Aircraft lessors enjoy positive industry backdrop
Lessors of commercial aircraft are benefitting from strong passenger demand, as are their customers (the airlines).
However, the lessors are also benefitting from the positive impact on lease rates and aircraft market values resulting from supply chain constraints.
A CAPA - Centre for Aviation report notes the global aircraft leasing sector is led by AerCap - by far the biggest player by fleet and revenue - but there is a clear top five of leading lessors (which also includes Air Lease Corporation, Avolon, BOC Aviation and SMBC Aviation Capital).
These five have 31% of lessor aircraft in service, but 48% of lessor orders - this points to a further increase in their share of the world's leased fleet in future.
The leading lessors' financial results were hit by COVID-19 and the Russian aircraft crisis in 2022, but profits have recovered. Moreover, the credit ratings of the top five have remained investment grade.
- Lessor financial results were hit by the Russian aircraft crisis in 2022, but profits have recovered.
- The leading lessors are rated investment grade, as they were in 2019.
- The top five have 48% of lessor orders, but 31% of lessor aircraft in service. This suggests they may increase their share of the world's leased fleet in future.
- The top five lessors have a clear lead over the rest by aircraft in service; they also have a clear lead by aircraft orders.
- New CAPA - Centre for Aviation report highlights dynamics of the aircraft leasing market.
Financial results were hit by the Russian aircraft crisis in 2022…
The financial results of the leading lessors were adversely affected by the COVID-19 pandemic and then by the Russian invasion of Ukraine in 2022.
Sanctions imposed on Russia by Western governments in 2022 led to the termination of lease contracts by the lessors and - the subsequent effective seizure of many of the leased aircraft by Russia.
The lessors largely wrote off the value of their Russian fleets in 2022, taking a big hit to their bottom line in that year.
…but profits have recovered
Nevertheless, the leading lessors enjoyed a robust return to profitability in 2023 after the twin crises of the COVID-19 pandemic and the loss of their Russian fleets.
All five of the leading leasing companies reported positive net profits in 2023 after losses, or only very slim positive results, in 2022. Their collective net margin was 30.9%, compared with -10.4% in 2023.
Lessors are currently enjoying positive industry characteristics
In the aftermath of the COVID-19 pandemic, global aviation has been benefitting from strong passenger demand and robust travel volumes, in spite of higher fares.
In addition, there are constraints over labour, aircraft supply chains and maintenance capacity.
These factors are limiting lessors' revenue growth, but are also encouraging lease extensions. This has been positive for lease rates (new narrowbody lease payments are around 25% higher than in 2019) and market values (up by single digit percentages).
The aftermath of the pandemic - and, in particular, of the Russian invasion of Ukraine - has also been characterised by interests rising to levels not seen in well over a decade.
Higher interest rates mean that lessors (and others) face increased aircraft funding costs. Nevertheless, the spread between funding costs and lease yields has benefitted from improved asset values and lease rentals.
On a more cautious note, there are macroeconomic and geopolitical uncertainties which may start to question the longer term sustainability of demand.
Leasing offers considerable benefits to airlines, such as availability of aircraft, fleet flexibility, residual value risk management, and access to capital.
These benefits are currently particularly attractive to airlines that are struggling to secure delivery slots with OEMs, and to strengthen their post-pandemic balance sheets.
NEW CAPA REPORT: Aircraft lessors enjoy positive industry backdrop - A CAPA perception
The new CAPA - Centre for Aviation report Aircraft lessors enjoy positive industry backdrop - A CAPA perception looks in more detail at the dynamics of the leasing industry, highlighting the largest players by aircraft in service, aircraft on order, revenues and credit rating.