Liquidity and refinancing | White & Case srl

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Capital and liquidity remain a major concern for the aviation sector

Given the current situation, 60% of respondents worldwide say the aviation finance industry does not have enough capital and liquidity. Meanwhile, 32% believe the sector has the right amount of capital and liquidity. Only 8% think there is too much capital.

Focusing on regions, respondents from EMEA are most likely to think there is not enough capital and liquidity (72%), followed by those from APAC (60%). Respondents based in North America are the least likely to say there is not enough capital and liquidity (55%). They are also the group most likely to say there is just the right amount (35%).

Our survey shows that a majority of respondents expect an increase in restructurings and insolvencies in 2022.

Few respondents report that there is too much capital and cash. Historically, excess liquidity has created problems for the aviation sector, as it did towards the end of the cycle immediately before the pandemic – a period that saw a flood of new Chinese leasing capital to seeking a finite number of assets, driving up the price of aircraft.

Private equity funds and other alternative capital providers are the group of respondents most likely to say there is too much capital and liquidity (30% say this, compared to 7% of airlines and no banks surveyed n agree with that). With over a trillion US dollars worth of dry powder on the hunt for deals, this view is perhaps unsurprising.

View Full Picture: Do you think the aviation finance industry currently has too much, not enough, or just the right amount of capital and liquidity? (PDF)

Do you think the aviation finance industry currently has too much, not enough, or just the right amount of capital and liquidity?

View Full Picture: Do you think the aviation finance industry currently has too much, not enough, or just the right amount of capital and liquidity? (PDF)

Looking ahead, the majority of respondents across all regions believe capital and liquidity in the aviation sector will increase in 2022, suggesting that the level of funding should improve.

Globally, nearly two-thirds (65%) expect capital liquidity to increase, while only 4% believe it will decrease. Respondents based in North America are more likely to predict an increase (71%), with those in APAC being less likely (63%). In terms of respondent types, banks are the group most likely to report an increase in capital liquidity in 2022, while export credit agencies are the least likely.

In 2022, do you expect capital liquidity in the aviation finance industry to increase, decrease, or stay the same?

View Full Picture: In 2022, do you expect capital liquidity in the aviation finance industry to increase, decrease, or stay the same? (PDF)

In 2022, do you expect capital liquidity in the aviation finance industry to increase, decrease, or stay the same?

View Full Picture: In 2022, do you expect capital liquidity in the aviation finance industry to increase, decrease, or stay the same? (PDF)

Turning to the question of refinancing, our survey suggests that, overall, respondents have been slower to take advantage of the historically low interest rates of the past year than might have been expected. Overall, only 29% say they have refinanced a significant amount of debt. This apparent lack of urgency is perhaps unsurprising, given the current low rates and the reluctance of governments (so far) to tighten monetary policy.

Looking ahead, our survey indicates that refinancing is set to gain momentum in 2022, with 57% of all respondents expecting to refinance significant amounts of their existing debt and only 13% saying they were not considering to do. Respondents in EMEA are the most interested in this course of action (66% expect to refinance in the next year), and those in North America are the least interested (45%).

The growing appetite for refinancing is likely related to a number of factors. These include the need to refinance term debt as it matures and the desirability of refinancing driven by higher levels of mergers and acquisitions – a point underscored by the fact that a large majority of respondents expect to see significant airline and leasing company consolidation in 2022. This is because interest rate hikes are on the horizon, although even with an increase they could still stay close historic lows.

In the past year, have you refinanced any of your existing debt to take advantage of currently low interest rates?  And over the next year, do you plan to refinance any of your existing debt to take advantage of currently low interest rates?

View the full picture: Over the past year, have you refinanced any of your existing debt to take advantage of currently low interest rates? And over the next year, do you plan to refinance any of your existing debt to take advantage of currently low interest rates? (PDF)

In addition to whetting the appetite for refinancing, low interest rates also appear likely to spur demand for new lines of credit and other borrowing facilities in the coming year. While 29% of global respondents say they have taken on “significant amounts” of new debt in the past year, 46% plan to do so in the next 12 months. Respondents from the EMEA region are the most likely to open new lines of credit or take advantage of credit facilities (50%), while those based in North America are the least likely (39%).

Over the past year, have you opened new lines of credit or other credit facilities to take advantage of currently low interest rates?  And over the next year, do you plan to open new lines of credit or other credit facilities to take advantage of currently low interest rates?

View full picture: Over the past year, have you opened new lines of credit or other credit facilities to take advantage of currently low interest rates? And over the next year, do you plan to open new lines of credit or other credit facilities to take advantage of currently low interest rates? (PDF)

Players in the aerospace sector are clearly confident in their continued ability to refinance their debt and tap into new sources of financing. At the same time, it is also widely recognized that the crisis in aviation is still far from over. Many airlines have already been through painful restructuring, with notable Chapter 11 filings in the United States by Aeroméxico, Avianca and LATAM, the three largest carriers in hard-hit Latin America.

So, what could 2022 hold for us?

Our survey shows that a majority of respondents expect an increase in restructurings and insolvencies in 2022. This view prevails in the APAC region, with 90% of respondents expecting such an increase. This largely reflects the fact that airlines in Asia-Pacific (as well as those in Latin America) have generally not had the same level of government support as airlines in Europe and North America. . “The COVID-19 pandemic affected our repayments, and the debt has been steadily increasing ever since,” said the finance manager of an APAC-based airline. “We are in the process of restructuring, and this will mitigate the risk of any further loss due to the pandemic.”

Do you expect airline restructurings and insolvencies to increase, decrease or stay about the same in 2022?

See the full picture: do you expect airline restructurings and insolvencies to increase, decrease or stay about the same in 2022? (PDF)

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