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CAPA TV | October 1, 2020

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Air Finance Outlook

CAPA
  • On November 24, 2019

As with the funding of any business, those providing any type of funding will consider the business model/ management, the quality of the corporate credit and any underlying assets to be financed. In each of these areas, financiers look at a wide range of factors.

In many ways, LCCs are no different from full service airlines in this respect. The LCC business model is now well established throughout the world and low cost operators are among some of the biggest airlines globally.

Nevertheless, it is still regarded to some extent as a newer model, and financiers will typically take a more rigorous approach when considering the provision of funds to start-up and younger airlines. Even where the model is not really very new, low cost operators often pursue higher growth rates, and this can also be a source of additional risk.

Perhaps because many low cost airlines typically have shorter track records and are less well capitalised, the share of the world LCC fleet that is leased is higher than for the total fleet of all airlines. In particular, LCCs make significant use of sale and leasebacks.

  • Finding the funding – debt and equity – to support expansion. Is the money there?
  • What special features need to be considered in funding FSC and LCCs? 
  • Which funding models are most attractive for different business models? 
  • What roles have the OEMs played in expansion? 
  • What is the risk profile of an independent LCC vs a subsidiary? 
  • Should airlines lease or purchase outright from the OEM? 
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