The aircraft leasing industry is one that is overlooked by many people, but one that has a vital role in the present and future of the entire aviation industry.
When people see commercial aircraft with airline brand names and colors on them, they often think the name and colors represent the owner of the aircraft. Yet, more often than not, what they are seeing is a leased aircraft.
While major companies in the airline industry can afford to purchase their own aircraft, aircraft leasing is a better solution for smaller airlines, especially the ones known as low-cost airlines, to become profitable.
In fact, the aircraft leasing market has been growing rapidly in recent years, and the aircraft leasing industry was of great help for the aviation industry to stay afloat during the toughest moments of the COVID-19 pandemic.
Are you ready to learn all about the aircraft leasing industry, the aircraft leasing market growth, and the details of commercial aircraft leasing? If so, we invite you to keep reading as we tell you all about it.
To better understand the aircraft leasing market, it is important to establish some context around it. Let’s start with a quick definition of the leasing business and a bit of history.
The leasing sector offers aircraft ownership via a leasing agreement. Any airline can have a leased fleet while still having control of the fleet’s operation. This is a better alternative to traditional ownership which was only achieved by purchasing the aircraft, and aircraft financing with a bank was necessary but not always easy to get.
The aviation industry has evolved greatly over the years, with one of the biggest transformations happening in the 1960s when airlines started requesting larger airplanes and manufacturers such as Boeing started building them, with others like Lockheed Martin following suit. This is known as the wide-body aircraft era.
Obviously, the evolution did not stop there, and bigger and more complex commercial aircraft were being fabricated in the following years. This resulted in commercial aircraft being more and more expensive, thus making air carriers look for other ways to finance their business and increase their fleet in order to grow.
Although many airlines kept their commercial aircraft for their whole economic life and believed buying was still the best option, others began to lease and the fathers of current aircraft lessors were born.
However, during the 1970s, the aircraft leasing market suffered from slow growth. Different factors were limiting the aircraft leasing market to grow, but the most relevant included:
This way, the aircraft leasing market entered the 1980s with a very small share since only 2% of the global aircraft fleet, which accounted for 6,000 commercial aircraft, was leased.
Fortunately for the leasing market, thanks to deregulation in the mid-80s, airlines started to grow their fleets more rapidly. So, the demand for leasing aircraft started to grow exponentially since the OEMs could not keep up the pace, and air carriers did not want to see their finances stumble with increased capital expenditures associated with the purchase of new aircraft.
Therefore, it was the time for leasing companies to shine and more organizations started to be created to take a market share.
Most recently, the aircraft leasing market has seen a lot of mergers and acquisitions. These so-called M&S deals have helped the bigger leasing companies to take a bigger market share. Perhaps the most prominent of these deals was the one involving GE Capital Aviation Services and leading leasing company AerCap, with the latter acquiring the first one for about 30 billion US dollars in 2021.
Even with the COVID-19 pandemic, the aircraft leasing market has found a way to keep growing. The latest report called “Global Aircraft Leasing Market (By Aircraft Type & Region): Insights & Forecast with Potential Impact of COVID-19 (2022-2026)” shows an expected growth at a CAGR of 7.8% during the period spanning from 2022 to 2026, with the global aircraft leasing market forecasted to reach $247.41 billion in 2026.
Currently, there is a great number of commercial aircraft leasing companies operating leases all over the world. Most recently, many newcomers from Asia are taking their market share. However, the top commercial aircraft leasing organizations can be found in the following list.
Out of this list, there are two commercial aircraft leasing organizations that should be highlighted due to their importance in the aviation sector. They are AerCap and ILFC.
Let us share some details about them.
We must start speaking about ILFC because it is considered one of the fathers of the aircraft leasing industry, running its business since the early 1970s. In the year 1979, ILFC started deregulation with 13 aircraft. Ten years later they already had 79 aircraft, clear evidence of the importance of deregulation.
Another important fact about ILFC is that when the Gulf War hit the industry and decimated 9 out of the 10 major leasing companies, they were the only ones still standing firm.
ILFC is arguably the one that opened the doors to the rest. However, many that have come after have surpassed them, and that’s the case with AerCap.
Although the aircraft leasing market is still well fragmented among the many players, AerCap is at the top of the list when it comes to market share.
This leasing company provides fuel-efficient aircraft to more than 300 airline customers around the world, and it is known for being the top customer for the major aircraft manufacturers Airbus and Boeing.
After AerCap acquired GECAS as mentioned above, their portfolio reached 2,098 aircraft, thus representing 36% of all flight operations that fly leasing globally.
While the COVID-19 pandemic hit the industry, and now Western sanctions requiring them to stop business with any airline company in Russian territory have complicated their opportunities to get lease payments and achieve aircraft repossession, AerCap is one of the few with business strategies and well-established risk management to take advantage of the post-pandemic situation, and to use the capital markets to increase their opportunities to grow their business.
According to statista.com, the current commercial aircraft wet lease market represents 7.35 billion US dollars, with AerCap getting 4.49 billion as their total revenue and 4.32 billion representing their lease revenue.
A common question about this market is whether airlines actually prefer operating with leased aircraft or not. Well, the answer should be that it is more common than you can imagine.
With about 90 start-up airlines ready to invest and enter the market in mid-2021, it was expected to see an increase in both wet leasing and dry leasing as the passenger traffic was expected to go up again.
Also, most start-ups focus on low-cost business models which usually are highly compatible with the first type of leasing as they can operate the flight while delegating important aspects such as maintenance and crew training.
What’s more, the fact that pandemic halted aircraft deliveries made most airlines seek leasing as the alternative to keep up with the increase in traffic.
In 2021, the Chief Executive Officer of Air Lease Corporation John Plueger said “During this period of airline financial and balance sheet recovery, airlines have looked to leasing in a much more significant way, which I see continuing in 2022 and probably 2023 and beyond.”
Currently, over 13,300 commercial jet planes with a value of approximately $331 million are owned by operating lessors.
Based on up-to-date data from statista.com there are 153 lessors worldwide covering a global aircraft leasing market size of 167.8 billion US dollars.
It is interesting to see a good number of Asia-Pacific lessors on the list. Among the most prominent Asia-Pacific organizations the larger companies are Chinese lessors with China Aircraft Leasing Company having a total fleet of 156 aircraft, with 263 in order with an estimated portfolio value of 3.39 billion USD.
Moreover, according to data from statista.com, 83% of executives in the Asia Pacific think aircraft financing will increase in the upcoming years. This could be interpreted as an expectation of market size growth despite the current market conditions.
What is true is that air travel is constantly evolving and adapting to current situations. After seeing the industry overcome different wars, a terrible financial crisis, and even the hardest pandemic times, there is no reason to expect limited growth in years to come.
If you want to learn all about this industry, we invite you to check our Aircraft Financing and Leasing Fundamentals course where we examine how airlines acquire an aircraft for its services based on operational and financial requirements and look at different types of airlines involved.
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