AIRFINANCE JOURNAL WEEKLY PODCAST WITH LAURA MUELLER

This week we look at lessors as they take advantage of a window to tap the unsecured bond market. We debate whether weaker airlines will emerge stronger post-COVID than some of their more stable rivals. What happens now that Norwegian Air Shuttle is seeking creditor protection in Ireland after the Norwegian government refused further financial help for the carrier? Finally, we mull over the future of Hong Kong as a leasing hub amid political changes.

This week we look at third-quarter operating lessor results. We also discuss “tourist” money that entered the leasing space in recent years. Will those in search of yield start to head for the exits as AerCap’s chief executive Aengus Kelly opined on a recent earnings call? All eyes are on traffic for the upcoming Thanksgiving holiday now that various parts of the USA are in lockdown once again.

Fresh lockdowns have been announced across Europe and the USA as governments grapple to contain the resurgence of the coronavirus pandemic. IATA's latest analysis says airlines can't cut expenses fast enough to neutralise cash burn and highlights lessor costs. Should lessors be expected to step up to help ease airline cash burn? In this podcast, we also review PBH agreements as these requests grow in popularity. Not only do these agreements have several limitations but they transfer operational risk to the asset owners. With recovery another four to five years away, surely some of these deals will end in tears.

In this episode, AFJ chats with Rodrigo Silva e Souza, the vice-president of marketing for Embraer Commercial Aviation, about the OEM’s five-year plan, the status of partnership talks, the latest on the new turboprop project, competitor threats and how the COVID 19 crisis is reshaping the Brazilian manufacturer’s strategy.

How should lessors handle the growing number of restructuring demands, especially with the winter months ahead? What makes sense and what falls into the ‘you've got to be kidding me bucket’? Lessors need to be pragmatic, but they have never been in this situation before. Normally restructurings are more ad hoc; but now, as in the case of MAB, others are watching and waiting to see what happens to gain leverage in their particular dealings. Will delinquencies result in mergers and consolidation in the leasing space? Or will this only happen when the existing equity takes a haircut?

Restructurings are entering another phase. Malaysia Airlines is flirting with Part 26A to restructure its fleet, while Lion Air is looking to pay its aircraft rent for the next two years on a flight hour basis. Is this shift eerily reminiscent of the final scene in the novel '2001: A Space Odyssey' when Dr David Bowman vanishes into an infinite tunnel? As this happens, Mission Control hears him say: "The thing's hollow! It goes on forever, and...oh my God, it's full of stars!" Is the leasing industry also entering an unknown star system where restructurings are vast and take on a different shape as parties battle to emerge successfully on the other side of this crisis?

The bad news is in front of us, not behind. We see this with the airlines, which are showing loyalty to loyalty programme-backed financings. It is no surprise as the airlines know that there are enormous challenges ahead. While aviation banks won't disappear from the market, their lending terms continue to change. The biggest threat for lessors is the longevity of their equity. While not all lessors are created equal, winter won't discriminate.

This week we look at aircraft deals that are in the market, including a 15-unit portfolio in which many of the assets do not have leases attached. We also review lease rate factors and try to make sense of a leasing market reeling from the impact of COVID-19 and preparing for the bleak winter months ahead.

Are different leaders needed with a new arsenal of skills and mindsets to navigate a post-COVID world? Or, perhaps, it is not the acquisition of new skills that's required, but the rediscovery of old ones? It isn’t uncommon to hear lessors complain about how the market has become commoditised. However, have lessors commoditised themselves by trying to differentiate on price and availability?

The impairments are coming! The impairments are coming! As a result, operating lessors remain keenly focused on liquidity levels. There is no doubt that Covid-19 is chipping away at certain investors. This week we answer the remaining questions from our listeners and review recent lessor activity.

When you underwhelm investors and then tell them that the beatings will continue, that there's no statute of limitation on impairments, only some investors will understand. Underwhelming investors is a huge threat to lessors. This week we answer listeners' questions about the leasing market. How does a lessor survive a pandemic? All roads lead to impairments.

