Key legal and regulatory developments driving and shaping M&A
The recently unveiled, multi-billion dollar airport regeneration projects being undertaken by The Port Authority of New York and New Jersey, as well as future prospects for asset-backed securitisations and other funding options for lessors and airlines, featured on the agenda at Norton Rose Fulbright’s annual New York Aviation Summit, which took place on November 15, 2018.
With year-on-year passenger growth in the US and globally showing no signs of abating, airports must find ways to accommodate passengers in ever increasing numbers. James Heitmann, General Manager of Airport Redevelopment at The Port Authority and self-professed “recovering engineer” described the plans which are underway to transform two of New York’s major airports, JFK and LaGuardia. Delegates at the Summit shared their personal experiences of travelling through these airports, which are at present amongst the lowest rated by customers in the US. Mr. Heitmann described screens in The Port Authority’s World Trade Center offices displaying a live Twitter feed: a constant reminder to staff there of passengers’ discontent. LaGuardia, currently the only major US East Coast airport without a direct rail connection, is notorious amongst commuters, with unpredictable journey times a particular frustration. It is estimated that the roads between Midtown Manhattan and LaGuardia will become so congested by 2045 that travelers may need to budget up to two hours for the 10-mile journey. A proposed AirTrain connecting with public transportation at Willets Point, east of Manhattan, is intended to improve connectivity and will complement The Port Authority’s ongoing US$8 billion redevelopment of LaGuardia, scheduled for completion in 2022. At JFK, New York’s leading airport, but also one of the most congested and delay-prone in the US, a US$13 billion investment, principally provided by Air France, Japan Airlines, Korean Air, Lufthansa and JetBlue, will see the existing remnants of eight separate terminal sites consolidated into a new north and south terminal with a “one JFK” feel, increasing passenger capacity at the airport by at least 15 million annually and adding space for larger aircraft such as the Boeing 777X and Airbus A380. One particular challenge for The Port Authority is addressing the current needs of travelers whilst also maintaining sufficient flexibility to accommodate new modes of transport, for example creating spaces which can easily be adapted to serve automated vehicles or even air taxis as they enter daily life.
A lively lessor panel debate followed with representatives from Aircastle, Carlyle Aviation Partners and SkyWorks. One topic was the euphoria in the aviation asset backed securitisation (ABS) markets in recent years. ABS has provided a solution to permanent financing for some lessors, including for mid-life aircraft which can be challenging to finance, and can also facilitate management of portfolio concentrations. Some simplification in ABS structures, together with increased sophistication in investors’ understanding of what is a complex asset class, have contributed to the growing activity in the sector. The representatives of the lessors agreed that aviation is a growth business, with global passenger traffic projected to continue increasing, led by emerging markets. As a result of this growth, the panel anticipated a change in how aircraft are rated, to become an investment grade asset class.
Andrew Falk, a Managing Director of Aviation Capital Group’s (ACG) Aircraft Financing Solutions (AFS) group, and formerly an executive with the Export-Import Bank of the United States, then spoke to the Summit about ACG’s AFS initiative, which was launched in 2018 to offer a creative and cost-effective aircraft financing option for airlines. The initiative focuses on developing credit-enhanced financing structures that provide airlines with more alternatives and greater access to additional sources of capital for aircraft purchases, while also delivering improved risk-adjusted returns for lenders and capital providers. Mr. Falk explained how the AFS programme draws on some of the key features of export credit agency-supported financings, including the finance lease structure which offers airlines an attractive path to aircraft ownership, and combines these with the advantages of ACG’s deep global capability, experience, and funding relationships. Among operating lessors, ACG believes that it has created a unique aircraft financing program with AFS.
The ability of the aviation industry to accommodate further, significant growth is driving innovation, in access to finance, the sharing economy, and in greater connectivity for passengers. As the Summit drew to a close and attendees reflected on new ideas to support the aviation industry, the view from the Norton Rose Fulbright offices towards Central Park was completely obscured as the first snowstorm of the season to hit the New York City area closed in. This provided The Port Authority with its latest challenge to its mission of keeping New York moving.
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