40 years of ATR financings - OEM evolves with insurance financing structure - Airfinance Journal

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40 years of ATR financings - OEM evolves with insurance financing structure - Airfinance Journal
May/June 2022
 40 years
 of ATR
 financings
  OEM evolves with insurance
  financing structure                                                       ISSUE no. 423

Net zero hurdles | Air Lease interview | FTZs seek innovative solutions
40 years of ATR financings - OEM evolves with insurance financing structure - Airfinance Journal
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40 years of ATR financings - OEM evolves with insurance financing structure - Airfinance Journal
Editor’s letter

Will lessors continue to
order this year?
L   essors continue to build orderbooks and,
    as of mid-April, had placed almost 350
aircraft orders since December, according to
                                                   Aengus Kelly, Aercap’s chief executive
                                                officer, recently said demand is “very robust
                                                around the world”.
                                                                                                asked Boeing in late March to submit a new
                                                                                                projected timeline for seeking the federal
                                                                                                agency’s approvals.
Airfinance Journal’s Fleet Tracker.                He adds: “We have seen elsewhere in              Avolon chief executive officer, Domnhal
   Between December 2021 and April              the world that demand to travel has not         Slattery, recently told Airfinance Journal
2022, Airfinance Journal estimates that         gone away, and it comes back faster than        that “it’s another item on a long list of
lessors placed combined gross orders for        the airlines realise in every region.”          certification issues” that Boeing is trying to
349 aircraft out of 661, or 52% of the Airbus                                                   navigate. “And it feels that they are making
and Boeing orders.                              Challenging year for Boeing                     little progress,” he says.
   This included 299 Airbus orders and 50       Demand for new efficient aircraft continues         Airfinance Journal’s Fleet Tracker
Boeing orders from lessors.                     to increase among airlines and lessor           records 554 Max 10s on order or about
   Air Lease’s confirmation of a memorandum     customers.                                      13.7% of the Boeing narrowbody backlog.
of understanding for 32 Boeing Max 8/9             For the first three months of 2022, Airbus
aircraft on 4 April was another sign of         was ahead with 253 gross orders versus          3. The Max 7 certification is also on the
confidence from leasing companies in the        167 for Boeing, but no doubt the 737 Max        cards this year. The programme has close
narrowbody sector. The order added to           models have benefitted from a renewed           to 300 orders or represents about 7.4% of
another for 18 units in February.               appetite over the past 15 months.               the OEM narrowbody’s backlog, the data
   Last month BOC Aviation entered into            Despite demand signals improving             shows.
an agreement with Airbus to purchase 80         with supported medium-term skylines,
new Airbus A320neo-family aircraft for          the manufacturer will need to catch up on       4. Last, the waiting game continues around
delivery between 2027 and 2029. This is         clearing its 737 Max backlog.                   the 787 deliveries.
the largest single order that BOC Aviation         Boeing delivered 240 Max aircraft in
has ever placed.                                2021 – an average of about 20 aircraft          The FAA ultimately determines the
   Aviation Capital Group placed orders for     a month. Lessors represented 30% of             resumption of 787 customer deliveries and
40 Airbus A320neo-family aircraft late in       commercial aircraft deliveries.                 no timeframe had been given as Airfinance
December 2021.                                     The OEM continues to face a slower-          Journal went to press.
   In February, Aviation Capital Group signed   than-expected ramp in Max deliveries, with         Boeing did not deliver any 787s in the
a firm contract for 20 A220s and has now        an average of 27 aircraft a month since the     first quarter. In a research note, Jefferies
75 aircraft commitments with Airbus and         beginning of the year. This compares with       said it had assumed an April restart (but
another 15 on order from Boeing.                20 average in the first quarter of last year.   as Airfinance Journal went to press this
   US lessor Azorra Aviation signed a              Boeing delivered 81 Max aircraft in the      was unlikely) and could now be pushed
purchase agreement with Airbus for 22           first quarter including 34 units in March,      to the second half of this year. Jefferies
A220-family aircraft in January.                27 in January and 20 in February. Boeing        assumed Boeing ended the first quarter
   Avolon placed orders in 2021 for             will face a challenging year in 2022 with       with approximately 114 787s in inventory (up
Airbus aircraft. The Ireland-based lessor       four potential milestones, which could          from around 111 at the end of last year).
committed for four A320neo and four             be subject to an update at the July                In a recent note, Leeham News
A321neo aircraft in March 2021, before          Farnborough air show.                           wrote that lingering certification delays
adding 14 A320neo and eight A321neo                Its management plan a ramp up in             also tie engineering resources that
aircraft to its orderbook a month later.        production to 31 a month this year but four     would otherwise be available for a new
   Boeing booked gross orders of 742 737        hurdles could hamper the planned increase       programme
Max units last year. Airlines accounted for     in deliveries.                                     Aercap’s Kelly is not fussed about delays
583 orders while the Chicago-based                                                              regarding the delivery of Boeing products.
original equipment manufacturer                 1. The return to operations of the Max          He says the pace of the deliveries matters.
(OEM) recorded another 51 orders from           family in China, which continues to                “From our own unique position in the
undisclosed customers.                          be delayed despite the Civil Aviation           industry as the largest marginal supplier of
   Leasing companies and private equity         Administration of China (CAAC) issuing an       capacity to the airlines, on the supply side,
firms represented 108 Max orders in 2021,       airworthiness directive on 737 Max aircraft     the longer airplanes don’t deliver, the more
or 14.5% of the gross orders tally.             in December 2021, which would remove            positive it is for us. That’s a fact, simple
   Two lessors, Griffin Global Asset            barriers for the model to return to service     fact,” he commented during the company’s
Management and Dubai Aerospace                  in China.                                       fourth-quarter earnings results.
Enterprise, placed their first-ever direct                                                         No doubt a lift of those hurdles would
OEM orders in 2021, both with Boeing,           2. Then Boeing faces an uphill battle           increase Boeing’s cash flows. Last year, the
while private investment firm 777 Partners      against time on the certification of the Max    manufacturer generated positive cash flow,
committed for 68 737 Max units.                 10, the extended version of the Max family.     of $716 million, for the first time since 2019,
   Aercap did not order any aircraft last          The Max 10 must be approved by the           because of increased deliveries of the 737
year, nor did GECAS. As of 31 December          Federal Aviation Administration (FAA) by        Max.
2021, it had 417 new aircraft on order,         the end of this year or could face redesign-
including 67 Max aircraft, 10 A220s, 265        associated costs. The FAA is concerned          OLIVIER BONNASSIES
A320neo-family aircraft, 12 A330neos, 25        the Max 10 programme “will be significantly     Managing editor
787s, 33 Embraer E2s and five regional jets.    challenged” to meet the deadline and            Airfinance Journal

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40 years of ATR financings - OEM evolves with insurance financing structure - Airfinance Journal
Contents

     Cover story                                               News Analysis
      ‘Investing in aircraft assets remains
      attractive’                                             13        Cash is king

