worldwide Insurance Ltd recently closed the first AFIC-supported supported financing for an airline based in Banks: Banco Nacional de Embraer transaction. “We are willing to the USA, as well as the first transaction for a Desenvolvimento e Social (BNDES) acting support the financing of new or almost-new . It was the first time Skywest through its affiliate, Agencia Especial Embraer E1 and E2 aircraft,” he said. Airlines used an AFIC-supported financing. de Financiamento Industrial. US Bank The transaction closed on 23 December The deal also marked the first AFIC- National Association as security trustee 2020 when Skywest took delivery of supported financing for commercial aircraft Lawyers: Clifford Chance, as counsel the four new aircraft in one day. Agencia funded by an export credit agency (ECA) to the AFIC insurers, Parr Brown Gee Especial de Financiamento Industrial and the first time BNDES used an entirely & Loveless, as counsel to Skywest (FINAME), an affiliate of BNDES, acted as private sector risk mitigator (instead of Airlines. White & Case acted as counsel the lender and provided a 12-year secured a Brazilian government-supported risk to BNDES. Shipman & Goodwin was counsel to US Bank National Association, loan facility, covered by AFIC’s aircraft non- mitigator such as ABGF or SBCE). in its capacity as security trustee payment insurance (ANPI) policy issued by Although not a large size, the transaction AXIS Specialty Europe, London Branch, and has the potential to lead to a significant Amount: $80 million Endurance Worldwide Insurance Limited. number of follow-on transactions for various Tenor: 12 years The transaction marked many firsts. regional airlines in the USA. The supported Date mandated: 21 September 2020 It represents the first expansion of AFIC’s financing also represented a “new aircraft Date closed: 23 December 2020 product offering to include an additional financing tool in the Embraer customer commercial aircraft original equipment finance team’s aircraft financing toolbox”.

www.airfinancejournal.com 17 Airfinance Journal Global Awards 2020

Sale and Leaseback Deal of the Year: United Airlines 22 aircraft sale and leaseback

During the onset of the Covid-19 crisis, 22 Boeing aircraft in April 2020 that Borrower/issuer: United Airlines BOC Aviation proactively contacted its contributed to part of the many steps airline customers to provide assistance United Airlines took in mitigating the Structure: Sale and leaseback financing through the difficult environment. This impacts of Covid-19 on its business. included various levels of support to help The transaction comprised six Boeing Assets: Six Boeing 787-9 and 16 Max 9 airlines with their liquidity via purchase and 787-9 and 16 737 Max 9 aircraft. aircraft leaseback transactions. The size of this transaction is testament Lessor: BOC Aviation United Airlines was the first US airline to to BOC Aviation’s ability to carry out large make aggressive capacity reductions. transactions across multiple aircraft types. It Date mandated: April 2020 By this time, United Airlines had cut also reflects the speed and agility at which about 80% of its capacity for April 2020 the BOC Aviation team was able to move, Date closed: April 2020 and was taking decisive steps to mitigate and its access to liquidity and high level the operational and financial impacts of management autonomy meant it was viation has been one of the hardest of Covid-19 by making deep schedule able to move quickly to secure some of the Ahit sectors by the Covid-19 crisis, reductions, drastically reducing spending most attractive investment opportunities which had seen (by April 2020) more than and aggressively raising liquidity. available, focusing on customer selection 30 airlines declare bankruptcy protection This resulted in a sale and leaseback and improving the credit quality of its since the start of the year. agreement with BOC Aviation for portfolio.

Structured Lease Deal of the Year: BOCOM Leasing- China Postal Airlines operating lease for two 737-800s

(BCOML) were returned in 2020. aircraft in the fleet at the end of its first Borrower/issuer: Two special purpose BCOML leased the two aircraft to China lease term. vehicles incorporated in Tianjin, China, Post Airlines on a back-to-back base BCOML’s induction of such aircraft in each a wholly owned subsidiary of together with a simultaneous arrangement to P2F at the beginning of the second Bocom Leasing of passenger-to-freighter conversion with lease term, reflects the lessor’s excellent Structure: Sell-out, buy-in Boeing. performance in risk control in respect Law firms: King & Wood Mallesons The transaction marked the first lease of assets management, and ability and as People’s Republic of China (PRC) deal that achieved the combination of capacity in coordinating with other parties counsel for Bocom Leasing. Han Kun the return of used aircraft in the previous and multi-government authorities. It also Law Offices as PRC counsel for China lease and the passenger-to-freighter (P2F) represents the ability of a Chinese leasing Postal Airlines conversion and operating lease in the next company to access multiple channels lease simultaneously in China. to accomplish lease and conversion Assets: Two Boeing 737-800s It was also the first operating lease using programme. Amount: Exceeding $70 million the lessee’s P2F slot with Boeing by way of The extremely creative sell-out, buy-in Lessor: Bocom Leasing as parent of assignment (but not novation) of such slot structure between the BCOML PRC SPV the lessor, namely each Tianjin special to BCOML’s China free-trade zone SPV. The and Irish SPV was tailored by the BCOML purpose vehicle aircraft is the first 737-800 aircraft, with the team for the purpose of this deal to Date mandated: 8 September 2020 youngest age, in the passenger-to-freighter overcome the obstacles within, CAAC and Date closed: 21 November 2020 conversion programme worldwide. customs compliance requirements. It was a milestone for BCOML because This deal opens up a new era of the it expanded into new territories on asset passenger-to-freighter conversion and he 2020 Structured Lease Deal of the management and disposition of used operating lease in China. TYear was innovative for combining with asset trade in order to conduct the conversion in a tax-bonded zone by the relevant maintenance, repair and overhaul company in the People’s Republic of China (PRC) and matching the payment requirements to Boeing from customs and the Administration of China (CAAC) requirements for the conversion. The two Boeing 737-800 aircraft, previously leased to a Chinese carrier through the Irish special purpose vehicle (SPV) and PRC SPV of Bank of Communications Financial Leasing

18 Airfinance Journal July/August 2021 Airfinance Journal Global Awards 2020

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Tax Lease Deal of the Year: Pegasus Airlines €55m Jolco financing for one A321neo

In March 2018, ACG launched its Aircraft when most of the participants required to Borrower/issuer: Pegasus Airlines Financing Solutions (AFS) programme attend were unable to travel. Government Structure: Japanese operating lease offering an alternative and cost-effective restrictions and quarantine requirements with call option aircraft financing option for airlines. The posed a major threat to the delivery taking Adviser: ABL Aviation acted as global AFS programme fills a market gap left by place. ABL Aviation and Pegasus Airlines equity arranger for SBI Leasing Services export credit agencies, which traditionally worked closely with Airbus to ensure that offered airlines non-payment guarantees the delivery could proceed and alternative Bank: to help support aircraft exports and processes were put in place to overcome all Guarantor: ACG acted as guarantor for domestic manufacturers. On the equity challenges presented by the pandemic. the loan amount side, ABL Aviation’s Japanese partner, SBI There are two main stages in the new Leasing Services, provided a competitive remote delivery approach. First, the Lessor: SBI Leasing Services source of equity. technical acceptance completion (TAC) task Lawyers: Nishimura & Asahi acted as The transaction also marked the first was delegated to Airbus to perform, on the legal counsel to the lessor and equity aircraft delivered fully remotely from airline’s behalf, all the necessary actions. underwriter. Norton Rose Fulbright as a manufacturer’s production line. The TAC, which is a prerequisite for the transfer legal adviser to the lender and the innovative process was a result of the of title (ToT), includes the ground-check, the facility agent. Smith, Gambrell & Russell challenges raised by the ongoing Covid-19 acceptance test flight, acceptance manuals as legal adviser to the guarantor. pandemic. The closing of this transaction and procedures. Holland & Knight as legal adviser to the took place at a time when the uncertainty Second, the ToT was completed lessee surrounding the global pandemic was at its electronically with a remote ToT digital highest and as the majority of Europe, Asia signature. This process obviates the need Amount: €55 million ($67 million) and the USA were in a strict lockdown. The for any of the airline’s staff to be physically Term: 12 years aircraft was due for delivery in April 2020 present at the Airbus delivery centre. Date mandated: 1 November 2019 Date closed: 9 April 2020

he Pegasus Airlines Japanese Toperating lease with call option (Jolco) financing of an Airbus A321neo delivery was innovative in many respects. It was also the first Jolco-financed aircraft with debt guaranteed by Aviation Capital Group (ACG).

Operating Lease Deal of the Year: ST Engineering Aerospace Resources A321 aviation fund

n early 2020, Keystone Holdings, a aircraft, but also a new asset type in the Borrower/issuer: Keystone 1 Limited Ijoint venture between ST Engineering converted freighter space. (Guarantor – Keystone Holdings Global Aerospace Resources and SJ Aviation The secured conversion and operating Pte) Capital, signed a letter of intent with lease financing with multiple drawdowns Structure: Operating lease financing Airways to undergo a freighter conversion was in line with the conversion payments. for an Airbus A321 into an A321P2F aircraft. The secured asset-based deal for the Bank: MUFG Bank as arranger, lender, The parties agreed to continue the lease conversion of an A321 aircraft to freighter facility agent, security agent and fixed- as a freighter. marked the first A321P2F conversion rate provider The passenger aircraft, which is on lease financing. Asset: One Airbus A321 and freighter to the Qantas Group, will be converted by Keystone Holdings is focused on mid-life conversion costs ST Engineering and delivered at the end narrowbody aircraft. of 2021. Lessor: Keystone 1 Limited Lender MUFG had initially financed a Lawyers: Vedder Price as counsel portfolio of aircraft, which included a mid- to MUFG Bank. Bird & Bird acted as life A321 leased to an Australian operator. counsel to Keystone Holdings MUFG was in close dialogue with Keystone and provided a creative solution Date mandated: 15 November 2020 to meet financing requirements. The Date closed: 30 December 2020 short timing, at two months, demonstrates MUFG’s ability not only to finance older

20 Airfinance Journal July/August 2021 Airfinance Journal Global Awards 2020

Used Aircraft Deal of the Year: Altavair/KKR $600m warehouse facility for 38 aircraft

The $1 billion acquisition was made new aircraft and reasonably priced proven Borrower/issuer: Altavair and KKR through aircraft leasing investment aircraft are becoming attractive. Where else Structure: Warehouse facility platform Altitude Aircraft Leasing, which can you get 22 sistership aircraft without was established by KKR’s credit and going to the OEM [original equipment Asset: Predefined list of narrowbodies infrastructure funds in 2018 to acquire manufacturer]? Airlines like to look at a and widebodies aircraft serviced by Altavair. baseline consistent standard even if they Amount: $600 million The aircraft portfolio included Etihad intend to reconfigure,” he says. Banks: BNP Paribas and Citi as joint Airways’ owned fleet of 777-300ERs and The lessor will also consider at 777- mandated lead arrangers. MUFG acted Rolls-Royce Trent-powered A330-300s and 300ER conversions. as lead arranger. BNP Paribas, Citibank, A330-200s. Altavair obtained a $600 million aircraft MUFG and Societe Generale acted as The transaction provides for the 777- secured warehouse facility to fund partly lenders 300ERs to be leased back to Etihad on the $1 billion acquisitions. purchase, while the Airbus A330s will be The transaction was characterised Lessor: Altavair as servicer delivered over the next 22 months and by a prompt closing and signing at the Law firms: Pillsbury representing the placed on lease with other international beginning of the Covid-19 pandemic, with lenders. Milbank representing Altavair operators for either passenger operations funding during the pandemic’s spread with or as converted freighters. strong credit-standing lessees and young Date mandated: 15 December 2019 At the time, Altavair’s chief executive narrowbody aircraft for a good share of Date closed: 21 February 2020 officer, Steve Rimmer, told Airfinance the portfolio (in addition to the widebody Journal that there was a chance that aircraft from Etihad Airways). Altavair will look to convert the A330s (16 In the wake of the unfolding pandemic, KR and Altavair Airfinance agreed to -200s and six -300s) in the “near term”, Altavair has successfully managed to ramp- Kpurchase 38 Airbus A330 and Boeing but foresees a “reasonable amount of up the warehouse with strong lessees 777 widebody aircraft from Etihad Airways passenger demand” too. “Airlines are and for new-generation aircraft for a good in 2020. getting scared of technological risk with portion of the portfolio.

Cargo Deal of the Year: Fedex $970m EETC for 19 freighter aircraft

Borrower/issuer: Federal Express Structure: Enhanced equipment trust certificate class 2020-1AA certificates Assets: 13 Boeing 767-300 freighters and six 777 freighters Amount: $970 million Banks: Citi, Deutsche Bank and Morgan Stanley acted as joint structuring agents This transaction achieved several and can be leveraged for future EETC and lease bookrunners. BNP Paribas firsts for Fedex and the broader market. issuances. acted as joint bookrunner The class-AA notes were issued with a Investor demand helped to achieve 13.5 years final maturity and an 8.8-year a 1.875% coupon, the tightest EETC Law firms: Davis Polk acted as counsel average life at 55.1% loan-to-value (LTV). coupon since 1994. This execution level to the issuer. Milbank represented the Not only did Fedex issue the only AA demonstrated the resiliency of demand in underwriters tranche during the Covid-19 pandemic (at the EETC market. Date mandated: 1 May 2020 the time), but also achieved the highest LTV Fedex 2020-1 marked the re- for that rating category. establishment of the company’s EETC Date closed: 13 August 2020 Despite the challenging marketing programme, allowing it to diversify its environment, Fedex 2020-1 class AA investor base and financing sources. generated significant investor demand The transaction refinanced 13 Boeing s a part of the airline’s efforts to and upsized from $670 million to $970 767-300 freighters and six 777-200Fs, with Adiversify its investor base and take million. The final orderbook was about 2.4x a combined weighted average age of 2.3 advantage of the attractive rates in the oversubscribed, with a significant portion of years, marking the first time these two aircraft enhanced equipment trust certificate orders from investment-grade, high-quality types featured in this type of financing. (EETC) market, Federal Express (Fedex) investors. The transaction was ultimately Fedex 2020-1 is the first freighter-only successfully issued a $970 million class-AA allocated to 84 investors, a significant EETC in nearly two decades and the first tranche in the second quarter of 2020. portion diversifying Fedex’s investor base Fedex new issuance since 1999.

www.airfinancejournal.com 21 Airfinance Journal Global Awards 2020

New Fund/Alternative Financing Platform of the Year: Castlelake up to $5bn Boeing aircraft fund

analyse deals on a case-by-case basis secured financing through 90%-95% LTV. Borrower/issuer: Castlelake and provide the best possible bespoke The initial two-year partnership includes financing solutions. an option to extend for an additional Structure: Secured loan Castlelake’s deep sector expertise two years. The airline financing shall be Amount: Up to $5 billion and experience thoughtfully designing provided for five to 12 years. specialised financing structures enabled The unprecedented pandemic and Tenor: Initial two years partnership with the investment team to finalise this subsequent economic fallout of 2020 two-year extension collaboration with Boeing in four months, have caused what many would consider and sign the definitive documentation on 9 to be the airline industry’s most severe Date mandated: 9 July 2020 November 2020. dislocation in history. For Castlelake, finding Castlelake designed the aircraft a meaningful investment opportunity that Date closed: 9 November 2020 financing collaboration with Boeing to has the capacity to withstand continued fill the new delivery financing gap via uncertainty proved difficult, but not astlelake worked closely with Boeing committed capital dedicated to particularly impossible, as the firm remained steadfast Cto develop, structure and execute a high loan-to-value (LTV) lending in its commitment to source attractive customer financing programme whereby which helps solve the risk pullback at investments. the firm would commit up to $5 billion commercial banks and liquidity crisis at The largest ongoing obstacle is raising in capital for new Boeing commercial airlines. This also helps the global fleet the capital to fund this venture, which aircraft deliveries through senior secured transition from older technology to newer, Castlelake is confident it will be able to financing, mezzanine financing and high more fuel-efficient and environmentally achieve through many conversations loan-to-value finance leases. friendly aircraft. with its investor base and other deep As part of the agreement, Castlelake The offerings under this financing include relationships. Castlelake’s aviation holds full discretion over which deals first lien senior secured at 65%-75% LTV, presence in investing and servicing track the firm pursues and the terms of those high LTV first lien secured unitranche record spans 15 years across more than transactions. This allows Castlelake to financing at 90%-95% and LTV, mezzanine 650 aircraft and $15 billion of capital.

Equity Deal of the Year: Norwegian Air Shuttle $1.6bn recapitalisation

lready overindebted and More than $1.25 billion of liabilities from Borrower/issuer: Norwegian Air Shuttle Aundercapitalised at the start of 2020, Norwegian’s balance sheet were converted and with revenues plummeting as a to equity, including over $900 million of Structure: Debt-for-equity swap result of the Covid-19 crisis, Norwegian lease liabilities involving more than 20 Amount: $1.6 billion Air Shuttle’s cash reserves were rapidly separate leasing companies. running out. As a result, Norwegian’s equity ratio Lessors: More than 20 leasing With no alternative sources of funding increased to 17% following completion of companies involved readily available, support from the the recapitalisation from about 4.8% at the Banks: DNB Bank acted as arranger of Norwegian state was crucial to the airline’s turn of the year. This significantly exceeded the Norwegian state-supported loan. ability to survive. But the Norwegian the 8% requirement imposed by the DNB Bank ASA, Sundal Collier and government made it clear that its support Norwegian government. Danske Bank (Norwegian Branch) acted was conditional on the airline raising new The initial ask to Norwegian’s as managers for the equity issuance equity and more than doubling its equity lessors, while bold and innovative, was ratio to 8%. This required Norwegian and fundamentally simple – rent reductions Lawyers: Hogan Lovells advised its advisers to produce an innovative and power-by-the-hour rental in return for Norwegian Air Shuttle. BAHR acted solution that would meet the government’s equity in the airline. as Norwegian counsel, Matheson as requirements while also restructuring the The complexity arose from tailoring this Irish counsel to Norwegian Air Shuttle. airline’s balance sheet, all to be achieved generic ask to the specific requirements Thommessen acted as counsel to the in the few weeks before the carrier’s cash and concerns of each of the 20 or more managers. A number of other firms were ran out. lessors involved, while remaining within involved advising the various lessors, It was against this background the the constraints imposed by Norwegian including Clifford Chance, Norton Rose innovative lessor debt-for-equity scheme securities law, by the deals agreed with Fulbright, Vedder Price, Bird & Bird and was devised. In normal circumstances, the bondholders and by the requirements McCann Fitzgerald it is extremely uncommon for lessors to associated with Norwegian government Restructuring and financial adviser: take equity in their airline customers, but support, and negotiating all of this to Seabury Securities Norwegian was able to take advantage of completion within the required timeline. the unique market situation resulting from Norwegian’s recapitalisation and lease Date mandated: 1 March 2020 Covid-19 to persuade its lessors that this restructuring was the first by any significant Date closed: 20 May 2020 innovative proposal was the best option sized airline after the start of the Covid-19 available to them. crisis.

22 Airfinance Journal July/August 2021 Airfinance Journal Global Awards 2020

M&A Deal of the Year: Bain Capital A$3.5bn recapitalisation and restructuring of Virgin

A$6.8 billion ($5.3 billion) in debt owing to under Bain Capital’s ownership. Structure: Asset sale a broad and diverse group of stakeholders. The transaction was structured as an The corporate rescue of Australia’s asset sale with an undertaking from Bain Amount: A$3.5 billion ($2.7 billion) second-largest airline represented the Capital to put forward a deed of company Assets: Aircraft, spare engines, flight largest of its kind in the past two decades. arrangement (DOCA) proposal at a simulators, rotable components With the future of the airline and its 9,000 premium price for creditors to vote on at employees and 12,000 creditors at risk, it the second creditors’ meeting. This was Lawyers: Herbert Smith Freehills acted was one of the highest-profile and most an innovative structure which ensured as advisers to Bain Capital. Clayton complex deals of 2020 and of the past that Bain Capital was assured of securing Utz acted as advisers to Deloitte, as decade. ownership of the business at the time administrators Initially, there were 20 interested parties, of ongoing economic risk ahead of the but the administrator shortlisted this to four creditor vote, and that Bain Capital could Advisers: Alton Aviation Consultancy bidders. therefore provide execution certainty for all advised Bain Capital. Additional On 26 June, Bain Capital was named stakeholders. advisers included Korda Mentha, 333 the successful bidder in a highly publicised The multiple DOCA structure also Capital, Norton White, Paul Weiss, Bain process run by the voluntary administrators ensured that the business could still be & Co, Goldman Sachs and their advisers, which culminated in the successfully acquired by Bain Capital if the Date mandated: 15 April 2020 signing of a binding agreement for the sale creditor vote succeeded for some entities of the business. and not others, by enabling completion of Date closed: 17 November 2020 The 10 deeds of company arrangement the sale through a combination of DOCAs proposed by Bain Capital at the second and asset sales (although that was not meeting of creditors of the Virgin Australia ultimately required). ain Capital completed its landmark companies were overwhelmingly approved Virgin Australia’s emergence from Bacquisition of Virgin Australia Group by the creditors and, on 17 November administration after about seven months is after the iconic business fell victim to the 2020, were fully implemented, with viewed as one of the fastest turn-arounds global pandemic and entered voluntary Virgin Australia emerging from external in the context of airlines and Australian administration on 21 April 2020 with about administration as a recapitalised business companies.

Lessor Unsecured Bond Deal of the Year: Aercap $1.25bn bond issuance n 3 June 2020, Aercap, via issuers The orderbook began to Borrower: Aercap Ireland Capital DAC, OAercap Ireland Capital DAC and Aercap Global Aviation Trust Aercap Global Aviation Trust, priced grow quickly and peaked Structure: Unsecured bond $1.25 billion of five-year fixed-rate senior unsecured notes at a yield of 6.75%. at $11.1 billion. Amount: $1.25 billion After the Covid-19 pandemic dislocation, Tenor: Five years while secondary trading levels in many Banks: Citigroup Global Markets, sectors recovered following Fed action Deutsche Bank Securities, HSBC in April, the lessor complex remained quality orderbook with more than 250 final Securities (USA), Mizuho Securities illiquid, inverted and elevated despite many investor orders ahead of pricing. It first USA and Morgan Stanley are served leasing companies demonstrating sufficient mandated Deutsche Bank on 4 March, days as joint bookrunning managers for the liquidity to weather the storm. before Black Monday (9 March) and the underwritten public offering. Credit Following the announcement and initial height of the Covid-19 market dislocation. Agricole, Goldman Sachs, MUFG, price talk at 8.25% yield, the orderbook Aercap proceeded to put the Societe Generale and TD Securities began to grow quickly and peaked at transaction on hold twice over three were passive bookrunners. Citizens $11.1 billion (9x oversubscribed). With months before the issuer and lead Capital Markets, Fifth Third Bank and only marginal drops, the transaction was bookrunners deemed the market firm Scotiabank were co-managers upsized to $1.25 billion from an intended enough to launch a transaction. $750 million size. It launched at 6.75% Aercap and the bookrunners needed Lawyers: Cravath, Swaine & Moore yield, 0.125% through the lower end of to thread the needle between initial price acted as counsel for the issuers. guidance. The 150 basis points (bps) thoughts based on illiquid secondaries and Simpson Thacher & Bartlett acted as movement over the course of the day the ability to price through the curve in the advisers to the underwriters resulted in an outcome that was 50bps event of proven investor demand. Auditor: PricewaterhouseCoopers inside of the company’s secondary trading. The offering represented Aercap’s The transaction represented the lessor’s largest-ever senior debt tranche and set Date mandated: 3 June 2020 first bond issuance post-Covid-19. a new benchmark at about 50bps inside Date closed: 8 June 2020 In a relatively short period of time, of where their curve was trading in the Aercap was able to generate a high- secondary market for a five-year issuance.

www.airfinancejournal.com 23 Airfinance Journal Global Awards 2020

Airline Unsecured Bond Deal of the Year: Etihad Airways $600m sukuk

n November 2020, Etihad Airways issued adopted by new world development’s Borrower/issuer: Unity 1 Sukuk Limited Iits inaugural $600 million sustainability- sustainability-linked bond framework, (Etihad Airways) linked transition sukuk transaction coupled released in 2021. The SPT seeks to achieve with a tender for liability management (early 20% reduction in emissions intensity (CO2/ Structure: Unsecured bond redemption) of $300 million of 2021 sukuk RTK) in its passenger fleet by 2025 from maturity. a 2017 baseline, contributing to Etihad’s Amount: $600 million The transaction marked the first overall decarbonisation trajectory toward sustainability-linked issuance for the net zero. Etihad Airways’ SPT trajectory up Tenor: Five years aviation sector, first transition issuance for until 2024 exceeds the Corsia target to Banks: HSBC and Standard Chartered the aviation sector, first combination of reduce emissions intensity by 2% a year Bank acted as joint global coordinators transition and sustainability linked issuance to 2050 using a 2010 baseline and below and joint sustainability structuring globally including conventional bonds and transition pathway initiative’s International agents. Islamic Bank, Dubai sukuk markets, new ratchet structure for Pledges Scenario. Islamic Bank, NBD Capital, issuer pay-outs (in this case, purchase of In an interview with Airfinance Journal, First Abu Dhabi Bank, HSBC and carbon offsets) and the first sustainability- Etihad Airways’ group treasurer, Daniel Standard Chartered Bank acted as joint linked bond structure to adopt purchase of Tromans, said: “What we have seen has lead managers and bookrunners. Abu carbon offsets instead of coupon step-ups. been well received by investors and the Dhabi Commercial Bank acted as joint The use of carbon offsets purchased market by having elements like the key lead manager under the Carbon Offsetting and Reduction parameter indicators link when you have Scheme for International Aviation (Corsia) some real skin in the game that make that Lawyers: Clifford Chance acted as above and beyond Etihad’s existing real commitment.” counsel for the issuer. Allen & Overy commitments was an innovative structure In terms of use of proceed, Etihad acted as legal adviser to the banks that is well-received by investors. This Airways is financing the next generation of format, which responds to general aircraft, specifically its fleet of Boeing 787- Adviser: Mashreq Bank concerns around sale and leaseback 9/10 aircraft. structures, seems to reward investors Tromans says that Etihad is looking Date mandated: 1 September 2020 for issuers’ failure to meet sustainability towards other products with partners to performance targets (SPT). develop green sustainable trade finance Date closed: 3 November 2020 The viability of this structure is looking at a green letter of credit and demonstrated by how this model is later sustainable supply chain finance options.

