Private Equity

One of the most interesting aspects of the recent rescue packages for both Virgin Atlantic and LATAM Airlines in recent weeks is the ability and desire of private equity to provide the necessary cash to bail both airlines out. Their interest in aviation assets isn’t new of course, their emergence in this sector has been an increasing theme over the past 4/5 years in particular. However, it’s starting to become clear that, if these rescue packages are anything to go by, private equity will play an even larger part in the post-COVID airline industry than before.

Alternative Sources of Revenue

That’s not to say other sources of finance aren’t available to airlines and lessors alike as they look to keep their head above water in the testing times we’re in.

Sale and leaseback transactions have notably increased since the shutdown of air routes. Airlines have looked to offload assets to lessors, in particular, and bank the cash value to help fund operations. This has been and will continue to be a popular route to raise funds.

Capital markets are still open. The predicted bumper year for ABS issuances will not come to pass but for those able, issuing unsecured notes is a possibility, albeit almost certainly at a higher price than would be usual. In addition, EETCs are still an option particularly in the US market where the vast majority have been issued to date. One interesting development here could see this product move exclusively from the airlines as issuers to lessors as well, one to watch perhaps.

Finally, there will almost certainly have to be more government help if the continued ban on travel continues deep into 2021. The US has been far more generous in this respect through the CARES Act and rumours of more to come. In Europe it’s been sporadic, Lufthansa and Air France/KLM have both received government funds (with stringent greening conditions attached to the latter) but plenty more have not and it will be interesting to see if any further state funds will become available and the fall out from this if not. Perhaps a more popular route will be a reversion to ECA financing which often steps into the breach in times of crisis.

PE Rules

All the alternatives come with health warnings however. In addition, some of these financing options will almost certainly not be open to all. As such, it seems the continued rise and rise of private equity into the aviation industry either directly or through JVs is set to continue and will play a major role in seeing airlines and lessors through to better times ahead.      

Leman Solicitors have extensive restructuring, distress and transactional experience in aviation. 

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