Battered air sector seeks safe landing

Published: March 23, 2021

The aerospace industry was one of the hardest hit by the coronavirus pandemic with the entire business model becoming near unviable in a matter of days. Almost a year later and there still seems to be no clear route out for the industry.

Airline bonds started selling off in the secondary market at the end of January, as investors became spooked by the prospect of all visitors to the UK being sent to a mandatory hotel quarantine on arrival. 

Ryanair, one of the few airlines to access the bond markets in 2020 as the sector remained one of the few that investors were hesitant to touch, saw the yield on its newest notes rise. The €850mn 2.875% September 2025s, which were printed in September 2020, saw their yields widen to 1.072% the first working day after UK prime minister Boris Johnson hinted at the hotel quarantine, up from 1.036% in the trading session before.

This widening came as the rest of the market remained solid, with the Market iTraxx Europe Main, which measures a basket of average spreads across European investment grade corporate bonds, printing at 49bp, near pre-coronavirus pandemic lows. 

Nonetheless, fixed income investors remain positive on the sector. On January 13, London-listed Hungarian budget airline Wizz Air made its debut in the euro bond market. 

The Baa3/BBB – rated issuer sold a €500mn 1.35% January 2024 bond from demand of more than €2.2bn. The deal benefitted from “investors search for yield”, said Deutsche Bank in a note to corporate clients seen by EMEA Finance. The German lender called the deal “impressive”.

It is not only airlines that have been affected by the pandemic, but the entire supply chain in the aerospace industry. From airports to parts makers, the entirety of the sector has been slammed by the collapse in travel.

“2021 will be the year of consolidation in the aerospace industry,” Florian Heindl, the newly appointed group treasurer of Austrian aerospace parts manufacturer FACC, told EMEA Finance. “When the government support is receding, many suppliers will not make It over the finish line. We’re not hoping for this, but we see opportunity in this.”

 

State aid

This content is only available to our subscribers. Please click here for details of subscription plans or to request trial access.