Research Update: Avolon Holdings Ltd. Outlook Revised To Negative From Stable; Ratings Affirmed

We believe that Avolon Holdings Ltd., like other aircraft leasing companies, will generate materially less revenue in 2020 than we previously expected, reflecting the impact of the COVID-19 pandemic on its airline customers. This will be caused by negotiated deferral of lease rentals from some customers, bankruptcy and return of aircraft by others, and lower lease rates in a weak market. Still, aircraft lessors are in a better position than airlines because their lease contracts require payment regardless of whether the planes are in use. Bankrupt airlines, if they can reorganize, may be more inclined to keep leased planes because they are mostly newer and more fuel-efficient models. We are affirming our ratings, including our 'BBB-' issuer credit rating, on

...- We believe that Avolon Holdings Ltd., like other aircraft leasing companies, will generate materially less revenue in 2020 than we previously expected, reflecting the impact of the COVID-19 pandemic on its airline customers. - This will be caused by negotiated deferral of lease rentals from some customers, bankruptcy and return of aircraft by others, and lower lease rates in a weak market. - Still, aircraft lessors are in a better position than airlines because their lease contracts require payment regardless of whether the planes are in use. Bankrupt airlines, if they can reorganize, may be more inclined to keep leased planes because they are mostly newer and more fuel-efficient models. - We are affirming our ratings, including our '###-' issuer credit rating, on Avolon Holdings and revising the outlook to negative from stable. - We could lower ratings if we believe Avolon's ratio of EBIT to interest expense will be less than 1.3x on a sustained basis, and either debt to capital rises...

Research Update