IBA’s Phil Seymour investigates 3 key impacts that Covid-19 has had on the speed and efficiency of aircraft repossession and remarketing. This information was taken from IBA’s submission to the report ‘Aircraft Repossession Planning – Practical Considerations’ produced for Internal Comparative Legal Guides (ICLG) 2021.
Repossessing aircraft is nothing new. However, the last year saw the world hit by a once-in-a-century-type pandemic and at the time of writing, one year on, there is still no clear path back to pre-COVID-19 air traffic levels. We have seen unprecedented government support for many airlines, but in many cases only those perceived as ‘flag carriers’ have received such support. There will inevitably be more unscheduled returns of aircraft as part of the processes of airline failures and restructuring.
Every repossession case is different. From the location and completeness of aircraft records to the goodwill of stakeholders, numerous key factors effect the ease of the process. Much can vary depending on whether major maintenance is required (such as if the engines are on programme/due a shop visit, or the airframe is due a heavy check) An unorthodox interior configuration can also lead to additional costs to prepare the aircraft for optimal remarketing.
Example: In a balanced market, the downtime expectation for remarketing a 5-year-old A320/B738 to a price to within 95% of expected market value for this category is 6 months - including time required for maintenance and delivery requirements of the Purchaser or Lessee.
Reviewing typical defaults and repossessions in this category over a period of 10 years, we can see remarketing timelines from as little as 1 month through to 12 months to sale. The Coronavirus pandemic has meant that these timescales have been severely impacted by 3 key factors.
Redundancies and staff furlough schemes mean resources are even more limited than usual when it comes to completing a ‘reasonable’ process – especially if this leads to administration or liquidation
Even more reluctance from the Owner/Lessor to take back an aircraft given the lack of onward placement opportunity.
Severe lack of mobility for the redelivery teams due to international travel restrictions.
In previous deep downtimes (such as post 9/11 and the global financial crisis) it took around 2 years for some values to recover. Older aircraft are often the first to be permanently retired. We expect this scenario to be played out this time round, and given IATA’s prediction of pre-COVID-19 traffic recovery being unlikely before 2024/2025, recovery will take longer.
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In response to the unprecedented number of airline bankruptcies and defaults over the first half of 2019, IBA hosted a Risk and Repossession Webinar. Designed around the needs of Lessors, Financiers and Investors, our team of experts looked at credit risk, current levels of stress in the market, offered guidance on approaching defaults and shared our first hand experiences in this area. Topics included: Risk & repossessions - what are we seeing in the market place? Keeping up to date with credit risk Repossession best practise In this session Peter Walter, IBA's Director - Asset Management and Guljar Lehri, Head of Aircraft Transactions and Technical Marketing share their valuable sector expertise. A copy of our Repossession and Risk slide deck is available to download here. If you have further questions, please contact: Peter Walter
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