EETC Deal of the Year: United Airlines 352-aircraft $3bn Series 2020-1 Class A notes

The structure consisted of a single note and unique set of covenants to Borrower/issuer: United Airlines equipment tranche secured by a collateral accommodate an off-the-run collateral pool, pool comprised of more than 350 aircraft, with weighted average age of 19 years. Structure: Enhanced equipment trust 99 engines and substantially all of United’s The transaction was well received, structure with single equipment note spare parts. with early momentum and significant The transaction provided significant oversubscription, allowing Goldman Sachs Amount: $3 billion liquidity to United during the Covid-19 crisis, to optimise the transaction terms. It resulted used in part to refinance short-term debt. in a tightened pricing to 5.875% versus talk Banks: Goldman Sachs acted as The transaction marked the first time of mid-to-low 6%s. structuring agent and lead left an EETC was secured by a single pool The successful syndication resulted bookrunner. Citigroup, Barclays, JP of collateral comprised of aircraft, spare in a high-quality and diverse orderbook, Morgan, Morgan Stanley and BofA engines and spare parts. with strong demand from investment- Securities acted as bookrunners It was the first EETC in about 15 years grade, high-yield and structured products Lawyers: Hughes Hubbard & Reed as with multiple liquidity facility providers in a investors. the issuer’s counsel. Milbank acted as single class, with all the collateral Section The transaction was distributed to 123 the underwriters’ counsel 1110 eligible. investors, with the top 10 comprising about The single collateral pool comprised of 72% of the orderbook. Date mandated: 20 October 2020 substantially all of United’s unencumbered It included a loan-to-value test for each aircraft and spare engines, and collateral group, which is a rare feature in Date closed: 28 October 2020 substantially all of its spare parts required EETC issuances. enhanced diligence and rating agency Based on initial maintenance adjusted process. half-life base values, the initial loan to nited Airlines’ $3 billion enhanced The transaction required bespoke values for the class-A certificate is 51.6%, Uequipment trust certificates (EETC) structuring and non-traditional EETC with an expected final maturity of seven transaction was the largest issuance. features such as single equipment years. Weighted average life is 4.1 years.

24 Airfinance Journal July/August 2021 Airfinance Journal Global Awards 2020

ABS Deal of the Year: WEST V $366.7m ABS for 57 engines

The notes issued are secured by lease available collections. The account will Borrower/issuer: Willis Engine payments and disposition proceeds on be replenished back to its target amount Structured Trust V a pool of 54 aircraft engines and three following any drawings. airframe, with 24 unique lessees in 17 WLFC acted as sponsor, servicer and Structure: Three tranche asset-backed unique , acquired by WEST V from administrative agent in the transaction. securities Willis Lease Finance Corporation (WLFC) WEST V was the fifth aircraft engine Amount: $366.69 million and certain affiliates. operating lease asset-backed security Of the 57 initial assets, 29 were already (ABS) trust sponsored by WLFC. Tenor: Eight years owned by Willis Engine Securitization Trust Consistent with the previous WEST Banks: BofA Securities acted as II (WEST II) and being refinanced with this transactions, during the rapid amortisation sole structuring agent and joint lead transaction. event, senior scheduled principal payments bookrunner. MUFG and Wells Fargo The $303 million A tranche featured a are by-passed to prioritise, first, series-A acted as joint lead bookrunners 72% loan to value (LTV). The $42.1 million B notes and than the B notes, which differs tranche and the $21.1 million C tranche had from many peer aircraft ABS transactions. Lawyers: Milbank and Norton Rose 82% and 87% LTVs, respectively. Similar to WEST IV, airframes are Fulbright acted as co-counsel for Weighted average life is 6.5 years, 6.5 included in the portfolio, while the the issuers. Pillsbury Winthrop Shaw years and four years, respectively, for an maintenance ratio trigger event remains, Pittman acted as counsel for the eight-year anticipated repayment date. which differs from other aircraft ABS underwriters WEST V represented the first time the transactions. issuer closed a three-tranche structure with The marketing of the transaction was Date mandated: 9 December 2019 a total size of $366.7 million. challenging, being just before the outbreak Date closed: 3 March 2020 The transaction featured a series-C of the Covid-19 pandemic. reserve account to cover shortfalls on With a strong execution and pricing in payments of series-C note interest and under three days, WEST V represented illis Lease Finance Corporation (WLFC), principal up to and including the expected the lowest all-in debt cost for an aircraft Wthrough Willis Engine Structured Trust maturity date of the senior notes. ABS transaction as of February 2020, right V, raised $366.2 million debt through the The account will be initially unfunded before the global pandemic and about 140 issuance of a three-tranche structure. and build to a target of $1 million from basis points tighter than WEST IV.

News Event of the Year: GECAS-PIMCO $3bn aviation fund

The transaction creates a strategic on regulatory approval and customary Borrower/issuer: Gilead Aviation investment platform to enable GECAS- and closing conditions. (Warehouse) DAC PIMCO-advised accounts to acquire new The transaction involved raising third- and young fuel-efficient aircraft to meet the party debt and equity in addition to the needs of a diverse set of global airlines. investment from PIMCO-advised funds and Equity sponsors: GECAS and PIMCO The deal involved a bespoke investment GECAS. structure development to meet both The transaction will inject essential Lawyers: A&L Goodbody acted as Irish PIMCO’s and GECAS’s detailed investment liquidity into this critical industry by counsel to GECAS. Clifford Chance criteria and funding requirements. providing financing solutions at a time acted as US counsel to GECAS. Milbank GECAS and PIMCO have identified an when there are fewer traditional financing served as US counsel to PIMCO. Walkers area to be filled post-Covid-19 pandemic options for airlines. acted as Irish counsel to PIMCO where a diverse and global set of airlines “As the airline industry struggles with will need new and young fuel-efficient the effects of the Covid-19 pandemic, Amount: $3 billion aircraft. The new entity will provide “much- the PIMCO-GECAS platform will inject needed” financing to carriers which are essential liquidity into this critical industry Tenor: January 2026 looking to upgrade their fleets with young by providing financing solutions at a time and new aircraft. when there are fewer traditional financing Date mandated: 19 October 2020 GECAS will source transactions for the options for airlines,” says Dan Ivascyn, platform, act as servicer and provide asset PIMCO’s group chief investment officer. management services. “Aircraft remain an attractive asset class While the new platform will initially in a critical infrastructure sector supported alifornia-based fix-income investor focus on narrowbody aircraft, it will also by solid long-term growth drivers,” he CPIMCO and GECAS established a $3 have the flexibility to invest in “attractive adds. “GECAS’s expertise as a world-class billion aviation leasing platform in October opportunities” in the widebody market. The aircraft lessor aligns with our longstanding 2020. establishment of the platform is dependent investment strategy in aviation finance.”

www.airfinancejournal.com 25 Airfinance Journal Global Awards 2020

Editor’s Deal of the Year: Castlelake Lessor Term Financing

he sale and leaseback market, and The transaction required a rateable Borrower/issuer: ClSec Holdings 22 Tconsequently the financing market for sale instrument and drove the development of T LLC and leasebacks, became very active during a new and innovative structure, building off 2020. This transaction, however, was totally familiar EETC technology, to accommodate Structure: $420 million class-A notes, innovative because it combined technology both the lessor’s financing needs and $64 million class-B notes from both traditional airline enhanced investor requirements. equipment trust certificate transactions and Like a typical airline EETC, a default Banks: Certain client accounts aircraft asset-backed securities transactions under the loans will provide the lenders, managed by Guggenheim to create a new structure that appeals to a through the noteholders, the opportunity Investments are noteholders. variety of investor types. to exercise remedies. However, no event ClSec Holdings 22 T LLC, a newly-formed of default under the notes will occur unless UMB acted as security trustee and special purpose company owned by certain interest on the notes is not paid or principal administrative agent funds managed by Castlelake, acquired is not paid on final legal maturity. Interest Lawyers: Milbank served as adviser two Airbus A350-900s, two A330-900neos on the notes is supported by a payment-in- and three A321-200ceos from Delta Airlines kind feature for up to 18 months. to the noteholders. Vedder Price under a purchase and leaseback transaction. The borrower, the issuer and the acted as adviser to the borrower and The company borrowed the loans from aircraft and related leases are serviced by issuer a newly-formed special purpose limited Castlelake. liability company that, in turn, issued class-A The deal was negotiated and executed Amount: $485 million notes and class-B notes to certain client in a very short period of time with all accounts managed by Guggenheim to fund documents being negotiated and the Date mandated: 11 August 2020 the loans. transaction being funded in less than four Date closed: 13 November 2020 It marked the first lessor secured notes weeks. This is particularly notable taking financing using this innovative structure in into consideration the novel structure and almost a decade. lack of precedent documentation.

Overall Deal of the Year: United Airlines $6.8bn Mileage Plus Programme

needed to raise cash. One source of subsidiaries, including the entities party Borrower/issuer: Mileage Plus Holdings, untapped value for the airline was its to its Mileage Plus-related co-branding LLC frequent-flyer programme, which generates agreements and intellectual property. Structure: High-yield bonds and senior $5 billion in annual revenue through its co- As a result, were United to default on secured institutional term loans branded credit cards and other commercial this debt, it would be very difficult for the Banks: Goldman Sachs Lending Partners relationships. company to launch a new frequent-flyer acted as sole structuring and lead left The first-of-its-kind transaction, programme post-bankruptcy. Instead, arranger and bookrunner. Morgan pioneered by Mayer Brown, Milbank, United has a strong incentive to continue Stanley acted as joint lead arranger and Goldman Sachs and the United team, making debt payments even in the event of bookrunner marked the first financing backed by a US a bankruptcy filing. Lawyers: Milbank, Mayer Brown acted airline loyalty programme, helping the US The structure allowed the loans and as counsel to Goldman Sachs. Kirkland & carrier to obtain cost-effective financing bonds to obtain a higher credit rating than Ellis acted as counsel to United Airlines backed by its core asset. would a financing that is unsecured or Amount: $6.8 billion At $6.8 billion, the financing is one of the secured by other airline assets. United’s Tenor: Seven years largest in aviation history and is an hybrid credit rating is considered speculative transaction that melds concepts from non-investment grade. These bonds were Date mandated: 2 March 2020 corporate loan and bond transactions and issued at 6.5% (investment grade) and Date closed: 14 July 2020 from structured finance products, providing the deal was upsized because of investor parent-level credit support as well as demand. safeguards protecting the transaction The challenge was to create a structure he United Airlines $6.8 billion Mileage and collateral in the event United files for that protected collateral and gave the TPlus Programme transaction had all the bankruptcy. No other airline had previously airline better pricing terms while still ingredients to win the year’s Overall Deal of leveraged its frequent-flyer programme in ensuring the airline could operate its loyalty the Year award. such a fashion. programme. Lead arrangers underwrote Covid-19 decimated the airline industry. The transaction was complex because financing prior to syndication because of United Airlines’ revenue plummeted, the loyalty programme intellectual property volatile market conditions in June 2020; creating a $1.6 billion second-quarter loss was transferred to a special purpose however, the syndication of the bonds and compared with a $1 billion profit in the 2019 subsidiary. Mayer Brown, with help from loans was extremely successful, garnering corresponding quarter. With expenses of co-counsel Milbank, devised a structure significant market attention and investor more than $40 million a day, the airline that legally isolates United’s Mileage Plus orders.

26 Airfinance Journal July/August 2021 Airfinance Journal Global Awards 2020

Overall Capital Markets Deal of the Year: SAPA 2020-1 $620m ABS for 21xA/c

SAPA 2020-1 represents Avolon’s SAPA 2020-1 represented the lowest Borrower/issuer: Sapphire Aviation second asset-backed securities (ABS) blended yield across the entire debt Finance II Limited and Sapphire Aviation transaction of the Sapphire vehicle after stack in this post-financial crisis vintage of Finance II LLC SAPA 2018-1. Such vehicles attract strong issuance. The 3.25% for A-rated aircraft Servicer/manager: Avolon investor demand to the aircraft market. ABS represented the lowest yield across all Structure: Three-tranche asset-backed The issuance comprises $490 million of aircraft ABS A-rated bonds. The 375% for securities 3.228% series-A fixed-rate notes, issued at a BBB-rated aircraft ABS was the joint lowest Banks: Mizuho Securities acted as left 3.25% yield, and a 65.6% loan-to-value (LTV). yield across all aircraft ABS BBB-rated lead structuring agent and left lead The $86 million of 4.335% (4.375% yield) bonds. bookrunner. Mizuho Securities USA and series-B fixed-rate notes have a 77.1% LTV. SAPA 2020-1 attracted strong investor Deutsche Bank Securities acted as joint lead structuring agents and joint lead Both tranches amortise on a 13-year demand with oversubscription occurring bookrunners. Credit Agricole Securities straight-line schedule. across all tranches, particularly within the (USA) and MUFG Securities Americas The $44 million 6.779% (6.875% yield) senior part of the capital structure. acted as joint lead bookrunners. series-C notes have an 83% LTV and amortise Despite announcing the transaction at BNP Paribas Securities and Morgan on a seven-year straight-line schedule. price guidance, overwhelming demand for Stanley acted as joint bookrunners. Libremax Capital was selected as the all the As and Bs enabled Mizuho to test at Natixis Securities Americas acted as anchor investor in the equity certificates a lower yield of 3.25% for the A notes. The a co-manager. Credit Agricole CIB offered. The New York-based hedge fund transaction recorded 39 unique investors acted as liquidity facility provider. UMB Bank acted as trustee, security trustee, committed to keep at least 20% of the across the capital structure. The A tranche operating bank and paying agent. equity certificates for two years and 10% was 5.1x oversubscribed, the B tranche Canyon Financial Services acted as for a third year. Avolon’s interests were 5.9x oversubscribed while the C tranche managing agent fully aligned with investors through a 9.5% was fully subscribed. Lawyers: Milbank, Clifford Chance equity retention, as well as a profit-sharing The debt is backed by a diversified advised Avolon, the issuers and the agreement starting when equity investors portfolio of aircraft with a weighted average certificate issuer. Milbank acted as reach a 12% internal rate of return. age of 7.5 years and a weighted average counsel to the initial purchasers The transaction was well received during remaining lease term of 6.4 years. Amount: $620 million marketing, enabling Avolon to tighten its The portfolio is comprised of 18 Date mandated: 11 September 2019 all-in yield by 1% since the last Sapphire narrowbody and three widebody aircraft on Date closed: 14 February 2020 issuance in 2018 despite extending the lease to 19 lessees, with 47% exposure to weighted average life of the notes. national flag carriers.

Innovative Deal of the Year: American Airlines $1bn bond issuance

initiative for American Airlines and it second lien on certain slots at New York’s Borrower/issuer: American Airlines demonstrated to lenders that there was LaGuardia airport and Washington’s Reagan Structure: Secured senior notes untapped and arguably unappreciated National airport. assets in corporate brands. The notes are guaranteed by American Banks: Street Strategic Solutions Fund The transaction was one of the first Airlines Group, and mature about five-and- I, and Broad Street Credit Holdings airline financings significantly to leverage a-half years after issuance. They will bear LLC, each of which is an affiliate of brand and trademark intellectual property interest at a rate of 10.75% a year, subject to the merchant banking division of (IP) in the airline sector. It also represented certain rights of the company during the first Goldman Sachs Group (Goldman Sachs the largest private placement in the USA by two years the notes are outstanding, at its Purchasers). Goldman Sachs acted as any investor in the airline sector. election, to pay interest at a rate of 12% a year sole placement agent and bookrunner American Airlines structured a $1 billion payable one-half in cash and one-half in kind Lawyers: Milbank as counsel to the secured notes issuance with Goldman through the issuance of additional notes. Goldman Sachs purchasers. Latham Sachs Merchant Bank with the company’s The transaction was a unique use of a Watkins as counsel to American Airlines corporate brand and IP as the underlying valuable and previously unfinanced asset – Amount: $1 billion collateral. the corporate brand. The senior notes are secured by a first It was also the first-of-its-kind brand Tenor: 5.5 years lien on the American Airlines trademark intellectual property and take-off/landing Date mandated: 1 July 2020 and aa.com domain name in the US and slot financing. Date closed: 20 September 2020 some foreign jurisdictions (the IP notes). The innovative second lien structure Derek Kerr, American’s chief financial takes advantage of capacity under existing officer, said the company’s IP was worth financings. he year 2020 required airlines to get about $10 billion. The $1 billion size allows an additional Tcreative in unlocking attractive assets Another $200 million in senior notes $4 billion of first lien capacity against the to bolster liquidity. This was an important (the LGA/DCA notes) are secured by a collateral.

www.airfinancejournal.com 27 Airfinance Journal Global Awards 2020

Aviation Finance House of the Year: BNP Paribas Aviation Finance Franchise he Covid-19 pandemic dealt a heavy financing products, representing more than Lines, £5 billion – $7.1 billion – Rolls-Royce Tblow to people’s daily lives, on the double the size of 2019’s deal flow. package, etc), alongside a wide range economy at large and on the aviation This volume excluded any deals for of rights issuances, at-the-market sales sector as travel restrictions and national which the bank performed restructuring or and convertibles (Easyjet, Cathay Pacific lockdowns pressured most of the deferrals as a consequence of the Covid-19 Airways, American Airlines, , passenger travel operators to reduce crisis. etc), innovative portfolio structures (Bleriot capacity or completely shut down for BNP Paribas underwrote $6.5 billion (up Aviation Funding and Titan Aviation several months. 4% year on year) of financings, and kept final warehouses, Qantas’s enhanced corporate As the crisis deepened, several takes of $4.4 billion (up 1% year on year). loan, etc), sizeable and complex secured financiers and liquidity providers, paused The financier executed every type of facilities (AFIC and Balthazar French leases or reduced their exposure or exited the financing transaction, including term loan, with , Balthazar financing aviation market, fearing a protracted hit to limited recourse financing, Murabaha with Pegasus Airlines, which introduced the market and to their returns. term loan, warehouse facility, Japanese Airbus’s remote delivery procedures for the As per its long-standing support to the operating lease with call option (Jolco), first time, Jolcos with AF-KLM, LATAM and market, BNP Paribas strongly reaffirmed French lease, Insurance-supported Cathay, etc), added to the bank’s continued its commitment towards aviation during financing (Balthazar and AFIC), unsecured commitment towards environmental, social 2020, by providing key support as early as revolving credit facility, commercial loan, and governance objectives through Jetblue a few weeks into the crisis, and supporting recourse portfolio financing and state- Airways’ $550 million sustainability-linked its core clients throughout a wide range guaranteed loan on a total of 35 airlines. revolving credit facility. of financing solutions, most of them The total volume of deals is mainly Once again, BNP Paribas has proven – specifically tailored or readjusted to tackle attributable to the liquidity needs the during a difficult period nonetheless – its the unexpected challenges its clients were entire aviation sector has faced (airlines, ability to cater to its aviation customers’ facing. original equipment manufacturers and needs, providing innovative products As can be seen in its transactions, the lessors), which resulted in sizeable in record time and efficiency, within a downturn of the aviation market did not unsecured issuances (ie, $9 billion complex environment that continues to stop BNP Paribas from taking part in more Skymiles securitisation and $5 billion high- challenge the industry, operators and than $100 billion-worth of aviation-related yield notes and term loan B by Delta Air financiers. Lifetime Achievement Award: Phang Thim Fatt hang Thim Fatt is the former deputy market, the Singapore, Hong Kong SAR Regulation S $750 million notes under its Pmanaging director and chief financial and Australian dollar bond markets and the $5 billion global medium-term note (GMTN) officer of BOC Aviation. US Rule 144A international market. Over programme. He stood down from the position on 30 the years, BOC Aviation has demonstrated In 2015, BOC Aviation performed its first September 2020 but remained with the its ability to diversify into new sources of portfolio sale in the capital markets with company to ensure a smooth transition of capital to fund its growth. The lessor has the Shenton Aircraft Investment I Limited his duties until his retirement three months raised more than $8.2 billion in debt capital asset-backed securities (ABS) transaction. later on 31 December. Thim Fatt’s role markets financing since 2000. BOC Aviation returned to the ABS market included overseeing the finance, treasury, BOC Aviation was one of the few aviation in 2021 with another transaction, Silver tax and risk departments. success stories in 2009, and some prudent Investment Limited. Since Bank of China’s acquisition in financial planning by Fatt Phang allowed In 2016, BOC Aviation closed a $1.5 December 2006, Thim Fatt and his team the company to capitalise on the downturn billion unsecured syndicated revolving have raised more than $31 billion in debt, in 2010. credit facility, increased from an initial with an average return on equity of 15%. At In the aftermath of the financial crisis, launch size of $1 billion. The facility, which the time of his departure, BOC Aviation had BOC Aviation launched a $300 million comprised two $750 million tranches reported $4.7 billion of cumulative profits multicurrency medium-term notes with tenors of three years and five years, since inception. programme. Over the subsequent years, respectively, was the largest financing He joined the company in 1996 as chief it tapped the debt market in Singapore transaction closed by the lessor. financial officer and was appointed deputy dollars, US dollars, Australian dollars The lessor had already prepared for managing director of BOC Aviation in July issuances, as well as reminbi-denominated an expected downturn in 2020 and had 2001. He graduated from the University currencies. put additional liquidity in place during of Malaya in Malaysia with a Bachelor’s BOC Aviation priced its debut $500 2019. In addition, it increased the GMTN Degree in Economics ( Honours). million five-year senior unsecured notes at programme’s limit to $15 billion from He worked with Robert Martin, managing 2.875% in 2012. The notes were part of a $10 billion in the first quarter of 2020, to director and chief executive officer, $2 billion euro-denominated medium-term provide further flexibility and continue since 1998. This partnership successfully notes programme, which was launched in accessing the debt capital markets for its managed the group through multiple September 2012. At the time, debt capital future funding needs. industry cycles. markets financing represented only 5% of BOC Aviation has one of the highest Since 2000, its debt capital markets BOC Aviation’s financing activity, according credit ratings in the aircraft operating lease activity has allowed it to access multiple to Thim Fatt. industry, with investment-grade corporate bond markets, including the Regulation S In 2015, the Singapore-based lessor credit ratings of A- from both S&P Global market, the offshore Chinese yuan bond priced its first issuance of Rule 144A/ Ratings and Fitch Ratings.

