An Aviation Finance Outlook, the ExxonMobil Activist Lawsuit, FERC’s Electricity Agenda

In this edition of Vantage Point, we’re covering a major undersupply in commercial aircraft, ExxonMobil’s lawsuit against activist investors, and the next phase in US electricity regulation.

Flight Risk: Soaring Travel Demand Brings Aircraft Supply into Sharper Focus

The aviation industry is facing a dilemma: Just as global demand for air travel is returning to pre-COVID highs, finding aircraft to meet the demand is getting harder — and the undersupply looks likely to last for some time.

What’s causing the undersupply? The massive backlogs at Boeing and Airbus, initially caused by the pandemic, are one reason. But the issues run deeper.

Original equipment manufacturers continue to contend with snarls in their supply chains, and flaws found in a popular engine model will require taking 3,000 engines out of service for inspection, each for about 300 days.

Meanwhile, lease rates on narrowbody aircraft have risen sharply, making it more difficult for airlines to get ahold of the planes they need to power their rebound. Lessors now find themselves in a position of strength in negotiations with airline lessees, especially those with expiring leases.

Yet lessors looking to buy aircraft to build up their fleet are having less luck. Thanks to improved leasing conditions and a likely end to interest-rate hikes, many would-be sellers are holding onto inventory, leading some lessors to turn to the M&A market in hopes of scaling up quickly.

Our Aviation Finance team with more on the market outlook.

See You in Court: Activists Pull Climate Proposal amid ExxonMobil Lawsuit

ExxonMobil is trying out an unusual approach to shareholder activism defense, and so far it’s getting the job done.

Bypassing a more-traveled route through the U.S. Securities and Exchange Commission , the energy giant sued two of its investors to exclude a climate-related proposal from its proxy statement. Now, less than two weeks after the company filed the complaint, the investors that submitted the proposal — Arjuna Capital and Follow This— have withdrawn it.

Had the proposal succeeded, ExxonMobil would have been compelled to accelerate its reduction of greenhouse gas emissions and set targets for so-called Scope 3 emissions — those that result from a company’s suppliers and others across its value chain.

In response to the investors’ concession, ExxonMobil has withdrawn a motion to expedite summary judgment, which it had filed in hopes of obtaining a judgment before having to file its proxy statement.

Yet the company says that it will continue to pursue the lawsuit, setting the stage for spirited debate on the lengths that investors can go to shape the companies they own.

More from our ESG team on this important litigation.

Power Play: Forecasting FERC’s Gameplan

When it comes to government agencies, the Federal Energy Regulatory Commission (FERC) isn’t exactly a household name.

But with the US energy transition continuing to accelerate — and with the country’s electric grid looking increasingly fragile — FERC’s work is more important than ever, and its electricity agenda is quietly becoming a hot topic in Washington, DC.

What’s in FERC’s electricity gameplan for 2024? Barring a major event that threatens the grid, look for the agency to issue orders for building transmission infrastructure, in line with the Biden administration’s recent push to ensure grid reliability and support new sources of generation.

We expect these orders to focus on four key areas: siting transmission facilities, a new return-on-equity methodology and related incentives, the large generator interconnection process (rehearing order), and regional transmission planning and cost allocation.

Look in-depth at these predictions in a new report from our Energy Regulatory team.

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