NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) expects sustained strength in the overall regional aircraft market, supported by the strong demand in the emerging economies of Asia-Pacific (especially China and India), Latin America, CIS (Commonwealth of Independent States), and the Middle East which will require new routes as global connectivity continues to expand. Demand is further reinforced by the developed economies of the U.S. and Europe as airlines operating routes within these markets seek to maximize capacity utilization. Though, a few geographic pockets expose specific markets to some headwinds; on the whole, positive growth prospects prevail.
Credit highlights for the sector are summarized below and are further explored in the full report:
- Success and efficacy of up-gauging of smaller regional jets mainly driven by pilot shortage as well as right sizing of aircraft for better capacity discipline by airlines continues the shift in longer-term fleet mix toward larger regional jets
- New rules requiring Chinese airline startups to operate at least 25 smaller (sub-100 seater) jets before advancing to larger aircraft is a potential credit positive for regional aircraft in this seat category; moreover, many large carriers in China are reportedly redirecting their focus to local and regional routes, which, relative to long haul, have been more profitable1
- Capital market financing of regional aircraft gains momentum with investors taking interest in both ABS and private secured transactions backed by regional jets and turboprops; in the past three years a number of publicly offered U.S. EETCs have also included an increasingly higher percentage of E-jets illustrating the expansion of capital market access for such aircraft
- Downsides include geographic pockets exposed to macroeconomic, geopolitical, regulatory, and labor force uncertainties
- While entry of new regional jet families have been very slow, their potential could shift the competitive dynamics especially in their home markets where airlines may be more prone to place orders