ISTAT Learning Lab

istat.org/ISTAT-Online

& GLOBAL AIRFINANCE

SERVICES

Evan Wallach
Introduction to President & CEO, Global AirFinance Services
John Mowry
Aircraft/Engine ABS Managing Director, Alton Aviation Consultancy
September 14, 2021
Today’s Discussion

1 ABS Overview 3

2 Deal Structure 11

3 Evaluating Performance 21

4 Recent Market Activity & Outlook 25

5 Q&A 30

2
1. ABS OVERVIEW

3
An asset-backed security (ABS) is a financial instrument collateralized by
an underlying asset pool that generates cash flows
Aviation ABS represents a small fraction of the overall global capital markets

GENERAL ABS CHARACTERISTICS GLOBAL BOND & ABS MARKET METRICS, $ BILLIONS

 Cash flows of the underlying obligations are used to

make interest payments and principal repayments GLOBAL OUTSTANDING BONDS, YE 2020 $123,000
 Can take form of bond or note, and be public or
private
US OUTSTANDING BONDS, YE 2020 $47,000
 Investors receive notes entitling them to a stream of
coupon and principal payments
US BOND ISSUANCE, 2015-2020 $50,000
 Multiple tranches of notes, with senior tranches
having higher repayment priority
 As an alternative to other debt instruments (corporate US TOTAL ABS ISSUANCE, 2015-2020 $2,500
bonds, bond funds), buyers including insurance
companies, pension funds, private equity funds, etc.
US AVIATION ABS ISSUANCE, 2015-2020 $33

$0 $50,000 $100,000 $150,000

4
 Within the aviation industry, the ABS market is an important financing
channel, but a small share of overall debt financing and the leased fleet

ESTIMATED TOTAL AVIATION DEBT FINANCING BY PRODUCT AIRCRAFT ABS VOLUME VS. LEASED FLEET
$250 18,000 10%
ABS AIRCRAFT
16,000 LEASED AIRCRAFT 9%
ABS
$200 INSURANCE ABS % OF LEASED 8%
14,000

ABS AS % OF LEASED FLEET

EXPORT CREDIT
7%
COMMERCIAL LOAN 12,000
$150 CAPITAL MARKETS EX-ABS 6%
10,000
$ BILLIONS

UNITS
5%
8,000
4%
$100
6,000
3%
4,000 2%
$50
2,000 1%
- 0%
$0 1992 1996 2000 2004 2008 2012 2016 2020
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

5
Asset-backed securitizations have been used principally to finance aircraft
and engines in the operating lease market

HIGH-LEVEL AIRCRAFT ABS TRANSACTION STRUCTURE

 An aircraft/engine ABS is a financing structure used Equity

by a lessor/investor sponsor to raise capital by issuing Aircraft Seller Owner(s)
securities (“Securitization) that are repaid over a
period of time from cash collections generated by a Liquidity Servicer
Facility Issuer
collateralized portfolio of aircraft/engines (“Assets”) Provider SPV
and their leases Managing
Bond
Agent
 On behalf of the investors, a “Servicer” manages the Noteholders
collections, expenses, remarketing, and sales of the Tranche 1

Bond Noteholder
aircraft/engines, for the optimal repayment of the Trustee
securities Noteholders
Tranche 2

AOE SPV #1 AOE SPV #2 AOE SPV #...