                                                              Owain Jones, Wizz Air’s chief supply chain
                                                                                                                            22            Supply chain hold-ups add to
                                                                                                                                          delivery pain
                                                                                                                            Air Lease’s executive chairman, Steven
      ATR turned 40 last November, and its                    and legal officer, discusses the carrier’s cash               Udvar-Hazy, and ALC’s chief executive officer,
      chief financial officer, Giovanni Tramparulo,           management strategy, funding opportunities                    John Plueger, tell Laura Mueller about the
      reveals in an exclusive interview with                  and recovery trajectory in an interview with                  latest problems delaying the delivery, and
      Airfinance Journal that the Franco-Italian              Hugh Davies.                                                  production, of much-needed aircraft.
      manufacturer is ready with more financing
      tools to support its customers.
                                                               14       From banking to starting an airline

                                                              The former Natixis Transport Finance chief
                                                                                                                            24            Financiers likely to shun Russia for
                                                                                                                                          significant time

                                                              financial officer, Marc Bourgade, will apply                  Avolon chief executive officer (CEO) Domhnal

        25                                                    lessons learned in air finance to launch                      Slattery does not expect aircraft lessors
                                                              Aeroitalia. Olivier Bonnassies reports.                       or banks to return to Russia quickly after
                                                                                                                            sanctions are lifted. Laura Mueller reports.

                                                               15     Bain Capital, Griffin launch ULCC
                                                                      Arajet
                                                              Arajet, a new ultra-low-cost airline, takes flight
                                                                                                                            30            Airfinance Journal 2021 Awards
                                                                                                                                          shortlist
                                                              as the Dominican Republic’s new flag carrier
                                                              following an equity investment from Bain                       Special Reports
                                                              Capital, writes Dominic Lalk.

                                                              16        Kingpin of Jol and Jolco deals                      28            Lessors see A330 cargo conversion
                                                                                                                                          appetite

     6         People news
                                                              The market for Japanese aircraft financings
                                                              remains depressed, but it is in difficult times
                                                                                                                            Olivier Bonnassies examines Avolon and
                                                                                                                            CDB Aviation moves to convert some of their
                                                                                                                            Airbus A330 passenger aircraft into freighters.
     News Analysis                                            when responsible asset managers such as
                                                              ABL Aviation add the most value to investors,

     9      Finance institutions launch
            sustainability initiative
                                                              its founder and chief executive officer, Ali Ben
                                                              Lmadani, tells Dominic Lalk.
                                                                                                                            31           Values and lease rates trend - Single-
                                                                                                                                         aisle aircraft values recovering
                                                                                                                            Current generation narrowbody values

                                                               18
     The non-profit organisation for aviation                        Cargojet sees future with 777                          are returning to pre-pandemic levels, but
     finance specialists aims at tackling the ESG                    freighters                                             the impact of the war in Ukraine on 737NG
     challenges of the aviation finance industry.             The Canadian cargo carrier focuses on the 777                 models and the original A320 family is as yet
     Olivier Bonnassies reports.                              converted freighter as its strategy for long-haul             unclear, writes Geoff Hearn.
                                                              operations, writes Olivier Bonnassies.

    10       Air Astana goes for Airbus makeover
                                                                                                                            33            Market competitors - Advantage
                                                                                                                                          turboprops
     Modern-technology aircraft leases are driving
     profitability. Soon Airbus A320neo leases from
                                                               20         No recovery on horizon for aircraft
                                                                          lending in China
                                                              China’s zero-Covid policy is slowing aviation
                                                                                                                            The regional aircraft market proved relatively
                                                                                                                            resilient during the Covid pandemic, but rising
     Aviation Capital Group and CDB Aviation will             development in the Asia-Pacific.                              fuel prices make the older generation aircraft
     join the fleet, Air Astana Group chief executive         Capital and talent have taken flight, and                     increasingly expensive to operate. Geoff
     officer, Peter Foster, tells Dominic Lalk.               lending has slowed. Elsie Guan reports.                       Hearn considers whether a new-generation
                                                                                                                            turboprop might offer a solution for airlines

     11     Net zero drive faces steep hurdles
                                                              21       FTZs in China seek innovative
                                                                       aircraft solutions
                                                                                                                            seeking a 90-seat aircraft.

     Hugh Davies examines the challenges
     the industry faces in the quest for net zero,
     including the European Union’s proposed
                                                              To remain competitive, Chinese free-trade
                                                              zones now offer broader and more                              35            Data

                                                              innovative lease financing solutions for
     taxonomy on sustainable financing.                       aircraft, reports Elsie Guan.
                                                                                                                            38            Pilarski

    Managing editor                            Group sub editor                             Production editor                                Registered in the United Kingdom 1432333
    Olivier Bonnassies                         Peter Styles Wilson                          Tim Huxford                                      (ISSN 0143-2257).
    +44 (0)207 779 8062
    olivier.bonnassies@airfinancejournal.com   Product director                                                                              Airfinance Journal (USPS No: 022-554) is a full
                                               Michael Duff                                 Divisional CEO                                   service business website and e-news facility
    Asia editor                                +44 (0)7736 804460                           Jeffrey Davis                                    with printed supplements by Euromoney
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    dominic.lalk@airfinancejournal.com         Advertisement manager                        Subscriptions / Conferences hotline              Although Euromoney Institutional Investor
    Greater China reporter                     Chris Gardner                                +44 (0)207 779 8999 / +1 212 224 3570            PLC has made every effort to ensure the
                                               +44 (0)207 779 8231                          hotline@euromoneyplc.com                         accuracy of this publication, neither it nor any
    管沁雨 (GUAN Qinyu); Elsie Guan
                                               chris.gardner@euromoneyplc.com                                                                contributor can accept any legal responsibility
    +852 2842 6918
                                                                                                                                             for consequences that may arise from errors
    elsie.guan@airfinancejournal.com           Head of sales                                Customer services
                                                                                                                                             or omissions or any opinions or advice given.
                                               George Williams                              +44 (0)207 779 8610
    Senior reporter                                                                         8 Bouverie Street, London, EC4Y 8AX, UK
    Hugh Davies                                +44 (0)207 779 8274                                                                           This publication is not a substitute for specific
    +44 (0)20 7779 7346                        george.williams@airfinancejournal.com                                                         professional advice on deals. ©Euromoney
    hugh.davies@airfinancejournal.com                                                       Board of Directors: Leslie van de Walle          Institutional Investor 2022
                                               Senior product marketing manager             (chairman), Andrew Rashbass (CEO), Tristan
    Consulting editor                          Sarah Smith                                  Hillgarth, Jan Babiak, Imogen Joss, Lorna
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                                               sarah.smith@euromoneyplc.com                 Printed in the UK by Buxton Press, Buxton,
    Content director, AFJ and industry chair
                                                                                            Derbyshire.
    aviation finance                           Senior marketing executive (Subscriptions)
    Laura Mueller                              Eva-Maria Sanchez                            No part of this magazine can be reproduced
    +44 (0)207 779 8278                        +44 (0)207 779 8450                          without the written permission of the
    laura.mueller@airfinancejournal.com        eva-maria.sanchez@euromoneyplc.com           Publisher. The Airfinance Journal Ltd.

