The recovery in the air travel market has been asynchronous and unstable at times in the year since the end of pandemic-related travel restrictions but the trajectory is positive with the industry on track to return to full profitability in 2023. 

The latest forecast from the International Air Transport Association (IATA) predicts a global profit of $4.6bn on revenues of $779bn in 2023. This muted forecast expects a slim operating margin for airlines of just 0.4% and a per passenger profit of just $1.1 but if the industry achieves these figures it will represent the largest and fastest recovery in the history of aviation.

The global industry collectively lost $140bn in 2020, $42bn in 2021, and is on track for a $6.9bn loss for 2022. The losses seem severe but a return to profitability next year would represent a significant achievement considering the devastating impact of the pandemic and the fact that at the end of 2021, the industry was not expected to return to profitability until the end of 2023 or even into 2024. 

The charts on airline revenue and profitability show a positive trajectory for the aviation industry but 2022 has seen a significant amount of headwinds that will continue into the new year. Although there has been strong growth in air travel in many regions, there have been notable lags in the Asia-Pacific region and China.

China’s zero-COVID policy and stringent travel restrictions and quarantine requirements were in place for the majority of 2022 that deterred visitors and restricted travel outside of the country and around the Asia-Pacific region, denting traffic growth. Trans- Pacific, intra-Asia and Middle East routes to Asia were considerable reduced, with scheduled flights (measured in available seat miles (ASKs) barely reaching 30% of 2019 levels. 

Some three years after the first COVID-19 case was reported in Wuhan, China finally began to ease its zero- COVID policy as discontent spread across the country. Policies changed rapidly within weeks, the government has now abandoned targeted lockdowns, testing, quarantine requirements and travel restrictions.

Quarantine restrictions for inbound travellers to China will be lifted by January 8, 2023 and the country has resumed issuing visas for residents to travel overseas. Hong Kong too has lifted its remaining COVID restrictions. An early spike in bookings show Chinese tourists are eager to travel.

However, with reports of rising COVID inflections and hospitalisations in China, certain jurisdictions have moved to impose entry conditions for travellers from the country – negative PCR test requirements for example – until they are able to better determine the potential impact of the rapid opening of China, mindful of a further untracked spread and possible new variant of the deadly virus around the world. 


At the end of 2022, Japan, India, Italy, Malaysia, South Korea, Spain, Taiwan, the United Kingdom and the USA all announced new rules on travellers from China in response to rising cases. The EU is discussing certain controls but to date Italy and Spain have insisted on negative COVID tests for all travellers from China. Australia remains open to Chinese travellers without restrictions to date. 

Such an abrupt reaction from countries around the world to the purported risk of a new wave of COVID cases is in keeping with the general reaction over the past few years to news of rising infection rates. In the first few months of 2023, these restrictions will likely dampen passenger numbers from China and curtail the rapid growth that the aviation industry has been waiting for that will revitalise the region. 

Willie Walsh, Director General of IATA, expressed his dismay at the new measures: “Several countries are introducing COVID-19 testing and other measures for travellers from China, even though the virus is already circulating widely within their borders. It is extremely disappointing to see this knee-jerk reinstatement of measures that have proven ineffective over the last three years,” he said. “Research undertaken around the arrival of the Omicron variant concluded that putting barriers in the way of travel made no difference to the peak spread of infections. At most, restrictions delayed that peak by a few days. If a new variant emerges in any part of the world, the same situation would be expected.

That’s why governments should listen to the advice of experts, including the WHO, that advise against travel restrictions. We have the tools to manage COVID-19 without resorting to ineffective measures that cut off international connectivity, damage economies and destroy jobs. Governments must base their decisions on ‘science facts’ rather than ‘science politics’.” 

The restrictions will dampen demand out of China but once traffic starts to flow more freely again, airlines and lessors expect an immediate jump in demand for plane tickets and aircraft to serve the rise in customers. 

From late February 2022, air travel was further disrupted by the outbreak of war in Ukraine, with flights to and from Russia banned by many countries that also introduced sanctions on Russia restricting all business with the country. The effective ban on overflying Russian airspace has impacted all airlines flying eastwards, none more so than Finnair.

The airline, which had based its entire business plan on flying east from Helsinki into Asia, has been required to restructure its entire business model and flight schedules. Many US airlines also delayed resuming certain flights into Asia – United’s Indian routes for example – due to the flight restrictions over Russia again impacting international travel growth.

However, airlines in the Middle East have been benefitting from the gap in schedules by expanding their routes/ frequencies into Asia and into India in particular, opening up a hub for Indian expats flying from the US to India via Dubai using Emirates. 

