Key Takeaways
- • KBRA estimates the outstanding market for aviation-related private placements at approximately $30 billion to $40 billion, a small but growing slice of the $1.2 trillion private credit industry.
- • Private placements have become a consistent funding source for airlines, aircraft lessors and OEMs since the GFC, often complementing bank and public bond financing amid public market volatility.
- • Air Lease Corporation reopened the public markets on December 5, 2022 with a $700 million five-year senior unsecured notes offering, after private placements were the only non-bank source for much of 2022.
- • KBRA says private placements offer up to 50 basis points of additional spread over public bonds, plus covenant-based downside protection and seniority that typically yields higher recoveries than public debt.
- • KBRA expects private placement investments in aviation to keep growing as a funding source given ongoing public debt volatility and ample private credit liquidity.
Summary
KBRA published an insight piece on private credit in aviation, arguing that private placements have become a durable funding channel for airlines, aircraft lessors and original equipment manufacturers. Public bond markets have historically been the largest nonbank funding source for the sector, but rising bond market volatility, higher bank capital charges and risk-off sentiment tied to COVID-19 and its effect on air travel pushed issuers toward private debt. KBRA notes that private placements offer flexibility in size, maturity, drawdown terms and collateral, and can finance nontraditional assets such as older aircraft, freighters, engines and business jets, as well as intangible assets like slots, routes, loyalty programs and brands.
According to KBRA, issuance slowed in early 2022 as interest rates, inflation and geopolitical tensions rose, but private placements were the only non-bank source available to issuers for much of the year until Air Lease Corporation issued $700 million of five-year senior unsecured notes on December 5, 2022. KBRA estimates the total outstanding aviation private placement market at roughly $30 billion to $40 billion, with transactions ranging from under $100 million to over $1 billion. The investor base is estimated at 20 to 30 institutional investors, life insurers, asset managers, pension plans and large private debt sponsors.
Notable 2022 transactions cited by KBRA include Sun Country Airlines' $188.2 million private enhanced equipment trust certificate (EETC) in March, Iberia's $461 million sustainability-linked EETC in April, Air France's €500 million engine-backed secured transaction in July, and British Airways' $299 million JOLCO-structured EETC in October. Business jet operators raised $557 million in 2022, including Vista Jet's $288 million EETC in August and Wheels Up's $270 million EETC in October. Airborne Capital completed the $303.7 million MAST 2022-1 private lease-backed ABS in late 2022. KBRA also points to earlier landmarks, including American Airlines' $1.2 billion slot- and brand-backed placement and Nordic Aviation Capital's $858.8 million unsecured lessor placement, both in 2020.
KBRA argues that private placement investors earn higher total returns than comparably rated public unsecured bonds and EETCs, citing up to 50 basis points of additional spread, financial maintenance covenants, seniority that typically yields higher recoveries in default, and long-dated buy-and-hold alignment with long-life aviation assets. Pricing is generally wider than bank loans or public bonds, but KBRA views lower execution risk and better asset-liability matching as increasingly valuable. KBRA expects continued growth in aviation private placements, particularly in Europe.
According to KBRA, issuance slowed in early 2022 as interest rates, inflation and geopolitical tensions rose, but private placements were the only non-bank source available to issuers for much of the year until Air Lease Corporation issued $700 million of five-year senior unsecured notes on December 5, 2022. KBRA estimates the total outstanding aviation private placement market at roughly $30 billion to $40 billion, with transactions ranging from under $100 million to over $1 billion. The investor base is estimated at 20 to 30 institutional investors, life insurers, asset managers, pension plans and large private debt sponsors.
Notable 2022 transactions cited by KBRA include Sun Country Airlines' $188.2 million private enhanced equipment trust certificate (EETC) in March, Iberia's $461 million sustainability-linked EETC in April, Air France's €500 million engine-backed secured transaction in July, and British Airways' $299 million JOLCO-structured EETC in October. Business jet operators raised $557 million in 2022, including Vista Jet's $288 million EETC in August and Wheels Up's $270 million EETC in October. Airborne Capital completed the $303.7 million MAST 2022-1 private lease-backed ABS in late 2022. KBRA also points to earlier landmarks, including American Airlines' $1.2 billion slot- and brand-backed placement and Nordic Aviation Capital's $858.8 million unsecured lessor placement, both in 2020.
KBRA argues that private placement investors earn higher total returns than comparably rated public unsecured bonds and EETCs, citing up to 50 basis points of additional spread, financial maintenance covenants, seniority that typically yields higher recoveries in default, and long-dated buy-and-hold alignment with long-life aviation assets. Pricing is generally wider than bank loans or public bonds, but KBRA views lower execution risk and better asset-liability matching as increasingly valuable. KBRA expects continued growth in aviation private placements, particularly in Europe.
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