4   Airfinance Journal May/June 2022
40 years of ATR financings - OEM evolves with insurance financing structure - Airfinance Journal
News analysis

       www.airfinancejournal.com   5
40 years of ATR financings - OEM evolves with insurance financing structure - Airfinance Journal
People news

    Pegasus Airlines names Öztürk as new CEO
    T   urkish carrier Pegasus Airlines
        appointed Guliz Ozturk as its new
    chief executive officer (CEO), effective 1
                                                          A member of the board of advisers of
                                                       Ozyegin University’s Faculty of Aviation
                                                       and Aeronautical Sciences, Ozturk is also
    May 2022. Ozturk, who has been serving             co-chair of the Women in Sales (WiSN)
    as chief commercial officer since 2010,            social project, which was established in
    succeeds Mehmet Nane.                              2019 to further gender balance in company
       Nane had been Pegasus’s CEO since               sales departments, under the umbrella of
    2016. He was named a member of the                 the sales network platform.
    board of directors at the carrier’s ordinary          Nane says: “I am delighted to be
    meeting of the general assembly on 31              passing the CEO baton, which I received
    March, as well as vice-chairperson of the          in 2016, to Guliz Ozturk, who has made
    board (managing director) following the            significant contributions to the growth and
    decision by the board of directors.                development of Pegasus for many years.
       Ozturk becomes the first woman air                 “I wholeheartedly believe that she will
    transport CEO in Turkish civil aviation history.   continue to wave the flag of Pegasus
       She began her career at Turkish Airlines        brightly in the skies. This appointment
    and, between 1990 and 2003, she served             holds great value and significance also as
    as manager of international relations and          Guliz Ozturk is to become the first woman
    contracts, alliance coordinator, as well as        CEO of an airline in the history of Turkish       Güliz Öztürk, Pegasus Airlines CEO
    sales and marketing director.                      civil aviation.”
       Between 2003 and 2005, Ozturk was                  Ozturk says she will continue with                Ozturk will also focus on gender equality.
    aviation and tourism project coordinator and       the principles of the carrier’s success:          “We will make every effort, institutionally
    director of human resources at Ciner Holding.      technology and people.                            and individually, to contribute to the equal
       She joined Pegasus in 2005 as head                 “As Turkey’s digital airline,” she adds, “we   participation of women and men in all
    of sales and marketing, to manage the              will continue to offer digital technologies       areas of social life and to enable women to
    launch of the airline’s scheduled services         and unique innovations that will enhance          express their full potential,” she says.
    and, in 2010, she was appointed chief              the travel experience, with our approach             “As a company, we have been committed
    commercial officer with responsibility for         that focuses on guest experience. Without         to gender equality for many years, and we
    the commercial department, which includes          compromising the basic principles of              have been at the centre of the struggle,”
    sales, network planning, marketing,                our business model, we will continue to           adds Ozturk. “This change is also proof of
    revenue management and pricing, cargo              manage our operations and activities with a       the importance our company attaches to
    and guest experience.                              sustainable environment approach.”                gender equality.”

    Ex-Natixis banker                                  Castlelake makes                                  functions, including governance and
                                                                                                         execution of systems and processes that
                                                                                                         support its investment mandate. Farrell
    jumps to MUFG                                      C-suite changes                                   joined Castlelake in 2019.
                                                                                                            He previously held the role of chief

    M     UFG has hired Benoist de Vimal as a
          director and head of origination for
    aviation in the Americas, based in New
                                                       C    astlelake has named Joe McConnell
                                                            and Isaiah Toback as deputy co-chief
                                                       investment officers (CIOs) and Brad Farrell
                                                                                                         financial officer and will continue to
                                                                                                         report to the managing partner and chief
                                                                                                         executive officer, Rory O’Neill.
    York.                                              as chief operating officer.                          “We are pleased to recognise the
       Reporting to Olivier Trauchessec, the              McConnell and Toback currently serve in        experience, strategic skillset and
    co-head of global aviation, Vimal will             portfolio management roles at Castlelake,         leadership that Joe, Isaiah and Brad
    be responsible for managing aviation               overseeing the firm’s value and aviation          bring to Castlelake,” says O’Neill. “As
    origination, including supporting MUFG’s           funds and value and income funds,                 Castlelake looks toward the future and
    originate-to-distribute business model             respectively.                                     explores broader opportunities to provide
    through capital markets and syndication               As deputy co-CIOs, McConnell and               capital solutions to asset sellers and
    and facilitating effective cross-sell with         Toback will continue to partner closely           borrowers in asset-rich private markets,
    product partners.                                  with the firm’s managing partner and              Joe, Isaiah and Brad bring the expertise
       With more than 15 years of investment           chief investment officer, Evan Carruthers,        and leadership to drive our goals
    banking experience, he joined from Natixis,        directing and managing Castlelake’s global        forward while maintaining the focus on
    where he was a senior member of the                investment strategy across the risk-return        relationships for which our counterparties
    Aviation Group, responsible for arranging,         spectrum and supporting the growth and            have come to know us.”
    syndicating, and restructuring a wide              development of its investment teams.                 Carruthers says: “In addition to their
    variety of aircraft finance transactions.             They will continue to report to                distinguished individual track records,
    He had been at the Natixis Paris office            Carruthers, collectively comprising the           Joe, Isaiah and Brad have demonstrated
    since 2007 in manager and vice president           office of the CIO.                                consistent personal commitment to our
    roles before moving to New York in 2014.              Toback joined Castlelake in 2015, and          firm’s success, values and delivery of its
    In 2016 he was promoted to director head           McConnell joined the firm in 2007.                investor-focused mission. I am excited to
    of Latin America-Aviation. Last year Natixis          As chief operating officer, Farrell’s title    continue partnering with them as we realise
    named him executive director aviation              reflects his responsibilities for Castlelake’s    the next chapter of Castlelake’s evolution
    finance.                                           financial, operational and administrative         and accelerate our growth.”

6   Airfinance Journal May/June 2022
40 years of ATR financings - OEM evolves with insurance financing structure - Airfinance Journal
News analysis

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40 years of ATR financings - OEM evolves with insurance financing structure - Airfinance Journal
People news

    KLM names new CEO
    A     ir France-KLM’s board of directors
          have approved the proposal of the
    KLM supervisory board to appoint Marjan
                                                      of the group and her leadership qualities
                                                      convinced the board that she is the right
                                                      person to continue the work started
    Rintel as its new chief executive officer         by Pieter Elbers to transform KLM into
    (CEO), replacing Pieter Elbers.                   one of Europe’s leading airlines and a
       Rintel is currently CEO of NS, the             powerhouse for the Air France-KLM Group
    leading passenger railway operator in the         as a whole,” says Air France-KLM.
    Netherlands.                                         Rintel will take up her new role on 1 July.
       Before joining NS in 2014, she held               The group’s board of directors also
    various managerial, operational and               agreed the anticipated renewal of
    commercial positions at KLM and Air               Benjamin Smith’s mandate as the group’s
    France-KLM, such as hub operations at             CEO for an additional term of five years
    KLM and senior vice-president strategic           – until the general meeting called to
    marketing at Air France-KLM.                      approve the financial statements for the
       “Her extensive experience in the               year 2026, expected to take place in May
    airline industry, her intimate knowledge          2027.                                            Marjan Rintel