Russian sanctions had the most grievous impact on aircraft lessors that had aircraft on lease to Russian carriers. At the time of Russia’s invasion of Ukraine, around 500 aircraft owned by foreign lessors were operating in the country with an estimated market value of US$10 billion. Sanctions imposed by the EU and the US prohibited leasing assets into Russia, and all insurance policies were cancelled.

Russian authorities then moved to prohibit the return of leased aircraft and allowed foreign-owned aircraft to be registered in Russia after Bermuda and Ireland suspended certificates of airworthiness for aircraft currently in the country. The affected leasing companies have all since launched lawsuits to claim against insurance policies after failing to extract their aircraft from Russia using conventional means of repossession.

Since the insurance companies are fighting the claims, a resolution to the issue may take years and in the meantime, most aircraft leasing companies have already written down the loss of the aircraft. (More on this in Chapter Three-Age of Leasing). 


War in Europe created an energy crisis in many parts of the world as oil and gas prices rose significantly, sometimes threefold, increasing costs for businesses and individuals. Although prices cooled toward the end of 2022, the situation remains unstable. The oil price chart shows both the volatility of the crude oil price during 2022 but also the rising and historic high cost of jet fuel as refining capacity remained under pressure.

The crack spread – the difference between a barrel of crude oil and the refined petroleum product – has been at a historically high level throughout the year, which has put pressure on airline fuel bills. Latest forecasts from the US Energy Information Administration (EIA) predict that the Brent crude oil price will average $92 per barrel in 2023.

And although net global refinancing capacity is expected to continue to increase in 2023, according to the International Energy Agency’s (IEA) June 2022 Oil Market Report, the price of a gallon of jet fuel remains significantly high and the drop in the crude oil price has done little to bring down fuel costs for airlines. 

And although many are eager for the reopening of the Chinese market, a downside to that spike in air traffic growth will be an increase in demand for oil, placing further pressure on fuel prices for airlines. IATA figures show the airline industry fuel bill increased to $222bn in 2022 now accounting for 30% of total expenses, which is expected to remain the case for 2023. 

The energy crisis is also impacting household incomes and pushing up inflation, which is increasing costs for all businesses and individuals, reducing purchasing power, pushing up interest rates and potentially dampening travel demand.

The rise in inflation following the pandemic period was initially expected to be a short-term reset due to pent-up demand in spending, however geopolitical events and higher energy prices are continuing to filter into other product such as food prices and many analysts expect inflation to remain in double digits for a longer period.

Central banks have reacted to the rise in inflation with a series of interest rate rises in quick succession during the last quarter of 2022. The decline in the global domestic product to around 3% from 6% in 2021 presents real challenges and many economies are expected to enter recession in 2023. With such economic pressures, rate rises are expected to continue. 

Several countries are introducing COVID-19 testing and other measures for travellers from China, even though the virus is already circulating widely within their borders. It is extremely disappointing to see this knee-jerk reinstatement of measures that have proven ineffective over the last three years.

Willie Walsh, Director General of IATA


Greg Lee, Global Head of Transportation Banking at Goldman Sachs indicated that his colleagues in the macroeconomic forecasting area do not expect a recession in the US but are predicting a shallow recession in Europe and significantly slower growth in China, but he adds that even with a global economic slowdown, positive top line demand for air travel remains strong. 

Rising interest rates impact all aviation companies pushing up borrowing costs as well as purchasing costs, which adds to the inflationary pressures. The rising rate environment has dampened borrowing in 2022 with issuance down on 2021 levels – although this is not surprising since the industry raised a record amount of funding over the past two years with many not in any rush to refinance in the volatile lending environment (more on this in Chapter Two-Aviation Finance). 

Airlines have begun to resume deliveries of aircraft at a greater pace than the past few years but still fewer than expected as airframe and engine manufacturer production delays continue. As interest rates rise, escalation may become a real problem for airlines with aircraft on order without escalation protection policies in place.

AerCap chief executive Aengus Kelly opined that some companies without AerCap’s buying power may not have been able to demand competition escalation caps, particularly if they ordered aircraft in the last 12 months. He notes that timing of aircraft orders is critical. “You need to be thoughtful when interacting with manufacturers,” he said during an interview with Joe O’Mara in December 2022 for this report.

“There is a binary difference between ordering aircraft when the OEMs need you and when they don’t need you. For those that have ordered aircraft in the past 12 months, their escalation protection will be nothing like what it would have been two or three years ago, for example we ordered 50 NEOs in March 2020 when no one was ordering aircraft.” 


