Air Transport World

Turning metal into paper: aircraft securitization could open the door to much-needed new sources of funding.

The hope that the principles of "asset securitization" could be applied to aircraft finance finally became a reality earlier this year, with the successful completion of GPA Group's Aircraft Lease Portfolio Securitization 921 Ltd. (ALPS-1) and the subsequent investment grade rating bestowed on the issue by credit agencies Standard & Poor's and Moody's.

Although the event was overshadowed by the near-simultaneous withdrawal of the Group's initial public stock offering (ATW, 8/92), the significance of ALPS-1 was not lost on the aircraft finance industry. Simply put, the ability to transform aircraft lease receivables into investment-grade debt gives the industry far greater access to the world's bond markets, which have an appetite for an estimated $2.5 trillion in corporate borrowing but which often are limited to AA and AAA rated investments. These are the ratings that all airlines and aerospace companies lust after but that only the best capitalized can achieve.

GPA Group Deputy Chairman Maurice Foley told attendees at a recent conference that the company hopes to finance $2 billion per year via securitization packages. This would mean access to new borrowing, as it cleared its balance sheet of aircraft.

Standard & Poor's, which rated the senior debt portion of ALPS-1 AA, declared a belief that "the securitization of aircraft and aircraft leases will play a significant part in meeting the projected worldwide funding requirements for new aircraft of some $850 billion over the next 20 years."

Citibank, a lead manager of the offering, is equally enthusiastic. "We've always felt that all the ingredients are there for it to be a tremendous market. If you look at the success of asset-backed securities in general in the U.S. and Europe... there certainly is a tremendous appetite in the marketplace for structured asset-backed paper," says Randy Willette, VP-capital markets for Citibank.

Willette suggests that securitization could come to play an even-bigger role in aircraft finance than the Japanese leveraged-lease market that, according to Citibank, probi ably accounted for around $8 billion per year in its heyday. …

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