Aircraft Lease Asset-Backed Securities and Aircraft Enhanced Equipment Trust Certificates Workouts

Abstract

The two major multiple aircraft asset financing structures—(1) aircraft lease asset-backed securitizations (ABS) and (2) enhanced equipment trust certificates (EETCs)—have been heavily impacted by the coronavirus disease 2019 epidemic. This article provides a brief explanation of aircraft ABS and EETCs. It also explains the conflicts of interest among investors, servicers, trustees, and other entities within aircraft ABS and EETCs. Several likely scenarios are examined regarding how aircraft ABS and EETCs will be affected by a continued economic downtown in the aircraft leasing industry. The expectation is an initial period of restructurings and workouts followed by insolvencies and bankruptcies. The various options open to investors are discussed including repossession of the aircraft. Finally, some practical steps are analyzed that stakeholders in aircraft ABS and EETCs can take to maximize their aircraft asset recovery and pricing during these challenging times. <b>TOPICS:</b>Asset-backed securities (ABS), credit risk management, financial crises and financial market history <b>Key Findings</b> ▪ This article provides a description of ABS and EETCs and the inherent conflicts of interests among stakeholders. ▪ The study discusses the effect of the COVID-19 epidemic on aircraft ABS and EETCs, including the likely scenarios that investors and airlines will face in the coming months. ▪ The article presents practical steps that stakeholders can take to maximize their aircraft asset recovery and pricing during these challenging times.