    SAS appoints                                      Former Airbus                                    El Al promotes Ben-
    Hilden as new CFO                                 executive Floret                                 Tal Ganancia to CEO
                                                      joins Amedeo
    S    AS appointed Erno Hilden as executive
         vice-president and chief financial officer                                                    I sraeli flag carrier El Al has promoted Dina
                                                                                                         Ben-Tal Ganancia to the position of chief
    (CFO) in late March.
       Hilden has held several operational
    leadership positions in the global airline
                                                      A    medeo appointed Isabelle Floret as an
                                                           independent non-executive director to
                                                      its board in late March.
                                                                                                       executive officer (CEO), making her the first
                                                                                                       woman to head up the company following
                                                                                                       the resignation of Avigal Soreq in late March.
    industry. He was the CFO of Finnair                  Floret held multiple senior leadership           Ganancia joined El Al in 2008 and has
    between 2010 and 2015, having been                roles throughout her career at Airbus,           most recently served as the carrier’s vice
    promoted from chief operating officer. More       most recently serving as head of leasing         president for commercial and industry affairs.
    recently, he held a position as executive         markets.                                            She has previously held other
    vice president for privatisation at Saudia                                                         commercial and finance roles at El Al,
    Airlines.                                                                                          including director of revenue management
       “I am very pleased to welcome Erno                                                              and fleet planning manager.
    Hilden to SAS. Erno’s extensive financial                                                             Her predecessor, Soreq, was appointed
    experience combined with aviation                                                                  CEO in late 2020 and stepped down last
    expertise makes him a valuable addition to                                                         month to become CEO of energy company
    SAS’s top management team. He will play a                                                          Delek US Holdings.
    key role during the current transformation
    plan, SAS Forward, where we are
    securing a long-term financially stable and
    competitive SAS,” says Anko van der Werff,
    president and chief executive officer.
       SAS says current CFO Magnus Ornberg
    will leave the carrier during the spring but
    is remaining in his current role to ensure a
    seamless transition for Hilden.

                                                                                                       Dina Ben-Tal Ganancia
                                                      Isabelle Floret
                                                                                                          In mid-March, El Al signed a non-binding
                                                        During her time at Airbus, she also            agreement with UK insurance company
                                                      served as senior vice-president for the          Phoenix for a $130 million loan secured
                                                      Pacific region.                                  against the airline’s Matmid frequent flyer
                                                        Mark Lapidus, Amedeo’s chief                   programme. The loan will bear interest
                                                      executive officer, says: “We are delighted       in the range of 5.5-7%, to be determined
                                                      and honoured to welcome Isabelle to              when the final agreement is signed,
                                                      the board. Isabelle brings extensive             according to a filing.
                                                      commercial aviation and broad business              An optional mechanism has been
                                                      experience that will be invaluable to            established in which Phoenix will receive
                                                      Amedeo.”                                         options for the purchase of 25% of El Al’s
                                                        Floret left Airbus’s leasing team after 17     shares in Matmid, which can be exercised
     Erno Hilden                                                                                       at any time until the end of 2027.
                                                      years’ service in 2021.

8   Airfinance Journal May/June 2022
40 years of ATR financings - OEM evolves with insurance financing structure - Airfinance Journal
News analysis

Finance institutions launch
sustainability initiative
The non-profit organisation for aviation finance specialists aims at tackling the ESG
challenges of the aviation finance industry.
A      team of 26 institutions from the
       aviation finance sector have launched
Impact (initiative to measure and promote
                                                     • tracking the progress of decarbonisation
                                                       through metrics;
                                                     • maintaining comprehensive reporting of
                                                                                                      as the “world’s first” transition bonds in the
                                                                                                      aviation industry.
                                                                                                         The carrier plans to issue two ¥10 billion
aviation’s carbon-free transition), a new              the industry’s decarbonisation progress;       ($81.6 million) series of five- and 10-year
and independent association dedicated to             • building strong networks with aviation         sustainable development goal (SDG)-linked
achieving net-zero CO₂ emissions by 2050.              industry stakeholders; and                     unsecured corporate bonds. Proceeds from
   The not-for-profit initiative is recruiting new   • knowledge management to ensure that            the SDG bonds, which are aligned with the
members from the aviation finance community            important studies and data are available       2015 Paris Agreement, will be allocated
and aims to have representation from 40 to             to all of its members.                         to “advance the transition to carbon-free
50 companies over the next 12 months.                                                                 operations in its air transport business”, such as
   Members of the financing community                Impact will publish a comprehensive              investing in upgrading the carrier’s fleet to more
include Apollo/PK Airfinance, Atoz Aviation          annual report on aviation’s decarbonisation      fuel-efficient widebody aircraft and securing
Finance, Castelake, Dr Peters Group and              progress and the consistency of its              sustainable aviation fuel (SAF) supplies.
Muzinich. Among the banks are Bank of                financing rules. It will also seek a close          JAL intends to allocate fully the net
China, Commonwealth Bank of Australia,               relationship with all stakeholders in            proceeds to eligible projects within 36
HSBC, Helaba, ING, KFW Ipex Bank, LBBW,              aviation to encourage participation and          months of transition bond issuance.
Natixis, NordLB and MUFG.                            diversity of thought, to test the feasibility    Unallocated proceeds will be managed in
   Board members include Jörg                        and effectiveness of proposals and to join       cash or cash equivalents until the proceeds
Schirrmacher (Helaba), Hugo Kanters (ING),           forces toward the goal of sustainability.        are fully allocated.
Peter Smeets (360AF), Jean Chedeville                   The initiative will also use modern digital      Lessor China Merchant Bank
(Natixis) and Philipp Goedeking (Avinomics).         knowhow management technologies to               International Leasing closed a ¥15 billion
   Impact president, Ulrike Ziegler, says:           compile centrally and share important            denominated Samurai sustainability-linked
“The time to act is now. Impact is determined        studies and data, accessible to all members.     green loan with MUFG Bank and SMBC in
to promote credible change to ensure a                  The organisation recalls the challenges       the final quarter of last year.
sustainable future for our industry. We look         for the industry.                                   The structure of the deal is novel in its
forward to engaging with our aviation finance           Between 2004 and 2019, CO₂ emissions          combination of Japanese yen-denominated
colleagues across the globe to develop an            from aviation increased by 2.5% a year,          debt financing (which are typically US dollar
independent and viable route to net zero.”           while global aviation traffic grew by more       denominated) for leasing companies coupled
   Impact will promote new, sustainable              than 5.2% annually – that faster growth more     with the first known “green/sustainability”-
aircraft financing measures designed to              than cancelled out the benefits of more          linked covenant package committed by an
drive fundamental change across the                  efficient aircraft and engine technologies.      aircraft leasing company. This was also the
global aviation finance community.                      The International Energy Agency               first known Chinese National Development
   “Aviation is critical to the mobility of          estimates that aviation needs to reduce          and Reform Commission-approved cross-
modern society, but it is also a carbon-             its CO₂ emissions to 210 million tonnes          border loan with a Chinese (aircraft) leasing
intensive industry,” adds Ziegler. “As               by 2050 or by 2.4% a year to achieve the         company with such characteristics.
aviation financiers, it is our responsibility        goal of net zero in 2050 set out in the Paris       Societe Generale-CIB closed the first
to contribute to the global transition to            Climate Agreement and reaffirmed by the          sustainability-linked aircraft-secured term
a low carbon economy and to promote                  International Air Transport Association.         loan provided to an airline – Air France – in
sustainability through responsible lending              “Immediate action is needed. Impact           January. The French bank financed a new
practices that encourage innovation and              is willing to meet this challenge and            Airbus A350-900 delivery – in December
carbon reduction.”                                   tackle the many questions it poses: which        – for the French carrier in the form of a
   Impact has a mission to promote new,              benchmarks should be used to financially         sustainability-linked debt facility.
sustainable aircraft financing measures,             support sustainable aircraft, airlines,             Last November, Crianza Aviation
with the intention of driving fundamental            infrastructure and business models? Which        arranged sustainability-linked operating
positive change across the global aviation           rules should manufacturers, airlines and         leases for certain Boeing 787 and A350
finance community.                                   financiers use to report the sustainability      aircraft. Banco Santander acted as the
   It is comprised of five collaborative working     of their commitments in aviation? How            ESG structurer of the deal, which is the
groups designed to deliver a credible                can decarbonisation progress be                  first sustainability-linked operating leases
and transparent roadmap to reduce CO₂                reported credibly, comprehensively               structured for an airline. The transactions
emissions from aviation to net zero by 2050.         and transparently? And how can mere              are linked to an MSCI ESG rating, which will
   The areas of focus include:                       greenwashing be avoided?”                        undergo periodic review and validation.
• establishing standards to be applied                  Sustainability innovation in the aircraft     The leases include a two-way step-up/step-
    in transition finance. What are the core         finance sector is gaining momentum.              down pricing mechanism to incentivise
    characteristics of sustainable finance?             In the first quarter of this year, Japan      improvements in ESG performance and
    Which standards should apply and how             Airlines (JAL) announced plans to issue          demonstrate commitment to a sustainability
    can adherence to them be monitored?              sustainability bonds in a move it describes      strategy.

