Operating lessor AWAS looks to improve its "BB" credit rating, but admits private equity backing could prevent an uptick to investment grade.
"As the company continues to grow, AWAS will look to improve that rating," says AWAS' chief executive officer and president Ray Sisson in an interview. "Although indications from the ratings agencies are that attaining an investment grade rating will be a challenge while the company remains controlled by private equity."
The market "does not always fully appreciate the benefits of private equity ownership, as it allows for quick decisions away from the spotlight of the public markets," he says. AWAS has received "very strong support from its shareholders over the course of the past seven years of ownership, with over $2.7 billion invested and no dividends or other forms of share distribution taken out," he says.
No doubt, an investment grade rating would be helpful in attracting funding in finance markets, which Sisson says are "under pressure".
These pressures include the "significant pullback" in bank financing to the sector, "notably the traditional European lending banks who have experienced a shortage of US dollar liquidity"; changes in export credit agency financing under the new Aircraft Sector Understanding, "which is significantly increasing the cost of such financing"; and Basel 3, "which will increase the cost for banks of providing long-dated financing to the aviation sector, coupled with the more general reduction in risk capacity that banks will have available for lending purposes," he says.
"This is a very bad trend for our industry," he says.
One way to mitigate the "bank pullback" and "other financing challenges" is to focus on capital markets transactions, Sisson says.
However, few capital markets deals have materialised to date, but Sisson believes this is about to change.
"It is a case of chicken and egg - once there is more supply, this will create demand for the product," he says. "They are not a panacea...the capital markets are not as price efficient as they could be, but more offerings and increased demand will create efficiencies and new options."
Even with the development of new capital market structures in the cards, AWAS "is still including" export credit support and bank funding in its future financing plans.
"The bank market is not all doom and gloom," he says.
Long-term relationships with banks has enabled AWAS to continue to access financing, even as banks scale back their aviation lending, says Sisson.
Sisson has set the AWAS corporate finance team the task to look at "innovative financing sources".
"This has been very successful with a $500 million blind pool warehouse facility put place in mid-2011, the facility having been refinanced in a July 2012 term loan issue attracting 39 investors new to AWAS, freeing up an additional $500 million capacity over the course of the facility," he says.
AWAS has also put additional resources into Asia, with the placement of a senior corporate finance executive and a trading manager in Singapore "reflecting the increasing importance of this area both for aircraft placement and as a source of financing."