28 Airfinance Journal July/August 2021 Airfinance Journal Global Awards 2020

www.airfinancejournal.com 29

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Airline Treasury Team of the Year: Pegasus Airlines Aircraft Finance Team egasus Airlines, the Turkish low-cost international flight limitations affected A321neo deliveries in 2020. Another Pairline, is eager to diversify aircraft the deliveries of the second, third and three aircraft were funded with the financing products in its portfolio in order to fourth aircraft. The Turkish carrier applied export credit agency guarantee in the manage the financing cost and to minimise Airbus’s e-delivery concept, with the first quarter of this year. Pegasus was the risk allocation. fully remote deliveries of these Balthazar the fourth airline to obtain the guarantee Being a small team which is responsible aircraft; after export credit agencies reopened for managing the financing of the 93-aircraft • Japanese operation lease with call support for Airbus. fleet (as at year-end 2020), Pegasus’s options (Jolco) financings of three Pegasus also made progress last year treasury team has 57 Airbus A320neo- A321neo aircraft. Despite the negative with the phase-out of its Boeing 737-800 family aircraft on backlog, which are to be developments on the Japanese equity fleet. The carrier reached an agreement delivered between 2021 and 2025. market after the pandemic, Pegasus was with operating lessor Air Lease (ALC) for the Despite the negative effects of the able to close two Jolco financings during sale and leaseback of four 737-800s under Covid-19 pandemic to the aviation market, the second quarter and one in the final which the US lessor will place an A321neo the treasury team was able to deliver 14 quarter of last year. The financings were with the airline in spring 2023. aircraft in 2020, as originally committed to closed with different parties, and one The carrier also announced plans in Airbus, without any change in its original transaction marked the first time that the December to raise up to TRY2.5 billion 2020 delivery stream. Jolco structure was funded with the debt ($320 million) from domestic qualified It also managed to add diversified guaranteed by Aviation Capital Group investors in one or more tranches. financing structures in the fleet. under its Aircraft Financing Solutions The inaugural bond issuance closed in The team notably excelled in diversifying programme. February 2021 with the TRY260 million its financing channel by closing different • Export credit agency-supported transaction. The bond’s principal payment structures last year, including: financings. Pegasus obtained the UKEF’s has a one-year maturity and a variable • Insurance-supported financing product guarantee in April 2020 for the financing interest of 300 basis points over the Balthazar for four A320neos. Because of up to 10 aircraft. This structure was benchmark – the Turkish lira overnight of Covid-19 precautions taken globally, used to fund five A320neo and two interest rate.

Lessor Treasury Team of the Year: Avolon Treasury Team Lessor of the Year: Avolon

ast year was the most challenging the remaining lease term of 6.8 years. of 2.3x at year-end, one of the lowest in the Lcommercial aviation industry has ever When the scale of the pandemic became sector. faced. apparent, Avolon focused on liquidity, Executing these debt-raising activities Lessors were not immune but the strength realigning its capital deployment pipeline against one of the most challenging market and resilience of Avolon’s investment-grade with a fundamentally different industry backdrops in aviation history, highlighted platform was evident throughout the year, outlook. the strong investor demand for Avolon’s and its response to the Covid-19 crisis was The lessor cancelled a 75 Boeing 737 platform. These factors were further built around three pillars: customers, liquidity Max order in the first quarter of 2020, underlined with a $1.5 billion unsecured and supporting its communities. and another 27 aircraft of the type in the bond offering in January 2021, which was The Avolon treasury team is credited second quarter that were due to deliver priced at Avolon’s lowest-ever coupon. with an outstanding performance to lower between 2020 and 2022. Reflecting on 2020, Avolon’s chief yields and raising a massive amount of The cancellations subsequently reduced executive officer, Domhnal Slattery, says: liquidity. its capital and debt principal commitments “We worked closely with our customers Dublin-headquartered Avolon worked to in the 2020-24 timeframe by more than to provide support while also prudently support its customers – quickly and in scale $9.5 billion, helping further strengthen its managing our own capital position. – through temporary rent deferrals. capital structure. We proactively realigned our capital Despite the challenging market It successfully raised a total of $4.4 billion commitments and addressed near-term debt environment, Avolon took delivery of 27 of debt in 2020, including $3.4 billion of maturities to position our business for what new-technology, fuel-efficient aircraft senior unsecured notes, and $675 million we anticipated to be a gradual recovery.” during the year, continuing to help support of secured term loan debt – all while Last year, Avolon also actively its customers’ fleet renewal. remaining an investment-grade-rated participated in combating Covid-19 in the The lessor also supported airlines credit. early stages of the pandemic. through sale and leaseback transactions for These activities allowed Avolon to The lessor worked closely with a number 44 aircraft, for a total of $2.3 billion. maintain an excess of $5 billion of liquidity of partners, to charter three flights from During the year, it delivered 57 new throughout the year and ended 2020 with China to Ireland which transported four aircraft and transitioned another 10. The a total available liquidity position of $6.8 million individual pieces of PPE together lessor also sold 29 aircraft, three of which billion – the strongest liquidity position in with ventilators and other vital medical were managed. its history. equipment. It created a public fundraiser At year-end, its owned and managed This capital position was achieved while and raised €350,000 ($426,000) from the fleet numbered 572 aircraft with an maintaining the leverage of the business general public to be put towards the cost of average age of 5.3 years and average conservatively low, with a net debt to equity acquiring PPE for front-line staff.

30 Airfinance Journal July/August 2021 Airfinance Journal Global Awards 2020

Aviation Person of the Year: Greg Lee

reg Lee is a managing director in the banking division. The $1 billion notes offer Gfinancing group within the Goldman first priority lien on American Airlines brand, Sachs investment banking division. related/successor trademarks and domain He is co-head of the structured finance names (IP Collateral) and second priority group and also head of airline investment lien on AA’s owned DCA/LGA slots (Slot banking coverage in the Americas. As Collateral). The $200 million notes were head of airline investment banking, Lee is first priority lien on slot collateral. responsible for the firm’s relationships with The transaction represented the largest major airlines in the Americas. private placement in the USA by any He joined Goldman Sachs as a managing investor in the airline sector. It was also director in 2007. Previously, he worked at a novel transaction in the airline industry Salomon Brothers, Salomon Smith Barney leveraging intellectual property as sole first and Citigroup for 14 years, focusing on lien collateral. structured finance product development Goldman Sachs was also involved in and execution across a wide variety of two enhanced equipment trust certificate industries. (EETC) transactions in 2020: one in Europe Lee led a team of financiers that worked and another in the USA. on rescue financings for airlines last year, The $1 billion British Airways 2020-1 in coordination with the merchant banking EETC priced well inside initial pricing talk divisions. on the class A and 25 basis points inside Goldman Sachs demonstrated its ability guidance on both class A and class B. to continue driving strong execution in a On the $3 billion United Airlines 2020-1 stressed environment for the airline sector, EETC, Goldman Sachs acted as sole especially in the second quarter of 2020. structuring agent and lead left bookrunner In a challenged operating environment, and liquidity facility provider. This single Goldman Sachs offered innovative capital tranche transaction represented the largest solutions in landmark deals: Greg Lee EETC financing issued and the first EETC transaction collateralised by three collateral United Airlines’ $6.8 billion Mileage financing transaction, raising $2.5 billion of pools. The transaction also represented Plus Holdings debt financing: Goldman senior secured notes due October 2025 the first post-global financial crisis EETC to Sachs was the sole structuring agent and and $3.5 billion of senior secured notes include spare parts or spare engines and joint lead bookrunner of the $6.8 billion of due October 2028. The transaction also the oldest aircraft financed in a EETC to the Mileage Plus Holdings debt financing. included a $3 billion secured term loan due date. The issuance included $3.8 billion senior October 2027. Goldman Sachs also acted as sole secured notes due June 2027 and a $3 The innovative transaction structure structuring agent, global coordinator and billion senior secured term loan due June leverages intellectual property and sole bookrunner of AASET 2020-1 asset- 2027. diversity of cash flows of the airline loyalty backed securities (ABS), a portfolio sale of The debt is backed by the intellectual programme to achieve investment-grade $490 million assets, financed with $409 property and cash flows associated with ratings. million of debt. Despite having an older- the airline’s customer loyalty programme, The significant oversubscription led to than-average portfolio for the ABS space, Mileage Plus Holdings. a $2.5 billion upsize, tranche optimisation, AASET 2020-1 priced at the tightest debt It was the first-of-its-kind transaction and ultimately final pricing inside of initial yields to date in the aircraft ABS space marking the first financing backed by a US whispers and price talk. and Carlyle’s fund sold 100% of its equity airline loyalty programme, helping United The transaction garnered investment- position. obtain cost-effective financing in large size grade ratings from both Moody’s (Baa1) The firm acted as joint sponsor, joint backed by its core asset. The innovative and Fitch (BBB), representing significant financial adviser, joint global coordinator transaction structure leverages intellectual up-notching to investment grade from the and joint bookrunner of the €2.74 billion property of the airline loyalty programme parent unsecured rating of Baa3 and BB+. ($3.3 billion) IAG rights offering. and uses technology from structured Goldman Sachs acted as financial finance and leveraged finance to achieve American Airlines (AA) transactions: adviser in Cathay’s triple tranche HK$39 IG ratings. Goldman Sachs was one of the four banks billion ($5 billion) recapitalisation. The At issuance, it was the largest acting as joint lead managers on AA’s ‘Big transaction was the second-largest capital markets offering by an airline. Bang’ financing in June 2020. government-led airline recapitalisation The transaction achieved significant The $4.65 billion transaction included package in the Asia-Pacific region. oversubscription and led to a $1.8 billion $2.5 billion senior secured notes due 2025 The Hong Kong SAR government upsize, tranche optimisation, and ultimately for which it acted as joint lead bookrunner. committed a total of HK$27.3 billion to final pricing inside of initial whispers and The firm also acted as left lead bookrunner Cathay Pacific, and the airline also secured price talk. and syndicate trading manager for AA’s a HK$7.8 billion bridge loan facility over dual tranche $1 billion common equity and certain aircraft and related insurances of Delta Air Lines’ $9 billion Skymiles $1 billion convertible offering with $150 the Cathay Pacific Group. secured financing: Goldman Sachs was million 15% greenshoe. Goldman Sachs was joint lead arranger the sole structuring agent and joint lead The firm acted as sole placement and joint bookrunner of Avianca’s $1.27 bookrunner of the $9 billion Delta Air agent and bookrunner in AA’s $1.2 billion billion debtor-in-possession tranche A – the Lines Skymiles secured financing. The issuance. The senior secured notes were $1.029 billion Tranche A-1 and $240 million transaction represented the largest aviation purchased by Goldman Sachs’ merchant Tranche A-2.

www.airfinancejournal.com 31 Special report

Blockchain helps kickstart international travel

Mobile app IATA Travel Pass will help travellers store and manage their verified certifications for Covid-19 tests or vaccines, reports Laura Mueller.

he aviation industry is desperate to frictionless as possible and sharing our To access the travel pass, travellers Treopen for summer holiday revenue, learnings to help the travel industry take will download the IATA travel pass app, and the International Air off again. which will require them to create a digital Association (IATA) is hoping blockchain “We know that digital travel passes are version of their . Passengers are will help kickstart international travel by part of the solution, and they will also play then required to go to test centres either reducing onerous quarantine requirements. a key role in offering those travelling the to acquire a Covid-19 test or vaccination, To address this challenge, IATA has reassurance they need before they arrive leaving them with their digital passport on launched the IATA Travel Pass, a mobile at the airport. We hope to be able to offer their phone and their test or vaccination app that helps travellers store and manage a customer-friendly digital option for every results. their verified certifications for Covid-19 tests British Airways international route that This information is then run through the or vaccines. requires proof of government-mandated IATA system called Timatic – a system It is more secure and efficient than Covid-19 status documentation.” that has been used by airlines and travel current paper processes used to manage The airline’s parent company, agents for more than 60 years – to verify health requirements because it is based International Airlines Group (IAG), has been passenger data and requirements against on decentralised blockchain technology, working closely with IATA to co-develop regulations. meaning there is no central database of the app. The system has now been updated to personal data. Nick Careen, IATA’s senior vice-president include worldwide Covid-19 regulations, All the user’s health details remain on for operations, safety and security, says: “To allowing IATA to compare passenger data the app: they are transmitted or centrally reopen borders, governments need to be to restrictions. stored at no point, which assures the user confident that they are mitigating the risk IATA identified blockchain in its “Future of total control over all their personal data. of importing Covid-19. Testing, or proof of of the Airline Industry 2035” study as one “To reopen borders without quarantine vaccine, is the solution. IATA Travel Pass of the technologies that may have a major and restart aviation, governments need will collaborate with governments, airlines, impact on the future of aviation, among to be confident that they are effectively laboratories and travellers to verify these other drivers of change such as new mitigating the risk of importing Covid-19. documents securely, ensuring reliable modes of consumption or the privatisation This means having accurate information on information on the health status of travellers.” of infrastructure. passengers’ Covid-19 health status. “Informing passengers on what tests, vaccines and other measures they require The Travel Pass consists of four independent components that can before travel, details on where they can interact with each other: get tested and giving them the ability to share their tests and vaccination results in a verifiable, safe and privacy-protecting MODULES FUNCTIONALITIES manner is the key to giving governments the confidence to open borders,” says IATA. • enables passengers to find information on travel, testing and Registry of Health In June, Air France, British Airways, vaccine requirements for their journey; Requirements LATAM and Vietjet became the latest • powered by IATA Timatic. airlines to start the trial of the IATA Travel Pass. In March, about 20 airlines began trialling the new app. This trial is free • enables passengers to find testing centres and labs at their of charge for customers and offered Registry of testing/ departure and/or arrival location that can conduct Covid-19 voluntarily. vaccination centres tests in accordance with the type of test required for their In fact, to encourage the trial of the journey. digital passport, travellers on LATAM who completed each step in the trial phase, • enables authorised labs and test centres to send test results or Lab App including the survey at the end, received vaccination certificates to passengers securely. 1,000 bonus LATAM Pass Miles as a reward. Avianca became the first South American • enables passengers to (1) create a digital passport, (2) verify to trail the pass in May. their test/vaccination meets the regulations and (3) shares test British Airways chairman and chief Travel Pass App or vaccination certificates with authorities to facilitate travel; executive officer (CEO), Sean Doyle, says: • can be used by travellers to manage travel documentation “We are committed to exploring ways to digitally and seamlessly throughout the travel experience. ensure that the customer journey is as

32 Airfinance Journal July/August 2021 Cover story

Smooth operator BOC Aviation was swift in enacting its “downturn plan” at the start of the Covid-19 pandemic, and 2021 is shaping up to be another big year for the lessor, its managing director and chief executive officer, Robert Martin, tells Dominic Lalk.

ingapore-based, Hong Kong-listed “Asia had a good start to the Covid airline customer on delivery. It sold SBOC Aviation was executing a crisis, but the other regions have clearly 12 aircraft that year and signed 102 new business plan in response to the taken over. We anticipated this right lease agreements as it “secured new Covid-19 pandemic before many of back at the start, when we did a rush of business”. its rivals had properly appreciated its PLBs, transacting more than $6.6 billion, The company says it ended 2020 “as severity, says the lessor’s managing which was 40% of the net book value the world’s most valuable listed aircraft director and chief executive officer of our portfolio. Those have gradually operating leasing company in terms of (CEO), Robert Martin. been delivering both last year and this market capitalisation”. Its total assets “We enacted our downturn plan year,” he says. had risen by 19% to $23.6 billion by 31 in March last year when most of our BOC Aviation agreed purchase and December 2020. competitors didn’t even realise we leasebacks in 2020 with airlines such To fund its accelerated growth, BOC were in a downturn. People were still in as Cathay Pacific, Southwest Airlines, Aviation tapped the loan and bond Dublin at the AFJ [Airfinance Journal] United Airlines, American Airlines, Wizz markets, where it raised $5.5 billion and conference while we were out here Air and Indigo. repaid $1.8 billion in debt. The firm’s raising bond money because we could “We focused the PLBs heavily on the average cost of funds declined to 3.2% see what was coming here in Asia. big domestic markets where we could in 2020, from 3.6% in 2019. “Around the same time, Steven see governments were going to help and Townend, who was our head of revenue where we could see functioning capital Aercap-GECAS? Not a problem in Europe at the time, and I got on a markets. This is why our overall cash The merger of leasing giants Aercap plane to the US, sat with the big carriers flow has been strong throughout this and GECAS could lead to tighter there, explained to them what we could period, because we invested in recovery scrutiny of the aircraft leasing industry see going on with Covid over here and markets and reduced the proportion of by regulators, although that is about the what we could do for them. Then, within our exposure to those weaker parts of the only concern Martin has with regards to a month, we started executing. That laid world – i.e., South-East Asia,” says Martin. the proposed $30 billion acquisition. out our Capex [capital expenditure] for “We’ve done nothing in South-East “Remember GPA [Guinness Peat that year and this year, as well as our Asia in terms of PLBs, that type of Aviation]? The Irish love deliveries,” recalls Martin. business. We’ve had a few deliveries to talking about how He says 2021 will be “another big people like Scoot, but basically that’s great GPA was. But year” because the Chinese bank- all we’ve done in South-East Asia let’s not lose sight backed lessor expects 79 new aircraft during this period. of the fact that deliveries, including from purchase and “This takes me to one of the most once Aercap leaseback (PLB) deals agreed at the important points: as an operating merges with start of the pandemic. lessor, portfolio diversification GECAS it will Martin tells Airfinance Journal that his is crucial; active portfolio be the size of team transacted more than $6.6 billion management is crucial,” says Martin. the third-largest in purchase and leasebacks in 2020. In 2020, BOC Aviation delivered Irish bank. How Many of these were signed as early as 54 aircraft to its airline customers, does a regulator March or April 2020. including one acquired by an think about this?

www.airfinancejournal.com 33 Cover story

“What we’re worried about is gradually Liquidity is coming back fast, but… More sale and leaseback opportunities getting regulators more involved in the “The big difference between this year ahead leasing business globally going forward,” [2021] and last year that even caught us “All these carriers that borrowed money says Martin. by surprise was the speed at which the from governments, they usually have pretty The leasing chief, however, is not liquidity was coming back in the financial onerous terms attached. It may not be concerned that the merger will give markets. That was phenomenal. If you financial terms that are onerous, it may be Aercap-GECAS undue market power. He think about it, even at the end of the fourth the fact that the government then ends doubts that even a merged Aercap and quarter last year we suddenly saw carriers up with equity in the company, or they GECAS would be able to achieve the low getting EETCs [enhanced equipment trust can’t pay dividends, or they restrict the cost of finance that BOC Aviation claims. certificates] away at good pricing, and we renumeration of the senior management. “The price we pay for our debt is already saw the ABS [asset-backed securities] That means there is a strong incentive to one of the lowest in the market. We’re market return on the debt side in the US. In refinance such debt as quickly as possible,” already priced at a discount to where Europe, we saw guys getting bond issues says Martin. Aercap raised money, so we won’t be done. “What all of this means is that we at any more disadvantage just because “This then helped the imbalance in the think there will be a second wave of they merged with GECAS. We’ll still be as world between the Americas, Europe and opportunities in the SLB [sale and competitive,” says Martin. this side of the world where the access to leaseback] market for people like ourselves The same concept applies to lease the capital markets clearly was mainly in who play in the SLB market. What is rates. “If their cost of debt is still above the US and in Europe, less so in the Asia- happening now is that we are seeing a SLB ours and they drop their lease rates, then Pacific,” he says. recovery for the stronger carriers, with rates all they’ll do is lose money,” says Martin, BOC Aviation has in place a $15 billion driven down to the levels that we saw pre- who believes that the largest impact of the medium-term note programme backed Covid. We anticipated that would happen. merger will be on used aircraft trading. by its Chinese parent, Bank of China. The We did our $6.6 billion, but we’re not going “Where we think they will have the lessor has achieved record low coupons to chase the market down. There is more biggest impact is on the aircraft sales on its latest issuances. to come yet. There will be more situations market side because clearly Gus [Kelly, The company ended 2020 with more as we emerge from the downturn where Aercap CEO] is following what he did after than $5 billion in cash and unutilised credit we will be able to step in and support our acquiring ILFC, where he combined the lines. customers,” he adds. two portfolios. To maintain the investment- “Our policy is always to have significant grade ratings, however, he’ll need to liquidity. At the moment, we have even Delivery stream in 2021 quickly sell certain parts of the portfolios. more liquidity than usual because of all Martin says that 2021 will be another “The number of used aircraft portfolios the delayed and deferred deliveries,” says “big year” for BOC Aviation. The leasing hitting the market will go up in the short Martin. executive reveals to Airfinance Journal that term,” says Martin. “They will become the Airlines, however, will find it much tougher BOC Aviation is “looking at 79 deliveries, biggest lessor by far for aircraft older than to secure inexpensive, if any, funding from with 11 of these PDP [pre-delivery payment]- 12 years.” the commercial banking sector. like structures where the airlines will buy BOC Aviation, however, has not got its “If you look at airline balance sheets, the them on delivery”. sights on any of them. “We are not looking debt-to-equity ratios are much higher than Delivery delays, however, are expected. at picking up any portfolios at the moment. before if you compare 2019 to 2021. This “With our 79 deliveries this year, already I don’t rule it out, but nothing that we’re is going to cause concern in the banking we have seen slippages in the first half, grinding our way through at the moment,” market so the banking market, we think, principally [Boeing] 787s that were due to he says. won’t reopen in any significant way in the come but that have been delayed by one Quizzed on manufacturer order next two years. or two months on average. concessions as a direct result of the “If you talk to the banks they will tell you The Max is pretty much on schedule. merger, Martin notes this must not they’ve been doing business, but then dig We did a large number in December and necessarily lead to significant discounts. deeper and you’ll find its generally in North January. We have five delivering to Tui this “On the aircraft pricing side, this is really America because they need to win the month [June]. Our Maxs are pretty much a matter of how manufacturers view you. short-term debt deals in order to position delivering on schedule compared to where Look at how we’ve supported airlines themselves for the bond markets,” says we thought they were going to be,” says and the manufacturers during the crisis Martin. Martin. with all the PLBs we’ve done. GECAS Airlines have borrowed extensively “We’ve also seen delays in the Airbus and Aercap didn’t do that – they’re pure throughout the crisis, including from system, particularly in Hamburg, where leasing companies. In fact, GECAS wants governments, but there will soon come a planes have been pushed over the half its divorce from the GE Group to be a pure time when they will want to refinance those year,” he adds. leasing company,” notes Martin. debts, predicts Martin. As of 31 March, the Hong Kong-listed lessor had a total fleet of 405 aircraft owned and managed with another 144 in its orderbook.

