Nordic Aviation Capital Bankruptcy

Welcome to the forty-eighth Pari Passu newsletter.

Today, we are going to learn about how a restructuring process enabled a great business that went through a one-off black swan event, to remerge and continue its operations. Fun fact: 99% of you have used the company services without ever realizing it.

Operating Background 

Nordic Aviation Capital (NAC) is a leader in the aviation leasing industry, doing business in the U.S., Denmark, Canada, Mexico, Hong Kong, and Singapore. The Company is the world's largest regional aircraft lessor and ranks sixth amongst commercial aircraft lessors. 

Aircraft lessors operate on the business model of leasing regional aircraft to a broad spectrum of clients, ranging from major global airlines (such as Delta) to smaller, cost-effective carriers (such as Frontier). Their primary revenue stream comes from lease agreements, structured based on factors such as aircraft type, lease duration, and market demand. Major operational expenses include maintenance, administrative costs, and fleet management, while capital expenditures tend to involve aircraft purchases. Most of NAC’s business comes from leasing regional aircraft for regional domestic and specialized routes, using its fleet of 475 aircraft.  Prior to the pandemic, NAC experienced strong bottom-line growth from 1997 through 2020.

However, as you may already know, the pandemic ruined the air travel industry’s operational landscape and financial standing. Government-mandated stay-at-home orders triggered a never-before-seen decline in air travel, resulting in airlines, including NAC's customers, grounding their entire fleets. This resulted in liquidity challenges for NAC’s customers, who had never navigated a revenue drought of this magnitude. As a result, NAC witnessed dramatic month-over-month declines in lease-related collections. Adding to the decline in lease collections were waning demands for aircraft leasing services, greater lease-related defaults, and a dip in aircraft values due to the pandemic, dropping the Company’s collateral value. As a result, NAC had to write down the book value of its aircraft. 

In an attempt to weather the storm, NAC entered into a number of lease restructurings, cut spending, and controlled SG&A expenses. While these measures marginally improved liquidity, NAC was forced to enter into an Irish scheme of arrangement. 

Irish Scheme

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