KBRA Releases Research - EETC Resilience: Updated Historical Recoveries Through Pandemic and Beyond

KBRA releases research that provides updates on the performance of enhanced equipment trust certificates through the pandemic and provides insight into future expectations. The COVID pandemic had an abrupt and severe impact on the aviation industry. Airlines around the world grounded a significant portion of their fleets owing to travel restriction, reduced demand, and widespread uncertainty. Passenger demand fell by around 98% in many regions globally at the peak of the pandemic in April 2020, with industry financial losses topping $370 billion. Airlines renegotiated payments for leased and financed aircraft to preserve liquidity in order to prevent what could have been record levels of defaults given the majority of aircraft were either leased or financed. Although airlines were under enormous stress during the pandemic while aircraft values significantly declined and many filed for bankruptcy protection, most airlines remained committed to meeting their obligations under EETCs, reinforcing the historical stellar performance of EETCs and their reliability as a financing source for the aviation industry.

Key Takeaways

• Long-term data analysis reveals that EETCs have consistently demonstrated a significantly lower default rate than airlines. This highlights the robustness of the EETC structure in separating airline credit defaults from EETC defaults, a trend that remained unchanged despite the struggles created by the pandemic.
• While there were additional rejection or impairments of EETCs during the pandemic, historical EETC losses have remained exceptionally minimal through various market cycles, numerous bankruptcies, and a pandemic. Cumulative loss rates over the past three decades have consistently fallen within the range of 0% to 3.6%.
• Post-pandemic positive capital markets trends are offset by airlines prioritizing deleveraging, resulting in reduced EETC issuance activity in the near term; however, optimism remains for EETC issuance in the long term given substantial aircraft delivery schedules and expected support from investors.

Click here to view the report.

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About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

Doc ID: 1002772

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