Widebody valuation crisis Martin warns that the worst of times for widebody valuations may still be ahead, which will force another painful round of impairments on operators. “In our view, widebodies haven’t hit rock bottom yet. We expect appraiser values to BOC Aviation’s cash collection rate has bounced back steadily, with all hit rock bottom toward December this year. regions across the world showing more positive metrics, except in Asean You shouldn’t be surprised to see more

34 Airfinance Journal July/August 2021 Cover story

impairments through this year as people No functioning capital markets take appraiser views into account. “There are no functioning capital markets “The disparity between P&L [profit and in this region. This is what differentiates loss] and cash flow will really appear this Asean particularly from domestic China year. People’s P&Ls will be negatively where the capital markets have been impacted, but ironically their cash flows will very, very strong for airlines all throughout be getting better,” says Martin. Covid, and obviously the US market, as This, however, presents new well as European markets. So, we have opportunities for BOC Aviation. “Widebody this situation where in Asean it’s been the pricing is typically a lot more volatile, so we worst of all worlds,” says Martin. tend to go in during a downturn,” he adds. “There hasn’t been a lot of shareholder money, again with the exception of Whitetails Singapore, put into the airlines. The only “It’s interesting. We keep a watch on what place where we’ve seen significant new is going on both sides. Airbus keeps telling money is probably in the people there are no whitetails, but even . But if you walk around the last week we had an airline that is important Asean countries and look at the flag that has whitetails this year. So, we know carriers, they are either in restructuring they are there. At Boeing, they are mopping The big difference or about to enter a restructuring. Garuda, up what were the Max whitetails very, very PAL, Thai, Airlines. Even worse quickly. Most of those are being snapped up between this year [2021] is the situation at the carriers in the small by North American airlines,” says Martin. and last year that even countries – , , ,” It is a skewed landscape for 737 Max he says. operators. There are five major markets caught us by surprise was Martin adds: “These airlines have been that have yet to recertify the Max: China, heavily dependent on creditor support for , Russia, Indonesia and . the speed at which the their survival. This is something we don’t “In India, I suspect, part of it is that there’s liquidity was coming back see changing in the short term because a certain airline there who’s the major vaccination rates aren’t being significantly operator of Maxs that doesn’t want it to be in the financial markets. increased.” certified yet because then it would have to BOC Aviation’s cash collection rate has pay all the debt and fees,” says Martin. Robert Martin, managing director and chief bounced back steadily, with all regions “In Indonesia, it’s the same thing. There’s executive officer, BOC Aviation across the world showing more positive a lot of politics going on, I think. It’s not just metrics, except Asean. China – it’s all those markets. You also need “We see well in the payment records a to consider overflying rights as well. It’s not “Even before Covid, Asean was very very big difference between Asean and just the airlines from those countries that are different from other markets. Firstly, in the the rest of the world. Even if we contrast affected but also other operators – think of pre-Covid era, we went through this period, with Latin America, where we probably Indonesia and Russia. Today, 172 out of 195 many years actually, where we talked about come the closest to low vaccination rates countries have reopened to the Max, but it’s over-ordering here in South-East Asia, in amid restructurings, the airlines there have some of the most important markets that are particular by the LCCs [low-cost carriers] – been able to access the capital markets. still delaying re-entry,” he notes. Vietjet, , Air Asia Group, each with Azul just sold a new bond; Gol is raising hundreds of orders. equity,” notes Martin. Asean dilemma “You’re going to see significant order “When we look at metrics from around The Asean region is falling far behind deferrals from all of the big LCCs here in the world, Asean is the worst. India is the rest of the world in terms of airline the region,” says Martin. the second worst, but still almost eight recovery. A lack of consistency, coordination and times as good as Asean in terms of our The BOC Aviation chief executive strategic planning has meant little support payment records. We’ve got almost a notes an almost perfect payment record from many Asean governments to airlines 100% payment record around most of the from airline customers in other regions, during the crisis. rest of the world. The only other place is while Asean carriers remain late on their “As we went through Covid, governments Hainan Group where the restructuring is lease bills. This is mostly because Asean in Asean, with the principal exception of nearly done. If only they would stick to it,” governments have failed to support their Singapore, did not support their airlines. he says. airlines, says Martin. That had a big impact,” notes Martin. “What “We understand that people need short- “It frustrates me when I hear people talk Asean has got to do is find a way to get term help but, long term, these airlines about Europe, the Americas, Asia. Anyone equity into the airlines. If they cannot, then won’t survive if all they do is restructure who’s been involved in Asia for the past 25 I’m afraid to say one or two may not survive.” debt, restructure debt, restructure debt. years the way we have knows that we can’t Vaccination rates, again with the principal They simply won’t be able to repay it talk about Asia as one market. exception of Singapore, have been eventually. “The way we look at Asia is: one, Greater extremely low in the Asean region. Even “So, you should think there would be China; two, North Asia driven by Japan and now many countries in the region are under liquidations, but we haven’t really seen Korea; three, the Indian subcontinent; four, lockdown restrictions and infection rates in that yet,” says Martin. “And this brings us Australasia/Oceania; and, finally, South-East various Asean countries have been on the to the final point about Asean – the legal Asia, the 10 Asean countries,” says Martin. rise again in June. systems. The legal systems are very slow, The Asean region has been of concern With this much uncertainty still prevalent just look at the Thai restructuring. for more than a decade, particularly the among Asean airline operators, banks and “We’re 15 months into the crisis, Garuda huge orderbooks amassed by low-cost lenders find themselves hard-pressed to hasn’t even started yet, PAL hasn’t even carriers in the region. support the aviation sector. started yet.”

www.airfinancejournal.com 35 Special feature

What next for Regional aircraft OEMs?

Mitsubishi Heavy Industries has put its Spacejet programme on hold indefinitely given changes in the market environment. Airfinance Journal explores the incumbent players in the 70- to 100-seat market and their priorities. Hugh Davies and Olivier Bonnassies report.

egional manufacturers ATR and New opportunities REmbraer have both managed to hold Embraer is predicting a resurgent regional out during the pandemic because the market in the aftermath of Covid-19. regional aircraft market has been less “The Covid-19 crisis has generated some impacted by Covid-19 compared with other reluctance to travel, especially in long segment sizes, and it is widely tipped to be distance sectors. Therefore, it’s no surprise the first to recover after the pandemic. to see airlines focusing on their domestic “We have been relatively resilient in and regional networks, where restrictions our market,” ATR’s senior vice-president are fewer and demand is more resilient,” commercial, Fabrice Vautier, tells Airfinance explains Gomes. Journal. The company reveals it is actively He says this comes from fundamental studying new-generation turboprops, elements of the turboprop market that have noting the segment brings good stability endured during the pandemic, pointing to and is due for an update as current aircraft the aircraft’s use in essential air and life-line are based on 30-year-old platforms. routes and express cargo operations with a “We have held airline advisory boards reduction in emissions of slightly less than to evaluate what airlines actually want in 40% compared to 45% for jet aircraft and this segment. The response has been very The Covid-19 crisis more than 70% for long-haul aircraft. positive – naturally, airlines are anxious to Vautier notes there is a shift in mentality bring competition back into this market,” has generated some in the regional market, where operators are adds Gomes. reluctance to travel, now looking to focus on cost per trip rather The manufacturer is also continuing the than cost per seat. development of the Embraer 175-E2, with especially in long distance “The turboprop and especially the ATR the entry-into-service expected for 2024, are very well placed in having the lowest as well as ongoing improvements for the sectors. cost per trip. We’ve seen many operators E175-E1. Daniel Galhardo Gomes, strategic moving bigger modules to ATRs or Commenting on US scope clauses marketing director, Embraer turboprops in general,” he says. limiting expansion of the E175-E2 into the “Other customers who have done well, market, Embraer sees the 86,000lb MTOW like Azul, have managed to optimise their scope relief as a “natural step” to allow He adds: “Worldwide, if we consider the single-aisle regional jets and turboprops to airlines to benefit from new technologies E170/E175 and the CRJ700/900 together, get good utilisation out of their turboprop and increase their efficiency, given we are talking about more the 1,300 aircraft fleet,” he explains. next-generation regional jets are heavier in service, even with Covid, spread among “These fundamentals have allowed us because of the larger, higher by-pass ratio more than 50 different operators.” to get through the crisis and give a strong engine. Embraer’s view is that one size does not outlook for the regional market,” adds Vautier. “The company is closely following and fit all and that flexibility will play a bigger Similarly, Embraer says it has seen its prepared for the opportunities of MTOW role in an airline’s strategy more than ever customers worldwide prioritise restarting US scope changes. In case it does not because of the crisis. operations on short-haul routes with their happen, remember Embraer has an 84% “Even if we disconsider growth (which E-Jet fleets. order market share in that category in the will surely happen), these current- “Small-capacity airplanes are more US since 2013, and that proves the E175 generation aircraft will have to be replaced prevalent on domestic and regional routes. is the right aircraft to serve the regional over the next years, and many of the Airlines that have versatile and efficient environment in the US,” says Gomes. markets in which those aircraft operate fleets, including up to 150-seat aircraft, The Brazilian manufacturer is also are not suited for upgauging – at least not both jets and turboprops, will be able to unfazed by a growing 120-seat crossover without compromising frequencies and, protect their networks in the downturns segment impacting sub-100-seat sales. consequently, connectivity,” adds Gomes. to come, and more profitably seize new “The relevance of the 70-100-seat ATR is also confident the regional and opportunities in the upturns,” Daniel segment is proved by the highly efficient turboprop market size will continue to grow Galhardo Gomes, Embraer’s strategic US domestic network, the most profitable in as the recovery begins and the Covid-19 marketing director tells Airfinance Journal. the world,” says Gomes. pandemic recedes.

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Vautier notes that many new carriers are our aircraft effectively to scale up the taking advantage of lower capital cost to technology and validate the technology as enter the turboprop market, seizing on new well,” adds Viala. opportunities left by legacy and low-cost Embraer says it is also actively studying carriers during the pandemic. state-of-the-art propulsion solutions for the He reveals that the company has added sub-150-seat market. 11 new ATR operators in the past 12 months, “It’s fair to say that innovations will come adding that ATR operators have opened in our segment first… and some of the most nearly 100 new routes. disruptive of those will take time to mature,” “The market forecast for the next 15 says Gomes. years is going to be at least at the level “When it comes to the technology we saw before the crisis. There is room for regarding propulsion of our turboprop a strong ATR… we have a pent-up market project, for instance, that timeline is of where we can still develop. course being considered in our current EIS “China, for instance, where regional aviation scenarios. For this programme, the main is only 2% of flying compared with 25% in a point of attention is to make sure we are mature market… India where there is only a We’ve seen many building a platform that will be ready to hub-and-spoke system and if you develop evolve in the future, and do so as soon as point-to-point there is big potential,” he adds. operators moving bigger these new technologies are available and modules to ATRs or cost-effective,” reveals Gomes. Cargo growth The Brazilian manufacturer says it is ATR’s Vautier notes there is a “strong turboprops in general. on the frontline in terms of sustainability, push” on the cargo side for the transport having signed multiple commitments of vaccines and medical supplies that ATR Fabrice Vautier, senior vice-president with the participation of other original aircraft can cater for. commercial, ATR equipment manufacturers (OEMs), suppliers There is also a strong replacement wave and governments to reduce emissions and for regional freighters, with about 460 ratify investment in R&D into sustainable aircraft in the up to nine-tonne payload “We expect this backlog to remain technologies. category expected to be replaced in the steady in the coming years – firstly, Specifically on SAFs, over the past next 20 years, according to Vautier. because we expect to see a pick-up in decade Embraer has supported the Quizzed on a second ATR72-600F deliveries. We expect to deliver at least development and certification of different customer, he says the manufacturer is twice as many aircraft this year as last year, HEFA (Camelina Oil) and SIP (Sugarcane) confident there is room in the market for but conversely we also expect to sell more biofuel projects, says Gomes. more regional freighter operators other aircraft this year,” says Vautier. than Fedex as the e-commerce boom fuels De Havilland Canada challenges the regional cargo market. Hybridisation the path forward Canadian regional aircraft manufacturer Fedex’s order for 30 units is expected to While ATR is examining all innovation De Havilland Canada is on a different path. be completed by 2026. Its second ATR72- options as they come to market, the most The company said earlier this year that it 600F was delivered in early June, with promising technology available in the near will not produce new Dash 8-400 aircraft another six scheduled to arrive this year. term is hybridisation, explains ATR’s senior at its Downsview site beyond currently ATR is also well placed to take advantage vice-president engineering, Stephane Viala. confirmed orders. of a growing passenger-to-freighter market. He says battery hybridisation will Given that prevailing industry Vautier explains to Airfinance be more difficult to implement without circumstances have hindered the ability Journal that freighter conversions are a breakthroughs in storage capacity. to confirm new aircraft sales, it is a complementary segment to full freighters, Instead, a ramp up in sustainable aviation responsible and prudent measure that ruling out a market cannibalisation of fuel (SAF) and research and development into reflects current industry conditions, and will either segment because of the different hydrogen, in the form of either combustion limit strain on the market and De Havilland economics between express freight and or fuel cells, are more realistic options in the Canada’s supply base as the pandemic other cargo business models. medium and long term, although these have recovery occurs, says the company. He notes that 13 ATR72-500s have their own limitations from supply, logistics De Havilland of Canada is owned by already been converted in the first six and regulation standpoints. Longview Aviation Capital, which expects to months of 2021, compared with 13 for the He recalls ATR’s partnership with its remain in the business for a very long time. whole of 2020. Nordic customer, Braathens Regional Its vision is based on three timescales: very The manufacturer offers passenger-to- Airlines, where the airline has been able to short term, medium term and long term. freighter conversions and specific Covid-19 achieve a 46% reduction in CO2 emissions “In the very short term, its priority interior conversions for transportation since 2018 by incorporating a 50% SAF is twofold: uninterrupted services to of vaccines and medical supplies, in blend as well as working on navigation customers that are still flying. About 57% addition to its purpose-built ATR72-600F performance optimisation. of Dash 8 fleet was in operation at the end turboprops, which provide more volume for “We are looking at this in an incremental of May, with some markets at almost 100% dedicated express services. manner,” says Viala, noting that while there operation,” says vice-president, sales and ATR has about 200 aircraft in its backlog, are many hurdles to overcome, ATR sees marketing, Philippe Poutissou. roughly unchanged compared with pre-crisis its role as being able gradually to bring De Havilland Canada is also focusing on levels with six gross orders last year, says the technology to the customer when it is completing the business transformation. A Vautier. Its objective is to maintain this level mature enough. new site is the priority to resume aircraft of backlog for the coming years and return to “Our aircraft is the perfect product to manufacturing operations as the market production levels of about 40 to 50 aircraft test and to scale up technologies that are recovers, but a couple of important a year by 2024 or 2025 and pre-pandemic developed at a smaller size… there’s a lot elements will make the company truly levels of around 70 aircraft after five years. of people looking at us in terms of using independent from Bombardier.

www.airfinancejournal.com 37 Special feature

“At the time of the transaction, we more trading happens and this has been entered into a few service agreements accelerated by the pandemic. to support IT and parts distribution in “A natural outlet for an aircraft like the the name of continuity. We continued on Dash 8-400 is the freight market. The Bombardier’s IT system and now the focus Dash 8-400 brings attributes that the other is to finish that carve out. Bombardier aircraft don’t offer today, particularly with its had a distribution network for spare range capabilities. But it also gives access parts for its customers and as part of the to markets where the ATR struggles, such sale, Longview continued to use depots as in the remote regions and high-altitude and facilities in Chicago, and markets. We believe there is demand for the other parts of the world. We are now Dash 8-400 as a converted aircraft,” he says. in the process of developing our own Poutissou recalls that De Havilland independent distribution network.” Canada launched the Simplified Package Bombardier sold the Downsview Freighter (SPF) configuration over the past production site in 2018, with deadlines for year. It mostly applies to existing operators the site and to be decommissioned. which want to diversify into the cargo Poutissou says the company initially business and/or have a complementary planned to remain on the site for as long as cargo business. possible, but given the reduced demand As we look towards “We further optimised that version and we for new aircraft, it is an opportune moment the Dash 8-400, we think will offer a service bulletin called the quick- to accelerate its exit. As a result, it has change version. The first version was offered begun preparing to leave the site over the the timing for technology urgently in support of pandemic relief but latter part of this year. to mature to power that now the company is offering a version that During the pandemic, the company has more capacity with the introduction of a mainly assisted customers to get aircraft size of that aircraft is well smoke detection system,” he says. back into operation. The company also offers the combi “There is an oversupply of Dash 8 over a decade away – version of the Dash 8-400 and is in aircraft of older vintage in the market, and certainly for commercial discussions to launch it as a retrofit. there are half-a-dozen lessors that have “We have had a number of requests for inventory to place. We see opportunities in applications. flying with 50-68 seats capacity and with the market,” he adds. an increased compartment size.” Philippe Poutissou, vice-president, sales That version, which seats 50 passengers Medium term and marketing, De Havilland of Canada and also has a main-deck cargo hold, is Poutissou says the company’s medium- already in service with Japanese carrier term goal is to be ready when the market Ryukyu Air Commuter. Poutissou says demand returns and get the Dash 8-400 the third programme is to launch an OEM back into production. a decade away – certainly for commercial package freighter. There is an STC in “We see signs of upcoming transactions applications. We do believe the technology the market for a Dash 8-400 package- with used aircraft and signs of opportunistic is coming and will make its way through the freighter conversion, offered by Cascade purchases by lessors. We are also seeing Longview family aircraft,” says Poutissou. Aerospace. new operations coming in to fill the gap He says the company’s position is There were a few conversions under where some airlines have exited the to leave the field open to “select the the STC more than a decade ago, but market,” adds Poutissou. technology that works best”. the feedstock of aircraft was not readily He believes that excess capacity will get Poutissou expects retrofits and forward- available and the values were too high at soaked up, and the company is willing to fits for platforms that are the same or the time, he points out. participate as it develops its relationships largely similar to the ones that have been “When we look at where the market is with new operators. successful today. today, cargo is looking for a certain unit The company is also looking at product “The idea is to reuse the intellectual cost. In order to meet that unit cost, you improvements for its fleet, but the property (IP) that we own, and that IP does need aircraft in that 15-20 year of age technological change to electric aircraft, hybrid include the 30-50 seaters. But it is too far range in terms of values. We now see or hydrogen aircraft will not be available out to project that we will develop a smaller liquidity in terms of appropriate airframes in in the medium-term period. “That type of or a larger aircraft than the Dash 8-400, the market,” he adds. propulsion is for the long-term plan,” he says. which serves the 70- to 100-seat sector,” Poutissou says the company will offer he says. the package freighter as an OEM service Longer term Longview holds 13 types of certificates bulletin and also add a version with the Longview has been monitoring and, in with some aircraft being specialised but large cargo door. some cases, has been participating in Longview has a track record of putting “The large cargo door version will have some studies and concepts around this aircraft back into production, he says. appeal, specifically for those remote next wave of propulsion. regions,” he says. “We think the aircraft “It is clear that it will make its way Freighter are excellent replacements for the BAe through the turboprop aircraft type. In fact, Freight is a priority and the company says ATP, Convair and Boeing 737 Classics with Longview is well positioned to participate: the time is right for the Dash 8-400 model the Dash 8-400 package-freighter being we have aircraft in our product portfolio, to have the whole range of conversion a newer-generation aircraft with a digital such as the Twin Otter that require lower options available. cockpit, robust, reliable and with ongoing energy requirements. Poutissou says until the beginning of global support.” “As we look towards the Dash 8-400, we 2020, the majority of Dash 8-400 aircraft But Poutissou emphasises that De think the timing for technology to mature to were still with their initial owners and still in Havilland Canada’s target today is not to power that size of that aircraft is well over passenger use. As the programme matures, build a production freighter aircraft.

38 Airfinance Journal July/August 2021 Values and lease rates trend

Boeing 787-9 – route to recovery Appraisers think values for the middle member of the Boeing 787 family will come under further pressure in the short term, but believe they will recover as long-haul travel returns. Geoff Hearn reports.

he Boeing 787-9 is the middle member Tof a three-aircraft family, which also includes the original 787-8 and the larger 787-10. Boeing has assigned the marketing label of Dreamliner to all models. The 787 was designed to deliver a step change in fuel efficiency compared with the aircraft it was intended to replace and, to this end, incorporated new technology and materials. The advanced design played a role in a problematic development phase that saw the initially planned 2008 entry into service of the 787-8 delayed until 2011. Early operations were also hit by technical issues. The stretched 787-9 model, which has a Boeing expects to clear its 787 backlog by the end of 2021 greater range than the original model, first flew in 2013 and deliveries began in 2014. The programme has been successful There are signs that orders for the Istat appraisers’ views in terms of orders, but continues to type are picking up. Recent high-profile experience quality control issues, with developments include an announcement in Avitas what Boeing chief executive officer, Dave early May that Lufthansa is to take a further Martin O’Hanrahan, Calhoun, recently described as “nagging five 787-9s, adding to an initial purchase of senior consultant problems”. The Covid-19 pandemic has 20 of the type in 2019. Designed as the added to difficulties, but deliveries of Set against this are some difficulties long-range option 787s restarted in March, and Boeing says in the secondary market. For example, within the 787 family, it expects to clear the stored inventory Norwegian’s problems have led to the the 787-9 has proved (estimated to be about 100 aircraft) by the ending of its long-haul services and the by far the most end of the year. More than 60% of the total consequent availability of its fleet of 787s, popular model. The 787 backlog is for the -9 model. including its -9s. variant has secured almost 60% of the total orders for the family. Five operators – United Airlines, All Current market value ($m) Nippon Airlines (ANA), Etihad Airways, and American Airlines – account Build year 2015 2017 2019 2021 (new) for about 30% of the active fleet. Boeing designed the 787 as a replacement option Avitas view 76.9 93.8 113.6 134.9 for aircraft such as the 767-300ER and A330-200, and has succeeded in capturing Oriel view 81.5 88.5 98.0 137.5 a convincing market share in this size class. However, Boeing recently experienced Assuming standard Istat criteria. Maintenance status assumes half-life, except for new aircraft. production problems and suspended its 787 line in October 2020, while it dealt with Indicative lease rates ($’000s/month) quality control issues. This led to a backlog of manufactured aircraft still awaiting Build year 2015 2017 2019 2021 (new) handover to operators, but Boeing expects this backlog to be cleared by the end of Avitas view 593 685 778 870 2021. In terms of propulsion, the 787-9 offers Oriel view 590 620 690 810 two options – the GEnx-1B70 from General Electric (GE) or the Rolls- Royce Trent Monthly rental will vary according to factors such as term and lessee credit. 1000. The market share between the

