Aircraft financings in the capital markets are set to increase on the back of solid investor demand for non-traditional products and increased regulation in the commercial banking sector.
“Capital markets have been relatively constant at 25% [of the total aircraft financing bill], but we think that percentage is going to grow dramatically,” said Douglas Brennan, chief executive officer of Aviation Finance Company at the Aeroleasing aircraft and engine summit in Jakarta today. “I think we are going to see a dramatic shift away from the stability of the capital markets participation as Basel III rules kick in, so this [participation] will grow to 30 to 50% or more.”
Supporting this growth, says Brennan, are a “fantastic number” of alternatives to the enhanced equipment trust certificates (EETC) financings in the capital markets.
“There is a lot appetite for a lot of different types of risk in the US and the non-US capital markets,” he says, adding: “There are a whole range of investors that want to participate in products that come to the same result as an EETC.”
An example is the “whole world of private EETCs that don’t have liquidity structures but have a huge number of investors”.
Moving away from the typical EETC structure, allows AFC to secure non-US capital market investors that are “better buyers of Indonesian, European and African risk”.
Brennan notes it is important to maintain certain elements of a typical EETC. However, once that is achieved, the structure invites “flexibility, creativity and innovation”.
Last year AFC made a name for itself after completing, along with Natixis, the first pre-delivery payment financing in the capital markets.
The multi-tranche $263 million deal supports eight Airbus A330-200 aircraft with the Synergy Group, the majority owner of Latin American airline group Avianca-Taca.
Brennan says a benefit of these alternatives structures is that the financings are quicker to complete. “They relieve [airline] management of a great deal of time.”
Also, the financings build closer relationships between the airline and investors, as private EETCs involve fewer participants.
In private EETCs, Brennan says, one or two investors are typical, whereas public EETCs can have to up to 550 listed investors.