Aircraft leasers and asset managers leap on jet shortages
Aircraft leasing groups and aviation asset management firms are pouncing on supply chain bottlenecks and surging travel demand, but potentially risking airlines’ cost base as rates to secure jets rise.
A combination of booming travel demand and a limited supply of jets at manufacturers Airbus and Boeing have led to airlines to increasingly rely on leasing companies – the vast majority of which are owned or funded by private investors such as asset or fund managers – to add to their capacity.
Carriers are able to fill out their fleets for busy periods, without having to raise large sums of capital via aircraft acquisitions.
According to aviation asset manager AIP Capital, that lower aircraft supply has resulted in “optimal market conditions for aircraft leasing and aviation asset management firms to experience significant growth” by buying up jets at lower costs than airlines and then leasing them back.
AIP Capital itself has a $1.6bn portfolio encompassing 30 aircraft, with another 68 Boeing 737 Max models on order.
This was echoed by Rob Morris, head of consultancy at aviation analytics firm Cirium Ascend, who told Morning Wire operating leasing had become an “increasingly popular form of fleet acquisition for airlines since leasing offers fleet flexibility and obviates the need for the airline to raise and commit large sums of capital.”
Covid initially caused the number of aircraft owned and managed by operating lessors to hit over 50 per cent for the first time in history, as struggling airlines looked for ways to immediately shield cash reserves.
And according to aviation analytics firm Cirium’s fleet data, that growth is continuing, with some 51.2 per cent of all passenger commercial jets now managed by operating lessors.
But Dan Taylor, head of consulting at aviation market intelligence group IBA, warned that leasing rates, the price which airlines pay for the craft, among new deals “are going up right now, that’s what we are seeing.”
This, he said, would impact airlines costs and ultimately ticket fares, as the sector increasingly relies on leasing to handle supply-demand imbalances.
“We’re seeing the lease rates going up because they’re in demand, these aircrafts, and investors obviously are doing well on that side,” he told Morning Wire
“Is it a concern of airlines? Yes. Absolutely, and you’ll see the latest results you’ll see you know leasing rates and things coming up. And also if they’re buying aircraft themselves, the interest rates on loans are also very high. So for airlines at the moment the costs are going up,” Taylor said.
Leasing though has had significant benefits, and propped up airlines through one of the most turbulent periods in the sector’s history.
Taylor noted it had allowed airlines to “grow faster” due to higher competition and that growth had previously made fares “more competitive.”