Kroll Bond Rating Agency (KBRA) releases its Corporate Aviation 2020 Sector Outlook, which examines notable events and trends that are continuing into the year ahead.
KBRA believes that 2019 was another notable year for the global aviation industry, amid continuing consolidation among airlines and lessors, while the operating environment for both subsectors became increasingly challenging. There has been a steady influx of capital from traditional investors as well as a new wave of capital from emerging investors who are looking to put money to work in the space. The sector has seen lessor ownership changes, sizable investments from private equity firms, and consolidation among original equipment manufacturers.
The grounding of the 737 MAX aircraft presented airlines, lessors, and critically, manufacturer Boeing, with a unique set of challenges. In addition to the safety resolution Boeing must first address, the logistical feat of delivering the large number of grounded aircraft from storage facilities to lessors and airlines is estimated to take months, following any removal of the flight ban. Meanwhile, the recent halt in production of the 737 MAX adds to the uncertainty surrounding not only the timing of the aircraft’s return to service, but whether the program itself could be permanently scrapped.
KBRA expects 2020 to be another active year for M&A among airlines and lessors, as well as for needed capital to fund increased expansion. To be sure, given the myriad geopolitical uncertainties which seem to have magnified in recent months, the size of sector growth could vary, particularly given the impact on fuel prices and the strength of the U.S. dollar (USD)—both key for aircrafts’ operating costs.
Despite more variability in the credit performance of airlines globally, credit fundamentals for aircraft lessors remain strong thanks to healthy leverage levels, with many lessors actively unencumbering their balance sheets for operational flexibility and better liquidity.
Airlines continue to experience challenging operating markets, driven by volatile fuel prices, USD strengthening/foreign currency depreciation, and geopolitical uncertainty. Sector consolidation is trending upward, particularly in areas with airline oversaturation (e.g., in Europe) as airlines try to be more cost efficient and increase scalability in the face of rising competition.
To view the report, click here.
Related Publications: (available at www.kbra.com)
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- European Airlines: Clear Skies or More Turbulence Ahead?
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KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.