In 2020 commercial aircraft delivery funding volume dropped by 40% when compared to 2019 levels to $59 billion, according to Boeing Capital’s 2021 Current Aircraft Finance Market Outlook (CAFMO).
A significant trend to note in this year’s report, is that leasing companies have provided a larger proportion of that total funding figure than in previous years. According to CAFMO, aircraft lessors have utilised their healthy balance sheets – shored up by extensive capital market issuance – to execute a significant volume of sale-leaseback transactions. This was especially prevalent in North America, where 29% of all Boeing deliveries were financed via sale-leaseback transactions. These figures show not only that airlines were looking to diversify their funding sources and that lessors were there to support customers in North America, but that lessors capitalised on the rare opportunity to add some new names to their portfolios.
CAFMO figures show that the number of used single-aisle sale-leaseback transactions in 2020 was more than double the number of transactions in 2019; with the used widebody sale-leaseback transaction count up by 40% over 2019 levels.
At the end of 2018, Boeing Capital noted that the overall share of the industrywide leased fleet had grown past the 40% mark to 41%, taking several years to move one percentage point. By the end of 2020, the industrywide leased fleet climbed three percentage points to 46%.
Boeing Capital maintains that the flow of capital into the aircraft financing sector will continue as the aviation sector navigates the global pandemic and vaccine deployment continues to accelerate.
The top sources of Boeing delivery financing were cash, bank debt and capital markets, and 100% of Boeing deliveries were financed by third parties. With such high levels of capital markets issuance by both airlines and lessors, it is no surprise that CAFMO figures show capital markets for aviation volumes were 70% higher than 2019.
Boeing further notes that although banking institutions supported their clients in the early pandemic period, long-term delivery debt was one of the scarcest forms of financing in 2020. However, savvy institutional investors and funds continued to seek aviation exposure, stepping up as some financiers paused and sector credit spreads widened.
"Financiers and investors understand the industry's resilience and the long-term fundamentals that make aircraft a valuable asset class," said Tim Myers, president of Boeing Capital Corporation. "Despite the unprecedented impacts of COVID-19 on the global aerospace industry, there generally continues to be liquidity in the market for our customers, and we expect it to further improve as travel begins to rebound."
Although export credit agencies have been a small but important funding source during the pandemic, they will increase in importance heading into the recovery period. As will credit-enhanced financing, which saw further progress as a complementary funding source in 2020, totaling to 4% of the financing mix for Boeing deliveries.
"Industry fundamentals continue to show varying degrees of strength in different markets depending on the regional trends of the global pandemic," Myers adds. "We expect that capital will continue to be routed into the sector by established players and as new entrants seek opportunities during the industry's recovery.