Positive Outlook for 2022 as Continued Private Equity and M&A Activity Indicates Strong Investor Confidence in Aviation Sector

The uninitiated may be forgiven for thinking that there has been little activity in the aviation market recently with the grounding of flights and restrictions on travel as a result of Covid-19. To the contrary, the industry has seen a hive of activity throughout the pandemic, demonstrating the confidence financial investors have with respect to opportunities for real long-term value in the commercial aviation sector.

One of the key drivers of this activity has been the increased level of private equity involvement in the sector due to the disruption and opportunities resulting from the pandemic. With many traditional bank lenders retreating from the sector, the commercial lending landscape for the aviation market has changed dramatically during this time. Private equity firms with established aviation investment portfolios, as well as new entrants to the market, have been quick to seize opportunities to deploy capital in various areas across the sector in response to the acute liquidity needs of airlines, leasing companies and OEMs faced with abrupt disruption to their revenue and cash flow during the pandemic.

Leasing and Lending Platforms Provide Innovative Capital Solutions

We have seen a number of large private equity firms establish significant new aviation lending and leasing platforms during the pandemic alone or by way of strategic joint ventures with experienced as well as newly established leasing and aircraft investment management companies. These new platforms are providing fast and flexible capital solutions to aviation sector borrowers and assembling large portfolios of aviation assets across all areas of aviation leasing, including passenger and freight aircraft, engines and helicopters availing of the current distressed and impaired values.

One of the more significant platforms on which Walkers has advised is the award winning PIMCO US$3 billion partnership with AerCap.

These platforms have now become a much-needed alternative source of financing for the aviation sector, resulting in lower borrowing costs that have helped resuscitate the trading of leased aircraft. With the sponsors of these platforms eyeing the faster than expected return of aircraft ABS deals to the market in 2021 as opportunities to refinance these portfolios, we expect such activity to drive further strong demand for issuances of ABS and aviation CLOs in 2022.

Consolidation Plays

The largest deal in the history of aviation leasing saw the combination of the top two industry leaders AerCap and GECAS creating a new industry behemoth with roughly 20% market share in the midst of the Covid-19 crisis. This deal has spurred on competitors to seek out M&A opportunities to build size and leverage efficiencies to increase their negotiating power in the market in order to continue to compete. The resulting wave of consolidation plays across the industry has in many instances also been stimulated by private equity investors' appetite for yield through financing of large-scale acquisitions at discounts to book value.

With 2021 ending with the announcement of Carlyle Aviation Partners acquisition of a US$4 billion portfolio of 125 aircraft from Dublin headquartered lessor AMCK Aviation, along with orders for 20 Airbus A320neo-family jets, large-scale consolidations such as this resoundingly demonstrate investor confidence that the travelling public will return to air travel in large numbers as soon as they can, as the global economy heads back towards normality.

There will no doubt be announcements of further significant consolidations in 2022 and as highly experienced teams are released to pursue their own opportunities, we can expect to see new private equity-backed aviation firms emerge in the coming months.

Establishing Private Equity Aviation Platforms

Walkers has market-leading teams of dedicated aviation, funds, corporate, structured finance, listings and fiduciary professionals across our global network of 10 offices covering all the leading jurisdictions for aviation finance and leasing such as Ireland, the Cayman Islands, Singapore, Hong Kong and the Channel Islands. Our global reach and extensive experience working on the most innovative and complex aviation structures leaves us uniquely placed to advise on the establishment of multi-jurisdictional aviation focused private equity investment structures and platforms, establishment of leasing companies and the assembly of portfolios of aviation assets that can be sold or refinanced via the capital markets.

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