Portfolio Lead Advisory Services Weekly Digest - Edition 10

Since March, airlines, lessors and OEMs globally have been raising capital through government support schemes, debt and equity markets in order to survive the COVID-19 pandemic as global air travel demand has collapsed, with air traffic expected to drop by 60-70% in 2020. In the UK, airlines secured c.£1.8bn earlier this summer through the Treasury and the Bank of England’s Coronavirus loan scheme. In the US, Treasury loans and payroll support through the CARES Act have supported the aviation industry, although both airlines and unions are calling for further support into 2021. Many industry participants are expecting that air travel demand will not return to 2019 levels until at least 2023. With some airlines experiencing a cash burn of $50m-$100m per day and, with the risk of second waves in Europe and the re-imposition of travel restrictions, companies therefore continue to seek additional sources of liquidity.

Commercial lenders and aircraft lessors remain a key source of liquidity for airlines alongside government support schemes. Over 100 sale and leasebacks have been completed in 2020. The increase in sale and leasebacks, both of new and used aircraft, will likely result in operating leasing achieving a greater than 50% global fleet market share in the next five years. In addition to this, airlines are looking beyond aircraft to raise significant capital.

Lenders and lessors have been impacted through a spate of bankruptcy proceedings and financial restructurings. As banks review and manage their exposure to the industry, it is expected that more assets will be deleveraged in order to reduce risk to the sector.

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