www.airfinancejournal.com 39 Values and lease rates trend

two manufacturers is about two to one in Production has been reduced to five AIRCRAFT favour of GE. The downturn in the industry aircraft a month, with technical issues provoked by the Covid-19 pandemic had halting deliveries altogether for several CHARACTERISTICS a drastic impact on world air travel. While months. Temporary rate reductions no part of the industry has escaped the together with permanent retirement effects, commercial widebody aircraft have of some older aircraft will ease the Seating/range been subject to a sharp spike in availability oversupply, but will not eliminate it until Max seating 406 and many units have become surplus to long-haul traffic recovery is in full swing. Typical seating 290-300 (two-class) needs. Operators around the world have There are potential long-term fleet share struggled to deal with the crisis and those issues affecting some 787s, including the Maximum range 7,530 nautical miles flying the 787-9 are no exception. -9 variant, related to their powerplants – (13,950km) In addition, Norwegian – which had the GEnx and Trent 1000. The discoveries been flying more than 20 leased 787-9s of reduced critical part longevity in the – returned the aircraft to lessors in early Trent 1000 have caused extensive aircraft Technical characteristics 2021, adding to the excess capacity for groundings and significant operational MTOW 253 tonnes the type in the market. Newer aircraft have restrictions. Even though the manufacturer fared better overall in terms of values and has resolved the issues, the reputational OEW 129 tonnes lease rates, and the 787-9 now has an damage has been done. Two Rolls-Royce MZFW 181 tonnes established track record in service. The customers, Air and ANA, aircraft is a versatile and reliable long- have switched their top-up orders to GEnx- Fuel capacity 138,700 litres range twin and offers full commonality with powered aircraft. Engines GEnx1B/Trent 1000 its siblings within the 787 family. The Rolls-Royce engine still powers over Thrust 71,000lbs (320kN) The immediate prospects for the 787-9 30% of the 787 orderbook for some 33% depend on the strength and timing of a of operators, but if more customers select recovery in international travel, after the the GE powerplant, the Trent 1000 could Fuels and times almost complete collapse in traffic with become a niche engine. This could create the onset of the current crisis. Long-haul a discount to the value of Rolls-powered Block fuel 1,000nm 10,480kg traffic continues to remain well below aircraft because of reduced remarketability Block fuel 2,000nm 19,500kg 2019 levels and it could be 2024 or later and negative perceptions of engine before the same volumes are reached longevity. Block fuel 4,000nm 37,630kg once more. There are also short-term issues Block time 1,000nm 178 minutes As a new, efficient state-of-the-art long- affecting the 787-9. While many first-tier range , the 787-9 is well positioned airlines are favouring it over older types, Block time 2,000nm 265 minutes to take advantage of renewed traffic some smaller operators and those in Block time 4,000nm 510 minutes growth and its fortunes in the marketplace bankruptcy reorganisation are rejecting can be regarded as very positive. aircraft they cannot pay for. For example, the LATAM 2015 enhanced equipment trust Fleet data Oriel certificate, rejected by the airline, included Entry into service 2014 Olga Razzhivina, four 787-9s. The ceasing of operations senior Istat by Norwegian added significantly to In service 428 appraiser availability, despite Norse Atlantic Operators (current and planned) 71 The 787-9 is the proposing to lease 12 aircraft from its most popular predecessor’s fleet. In storage 139 member of the 787 These aircraft becoming available has On order 318 family, representing created a significant downward pressure a new generation on values and lease rates in an already Built peak year (2018) 120 of carbon depressed market. Historically, even small Planned 2021 Under review fuselage twin-aisle numbers of younger aircraft entering a Average age 3.6 years aircraft. The early relatively strong market can affect values. programme delays and teething issues The Skymark Airlines bankruptcy in 2015 Source: Airfinance Journal Fleet Tracker 15 June 2021 that affected the smaller 787-8 aircraft introduced only seven new A330s to had been resolved by the time the larger the market, yet this caused a significant Indicative maintenance reserves 787-9 entered production. Spurred on by softening of values and lease rates for the the buoyant traffic growth that occurred type, from which it has never recovered. C-check reserve $110 to $115/flight hour post the 2008 financial crisis, Boeing had While Oriel would expect 787-9 values Higher checks reserve $85-$90/flight hour increased 787 production rates to 14 aircraft eventually to recover post-downturn, this a month – the highest figure for any twin- recovery depends on the reopening of Engine overhaul $305-$310/engine aisle programme. long-haul markets and could take even flight hour This and other twin-aisle production rate longer if more 787s are rejected as a result Engine LLP $315-$320/engine cycle increases caused oversupply in the sector, of further defaults and reorganisations. with the softness spreading into the 787 Longer term, 787-9 values will Landing gear refurbishment $75-$80/cycle market by 2016. Even before the Covid-19 recover from lows, which they are yet to Wheels, brakes and tyres $100-$105/cycle pandemic caused mass fleet groundings, reach. There are no known plans for a APU $125-$130/APU hour the 787 values and lease rates had started replacement and the 787 is likely to remain on a downward slope. in production for decades. Together with its Component overhaul $320-$335/flight hour The current crisis has forced both Airbus main competitor, the A350-900, the 787 will Source: Air Investor January/February 2021 and Boeing to drop their production rates eventually replace older-generation aircraft and the 787 has not escaped these cuts. in most mainline fleets.

40 Airfinance Journal July/August 2021 Market competitors

Narrowbodies getting larger and going further As Boeing gets to grips with returning the 737 Max to service, Airbus is seeking to maximise sales of the A321. Geoff Hearn assesses their respective prospects.

igger is better looks increasingly to be A321neo A321XLR Bthe view of many airlines when it comes The Neo (new engine option) version of The A321XLR is a further variant that offers to single-aisle passenger aircraft. the A321 is the largest member of Airbus’s a range of about 4,700 nautical miles. The Operators, and therefore lessors, have upgraded and re-engined single-aisle version has an additional increased MTOW been moving to larger variants of the family. of 101 tonnes, and is fitted with a rear centre narrowbody families offered by Boeing and The manufacturer claims a per-seat fuel fuel tank and an optional forward additional Airbus. The lack of sales for the A319neo improvement of 20% compared with the centre tank. Airbus is targeting 2023 for the and the 737 Max 7 is the most obvious original A321 model. The new variant also XLR’s entry into service. sign of this pattern, although the A220 offers a range improvement of up to 500 somewhat bucks the trend. nautical miles, which can be traded off 737 Max 9 and 737 Max 10 The baseline A320neo and the 737 Max against a payload increase of up to two The first member of the new Boeing single- 8 models racked up impressive sales prior tonnes. aisle family is the 737 Max 8, which entered to the Covid-19 outbreak and, in the case Although the Neo variant is not stretched service in 2017. of the Boeing model, before its worldwide from the original A321, Airbus is offering The 737 Max 9 was originally intended as grounding. increased seating capacity by optimising the largest model, but has met with limited However, a trend to larger variants is clear cabin space with increased exit limits success compared with its Airbus rivals. to see from their increasing share of sales. and a new cabin door configuration. The The 737 Max 10 is a further development, Another indication is that Chinese and manufacturer cites the maximum capacity which allows Boeing to match the Russian manufacturers looking to break the of the new model as 244 seats – 24 more A321neo’s key characteristics in terms of stranglehold of Boeing and Airbus have than the original A321 offers. seat count and operating cost. The aircraft shifted focus to the development of larger performed its maiden flight on 18 June models in an effort to adapt their products A321LR 2021. to market demands (see box next page). The A321LR variant provides extended The Max 10 is a basic stretch of the Max Airbus has clearly benefitted from this range for the A320neo family’s longest 9 and, as such, will have 300 nautical miles trend in terms of market share, because fuselage version with the capability to less range. Boeing says this is not critical its A321neo has outsold its Boeing rivals, operate sectors of up to 4,000 nautical for the vast majority of single-aisle routes, not least because of the US manufacturer’s miles (7,400km) with 206 passengers. The although some analysts believe it risks delay in developing and producing the 737 additional range is achieved by increasing leaving a market gap for the A321neo – Max 10 as a more viable competitor than the maximum take-off weight (MTOW) to particularly the new LR versions. the original Max 9 model. Airbus has been 97 tonnes and by augmenting the fuel The Max 8 fleet (together with a few Max adept at leveraging the A321neo’s success capacity with three additional centre fuel 9s) was grounded in March 2019 following by offering longer-range versions of its tanks. The first A321LR was delivered in two fatal accidents. The Max family was largest single-aisle model. 2019. cleared to re-enter service in the US in November 2020 and most other authorities have followed suit, but the aircraft is still not cleared to fly in a number of jurisdictions, Key data of large single-aisle models notably China. The grounding has had a knock-on effect on the larger Boeing Model A321neo 737 Max 9 737 Max 10 models. First deliveries of the Max 10 are now scheduled to begin in 2023, which CFM Leap-1A or Engine CFM Leap-1B CFM Leap-1B is at least two years later than originally PW1100G planned. Max take-off weight (tonnes) 97 88 89 Orders Max seating 244 220 230 The world has come to expect battles between Airbus and Boeing Typical seats (single-class) 180-220 178-193 188-204 for market share, particularly in the single- aisle market, to end in honourable draws. Typical range (nm) 3,995 3,550 3,300 However, in the case of the Max versus Entry into service (target) 2017 2018 (2023) Neo models, Airbus has taken what looks like an unassailable lead in total numbers In service/stored 531 57 none of aircraft ordered. Across the whole family the European manufacturer has Total orders 3,424 306 432 amassed more than 7,000 sales, while its US competitor has garnered about 3,000 Source: Airfinance Journal interpretation of manufacturers’ data/Fleet Tracker, June 2021

www.airfinancejournal.com 41 Market competitors

fewer. Much of this advantage can be Indicative relative cash operating costs attributed to Airbus’s success in the market for larger models. A321neo 737 Max 9 737 Max 10 The combined total of Max 9 and Max 10 orders is below 750, which compares with Relative trip cost Base 93% 94% an A321 figure approaching 3,500 units. Relative seat cost (typical seating layouts) Base 100% 95% Seating Relative seat cost (maximum seating layouts) Base 103% 99% The A321 has a clear seating advantage Assumptions: 500-nautical mile sector; fuel price $1.6 per US gallon. Fuel consumption, speed, maintenance costs and typical over the Max 9. This deficit was addressed seating layouts are as per Air Investor 2021 by the development of the Max 10, but there is an industry consensus that the A321neo retains a small advantage over production. Hamburg and Mobile (Alabama) to raise output of the Max family to about the stretched Max variant. The differential are currently the only Airbus production 42 units a month by the third quarter of is borne out by scrutiny of the respective sites configured to assemble A321s. 2022. It will be hoping to get closer to the manufacturer’s literature. Boeing cites 188 Boeing’s targets look more modest as Airbus rates by the time it starts delivering to 204 seats as a range of typical seating, the company is understood to be planning Max 10 models. which compares with the spread of 180 to 220 suggested by Airbus. Challenging the duopoly Operating costs Airfinance Journal has used its own model Airbus may be winning the battle for COMAC achieving its target of certifying in an attempt to verify the accuracy of market share in the single-aisle market the aircraft this year. the manufacturers’ claims on operating against its traditional rival Boeing, The C919 is potentially being helped costs. The results suggest the cash-cost but the European manufacturer is by the continuing grounding of the 737 differential per trip between the Max 9 not complacent about possible new Max in China. Unlike most authorities and the A321neo is in the Boeing aircraft’s competitors. In particular, China’s C919 is around the world, Chinese regulators favour, but this advantage is negated in the being taken seriously by the company’s have yet to lift the ban on operations of cost per seat terms – even in the case of management, according to its chief the Boeing aircraft. Some commentators typical seating layouts. executive officer, Guillaume Faury. believe there is an element of politics in If typical layouts are considered, In early May, he predicted that that the this decision. the Max 10 has small operating cost C919 will be a competitor for the Airbus Politics may have a further role to play advantage over the A321neo in both A320neo towards the end of the decade. in the development of the aircraft. The cost per trip and cost per seat. However, Although he believes only Chinese US government has reapproved GE the cost per seat advantage is all but airlines will operate the aircraft initially, he Aviation’s application to supply engines eliminated in the case of maximum seating suggests that the single-aisle market may for the C919, but China has announced it layouts. The differences in costs are go from a duopoly to a triopoly in the will push forward with the development generally very marginal and are sensitive same timescale. of the CJ1000 engine to provide an to assumptions – particularly the fuel “We think it [the C919] will start in China alternative homegrown powerplant. efficiency of the various aircraft, which is because Chinese airlines are state- A similar strategy is being pursued by difficult to verify from information in the owned companies and it will be easier another potential single-aisle competitor, public domain. for them to buy it. It takes a long time to Irkut’s MC21-300. The Russian aircraft The Boeing aircraft appear competitive demonstrate the maturity of a product, to has been designed to operate with the in pure operating cost terms, but the sales make it reliable and economically viable. PW1400G version of Pratt & Whitney’s figure suggests that aircraft buyers may But we think that it would not be strange geared turbofan, but a test aircraft has be looking at other criteria. The greater that in the single-aisle aircraft market, at also been flown with the domestically built capabilities of the A321neo, particularly of the end of the decade COMAC already Aviadvigatel PD-14. The MC21 has a base the latest variants, appear to be swaying had some market share,” says Faury. of orders, but like the C919 they are almost the balance in Airbus’s favour. The aircraft has a platform of orders, exclusively from domestic customers. but so far, confirming Faury’s view, they Most analysts, and it would appear Production rates are primarily from Chinese operators Airbus also, believe that the C919 poses There are signs of a recovery in the and financiers. How quickly the aircraft the bigger threat to sales of Boeing and single-aisle market. At the end of May, becomes competitive will depend on Airbus aircraft. Airbus confirmed it plans to produce A320-family aircraft at a rate of 45 a month Leading particulars of potential new Chinese and Russian single-aisle models in the fourth quarter of 2021. The company is advising suppliers to prepare for a rate Model COMAC C919 Irkut MC-21-300 of 64 by the second quarter of 2023. In CFM Leap-1A or PW Aviadvigatel PD-14 or Engine anticipation of a continued recovering 1100G PW1400G market, Airbus is also asking suppliers Max take-off weight (tonnes) 72.5/77.3 79.3 to enable a monthly rate of 70 by the Max seating 190 211 first quarter of 2024. The manufacturer is investigating opportunities for rates as Typical seats 158-168 132-163 high as 75 by 2025. Typical range (nm) 2,200/3,000 3,550 What proportion of production will be Target entry into service 2021 2021 allocated to A321s is not clear, but the Total orders 811 175 manufacturer is investing in facilities in Source: Airfinance Journal interpretation of manufacturers’ data Toulouse that will enable it to increase A321

42 Airfinance Journal July/August 2021 Data

Rating agency unsecured ratings Airlines Fitch Moody's S&P BB-(neg) - - Air Canada B+(stable) Ba3(neg) B+(neg) - Baa2(stable) - Alaska Air Group BB+(neg) - BB-(positive) Allegiant Travel Company - Ba3(positive) B+(stable) American Airlines Group B-(stable) B2(neg) B-(neg) D - D(NM) British Airways BB(neg) Ba2(neg) BB(neg) Delta Air Lines BB+(neg) Baa3(neg) BB(neg) Easyjet - Baa3(neg) BBB-(neg) Etihad Airways A(stable) - - Grupo Aeromexico - - D(NM) GOL CCC+ B3(stable) CCC+(stable) Hawaiian Holdings B-(neg) B1(neg) CCC+(positive) International Consolidated Airlines Group - Ba2(neg) BB(neg) Jetblue BB-(neg) Ba2(neg) B+(neg) LATAM Airlines Group WD - - Lufthansa Group - Ba2(neg) BB-(neg) Pegasus Airlines (Pegasus Hava Tasımacılıgı Anonim Sirketi) BB-(neg) - B (stable) Qantas Airways - Baa2(neg) - Ryanair BBB(neg) - BBB(neg) SAS - Caa1(neg) CCC(neg) Southwest Airlines BBB+(neg) Baa1(stable) BBB(neg) Spirit Airlines BB-(neg) B1(positive) B(positive) TAP Portugal (Transportes Aereos Portugueses, S.A.) - Caa2(neg) B-(watch neg) Turkish Airlines - B3(neg) B(neg) United Airlines Holdings B+(stable) Ba2(neg) B+(neg) Virgin Australia WD - - Westjet B(neg) B3(neg) B-(neg) BBB-(neg) Baa3(neg) - Source: Ratings Agencies - 24/06/2021 Lessors Fitch Moody's S&P Kroll Bond Ratings Aercap BBB-(watch neg) (P)Baa3(stable) BBB(neg) - Air Lease Corp BBB(neg) - BBB(stable) A-(neg) Aircastle BBB(stable) Baa3(Stable) BBB-(stable) - PLC WD - CCC(Developing) - Aviation Capital Group A- Baa2(stable) BBB-(stable) A-(neg) Avolon Holdings Limited BBB-(neg) Baa3(stable) BBB-(neg) BBB+(neg) AWAS Aviation Capital Limited - Baa3(Stable) - - BOC Aviation A-(stable) - A-(stable) - CCB Leasing (International) Corporation - - A (stable) - CDB Aviation Lease & Finance A+(stable) A2(stable) A(stable) - Dubai Aerospace Enterprise BBB-(neg) Baa3(stable) - BBB+(neg) Fly Leasing - B1 BB-(watch dev) BBB-(watch dev) Global Aircraft Leasing - B1(neg) - - ICBC Financial Leasing A(stable) A1(stable) A(stable) - ILFC (Part of Aercap) BBB-(watch neg) Baa3(stable) - - Macquarie Group Limited A-(neg) A3 BBB+(stable) - Marubeni Corporation - Baa2(stable) BBB(stable) - Mitsubishi UFJ Lease - A3(stable) A-(stable) - Park Aerospace Holdings BBB-(neg) Baa3(Stable) - - SMBC Aviation Capital A-(neg) - A-(stable) - Voyager Aviation B(Stable) WD CC(watch neg) WR Source: Ratings Agencies - 24/06/2021 Manufacturers Fitch Moody's S&P Airbus Group BBB+(neg) A2(neg) A(neg) Boeing BBB-(neg) Baa2(neg) BBB-(neg) Bombardier WD Caa2(neg) CCC+(neg) Embraer BB+(neg) Ba2(neg) BB(neg) Rolls-Royce plc BB-(neg) Ba3(neg) BB-(watch neg) Raytheon Technologies Corp - Baa1(stable) A-(neg) Source: Ratings Agencies - 24/06/2021

www.airfinancejournal.com 43 Data

US Gulf Coast kerosene-type jet fuel (cents per US gallon) 250

200 175.2

150

100

50

0 Jul-18 Jul-19 Jul-20 Oct-18 Jan-18 Apr-18 Jan-21 Oct-19 Jan-19 Apr-21 Apr-19 Jun-18 Jun-19 Mar-18 Mar-21 Mar-19 Feb-18 Feb-21 Feb-19 Sep-18 Sep-19 Dec-18 Dec-19 Nov-18 Nov-19 Aug-18 Aug-19 May-18 May-21 Oct-20 Jan-20 May-19 Apr-20 Jun-20 Mar-20 Feb-20 Sep-20 Dec-20 Nov-20 Aug-20 May-20 Source: US Energy Information Administration

Commercial aircraft orders by manufacturer

Gross orders 2021 Cancellations 2021 Net orders 2021 Net orders 2020

Airbus (31 May) 94 125 -31 268

Boeing (31 May) 380 203 177 -471

Bombardier - Mitsubishi Heavy Industries 0 0 0 0

De Havilland of Canada 0 0 0 0

Embraer 30 0 30 20

ATR 0 0 0 5

Based on Airfinance Journal research and manufacturer announcements until 30/06/2021

Recent commercial aircraft orders (May-June 2021)

Customer Country Quantity/Type

Air Lease Corp USA Three 737 Max

Alaska Airlines USA 13 Max

Dubai Aerospace UAE 14 737 Max

Lufthansa Five A350-900

Lufthansa Germany Five 787-9

Lufthansa Cargo Germany One 777F

SMBC Aviation Capital Ireland 14 737 Max

Southwest Airlines USA 34 737 Max

United Airlines USA 70 A321neo

United Airlines USA 150 737 Max 10, 50 737 Max 8

Volaris Two A320neo

Based on Airfinance Journal research May-June 2021

44 Airfinance Journal July/August 2021 Data

New aircraft values ($ million) New aircraft lease rates ($’000 per month)

Model Values of new production aircraft* Model Low High Average

Airbus Airbus

A220-100 32.6 A220-100 209 247 228

A220-300 36.8 A220-300 230 273 256

A319neo 36.7 A319neo 239 290 256

A320 41.5 A320 238 310 279

A320neo 49.2 A320neo 285 347 315

A321 48.5 A321 260 370 310

A321neo 54.5 A321neo 335 404 359

A330-200 72.4 A330-200 394 606 515

A330-200 Freighter 84.0 A330-200 Freighter 535 750 654

A330-300 80.6 A330-300 451 689 660

A330-800 92.2 A330-800 585 703 652

A330 900 (neo) 104.0 A330 900 (neo) 668 803 726

A350-900 145.8 A350-900 880 1,094 944

A350-1000 159.1 A350-1000 975 1,239 1,081

A380 169.5 A380 807 1,435 1,227

ATR ATR

ATR42-600 15.5 ATR42-600 104 136 124

ATR72-600 19.3 ATR72-600 105 152 140

Boeing Boeing

737-800 43.4 737-800 244 314 284

737 Max 8 46.9 737 Max 8 262 325 296

737 Max 9 49.0 737 Max 9 272 340 311

747-8F 181.3 747-8F 1,214 1,485 1,347

767F 78.8 767F 490 660 369

777-300ER 141.7 777-300ER 855 1,083 952

777F 159.1 777F 1,043 1,207 1,140

787-8 114.1 787-8 705 867 747

787-9 139.8 787-9 810 1,038 887

787-10 148.7 787-10 910 1,118 943

Mitsubishi Mitsubishi

CRJ900 24.4 Mitsubishi CRJ900 165 205 178

DeHaviland DeHaviland

DHC8-400 19.7 DHC8-400 115 150 141

Embraer Embraer

E175 25.8 E175 178 225 200

E190 26.5 E190 200 215 210

E190-E2 31.1 E190-E2 200 250 259

E195-E2 33.9 E195-E2 220 269 242

Sukhoi Sukhoi

SSJ100 22.3 SSJ100 35 176 124

*Based on Istat appraiser inputs for Air Investor 2021

www.airfinancejournal.com 45 Pilarski says

Is inflation returning to haunt aviation?

Adam Pilarski, senior vice-president at Avitas, asks how a return of inflation will affect aviation.

here are many short- and long-term society is willing to pay. Protecting the Tdisturbances of the dreadful Covid environment is wonderful and good for the epidemic to our economic and social lives next generations but it comes at a cost of that also have a pronounced impact on higher prices. aviation. In this article, I want to concentrate Two is the increased role of the on inflation, which used to be a bane of government in many countries worldwide. our lives but for decades now has been Governments must balance the different relegated to the dustbin of history. objectives which include efficiency, We do not even have to look back equality, growth and stability. There are at periods of crazy hyperinflation when obvious tradeoffs between all those people were paid twice a day because a universal goals. Achieving one comes at morning salary became worthless by the the expense of others. Moving the needle evening. In more modern times, presidents more towards social goals comes at the Nixon (1968) and Reagan (2000) were expense of efficiency and entails higher elected because the people were seriously costs. The trends that are emerging now concerned by relatively high rates of point towards more equality but less inflation affecting their lives profoundly and efficiency in the future. these two individuals offered solutions. Similarly with globalisation. The move So, the question now is whether high away from globalisation that we have inflation rates have a chance of returning? experienced worldwide in recent times The latest statistics point to greatly accomplishes some social and national accelerated rates of growth. Instead of the (or nationalistic) goals but moves us away 2% we have been accustomed to in the from efficiency and low costs. Some argue USA, it is obvious we will surpass 3% this Our author at the Airfinance Journal Dublin that the years of low inflation was in part year, with latest statistics pointing to a 5% 2020 conference. because of the ascendency of China to month over month increase for the past 12 become a world economic power. months. The question is whether the latest Cheap products imported from China uptick is a temporary aberration or part of a China is no longer the kept inflation under control in the world for new reality. a long time. That period may have ended The chair of the Federal Reserve and the engine behind low-cost not because of the pandemic but because secretary of the Treasury, as well as many production in the world the rising middle class in China was economists, subscribe to the aberration beginning to enjoy the fruits of its labour in version. Low treasury rates in the market – hence, inflation rates experiencing higher wages and standards indicate money is betting on inflationary around the world can be of living. pressures being a temporary phenomenon. Also, China is experiencing a long On a contrarian note, I want to raise expected to rise in the predicted demographic transformation some arguments that may point to which has led to shortages of cheap labour. a possible longer-run change in the coming years. China is no longer the engine behind fundamentals. Those who believe the low-cost production in the world – hence, temporary nature of price increases point to inflation rates around the world can be a push of pent-up demand after the abrupt pandemic period. Hence, a short-term expected to rise in the coming years. disruptions in economic life because of the increase in prices is highly likely. Why is inflation so important for aviation? pandemic. But we are also facing supply But how about long-term trends? If I remember times at the start of operating side disruptions increasing input prices. people start believing in 5%-plus rates, leasing where, because of high inflation, These push up inflationary pressures. It is they will demand increases in wages to aircraft were sold at the end of a 10-year the same with the labour market where the compensate them for further inflation, lease for more than the original purchase number of job openings is notably higher fuelling the inflation fire in the way we price. This was, of course, in nominal (or not than people looking for jobs. experienced many times before. The inflation adjusted) terms but it contributed How about longer-term trends? The huge recently acquired greater strength of to a dramatic rise of aircraft leasing. economic stimulus packages in the USA unions may accelerate the trend. Will we see such times again? Inflation, are definitely excessive. This stimulus on A few developments are worthwhile if it raises its head again, will benefit some steroids leads to a lot of money available examining. One is the push towards and hurt others. It will be interesting to see and a substantial increase in the savings a carbon-free environment which, by which way it will evolve in the coming years rate which will be spent as we exit the definition, will lead to the higher costs that and how it will affect aviation.

