The aircraft leasing sector is at a critical frontier.
Mohammad Zia, Head of Corporate Services – Ireland, recently attended Airline Economics: Growth Frontiers Dublin, a three-day conference exploring current developments and hot topics in the commercial aviation industry, with an emphasis on finance and leasing of aviation assets.
Each day was packed with industry leaders from around the world who provided their own insights, highlighted market trends, identified emerging opportunities, explored economic implications, and considered environmental considerations.
Here, Mohammad breaks down the six key takeaways from the world of aircraft leasing:
1. Recovery and Resilience Amidst the Pandemic
The global aircraft leasing sector has undergone tremendous growth post-Covid as global passenger numbers revert and a positive outlook has returned to the industry.
Through the multi-faceted challenges of the pandemic, new opportunities have emerged, consequently reshaping the role and responsibilities of aircraft lessors.
2. Embracing Leasing Over Ownership
Did you know that more than half of the world’s aircraft are leased rather than owned outright? This represents a great opportunity for aircraft lessors.
Driven by current high-interest rates, it makes economic sense for many airlines to lease aircraft through well-structured and properly negotiated loans and leases. The shift towards leasing isn’t merely a tactical response, but it extends to being an economically viable strategy.
In addition, capital markets continue to serve as a crucial source of funding for aircraft leasing companies. The leasing firms often rely on a delicate balance of debt and equity sources to acquire aircraft, making raising capital a crucial aspect of their operations.
3. On the Road to Sustainability
There is an increasing emphasis on low emission aircraft with several manufacturers already taking steps in this direction.
Within the industry, there is an evident trade-off between planes that are more environmentally friendly and their non, or less-environmentally friendly alternatives. More eco-conscious aircraft would lead to lower fuel bills but would cost more in maintenance. It’s a delicate balancing act and the industry is still growing through a journey towards sustainability.
4. Navigating Through Manufacturing Delays
Aircraft manufacturers continue to face delays in manufacturing and delivering aircraft to airlines. This is due to a delay from Original Equipment Manufacturers (OEM) supplying the relevant equipment and the sheer demand for new aircraft.
Consequently, managing manufacturing timescales and meeting delivery dates has emerged as a significant challenge for aircraft manufacturers.
5. Extended Service Life for Existing Aircraft
Given the issues in manufacturing has led to a scarcity of new aircraft amid mounting demand, an interesting repercussion is that the existing aircraft are being pushed into service for a longer duration.
This development has enhanced the average useful life beyond the standard 25 years, representing an altered perspective on asset utilisation and aircraft maintenance.
6. Unravelling Financing Challenges
Given the current high interest rate environment, it can be challenging for aircraft lessors to secure cheap financing.
This has the effect of decreasing the margins for the lessors and subsequently will likely see an increase in lease rentals to compensate for the financial shortfall, signalling a potential shift in industry-wide pricing.
These insights from the Growth Frontiers Dublin conference reflect not only the existing industry landscape but also offer vital forecasts about the sector’s future trends and strategies.
The aircraft leasing industry is undeniably entering a transformative growth period characterised by aggressive demand, dynamic financial shifts, sustainability initiatives, and extended aircraft lifetimes.
As the industry continues to navigate these complexities, we hope that these insights shed some light on the evolving landscape and how keeping up to date helps to supporting clients looking to lease aircraft.
Positively, the aircraft leasing sector is on a growth trajectory and despite the various challenges, such as the geopolitical environment and high interest rates, the sector continues to outperform expectations.
How JTC can help
Our Dublin team provides tailored services throughout the process from SPV incorporation through to aircraft financing and leasing transactions.
Tailored services include:
- SPV set-up
- Corporate administration
- Accounting & financial reporting
- Regulatory and compliance services