An air of optimism is returning to the aircraft ABS market, said attendees at the Structured Finance Association's annual conference in Las Vegas this week, but it is unlikely to be enough to see a significant pick-up in deal activity this week.
The aviation sector was battered by travel restrictions during the Covid-19 pandemic, cutting short consistent growth in aircraft ABS volumes between 2013 and 2019. After a busier 2021, with $9.2bn of issuance across 15 deals in the second biggest ever year for the sector, 2022 was even quieter than 2020. There was just $1.1bn of issuance across two deals last year.
With pandemic-era travel restrictions largely a thing of the past, the tone around the sector is much improved, said market participants.
“We are seeing quick recovery in aviation in general,” an ABS banker told GlobalCapital. “Aviation investors we talked to have been positive during the conference.”
Yet there has still been no ABS backed by aircraft receivables priced so far in 2023, and other sources of financing may remain more attractive — limited potential supply into the securitization market.
Ali Ben Lmadani, CEO of aircraft investment management company ABL Aviation, told GlobalCapital that the company expects very little aircraft ABS issuance in 2023. ABL is not planning tap the ABS market this year as lease rates have not yet been able to catch up with rising interest rates.
“We won’t see many multi tranche deals this year, maybe a couple of single tranche deals,” Lmadani said. However, the aircraft ABS sector will return in 2024, he believes.
“When lease rates manage to keep up with interest rates, that’s when we can start seeing more issuance in the aviation ABS space,” one rating agency analyst told GlobalCapital. She said that it may also take some firms to exhaust their warehouse lines to be in a situation where they will be forced to execute deals.
Lmadani said that there is no shortage of debt financing in the aviation industry, and that “serial [ABS] issuance is a problematic exit strategy, rather than a funding strategy”.
“[The] ABS market should be used more conservatively,” Lmadani said.