46 Airfinance Journal July/August 2021 Legal survey 2021

An Airfinance Journal special supplement

Guide to aviation lawyers 2021

www.airfinancejournal.com 47 Legal moves 2020/21 Legal moves 2020-21

On the operating side, he is a specialist Last year, Pillsbury recruited aviation McCann FitzGerald aircraft lease negotiator. He advises lessors finance lawyer Patrick Reisinger from on aircraft purchase and leasing, and lenders Clifford Chance to join its asset finance promotes Deignan – in the event of operator insolvency – on practice as counsel in New York. security issues and asset recovery. He also rish law firm McCann FitzGerald has advises clients on the commercial contracts Ipromoted aviation finance specialist Laura surrounding aircraft operation. K&L Gates grows Deignan as partner at its aviation and asset “Despite the current challenges brought finance group. by the global pandemic, the aviation Asian teams Deignan has been involved in a variety sector has avoided the level of turbulence of instructions, including multiple aircraft many predicted, and funding continues &L Gates has expanded its aviation portfolio acquisitions and disposals and to flow into the aircraft financing sector,” Kpractices in Hong Kong and Singapore cross-border leasing transactions. says Tammy Samuel, head of finance, with the additions of Eugene Yeung and She specialises in aircraft finance and Stephenson Harwood. Terry Chang. leasing transactions and acts for many De Bustamante specialises in aircraft Chang joined the Banking & Asset leading aircraft lessors, financiers and finance and deals, both under French and Finance Team at K&L Gates in the airlines on all aspects of aircraft financing English law. Singapore office as a senior associate. and leasing. These include secured Her practice focuses on advising airlines, Robert Melson, a Tokyo-based partner lending, portfolio sales and acquisitions, lessors, financial institutions – in particular and leader of K&L Gates’ global aviation cross-boarder leasing transactions and in the event of operator insolvency – and finance practice, says: “Terry’s addition will the establishment of leasing and financing owners of corporate jets, on a wide range help our global team to assist our aviation platforms in Ireland. of asset finance and leasing transactions. clients with the myriad of issues that they Deignan also advises in relation to airline She also assists with more sophisticated currently face in light of Covid-19’s impact restructurings, aircraft repossessions and tax structures such as Jolcos, title retention on the industry.” the registration and operation of aircraft in agreements and sale and leasebacks, as K&L Gates also added Yeung as a partner Ireland. well as with international asset recovery to the firm’s finance practice in Hong Kong. He Her highlights include advising Standard and enforcement proceedings. joined from Pillsbury Winthrop Shaw Pittman. Chartered Bank/Pembroke on a variety Yeung, who is qualified in Hong Kong, of instructions including multiple aircraft Australia, New York, and England and portfolio acquisitions and disposals Wales, focuses on aviation finance and and cross-border leasing transactions. Single joins Pillsbury restructuring and insolvency in Asia. Deignan also represented a number of David Tang, managing partner, Asia, aircraft lessors in connection with the ntony Single has joined Pillsbury says: “His strengths and experience in Irish Examinership of Norwegian Air AWinthrop Shaw Pittman’s asset finance both asset finance and restructuring will Shuttle and certain of its Irish incorporated team as a partner in London. complement our award-winning aviation affiliates. He comes to Pillsbury from Clifford finance team’s capabilities and add to our She has also acted for SMBC Aviation Chance, where he was a partner and growing restructuring practice in Hong Capital on a variety of instructions including helped establish the firm’s asset finance Kong and the Asia region.” aircraft sales and acquisitions and a wide practice in the Middle East. range of leasing transactions. Single advises financiers and lessors on aviation, defence and other asset-based Hogan Lovells adds and receivables-backed finance and Stephenson Harwood leasing transactions. former FAA chief counsel He has a broad range of financing and strengthens European leasing experience, having worked on ogan Lovells has appointed Arjun Garg, transactions utilising commercial debt, Hthe former chief counsel and acting presence warehouse facilities, capital markets, funds deputy administrator of the US Federal platforms, and tax-enhanced and Sharia- Aviation Administration (FAA), as a partner tephenson Harwood has strengthened its compliant structured financings. based at the law firm’s transportation Saviation finance practice with the hiring of Single also has extensive experience in regulatory practice in Washington DC. partner Laurence Hanley in Paris, France. airline restructurings and workouts. Drawing on his deep government Also joining the law firm is associate “Much like our seasoned asset finance leadership experience, Garg will advise Diane de Bustamante from Stream, professionals around the globe, Antony transportation clients on a broad spectrum formerly Ince & Co France. really does it all in this highly specialised of regulatory, litigation and corporate Hanley’s practice is focused on aircraft sector,” says Mark Lessard, leader of matters and help lead Hogan Lovells’ finance and commercial aviation. He Pillsbury’s finance practice. aviation practice. advises airlines on all structured finance “The fact that he has thrived in both up “Arjun is a top-tier lawyer whose matters, from letter-of-intent stage to and down markets was very attractive to leadership experience at two key financing, covering debt, Japanese the team. Likewise, he brings bona fide Department of Transportation agencies will operating lease with call option (Jolco) and accomplishments in the Middle East, where be extremely valuable to our clients,” says specialist sale agreements, tax structuring we share many clients and interests,” he Latane Montague, head of Hogan Lovells’ and aircraft portfolio securitisation. adds. transportation regulatory practice.

48 Airfinance Journal July/August 2021 Legal survey 2021

events.airfinancejournal.com @AirfinanceNews airfinance_journal Airfinance Journal www.airfinancejournal.com 49 Legal survey 2021

Milbank comes out on top

Milbank is the winner of Airfinance Journal’s legal survey, which recognises the most active law firms in 2020 by regions and financing structures.

aw firm Milbank secured the number We had a high level of As a consequence, the survey does not Lone spot in 2020 with its aviation team represent all of the deals happening “firing on all cylinders” particularly with a activity globally, particularly in the market, but it remains the most strong performance in North America, Latin comprehensive survey of its type and America, commercial loans and capital in North America, Latin crucially offers a real insight into the markets. America, Europe and Asia. aviation market. Clifford Chance was second, although The survey gives a strong indication it almost closed a similar number of The Covid-19 pandemic of which law firms are most favoured transactions. for certain product types and for certain K&L Gates completed the podium, while resulted in airlines having regions. White & Case and Pillsbury came fourth unprecedented liquidity Last year, we modified the evaluation and fifth. Hughes Hubbard & Reed was the criteria to reflect the transaction complexity law firm which progressed the most year- needs. as well as the law firm’s role in a transaction on-year. rather than simply count the number of Airfinance Journal would like to thank all Drew Fine, partner, Milbank deals. the law firms which participated in this year’s As a result, law firms are asked to self- survey. Our annual legal survey includes assess the complexity of each transaction aviation finance deals based on submissions and their role in the transaction according from law firms as well as Airfinance Journal’s to the following new set of criteria for which Deal Tracker transactions. With Covid effectively closing down the specified points were awarded: Those are subsequently aggregated to aviation, airlines needed to generate create the winners. liquidity in a quick and efficient manner. Complexity Airfinance Journal received submissions “Initially, we worked on 364-day liquidity • groundbreaking pioneer transaction – from 18 firms, compiling 1,035 deals overall, financings and that led to longer-term 10 points; including transactions gathered from Deal financings. The dire need for liquidity led to • complex transaction, some new parties Tracker. innovation resulting in loyalty programme or jurisdictions – 7 points; This is the fifth year Airfinance Journal financings, initially for United Airlines, but • average complexity, repeat transaction has used data transactions from Deal then for Delta Air Lines, Spirit Airlines and with same players and jurisdictions – 5 Tracker for our legal survey. It provides a others. The loyalty programme financings points; more accurate picture of the 2020 activity were among the largest financings for • less complex transaction – 3 points; and because it includes law firms which were not airlines in history. Later in the year, Milbank • low complexity – 1 point. able to submit or decided not to submit. The was involved in the development of the firms that did submit have the most accurate current incarnation of the lessor EETC Role representation of their deals in 2020. [enhanced equipment trust certificate], • drafting counsel for major transaction In 2020, Airfinance Journal recorded 391 particularly to finance sale and leaseback documents – 10 points; unique transactions compared with 947 the transactions,” says Fine. • primary counsel to major transaction previous year. parties – 7 points; and The survey also highlighted more activity Methodology • secondary counsel to transaction parties in the capital markets and commercial The legal survey reviews transactions for – 3 points. loans, reflecting the need for liquidity in the calendar year 2020 only. sector. firms were invited to submit For all Deal Tracker transactions that Europe represented 350 transaction deals to be included in Deal Tracker. The were not part of the submitted deals, points, or a third of last year’s volume. Airfinance Journal data team then reviews Airfinance Journal assigned one point Asia-Pacific was the second region with the different deals and selects those for the complexity of a transaction and 326 transactions, or 31%. North America eligible for Deal Tracker. three points for the role played by the remained third by region but its market All of the deals used to judge the law firm. This resulted in a total score of share increased to 23% from 20% in 2019. winners are eventually loaded into Deal four that was assigned to all Deal Tracker Tracker and can be reviewed by our transactions which were not part of the Winner readers. In this sense, our survey is unique. submitted deals. Drew Fine, a Milbank partner, says the Our researchers assess each deal to verify Like previous years, the survey records firm’s global aviation team was very active. them and to avoid double counting. the overall number of deals for each law “We had a high level of activity globally, The benefit of using Deal Tracker is firm. A deal, as defined by the survey, particularly in North America, Latin America, that we can offer a granular presentation represents one mandate and can include Europe and Asia. The Covid-19 pandemic of law firm activity by both product type multiple aircraft and law firms. resulted in airlines having unprecedented and region. There are limitations to the In addition to presenting the most liquidity needs. During the year, we saw survey. Client confidentiality may be an active law firms by product and region, the both innovation and the largest airline issue for law firms when submitting deals survey also aggregates how law firms have financings in history,” he says. and some firms opted not to participate. performed to produce an overall ranking.

50 Airfinance Journal July/August 2021 Legal survey 2021

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FOR MORE INFORMATION: Email: accountmanager@airfi nancejournal.com Phone: +44 (0) 20 7779 8203 (Asia) | +44 (0) 20 7779 8274 (Rest-of-the-World) www.airfinancejournal.com 51 Legal survey 2021

Legal Transaction of the Year: Delta SkyMiles loyalty programme financing

The Airfinance Journal editorial team selected the Delta SkyMiles loyalty programme financing as the winning submission in 2020.

elta Air Lines drew a massive crowd cutting edge structure whereby all of Milbank was the drafting counsel for Dfor its $9 billion package of bonds and Delta’s loyalty assets – brand, customer major transaction documents and was the loans secured against its SkyMiles loyalty information, co-branding agreements law firm advising the lenders. David Polk programme in September 2020, aimed at –were contributed to a new loyalty advised Delta Air Lines on the transaction. further buffering its liquidity position. programme company and then financed. “The Delta SkyMiles loyalty programme The Atlanta-based carrier became the This structure has been copied for several financing was particularly unique since third airline – after United Airlines and subsequent financings by other airlines. Delta’s loyalty assets were all owned by Spirit Airlines – to use its valuable rewards The three-tranche financing was the airline and a new loyalty programme programme to raise liquidity as it continues structured as secured bond offerings from company was formed specifically for the to burn cash in a depressed travel market. the capital markets as well as term loan financing,” says Milbank partner Drew Fine. The financings involved multiple banks. facility. It consists of $2.5 billion senior He adds: “All of Delta’s loyalty assets Joint bookrunners Barclays, Goldman secured notes at 4.5% with a five-year term – brand, customer information and co- Sachs, JP Morgan and Morgan Stanley as well as $3.5 billion senior secured notes branding agreements – were contributed upsized the overall deal from an initial $6.5 at 4.75% due 2028. to the new loyalty company and then billion. Goldman was left lead on the bonds; The transaction also includes a $3 billion financed. The transaction was structured Barclays was left lead on the loan. term loan with an eight-year tenor. in a way to strongly encourage the airline Delta, which at the time said it was The blended average annual rate was to continue the financing even after a burning $27 million a day in cash, revealed 4.75%. potential future bankruptcy filing.” earlier in the month that it would not chase a $4.6 billion federal loan available under the Coronavirus Aid, Relief and Economic Security Act. Milbank was involved in this innovative transaction, which provided the US carrier a total of $9 billion in liquidity. The deal marked the largest airline financing in history at the time of the closing. The transaction involved a unique,

Top 10 law firms by number of deals

1800 140 Total number of eligible deals 1,035 1600 117 120 112 1400

100 1200 ● Score — Number of deals

80 1000 69

800 1709 54 60 1344 46 600 37 40 903 30 400 27 686 621 21 18 20 200 278 260 235 229 195 0 0 Milbank Cli ord Chance K&L Gates White & Case Pillsbury Hughes Hubbard Bird & Bird Maples & Calder Stephenson Hogan Lovells & Reed Harwood Source: law firm submissions and AFJ Deal Tracker

52 Airfinance Journal July/August 2021 Legal survey 2021

600 40 Asia-Pacific 37 Total number of eligible deals 326 35 he types of financings in the Asia-Pacific 500 T(Apac) region continue to diversify. 30 Commercial loans represent 31% of 400 ● Score — Number of deals transactions in the region, closely followed 25

by operating leases (29%) and capital 300 20 17 17 markets (28%). 548 Asia was the first to experience 14 15 12 the Covid-19 downturn, yet, with the 200 principal exception of Singapore, none 10 100 of the governments in the Association 200 182 151 5 of Southeast Asian Nations region has 108 supported its airlines. 0 0 The Cathay Pacific Airways and Virgin Cli ord Chance White & Case K&L Gates Stephenson Harwood Bird & Bird Australia restructurings were the highlights of last year’s airline headlines. Singapore Source: law firm submissions and AFJ Deal Tracker Airlines Group (SIA Group) was also active in the equity market through a S$5.3 the year and with a number of high profile White & Case came second in the region billion ($3.9 billion) rights issue and a airline restructurings commencing as the with about the same number of transactions mandatorily convertible S$9.7 billion bond year wore on (eg , Malaysia as in 2019, when it ranked third. issue for a total of S$15 billion. The group Airlines, Virgin Australia, Nok, Philippine Partner Simon Collins says: “Recovery in also closed commercial loans, as well as Airlines, HNA) and government backed Apac continues to take time. While the large sale and leasebacks, to protect its liquidity capital raisings for others (eg Singapore domestic markets such as China are active, position. Airlines and Cathay Pacific). regional and long-haul passenger traffic For the first few months of 2020, “On the investor side, a number remain subdued. Additionally, confidence of borrowing on an unsecured basis was of APAC based lessors (including tax investors and financiers has been impacted almost impossible. Exceptions include the structured lessors) encountered their first by the complex restructurings they have SIA Group, which was able to secure a S$4 major airline restructurings (especially encountered. While the long-term forecasts billion unsecured loan from DBS Bank and US Chapter 11 proceedings) as well as for APAC are positive, the road to recovery some airlines in China which could access having to deal with continuing challenges in this region is long.” the domestic short-term notes market. to repossession and redeployment. “Similarly, a number of lessors (APAC The Asia-Pacific market recorded 326 Much of the year was spent working on based and otherwise) were able to seek eligible deals last year, compared with 410 restructurings and rental deferrals but funding from shareholders in China and transactions in 2019. there were some airlines across APAC Japan. By the end of the year, domestic Still Clifford Chance performed well which had entered the pandemic with travel had largely recovered in the bigger above its peers with 37 eligible deals. unencumbered owned aircraft in their domestic markets such as the PRC, Japan Clifford Chance says 2020 was an fleets and so were still able to raise new and Australia but airlines in most of the rest extremely challenging year for the aviation money through arranging financings or of APAC (especially those dependent on sector in the APAC region, with travel sale and leasebacks of such aircraft,” says international travel) were still badly affected becoming very restricted from early on in Clifford Chance. by travel restrictions.”

Africa 35 Total number of eligible deals 29 4 30 ● ver the past few years, South African 3 Score — Number of deals 3 Obanks, such as Nedbank and Investec, 25 3 have been among the more active in the 20 region. 2 2 Air Côte d’Ivoire, , Cabo 15 Verde Airlines, Comair, Egyptair, Royal Air 32 10 1 1 Maroc and Rwandair have benefitted from 1 government-guaranteed loans, while some 5 17 13 12 of the major carriers in the region are going 8 through restructurings (Air , South 0 0 African Airways, ). Pillsbury K&L Gates Walkers Norton Rose Fulbright Matheson Airways is holding discussions Source: law firm submissions and AFJ Deal Tracker with lenders to renew moratoriums on loan repayments signed last year in response to told Airfinance Journal the African Union Pillsbury Hong Kong SAR managing the Covid-19 crisis. Commission has estimated, together with partner, Paul Jebely, has been involved is the exception aviation stakeholders, that about $20 in many financings in Africa. His teams at regarding its ability to access financing billion of financial assistance would be Pillsbury and Clyde & Co have ranked first because of its scale and ability to adapt to required to bolster the airline sector’s for six years and consistently remained in the market. Romain Ekoto, chief aviation inability to withstand the impacts caused by the top three law firms since the Airfinance officer, African Development Bank, recently the Covid-19 pandemic. Journal survey began in 2012.

www.airfinancejournal.com 53 Legal survey 2021

He says: “It takes a concerted effort to region have included regional aircraft. Over TAAG Angola Airlines financed six be present in and patient with this market. the past year, new carriers such as Green Dash8-400 deliveries through a finance The deal work is never easy, and the Africa Airways have started operations lease structure last year with African Export- non-deal work (including restructuring) is with used ATR72-600s ahead of a planned Import Bank and Absa Bank. seemingly never ending. Still, the work A220-300 fleet. One interesting financing was a matters, because there is at some level an K&L Gates partner Sidanth Rajagopal structured term financing for Egyptair escapable development narrative for each confirms this trend. “Capitalising on the Cargo. The facility was raised to part fund commercial passenger (or cargo) aircraft reduction in long-haul flights, regional the acquisition and conversion costs of that takes to African skies.” carriers in Africa appeared to focus on three A330-200 P2F aircraft. The financing The region’s ageing fleet is in need taking regional aircraft on operating leases. is secured on revenues generated by of replacement but there are pockets of This also gave rise to the region seeing the Egyptair Cargo through the International fleet-renewal activity. Operating leases mushrooming of various low-cost airlines – Air Transport Association’s cargo accounts represented almost 50% of the activity in ie, Green Africa, which only received its first settlement system, the first time this has Africa last year. Some placements in the aircraft in 2021.” been done for an African airline.

Europe Total number of eligible deals 350 450 45 &L Gates recorded fewer eligible Ktransactions last year in the European 39 40 market than Clifford Chance but pipped the 400 law firm for the number one spot, thanks to a better scoring. 350 35 Sebastian Smith, K&L Gates partner, says Covid lockdowns sent the European airline 300 ● Score — Number of deals 30 industry into disarray resulting in some 27 difficult restructurings and enterprising 24 solutions. 250 25 “Restructured lease terms had to be 400 395 negotiated with the majority of European 200 18 20 airlines. Many aircraft that were redelivered early in an as-is basis now had to be 150 15 repaired, stored, insured and registered 324 11 with CAMO [continuing airworthiness management organisations] arrangements 100 260 10 in place, as there was simply no secondary 152 aircraft for some aircraft types. Thankfully, 50 5 we saw a surge of freighter lease conversions, using facilities such as EFW, 0 0 and assisted in the negotiation of freighter K&L Gates Cli ord Chance Milbank White & Case Freshfields conversion documentation and new leases with freighter operators.” Source: law firm submissions and AFJ Deal Tracker Smith observes that difficult decisions ultimately had to be made with some equipment being sold piecemeal to part- by UK Export Finance under its Export impact of Covid-19 on the aviation industry out operators. “This all made for a very Development Guarantee scheme. within Europe has been significant. “Many intense albeit interesting year.” Easyjet followed through earlier this year airlines in the region have been forced to The commercial loan market accounted signing a new term loan facility for $1.87 seek accommodation from their creditors in for more than 40% of the transactions billion underwritten by a syndicate of banks. the form of lease and debt restructurings, in Europe last year. Many governments The UK carrier was also proactive in both in and out of court. In particular, we rescued airlines through state-guaranteed securing some assets in the commercial have seen a number of airlines, both loans and, in some cases, via the equity loan market during 2020. As a result, its European (e.g. Virgin Atlantic) and others market. unencumbered fleet now accounts for 41%. (e.g. MAB Leasing) seeking to utilise English The UK government quickly stated that Ryanair recently noted that more than 85% schemes of arrangement as a flexible tool it will not offer any industry-wide support of its aircraft fleet is unencumbered. to implement these restructurings without programmes for the airline industry but France and The offered having to implement a formal insolvency rather bespoke solutions. That said, loan support to Air France-KLM, while process, as well as some airlines using Irish Easyjet, British Airways, Jet2, Ryanair Lufthansa and its subsidiaries received examinership (e.g. Norwegian).” UK and Wizz Air UK were able to access support from different governments. Looking through to 2021, as vaccination a generic Covid-19 Bank of England Airlines in , Portugal and the Nordic rates rise across Europe, Clifford Chance commercial paper programme for more countries also received government- expects to see the continued recovery than £2 billion ($2.73 billion). guaranteed loans. The Portuguese of aviation within Europe, but significant In December 2020, British Airways government recently increased its stake in headwinds remain for many European announced plans for a £2 billion facility TAP to 72.5% to support the carrier during airlines, particularly if there is disruption to with a five-year tenor partially guaranteed the pandemic. Clifford Chance says the 2021 summer traffic.

54 Airfinance Journal July/August 2021 Legal survey 2021

Middle East 10 120 9 Total number of eligible deals 41 9 8 &L Gates significantly closed the gap 100 8 Kon Clifford Chance last year in the ● Score — Number of deals 7 80 Middle East region but Clifford Chance 6 5 maintained its first position. 60 5 Rajagopal of K&L Gates says last year 109 4 99 3 3 was a ‘mixed bag’ in the region from 40 3 carriers looking at restructuring their 2 fleet, to various requests for deferred 20 42 39 20 1 rent payment, to carriers utilising various 0 0 financing structures to shore up liquidity. Cli ord Chance K&L Gates Pillsbury Milbank Allen & Overy

The Middle East continues to have a Source: law firm submissions and AFJ Deal Tracker microclimate which is different from the rest of world, he comments. “We acted for lessors involved in various issuance financing linked to Etihad’s carbon sukuk, another sign of the increasing sale and leaseback transactions where reduction targets and investments in next- focus of aviation market participants on the lessor community tapped into local generation aircraft. Clifford Chance and sustainability issues. Looking forward to banks providing funding through Islamic Allen & Overy represented the parties in 2021, we expect that recovery will start structures. In addition, all major carriers this landmark transaction. to take hold in the region based around continued to discuss fleet rationalising Clifford Chance says Covid-19 has domestic and regional traffic, but with a full methods with OEMs [original equipment had a substantial impact on the aviation recovery likely to take longer than in other manufacturers] including dealing with the industry in the Middle East. “With many areas given the reliance of many carriers in Max aircraft,” he says. airlines in the region relying on connecting the region on long-haul flights.” Commercial loan structures once again passengers for a significant portion of The Middle East region is also attracting topped the ranking in the Middle East region their traffic, the travel restrictions imposed more asset manager/boutique players last year but the region also saw some by governments around the world reflecting the financing requirements in the activities in the sale and leaseback market have caused them significant hardship, region in the future. for new deliveries and older assets. Etihad notwithstanding high domestic vaccination Sirius Aviation Capital commenced Airways signed a landmark deal with Altavair rates. Many of the have operations in ADGM during March 2020 and Airfinance for the sale and leaseback relied on significant direct and indirect state in just over a year has grown its fleet to 10 of 13 A330s as well as the forward sale funding in order to support them during aircraft. The company plans to grow its fleet agreement for 16 -300ERs. this period, as well as raising funds through to 100 aircraft over the next three years. The highlighted deal in the region secured financings and sale and leaseback Magi Aviation Capital, a more established was Etihad Airways’ $600 million sukuk transactions,” says Clifford Chance. boutique financing company expanded its which was described as the “world’s first “Etihad Airways also became the first footprint in the Middle East with the opening transition sukuk”, a form of Islamic bond airline to issue a sustainability-linked of a regional office in Doha, Qatar last year.

