Respondents to this research offer a broadly optimistic view of the short-term outlook for the aviation industry and aviation finance. Despite obvious economic headwinds and undoubted geopolitical volatility, the industry has continued to grow, and this has underpinned positive sentiment.
However, the picture varies around the world. APAC-based respondents are markedly more confident about what lies ahead than their counterparts in the EMEA region, where economic malaise and Brexit pose difficult challenges. North America, too, is less upbeat than APAC, with the future direction of the economy unclear, particularly in a US presidential election year.
In 2020, airlines, operating lessors and the industry's funding partners will need to make some finely balanced judgments as they reflect on their priorities:
- APAC's prospects look brightest, but the region's low-cost carriers are operating on thin margins, and infrastructure remains a concern.
- North America is vulnerable to the effects of a slowing economy but has so far been able to escape its worst effects.
- European airlines face tough competition, while the number of industry participants may prove excessive in Asia and capacity may prove excessive in the Middle East. However, consolidation and restructuring may present new opportunities.
- The funding markets remain open, with a broad range of investors attracted to aviation's cash flow and diversification attributes, and new sources of finance having come onstream. Still, a decline in US funding would present difficulties, and funding sources are more precarious in some markets.
- Liquidity remains high, and providers in some markets feel an oversupply is detrimental to returns. However, not all those seeking to access liquidity are operating on a level playing field, and some report shortfalls.
- Low interest rates continue to offer opportunities to refinance or take on additional debt. For some, it may be worth closing down existing credit facilities before they reach maturity.
- Amid the confidence, insolvencies and restructurings continue to mount up, underlining the need for balance sheet strength and positive cash flows.
- The slowing global economy should give pause for thought. At the same time, planning ahead in this age of elevated uncertainty is difficult. For example, many airlines are working on the basis that oil prices may rise, despite predictions of a small decline.
- Infrastructure now represents a barrier to aviation expansion, even in markets where new airports are still being built. Growth strategies will need to reflect this reality.
Given these nuances, while the industry is justified in approaching 2020 with optimism, this positive mood will need to be tempered with caution. Those that hedge in case of disruption are unlikely to find the effort has gone to waste.
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