Avolon's exposure to bankrupt Chinese conglomerate HNA Group is approximately 11% of the lessor’s net book value (as at 30 September 2020), Fitch Ratings has noted.
Avolon has particular exposure to HNA carriers through Airbus A350 and Boeing 787 widebody aircraft, representing 28% and 21%, respectively, of Avolon’s net book value exposure to the Chinese company.
However, Fitch retains its BBB- rating for the lessor, with outlook negative.
Its analysts believe that Avolon has sufficient liquidity to withstand reduced lease revenues and cash flows related to the aircraft leased to HNA-owned airlines as well as any potential near-term reductions in financing costs or availability.
Fitch further notes its estimate that Avolon “has sufficient capitalization headroom to withstand approximately $240 million of additional impairments (under current IFRS accounting) prior to breaching the agency's gross debt to tangible equity downgrade trigger of 3.0x”.
In their base case scenario, inclusive of the HNA insolvency, Fitch analysts assumed up to 15% cumulative lease deferrals at Avolon; customer defaults of up to 18% of net book value; and up to 15% impairment of the defaulted fleet in 2021, among other assumptions. Fitch's downside scenario assumes up to 30% cumulative lease deferrals; customer defaults up to 22% of net book value; and up to 20% impairment of the defaulted fleet.
HNA owns approximately 46% of Shenzhen-listed Bohai Leasing, which in turn indirectly owns 70% of Avolon through Global Aircraft Leasing. Japan’s Orix holds the remaining 30% in Avolon.
As at 30 September 2020, Avolon had liquidity sources of $7.1 billion and liquidity uses for the next 12 months of $3.3 billion, which translated into a liquidity coverage ratio of 2.2x for the next 12 months. Proceeds from the lessor’s January 2021 unsecured debt issuance of $1.5 billion were used to repay near-term debt maturities and held as cash on the balance sheet.
At least 20 lessors are involved in HNA’s bankruptcy and restructuring programme.
Airfinance Journal’s Fleet Tracker shows that Bocomm Leasing, GECAS, Avolon, Tianjin Bohai Leasing and CDB Aviation are the most impacted lessors (in that order).
The HNA stable of airlines includes Hainan Airlines, Tianjin Airlines, Capital Airlines, Lucky Air, Suparna Airlines, West Air, Urumqi Airlines, Air Guilin, GX Airlines, Grand China Airlines, Air Chang’an, Hong Kong Airlines, Shanxi Airlines and Fuzhou Airlines.
Gu Gang was named secretary of the Chinese Communist Party (CCP) committee of HNA Group in late January, a move Airfinance Journal understands to signify that CCP has engaged in the restructuring of HNA.
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