Latin America 120 9 Total number of eligible deals 52 10 9 100 hris Hansen, partner at White & Case, 7 8 says 2020 initially seemed like it would C 80 7 be another solid year for Latin American 5 ● Score — Number of deals 6 aviation finance. 60 5 “Early in the year, Aeromexico issued its 114 3 3 4 first unsecured bond in the international 40 3 markets in many years. The sale and 81 78 2 leaseback market for new and used aircraft 20 51 41 was strong, and the Jolco [Japanese 1 operating lease with call option] market 0 0 remained open to carriers in the region, with White & Case Milbank Winston & Strawn Pillsbury Hogan Lovells several deals completed or in the pipeline during January and February,” he says. Source: law firm submissions and AFJ Deal Tracker Hansen adds that the problems faced by all airlines because of the Covid-19 This was in contrast to other regions such A major development in the region last pandemic were arguably more acute in the as Asia, Europe and North America, where year was the use by LATAM, Avianca and region. in many cases significant government Aeromexico of legal protection under the “Most governments in Latin America financial support helped keep local airlines US Chapter 11 regime to carry out their were forced to focus their limited resources afloat,” he says. respective restructuring programmes. on directly fighting the pandemic and Although there have been some “There is now a growing confidence supporting populations that depend on the commercial fundraisings in Latin America, that each of these airlines will emerge informal economy to a large extent, leaving there has been very little government from Chapter 11 and the Covid crisis in a airlines to fend for themselves to survive. support in the region. strong and very competitive position,” says

www.airfinancejournal.com 55 Legal survey 2021

Winston & Strawn partner Mark Moody. as well as the airline bankruptcies, including Hansen says there is ample room “White & Case clearly benefitted LATAM, Avianca and Aeromexico,” says for optimism that most or all traditional in 2020 from having very strong Drew Fine, a partner at Milbank. “We have financing sources will return to the region in restructuring and aviation finance represented Avianca as well as four of the the coming years, but significant challenges practices that have worked closely five largest secured creditor groups in the remain. together for a long time and having LATAM bankruptcy.” “Though the signs are good, none of been particularly active in Latin American Milbank also participated in the the Chapter 11 cases has yet reached its aircraft finance for many years, working different financings of Brazilian carrier Gol conclusion so there remains a level of with airlines, lessors, lenders and ECAs Transportes Aereos: sale and leaseback uncertainty in the market,” he says. [export credit agencies] on transactions transactions, engine financings, as well as Hansen adds: “In addition, South America in the region. This helped us to secure US Ex-Im-supported financings. is currently the epicentre for the Covid-19 mandates on behalf of airlines in Chapter White & Case’s Hansen says investor pandemic, with , Brazil, Peru 11 (Aeromexico’s special aviation counsel), interest in Latin American aviation remained and particularly hard hit. This is DIP [debtor-in-possession] financiers, ad high notwithstanding the pandemic. “Copa causing social and political upheaval in the hoc bondholders and other creditors in was able to secure convertible bond region as well. As in other jurisdictions, it is the Chapter 11 cases,” says Hansen. financing on favourable terms very early in extremely important that vaccination rates Milbank was also active in the airline the pandemic and other carriers such as increase quickly in Latin America to secure bankruptcies. “The Latam market was very Viva Aerobus in Mexico have also been a vibrant air travel market in the rest of 2021 active in 2020 due to the need for liquidity able to tap that market lately.” and beyond.”

1200 74 80 North America 70 1000 Total number of eligible deals 237 60 irfinance Journal’s Deal Tracker 800 Ashows that more than $407 billion was 50 raised in 2020, of which $108 billion was 600 34 ● Score — Number of deals 40 government-supported financings. 1121 24 30 The response of governments in 400 19 20 supporting their airlines through the Covid-19 11 200 10 crisis was varied. The USA has offered the 266 256 245 132 largest and most comprehensive support 0 0 package with a programme of grants and Milbank Hughes Hubbard Cli ord Chance Pillsbury K&L Gates between five- and 10-year unsecured and & Reed secured loans. The top US airlines signed Source: law firm submissions and AFJ Deal Tracker up early for the payroll-support programme, a 70% grant/30% unsecured loan offering “These financings proved to be very exceed expectations during this last year plus equity warrants. popular for airlines and investors,” he adds. by capitalizing on their ability to adapt. As Milbank was the clear winner in this The capital markets also played a key borders continue to open up, vaccination region, doubling the number of transactions role in North America last year. The lessors rates reach all-time highs and travel from 2019. issued unsecured bonds from the end of confidence returns, the future is again bright Milbank’s Fine points out the firm’s the second quarter to protect their liquidity and optimistic for aviation,” adds Chung. involvement in almost every product. levels while 12 EETC issuances raised “2020 was a devastating year for the Milbank helped develop the lessor almost $10 billion. aviation industry in North America. With enhanced equipment trust certificates The asset-backed securities (ABS) the exponential increase in the Covid-19 (EETCs), which were largely used to finance market paused in March 2020 after a flurry cases in the region in 2020, the airlines sale and leasebacks for aircraft leasing of deals were issued in the first few weeks grounded most of their aircraft and a companies but also worked on loans and of the year. A total of five deals, worth complete lockdown was imposed in most of capital markets offerings. “The year 2020 $2.38 billion, were issued in the first quarter the countries. The sudden halt in air travel was an unprecedented year for raising of last year, including two transactions with completely disrupted the aviation industry in liquidity for US airlines,” he says. engines only. the region. Airlines based in the U.S. raised Over the course of the year, Milbank “The aviation sector once again capital through a mix of financing techniques worked on deals to raise more than $50 demonstrated its deep resilience as including heavily utilizing government billion for airlines in North America. Fine streamlined business models built during support through the pool of funds available says the collateral for the loans included prior “black swan” events, such as the under the CARES Act,” Clifford Chance says. aircraft, engines, spare parts, slots, gates 2008 financial crisis and 9/11, enabled “We continue to see a gradual recovery and routes and loyalty financings. industry participants to remain flexible while in the market as passenger demand “Due to the urgent need for liquidity, the working with their customers and clients continues to fuel domestic travel. Cargo financings were completed quickly and to navigate yet another unprecedented remained a viable source of income for efficiently. And since many of the early challenge,” says Steve Chung a partner at numerous operators in the industry. The financings were 364-day financings, they all Hughes Hubbard & Reed. North American market appears to be on needed to be refinanced,” he comments. “This included proactively seeking its way to recovery in 2021 mainly due Fine says the loyalty financings were unique financing alternatives; in fact, to the effective distribution of the COVID particularly interesting because they were a many of our industry-leading clients, Air vaccine. We expect to see private equity new financing product which needed to be Lease Corporation, Delta Air Lines, Griffin and funds play a critical role in funding structured properly to protect investors but Global Asset Management, Hawaiian the growth of the aviation industry in the give airlines operating flexibility. Airlines and United Airlines, managed to region,” says Clifford Chance.

56 Airfinance Journal July/August 2021 Legal survey 2021

700 40 Capital markets 37 Total number of eligible deals 216 600 35

irfinance Journal’s Deal Tracker 30 Aestimates that $142 billion-worth of 500 capital market transactions closed in 2020. 25 Milbank’s capital markets activity was off 400 ● the charts in 2020. The firm was involved Score — Number of deals 20 300 588 in 37 transactions, seven more than the 15 previous year. 11 11 200 “Pre-Covid, the ABS market got off 10 7 6 to a strong start with five ABS closing in 5 January and February. Once Covid closed 100 5 ABS down in March, the need for airline 97 89 88 75 73 0 0 liquidity resulted in an unprecedent amount Milbank White & Case Hughes Hubbard Maples & Calder Pillsbury Cli ord Chance of capital markets financings, including & Reed some of the biggest deals in history. This Source: law firm submissions and AFJ Deal Tracker included the $6.5 billion United loyalty financing and the $9 billion Delta loyalty included aircraft, engines, spare parts, slots, Covid-19 on the industry led to numerous financing,” says partner Drew Fine. gates and routes and loyalty programmes. capital-strengthening measures taken by The firm also represented underwriters Several airlines also issued secured notes airlines to bolster their equity and debt on EETCs for United Airlines, Delta Air and did common stock offerings. capital and to reinforce their cash liquidity Lines, , Federal Express, Hughes Hubbard & Reed and Clifford positions. As a result, we saw a significant British Airways, Air Canada and Hawaiian Chance recorded 11 capital market uptake in capital markets transactions, Airlines. And then the substantial uptick transactions each but White & Case came particularly in Europe and North America, in sale and leasebacks led to the second in this category. with significant issuances by Air France- development of the modern lessor EETC Justin Benson, global head of asset KLM, Aeroflot, and many others. for aircraft leasing companies. finance based in White & Case’s London Overall, 2020 was a strong year for airline The collateral for the secured bonds office, says: “The unprecedented impact of issuances in the capital markets.”

Structured leases 350 Total number of eligible deals 55 30 ver the past 12 months, the big wigs 300 24 Oin aircraft financing have decried that 25 demand for Jolco and Japanese operating 250 lease (Jol) financings was “gone” and that 20 the market was all but “dead”. ● Score — Number of deals 200 The latest data, however, suggests 15 otherwise. While there have undoubtedly 12 150 325 11 been steep cuts in the volume of aircraft 8 10 equity underwritten by Japanese investors, 100 Jol and Jolco transactions did still see 4 deals in Covid-dominated 2020. 164 5 50 107 Airlines continue to be preoccupied with 59 48 securing government bailouts rather than 0 0 structuring new aircraft deals. K&L Gates White & Case Cli ord Chance Freshfields Nishimura & Asahi The flow of new aircraft deliveries dried up significantly between the second and Source: law firm submissions and AFJ Deal Tracker fourth quarter of last year, limiting the Jolco market. In the meantime, equity investors and used assets, as Jolco underwriters He adds: “Although the number of debt were hesitant to commit to the market. The became more open minded on the risk. providers for the Jolco market certainly lack of commercial debt for the most part of Last year, Jolco investors were hit by some contracted significantly, we worked with a 2020 did not help. airline bankruptcies and are still digesting few nimble Japanese leasing companies This was a step back from 2019 when some restructurings, including returned/ to structure a significant number of almost 110 deals closed as Jolco financings rejected aircraft and equity inventories. In equity-only Jolcos. We also did quite a represented about two-thirds of the total, 55 aircraft transactions closed in the few traditional debt and equity Jolcos for structured lease market. In 2019, the overall structured lease market in 2020. long-term airline Jolco participants that funding volumes increased, reflecting the K&L Gates increased its lead position continue to be seen as relatively safe by confidence in the product and the credits, accounting for 45% of all transactions in this debt providers.” but also as a consequence of larger market. Melson says the equity never left transactions requiring larger Japanese “We have seen resiliency on the part of and anticipates the number of Jolco equity underwriting capabilities. the Jolco equity market in the face of the transactions to increase in 2022 as First Jolco transactions reached Covid-19 pandemic,” says Robert Melson, Covid-19 travel restrictions decline and Airlines, and , K&L Gates partner and global head of more and more debt providers return to the while LATAM tapped the market for new aviation finance. market.

www.airfinancejournal.com 57 Legal survey 2021

Commercial loan Total number of eligible deals 379 1000 70

he commercial loan market accounted 63 Tfor 36.6% of the eligible deals in 2020. 900 This was up from 20% the previous year. 60

Before Covid-19, the banking market had 800 been resilient despite the abundance of 52 liquidity and structured loans available for 50 700 borrowers. Covid-19 highlighted the importance 600 ● Score — Number of deals of the banks, especially from the second 40 quarter of the year. It also marked the pause or retreat from aviation of certain 500 capital providers. Meanwhile, the 931 30 alternatives offered to borrowers have 400 increased. Over the past year, new players have come to the industry in search of 20 300 reasonable yields. 632 20 14 Looking back at 2020, commercial loans 12 were prevalent across North America, 200 Europe and, to a certain extent, the Asia- 10 Pacific, which reflects the general need for 100 231 171 157 aviation financing. The number of aircraft deliveries from 0 0 manufacturers plummeted last year, but Milbank Cli ord Chance White & Case K&L Gates Pillsbury

airlines and lessors turned to commercial Source: law firm submissions and AFJ Deal Tracker loans for liquidity purposes. As a result, 2020 saw a massive increase in commercial loans. According Milbank headed this category with 63 aircraft, engines, spare parts, slots, gates to Airfinance Journal’s Deal Tracker, this transactions, or 11 more than Clifford Chance. and routes and loyalty financings,” says category accounted for almost $167 billion “As soon as Covid-19 closed down Milbank’s Fine. in financing last year, up from $75 billion in aviation, airlines needed substantial The firm was also involved in warehouse 2019. liquidity. Many relatively short-term liquidity facilities for Aercap, Sky Leasing and Commercial loans also include financings were provided to airlines. Carlyle Aviation Partners during the insurance-supported financings, which These liquidity financings were ultimately year, while it represented the investors have become more popular with airlines refinanced with longer-term financing. The in connection with a term loan B for Fly over the past few years. collateral for the commercial loans included Leasing.

Sales & purchases 300 Total number of eligible deals 59 20 lifford Chance and K&L Gates were the 18 18 Cmost active law firms in the sale and 17 purchase market. 250 But the absence of liquidity as well as 16 plans for buyers, in light of the Covid-19 pandemic, limited this market to about 60 13 14 transactions. This was only a fifth of the 200 ● Score — Number of deals previous year’s tally, when 300 transactions 12 were recorded. There were about 345

transactions the year before that. 150 10 Some sale and leasebacks were performed on new equipment in 2020, while some 266 8 airlines such as Easyjet sold unencumbered assets to raise their liquidity position. 100 6 5 6 “The sale and purchase market saw an 207 187 overall decline in 2020 when compared with 2019; however, the US and European 4 markets in particular remained buoyant 50 through the midst of the pandemic,” says 2 51 Amanda Darling, a partner at K&L Gates. 39 “We also saw some aircraft trading 0 0 activity among our Japanese investor Cli ord Chance K&L Gates Pillsbury Milbank White & Case clients, but less than we see outside pandemic conditions,” she says. Source: law firm submissions and AFJ Deal Tracker

58 Airfinance Journal July/August 2021 Legal survey 2021

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www.airfinancejournal.com 59 Legal survey 2021

300 25 Total number of eligible deals 310 Operating leases 22

he operating lease market was not very 250 20 Tactive in 2020, mainly because of the ● Score — Number of deals level of capacity it could offer concerned airlines. 200 As airlines searched for a way of 15 13 13 surviving the Covid-19 pandemic, balancing 12 the fleet remained the priority. Many airlines 150 11 halted growth plans to concentrate on the 10 existing fleet and the stored/active aircraft. 249 Covid-19 has provided some 100 opportunities for some airlines to benefit 184 155 151 from market conditions for leasing aircraft, 141 5 50 and this was reflected in lease rates. Compared with 2019, the number of

transactions last year halved. 0 0 Clifford Chance was a clear winner of this Cli ord Chance Pillsbury White & Case K&L Gates Bird & Bird category but four law firms – Bird & Bird, K&L Gates, Pillsbury and White & Case – Source: law firm submissions and AFJ Deal Tracker were neck and neck in the operating lease market. “While operating lease transaction to group airlines in other jurisdictions Operating leases continue to be the most volumes between new counterparties necessitating revised lease structures, popular financing solutions in the market of softened in 2020, the pandemic replacement security and reregistration new aircraft deliveries. Lessors have large nevertheless gave rise to a new trend of in highly compressed time frames,” says orderbooks with the manufacturers but instructions involving the fast-paced re- Pillsbury partner Debra Erni. also account for an increasing amount of leasing of portfolios of aircraft as several Europe continues to lead this category purchase and leaseback transactions on airlines moved their excess fleet capacity with almost 40% of transactions in 2020. new deliveries.

Export credit 35 3 Total number of eligible deals 16 CAs are still underwriting financings, 30 Ealthough the introduction of ECA premiums by the new Aircraft Sector 25 2 Understanding rules almost a decade 2 ago have impacted their attractiveness to 20 airlines. ● Score Number of deals 32 — The transactions recorded in 2020 include some A380s for Emirates Airline, 15 1 1 1 as well as A350-900 deliveries for Turkish 1 Airlines and Ethiopian Airlines. Another 10 Turkish carrier, Pegasus Airlines, tapped the ECA market for a total of 10 A320neo 17 14 family (eight A320neos and two A321neos) 5 deliveries last autumn. 4 Turkish Airlines also financed the 0 0 purchase of two 787-9s with loans Winston & Strawn Cli ord Chance Pillsbury Dentons guaranteed by Ex-Im Bank in the first Source: law firm submissions and AFJ Deal Tracker transaction completed by the ECA since it was reauthorised in July 2020. pandemic, which has been implemented financing of new aircraft, perhaps for more Winston & Strawn topped the rankings in quickly in several cases,” adds Moody. financially challenged airline borrowers, this category. Pillsbury partner Graham Tyler says: “From but we don’t anticipate the levels getting “It has clearly been a very difficult time a borrower’s perspective, like many other anywhere near those seen in the financial for airlines during Covid, in particular those counterparties on secured aircraft financings, crisis back in 2008.” airlines with no access to support from their during the pandemic the ECAs have looked Tyler adds: “As the sector recovers, national governments,” says Winston & to preserve existing transactions as far as has there will be many alternative options for Strawn partner Mark Moody. been possible through deal restructurings borrowers to consider alongside ECA “The ECAs have certainly played their not least because there have been few, if financings including raising money in part in trying to support airlines who have any, options for financial institutions or lessors the debt capital markets, the insurance- ECA-supported financings in place – this to place aircraft that are returned early or backed products of AFIC [Aircraft Finance has included the ECAs developing an ECA repossessed. Insurance Consortium] and Balthazar, common approach to airlines seeking “Looking forward, the ECAs will continue secured commercial debt and the sale and certain restructuring terms during the to have an important role in supporting the leaseback market.”

60 Airfinance Journal July/August 2021 Rising stars

Rising stars Airfinance Journal recognises six of the most promising legal associates for 2020.

Amanda Teoh aspects of restructuring and insolvency Utilising her extensive aviation finance transactions, including for Virgin Atlantic experience, she has helped clients Senior associate, Herbert Smith Freehills and Flybe. navigate complex aviation matters, many of Singapore Teoh is a quiet achiever, but combines which have been named Deal of the Year legal knowledge with a commercial, by Airfinance Journal. pragmatic and collaborative approach to In 2019 alone, Liu served as counsel on ensure a smooth transaction for all parties two matters selected as 2019’s Middle East involved. This was recently recognised by Deal of the Year and North America Deal of her inclusion as an aviation rising star in the Year. The Legal 500 Asia Pacific 2021. In the Middle East Deal of the Year, Liu In addition to aviation finance, Teoh is and the Hughes Hubbard & Reed team an active member of the Herbert Smith advised a group of financing parties, Freehills’ diversity and inclusion and including Citigroup Global Markets and corporate social responsibility committees, BNP Paribas, in a $500 million Islamic and is co-leading the firm’s pro bono finance Murabaha revolving warehouse practice in Asia. facility for NCB Capital, a leading “Amanda’s contribution to the team investment firm in the Middle East. is invaluable in that she leads the junior In the North America Deal of the Year, lawyers effectively and she provides solid Liu and the Hughes Hubbard & Reed team support on transactions to partners,” says advised Hawaiian Airlines in the Japanese the legal firm. “By way of an example, yen-dominated (JPY) financings of six in Bain’s acquisition of Virgin Australia, Airbus aircraft in a deal worth up to $233 Amanda was instrumental in managing the million. This deal consisted of two separate due diligence process of the fleet (involving loan agreements and came on the heels of over 130 aircraft and nine engines) and Hawaiian’s first-ever JPY financing. team (including partners) that undertook manda Teoh is the senior associate in the due diligence.” Athe Herbert Smith Freehills’ Singapore Teoh holds bachelor’s degrees in arts aviation finance team, having joined from and law (first-class honours) from the Clifford Chance in January 2019. University of New South Wales. She was She has acted for banks, operating admitted as a solicitor of the NSW Supreme lessors and airlines in a range of aircraft Court in 2011, as a barrister and solicitor transactions, including commercial and of the High Court of New Zealand in 2015 export credit financing, operating leases, and as a solicitor of the Senior Courts of and sale and novation transactions. She England and Wales in 2018. also experienced a client secondment Before commencing her corporate with the aviation desk of leading aviation career with King & Wood Mallesons in finance bank BNP Paribas in Singapore. Sydney, Teoh was a judges’ associate with Teoh has extensive aviation experience the president of the NSW Court of Appeal. across the Asia-Pacific region. Over the past 12 months, and notwithstanding the impact of Covid-19 on the industry, she has continued to act on market-leading Cynthia Liu transactions, most notably assisting Senior Associate, Hughes Hubbard & Bain Capital on its acquisition of Virgin Reed Australia, in which she took a leading role Washington in conducting due diligence across the Cynthia has continued leasing and financing arrangements of ynthia Liu is a senior associate in Virgin Australia’s fleet. CHughes Hubbard & Reed’s Washington to earn recognition for Throughout her career, Teoh has had the DC office, and a member of the firm’s benefit of great mentors. While working with corporate and equipment finance groups her strong work ethic and Simon Briscoe at Clifford Chance, she gained where she focuses on commercial aircraft dedication to the field and particular leasing expertise and became financing. the resident expert dealing with Indonesian Liu represents commercial banks, her ability to get the most transactions and lease restructurings. leasing companies, borrowers, lenders, Since joining Herbert Smith Freehills, initial purchasers, arrangers, private equity innovative deals across under the guidance of Siva Subramaniam investors and airlines in connection with the finish line. and Samuel Kolehmainen, Teoh’s practice secured and unsecured lending, simple has expanded to include acting for airlines, and complex bank loans, sale and lease Steven Chung, partner, Hughes Hubbard such as Scoot, and Air transactions and other financing transactions & Reed Asia, and advising on the aviation financing in the USA and around the globe.