Conversely, lessors and operators that are selling aircraft are benefitting from the rising inflationary environment and are reporting an uptick in asset values when they sell. 

As the world’s largest aircraft lessor, AerCap sells a lot of assets and Aengus Kelly confirmed that the company had printed “some very strong gains” from aircraft sales in the third quarter of 2022 in particular. However, Kelly added that the asset sales were constrained by a noticeable lack of capital from the effective closure of the asset-backed securitisation (ABS) as a means of funding aircraft (more in Chapter Two).

“We have found that if you are selling block of assets of around $250 million you still find pretty competitive tension, so long as you know where the buyers are and which assets they are looking for – that comes with experience, market knowledge and execution prowess,” says Kelly. He added that AerCap was selling more aircraft to airlines than it ever had before due to a lack of available aircraft from the OEMs.

“For the first time in our history, we are selling more airplanes to airlines than to non-airline buyers because they believe Boeing and Airbus won’t be able to deliver on schedule for a significant period of time. The airlines knew the manufacturers wouldn’t hit their production targets, which is why they are buying the 17/18-year-old aircraft they never thought they would be buying because they need to be certain they have lift.” 

Higher inflation is also feeding into higher lease rates, which are rising but more slowly due to in part to the competitive environment. Higher lease rates are bumping up costs further for airlines that have pivoted more towards leasing assets during the pandemic as they monetise existing assets to raise much needed liquidity.

As airlines work to reduce their significant debt burdens, leasing will likely remain a key avenue for accessing capacity and retaining flexibility especially in a more volatile operating environment. 

The pent-up demand released after restrictions eased surprised many and airlines struggled to put in place the capacity to service so many passengers. As Kelly notes, new deliveries continued to be delayed causing airlines to shop around for older assets and even turned to wet leasing aircraft as labour too remains in short supply. 

The air travel recovery period revealed significant infrastructure issues for airlines around the world. Labour shortages impacted all aviation companies but the most pressing shortages are with pilots, cabin crew, air traffic controllers in the US, and globally airports have struggled to cope with the ramp up in air travel with shortages of security staff and ground handlers.

Last minute flight cancellations characterised the spring and early summer period as airlines and airports struggled to staff and board planes on time. In July, the shortage of staff and services prompted London Heathrow to impose a daily capacity limit of 100,000 passengers per day to reduce delays through the airport, which lingered throughout the busiest summer season to October 2022.

Fed by the rising cost environment, strikes have also characterised the latter half of 2022 with airport workers, pilots and cabin crew around the world staging industrial action mainly in disputes over pay and working conditions. 

If you are selling block of assets of around $250 million you can still find pretty competitive tension, so long as you know where the buyers are and which assets they are looking for – that comes experience, market knowledge and execution prowess.

Aengus Kelly, CEO, AerCap


We believe that 2023 airline revenues are going to be close to 2019. In 2019, some 2.5 million people travelled every day in the US – one million domestic and 1.5 million business and international travellers - and earlier in 2022 this number reached 2.2 million even though business travel remains half prepandemic levels and international travel is down 60%.

Helane Becker, Cowen

Inflation is also feeding into higher maintenance costs for airlines, which are still bringing parked aircraft back into service. Capacity is in such short supply that certain airlines that were determined to phase out larger aircraft – such as the A380 – have brought those back into service to cater to the rise in demand over the summer period due to the lack of new aircraft deliveries. Lufthansa announced in June that it was bringing its A380s back into service for summer 2023.

The German flag carrier had 14 A380s held in long-term storage – it has since sold six but has eight remaining, which it plans to utilise to fill a gap until its new A350s, 787s and 777- 9s are delivered over the next three years. Singapore Airlines too has brought two of its eight A380s out of storage, with Etihad moving to resume service on four of its 10 A380s by summer 2023.

The largest A380 operator Emirates is bringing back its aircraft with many have been retrofitted with new premium economy seating boosting the revenue-generating potential and to service a rise in demand for premium seats. 

The lack of new aircraft has served to restrict capacity growth in 2022. The recovery in the US has been significant with North American carriers on target to realise profits of $9.9bn for 2022. Passenger demand is expected to continue to accelerate into 2023 with a predicted 6.4% growth forecast, which will outpace capacity growth at 5.5%. US carriers are all bullish on growth rates for 2023, with strong forward bookings after a record summer period. 

Although European carriers are expected to post a loss of $3.1bn for 2022, a predicted 8.9% growth in passenger demand will likely be curtailed by the 6.1% forecast capacity growth. Ryanair has bucked the trend for the region, however, reporting a strong summer with capacity now at 115% of pre-pandemic levels.

