Kroll Bond Rating Agency (KBRA) releases a commentary regarding the evolution of aircraft sales and fleet management.
In KBRA’s view, consistent and efficient aircraft sales is a key strategic focus of many aircraft lessors, as they attempt to manage portfolio risk and maintain strong credit metrics. Since newer and more technologically advanced aircraft yield better lease rates, stronger residual values and potentially more liquidity, many lessors focus on selling older aircraft—often to third-party investors via asset-backed securities (ABS) and side-car financing vehicles. These structures allow lessors to free up capital and support growth, while maintaining a strong liquidity position, often measured by the percentage of unencumbered assets, which is arguably one of the most important factors for lessors striving to access the unsecured credit markets. Although most large aircraft lessors possess the in-house expertise (including technical, credit and legal capabilities) to manage aircraft from cradle-to-grave, they often do not wish to own the aircraft for 25+ years. Ownership of older aircraft may conflict with the young weighted average age that many lessors seek to maintain and ties up capital that could otherwise be used for further growth.
Side-car vehicles and aircraft lease ABS provide lessors with the ability to free up capital, manage aircraft type and airline concentration risks, maintain a youthful fleet, as well as to divest non-core assets. These structures also enable the lessor to retain servicing rights, allowing them to maintain important airline relationships, while generating significant fee revenue. The good news for the lessors is these vehicles have attracted investor interest in recent years, with a notable focus on higher yielding mid-life to vintage aircraft. The report discusses some of these trends in these structures.
To access the full report, click here.