Private Credit Dominates Aviation Financing in 2023

Large private credit institutional investors (PCIIs) continue to play a key role as a primary aviation financing source for structured debt transactions. These PCII aircraft financiers include nonbank parties such as major global asset managers, insurance companies, pension plans, and private-equity firms. Although asset-backed securities issuance has been muted in 2023, in part as a result of an elevated interest rate level particularly versus that of a year ago or more, along with a skittish investor base. Notwithstanding those sector challenges, DBRS Morningstar has seen a pickup in private, mostly secured loan transactions this year.

Key Highlights:
-- A meaningful share of in-service aircraft and engine lending is financed by the private market since 2021.

-- PCIIs have access to cheap sources of funding and been able to find attractive structures and solutions for funding private aviation transactions.

-- Privately structured and executed aviation transactions are here to stay as they offer more customized funding solutions to both airlines and lessors.

“The high interest rate environment makes it harder for non-investment-grade lessors to obtain and execute on competitive funding, and the private secured market has sophisticated investors with lower costs of funding willing to invest in the space, creating possibilities for mutually beneficial collaborations among PCIIs, airlines, and lessors for years to come,” said Hylton Heard, Senior Vice President, U.S. Structured Credit.