Dark clouds maybe be looming ahead for the aviation industry in the greater economic sense. It may not be at the top of your mind currently in the bustle of the post-pandemic recovery, but aviation owners and operators should begin preparing now.
For those with debt or lease agreements for aviation equipment, a few crucial pivots and some background knowledge about available options can keep your assets and operations protected from the oncoming turmoil.
The economic forecasts are clearly showing hazards ahead. Rising interest rates coupled with a potential U.S. recession could have a significant impact on aviation asset owners. On top of that, inflation is running hot and hitting new highs around the world – more than half of the Eurozone countries recorded a double-digit inflation rate in October. The ongoing Russia/Ukraine conflict has also generated increased operating costs for airlines. Other economic factors like fuel pricing, human capital, and wages are creating flux as well.
sage-popovich, inc. (SPI), has witnessed, participated in, and successfully navigated the many ups-and-downs in aviation over the past 40 years. Our staff and myself have several recommendations for ways lessees and operators can strategically prepare for what’s ahead:
- Update your asset valuations.
- Know your obligations to creditors under security agreements:
- Obligation under default,
- Cure time,
- Consider forbearance agreement options.
- Review your total asset pool and downsize and sell off surplus.
- Weigh the option of filing bankruptcy and potentially restructuring.
- Would DIP financing be on the table? This may be an option to keep your company operating.
- Verify and update liens and security interests, UCC filings (Uniform Commercial Code), and FAA filings (Federal Aviation Administration).
These basic early steps can help prevent a lot of headaches in the event of financial constraints. Lenders may be willing to modify agreements or work with their clients to avoid the costly process of repossession and asset recovery – which is one positive notion for struggling operators. Talk with your creditors before it’s too late.
Although turbulent times may lie ahead for the industry throughout the world, a little bit of preparation can diminish the impact and lead to a smoother outcome. We encourage everyone to review their agreements, understand the economic factors that may impact your company, and become prepared for any situation that may lie ahead.