CDB Aviation issues the First Portfolio Sustainable Finance in the Industry

On August 6th, 2024, CDB Aviation (“CDBA”), a wholly owned Irish subsidiary of China Development Bank Financial Leasing Co., Ltd. (“CDB Leasing”), entered into a new Sustainability Linked Loan (“SLL”) transaction anchored with a $700 million secured term loan facility. Natixis CIB acted as Mandated Lead Arranger, Sustainability Structuring Advisor and Debt Coordinator.

The new facility is the third SLL-type transaction for the lessor since the issuance of its inaugural sustainability-linked syndicated term loan in December 2023. This time, the SLL is collateralized by a pool of aircraft, marking an industry first for a leasing company.

Jean Chedeville, Global Head of Aviation Finance, and Olivier Ménard, Head of the Green & Sustainable Hub, APAC, comment on this transaction, which sets a new standard for the aviation industry.

This third SLL for CDB Aviation illustrates one of the possible paths towards more virtuous aircraft financing. We hope that this is the first in a long series of deals with lessors, as we intend to replicate this innovative structure and are currently proposing it to other clients in this category.

Having initially focused on airlines, with a large number of key deals that have become industry standards, we are now tackling the leasing market. Looking at a number of deals we have structured for airlines - such as the Sustainability-Linked Loan and the Sustainability-Linked Bond recently issued by the Air France KLM Group, which were very well received by the banks and fixed income investors - this deal opens the door to a number of major deals with lessors, who account for more than 50% of new aircraft delivered, or, in other words, more than 50% of the growth in the global fleet.

Airlines can effectively measure their decarbonization progress by renewing their fleets with more energy-efficient, new-generation aircraft and by increasing their use of Sustainable Aviation Fuel (SAF). However, for lessors, who buy, lease, and resell aircraft but do not operate the assets themselves, it is more challenging as they cannot directly leverage the use of SAF. Their primary impact therefore lies in influencing airlines to integrate new-generation aircraft.

In this context, CDBA embraces a more measurable approach, endeavouring to align with such a market standard. Specifically, this deal introduces a carbon intensity reduction target and  focuses on a greater percentage of new-generation aircraft in its fleet. 

The above interim targets are embedded into the SLL structure, reflecting CDBA’s commitment. Moody’s Investors provided the Second Party Opinion as to the appropriateness of the key performance indicators (“KPIs”) and sustainability performance targets (“SPTs”), confirming the conformity of the facility with the Sustainability Linked Loan Principles (“SLLPs”), with a best-in-class SQS2 rating.

Having access to more transparent extra-financial data will also make it easier for lenders and investors to position themselves in the aviation sector by supporting the players which are transitioning in a credible manner.