Lease Lease Lease

Airline A Airline B Airline …

6
Asset-backed securitizations confer benefits to aircraft lessors and
investors alike
AIRCRAFT LESSORS
 Portfolio Management: ABS allows lessor to “sell”
large block of aircraft (25 to 40) at one time; an
alternative to trade sales
 Lower Financing Cost: The ABS structure may
provide a lower cost of capital than alternative
financing channels for certain borrowers
 Fee Income: Lessors receive fees as Servicer for
managing all aspects of the aircraft portfolio on behalf
of the investors
 Relationship Maintenance: Lessors have ability to
continue maintaining lessee relationships
 Diversified Funding Channel: Lessors perceive value
from having alternative financing channels available
AIRCRAFT INVESTORS
 Notwithstanding current disruptions, assets:
 Are mobile and part of global leasing market
 Have predictable residual values with active secondary
asset trading market
 Large ticket
 Opportunity to choose:
 securities with the targeted risk/return profile (tranche, rating,
etc.)
 underlying assets and initial credits, jurisdictions, and lease
terms
 servicers perceived to most efficiently maximize cashflows
for investors
 desired diversification across credit, asset, etc.
 when to sell, given secondary trading market
7
Aviation ABS structures have evolved over the past three decades

AVIATION ABS ISSUANCE, $ BILLIONS

$10
ABS 3.0
$8
ABS 2.0
$6 ABS 1.0
$4

$2

$0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
ABS 1.0 ABS 2.0 ABS 3.0

 Generally, initial transactions
featured complicated structures with
as many as nine tranches
 Amortization rates were variable and
aggressive
 Many aircraft in the collateral pools
were out of favor
 ‘A’ rated bonds featured ~75% LTVs;
lower tranches up to 95%
 Fewer tranches (typically 1-4) but
continued variable amortization with
limited refinancing incentive
 Many senior debt tranches supported
by monoline wraps
 ‘A’ note LTVs similar, but all-in LTVs
lower than earlier generation
 WAL ~5 years, down from ~10 in
earlier generation
 Maintenance forecast at issuance
 Simplified 2-3 tranche structures,
with largely fixed rate debt
 Straight-line amortization with
refinancing incentives
 LTVs average 65% for A, 77% for B,
and 83% for C notes
 Initial and periodically updated
maintenance reserve projections
8
 Since 2015, over $35 billion in debt has been issued in 66 transactions
Castlelake and Carlyle are associated with the largest volume of issuances in recent years; GECAS, ALC, and BBAM are
servicers for portfolio sale transactions and/or managed fleets

ABS DEBT ISSUED SINCE 2015, $ BILLIONS ABS DEBT ISSUED SINCE 2015, BY SERVICER, $ BILLIONS
$10 CASTLELAKE
THOUSANDS

CARLYLE
$9 TAILWIND 2019-1 GECAS
ALC
$8
STARR 2019-2 BBAM
TBOLT 2019-1 DVB
HORIZON 2019-2 MERX
$7 RAPTOR 2019-1 WLFC
AVOLON 2015
$6
KDAC 2017-1
KESTREL 2018-1
FALCON 2019-1 BOCA
SPRITE 2017-1 CARGO 2018-1 AASET 2019-2 GOSHAWK 2016
HORIZON 2018-1 MACH 2019-1 WINGS
$5 WAAV 2017-1 DAE
HAIL 2017-1 ASSET 2018-2 WAVE 2019-1 ACG 2017
$4 MRLN 2016-1
ZCAP 2018-1 STELLWAGEN
METAL 2017-1 WEST 2018-1 SLVRR 2019-1 CLAST 2017-1R SKY
LAFL 2016-1 2018
CLAS 2015-1 SJETS 2017-1
TBOLT 2018-1 HORIZON 2019-1
BBIRD 2021-1 AIRBORNE
$3 BBIRD 2016-1 WEST 2017-1
STARR 2018-1 AASET 2019-1 AERGO 2019
SHNTN 2015-1 PION 2019-1 THRUST 2021-1 WORLD STAR
$2 DHAL 2015-1 AASET 2016-2 CLAST 2017-1 CLAST 2018-1 JOLAR 2019-1 SLAM 2021-1 STRATOS
WEST 2021-1
SUNB 2020-1
ELIX 2020
STARR 2019-1
ECAF 2015-1 CLAST 2016-1
ASSET 2017-1 MAPS 2018-1
LUNAR 2020-1
MAPS 2021 ZEPHYRUS
$1 TBOLT 2017-1
SAPA 2018-1 CLAST 2019-1 SAPA 2020-1
WEST 2021-1
RGNL 2021-1
ST AERO 2021YTD
DCAL 2015-1
HAIL 2016-1 PROP 2017-1 FALKO
$0
AASET 2016-1 FALCON 2017-1 ASSET 2018-1 MAPS 2019-1 AASET 2020-1 CLAS 2021-1
VX
2015 2016 2017 2018 2019 2020 2021YTD $0 $1 $2 $3 $4 $5 $6