Speaking on an earnings call on November 7, Ryanair chief Michael O’Leary said that traffic was up 11% in the September quarter on the back of a 12% increase in capacity, with fares jumping by 15%.

Although he added that he didn’t expect that to continue over the quieter winter quarter, he did note he has been surprised at the strength of forward bookings into the holiday period: “Christmas looks strong, both at volume and at the average fare level and this weekend’s bookings were stronger than the previous weekend’s bookings which is remarkable, given all of the kind of coverage of recession, inflation, consumer price pressures.” Despite the bullish outlook, Ryanair was still forecasting a loss of between €100-200 million for the winter period but with a positive outlook heading into summer 2023. 

Asia-Pacific growth remains muted, held back by the closure of China, but with travel now expected to resume after restrictions have been lifted in the country, capacity demand will soar. Prior to the announcement that Chinese restrictions would be lifted, IATA forecasted passenger growth for Asia- Pacific of 23.4% with capacity growth of 21.1%. These figures are now expected to be much higher despite the resumption of entry requirements for Chinese travellers in response to reports of rising COVID cases in China. 

Although Middle East carriers have benefitted from re-routing as a result of the war in Ukraine, collectively they are expected to post a loss of $1.1 billion in 2022, with a return to profit next year. In 2023, passenger demand growth of 23.4% is expected to outpace capacity growth of 21.2%. 

Profitability is also forecast to evade Latin American carriers until 2024 with capacity growth of 6.3% in 2023 on the back of a predicted 9.3% rise in passenger demand. African carriers too will not repair profitability levels until into 2024 although capacity is also predicted to rise by 21.9% with passenger growth exceeding 27%. 

“It has been a tough year for the whole aviation industry, no matter the jurisdiction,” says Helane Becker, managing director, Cowen. “We think about airlines as winning the pandemic and losing the recovery. With strikes in Europe, delays in the US, and a lag in the recovery in Asia, it has been difficult to fly anywhere in 2022, although it is starting to get better.” 

Becker points to all of the headwinds mentioned above from interest rate rises to labour shortages and aircraft production delays, as “conspiring to keep a lid on how much capacity can grow in in 2022 and probably how much it will be able to grow in 2023”. She notes that despite IATA predictions, some airlines estimate that the industry won’t get back to “whatever normal is for four or five more years because of these issues”. 

That said, Becker expects airlines, specifically the US carriers that she covers, to have a better 2023 since demand remains strong and air fares remain high with capacity constrained. Airline stocks, however, show a more pessimistic picture, she says, and have “behaved as though we are already in recession” with share prices back to 2020 lows even though airline revenues are more than 60% back to 2019 levels.

“We believe that 2023 airline revenues are going to be close to 2019,” says Becker. “In 2019, some 2.5 million people travelled every day in the US – one million domestic and 1.5 million business and international travellers - and earlier this year number reached 2.2 million even though business travel remains half pre-pandemic levels and international travel is down 60%.” 

With these numbers and the fact that outbound US air travel is elevated in part due to the strong US dollar, Becker forecasts greater revenues from the return of more international and business travel in 2023 for US carriers even though the recent stock prices may assume otherwise. 

Business traffic for long-haul segments across the Atlantic have recovered at a faster pace than domestic. It’s our observation that a Zoom meeting is simply less practical in a global setting. We remain optimistic that business traffic will continue to get better from this point forward.

Scott Kirby, CEO, United Airlines

United Airline chief executive officer, Scott Kirby, commented in an earnings call in October that the airline was “firing on all cylinders” and that he was optimistic for 2023 and the longer term. American Airlines too remains confident for the next year, with CEO Robert Isom stating in October that he expects demand to remain robust but notes that the airline is keeping a close eye on the macroeconomic environment and will adjust plans if necessary. Delta Air Lines CEO Ed Bastian points to the countercyclical recovery the travel industry is experiencing. “Global demand is continuing to ramp as consumers shift spend to experiences, businesses return to travel and international markets continue to reopen. Demand has not come close to being quenched by a hectic summer travel season. At the same time, industry supply is constrained by aircraft availability, regional pilot shortages, and hiring and training needs.” 

Acknowledging the main headwinds, United’s Kirby also pointed out several tailwinds assisting the airline, including the fact that several jurisdictions were only just reopening from COVID – Japan and eventually China – and the constrains on capacity increases relating to labour shortages, airports and ATC infrastructure constraints that will take years to resolve fully. He also said that there had been a permanent structural change in demand due to the flexibility of hybrid working. “With hybrid work, every weekend could be a holiday weekend. That’s why September, a normally off-peak month was a third strongest month in our history. People want to travel and have experiences, and the hybrid work environment untethered them from the office and gave them the new found flexibility to travel far more often than before.” 

