The Market Outlook forecasts that in 2015, commercial aircraft finance strength should result in efficient financing for airlines and historically low levels of export credit usage, with commercial bank debt and the capital markets expected to cumulatively account for approximately 60% of delivery financing.

Much of the bank debt and capital markets activity should be for lessors, who are expected to fund about 40% of all deliveries.

The Market Outlook authors said: “The strength we’re seeing in aircraft finance is largely the result of a healthy and balanced global demand for new aircraft, driven by anticipated passenger traffic growth, record airline profitability, and the continuation of a replacement cycle to improve the fuel and performance efficiency of a large portion of the global fleet.

“Concerns about fuel prices, interest rate hikes, currency volatility, political unrest, and health epidemics are responsible for some market angst. However, as long as these variables do not undermine global economic growth, the current trends for new airplane demand should continue in 2015, supporting continued strength and balance for the global aircraft finance industry.”

Lessors becoming more efficient

Aircraft lessors are expected to support a large share of 2015 deliveries while driving significant innovation in aircraft finance. Over the past three years, leasing companies shifted the bulk of their leverage from commercial bank debt to more efficient capital market funding.

This expanded capital market liquidity is attracting new institutional investors and stimulating interest in the creation and evolution of aircraft portfolio securitization structures.

Half of world airline fleet will be leased

half of airline fleet will  

Balanced portfolio growth

balanced portfolio growth

Lessors increasingly turning to the capital markets for funding

capital markets for funding

The role of capital markets

An expanding investor base, a healthy balance between secured and unsecured funding, innovative financing structures, and a growing private placement market are helping to propel the growth of capital markets in aircraft finance.

In 2015, the capital markets are expected to support nearly a third of new deliveries through both secured and unsecured funding. Capital markets will be the primary source of leverage for lessors, who are a conduit to the public markets for many airlines. For new deliveries, global airlines will rely on both secured and unsecured issuances, with lessors primarily using unsecured structures.

The report stressed: “We expect refinancing activity to remain strong, with a variety of secured structures for both airlines and lessors.

“In 2015, commercial bank debt is expected to remain the second-largest source of financing for new deliveries. The rise of new participants, especially from the US and Australia, along with the continued participation of existing lenders, should help maintain balance, diversity and strength in the bank markets for 2015.

“First-tier airlines and lessors should continue to be the primary beneficiaries of robust competition among banks.”

The Boeing Market Outlook believes that commercial market strength and the higher fees and equity requirements resulting from the 2011 Aircraft Sector Understanding are expected to keep export credit usage at historically low levels in 2015. Export credit usage will likely be limited to emerging market players, new lessor platforms, and a modest amount of funding needed for diversification by established carriers.