United Airlines will continue to raise commercial bank and capital market debt for aircraft in 2016, even as it focuses on deleveraging its balance sheet.

“Going forward, we’re going to focus on EETCs [enhanced equipment trust certificates] and sprinkle in bank debt,” says Ted North, managing director of corporate finance at the Chicago-based carrier, at the Ascend West Coast Finance Forum in San Francisco today.

These sources of debt have been the mainstay of United’s aircraft financing strategy for a number of years.

What the airline will change the amount of debt. It will raise less for new aircraft going forward as it works towards a $15 billion total debt target, says North.

United can either finance fewer new aircraft or raise less debt against all of its new deliveries to achieve this goal, he says.

Its total debt stood at about $17.7 billion at the end of the third quarter.

In 2015, United financed more than 90% of its new aircraft deliveries and paid cash for “a couple” Embraer 175 deliveries, says North.

The carrier will take delivery of about 20 new aircraft, including Boeing 737s, Boeing 787-9s, its first Boeing 777-300ER and E175s, he says. The split between cash and debt will likely follow the same pattern, though the amount of debt is likely to continue to decrease.

United anticipates about $3 billion in capital expenditures in 2016.

Sale and leasebacks remain less attractive for United, says North. This is unchanged from the airline’s view in recent years.

United tends to keep aircraft in its fleet for the majority of their operational life, negating the commonly cited benefit of sale and leasebacks that allows airlines to return aircraft to lessors at the end of the 10- or 12-year term of the deals.

Source: Cirium Dashboard