Thoughts from ISTAT Asia and ISHKA Aviation Finance Festival Confernces

E arly in May 2024, the ISTAT aviation community gathered in Hong Kong for the annual ISTAT Asia conference. The mood at the conference was very positive and encouraged that the Asia Region is now back to pre COVID-19 levels for passenger traffic. During the sessions, it was noted that lease rates and values of commercial passenger aircraft continue the upward trend but one panel warned that the continued increase in lease rates is unsustainable for airlines. It is expected that lease rates will level off towards the end of 2024 in order to remain palatable for airlines. Trading of aircraft is also increasing as the ongoing struggles of aircraft manufacturers has led to increased demand for aircraft in the secondary market. The mid-life aircraft are said to be in a sweet spot currently and benefiting the most from this positive mood.

Lessor mergers and acquisitions (M&A) was also a topic of discussion. Discussions on panels noted that further M&A activity is expected in the aviation sector in order to help Lessors gain scale that they required while also providing opportunities and exits for equity players.

The struggles of Boeing and the GTF engine issues also featured prominently during the conference sessions and networking receptions. Most commentators foresee these issues persevering for the next 2 years at least.

One panel highlighted the resilience of the aviation industry as it withstood two Black Swan events coming out stronger on the other side. Geopolitical risk was also discussed following the impact of Russian aircraft back in 2022. It was stressed that the leasing community has a need now more than ever to diversify portfolios to limit impact of potential similar events in the future.

Photos from ISTAT Asia and the ISHKA Aviation Finance Festival

The following week, ISHKA Aviation Finance Festival conference took place in Dublin, Ireland. This conference was more aviation finance focused and the program was tailored expertly to that audience. The Lessor C Suite panel discussed the strong demand currently in the market for leasing of aircraft. Demand is robust with lessors placing aircraft with better credits on higher lease rates compared with previous years. One panellist noted that extension rates with existing lessees are at around 75% currently also.

In the morning session a number of panels discussed trading of aircraft and reiterated the thoughts on trading from ISTAT Asia. It was noted that the delay in delivery of new aircraft to top tier lessors is impacting the volume of secondary aircraft on the market. These lessors are retaining aircraft longer than previously which is affecting the wider trading market. It was noted that there is strong demand for aircraft and the process is competitive. All the panellists on the Lessor C Suite panel said that they would like to see more portfolios come to market.

The sentiment in the sessions and the halls of the conference was that the aviation capital markets would continue to recover with there definitely being aviation ABS deals in 2024. One panel noted that the mood music out of ABS West earlier this year is that there is pent up demand from investors to invest in the Aviation ABS market. The panel discussed that if interest rates were to reduce even slightly, coupled with the ongoing increase in lease rates, we could see a ‘supercharged’ return of the ABS market.

Overall, it was a great few weeks and at Phoenix American we came away from both conferences with an optimistic outlook for the near term future of the aviation industry along with the return of the ABS market. While the manufacturing struggles continue, this has helped secondary aircraft trading which will help bridge the gap until new aircraft deliveries return to normal.