Aviation Finance: An Overview

Abstract

The aviation finance sector has spent the past year at the intersection of two dramatic industry changes—exposed on one hand to the credit crunch and the world of structured finance, and on the other to the cycles of the airline industry and the year's drastic rise and fall in oil prices. Over the course of 2009, with an estimated $70 billion of aircraft ordered for delivery, airlines and aircraft lessors will turn to the various markets that typically finance new deliveries: capital markets (with bonds historically structured either as enhanced equipment trust certificates (EETCs) or portfolio lease securitizations), bank loans (usually secured loans), and export-import agency-guaranteed debt. This article discusses the environment facing the airlines and aircraft leasing companies, the market values on the underlying aircraft collateral, and the traditional structures and current outlook within each of the above-mentioned financing markets.

TOPICS: Project finance, portfolio construction, portfolio theory