                                                                                                                           www.airfinancejournal.com       9
40 years of ATR financings - OEM evolves with insurance financing structure - Airfinance Journal
News analysis

     Air Astana goes for Airbus
     makeover
     Modern-technology aircraft leases are driving profitability. Soon Airbus A320neo
     leases from Aviation Capital Group and CDB Aviation will join the fleet, Air Astana
     Group chief executive officer, Peter Foster, tells Dominic Lalk.

     A    fter returning a strong financial
          performance to shareholders in 2021,
     Kazakh flag carrier Air Astana Group and
                                                     will enable Air Astana to fly to the USA.
                                                     Foster notes that the existing 767s will be
                                                     sold or converted to full freighters when
     low-cost subsidiary Flyarystan are poised to    the 787s arrive.
     continue growing as the pandemic recedes.          As Airfinance Journal went to press,
        Group chief executive officer, Peter         and before the 10 Airbus Neo aircraft were
     Foster, tells Airfinance Journal that four      due, Air Astana had a fleet of 27 aircraft
     key factors are at play driving Air Astana’s    comprising 767, A320neo, A321/A321neo/
     success: huge domestic growth (Flyarystan       A321LR and E190-E2 models. Flyarystan
     grew at 553% in passenger numbers);             operated a fleet of 10 A320s, including a
     strong regional yields (suppressed              single A320neo.
     supply, returning demand); ‘lifestyle route’       In April, Airfinance Journal broke the
     growth; and complete fleet renewal (total       news that Air Astana’s E190-E2 fleet had                All flights to Europe
     retirement of all Boeing 757 and Embraer        changed ownership after Aercap sold                 avoid Russian airspace;
     190 aircraft, additional Airbus A321neo         the whole portfolio comprising five units
     long-range units).                              with leases attached to the flag carrier to         we will try to make up
        Brisk business is expected ahead for
     Air Astana Group because its airlines are
                                                     new leasing entrant Azorra Aviation. The
                                                     disposal completed Aercap’s exposure
                                                                                                         some of the extra cost with
     mounting new destinations as the new            to the E190-E2 series, although it remains          fuel surcharges.
     A320neo-family arrives.                         involved in the larger E195-E2 programme.
                                                                                                         Peter Foster, chief executive officer,
     New lease deals                                 Soaring revenues                                    Air Astana
     Foster disclosed exclusively to Airfinance      For the full year to 31 December, Air Astana
     Journal that Air Astana has awarded             Group swung to a profit of $36.1 million,           Russia challenge
     A320neo operating lease mandates to             with revenues soaring 92% to $756 million.          Living in proximity with Russia means Air
     California-based Aviation Capital Group         The group carriers flew a record 6.6 million        Astana is heavily impacted by President
     (ACG) and Chinese bank-backed CDB               passengers: Air Astana accounted for 3.5            Putin’s war against Ukraine.
     Aviation, covering seven deliveries in          million and Flyarystan for 3.1 million.                 “Aside from the horrendous human cost
     2022-23. The seven A320neos will be                 “We had a very good year last year,”            of the war, the invasion (which I witnessed
     assigned to the Flyarystan subsidiary, says     says Foster. “Far, far better than expected.        first-hand in Kyiv) has caused us to lose
     Foster. ACG and CDB Aviation are new            Flyarystan grew at 553% in passenger                all flights to Ukraine and Russia, the latter
     lessors to Air Astana Group.                    numbers.”                                           because of withdrawal of insurance cover,”
        In addition, Foster notes, mainline Air          The pandemic may have forever                   resulting in an approximate loss of 12% of
     Astana is due another three A321neo             changed Air Astana’s business model,                the group’s international route network,
     long-range aircraft from another California-    says Foster, noting that point-to-point flying      says Foster.
     based lessor, Air Lease (ALC), also in          is the way forward for the airline. In that             The Kazakh flag carrier, however, says
     2022-23.                                        vein, the group has inaugurated many new            it is bridging that lost capacity with extra
        For CDB Aviation, the new Flyarystan         “lifestyle routes”: to the Maldives, Phuket,        flights and new services to South Korea,
     A320neo deal continues the lessor’s push        Sri Lanka, Egypt, Montenegro, Heraklion             Germany, Turkey, Greece, Montenegro,
     into the CIS; for ACG, Air Astana will be       in Greece, in addition to existing ones to          Georgia and Uzbekistan. Naturally, most of
     the first lessee in the wider CIS region,       Antalya, Bodrum and Dubai.                          these new flights are still impacted by the
     excluding Russia, where it had moderate             “We call them ‘lifestyle routes’ because they   war, however.
     exposure before the invasion of Ukraine.        are leisure destinations no longer restricted           “All flights to Europe avoid Russian
        Daily utilisation rates for Air Astana       to holiday periods. We are finding that many        airspace and follow the southern route
     Group’s Airbus narrowbody fleet are up          people are keen to travel for extended              through the Caucasus, south of the Black
     to 11.5 hours, says Foster, and the airline’s   periods to agreeable places and run their           Sea coast, Turkey and north from there.
     three 767-300ERs are operating at “high         businesses and, in some cases, educate their        Greece, Montenegro and Turkey are
     utilisation rates”, too. One 767 that had       children remotely from there,” explains Foster.     hardly affected; however, Frankfurt and
     been temporarily converted for cargo-only           “Regional routes and, of course, our            Amsterdam have an extra 90 minutes flying
     usage was repurposed in late 2021.              low-cost Flyarystan network are performing          and London has to make a fuel stop on the
        From 2025, Foster confirms three 787         extremely well, too. There is very high             Caspian,” says Foster, noting that he will
     aircraft are scheduled to arrive, subject to    demand and therefore high load factors              “try to make up some of the extra cost with
     final discussion with Boeing. The aircraft      and yields,” he says.                               fuel surcharges”.

