Fitch: Aircraft Lessors Buoyed by Healthier Airlines

The aircraft leasing sector continues to experience strong performance due to improving airline industry fundamentals, favorable credit markets and stable lease rates and margins, said Fitch Ratings in an industry report. Improving performance has also led to an influx of capital into the sector, which raises risks for lessors as lease pricing and terms are likely to ease over the near term in our view.

Aircraft financing is expected to remain broadly healthy in 2015, with aircraft lessors being the biggest beneficiaries. Robust demand for aircraft leases underpins the lessor markets’ strength. Financial performance has remained steady for most aircraft lessors due to steady lease yields, improving aircraft values and strong airline industry operating fundamentals, leading to reduced lessee defaults and aircraft repossessions.

In December 2014, the International Air Transport Association upgraded its profit outlook for the airline industry to $19.9 billion in 2014, up from $18.0 billion previously, citing declining fuel costs and strong global GDP growth as the primary drivers of the change.

Fitch expects banks and the capital markets (including lessor funding) to continue to play a dominant role in the financing of aircraft, at least over the near to intermediate-term. Strong liquidity and ample funding sources from capital markets (e.g. securitization financing and unsecured debt) and commercial banks are supporting lessors’ pipeline of purchase orders for new aircraft inventory.

To view the full Fitch report (subscription required), click here.

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Terry Mulreany
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