Kirby noted the resurgence in business travel, which for United rose back to 80% of 2019 volumes. “Business traffic for long-haul segments across the Atlantic has recovered at a faster pace than domestic,” he said. “It’s our observation that a Zoom meeting is simply less practical in a global setting. We remain optimistic that business traffic will continue to get better from this point forward. Our traditional view on business traffic recovery rates relative to 2019 may now be obsolete measurement, given the changes in how customers now travel in a remote work environment or business and leisure trips often are combined.” 

American Airlines, which has posted a profit for the past two quarters, is also reporting the same recovery in business travel. “Leisure and business revenue remain incredibly strong, again, surpassing 2019 levels in the third quarter,” said CEO Robert Isom. “Demand for small and medium-sized businesses and customers traveling for a combination of business and leisure continue to outpace the recovery of managed corporate travel.” Many airlines are seeing a resurgence in demand for business travel on long-haul trips and more airlines have been adding premium economy seats to capitalise on that demand even in leisure travel for more comfort on longer trips. 

Outside of the US, the strong US dollar is a further headwind for airlines. Most currencies lost value against the dollar in 2022 – some more than others – which is adding further cost pressures to airlines already struggling to resume operations. Moreover, the risk of repatriating earnings from emerging markets increases in such an environment. IATA estimates that the airline industry had $1.9bn in blocked funds in 2022 – a quarter of which are in Nigeria – which is expected to rise in 2023. Total airline funds blocked from repatriation in Nigeria are $551 million, said IATA. Repatriation issues arose in March 2020 when demand for foreign currency in the country outpaced supply and the country’s banks were not able to service currency repatriations. However, Nigerian authorities have been engaged with the airlines and have had some success in releasing some funds. 

A further headwind to airline profitability may also be found in future costs and taxes relating to the industry’s commitment to net zero CO2 emissions by 2050. (This issue is explored in more detail in Chapter Five-Eye on ESG). 

The air cargo market has been the bright point in the aviation market since the onset of the global pandemic and the growth of eCommerce. However, growth cooled during 2022. From growth of 18.8% in 2021 with 65.6million cargo tonnes transported, air cargo commanded some 40% of total airline revenue in 2021 compared to the pre-pandemic range of between 10-15%. In 2022, air cargo growth dropped to 8% below 2021 levels with 60.3 million tonnes transported and a 28% share of total airline revenue.

Cargo traffic has been impacted by the global economic slowdown in global GDP and there is a general consensus that the boom in export orders seen in 2021 has now stabilised. Sanctions against Russia, the war in Ukraine and China’s zero-COVID policy all helped to suppress cargo traffic added to which the shipping capacity has repaired over the course of 2022 while belly capacity has been steadily growing cannibalising some of the dedicated cargo traffic. 

IATA forecasts that air cargo revenue will fall back further still to about 20% of total revenue – some $150bn – on the back of softer demand and lower yields. Analysts also predict that there could be excess cargo capacity in 2023 that will put further pressure on yields.

Despite the forecasts, air cargo remains an area of focus for lessors that are investing in conversions and dedicated freighter fleets while global logistic companies are creating new cargo airlines to capitalise on demand. MSC Mediterranean’s MSC Air Cargo and Maersk Air Cargo (a takeover of Star Air) were both launched in 2022 by their shipping conglomerate parent companies. (More detail on the air cargo market can be found in Chapter Four: Freight and Fleet Focus). 

Start-up airlines

Despite the significant headwinds, airlines continue to offer an enticing prospect for many investors. Throughout the pandemic period and now into the recovery, new passenger airlines have continued to be established. The addition of new start-up airlines to the market is a familiar trend following a downturn. Intrepid entrepreneurs seek to take advantage of the gaps in the market made by the demise of certain airlines and by the apparent weakness of surviving airlines weakened by the pandemic and constrained by heavy debt burdens.

New airlines begin with a clean balance sheet with little debt and have been able to take advantage of the favourable lease rates and terms offered by lessors keen to place aircraft in a depressed market. With the return of air travel those more competitive packages such as low rate power-bythe- hour lease terms diminished as the industry recovered during the course of 2022 but the competitive environment ensures leasing remains attractive to start-up carriers even as rates are rising. 

