The Walkers Asset Finance legal and professional services team from Dublin, the Cayman Islands and Dubai attended the Dublin Airline Economics conference in late January. As one of the most well attended aviation finance conferences of the year, it was a great forum for the leading global airlines, operators, leasing companies, lawyers, and banks to discuss the state of the aviation market and the upcoming trends for 2019.
The macroeconomic outlook:
With estimates of passenger growth predicted to continue to increase, demand for extra capacity is expected to be fulfilled by in excess of 2000 new aircraft deliveries in 2019 representing a significant increase from 2018. A more stable outlook for US interest rates and plateauing of oil prices is welcome news for airlines however continued political disruption to global trade is likely to be one of the most significant challenges facing the industry during the year ahead.
2018 was a boom year for the Asset-backed Securitisation (ABS) market. One of the most significant trends discussed was how the strength of the ABS market and recent developments with respect to aircraft ABS in particular have resulted in an increase in the range of investors with appetite for the equity piece, commonly known as the E-note. By increasing E-note liquidity and the ability for an investor to buy, sell, hold and trade their interests, the E-note has become an attractive investment for the entire aircraft financial cycle. This led to significant growth in aircraft ABS in 2018 with a wider variety of aircraft making up the portfolios, including mid and late life and freighter aircraft, indicating the confidence investors have in the expertise and skill of lessors in managing these assets.
The innovative nature of these transactions was recognized at the conference with Air Lease Corporation's Thunderbolt II securitisation taking home the Overall Deal of the Year Award at the 2019 Aviation 100 Awards. Walkers was pleased to have acted on the Cayman Islands and certain Irish elements of the Thunderbolt II transaction. Walkers also assisted on Vx Capital's Vx Cargo 2018-I ABS which was the first issuance involving all freighter aircraft.
With further deals in the pipeline and despite an increase in competition for investors due to higher interest rates, 2019 is destined to be another strong year for aircraft ABS.
AFIC and new products:
Since launching nearly two years ago, the Marsh-sponsored Aircraft Finance Insurance Consortium (AFIC) has become a central topic of conversation in the aircraft finance market. The AFIC structure was created to assist with partially filling a funding gap as a result of the pull back of institutional bank debt following the 2008 financial crisis and the recent hurdles slowing the availability of export credit financing. AFIC's growth in 2018 has proven it to be an invaluable method of bringing a new pool of investors to the market. Having worked on the first AFIC transaction in the Cayman Islands, we have seen the increased usage of the AFIC structure in both the Cayman Islands and Dublin markets.
AFIC has been so successful, many panellists at the conference have expectations that similar products will hit the market during 2019.
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