Our Aviation Finance Team, including colleagues from Canyon CTS, a Vistra company, attended the Airline Economics Growth Frontiers Conference, as well as some of the many events hosted by major law firms, accountants and banks throughout the city.
Dublin is the most heavily attended of all the Aviation Finance conferences and arguably the one where most business is transacted. Participants come in strength from all segments; airlines, operators, leasing companies, advisors, lawyers, banks, service providers, and from all geographies. The conferences provided our colleagues from Dublin, Shannon, New York and Cayman with an invaluable opportunity to meet with clients, colleagues and friends within the industry.
In a time of geopolitical and economic uncertainty, the conference delegates witnessed some interesting debate. Two of the main takeaways were:
1. Increasing headwinds but the fundamentals remain positive
It was generally accepted that the industry faces a period of slower growth in 2019. Clouds looming on the horizon include ever increasing global economic uncertainties with growth in China slowing and US monetary policy tightening. Pricing remains competitive and production may be pulled back by the big manufacturers as supply out-strips demand. Despite this, it is expected the industry will grow by over 6%. This growth is underpinned by strong fundamentals. Passenger growth is expected to remain strong, the airlines are positioned well and are consistently generating profits (industry net profit of $38.3 billion in 2018), oil prices have decreased after a spike in late 2017 and whilst interest rates have been increasing it looks like they may stabilise. Overall the key speakers from the well-established lessors remained quite bullish about their prospects for the year ahead.
2. The ABS (Asset-backed Securitization) market continues to be an important funding source for Lessors
The ABS market remained very active in 2018 with 13 deals (12 in 2017) and the expectation is that 2019 will be a similarly strong year. Tradable E-Notes were arguably the most interesting innovation. There were a couple of ground-breaking transactions including the first issuance involving freighter aircraft - Vx Cargo 2018-1 (Vx Capital Partners), and the first issuance that went from a portfolio purchase straight into an ABS – ZCAP 2018-1 (Zephyrus Aviation Capital). As well as working with both of these new Issuers, we also worked with two repeat Issuers, Carlyle Aviation Partners (AASET 2018-2) and Air Lease Corporation (Thunderbolt II). Thunderbolt II was awarded the Overall Deal of the Year at the Aviation 100 Awards.
David Evans, Managing Director North America was on the ABS Panel, along with representatives from Air Lease Corporation, DAE Capital (Dubai Aviation), Castlelake, Worldstar Aviation, Mizuho Bank, and ICF. A key theme discussed was the evolution of the Tradable E-Note as ABS originators continue to search for ways to broaden the investor base for this product – including the use of E Certificates and other Equity Arrangements (which was the focus of a separate panel discussion). Whilst the consensus was that the Tradable E-Note would continue to evolve and be a central part of the toolbox for larger leasing companies, participants see a continued role for the traditional E-Note to meet the varied objectives of different Issuers and Investors. All agreed that the market should continue to grow in 2019.
As a leading provider of flexible and tailored solutions to the Air Finance Industry, Vistra has broad-based experience in working with lessors, lessees, borrowers and lenders, along with equity investors in a variety of structured finance deals involving a wide range of assets.
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