Emerald Airlines, which operates out of Dublin and Belfast using a fleet of 14 ATR72s, is one such new airline that owes its very existence to the global pandemic. “The concept for Emerald Airlines was formed in May 2020 when we decided to pitch for the Aer Lingus Regional network franchise,” said CEO Connor McCarthy.

“After we won, we started to put the airline together and received our AOC in September 2021 and took our first flight in February 2022. After a hectic 20 months, we are now settling into the business of making a few dollars in this crazy world of aviation in 2023.” 

The collapse of the previous operator in 2021 created the need for a new partner for Aer Lingus Regional Network franchise and, with the return of air travel in 2022, this requirement was brought forward a full 12 months as AerLingus and BA CityFlyer needed to re-deploy their A320s and E190s to their own network recovery.

For McCarthy, the creation of the airline was only possible because without the impact of the pandemic on the incumbent airlines since they would have remained strong enough to continue operating the franchise. “IAG and Aer Lingus chose Emerald and our leadership team based on their historic performance at other airlines,” said McCarthy.

“Other airlines may have had stronger balance sheets. Another factor that went in our favour was not only the wide availability of aircraft, but also availability of skilled extremely skilled airline professionals, from engineers to pilots, to cabin crew to operational specialists following the pandemic.” 

Emerald has performed well since its launch, capitalising on the strong, pent-up demand to fill planes but the new airline has not evaded the problems related to the sudden return to travel. “The demand is there; the money is there; people have an innate need to travel, which they have shown in 2022,” he said.

“The main challenge last year was the infrastructure - many third-party handlers, third-party catering companies, for example, let go of a lot of their resources that just didn’t come back. We have seen an easing of that pain in the last few months, but we have also established our own ground handling at our Dublin hub and our own catering/ delivery service.” 

In the video interview with Joe O’Mara, McCarthy notes the importance of the delicately balanced air travel ecosystem, which relies on 20-plus activities working in harmony from aircraft maintenance through to air traffic control, that is only now back to “about 85% of where it should be”.

He said: “The travelling public gave the industry a pass in 2022 because they realised how decimated airlines were due to the pandemic and due to certain government restrictions on air travel, but we won’t have that for 2023 and we have to be back to 100% this year.” 

Another, larger scale, beneficiary from the post-pandemic aviation industry environment is Arajet, which started up operations in 2022 from its base in the Dominican Republic.

Arajet announced its arrival as the Caribbean market’s first ultra-low fare airline, headquartered in Santo Domingo, in March 2022, with a mission to make air travel accessible to travellers to and from the Dominican Republican, the Caribbean, and North and South America, while building the most convenient commercial transportation hub in Latin America, strengthening and facilitating air traffic between the Americas.

An estimated 2.2 million people of Dominican descent live in the United States – a significant diaspora marketplace that Arajet intends to serve. 

Arajet, led by founder Víctor M. Pacheco Méndez, operates an ultralow- cost carrier business model and is financially backed by Bain Capital Special Situations (Bain Capital) and Griffin Global Asset Management (Griffin). The airline also has the support of the Dominican government and VINCI Airports. Commenting on the operating environment during and following the pandemic, Griffin chief executive officer Ryan McKenna noted that the current environment is structurally advantageous for low-cost carriers and new airlines.

He remains cautious to the long-term health of airlines that survived the pandemic period but which are now heavily levered. “Our view is that it is only a matter of time until those airlines that took on additional capital to survive during the pandemic will need to restructure,” he said in a video interview with Airline Economics and KPMG conducted in New York in October 2022. “It will be very difficult for airlines to compete with carriers that have already gone through those processes to fundamentally change their cost structure, as well as renegotiate their labour contracts, fleet, and outstanding debts.” 

McKenna believes that low-cost carriers structurally have an advantage in the current operating environment, including start-up carriers with clean balance sheets. “We are big believers in newly-capitalised businesses that have strong support from institutional investors and the manufacturers and manufacturers with the scale to succeed,” he says. McKenna also favours state-backed carriers although admits that they warrant careful analysis since not all state-backed carriers can be considered safer investments since some have been allowed to fail. 

