Aviation Secured, ABS, EETC 2024 Outlook Stable—Asset Values, Lease Rates Strong; Event Risk, Financing Challenges Exist

The global aviation structured finance/asset-backed securities (ABS) sector has a stable 2024 credit ratings outlook for enhanced equipment trust certificates (EETCs; airline and lessor EETCs), secured loan/lease obligation transactions, and aircraft ABS driven by improved profitability and overall credit quality of the global airline sector in 2023.

The stable outlook is supported by robust aircraft demand with limited new/used supply, resulting in stronger asset values and higher lease rates. Transaction metrics will benefit this year thanks to the nearly complete rebound in global air traffic volumes entering H1 2024 compared with pre-pandemic levels, and corresponding improvements in airlines' revenue and profitability in 2023.

We believe the ongoing strong asset values will continue throughout 2024, a positive for aircraft-backed transactions and their credit metrics (such as cash flow levels and loan-to-value ratios).

Credit risks to watch:
Geopolitical risk events remain a key watch item in 2024; this includes ongoing events in the Russia-Ukraine war and the Middle East, and any new flare-ups or regional spread of existing conflicts.

Another key investor watch item is a possible macroeconomic slowdown across regions or major downturns (although not in our base case), and any signs of deteriorating consumer metrics as they face elevated inflation and travel pricing. Deteriorating economic and consumer health can dent travel demand globally, potentially weaking airline lessee credit.