10   Airfinance Journal May/June 2022
News analysis

Net zero drive faces
steep hurdles
Hugh Davies examines the challenges the industry faces in the quest for net zero,
including the European Union’s proposed taxonomy on sustainable financing.

W      hile the aviation industry has proved
       its resiliency throughout the Covid-19
pandemic, the sector is still beset by the
                                                                                                         Everyone is asking
ever-looming climate crisis – in particular,
                                                                                                    about the ESG aspect
its impact on aircraft financing.                                                                   of financing and there
   The aviation finance community is
increasing the drive towards environmental,                                                         has been a marked
social and corporate governance (ESG)
metrics as scrutiny grows over its role in the                                                      movement on the
climate crisis, with demand for ESG-linked
financing products on the rise.
                                                                                                    investor side.
   “Everyone is asking about the ESG
                                                                                                    Nick Swinburne, partner, Milbank
aspect of financing and there has been
a marked movement on the investor
side over the last 12 months in terms of
commitment to ESG,” Milbank partner Nick          of disclosures required in relation to            are unlikely to have recourse to green
Swinburne tells Airfinance Journal.               their investments in the aviation sector,         benefits under the taxonomy. However,
   “We are seeing on a lot of transactions        but may also serve as a tool for investor         newer aircraft lessors are “likely to steer
discussions around whether these                  engagement with companies by opening              to younger fleets for greater taxonomy
transactions need sustainability-linked           up discussion around the proportion of            benefits for financial and strategic reasons,
features,” he adds.                               revenues and capital expenditure that can         and therefore offload aircraft to midlife
   On the lessor side, sustainability features    be defined as low carbon.                         lessors earlier”, says Bell.
are less common but still being analysed as          Jim Bell, partner at global law firm              One source points out that a lot will
the companies look to engage further on           Watson Farley & Williams, says it is critically   depend on how the European Commission
the topic of sustainability.                      important for the EU to get the taxonomy          decides to approach the technical
   “We have certainly had discussions             right.                                            screening criteria (TSC) for aircraft financing
around how you would measure it against              “It is vitally important that the aviation     to qualify as a “transition activity”.
a lessor’s portfolio but as a lessor you’re       sector steers the EU’s classification system         He notes the draft TSCs published
slightly less in control of your portfolio        into the correct position as otherwise it         in August 2021 were not well received
because it’s mostly up to the airlines how        will cause problems in the future,” he tells      by the market, particularly in relation
they operate,” says Swinburne.                    Airfinance Journal.                               to the proposed decommissioning
   While demand is growing, investors                “Currently, its implications are limited to    requirements, which include the so-called
lament the fact that there is no clearly          green financing and disclosure requirements       “scrapping rule”. This rule requires that
defined framework for transactions to             but, in the future, it is likely to extend to     an old, non-taxonomy-compliant aircraft
comply with ESG criteria.                         capital adequacy and accounting treatment,        is decommissioned to make way for new,
   However, there is one multilateral             and possibly also taxation,” adds Bell.           more efficient ones until 2030.
framework being developed by the                     Is the taxonomy likely to usher similar           Bell explains that the EU approach is set
European Union (EU) that could have wide-         legislation in other parts of the world?          on decommissioning aircraft and will only
ranging implications for aircraft financiers in   According to Bell, the extent to which the        support new aircraft investment as part of
the future.                                       taxonomy impacts aviation finance globally        the taxonomy up to a certain ratio.
                                                  largely depends on whether the USA                   “The EU’s originally proposed solution
EU taxonomy                                       follows with a similar approach.                  was by only supporting qualifying aircraft
First published in 2020, the EU Taxonomy             “The US is behind the EU in their              where another non-qualifying aircraft is
Regulation is a sustainable finance               approach to sustainability to date, but it is     evidenced as decommissioned in its place,
framework introduced to support the EU’s          well known that President Biden is keen to        but this will now likely move to a global-
Fitfor55 climate agenda with the aim of           move further down this path.                      based system where qualifying aircraft
directing funding towards environmentally            “The EU tends to be a first mover but          are supported by reference to the global
sustainable activities.                           when the US does something it often               ratio of decommissioned aircraft to new
   The taxonomy will provide the                  becomes a global position. If the US were         deliveries, which is around 40%. Outside
underpinning language of what is green            to follow suit then it would completely           that limit, you will not get support under the
and what is not green in the context of           change the aviation financing landscape,”         taxonomy, even where the aircraft meet its
financing, including for the airline industry.    he adds.                                          other qualifying criteria,” explains Bell.
   Once fully legislated, it will have a             Lessors specialising in mid-life, green           Another component of the taxonomy
direct impact on EU investors in terms            time and end-of-life aircraft and engines         relates to the take-up of sustainable

