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Oct 7 (Reuters) - (The following statement was released by the rating agency)
Recent positive trends in aircraft leasing should pave the way for increased new operating lease ABS issuance in the near term, according to Fitch Ratings in a new report. However, evolving risks in the sector could impact long term performance and warrant continued consideration. Lessors have steadily grown their share of the aircraft finance market. Meanwhile, record expected aircraft deliveries and tightened financing sources have created the need for increased capital markets activity. The market has seen three aircraft lease securitizations or similar facilities so far this year.
Steadying airline industry and aircraft ABS performance is also making future issuance more likely. The improved health of commercial airlines in some regions has helped to lower default-related pressures in the near term. At the same time, lease rates and values on aircraft have firmed up following deterioration over the last several years. ‘Lease rates are closely tied to long-term interest rates so securitizations with fixed-rate liabilities could be buoyed by a rising interest rate environment.’ said Senior Director Bradley Sohl.
As always, however, emerging risks could create turbulence for these transactions. Proposed accounted changes regarding the treatment of operating leases also have the ability to shift the characteristics of lease demand in the future. Additionally, ‘New technology and increased narrow-body competition usher in new risks to aircraft securitizations,’ said Sohl.
It is important to note that current generation narrow-bodies comprise nearly all recent ABS portfolios. Demand will remain strong for these aircraft into the next decade based on the sheer volume of the fleet. But ‘new technology calls for increased scrutiny regarding long-term lease rate potential, aircraft useful life and the amortization profile of ABS structures,’ said Sohl.
Fitch expects stable asset and rating performance for recent vintage operating aircraft ABS securitizations in the near term.
‘On Auto-Pilot’ is available at ‘www.fitchratings.com’ or by clicking on the below link.
Link to Fitch Ratings’ Report: On Auto-Pilot: Aircraft ABS Stable; Whatâ€™s on the Horizon?