KBRA Upgrades Ratings for Avolon Holdings Limited

KBRA upgrades the issuer and senior unsecured debt ratings to A- from BBB+ for Avolon Holdings Limited (“Avolon” or “the company”). KBRA also upgrades the senior unsecured debt rating to A- from BBB+ for Avolon’s wholly-owned subsidiary, Avolon Holdings Funding Limited. The Outlook is revised to Stable from Positive.

In addition, KBRA withdraws the issuer rating of Castlelake Aviation Ltd. ("CAL") and the senior unsecured debt rating of CAL’s wholly-owned subsidiary, Castlelake Aviation Finance DAC, at the issuer’s request because the acquisition of CAL closed in 2025 and outstanding debt issued by these entities was fully repaid.

Key Credit Considerations

The rating upgrade reflects Avolon’s expanding franchise, which accelerated following the acquisition of CAL in 2025, as well as growth of its orderbook, which provides visibility into future growth and maintenance of fleet quality metrics. The upgrade also reflects Avolon’s shift to a largely unsecured funding profile in recent years (representing 77% of total debt as of December 31, 2025 (YE25)) which increases funding flexibility. In addition, asset quality metrics have improved with a significant reduction in outstanding lessee deferral and receivables balances from the pandemic. The upgrade further considers Avolon’s demonstrated resilient performance and robust access to unsecured funding at attractive rates maintained through industry disruptions.

Avolon’s ratings are supported by the company’s franchise strength and strong market position as one of the largest aircraft lessors, a seasoned management team, and a young, in-demand and diverse fleet. The company’s stable earnings profile is underpinned by contracted revenue with a diversified high-quality lessee base and a strong risk management framework, while future growth and fleet quality is supported by a large narrow-body focused orderbook. The ratings also reflect a diversified funding profile focused on unsecured debt and significant unencumbered assets. Avolon is focused on maintaining a young in-demand fleet with the sale of older aircraft at gains to net book value (NBV) with proceeds used largely to fund new-technology aircraft orderbook deliveries.

The ratings are also supported by Avolon's strong capital and liquidity metrics and robust access to diverse funding sources. As of YE25, leverage remained moderate at 2.5x debt-to-equity (2.4x net debt-to-equity), in-line with or below comparably rated peers.

These strengths are balanced by the cyclical nature of the industry and exposure to event risk that could impact travel demand and cause credit issues for airline lessees. While the ongoing airspace restrictions and elevated fuel costs resulting from the Middle East conflict could have negative impacts on airlines’ financial health, the impact on Avolon is expected to be manageable considering the company’s proven track record in managing restructurings and transitioning aircraft and the supportive aircraft supply-demand environment. Positively, Avolon benefits from a diversified portfolio with overall manageable exposure to the most severely impacted lessees in the Middle East (representing c. 12% of Avolon’s fleet value) which are largely government-owned flag carriers. In addition, KBRA notes that Avolon must manage the placement risk of its significant orderbook as it has demonstrated historically; the orderbook is 98% placed with lessees through 2027.

The ratings also consider that 42% of Avolon’s fleet by NBV at YE25 were wide-body aircraft which are typically less liquid and have higher transition costs compared to narrow-body aircraft; however, future orderbook growth is narrow-body focused. The ratings also take into consideration the weaker credit profile of Avolon’s majority shareholder, Bohai, which in our view is mitigated by Avolon’s governance framework, with minority ownership by ORIX providing balanced control of board decisions.

The senior unsecured debt rating is the same as the issuer rating, reflecting adequate coverage of unsecured debt by unencumbered assets NBV (1.4x coverage at YE25) which supports unsecured debt recovery prospects.

The Stable Outlook reflects a diversified portfolio and strong capital and liquidity metrics. In KBRA’s view, Avolon is well-positioned to manage through the impacts of industry disruptions given its strong capital base, solid liquidity and demonstrated access to funding even through the severe pandemic-driven downturn.

Rating Sensitivities

The rating Outlook is Stable; therefore, a rating upgrade in the near-term is not expected. Factors that could positively impact the ratings over time include sustained demonstration of improved earnings metrics, significant market share growth and successful management of orderbook placement, and a higher percentage of unsecured debt (as a percentage of total debt), combined with sustained leverage at or below current levels, as well as maintenance of a strong liquidity profile and sound asset quality metrics.

The Outlook could be revised to Negative or the ratings could be downgraded if global passenger air traffic declines significantly and leads to increases in delinquencies, defaults and/or impairments, or a decline in funding availability with significant negative impacts on the company’s profitability, capital and/or liquidity metrics. A notable increase in the company’s asset encumbrance could also trigger a review for downgrade.

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