Research Overview

Lessors are struggling to maintain liquidity amidst the weak economic scenario in aviation. Airline-owned leasing firms are selling off their leasing arms to consolidate and streamline their core air travel operations. The critical situation has led to some M&A scenarios in the aircraft leasing industry.

Lessors and airlines are dependent on various institutions such as banks, capital markets, debts, and asset-backed security (ABS). In the pre-pandemic scenario, banks were key financial providers to the aviation industry and were extending credits with less scrutiny. However, the situation changed post-pandemic, banks are now taking a much more conservative approach. The COVID-19 pandemic has brought the banks to a very cautious state concerning the aviation industry. This has shifted the focus of banks to largely state-owned carriers with sufficient support and access to funds. Highly rated leasing firms, with a diverse portfolio and financing options and efficient risk and asset management will be in a better position to leverage the post-pandemic aviation market. In 2020, capital markets increased their contribution to the aviation industry.

As of mid-2021, there were nearly 90 new airlines in various stages of investments and negotiations to begin operations. These new start-ups are focusing on low-cost business models that will be the recovery engines of the industry and is a key focus area for lessors. Declining leasing rates, potentially reduced debts and other fixed costs for new carriers, a significant increase in parked aircraft, and early retirements leading to wider availability of aircraft are key parameters driving these investments.