Aircraft Asset-Backed Securitisation (ABS) has resurfaced in the financial landscape after a challenging hiatus.
Aircraft ABS involves issuing different classes of notes to investors, secured by the purchase of multiple aircrafts. The hierarchy of these notes ranges from A-Notes, the highest-ranked tranche offering the greatest security during financial turmoil, to Equity (E) Notes, which bear the highest risk but promise substantial returns. The income generated from these ABS primarily comes from lease rentals paid by airlines. These rentals cover various operational costs, including fees, maintenance, and repayments to noteholders. Aircraft ABS are managed daily by specialist servicers handling interactions with airlines, maintenance firms, legal teams, and investors.
CHALLENGES AND RESILIENCE IN THE AIRCRAFT ABS MARKET
The Aircraft ABS market faced significant disruptions due to a trifecta of global challenges: the COVID-19 pandemic, the Ukraine war, and rising interest rates. These events led to:
- Multiple note downgrades by rating agencies
- Distressed trading prices in secondary markets
- Increased reliance on liquidity facilities
- Some defaults on payments and/or principal payments to noteholders
IS THIS THE RETURN ON AIRCRAFT ABS?
However, recent developments indicate a substantial rebound.
On June 18, 2024, Carlyle Aviation Partners announced the successful closure of AASET 2024-1 Trust, a $428 million Secured Note transaction encompassing a portfolio of twelve aircraft. This milestone marks the first commercial Aircraft ABS issuance in over two years, signalling a reinvigoration of the market. Several factors have contributed to this resurgence: soaring numbers of airline passengers, which have boosted lease rates; the diminishing impact of the conflict in Ukraine, and the stabilisation of interest rates, making new notes attractive to investors.
The resurgence of Aircraft ABS marks a promising turn in the aviation finance sector, offering lucrative opportunities for savvy investors. With the market showing signs of stabilisation and growth, now is an opportune moment to explore the potential of Aircraft ABS.
JTC’s Irish Corporate Services team provides tailored services throughout the process from SPV incorporation through to aircraft financing and leasing transactions. Tailored services include:
- SPV set-up
- Directorships
- Corporate administration
- Accounting & financial reporting
- Regulatory and compliance services
To learn more about our expertise, please visit our website or contact Mohammad Zia or Lloyd Collier
