Low cost airlines and lessors: leasing is mutually pleasing


The world's LCCs include some large, well established airlines with strong balance sheets, who make little use of leasing.

Examples include Ryanair, Southwest Airlines, JetBlue Airways, Pegasus Airlines and easyJet.

Nevertheless, many LCCs have sizeable fleets that have been largely or entirely developed through leasing. These include Wizz Air, Volaris, Jet2.com, Gol, Frontier Airlines, Azul and - the biggest LCC lessee - IndiGo.

IndiGo also has 951 outstanding aircraft orders, which is the world's biggest backlog. These orders are in its own name, but its current fleet is 75% leased, suggesting that it will make significant use of sale and leaseback as orders are delivered (a popular LCC approach).

Individual examples aside, low cost airlines as a whole lease 68% of their fleets, higher than the global airline average of 53%.

It would seem that lessors and LCCs offer each other mutual benefits.

  • In the LCC fleets, 68% of aircraft are leased, compared with an average of 53% for all airline business models, while leading LCCs range from 0% to 100% leased.
  • Lessors seek assets that are liquid, and so, they particularly like narrowbodies, which are also favoured by LCCs.
  • Only 6% of LCC orders are through lessors, but LCCs make significant use of sale and leaseback.
  • Lessors and LCCs offer each other a good mutual fit.

In the LCC fleets 68% of the aircraft are leased, compared with 53% average for all airlines…

As at 6-Feb-2024, 68% of the current fleet of low cost airlines is leased.

This percentage has been fairly stable over time, although the share of LCC aircraft that are leased has fallen slightly, from 69% at the end of 2019.

The share of leased aircraft in LCC fleets is higher than the average of 53% for all airline business models (this has also fallen slightly from 2019, when it was 54%).

It is also higher than for any other business model (it is 60% for regional/commuter airlines and charter airlines, 55% for cargo airlines, and only 49% for full service carriers).

World commercial aircraft current fleet*: leased and total aircraft numbers, by business model, at 6-Feb-2024

…but leading LCCs range from 0% to 100% leased aircraft

The average LCC leased fleet of 68% of their total fleet disguises a wide range.

The chart below shows the top 25 low cost airlines by total number of aircraft in service as at 6-Feb-2024.

Third ranked Ryanair owns all 301 of its aircraft in service, whereas its subsidiary Malta Air (in sixth place) leases all 173 of its aircraft (from Ryanair).

The largest LCC fleet is that of Southwest Airlines, with 822 aircraft in service. However, only 79 of Southwest's fleet, less than 10%, are leased.

Among the top 25 LCC fleets, the majority (16 of them) lease more than half of their aircraft. More than half of them (13) lease more than three quarters of their fleet.

In addition to Ryanair and Southwest, others with a low proportion of leased aircraft are Pegasus Airlines (19%), JetBlue (27%) and easyJet (37%, but easyJet Europe leases 100% of its fleet - the majority from easyJet).

No other LCC fleet in the top 25 is less than 40% leased.

The largest LCC fleet by leased aircraft alone is IndiGo (241 leased out of a total of 241). The second largest is Malta Air (173, all leased), while Azul is third (158 leased out of 160).

Five other low cost airlines also have more than 100 leased aircraft in service: Frontier Airlines, Gol, easyJet Europe, Spirit Airlines and Jet2.com.

All 25 of the biggest LCC fleets have more than 50 leased aircraft.

Top 25 low cost airline fleets, by aircraft in service, with leased numbers, 6-Feb-2024

Lessors seek assets that are liquid…

These numbers highlight that there are significant numbers of large leased fleets operated by low cost airlines.

This can be explained by some of the key features lessors look for in an aircraft.

Lessors and those providing secured credit tend to prefer aircraft that are highly liquid, meaning that there are a lot of other operators of the asset.

In the event that an operator goes out of business, aircraft that are widely used can more readily be traded and redeployed elsewhere. This is eased and simplified by the preference of most LCCs to focus on a small number of different aircraft types.

Another aspect to aircraft liquidity is that there should also be a large base of investors willing to trade the aircraft type.

Investors also tend to prefer aircraft that can be easily remarketed, and those that will hold their value.

….and so they particularly like narrowbodies…

Globally, narrowbody aircraft (Boeing 737 and Airbus A320 families) are the most commonly operated types. This helps to explain why lessors like narrowbodies.

According to the CAPA - Centre for Aviation Fleet Database, 51% of all commercial aircraft in service as at 6-Feb-2024 are narrowbodies.

For leased aircraft, the narrowbody proportion is higher, at 58%.

…which are also favoured by LCCs

Narrowbodies are also favoured by LCCs, most of which do not operate long haul routes and widebodies.

Narrowbodies represent 93% of LCC aircraft in service - up from 89% five years ago. This is much higher than their 51% share of all fleets.

Widebodies represent just 2% of LCC aircraft in service, but 16% of total commercial aircraft in service, so there is a large pool of widebody operators beyond LCCs.

Global LCC fleet in service, by aircraft type, 6-Feb-2024

Only 6% of LCC orders are through lessors…

Lessors always account for a much smaller share of orders than they do of the current fleet for all operators: they account for 53% of the current fleet for all airlines, but only 23% of orders.

For LCCs, the difference between lessors' share of current fleets and their share of orders is much higher than for all operators.

Although 68% of the current fleet of low cost airlines is leased, only 6% of the 6,065 orders currently outstanding for LCC operators are through lessors.

…but LCCs make significant use of sale and leaseback

This indicates a significantly greater use of sale and leasebacks by LCCs. These transactions involve an airline placing an order and then selling the aircraft to a lessor for subsequent leaseback to the airline.

For many LCCs this method accounts for the large majority of leased aircraft, rather than placing the order through a lessor from the outset.

Sale and leaseback allows them to place their own orders at a time of their choosing, and with agreed delivery slots, while realising cash on the sale to a lessor.

In addition, it is not uncommon for the aircraft sale price to exceed the price paid by the airline to the OEM.

Lessors and LCCs offer each other a good mutual fit

The above-average use of leasing by low cost airlines is not necessarily a direct consequence of their being LCCs. Rather, as noted above, it reflects the preference of both low cost airlines and lessors for narrowbody aircraft.

It probably also reflects the fact that many (although not all) LCCs have shorter track records and slimmer balance sheets, making ownership more of a challenge.

Newer airlines, and those expanding rapidly into new markets, often prefer the flexibility of leases. This allows time to build profitability and to consider equity funding when they have a more solid track record.

Such airlines are more likely to be LCCs, for whom lessors offer each other a good mutual fit.

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