9
In the run up to the COVID-19 pandemic, a very significant portion of the
transactions involved a sale of the equity

TOTAL AVIATION ABS DEBT ISSUED, $ BILLIONS ABS EQUITY MARKET

$10 Single Buyer ‘Tradeable’ Equity
EQUITY SOLD
$9 DEBT ONLY • Akin to full portfolio • Typically an ‘anchor’
$8 acquisition, with attached investor conducts
debt financing enhanced diligence, takes
$7 • Transaction timelines of 6- large minority position with
12 months multi-year lock-up but
$6
• Limited universe of buyers higher IRR
$5 given large check sizes • Otherwise distributed
required equity of smaller tickets
$4 • Limited liquidity for bring enhanced liquidity
secondary sales • Shorter transaction
$3
issuance timelines
$2 • Enhanced reporting

$1

$0
2015 2016 2017 2018 2019 2020 2021YTD

10
2. DEAL STRUCTURE

11
Pledged assets are carefully considered with respect to leases, credits,
and asset
Issuers and sellers, debt and equity investors, investment banks, rating agencies, etc. are all keenly focused on the
underlying collateral

LEASES CREDITS METAL / ASSET

 Current contracted rents  Expected probability of  Age

 Scheduled lease expiration
 Early termination options
 Lease extension options
 Purchase options
 Maintenance cash flows (reserves,
lessor top-ups, end of lease
payments, letter of credit)
 Utilization
 Minimum technical return conditions
 Concentration of lease expirations
performance during term  Current maintenance condition
 Financial creditworthiness, and  Secondary market liquidity
historical performance
 Value depreciation profile
 Business model
 Green-time leasing and part-out
 Jurisdiction risk market value
 Guarantees  Expected re-lease rates and terms
 Government support  Reconfiguration and remarketing
expenses
 Concentration
 Lessee-specific  Repossession costs
 Region  Downtime between leases
 Remaining useful life

12
Given the relative concentration of discrete assets supporting aviation
ABS issuances, issuers agree to concentration limits

LESSEE CONCENTRATION LIMITS REGION CONCENTRATION LIMITS

Parameter % of Portfolio Value Parameter % of Portfolio Value

Single Lessee 40% Developed Europe 60%

Three Largest Lessees 55% Developed North America (excluding 60%

United States)
Developed Asia/Pacific 50%
COUNTRY CONCENTRATION LIMITS
Emerging Europe & CIS 40%
Parameter % of Portfolio Value Emerging Africa/Middle East 40%
United States & United Kingdom 100% Emerging Latin America/Caribbean 35%
Any single country with foreign 40% Emerging Asia/Pacific 55%
currency debt rating BBB or better
All other single countries 25%

13
A wide array of assets and credits have featured in ABS issuances
Since 2015, narrowbodies have been most prominent led by the 737-800 and A320-200; a wide range of lessees and
aircraft age have featured as well

ASSET VALUE @ ISSUANCE BY ASSET CLASS, $ BILLIONS ASSET VALUE @ ISSUANCE BY A

INITIAL
SSET CLESSEE
LASS, ,US$M
$ BILLIONS
$40 $40
$35 $35 OTHERS (292)
REGIONAL JET DELTA AIR LINES
$30 $30 ALITALIA
$25 TURBOPROP $25 ASIANA
PHILIPPINE AIRLINES
$20 $20
ENGINE AIR CANADA
$15 $15 INDIGO
$10 WIDEBODY $10 GARUDA INDONESIA
GOL
$5 $5 AMERICAN AIRLINES
NARROWBODY
$0 $0 QATAR

