Kroll Bond Rating Agency released a report highlighting the payment status of aviation asset-backed securities (ABS), noting that aviation ABS lease transactions were the hardest hit by COVID-19 from a credit perspective among all structured finance sectors. Stay-at-home orders, border restrictions and general travel aversion led to plummeting air demand. This in turn gave rise to a meaningful deterioration in demand for aircraft and transaction cash flow which subsequently resulted in significant rating downgrades across the sector. These performance-based issues were then further exacerbated by the Russia-Ukraine conflict.

As a result of the rebound in travel and recent strength of the current global aviation industry, KBRA reexamined these securities, specifically those that fell behind in scheduled principal and/or experienced interest deferrals. Despite notable improvements among the senior and mezzanine classes, such progress has been exceedingly modest given the time it takes securities to catch up on previously unpaid scheduled principal and/or interest. Many of the more junior bonds remain locked out of all cash flows, continue to defer interest and are behind on scheduled principal.

In this report, KBRA provides observations across our 63 rated aviation ABS lease transactions, including the principal and interest payment status of 171 KBRA-rated securities, the Russia‑Ukraine conflict exposure, potential implications for aviation ABS, as well as other themes.