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Last year, Liu represented Hawaiian Mulhern’s considerable ABS experience Airlines in its receipt of a $420 million loan includes advising on Lunar Aircraft 2020-1, (later increased to up to $622 million) under Raptor 2019-1, ZCAP 2018-1, Vx Cargo 2018-1 the Coronavirus Aid, Relief and Economic (all-freighter ABS), Prop 2017-1 (all-turboprop Security Act from the US Department of the ABS) and Labrador Aviation Finance 2016. Treasury. Earlier this year, she represented He also recently advised CALC on its Hawaiian Airlines again on its $1.2 billion $200 million unsecured perpetual capital bond offering amid the company’s recovery securities issue through a private placement. from the pandemic. He has had a lead role working on Liu also worked on several multimillion- transactions involving new, innovative and dollar sale and leaseback transactions this alternative financing structures such as past year for industry leaders including acting for NCB Capital on the establishment Delta Air Lines and Hawaiian Airlines. of its Dara Aviation platform involving the She also has experience in the capital acquisition and Islamic financing of a portfolio markets through the representation of of 19 aircraft using a Murabaha structure. Sculptor Capital Management as asset Mulhern also advised CALC on its first manager in a $446 million GECAS START aircraft investment sidecar, China Aircraft III aircraft asset-backed securitisation Global. He recently advised Aergo Capital (ABS) offering as well as Och Ziff Capital on its Islamic financing of one Boeing 787 Management (now Sculptor Capital Keith has acted and one Airbus A350 with Dubai Islamic Management) as lead equity investor with on many complex Bank using Sharia-compliant funding. He the $577 million GECAS START II ABS has also advised on financing products with offering. transactions for Aergo new alternative financing and investment Liu started her career at Hughes platforms including acting for Aergo Capital Hubbard in 2011 as an associate in the over the years and has on its financing of one A321 and one 737 international trade practice, gaining always impressed with his with Volofin and acting for new alternative experience handling trade policy, World lending platform, Valkyrie. Trade Organization litigation, trade professional approach. He also has wide-ranging experience remedies, US export controls and sanctions advising on warehouse financing matters. Neil O’Donnell, senior vice-president legal, structures including advising each She joined Akin Gump in Washington Aergo Capital of Capital, Zephyrus DC in 2013 before returning to Hughes Capital Aviation and Sculptor Capital Hubbard in 2017. This combination of trade Mulhern has acted for a wide range Management, respectively, on their first and regulatory experience and aviation of aviation clients including leasing aircraft warehouse facilities. finance expertise undoubtedly gives Liu a companies, airlines, banks, manufacturers, Mulhern also represents A&L Goodbody rare versatility that separates her from her funds and credit support providers. on the International Registry Advisory peers. He has extensive experience acting Board and works actively on projects for “Cynthia Liu is truly a recognised leader on a variety of aviation financing and the legal advisory panel to the Aviation in the aviation finance community,” says leasing products and structures including Working Group. He has also lectured and partner Steven Chung. “She has an innate operating leases, finance leases, sale and tutored students in Law Society of Ireland ability to help clients navigate through leasebacks, Japanese operating lease with programmes including the Professional some of the most complex aviation matters call option (Jolco) structures, debt finance Practice Course (Part II) and the Certificate and transactions. Beginning her career in (bilateral, syndicated and warehouse of Aviation Leasing and Financing. just 2011, Cynthia has continued to earn facilities), capital markets issuances “Keith has acted on many complex recognition for her strong work ethic and (secured ABS and unsecured perpetual transactions for Aergo over the years and dedication to the field and her ability to get bonds), predelivery payment financing, has always impressed with his professional the most innovative deals across the finish Islamic financing, joint ventures/side cars, approach and his ability to deploy ALG’s line.” export credit agency-supported financing legal input seamlessly into fast-paced and Aircraft Finance Insurance Consortium deals,” says Neil O’Donnell, senior vice- (AFIC)/Balthazar-supported financing. president legal, Aergo Capital. Mulhern has excellent experience “He is adept at providing commercially Keith Mulhern advising on large, high-profile and complex tailored legal advice that suits our business Senior Associate, A&L Goodbody restructurings and distressed transactions. model and is effective at communicating Dublin Notably, he recently worked on advising such advice in a straightforward manner. several financiers and leasing companies He has consistently demonstrated a strong eith Mulhern is a key member of the in connection with the Irish Examinership of knowledge of the law and can marry this Kaviation and transport finance practice Norwegian Air Shuttle and its affiliates. to his excellent understanding of the at A&L Goodbody and has provided He has advised on a number of market- Aergo corporate structure and commercial exceptional advice as the lead associate on leading and award-winning capital markets dynamics,” adds O’Donnell. a broad range of complex, innovative and transactions including the recent launch of “Keith is an exceptional senior associate and award-winning transactions for important the first aircraft ABS successfully to close brings expertise, professionalism and good clients over several years. since the severe impact of Covid-19 on the humour to every aspect of his role. Although He graduated with a Master of Law aviation sector. He also recently launched his client relationships and transactional degree from the University of Cambridge with David Berkery, partner, the first experience is standout, the addition of his (UK) and is known for having excellent episode in the ALG Aviation & Transport strong teamwork ethic and role in mentoring legal and technical skills, a practical and Finance Soundbite Series with an overview junior members truly makes him a Rising Star,” commercial approach to transactions and a of that transaction and its impact on the says A&L Goodbody head of aviation and calm demeanour. industry. transport finance Marie O’Brien.

62 Airfinance Journal July/August 2021 Rising stars

Amma Ofori She is one of the few associates with can hold up deals. This is different from extensive experience advising in multiple “being commercial”, which is too often Associate, Watson Farley & Williams jurisdictions and on a broad range of a euphemism for dropping points in the London transactions – from commercial aircraft to interest of just getting a deal done. corporate jets and even simulators, and Harding is well regarded in the industry from complex warehouse financings and for his calm and methodical manner and revolving credit facilities, to all types of polite respectful approach to negotiation, general finance and leasing transactions in articulating his points in a convincing the aviation market. manner without making the other side feel Jim Bell, Watson & Farley global co- demeaned. head of aviation, says: “Amma is a great He joined Clyde & Co’s aviation finance technical lawyer with excellent commercial team in 2015, having previously worked understanding. Amma has a distinct ability for several years in the asset finance to keep a transaction running smoothly. team at Dentons. He has experience in Her fantastic experience, across multiple the financing and leasing of commercial jurisdictions, makes her a real asset to our and business aircraft and helicopters. clients.” His experience includes export credit- supported financings, finance and operating lease transactions, predelivery payment financings, tax-based leases Nick Harding (especially French tax leases and Jolcos) Legal director, Clyde & Co and financings, manufacturer-supported London financings and warranty arrangements, asset value guarantees and sale and purchase transactions. Harding also acts for financiers, owners and operators in the business jet market, advising on purchase, financing, operating mma Ofori is an associate in the and tax arrangements. Commercial airline Aassets and structured finance group at clients for which he works regularly include Watson Farley & Williams, based in London. Turkish Airlines, Wizz Air, Royal Air Maroc, She has notable experience acting for Air Baltic, and Sun Express. banks, lessors and airlines in connection Among his recent innovative deals are with a wide variety of cross-border leasing the first Balthazar transaction in the global and financing transactions. Over the past aviation market (Balthazar-supported few years, Ofori has been involved with French tax lease financing of five A321neo cutting-edge transactions such as ECA aircraft, with financing provided by BNP financings, warehouse facilities and Jolco Paribas) and the second AFIC transaction financings. for Turkish Airlines (two 787-9s), which was Some of her recent transaction highlights the first US Ex-Im Bank financing of a large include acting for Investec Bank (Mauritius) aircraft since the bank’s reauthorisation. Limited in its arranging of a revolving credit Over the past year, Harding has also facility by way of a private placement bond been advising a number of airlines on for . Covid-19 related issues, and restructuring. Ofori also has assisted a syndicate Before that, he advised various airlines on of lenders in connection with the Jolco issues relating to the grounding/delays in financing of two Airbus A320 aircraft to delivery of 737 Max aircraft. be subleased by PT Garuda (Persero) ick Harding is well on track to being Harding has advised a number of airlines TBK (with Japanese equity provided by None of the best regarded aviation on refleeting programmes and engine Financial Products Group). finance lawyers in the industry, noted not support. He acted for Air Baltic on its A220- She represented Bank of China London just for the depth of his skills but for the 300 aircraft including PW1000G engine Branch in connection with the Jolco range of the work on which he advises. warranty support, and acted on the EDC refinancing of one A330-300 for AVIC Harding is noted by colleagues and financing of the first deliveries, including Leasing. The bank acted as facility agent, peers for his outstanding technical skills. the first A220 (then CS300) aircraft to be security agent and hedge counterparty in His broad experience shapes his legal delivered as launch customer in November the transaction. analysis and drafting skills, which rank him 2016; and acting on subsequent sale and Ofori also assisted on the ECA-supported alongside the magic circle partners with leasebacks. financing of one A380 to be leased by whom he habitually deals. He also has extensive litigation Asiana Airlines. He is renowned for his highly experience, which he can bring to bear on She joined the firm as a paralegal in professional approach to transaction his transaction advice. A recent highlight 2013, qualified as a solicitor in 2016 and management: early identification and was acting for ’s parent company, has spent time in the firm’s Singapore, New resolution of issues, frequently with Compagnia Aerea Italiana (CAI), in the York and London offices. creative solutions; pro-activity and driving English Commercial Court in a dispute with Being part of the largest asset finance the deal forwards; a focus on key points Aircraft Purchase Fleet Limited (APFL). The practice in London, Ofori has still managed which need to be pushed forcefully but dispute related to the non-delivery of 13 to build a strong reputation with clients fairly on behalf of the client, while being Airbus aircraft which, according to APFL, and colleagues as one of the leading able to exercise good judgment in moving CAI was bound, but refused, to take on associates for aviation finance in the City. on from points of less importance which lease between 2012 and 2015 under a

www.airfinancejournal.com 63 Rising stars

framework agreement in force between leaseback transaction were subsequently them. refinanced in what was the client’s and After a two-week trial, the court the financier’s first new money deal dismissed in its entirety the $260 million since Covid-19 resulting in more involved claim for damages brought by APFL negotiation of the financing documents. alleging renunciation of that agreement by Before joining Stephenson Harwood, CAI. McNeilly worked for an aviation leasing Harding also advises on regulatory company in Singapore where she matters – for example, in 2017, he assisted managed all leasing, financing and in the establishment of Wizz Air UK. trading transactions for the company. “We very much appreciate the quality Consequently, she brings to each deal of support that Nick provides to us,” a commercial and outcomes-driven says Youness Agzid, head of the legal approach, and her time in-house has given department, Royal Air Maroc. “He has a her a wider view of the aviation industry good understanding of our commercial as compared with most private practice requirements, and knows which points to aviation lawyers, having dealt first-hand push hard, and which can be traded or with repossessions, lease transitions and conceded. He clearly has real knowledge technical supplier/consultant contracts of industry practice and wide experience of alongside the regular leasing, financing a number of finance/leasing products and and trading deals. McNeilly has maintained this comes across in his advice.” strong connections with her former Imants Jansons, general counsel at employer and developed relationships Air Baltic, says: “In 2016, Air Baltic was a between them and Stephenson Harwood, launch operator of the new Airbus A220- such that her former employer is now an 300 aircraft and Nick played a crucial role Charlotte is a stand- active client of Stephenson Harwood’s providing legal support in that complex aviation finance team. journey making it a huge global success. out senior associate She has also completed secondments Since then, he has become an integral part at two major aviation finance banks from of all aircraft finance transactions and a and we highly value her which she also has great insight into person to turn to in case of all other aircraft- contribution to all aspects the priorities and demands placed on related legal issues. commercial lenders in the aviation sector. “Nick’s legal skills, industry knowledge of our team and our McNeilly has a track record for advising and accessibility are well known and on high-value and complex transactions. recognised at all levels of the company business. Her work includes advising a syndicate and his guidance is sought after not only of banks on the restructuring of secured Richard Parsons, partner and head of by the legal team but also the finance and debt in respect of an A330 in conjunction aviation, Stephenson Harwood technical team. He has become a part of with the restructuring of MAB Aviation. Air Baltic.” She also represented a new joint-venture leasing platform on its inaugural aviation airline customer, resulting in the need for transaction purchasing three A321 aircraft sensitive negotiations, balancing all parties’ via sale and leaseback with an Indian Charlotte McNeilly requirements and expectations. carrier (and associated secured debt Associate Stephenson Harwood On another matter, she negotiated financing). London unprecedented step-in obligations for a Away from transactional work, McNeilly lessor into subleasing arrangements in is involved in the team’s business harlotte McNeilly is an experienced order to secure the end user as a follow-on development and recruitment activities, Caviation lawyer with more than eight customer for the lessor in anticipation of and plays a leading role in delivering years’ experience in the aviation sector. the imminent insolvency of its direct lessee aviation-related training across Stephenson She has extensive experience advising customer. Harwood’s global network. She is also banks, lessors and airlines on all aspects Landmark transactions on which McNeilly responsible for the supervision and of aircraft financing, leasing and aircraft- has advised include advising the investors development of trainee solicitors in trading transactions, each involving multiple in connection with Virgin Atlantic’s Stephenson Harwood’s aviation finance jurisdictions. At Stephenson Harwood, she groundbreaking bond issuance in which team. is the lead associate on all the team’s key landing slots were used as collateral for “Charlotte is a stand-out senior associate client relationships. the first time in Europe. She was primarily and we highly value her contribution to Of particular value is McNeilly’s ability to responsible for the main transaction all aspects of our team and our business,” deliver bespoke solutions for clients. She documents and assisted with the investor says Stephenson Harwood partner and has recently advised on the conversion of roadshows and the ratings process. This head of aviation, Richard Parsons. several A330 aircraft from passenger-to- transaction won Airfinance Journal’s Deal He adds: “Whilst Charlotte is a technically freighter configuration and the subsequent of the Year, Capital Markets, award. excellent lawyer, with strong drafting and leasing. Negotiation of the leases was In addition, McNeilly recently advised on negotiating skills, she also has excellent involved not only because it represented a six-aircraft sale and leaseback transaction commerciality, which clients really value. a new relationship for the lessor but also with Delta Air Lines at the height of the Charlotte is involved in all the team’s key to take account of the predelivery freighter Covid-19 pandemic in which the documents client relationships. I know that clients really conversion process and a bespoke were agreed in a record four days to enjoy working with her, not just because arrangement whereby the aircraft was meet Delta’s strict timeline to ensure an she is a great lawyer, but also because to be operated by a third-party airline on improved cash-flow position for the airline. she is always so positive, engaging and behalf of the lessor’s non- Two of the aircraft in the Delta sale and unflappable.”

64 Airfinance Journal July/August 2021 Sponsored editorial

Recent private equity investment in aviation

Private equity has been upping its game in aviation, writes David Berkery, Partner, A&L Goodbody.

nvestment by private equity (PE) funds Sidecar joint ventures Iin the aviation sector is not a new Over the past few years, sidecar joint phenomenon. PE houses such as Oaktree, ventures have become more and more CarVal, Terra Firma, Cerberus, Apollo and popular in the aviation sector. These Fortress have owned or part-owned some structures typically marry a passive investor of the largest aircraft leasing companies for with capital to deploy, but lacking an aircraft years. But recently the risk profile and yield leasing platform with the expertise and potential offered by aviation has attracted resources of an existing aircraft lessor. even more private equity investment, using A good example of this was the $2 a variety of different investment structures. billion Einn Volant structure created As the aviation industry grappled with in 2017 between Caisse de dépôt the near worldwide halt of commercial et placement du Québec, a leading aviation in 2020, new debt funding became institutional asset manager, and GE Capital increasingly difficult for most leasing Aviation Services Limited (GECAS). More companies to source but there remained a recently, GECAS entered into a similar plethora of equity investors looking for the arrangement with PIMCO, creating a $3 right investment opportunity. billion leasing investment platform. In both Before the onset of Covid-19, there cases, the platform vehicle was an Irish was massive year-on-year increase of the entity capitalised using profit participating aviation asset-backed securities (ABS) Over the past number notes. market during the 2014 to 2019 period. From the perspective of the private It reflected the appetite among private of years, sidecar joint equity investors, they benefitted from equity firms to acquire aviation debt. While world-class experience and expertise, tradable E-Notes (issued under Rule 144A ventures have become access to the marketing network of a of the US Securities Act as securities more and more popular in global lessor and improved access to of ABS vehicles) were not without their warehouse and other financing. problems when it came to secondary the aviation sector. From the perspective of the leasing trading, this product did introduce new company, aside from the new equity which and different equity investors to the aircraft David Berkery, Partner, A&L Goodbody is being invested into the vehicle and the leasing sector. ongoing servicing fees being generated, they can use the sidecar vehicle to Limited partnerships Raising equity through unregulated fund allow them to do deals which may have The most traditional method of raising structures has some potential disadvantages, otherwise triggered concertation concerns. private equity funds is to form a limited however, particularly when it comes to For example, an airline in Russia issues partnership with a defined investment attracting investment from European a request for proposal for a six-aircraft sale strategy and a trusted general partner to investors and those who are limited to and leaseback transaction but the leasing manage the investment. These types of investments into regulated vehicles. Typically, company could trigger a concentration limit fund raises have been a crucial element investment by European investors in these default if it leased more than four aircraft in the growth strategy of numerous PE- types of funds needs to be on a “reverse- to airlines in that country. Working with the backed leasing companies. solicitation” basis, meaning the investor sidecar investors, the leasing company A typical investment strategy would be comes “at its own exclusive initiative” to could still do that six-aircraft deal but on the to access a warehouse facility to lever up the investment manager rather than the basis that two of the sisterships would go the equity investment, acquire a portfolio manager marketing the fund to them. into the sidecar vehicle instead. of aircraft (either in a single acquisition or Given the amount of available capital Sidecar deals are structured to align over a period of time) and then to take there has been for aviation in recent years, interests between the parties as much as out the warehouse debt using an ABS this has not been a major concern for possible so that it is to everyone’s benefit or another cheaper form of long-term private equity-backed platforms. But it is that the platform succeeds. It was not financing. clear that there would be advantages to surprising to see Kennedy Lewis team- This type of equity raise has been using a regulated vehicle such as an Irish up with Arena Aviation, Corrum Capital frequently used by US-based platforms Collective Asset-management Vehicle or Management enter into a joint venture with and asset managers, such as Aero Capital an Irish Investment Limited Partnership to Sirius Aviation in early 2021 and before that Solutions ($200 million equity raise in raise an aviation fund, and we expect to Avolon, CALC and Air Lease Corporation 2019 and $413 million in 2020), Castlelake, see a lot more interest in these types of enter into sidecar arrangements with Apollo and Carlyle. vehicles. investors.

www.airfinancejournal.com 65 Sponsored editorial

Loan book acquisitions New leasing platforms of publically traded Aircastle and, most Even before the economic impact of A different strategy adopted by other recently, Carlyle Aviation Partners’ the Covid-19 pandemic hit the aviation investors has been to identify key individuals acquisition of Fly Leasing, there are a sector, the changes to global bank in the industry and to build a new platform limited number of listed aircraft lessors capital requirements imposed by Basel IV around them. Bain Capital announced in remaining in which to invest; prompted certain banks to reassess their early 2020 that it would provide capital • the ABS tradable E-Note gave investors aviation lending platforms. to support a new leasing and asset a taste for increased transparency In 2019, it was reported that DVB Bank’s management platform (Griffin Global Asset and detailed information, an ability to aviation loan book was on the market Management) with Ryan McKenna as chief influence management of the portfolio and a suite of private equity investors executive officer of the new venture. Griffin and (subject to limited substitution and expressed interest in acquiring the book. has gone on to close a $1 billion warehouse reinvestment rights) a defined portfolio of Similarly, General Electric’s sale of PK facility enabling it to build its portfolio of aircraft into which it was investing; and Airfinance drew the attention of multiple aircraft and aircraft loans. • this type of investment will be more private equity firms before its ultimate Another example of this can be seen in sensitive to general conditions acquisition by Apollo Global Management the M&G Investments equity investment in prevailing in the equity markets and, and its insurance company affiliate, Sky Leasing under the executive leadership as the early days of the pandemic Athene. of Austin Wiley in 2019. By the middle of demonstrated, stock prices can be As the effects of the pandemic took hold, 2021, Sky Leasing had secured a $600 prone to greater fluctuation than the certain other lenders in the sector looked million warehouse facility (later upsized metal underpinning the investment. to exit, and private equity investors saw by an incremental $150 million), acquired value in the opportunities which emerged. a portfolio of young Airbus and Boeing ABS debt and E-Notes have also proven In May 2021, funds managed by Stonepeak aircraft and taken out the warehouse debt to be attractive investment tools for private Infrastructure Partners and Sydney-based through its SLAM 2021-1 ABS with record equity investors over the years and the Bellinger Asset Management agreed to low pricing on the senior tranche. rapid post-pandemic return of the ABS acquire a $1.1 billion performing aircraft A similar approach was used in the market was testament to this. While it is loan portfolio (secured by 159 aircraft) from formation of new US lessor Vmo with funds unlikely we will see tradable E-Notes return National Australia Bank. managed by Ares Private Equity attracting in the near future, single third-party equity Soon afterwards, funds managed by some of the original founders of Vx Capital holder deals have a lot to offer investors. KKR launched a new lending platform Partners to launch a new leasing platform. In essence, these deals are similar to (AV Airfinance) with a team of established the sidecar joint ventures that have proven aviation professionals and acquired an Existing platforms very popular recently. But instead of almost $800 million portfolio of aviation There are many upsides to starting a new investing in a blind portfolio supported by loans from CIT Group. platform from scratch but depending on a warehouse loan, the investor would have Also in 2021, alternative asset manager market conditions, growing a portfolio (let the benefit of due diligence on the defined Entrust Global and investment firm Strategic alone a team) can take time. This can be aircraft portfolio while still inputting on the Value Partners acquired DVB Bank’s avoided by acquiring an existing platform, as terms of the external debt and working aviation asset management and investment was the case in CarVal Investors’ acquisition with the servicer of its choice. Once trading businesses. of a 90% stake in Aergo Capital in 2014. conditions improve and large portfolio Despite the differences between aircraft More recently, funds managed by Oaktree sales return, this type of structure may portfolio acquisitions and secured loan Capital Management adopted this approach make a comeback. portfolio acquisitions, the processes have when they invested in existing regional been relatively similar: aircraft leasing platform Azorra Aviation Opportunities in a distressed environment • private equity investors have sought out based out of Fort Lauderdale, Florida. As certain airlines and leasing companies expertise (either through a joint venture In speaking with private equity firms have faced distress, opportunities have with an existing platform or by launching looking to invest in the sector through the arisen for private equity investors whose a new platform with experienced acquisition of an existing platform, it is clear investment criteria tend to be more flexible professionals); that the make-up of the management team than those of institutional lenders. As • the new vehicle has sourced either is more important than the make-up of the a number of airlines filed for Chapter 11 a warehouse loan or an acquisition aircraft portfolio. Negotiations for this type of protection in 2020, private equity investors financing allowing it to leverage-up the investment can frequently centre on ensuring took the opportunity to provide debtor-in- equity commitment; that the management team remains in place possession financing on a super-senior • the portfolio of loans has been acquired after the investment has been made. secured basis. from the previous lender; and Similarly, as secured lenders, bolstered • the vehicles have looked at ways of Other types of investment by protections afforded by the Cape Town taking out the expensive acquisition Perhaps the most straight-forward investment Convention, seek to exercise enforcement financing either through a modified ABS, into the aviation leasing and finance sector is rights against insolvent airlines or lessors, a collateralised loan obligation or a to buy publically traded stock of listed aircraft private equity investors are watching hybrid of the two. lessors. This investment typically offers very closely for opportunities to acquire aircraft limited execution risk and a clear path to exit in distressed market conditions. It is reasonable to think we will see this in the future. However, a number of factors *A&L Goodbody acted as Irish counsel model adopted by others if more traditional may make this option less attractive: on transactions cited in the article. All lenders in the sector seek to sell some or • since Avolon Holdings’ delisting in 2016, factual information contained in this article all of their positions. the acquisition by Marubeni and Mizuho is already in the public domain.

For further information, please contact David Berkery or any member of our senior aviation and transport finance team: David Berkery ([email protected]), Marie O’Brien ([email protected]), Séamus Ó Cróinín ([email protected]), Maria McElhinney ([email protected]) or Catherine Duffy ([email protected]).

66 Airfinance Journal July/August 2021 Legal survey 2021

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