Wow: Aviation has lost everything it had done since WWII
While the COVID crisis saw the bottom of the aviation industry wiped out, there have been far fewer bankruptcies than one might expect. The reason for this is the high level of financial support the industry has raised, inflating the global debt burden to over $ 650 billion. ALC President Steve Udvar-Hazy noted how much has been lost and how donors are providing a path for recovery.
Speaking at a recent CAPA Live event, Air Lease Corporation (ALC) Executive Chairman Steve Udvar-Hazy commented on the impact of COVID on the industry. He said,
“The airline industry as a whole globally has lost everything it has gained since World War II. I mean, everything, all the hard earned profits are gone.
“Without the support from the government, whether in the form of guarantees, equity, loans, all kinds of drugs that government agencies have offered, the airline industry would have been crippled.
Indeed, the crisis has provoked an unprecedented reaction from the governments of many countries to put their hands in their pockets and lend support to their airlines. While this ensured the survival of many carriers that would otherwise have gone bankrupt, it also created a difficult scenario for the future.
IATA estimates that the debt burden of the industry as a whole increased by $ 220 billion to a total of $ 651 billion. While more people will likely travel in 2021, the Association still estimates that airlines will spend an additional $ 81 billion by the end of this year. On the other hand, there is the widespread reduction in assets that airlines have had to do, as Udvar-Hazy explained,
“The balance sheets of airlines today compared to what they were, say, 18 months ago, are very different. And many airlines have mortgaged everything, their planes, their slots, their airport terminals, their ground facilities, their loyalty programs. They borrowed against all possible assets or even virtual assets that they don’t even have. “
In the first quarter of 2021, airlines raised $ 16.6 billion, slightly less than the record $ 17.5 billion raised in the second quarter of 2020, through IPOs and bond issues. ‘bonds as well as loans. Overall, in 2020, airlines raised $ 42.6 billion in debt markets, the highest amount in history.
Donors continue to play an essential role
With airlines being heavily in debt, many have already had complimentary credit credentials reduced to C and D. This impacts their ability to secure new credit and puts them in a precarious position in terms of future development.
The leasing community has provided some protection against the blow of the pandemic. Companies such as ALC have played a vital role in their commitment to undertake financial transactions, thanks to their excellent credit ratings and position of strength. Udvar-Hazy commented,
“Airlines need third parties, such as the leasing community, more than ever before to be able to continue with fleet modernization and fleet replacement.”
This shift in the balance of power has never been more evident than it is today. Aircraft leasing has grown over the decades, from around 15% of the global fleet in 1990 to over 45% at the start of 2020. But as we move into 2021, a key milestone has been reached. .
“At the end of last year, we crossed that threshold where more than 50% of planes are leased, either operating, leasing, or sale-leaseback. It’s a huge change from where we were just five years ago ”. said the boss of the ALC.
It’s no surprise that the leased fleet has exploded. Barely a week goes by without hearing from another airline engaged in sale-leaseback operations to raise capital. This trend is expected to continue as airlines will remain in a precarious financial situation for a few years. Udvar-Hazy concluded,
“We continue to see the leasing community really being a much more critical part of the airline industry, being able to finance expensive capital goods, while the airlines are going to have limits on how much. they can borrow. ”