Asian aircraft lessors with strong shareholder backing and deep pockets are better positioned to weather the coronavirus crisis than their counterparts in other regions which may be less well-capitalised, says Goldman Sachs.
The severity of the coronavirus pandemic “could create some real concerns to some players”, though Asia is “better sheltered than some regions”, says Nicola Dondi, managing director at Goldman Sachs (Asia).
Dondi was speaking at a webinar hosted by Airline Economics on 17 April, about the impact of Covid-19 on the Asian aviation market.
“The vast majority of lessors in Asia are owned by banks who have very strong and deep pockets and, in most situations, those entities are viewed as strategic entities of the group, so there is an expectation on the market side that shareholders will step in to ensure an orderly function of the company themselves,” he said.
“Smaller players with struggling access to capital with no strong shareholder may struggle.”
He added that bonds issued by some bank-backed Asian lessors are trading at a material premium compared to others in the market.
“So I think that’s an interesting bifurcation that does actually show, those lessors with certain ownership structures and therefore certain types of credit rating will certainly be at an advantage here when it comes to their ability to raise capital and withstand the current shock.”
Dondi notes that airlines that moved early to raise liquidity will have an advantage and cited as an example Delta Air Lines, which raised a $1 billion enhanced equipment trust certificate on 5 March.
“We’ve seen several billion dollars being raised by airlines through bilateral transactions as part of secured and unsecured transactions and those deals were done, I would say, well ahead of the volatility and … those early movers were able to shore up liquidity … their capital positions, their balance sheets, their covenants, and therefore are arguably less at risk of meaningful rating action that would further impair their overall ability to access capital.”