As the aviation industry continues to reel from the impact of COVID 19 and carriers look to preserve liquidity up to one third of airlines are looking to defer rents – a figures that should ease as passenger demand returns, according to analysis by JPMorgan.
“Thus far, negotiated solutions for 2Q seem to be emerging in the neighbourhood of 33% of planned rents being deferred until some later date. We believe the deferral phenomena may still be in its infancy, but it should hopefully subside as air travel demand gradually improves and airline liquidity pressures start to ease”, said JPMorgan.
The US bank’s model predicts a base case of 33% deferral rate in the second quarter of 2020 which it sees moderating to 25% by year end a figure which will continue into 2021. While deferral implies being made whole at some point JPMorgan’s analysts estimate that 10% of rents won’t ultimately be collected.
“Our base case assumes 10% beginning in 2Q20 and extending through next year. Unlike deferral and recapture assumptions, uncollected rents do create an attendant pressure on earnings” the analyst note said.