The 2016 Current Aircraft Finance Market Outlook projects continued strength in the primary aircraft finance sectors, with a growing number of market participants and a steady trend toward more funding options at attractive pricing for buyers of commercial aircraft. Underpinned by strong commercial aviation industry fundamentals, and bolstered by interest from both new and experienced financiers and investors, we believe the aircraft finance industry is well-positioned for another successful year.
Overall, the aircraft finance outlook for 2016 is a positive one. We expect the industry to continue developing new markets and structures, enabling even broader financier and investor participation in aviation and resulting in greater efficiency for airlines and lessors. In particular, we forecast increasing momentum behind lessor portfolio sell-down into the capital markets and the development of regional private placement markets. Standardizing these structures to enable their use by a broader set of borrowers, financiers, and investors should be an important area of focus for all market participants.
Working together, we can translate this forecast into profitable business for all market constituents.
Healthy aircraft financing environment
Growing delivery finance requirements
Balanced funding for Boeing deliveries
The role of leasing companies in supporting new commercial airplane deliveries both through direct purchases and sale leasebacks is again expected to be significant. We anticipate that lessors will continue securing most of their leverage through the capital markets, including issuances by parent companies, unsecured borrowing, and ABS transactions.
The emerging trend of lessor portfolio sell-down into the capital markets took flight in 2015. Leasing companies joined with investors to establish a number of joint ventures and other structures designed to enable the transfer of aircraft portfolio ownership to the capital markets. In 2016, we project this lessor portfolio sell-down trend to continue gaining momentum.
Efficient capital market funding for lessors
Balanced leverage for lessors
A balanced portfolio approach enables predictable lessor growth
Last year was a blockbuster year for capital market funding of commercial aircraft, and we anticipate that 2016 will bring more of the same. Innovative structures and new funding sources continue to emerge, with the growth in private placement activity and non-U.S. enhanced equipment trust certificates being notable examples. The strongest credits are expected to keep tapping unsecured funding while interest rates remain low. U.S. airlines should continue using the capital markets for their new delivery and refinancing needs. And with momentum behind the Cape Town Convention and an expanding global investor base, we forecast continued growth in non-U.S. airlines use of the capital markets.
Capital markets usage well balanced
EETC market resurgence in 2015
Cape Town Convention with Aircraft Protocol
Unsecured funding reflects confidence in airline industry
Commercial Bank Debt
Commercial banks are expected to provide a steady level of aircraft financing liquidity in 2016, with a diverse group of experienced and new lenders helping to maintain a healthy geographic balance. While bank debt will continue to play a vital role in aircraft finance, we anticipate that tighter global regulations and U.S. dollar pressures (in certain markets) may constrain the sector s volume. For the more experienced aircraft finance banks, predelivery payment financing offers an opportunity to grow at higher yields.
Balance in global aircraft debt markets
Commercial banks focused on top-tier customers
Export Credit Agencies