During Katten’s Seventh Annual Commercial Aviation Panel on January 14, aviation-industry participants discussed how insurance companies are playing a larger role in aircraft financing transactions during the COVID-19 crisis. Because of ongoing challenges in accessing bank financing in the aviation market, insurance companies provide another financing opportunity for aircraft manufacturers to support sales of new aircraft.
Among the panel’s participants was Sergio Guedes, director of aircraft structured finance for the Americas and leasing at Embraer, the Brazilian aerospace company, who suggested that 10 to 25 percent of new deliveries could be financed by debt backed by private insurance companies.
The Aircraft Finance Insurance Consortium (AFIC), a collaboration between global insurance companies, arranges for guarantees to be issued by insurance companies in favor of banks that provide loans for the purchase of new aircraft. This results in the transfer of lenders’ credit risk from the airline borrower to the insurance companies that issued the guarantee. Originally available only for Boeing aircraft purchases, AFIC has since expanded to include Embraer aircraft. AFIC’s first transaction with Embraer was in December 2020 and supported the financing of four of its aircraft for SkyWest Airlines.
Other panelists representing the bank, leasing company and airline communities gave their opinions on the prospects for the aviation industry, given the rollout of vaccines and other financing structures that are likely to be important in coming years.