Kroll Bond Rating Agency released a report that discusses the opportunities and challenges that the regional aircraft sector currently faces, including the impact of COVID-19-pandemic-related changes in travel and cargo demand, the global fleet and orderbook of regional aircraft and the near-term headwinds from pilot shortages alongside the broader macroeconomic environment. KBRA also discussed the medium- and long-term trends for the industry, including the rightsizing of aircraft fleets, the growth of secondary cities around the world and emissions improvements offered by next-generation regional aircraft.

According to the report, recent improvements in passenger demand have significantly improved the operating environment for regional airlines and regional aircraft-focused lessors, though the trajectory of the recovery is still unclear. The pandemic has reemphasized that appropriate leverage, strong liquidity and laddered debt maturities are key for lessors to manage market events.

The recovery in travel demand has varied by region and remains exposed to volatility caused by COVID-related restrictions and the macroeconomic environment, including the impact of inflation, fuel prices and interest rates, all of which could potentially decrease demand for travel in the near term. Regional aircraft have not experienced the level of market value declines experienced in widebodies and aging narrowbody aircraft due to the strong recovery in short-haul travel. Alongside this recovery and other short-term tailwinds, such as the current strength of the cargo industry, KBRA believes the regional aircraft market will be supported by several forces in the medium to long term as well, including the rightsizing of airline fleets, the need to connect growing secondary cities and emissions improvements offered by new-technology regional aircraft.