KBRA Releases Research – Aviation ABS Exposure to Israel-Hamas Conflict

Following the October 7 attacks on Israel by the Palestinian group Hamas, the Israeli government formally declared war and has launched counterattacks on Gaza. KBRA expresses its sympathy for those impacted by the war and is hopeful relative peace can return to the region.

There is significant uncertainty around how long the conflict will last and how it will impact the Israeli economy and wider economic landscape, including aviation asset-backed securities (ABS). KBRA’s review of exposure to Israeli lessees in such transactions indicated the exposure is currently limited, as it is present in only three of the over 50 aviation ABS transactions we have rated.

While none of the exposures exceeds 10% of the underlying portfolio value, the transactions may be susceptible to future cash flow interruption due to credit deterioration of airlines operating in Israel or possible collateral damage to any aircraft located or operating in the country. Certain U.S. and European airlines have suspended direct flights to Israel after the aviation administrations from these areas urged airlines to exercise caution. Flight cancellations and disruptions to the normal functioning of the Israeli economy as a result of the war may cause airlines to experience financial stress and possibly request hardship relief or renegotiate lease terms.

The three KBRA-rated aviation ABS transactions that have exposure to lessees located in Israel, based on data from the September 2023 payment date reports, include the following:

• Horizon Aircraft Finance II Limited with one aircraft, approximately 7.23% by value, serviced by BBAM Aviation Services Limited
• AASET 2021-1 Trust with one aircraft, approximately 4.05% by value, serviced by Carlyle Aviation Management Limited
• MACH 1 Cayman Limited with one aircraft, approximately 1.92% by value, serviced by ACG Aircraft Leasing Ireland Limited

KBRA will continue to monitor developments and report if needed on potential implications on our rated aviation ABS universe.

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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