Airline Country
Emerald Airlines Ireland
Akasa Air India
FlyArna Armenia
Bonza Australia
Ultra Air (not yet certified) Colombia
Surcar Spain
Niceair Iceland
FlyBe (relaunched) UK
Aeroflyer Canada
Equair Ecuador
Céleste France
Air Congo Democratic Republic of Congo
Air Alderney Channel Islands
Fly Jinnah Pakistan
Q-Airways Pakistan
Aeroitalia Italy
Silk Avia Uzbekistan
JetSmart Perú Peru
Wizz Air Malta Malta
Fly Dhaka Bangladesh
L’Odissey Switzerland
Air Astra Bangladesh
Kuva Air Zimbabwe
Southwind Turkey
Jet Airways India
Air Connect Romania
Jetlines Canada
RIA Saudi Arabia
Arajet Dominican Republic
FitsAir Sri Lanka
ValueJet Nigeria
Aeroexpress Regional Hungary
Antigua Airways Antigua and Barbuda
Marabu Germany
Air Samarkand (Sam Air) Uzbekistan
MSC Air Cargo Switzerland
Maersk Air Cargo (Star Air) Denmark

McKenna is confident that demand has returned and pricing data for the summer has been truly “remarkable” but he doubts that this is sustainable with the economic the headwinds facing the industry. “Our industry has been so incredible resilient that there is the sense that these issues too will pass,” he says, “but I think this next period is going to be particularly challenging. We conduct in-depth analysis on the ability for certain airlines to survive over the longer-term, with volatile oil prices, rising interest rates, inflation and a strong dollar, along with the tense geopolitical environment. It’s unclear how the consumer will respond in a slowing economic environment and how airline business models will perform over the coming years.” 

Directly related to the headwinds already noted is the rising cost and availability of capital – for equity and debt. McKenna points to the delayed impact of this factor on airlines and all businesses.

He says: “The question is how long it takes for business models to adjust to the rising cost of capital because you cannot simply just pass that along to the without affecting passenger demand over a longer period of time.” He also notes that fewer investors are bidding on RFPs, inflation is pushing up lease rates and asset prices, and escalation on OEM deliveries is a real issue. “Many escalation formulas were agreed to in some cases 10 years ago and in other cases just two years ago but all of them will result in higher prices for newly-delivered aircraft. Over time, we believe that this will shift the whole curve of aircraft values upwards, but that takes time to adjust.”

These factors and more all have to be included when considering airline risk and deploying capital. 

Weaker airlines and those concerned over the possible erosion of market share have looked to merge with their peers, pending regulatory approval. Avianca and Viva announced their intention to merge in April but Colombia’s Aeronautical Authority rejected the application in November since it concluded it would stifle competition.

The airlines are appealing the motion but it demonstrates that mergers are never easy option and are certainly not the quickest. The main merger news that dominated the summer of 2022 was the battle for Spirit Airlines fought out between Frontier Airlines and JetBlue – the latter emerging as the victor after a very public tousle for shareholder support. In October, Spirit Shareholders approved the merger with JetBlue for $3.9bn. Spirit confirmed in an SEC filing in December that the two airlines had responded to request for additional information from regulators in September and that they still expect the merger to be approved and the deal closed “no later than the first half of 2024”. Should the merger be approved, JetBlue would attain control of 9% of the US marketplace. 

The Indian market has seen more success in terms of M&A activity in 2022. In December, Singapore Airlines (SIA) agreed with Tata Sons to merge Air India with Vistara. Going ahead, SIA will invest $250 million in Air India gaining a stake of 25.1% in the enlarged Group while Tata Sons will hold 74.9% stake. The new Air India is estimated to be valued at $1bn. The merger is expected to be completed by March 2024, subject to regulatory approvals. 

The enlarged Air India group comprises Air India, Vistara, AIX Connect (formed by the merger of AirAsia India and Air India Express), thus making Air India the second largest airline in India in terms of fleet capacity and market share. Through this transaction, SIA will reinforce its partnership with Tata and immediately acquire a strategic stake in an entity that is four to five times larger in scale compared to Vistara. The merger is expected to bolster SIA’s presence in India, strengthen its multi-hub strategy, and allow it to continue participating directly in a large and fast-growing aviation market. 

AirAsia has also had a dramatic reorganisation in 2022. The holding company was rebranded as Capital X, with all of its airline carriers moved under one AirAsia Aviation Group comprising: AirAsia Malaysia, AirAsia Thailand, AirAsia Philippines, and AirAsia Indonesia, as well as AirAsia X Malaysia, AirAsia X Thailand and eventually the newly-launched AirAsia Cambodia created as a joint venture with Sivilai Asia. AirAsia India having already been sold to the Tatas in November.

The reorganisation followed the company’s successful exit from a financial restructuring in March 2022 that was carried out using a Malaysian Scheme of Arrangement. Over the course of the year, the airline and its many advisers successfully renegotiated debts and leases with multiple Malaysian and international banks, plus 14 operating lessors (AerCap, Aircastle, APALG, Aviator, BOCA, Carlyle, Castlelake, DAE, Deucalion, ICBC, Kayan, Macquarie, Minsheng and Skyworks) as well as UK Export Finance, Airbus and Rolls-Royce, covering 30 A330 aircraft. 

