Conflicts created by Covid-19 in Aircraft Leasing

Aircraft leasing is a sidesplitting task, too much of demands from both the sides. When the lessors wanted to place an aircraft they will come with colorful offers, once we move on an LOI level, they will put humongous demands covering the risk of next 10 generations, whatever possible in this planet or possibly on the next planet. On the same side airlines will try to limit their exposure in accepting those demands. At the end, in most of the cases the lessors will be the winners since most of the airlines got ugly financial results which highlights risks and risks. Most of the aircraft lessors are part of big consortiums having huge portfolio of business where the airline become small in bargaining, except in case of few airline giants.

The real business relationship of a lessor-lessee will be exhibited once a global crisis like Covid-19 impacts the business. That time the lessors will act like they are not even heard about Covid-19 Or we have no connection with Covid-19 or It’s a matter to be managed by lessee only.

At this pandemic season, travel and tourism industry is the worst affected sector, all what is happening is beyond the control of the business owners and there is no surety of when it is getting over. Thousands of aircraft is parked like a grave yard , simply spending millions in routine aircraft maintenance and the accumulated losses are reached beyond anyone’s perception.

Even at this situation, “specifically No Revenue- Only refunds” leasing companies demands full lease rates without any discounts which turn a disaster for many airlines having small-medium fleet type. Is it the right way?

In the midst of all these crisis, many of the smart airlines restructured their aircraft leases in different ways;

1.      Some of the lessors agreed for a certain % discount until mid of 2021 and a deferment of leases up to Dec 2020 for a future period.

2.      Some other airlines got a deal of using the fleet on a ‘ Power By Hour’ basis instead of Fixed Monthly Lease until certain period along with a deferment of Covid period rentals.

Reference :

“S?o Paulo, August 11 2020 – Azul S.A., “Azul” (B3:AZUL4, NYSE:AZUL) announces today that it has reached agreements on new payment profiles with its lessors providing working capital relief equivalent to R$3.2 billion from the beginning of the crisis until December 2021. Agreements have been reached with lessors representing over 98% of Azul’s operating lease liability, and negotiations continue with the remaining lessors.”

Icelandair Group hf. Information Memorandum 10 Sep 2020, page 45 ; “All lessors agreed to payment deferrals by up to 12 months; both flat deferrals and pay by the hour utilization”

Here the main problem is about the confidentialities of such deals restricts other airlines to get the details of the best possibly accepted solution with the lessors as the agencies like IATA or ICAO or any crisis management team is not involved on this solution. If there is a commonly accepted solution is there, all airlines will follow that suite without wasting time on turning into default situation or reprocessing or litigation.

The whole industry is facing this problem, now it is high time for IATA/ICAO to get into a serious discussion with the leasing community to bring an amicable solution, else we can see the word ‘defunct’ added to the airlines name.

Remember airline is not just a business, it is part of the national infrastructure who supports the GDP of any country and employment up to a good percentage.

Please support, ponder your thoughts. : Author Contact : [email protected]