Facing headwinds

The aviation sector has endured a difficult two years amid border closures and lockdowns. In spite of persistent volatility and uncertainty, our survey finds that senior executives are cautiously optimistic about the state of global aviation financing in 2022

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Foreword

The past two years has been a period of intense turbulence for the aviation sector, with a number of bankruptcies, bailouts and collapsing revenues brought about by the coronavirus pandemic. The impact on airline receipts has been challenging. Indeed, the gap between projected and actual receipts suggests that airlines have lost passenger revenues worth nearly US$1 trillion as a result of the pandemic.

Rebuilding balance sheets and restoring passenger confidence is going to take time. Uncertainties lie ahead, and (as the rapid spread of COVID-19 variants remind us) there is no room for complacency.

Yet as this survey shows, there are also tentative grounds for optimism.

First, airlines and lessors now have access to a wider range of funding opportunities than ever before. Innovative financing is the order of the day: In addition to traditional sources, such as banks, capital markets and export credit agencies, the aviation sector is increasingly tapping into funding from alternative capital providers, including private equity and hedge funds. High- net-worth individuals and family offices are now part of the mix as well, along with new capital market products, such as green bonds.

Second—and closely linked to the evolving financing environment—is the rising awareness of environmental, social and governance (ESG) considerations within aviation. Airlines and lessors—and the investors who back them—are making the first steps towards decarbonizing aviation with initiatives that span everything from the development of sustainable aviation fuel (SAF) to the first, albeit short-range, electric aircraft.

This matters, because the future of aviation is as much a battle for hearts and minds as it is about technology. COVID-19 has turned many of us into teleworkers, while the rise of the "staycation" has reminded travelers of the good times they can have close to home. Winning back passengers—business travelers in particular—may not be easy. Against this background, travelers of all types are increasingly aware of the environmental impact of their journeys. Seen in this light, even small steps toward boosting the green credentials of airlines could make all the difference.

The aviation sector that emerges from the pandemic is likely to look very different from the one that went into it two years ago.

But it is also a sector that is likely to be more flexible, leaner, a little greener and—above all—better adapted to whatever the future has in store.

“Uncertainties lie ahead, and there is no room for complacency. Yet as this survey shows, there are also tentative grounds for optimism.”

 

Methodology

In the fourth quarter of 2021, White & Case, in partnership with Mergermarket, surveyed 100 senior-level executives at entities that have either financed or invested in the aviation industry in the past three years. The aim of the survey was to analyze sentiment regarding aviation finance. Organizations surveyed included airlines, operating lessors, banks, export credit agencies, private equity and other alternative capital providers. Job titles included CEO, CFO, director level and heads of investment.

 

Facing headwinds
Facing headwinds

Overall investment outlook for global aviation finance

Aviation sector executives expect to maintain or increase investment in 2022, despite continuing headwinds caused by COVID-19 and concerns about the global economy

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Facing headwinds
Facing headwinds

Funding sources

Our survey shows that a majority of respondents expect funding to increase in 2022—and from a wide range of sources

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Facing headwinds
Facing headwinds

Liquidity and refinancing

Capital and liquidity remain a primary preoccupation for the aviation sector

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Facing headwinds
Facing headwinds

Change is in the air

Respondents see COVID-related disruptions, economic contraction and geopolitical instability as the top challenges for the aviation sector in the coming year. But growth is expected, notably in Asia-Pacific and Australasia

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airport runway
airport runway

How aircraft lessors are weathering the storm

Flexibility in the ascendant aircraft leasing sector

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Facing headwinds
Facing headwinds

Conclusion

Key takeaways from our survey and what they could mean for the aviation industry

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