Fitch: Global Aircraft Leasing Growing on Low Rates, Rising Air Traffic



According to Fitch Ratings, aircraft lessors are benefiting from increased air travel, strong airline profitability, low interest rates and generally accessible funding markets. However, Fitch noted that these variables are cyclical in nature or prone to temporary disruption, limiting the potential for accompanying positive rating actions.

Global air passenger traffic, which underpins demand for commercial aircraft, grew 6.5% in 2015 and 6.0% in the first half of 2016, as measured in revenue passenger kilometers, according to the International Air Transport Association. The IATA projects a 6.2% RPK growth rate for 2016, while Fitch’s 2016 expected range for revenue passenger mile growth is 5% to 6% globally.

“Current market conditions favor aircraft lessors given record manufacturer backlogs and capital constraints faced by certain airlines,” said Sean Pattap, senior director at Fitch Ratings. “Even as air travel increases globally, airline profits remain sensitive to oil prices and geopolitical risk in certain areas of the world, most recently the United Kingdom, Turkey and Latin America.”

Aircraft lessors’ credit ratings are supported by strong franchise positions, capable management teams, improving fleet and funding conditions as well as acceptable leverage ratios relative to ratings. Ratings on the sector are constrained by the monoline focus on aircraft assets, reliance on wholesale funding, the cyclicality of the aviation industry and potential residual value risk.

The debt markets for aircraft lessors remain accommodative and aircraft lessors benefit from diverse funding sources including the capital markets, commercial banks, insurance companies and government-sponsored export credit agencies globally.

“Low oil prices have boosted airline profitability and lessor utilization rates, and kept repossession activity low, but if oil prices remain depressed for a longer period of time this could further enhance airlines’ financial flexibility and reduce their leasing appetite,” Pattap said.

The two largest aircraft lessors are GE Capital Aviation Services and AerCap Holdings. Fitch noted, however, that Asian firms are increasingly gaining market share. Earlier this year, Bohai Leasing, which is majority-owned by the Chinese conglomerate HNA Group, rose into the top 10 global aircraft leasing firms with its acquisition of Avolon Holdings. In Fitch’s view, growth in the Asian aircraft leasing market can be attributed to Asian banks and governments making the industry a strategic priority but also to increased regulatory capital charges for U.S. banks that engage in aircraft leasing.

As competition heats up in aviation, more consolidation is possible in aircraft leasing with CIT Group’s ongoing exploration of strategic alternatives for its $10 billion commercial air business.


Like this story? Begin each business day with news you need to know! Click here to register now for our FREE Daily E-News Broadcast and start YOUR day informed!

Leave a comment

View Latest Digital Edition

Terry Mulreany
Subscriptions: 800 708 9373 x130
[email protected]
Susie Angelucci
Advertising: 484.459.3016
[email protected]

View Latest Digital Edition

Visit our sister website for news, information, exclusive articles,
deal tables and more on the asset-based lending, factoring,
and restructuring industries.
www.abfjournal.com