Market Visibility Becoming Clearer, BOC Aviation Says
Lessor BOC Aviation believes commercial aviation’s global recovery will continue to be uneven, but the company remains confident in the outlook for airline passenger growth.
The Singapore-based lessor says that the path ahead for airlines appears clearer, compared to this time in 2020, as visible recoveries in both passenger and freight volumes continue in markets that have enjoyed robust vaccination rates.
“Airlines globally have become demonstrably more confident in the recovery,” MD and CEO Robert Martin noted in an earnings call following publication of the company’s first half (H1) results Aug. 19.
“According to the IATA Airline Business Confidence Index for July, 89% of airline CFOs surveyed expect better passenger traffic over the next 12 months,” Martin said. “Of the same sample of CFOs, 73% anticipate a rise in profitability.”
The recovery in earnings was being led by U.S. carriers, with three of the big four airlines “having already reported profits for 2Q 2021 and the fourth anticipating positive numbers by the fourth quarter.”
“A number of North Asian airlines are close to or are reporting profitability as they have successfully leveraged their freight business and we expect more airlines to join them as vaccination levels rise,” Martin said.
“More liquidity is becoming available to support the aviation sector as its earnings outlook improves. Bond and equity markets are beginning to support non-investment grade issuers and the Asset Backed Securitisation market for aircraft deals has also re-opened, providing an important source of funding for non-investment grade borrowers as potential buyers of our aircraft.”
However, some important regions, such as southeast Asia, were continuing to lag, through a combination of continuing high pandemic infection numbers, “low vaccination rates, negligible tangible government support, reliance on cross-border traffic and an absence of capital market access ... with the principal exception of Singapore.”
Additionally, Martin said, aircraft delivery problems to BOC continued. “Ten Boeing 787s did not deliver as expected during 1H 2021 and we continue to experience delivery delays with the A320neo family as well,” Martin said.
BOC Aviation recorded a net profit for the half-year of $254 million, compared with $323 million in the first half of 2020. The company said this was the result of weaker travel associated with COVID-19, “which continued to affect the cash flows of our lessees and the value of our aircraft was consequently marked down by external aircraft appraisers.”
However, the company noted that “Profitability has improved since the second half of 2020 ... as the earnings and cash flow outlook brighten for most of our airline customers, particularly in China, Europe and USA.”
Total revenues and other income increased 7% to $1.1 billion and BOC Aviation raised $2 billion in new financing in the first half of the year.
At the end of the half-year, the company had an owned fleet of 377 aircraft with an average age of 3.7 years and an average remaining lease term of 8.1 years. There was a managed fleet of 37 aircraft and the company had 122 aircraft on order, scheduled for delivery through December 2024.