ASSET VALUE @ ISSUANCE BY MODEL, $ BILLIONS ASSET VALUE @ ISSUANCE BY AIRCRAFT AGE, $ BILLIONS
$40 $40
31-50
$35 OTHERS (50) $35
737-900ER 26-30
$30 737-700 $30
21-25
$25 777-300ER $25
$20 A319-100 $20 16-20
$15 A330-200 $15 11-15
A321-200
$10 $10 06-10
A330-300
$5 A320-200 $5 00-05
$0 737-800 $0

14
A portfolio aircraft, with attached leases, will be expected to generate a
series of cash inflows and outflows

REPRESENTATIVE ASSET-RELATED CASH FLOWS INDICATIVE ASSET-RELATED CASHFLOWS, $ MILLIONS

$600
 Lease rental revenue LEASE REVENUE MAINTENANCE INFLOWS MAINTENANCE OUTFLOWS
 Maintenance cash flows DISPOSITION PROCEEDS OTHER COSTS & FEES YEARLY NET
$500
 Inflows
▪ Reserves $400
▪ End of Lease Payments
 Outflows $300
▪ Reimbursements
▪ Lessor Top-Up Contributions $200
▪ End of Lease Payments
$100
 Transition costs
 Sales proceeds $0
 Servicing and administrative costs
-$100
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7

15
 All available cash collections are distributed according to a defined priority
of payment “waterfall”
Monthly Cash Collections
(Rent, Maintenance Reserves, EOL Payments, Sales Proceeds, etc.)

Required Expenses
Interest: Series A
Interest: Series B
Liquidity Facility Reserve Account
Priority of Payments

Senior Maintenance Reserve Account & Security Deposit Account

Maintenance
Scheduled Principal Amortization: Series A
Required Reserve Account:
Scheduled Principal Amortization: Series B Cash accrued within
Expenses:
operating & administrative Junior Maintenance Reserve Account structure to fund future
expenses; trustee, servicer, expected maintenance
Excess Proceeds
administrative agent fees
Rapid Amortization: Series A & B Excess Proceeds:
Liquidity Facility: Typically Non-typical basic rent,
DSCR Cash Trap
sized for (9) months of Series maintenance inflows, etc.
A & B interest payments Interest: Series C
Debt Service Coverage
Amort: Series C
Scheduled Amortization: Ratio Cash Trap: Limits
Expenses distributions if [collections /
Series A/B; ~10-12 years
Series C: ~ 7 years Equity P&I] <1.2X over six months

16
Structural features provide protection to bondholders in the event that the
transaction is not performing as intended or expected
LIQUIDITY FACILITY RAPID AMORTIZATION EVENT

 Typically sized for capability to make (9) months of  Typical triggers include:
Series A & B interest payments  DSCR drops below [1.15]
 On-lease fleet falls below [75%]
DEBT SERVICE COVERAGE RATIO (DSCR) CASH TRAP  Principal not repaid by Expected Maturity Date (when Series
A/B debt expected to be repaid under non-stressed
 DSCR quantifies amount of collections available economic conditions)
relative to scheduled principal and interest  Prioritizes debt repayments to Series A, then Series B
 Serves to limit Series C and Equity distributions if (limits distributions)
DSCR < [1.2] over [3-6] month measurement period  Sustained performance improvement can restore
 Cash trapped is applied to next month’s collections (before Expected Maturity Date)

EVENTS OF DEFAULT

 Typical Triggers:
1. Failure to pay interest of the most senior tranche
2. Failure to pay principal by the Final Legal Maturity date
 ABS event of default triggers a permanent change in waterfall with prioritization of Expenses, Liquidity Facility, Series
A coupon and principal, Series B coupon and principal, Etc.
17
With expected asset-related cash flows, investment banks size, structure,
and sell the debt and equity
An iterative approach with respect to asset selection and debt structuring is required for a transaction to be successful –
a successful transaction balances the competing interests

