The long dormant aircraft sector may be getting a shot in the arm soon as two issuers are expected to bring deals in the coming months. G.E. Capital Corp. and debis AirFinance are reportedly planning aircraft lease-backed deals soon, according to a source familiar with the deals. Neither Stamford, Conn.-based G.E. Capital nor Amsterdam-based debis responded to inquiries about the possible deals.

Since G.E.'s two previous aircraft deals have been backed by leases on corporate aircraft, the upcoming deal is expected to be a corporate lease-backed deal as well. debis mostly leases jets and turboprops to commercial airlines, and therefore, commercial leases would likely back its deal.

The deals are part of the resurgence of the aircraft ABS sector after the industry suffered a huge blow from the Sept. 11 attacks. The fallout from those attacks, which was a massive decrease in commercial air travel, coupled with bankruptcies, union problems and persistent high fuel costs caused downgrades in existing aircraft ABS deals, and forced issuers to put their securitization plans on hold.

Now that the industry is once again on stable footing, those deals are starting to reappear in the market. The most recent aircraft related deal was a $228 million transaction from Willis Lease Finance Corp., the second-ever deal to be backed by leases on aircraft engines (see ASR 8/1/05).

As the landscape of the airline industry has changed over the past few years, rating agencies have also changed their criteria for those deals and are taking a more critical eye. Analysts from Fitch Ratings, said, "post 9/11 aircraft operating lease criteria changes have included lowered residual value credits on older aircraft, lower depreciation rates on all aircraft and additional stresses to the base cash flow assumptions."

Parla Ozgediz, analyst with Moody's Investors Service, said her agency now places additional stress on expenses incurred when a leasing company repossesses and remarkets aircraft. Moody's has also lowered its useful life assumption for aircraft from 31 years to approximately 25 years, and has placed a $1 million cap on the scrap value of aircraft.

Among the trends to watch for in upcoming deals will be the tendency to have deals wrapped, as well as for issuers to include a greater percentage of newer and more marketable aircraft types into deals, said Jay Eisbruck, team managing director with Moody's.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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