Airline Country
Comair/ South Africa
aha! United States
Blue Air Romania
Airleap Sweden
EGO Airways Italy
Tel Aviv Air Germany
GCA Airlines Colombia
AB Aviation Comoro
Kamchatka Airlines Russia
Genghis Khan Airlines China
Air Choice One United States
Tchadia Airlines Tchad
Airline Country
Scandinavian Airlines (SAS) Scandinavia
Hong Kong Airlines Hong Kong
Finnair (voluntary reorganisation) Finland

Many escalation formulas were agreed to in some cases 10 years ago and in other cases just two years ago but all of them will result in higher prices for newly delivered aircraft. Over time, we believe that this will shift the whole curve of aircraft values upwards, but that takes time to adjust.

Ryan McKenna, CEO, Griffin

Foong & Partners acted as Malaysian law Scheme counsel while Bird & Bird (Singapore branch) acted as English law restructuring counsel and aviation counsel. Seabury was the financial advisor and V2 Aviation provide the technical advice. 

This Scheme of Arrangement was a first of its type airline restructuring in Malaysia, involving multiple creditors, including those mentioned above as well as trade creditors, Malaysian Airports and thousands of passengers. Despite what was described as “very significant haircuts” on the debts, the vast majority of the voting creditors voted in favour of the scheme and were given a right of profit share in the airline’s future profits. 

Lion Air Group - which operates several airlines including Lion Air, Wings Air, Batik Air, Batik Air Malaysia and Thai Lion Air – also completed a restructuring last year using a French restructuring scheme. After several months of negotiations under the aegis of the court-appointed administrators, bilateral agreements were reached with the group of lessors, which together owns 30 aircraft and engines, enabling the Paris Commercial Court to validate an exit from the proceedings without the need to present a continuation plan and by extinguishment of liabilities – a so-called extinction du passif. This consensual and innovative contractual exit made it possible to carry out the €1bn-plus restructuring involving multiple international lessors, whilst preserving the confidentiality of all individual bilateral agreements. Watson Farley & Williams Paris advised the group of lessors. 

Also in the region, Air Seychelles entered administration in October 2021 where it worked to restructure its debt relating to its ongoing participation and obligations under a securitisation of loans to various Etihad Alliance partner airlines (including Air Seychelles) with an aggregate value of $1.2bn. Air Seychelles successfully exited administration in November 2022. 

It is clear that the risk dynamic of the aviation industry has changed and become more concerning over the course of 2022. However, industry leaders remain optimistic, albeit cautiously so, heading into 2023. The prime reason for such optimism is the continued and demonstrated resilience of the aviation industry and the determination of people to travel and experience the world. 

“We have experienced a number of periods in the past of high and rising interest rates, high inflation and a strong dollar but airlines have always powered through,” said John Plueger, chief executive of Air Lease Corporation (ALC), speaking to Airline Economics and KPMG in a video interview in New York in October 2022. “There will be some pain and some airlines will go bankrupt – they always have – aviation is not a pure investment grade industry. But we have seen all of these challenges before and we have the tools as lessors to deal with the new environment.” 

Airline bankruptcies and restructurings have continued in 2022 with many smaller airlines ceasing trading and there have been two largescale notable new filings for bankruptcy protection with Scandinavian Airlines (SAS) filing for Chapter 11 in the US and Hong Kong Airlines entering a Scheme of Arrangement in the UK and Hong Kong. However, several airlines have now restructured and successfully resumed trading with sleeker and more sustainable debt profiles. LATAM Group successfully completed its financial restructuring in the United States in October 2022 raising $2.8bn in the process (more detail on LATAM DIP-to- Exit financing in Chapter Two - Aviation Finance). 

Although airline bankruptcies are an expected feature of the aviation industry, Plueger notes that the geopolitical situation is more uncertain and admits that the seizure of the Russian leased fleet was unforeseen. Despite the challenges of high inflation and lower GDP, he is confident that travel demand will continue. “There has been a very clear trend over the last five years, especially with younger people, that whatever money they have to spend, they tend to favour spending it on travel and experiences opposed to widgets and goods,” he said. “That will continue. While these global macroeconomic factors are certainly something to be carefully watched, this strength in the passenger travel recovery will continue – and demand is accelerating on all fronts.”

Read more from the Aviation Leaders Report 2023