INDICATIVE DEBT- AND EQUITY-RELATED CASHFLOWS, $ MILLIONS BALANCING MULTIPLE CONSTITUENCIES

$600  Seller, generally keen to maximize price
E NOTE B PRINCIPAL
A PRINCIPAL C INTEREST
and achieve
$500 B INTEREST A INTEREST  Rating agencies, whose criteria must be
C PRINCIPAL A BALANCE satisfied
B BALANCE C BALANCE
$400  Bond investors, who consider the
risk/return relative to alternatives
$300  Equity investors, who seek to maximize
return
$200

$100

$0
1 2 3 4 5 6 7

18
One or more Rating Agency (“RA”) independently analyzes to assess the
ability of the trust to service the debt under downside scenarios
The rating determination for each tranche of debt following a consistent approach (1) allows investors to assess
risk/reward across deals (and to some extent asset classes), and (2) influences market pricing

ABS NOTES BY RATING (SINCE 2015, $ MILLIONS)

 Rating reflects ability to make timely interest BB +/- $1,613

payments and fully repay principal by legal maturity
BBB +/-; $4,844
 Each RA has its own proprietary approach and criteria
 “Stress case” assumptions increase in severity with
higher ratings, and include:
 Downturn timing and duration A +/-; $28,844
 Lessee default rates
 Lease rate
AVERAGE COUPON BY RATING (SINCE 2015)
10%
 Remarketing downtime between leases 8.4%
8% 6.9%
 RRR (repossession, remarketing, and reconfiguration) costs
6% 5.3%
 Maintenance-related inflows and outflows 4.0%
4%
 Residual values
2%

0%
A BBB BB B

19
Across more than 55 core aircraft ABS issuances since 2015, the average
has been collateralized by 27 assets and raised ~$550 million in debt
Series A loan to value ratios have remained close to 65%; higher leverage in junior tranches comes at increased cost

AVERAGE DEBT ISSUED PER TRANSACTION, $ MILLIONS INITIAL LOAN-TO-VALUE

$700 SERIES A SERIES B SERIES C 90%

SERIES A SERIES B SERIES C
$600 85%
$500 80%
75%
$400
70%
$300
65%
$200 60%
$100 55%
$0 50%
2015 2016 2017 2018 2019 2020 2021 2015 2016 2017 2018 2019 2020 2021

WEIGHTED AVERAGE LIFE @ ISSUANCE, YEARS COUPON

6 10%
SERIES A SERIES B SERIES C SERIES A SERIES B SERIES C
5 8%
4
6%
3
4%
2
1 2%

0 0%
2015 2016 2017 2018 2019 2020 2021 2015 2016 2017 2018 2019 2020 2021

20
3. EVALUATING PERFORMANCE

21
While performance is subject to many factors, servicers holding strong
capabilities are best positioned to deliver portfolio return in any market

KEY FACTORS INFLUENCING TRANSACTION PERFORMANCE KEY SERVICER CONSIDERATIONS

Business Overview Credit Underwriting

▪ Management ▪ Organization and experience of

Macroeconomic
Environment ▪ Strategy underwriters
▪ Industry ▪ Policies and procedures
▪ Competition ▪ Collateral valuation
▪ Markets/Marketing (relationships) ▪ Documentation requirements
▪ Operations (aircraft focus) ▪ Sovereign legal requirements for
▪ Financial strength documentation and collateral

Counterparty Asset Lease Management/Monitoring Servicing, Systems, and Procedures

