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The market for Aircraft Asset Backed Securitizations (ABS) has grown considerably in the last couple of years
Aircraft ABS have been around since the 1990s and involve the creation of bankruptcy-remote companies called special purpose vehicles (SPVs). Once a securitization SPV is set up, aircraft are purchased by the entity (normally sold to it by an aircraft leasing company known as an operating lessor) and are financed through the issuance of debt instruments called ‘Notes’ to the market. Two types of Notes are issued; Senior Notes to investors looking for enhanced returns and Subordinated Notes, which are held by a sponsoring entity or a third party that holds what is known as the Equity tranche. Returns to all investors are primarily based on rentals of aircraft to airlines, and subsequent disposals of aircraft.
Transaction parties
The securitization SPV requires on-going servicing of the aircraft and reporting of the cash-flows to investors through a waterfall structure. Key parties to the transaction include investors, rating agencies, banks, lawyers, accountants, aircraft servicers and support/cash managers.
Reason for growth
Aircraft securitizations have continued to grow in popularity over the years driven largely by the underlying asset, continued favourable interest rates and the relatively long-term and enhanced features that benefit both the issuer and the investors. Recently aircraft securitizations have expanded to include new, mid-life and older aircraft, and cover both commercial and regional aircraft, with 2015 seeing the first Asian aircraft securitization. It’s estimated that the transaction value of aircraft securitizations generated during 2015 exceeded US $4.5bn, with this number expected to grow in 2016 with a substantial pipeline in place.
How we can help
At TMF Group, we have extensive experience in the provision of accounting, cash management and corporate services to SPVs used for the structuring of lease-in, lease-out (LILO) aviation transactions, securitizations and other forms of asset finance. Our clients include banks, airlines and aircraft operating lessors.
TMF Group can provide services to aircraft securitization transaction parties by establishing global structures, providing local directorship and company secretarial requirements, cash management through the required waterfall, accounting and local tax filing requirements.