Trading update: Bocomm reviews off-shore portfolio bids, Castlelake sells Delta 737s

Lessors and aircraft investors are waiting to hear if they have been successfully mandated, or shortlisted, on several portfolios of leased aircraft for sale.

Ishka understands that, in addition to the leased portfolios trades already reported last week (see Insight: ‘Trading update: Avolon signs LOIs for 12 aircraft, GECAS returns with revised portfolio’), four lessors have RFPs in the market to sell aircraft portfolios and are reviewing bids.

Aircraft trading appears to have resumed in earnest in the second quarter with several leasing platforms bringing portfolios to the market. This is in marked contrast to 2020, where aircraft trading largely stopped as airlines took stock of the Covid-19 crisis and parked aircraft, causing a drop in aircraft values.
 

Better, younger portfolios
 

Sellers are selecting leased aircraft that they know will attract bids, explains one source, as buyers are now extremely cautious on older and non-performing assets given the difficulties placing aircraft in the current market.

"It's a mixture, but definitely the portfolios we've seen hit the markets are of much higher quality than they were pre-pandemic. Typically, they're mostly younger aircraft, on average, compared to what we would've seen before. The ABS market is also favoring younger assets and longer leases too. Where the ABS market goes, lessor portfolios will follow. We see them as the leading indicator as to what people will put out there," confides one senior lessor.

There seems to be much more interest from buyers, says one source, who explains how a "hot" new aircraft sale/leaseback market is driving potential aircraft buyers to "fish" in the secondary market as they seek to acquire assets.

"Yes, we are seeing some activity," muses one senior European lessor, "but it is nothing compared to 2019. It looks active compared to last year but there is a long way to go before we can talk about trading volumes coming back to normal."

Some traders question whether all the aircraft currently on offer will actually sell and whether some RFPs in the market may simply represent an exploratory pricing exercise from lessors. "Some might be testing the market, and some of these aircraft might struggle to sell, but if their book value come along and these sellers get the right price then they will definitely sell. I agree we are not seeing any distressed assets in these portfolios and there are no bargains out there," explains another lessor trader.

Recent notable portfolios for sale
 

Altavair is understood to be reviewing first bids after putting out an RFP for seven 2016-vintage 737-900ERs leased to Delta Air Lines with roughly seven to eight years remaining on their leases, according to sources.

Bocomm Leasing is rumoured to have at least two separate portfolios in the market: one with aircraft leased to Chinese carriers (on-shore) and one with aircraft leased to non-Chinese carriers (off-shore). Ishka is aware that the lessor is reviewing bids for the off-shore portfolio that consists of 11 leased aircraft: four A321-200s, two 737 MAX 9s, two 737-800s, one A320-200,  one 777-300ER and one A330. Ishka understands that the leases are set to expire between 2024 and 2027 with the majority of leases expiring between 2025 and 2027.

Castlelake is rumoured to be reviewing bids for a portfolio of aircraft leased to Delta Air Lines, and which were obtained last year via sale/leasebacks. Ishka understands that some of the assets in the portfolio include a 2020 vintage A350, a 2020 vintage A321 neo and a 2020 vintage A220.

In separate news, Delta announced it plans to acquire 27 used 737-900ERs from funds managed by Castlelake. Two additional 737-900ERs for Delta will be financed from funds also managed by the US lessor.  The transaction is subject to closing conditions. Deliveries of the aircraft will be completed by the first quarter of 2022, which are set to enter service after modifications are completed.

Standard Chartered is understood to be in the market with a portfolio of leased narrowbody aircraft. Sources indicate that there are less than 10 aircraft in the portfolio on lease to a mixture of top US and European carriers. Assets are understood to include two A321-200s, one A320neo, four 737-800s and one A320-200. Vintages range between 2011 and2020 with roughly half of the portfolio manufactured between 2017 and2020.

 

The Ishka View

Many asset managers waited last year hoping to buy aircraft from distressed opportunities that never arrived. Lessors were for the most part reluctant to sell aircraft at a discount and have, with a few notable exceptions, been successful in avoiding large impairments to date. Instead, lessors have coaxed aircraft buyers by compiling strong portfolios of desirable assets attached to top-tier credits.

The secondary market was largely stymied last year by the pandemic as buyers and sellers struggled to reach a satisfactory price point that matched many lessors' book values (see Insight: ’Are we seeing more 'realism' yet from leased aircraft sellers?’). That dynamic seems to have softened in the last few months as buyers are now more confident about the airlines that are set to survive the crisis, and those that have either kept up with rental payments, or at least have worked in good faith with their lessors. The increase in buyers exploring the secondary market has also helped sellers retain a premium. Several lessors looking to buy assets have been deterred by an especially competitive sale/leaseback market and are now looking to pick up assets in the secondary market (see Insight: ’Sale/leaseback market heats up as more Asian lessors chase deals’).

However, total trading volumes for the year are likely to be significantly down compared to typical trading volumes expected in 2017, or 2018. This is due to a late start in trading activity (most portfolios trading this year began accepting bids in spring as opposed to January as has historically been the norm). It is also a reflection of how difficult it is to assemble premium portfolios with leases to top airline names that can interest buyers in what remains a difficult market.

 

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