Performance Performance
Procedures
▪ Insurance ▪ Staffing
▪ Maintenance, reserves, aircraft ▪ Billing and collections
reconfiguration ▪ Calculation and reporting of
▪ Default/repossession delinquencies, write-offs, recoveries
▪ Refurbishment ▪ Quality control, scope and
Servicer ▪ Remarketing/valuation frequency of reviews
Performance ▪ Re-leasing ▪ Management information systems
▪ Disaster recovery plans

22
Strong servicing performance is required in the current COVID-19
pandemic environment
Transactions with more defaulting and non-performing lessees, shorter average lease terms, and widebody aircraft are
generally facing greater challenges

INDICATIVE ABS INFLOWS (INDEXED TO FEB-20) INDICATIVE DSCR TRENDS

120% 2.00
1.80
100%
1.60
1.40
80%
1.20
60% 1.00
0.80
40%
0.60
0.40
20%
0.20
0% 0.00
JAN-20 MAY-20 AUG-20 NOV-20 MAR-21 JUN-21 JAN-20 MAY-20 AUG-20 NOV-20 MAR-21 JUN-21

23
As part of ongoing surveillance, rating agencies evaluate performance;
they have taken action on essentially all ABS issuances

SELECTED RA SURVEILLANCE, JUN/JUL-21 (2019 ABS DEALS) RA DOWNGRADES (2019 ABS DEALS)
Issuance Last DSCR Off % of Months No Scheduled
TBOLT 2019-1 SERIES C (5.7 AVERAGE)
Waterfall Lease Principal LTM Principal / L3M
Item Paid % (A/B/C) Inflows PION 2019-1
SERIES B (2.2 AVERAGE)
(A / B / C) MACH 2019-1
SERIES A (2.3 AVERAGE)
PION 2019-1 A Principal 0.40 13% 0 / 100 / 100 5/7/8 JOLAR 2019-1
MACH 2019-1 A Principal 0.94 15% 8 / 100 / 100 3/5/6 HORIZON 2019-2
JOLAR 2019-1 A Principal 0.88 8% 0 / 100 / -- 4 / 6 / -- HORIZON 2019-1
AASET 2019-1 A Principal 1.57 7% 0 / 100 / 100 4/6/8 FALCON 2019-1
SILVER 2019-1 A Principal 0.37 0% 0 / 100 / 100 6 / 8 / 10 AASET 2019-2
TAILWIND 2019-1 A Principal 0.79 0% 0 / 92 / 92 1/2/4 AASET 2019-1
WAVE 2019-1 A Principal 0.54 12% 0 / 100 / 100 4/6/8 RAPTOR 2019-1
STARR 2019-1 Senior MRA 0.23 0% 17 / 17 /100 1/2/3 SLVRR 2019-1
MAPS 2019-1 Senior MRA 0.45 0% 0 / 100 / 100 5/7/8 STARR 2019-2
TAILWIND 2019-1
WAVE 2019-1
CLAST 2019-1
STARR 2019-1
MAPS 2019-1

0 -2 -4 -6 -8 -10
NOTCHES DOWNGRADED

24
4. RECENT MARKET ACTIVITY &
OUTLOOK

25
COVID-19 triggered a deep economic downturn, causing the Federal
Reserve to respond with near-zero interest rates and quantitative easing
Typical Series A yields of pre-COVID aviation notes increased to 10% by Jun-20, but have now returned toward pre-
COVID levels of 4%; new issuances of “core aircraft” ABS following the onset of COVID-19 have priced at all-time lows

BENCHMARK INTEREST RATES VS. REPRESENTATIVE “CORE AIRCRAFT” ABS SERIES A YIELDS

10%
FEDERAL FUNDS
9% 7 YEAR CONSTANT MATURITY TREASURY
ONSET OF
SERIES A, 2019/2020 PRE-COVID ISSUANCE SAMPLE
8% COVID-19
PANDEMIC SERIES A, 2021 POST-COVID ISSUANCE SAMPLE
7% VOLATILITY

6%
5%
4%
3%
2%
1%
0%
DEC-18 MAR-19 JUN-19 SEP-19 DEC-19 MAR-20 JUN-20 SEP-20 DEC-20 MAR-21 JUN-21 SEP-21

26
New aviation ABS issuance has been robust in 2021 – and it has also been
diverse with respect to asset class, age, servicers, etc.

