Enhanced equipment trust certificate (EETC) financings for Asian carriers are still in their infancy, according to delegates at the International Society of Transport Aircraft Trading (ISTAT) conference in Tokyo.
"The extent that the EETC has been used in the North American market seems to suggest it should have an application in Asia, but the absence of understanding in the market, and the sense of a potential disconnect between the investor and the issuer, in my view, will only become more accentuated when you try and push it [the EETC] into the Asian market, " said Nick Fletcher, executive vice president of Commonwealth Bank of Australia.
He dismisses EETC financings in Asia as "meaningful sense of capital" as there is "just too big of a gap" between the investor and the issuer.
Fletcher also questions the economies of scale of putting these deals together and legal issues surrounding the transferability of investors.
According to Aircastle's chief executive officer Ron Wainshal a key difference between non-US based carriers doing EETC transactions, now and 10 years ago, is in the investor base.
"Before it was a structure bought by banks, but now the investors are pensions plans and mutual money firms in the US. And that is a big difference, as airlines and lessors are looking to tap into more sources of money," he says.
One of the obstacles for EETCs and capital markets in Asia, and outside of the USA, is achieving a rating, says Deutsche Bank's Doug Runte.
"You no longer need to get a public rating but you need to go through the process and it is very easy to reverse engineer the unsecured rating of an airline once it has a EETC outstanding," he says.
According to Runte, there are "probably five investment grade airlines in the world by the export credit agencies metrics, and another 50 which think they are, and, of those, 15 probably think they are double A-rated , so ratings are definitely an obstacle."
He also notes in the past month, the pricing in the capital markets has been "absolutely spectacular".
"We see senior tranches of EETCs now pricing at 3.95%, and trading in the secondary market at 3.5%, and subordinate tranches not dramatically far behind."
Unsecured airline issuances have now come back after a six-year absence, he says with "United Airlines entering the market with a bond at 6.38% and trading at 5.35% within four days of pricing, so there is capital markets demand for all sorts of risk."