                                                                                                                        www.airfinancejournal.com     11
News analysis

     aviation fuel (SAF) as part of the transition     players already invested in assets they               It’s the single biggest and
     to zero emission aircraft by the middle of        thought were going to be worth a decent
     this century.                                     amount of money for the next 25 years.            most audacious goal I think
        The Aviation Working Group, which has             “How does it work if you’re five years         we can have as an industry
     engaged with the European Commission’s            in and some legislation comes in that
     technical working group (TWG) developing          ultimately determines that your asset is          – unquestionably. And
     the taxonomy, says the EU’s proposal on           maybe unfinanceable or financeable at
     SAF introduction post-2030 would only             a far greater cost going forward? The
                                                                                                         anybody who thinks that it’s
     work if based on availability of alternative      potential impact would be huge and so             not a central issue is, well,
     fuels on reasonable commercial terms.             a mistake or a wrong approach by the
        The organisation notes that proposed           EU could have a devastating effect on an
                                                                                                         we know what happened to
     SAF requirements are unrealistically              aircraft owner,” adds the source.                 dinosaurs, right?
     high, compared with forecast production,             “I haven’t a clue whether the industry will
     logistics, and availability, arguing that         get to net zero,” Avolon’s chief executive        Domhnal Slattery, chief executive officer,
     the additional cost of SAF in the current         officer, Domhnal Slattery, tells Airfinance       Avolon
     environment far outweighs the benefits of         Journal when quizzed whether the industry
     green financing, meaning the take-up for          can achieve the target.
     green financing will be extremely limited.           He adds: “I do believe that the industry          However, a recent report published by
        “The obligation to use SAF should apply        will strive to get there because I think the      Climate Action 100+, which represents
     in respect of the airline’s fleet or, where it    key stakeholders, the key thinkers and the        615 investors responsible for more than
     relates to an aircraft lessor, the fleet of the   key strategic influencers in this industry will   $65 trillion in assets under management,
     airline such aircraft is leased to… Given         try to do so.                                     said action needs to be taken in aviation
     that exact SAF production, logistics and             “But we are starting the journey; the          demand management areas for the
     availability are unknown, it is necessary         key people in this industry are focused on        industry to reach the net zero target.
     to link the requirement to a market-              solving this problem. It’s the single biggest        These include capping business travel
     based measure, rather than an absolute            and most audacious goal I think we can            at 2019 levels, curtailing long-haul flights of
     percentage,” states the organisation.             have as an industry – unquestionably. And         more than six hours for leisure travel at 2019
        The TWG is expected to publish its final       anybody who thinks that it’s not a central        levels and shifting demand to high-speed
     position on the details of the classification     issue is, well, we know what happened to          rail infrastructure where possible, measures
     system later this year.                           dinosaurs, right?”                                the industry does not want to hear.
                                                          Airfinance Journal asked Air Lease’s              The report finds that without these
                                                       executive chairman, Steven Udvar-Hazy, his        demand management measures or
     Is net zero possible?                             view at the ISTAT Americas 2022 event.            alternatives with an equivalent impact on
     Many financiers and industry stakeholders            “None and nil,” he replied during a            emissions, residual emissions in 2050
     are sceptical that the aviation sector can        fireside chat on the probability of aviation      could be over double than what is required
     achieve net zero by 2050, a goal which,           hitting IATA’s net zero target by 2050.           under the International Energy Agency net
     although subscribed to by the International          He believes that the cost of                   zero target.
     Air Transport Association (IATA) and the          implementing and achieving those targets             Ben Pincombe, head of stewardship
     wider aviation community, is challenging for      is “virtually impossible”.                        for climate change at Principles for
     the airline industry as one of the hardest           “The reason for that is, even if you           Responsible Investment (a UN-supported
     sectors to decarbonise.                           take a low GDP growth of 2-3% a year on           international network of investors),
        One legal source observes there will be        average, in the next 25 years, the demand         admitted the industry must face some “hard
     implications for asset impairment as new          for air transportation products will be so        truths” if it is committed to reaching net
     legislation is brought forward on the basis       great that it will be impossible to create        zero by 2050.
     of the EU taxonomy.                               enough production, enough innovation to              “The industry holds its future in its own
        He believes the only way aviation will         achieve those target emissions,” he says.         hands,” says Pincombe, who adds: “The
     reach net zero is by governments providing           “I just don’t think they are achievable        amount of demand management required
     large amounts of support to swap out              unless we had a static situation where we         depends on the rate and scale of SAF
     assets, where they effectively pay for            froze the world where it is today and said        rollout in the short term, alongside well
     decommissioning.                                  ‘Okay, we will take what we have now and          thought through technology deployment. If
        “The problem is aviation assets are            we’re not going to grow the industry and          the sector fails to respond effectively, it is
     very expensive and the amount of capital          we’ll achieve this target’,” adds Udvar-          likely to face significant and rapid regulatory
     needed to swap out aircraft is huge for           Hazy.                                             tightening, and ever greater scrutiny and
                                                                                                         challenge from capital markets.”
                                                                                                            The organisation also argues that
                                                                                                         engaging with companies on the issue of
                                                           It is vitally important                       demand management should not be seen
                                                                                                         to conflict with financiers’ fiduciary duties.
                                                       that the aviation                                    “By constraining air traffic growth, it is
                                                       sector steers the EU’s                            more likely that the sector can become
                                                                                                         aligned with the 1.5°C pathway, which
                                                       classification system into                        ultimately helps mitigate the long-term
                                                                                                         systemic risk to investors’ portfolios resulting
                                                       the correct position as                           from climate change,” says Pincombe.
                                                       otherwise it will cause                              Regardless of whether the industry
                                                                                                         can reach net zero, it is clear aircraft
                                                       problems in the future.                           financiers will increasingly have to consider
                                                                                                         regulatory frameworks being proposed as
                                                       Jim Bell, partner, Watson Farley & Williams       part of these ambitious targets.

12   Airfinance Journal May/June 2022
News analysis

Cash is king
Owain Jones, Wizz Air’s chief supply chain and legal officer, discusses the carrier’s
cash management strategy, funding opportunities and recovery trajectory in an
interview with Hugh Davies.

