Recovery slow; outlook fair

In spite of the global credit crisis that has affected the finances of the parent companies of several large aircraft leasing companies as well as standalone lessors without previously deep-pocketed parents, the mood is upbeat.

There are some indications that the airline sector is beginning what will undoubtedly be a slow recovery as a number of carriers globally report improving traffic numbers. Moreover, as cash-strapped airlines battle to restore equilibrium, leasing is becoming an increasingly attractive option, providing airlines with the flexibility to adapt fleet size more quickly and easily as dictated by the market, while not encumbering balance sheets with the expense of purchasing aircraft. In addition, acquiring aircraft on sale/leaseback terms allows carriers to retain cash – a wise strategy for an extended economic downturn.

In these regards, while the global downturn has created a tough year for all players in the aviation industry, it can also be said to have benefited lessors; many believe that the downturn marks a turning point in how the airline market will look going forward.

Traditionally, lessors control about a third of the aircraft in service – almost 7,000 commercial aircraft today. Last year, lessors accounted for about two-thirds of new orders awarded to aircraft manufacturers, leaving them well positioned to meet growing airline demand for leased aircraft and also indicating the probability of a higher quotient of leased aircraft in the global fleet moving forward.

Access to capital

Access to capital will define the performance of individual lessors. While credit markets have eased up somewhat, they do remain constrained. However, private equity and hedge funds are keen to invest in leasing businesses and will be the likely buyers of leasing portfolios up for sale or expected to be so imminently, such as International Lease Finance Corporation (ILFC), CIT Aerospace and RBS Aviation Capital, the aircraft leasing unit of Royal Bank of Scotland.

No one is expecting next year to be easy, but most lessors expect some improvement in the segment compared with 2009.