AVIATION ABS ISSUANCES, 2021 YTD

Simple Debt A B C A B C A B C A B C
ABS Servicer Class Assets Close
Age (US$M) Notes Notes Notes Rating Rating Rating Coupon Coupon Coupon LTV LTV LTV

CLAST 2021-1 Castlelake Aircraft 27 9.1 Jan-21 $675 $476 $119 $80 A BBB NR 3.5% 6.7% 7.0% 60% 75% 85%

Regional
RGNL 2021-1 Falko 39 11.2 Apr-21 $255 $255 -- -- A -- -- 5.8% -- -- 48% -- --
Aircraft

WEST VI WLFC Engines 30 6.6 May-21 $337 $279 $39 $19 A BBB BB 3.1% 5.4% 7.4% 72% 82% 87%

MAPS 2021-1 Merx Aircraft 20 5.5 Jun-21 $540 $418 $72 $50 A BBB BB 2.5% 3.4% 5.4% 67% 78% 86%

SLAM 2021-1 Sky Aircraft 16 2.5 Jun-21 $663 $592 $71 -- A BBB -- 2.4% 3.4% -- 67% 75% --

THRST 2021-1 GECAS Engines 24 7.6 Jun-21 $485 $385 $75 $25 A BBB BB 4.2% 6.1% 7.4% 69% 82% 87%

BBIRD 2021-1 ALC Aircraft 18 4.4 Jul-21 $745 $630 $115 $0 A BBB -- 2.4% 3.5% -- 64% 75% --

CLAST 2017-1R Castlelake Aircraft 33 17.8 Aug-21 $450 $315 $75 $60 A BBB B 2.7% 3.9% 6.5% 61% 75% 87%

27
Despite the diversity of post-COVID transactions, some general trends
have been observed

ABS LESSEE CREDIT DISTRIBUTION (2019 RATING) POST-COVID ISSUANCE OBSERVATIONS

$3.0  Many of the aircraft coming into the “core aircraft”
$ BILLIONS

2019 DEALS
financings were acquired during the pandemic as part
$2.5 2021 DEALS of sale-leasebacks with airlines
 As shown at left, the credit profile of underlying
$2.0 lessees has been substantially superior post-COVID
 Recent issuances have also featured leases with
$1.5 longer remaining lease terms; many have a younger
 →
Investment Grade Non-Investment Grade asset age and include some next generation aircraft
$1.0  Prior to COVID, equity sales were common; thus far,
the post COVID-19 ABS issuances have been debt
$0.5 only

$0.0
AA-

BBB+
BBB

BB-
A+

BBB-

B+

CCC
A
A-

B
B-
BB+

CCC+

CC

UNRATED
BB

CCC-

UNPLACED

28
While challenges in the aviation industry remain, we anticipate additional
recovery; ABS will continue to be an important aviation financing channel

 The trajectory of the aviation recovery is not known; not likely to be smooth, but ultimately traffic will return to pre-
COVID levels and beyond

 Junior tranches of legacy ABS transactions are likely to continue to be challenged

 Airlines, with balance sheets heavily impacted by the pandemic, will increasingly look to the operating lessors for
financing solutions

 With the re-opening of the ABS market, banks will continue providing short-term warehouse financings to lessors
acquiring aircraft, and later seek to arrange the ABS take-out

 As capital markets investors continue to search for yield in low interest rate environment, some allocation to higher
yielding aviation ABS paper will sustain demand

 Spreads will remain for some time between strong and weak credits, assets, lease tenors, etc.

 Ultimately as the industry recovers, ABS issuances to facilitate equity sales will return

29
5. Q&A

30
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