J   ust as the aviation industry started to
    emerge from the Covid-19 pandemic,
the outbreak of war in Ukraine and
                                                                                                    “This is reflected in the fact that we used
                                                                                                 Jolco financing structures for 10 of our new
                                                                                                 aircraft deliveries in 2022,” adds Jones.
subsequent economic sanctions imposed                                                               Wizz Air has been tapping Japanese
on Russia dampened the recovery runway                                                           investor funds to finance its incoming new-
for European carriers.                                                                           technology aircraft throughout the pandemic.
   For ultra-low-cost carrier Wizz Air, the                                                         In 2021, Credit Agricole-CIB arranged the
ability to maintain strong cash reserves                                                         debt portion of a Japanese operating lease
was a key element of the airline’s success                                                       financing covering two Airbus A320neo
during the pandemic and will remain the                                                          aircraft with JP Lease.
strategy to brace for future economic                                                               Earlier in 2022, Airfinance Journal also
downturns, the company’s chief supply                                                            reported that BNP Paribas, Marsh Insurance
chain and legal officer, Owain Jones, tells                                                      and AVIC Leasing are financing four
Airfinance Journal.                                                                              A321neo deliveries for Wizz Air this year.
   “We implemented a number of other                                                             That transaction was the first Balthazar-
important measures to further safeguard                                                          backed financing in Asia and the first
the business,” recalls Jones, “including                                                         Balthazar full recourse lessor facility.
supplier payment term extensions, contract                                                          In March, MUFG agreed Jolco financings
renegotiation, early redeliveries of older                                                       covering three A321neo aircraft for Wizz Air,
aircraft and salary reductions for all                                                           the first MUFG transaction completed with
employees, including senior management.                                                          the carrier.
   “This cost discipline and focus on                                                               Wizz Air’s delivery backlog comprises
cash-positive flying resulted in Wizz Air                                                        firm orders for 34 A320neos, 244 A321neos
maintaining a strong liquidity balance                                                           and 47 A321XLR aircraft, with four A321neos
of around €1.4 billion [$1.5 billion] as         Owain Jones                                     delivered to the airline in March, according
of 31 December 2021 and maintaining                                                              to the Airbus data. The carrier has purchase
our investment-grade balance sheet               existing €3 billion Euro Medium Term Note       rights for another 75 A321neos.
throughout the pandemic,” he adds.               programme if it does participate in the
   Jones says Wizz Air’s strategy of keeping     capital markets.                                Recovery
a high cash balance and ensure all flying           Wizz Air has already issued two €500         Wizz Air has seen demand largely recover
was at least cash positive was vindicated        million notes, which mature in January          from the onset of the Ukraine crisis at the end
during the pandemic.                             2024 and 2026 with coupons of 1.35% and         of February, with Jones noting the airline is
   “Some of the measures we have since           1.05%, respectively.                            on track to increase capacity in the April-June
implemented, such as renegotiated                   “Both of these bond offerings were           quarter of 2022 by 30% compared with 2019,
agreements and extended payment terms,           heavily oversubscribed, reflecting Wizz Air’s   measured in available seat miles.
have now become the norm,” he says.              investment-grade balance sheet, strong              The aggregate impact of Russia/Ukraine
   “We believe that Wizz Air has been            credit profile and investors’ confidence in     was a 2% reduction in flights in February,
correct to ramp up expansion during the          our business model,” says Jones.                explains Jones, with operations in Ukraine,
downturn, as opportunities have facilitated         Quizzed on upcoming aircraft financings,     Moldova and Russia amounting to 7% of
network growth and diversification of our        Jones says the airline has been able to         flight capacity in March.
business into new markets as we have             secure “ever-better pricing” over the past          Wizz Air has since announced additional
continued to renew our fleet at a significant    couple of years with “intense competition”      deployment of aircraft to different locations
pace,” adds Jones.                               between aircraft lessors and banks to           across its network and has capped a
                                                 provide financing for its new aircraft          proportion of its fuel cost exposure for the
Financing opportunities                          deliveries.                                     next four months with zero cost hedges in
Despite market conditions still impacted by         “Looking ahead, Wizz Air will always look    response to rising oil prices.
increased commodity prices, geopolitical         to the market to compete for transactions           The carrier reached 86.2% load factor
tensions, Russian sanctions as well as the       so as to secure the best financing deals,       during March, a significant improvement
pandemic, the industry is seeing a gradual       and we look forward to continuing to            compared with 62.5% in March last year.
pick-up of issuer activity in debt markets in    engage positively with aircraft financiers in       “There has also been a clear positive
the past few weeks with Wizz Air expecting       the future,” says Jones.                        impact from the reduction in Covid-19 travel
more opportunities to raise funds in the            He also notes there is “strong interest”     restrictions,” adds Jones, “and, overall,
capital markets in the first quarter of fiscal   from Japanese operating lease with call         we have started to see a normalisation
year 2023.                                       option (Jolco) financiers who are looking       in demand with booking patterns starting
  Jones notes the focus would primarily be       participate in financing arrangements for       to look more like those in 2019, pre-
on the euro debt market, using the carrier’s     Wizz Air’s new aircraft.                        pandemic.”

                                                                                                                     www.airfinancejournal.com     13
News analysis

     From banking to starting an airline
     The former Natixis Transport Finance chief financial officer, Marc Bourgade, will
     apply lessons learned in air finance to launch Aeroitalia. Olivier Bonnassies reports.

     T    he transition from banking to airline
          chairmanship is no easy task but former
     banker Marc Bourgade sees an opportunity
                                                         it is not a congested market, like Spain for
                                                         instance,” he says.
                                                             At the time, Alitalia was up for sale but
                                                                                                                2024, starting widebody operations
                                                                                                                within two years could be risky. However,
                                                                                                                Bourgade says it is the right time to invest.
     in Italy with Aeroitalia, a start-up carrier that   Bourgade decided to start from scratch.                   “We have demand for this type of
     plans to begin services in the second quarter.      “The advantage of starting from scratch,”              operation but we need to position
        Bourgade has worked in the aircraft              he says, “is you know the cost aspect                  ourselves on certain routes and markets.
     finance sector for more than 20 years,              of the business. In our case, we start                 Not all routes or markets will recover by
     having been the chief financial officer of          conservatively.”                                       2024 but, with the right product, we could
     Natixis Transport Finance bank for six years.           The company has hired executive Gaetano            start widebody services in 2023.”
        As chairman, he has invested equity              Intrieri as its chief executive officer. Intrieri is      Pre-Covid lease rates were substantially
     into the carrier and is the sole owner of           a former adviser to Italy’s minister of transport.     higher than now, he notes, adding that
     Aeroitalia.                                             Former Avianca owner, Germán                       Aeroitalia is seeking aircraft at competitive
        The origin of his project dates back from        Efromovich, has also joined the team as a              rates.
     his days as a banker.                               consultant and board member.                              He reveals that the carrier has looked
        “I have loved my time in the banking                 “We needed a management team that                  at purchasing aircraft, but that export-
     sector but one of the reasons I left after          has experience in aviation, knows the                  credit-financed assets where the customer
     20 years of service was the administrative          Italian market and understands how an                  has defaulted take time to acquire. “We
     aspect of my job. We had less time to               airline functions,” says Bourgade. “We start           felt that those repossessed aircraft could
     look after our clients because banks have           operations with a break-even objective in              be remarketed sooner to save tax payer
     become very regulated. It creates burdens           our first year of operations.”                         money.”
     to what we are meant to produce for the                 He adds: “Aeroitalia will focus on charter            Based in Rome, Aeroitalia will perform
     bank,” he says.                                     operations first because this guarantees               its first flight immediately after obtaining its
        Bourgade says the “shadow banking”               revenues from the day we have the AOC.”                AOC, which, they hope, will be in the very
     side of the industry is more reactive and                                                                  near future.
     flexible.                                           Fleet plans                                               Setting up an airline in Italy can be
        “This is why I created Flying Solutions          The carrier will have a Boeing 737-800                 challenging but Bourgade says the local
     in 2016. The objective was to continue              fleet. “We looked at the Airbus and Boeing             authorities have facilitated the process
     serving clients as a consultant and close           narrowbody products and we selected                    smoothly and, in particular, the Italian
     financing deals like a bank.” Bourgade              the 737-800. In my days at the bank, I                 Civil Aviation Authority, which has been
     has closed more than $2 billion-worth of            have always had a good relationship with               “extremely professional”.
     financing deals since then.                         Boeing,” he says.                                         The carrier will fly international routes but
        “I know the credit risk aspect of airlines          Leasing was an obvious choice.                      has plans to operate domestically, too.
     as well as management and commercial                Bourgade reveals that Aeroitalia has signed               Italy is one of the largest exporters in
     models that work or not. Before the                 its first 737-800 lease with Macquarie                 Europe and the business market is very
     Covid-19 pandemic, I started to work for an         Airfinance.                                            developed. Bourgade expects Aeroitalia
     investment fund that looked at acquisition             “The plan is to grow the fleet to six units         to move from its charter services niche
     opportunities in Europe. We studied airline         by one year of operations,” he comments.               and become a more “conventional carrier”
     business plans for months. This was key                But Bourgade has a vision of a mixed                within three years.
     to understanding different airline models           fleet of narrowbody and widebody aircraft.                He adds: “Once we have a track record
     and markets. Then I realised that Italy has            Given that traffic recovery in the                  of operations in Italy we will open the
     growth opportunities for a new entrant as           widebody sector is not anticipated before              capital to further grow our operations.”

14   Airfinance Journal May/June 2022
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