Airlines aren’t the only ones fighting for survival. Lessors are struggling too, but battling a different time horizon. This week we examine operating lessors’ second-quarter earnings and the importance of residual value management. Without access to fresh capital in today's market, certain lessors will face devastating realities, especially as deferral requests mount and the ability to trade out of assets continues to be challenged. Impairments ahead.

Founder and managing director of Leeham News and Analysis, Scott Hamilton, tells Airfinance Journal why all the news has been doom and gloom for the original equipment manufacturers and will continue to be so for the indefinite future. However, Boeing potentially stands to benefit from the pandemic. "This is counter-intuitive, given the disaster it faces with the COVID-19 crisis. But in chaos, there are opportunities," Hamilton explains.

This week we look at the disconnect between lessors and lessees and the fact that financial pressures are not just a 2020 concern but 2021, 2022 worries as well. The bad news is clearly in front of us. A divergence in lessor strategies emerges as Aercap takes Garuda and Capital Airlines to court. In the case of Virgin Australia, is Bain Capital being too aggressive with lessors or are certain lessors simply expressing expensive martyrdom?

United Airlines was the first US carrier to secure funding during the coronavirus pandemic, securing $2 billion from a group of banks. Then, on 2 July, it became the first carrier to use its loyalty programme as collateral for a $6.8 billion fundraising initiative. Pam Hendry, United Airlines’ treasurer, and Greg Lee, a managing director of Goldman Sachs, discuss the most aggressive financing, arguably, by a US carrier yet.

We ask Richard Sharman, a structured asset finance lawyer and partner at Bird & Bird, some legal advice such as what latitude does an airline have to claim the pandemic is an event beyond its control? We mull over Norwegian’s cancellation of 97 Boeing units and legal action against the OEM, Aeromexico’s Chapter 11 filing and DAE’e rent deferrals representing 12% of revenues over the last six months.

This week Paul Sheridan, chief executive officer of AMCK Aviation, reviews the news. The next couple of weeks are going to be critical due to surges in Covid-19 cases, especially in the USA. Aercap returns to the market for the second time this month with a $1.25 bn offering. We discuss NAC's decision to postpone a planned meeting to vote on a debt restructuring. The need for government support will only increase as global airlines face enormous revenue pressures.

Airlines and lessors raise debt this week, so the selloff has settled down for now. However, the market is drinking from a fire hose, with resources fully deployed, trying to survive in the challenging environment and deal, from a lessor perspective, with the tidal wave of restructuring requests while evaluating each one carefully. In a dramatic change of strategy, Lufthansa turns exclusively to the sale-and-leaseback market. There is plenty of unpleasant news to go around with the worst ahead of us.

This week we look at the market's optimism regarding new lessor business in 2020 and 2021, upcoming lessor bond maturities, American Airlines' credit default spreads and lessors taking a more assertive approach to restructurings this time by encouraging airlines to seek professional advice. If lessors are able to do so, the energy and focus will be on the restructuring rather than on watching airlines "circle the drain" as they aren’t typically the best handlers of restructurings.

In this podcast, we explore Avianca’s Chapter 11 filing and its request to reject 14 leased aircraft, a sharp fall in deliveries at the manufacturers and who will be the “lender of last resort”, especially when the airlines restart operations and liquidity needs intensify.

EPISODE 3

Accepting the 'Zombie State'

In this podcast, we discuss those lessors who have agreed to convert debt into equity as part an effort to save Norwegian Air from collapse, first-quarter lessor results, Nordic Aviation Capital’s move to increase financial flexibility for a period of 15 months and the lessor “zombie state” of hoping for the best and preparing for the worst..

The OEMs are no longer sugarcoating the pandemic and are adopting new pragmatic outlooks, resulting in production cuts and thousands of job losses. Norwegian pushes for a $1.2bn debt-for-equity swap to try to ensure its survival while, Delta, a fallen angel issuer, pulls off the largest single aviation bond deal. The numbers don’t lie, brace for more restructurings ahead.

From the sale of Goshawk to Airbus' "pop up" RFP and Delta's $100m daily cash burn rate, AFJ's Laura Mueller and Split Rock Aviation's Andy Mansell dive deeper behind the top read stories amidst the coronavirus pandemic.