ISTAT Jetrader - Autumn 2020 - 35

efficient; there will also be new
airlines starting up that would take
the opportunity to get cheap lift and
cheap labor that was discarded by the
restructuring companies. It could be
that there is going to be a contagion of
restructurings across the industry.
Phase Four involves convalescence
and healing. This is the gradual
return to balanced capacity through
permanent retirements and lower
production rates.
The revenue passenger miles will
reach 2019 levels at some point, and
the lower cost base of airlines and the
increased efficiency and productivity
would most likely mean that the
industry is going to return to health,
and new equity and new debt will be
pumped in and will fuel this recovery. It
could also involve some consolidation.
It's not only the airlines that are
going to suffer here. Leasing companies
are going to face headaches. The rent
deferrals, mark to market of lease
rentals, defaults, and rejections of
leases and repossessions are going
to be costly and time consuming. I
think the same equity squeeze that

the airlines may face are also going to
hit the lessors and the increased risk
premia for financing are clearly going to
be a burden. Now, leasing companies
that are owned by diversified
corporates and banking institutions
may have an easier time weathering
the storm, but the independent ones
will have a tough time. Bond holders
and banks will struggle with unsecured
debt, impaired collateral values and
repossessions. Aircraft manufacturers
are going to see postponements of
deliveries and cancellations of orders.
They will have to face costly production
rate cutbacks and postponement
of new programs and cutbacks on
research and development. There
are going to be implications for the
complete supply chain. Maintenance
repair shops will suffer, of course,
because there's going to be less flying,
meaning there's going to be fewer shop
visits and increased scrapping will
lower parts prices and so on and so on.
While I do think predictions are
futile, and only the virus knows how
long this is going last, I think that
it is fair to say that air travel will

survive because people love to fly. At
some point, the virus will blow away,
somehow, and we will return to flying
in airplanes. We want to have face-toface meetings and want to see different
places. That's going to happen. When
that happens on the backend of this
crisis, there are going to be great
investment opportunities. Aircraft value
is going to be low, airline credit is going
to be weak, risk premia are going to be
high, and because I don't think aircraft
values will be impaired long term, it
means that economic depreciation of
aircraft will not be as rapid as they
were before.
This is setting the stage for a great
investment climate. If you look back
nostalgically to 2017, 2018, 2019 (even
though it wasn't the greatest market, it
was so competitive; the margins were
so skinny, and I think a lot of us were
quite frustrated), once we're through
this pandemic, the trading conditions
will be very promising.
To view the full presentation, go
to istat.org/ISTAT-Online/ISTATLearning-Lab.

Implications of the COVID-19 Pandemic on
Aircraft Manufacturers
By Kostya Zolotusky, Managing Partner, iFLI

Description: This session looks at how existing backlogs, production rates,
current products, product strategies and new aircraft pricing are going to be
impacted by the COVID-19 pandemic.
This presentation was recorded on 21 July 2020.

I

think most people are familiar
with the dynamics of the cycle:
the good times, the challenging
times and the opportunities that
downturns create. Prior to this
pandemic, we went through
about a 10-year downturn, and
then we went through almost a 17-year

cycle of strength in the aviation markets.
When you have such a long run of strong
performance, people start to debate
whether something has fundamentally
changed. Clearly, COVID-19 reminded us
that the world hasn't really changed; the
cyclicality is still very much there, and
so are the extremes.

If we look at the history of aviation,
there are several things to note about
the cycles we've witnessed in the
past. One is that they occur fairly
regularly - and sometimes there are
longer periods in between - but the
other is that the growth of the industry,
despite the cycles, has been extremely
Jetrader

* AUTUMN 2020 * 3 5


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ISTAT Jetrader - Autumn 2020

Table of Contents for the Digital Edition of ISTAT Jetrader - Autumn 2020

ISTAT Jetrader - Autumn 2020 - Intro
ISTAT Jetrader - Autumn 2020 - Cover1
ISTAT Jetrader - Autumn 2020 - Cover2
ISTAT Jetrader - Autumn 2020 - 1
ISTAT Jetrader - Autumn 2020 - 2
ISTAT Jetrader - Autumn 2020 - 3
ISTAT Jetrader - Autumn 2020 - 4
ISTAT Jetrader - Autumn 2020 - 5
ISTAT Jetrader - Autumn 2020 - 6
ISTAT Jetrader - Autumn 2020 - 7
ISTAT Jetrader - Autumn 2020 - 8
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ISTAT Jetrader - Autumn 2020 - Cover3
ISTAT Jetrader - Autumn 2020 - Cover4
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