Dark clouds maybe be looming ahead for the aviation industry in the greater economic sense. According to Petar Todorovic, president of sage-popovich, inc. and an expert on aviation trends, owners and operators throughout the industry should begin preparing now.
For companies with debt or lease agreements for aviation equipment, a few crucial pivots can keep equipment assets and operations protected from the oncoming economic turmoil.
“The economic forecasts are clearly showing hazards ahead,” Todorovic said. “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.”
Over its 40-year history, Todorovic said his company sage-popovich, inc. has navigated the many of the ups-and-downs in aviation. He had 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. This would include your obligations under default and cure time. Also 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,” Todorovic said. “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.”
“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,” he added.
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. Operators should prepare today for the strong economic headwinds to come.
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