Lessors survival strategies honed by past crises
With around half the world’s airline fleet owned or managed by leasing companies and a majority of them grounded for the past year or more it is hardly surprising some lessors have been struggling. Read More » But not all of them as the record revenue and big profits announced by Singapore-based BOC Aviation highlights.
Major global leasing companies had a buoyant 2019 and they were able to take advantage of bank debt and access to bond markets to navigate the COVID-19 crisis. Others, however, have not been so fortunate.
The years leading to the outbreak of the pandemic were a golden period for aircraft lessors. Airlines, focused on financial stability, gravitated to leasing large portions of their fleets rather than owning them.
Dozens of new lessors entered the market, particularly in China, as investors jumped at what was seen as a winning bet. For the time being, that boom has come to an end. Analysts forecast a thinning of lessor ranks.
Already that prediction has come to pass with Dublin-based AerCap’s purchase of GE’s leasing arm, GECAS. It appears inevitable the sector will continue to shrink, at least in the near-term, as small lessors either depart the industry or are absorbed by larger, more successful peers.
With the time frame of recovery from the pandemic still uncertain and forecast to take some time, airline fleet growth will be on pause. Carriers burning through cash reserves and adding massive amounts of new debt to their balance sheets will be shying away from ordering airplanes or adding leased jets to their fleets.
And, as they have been for the last year, they will be looking to defer lease payments and negotiate reductions on rentals they have. It also is likely many carriers will not renew aircraft leases expiring this year or even in 2022.
As a result, more disputes between airlines and lessors about lease returns and redeliveries are ahead. Clearly, there are those who will continue to prosper, such as BOC Aviation and AerCap. Both companies have strong balance sheets and excellent management.
In his first press conference as International Air Transport Association (IATA) director general, Willie Walsh said: “Generally, the leasing industry is competitive. There are lots of options out there for most if not all airlines and we continue to see evidence of that.
“In many cases lessors have been part of the solution to the cash crisis airlines faced in 2020.” See IATA boss warns service providers against opportunistic fee hikes.
A full recovery for the global airline industry, particularly long-haul flying is forecast for 2024 to 2025. As a result, the road ahead for some aircraft and engine lessors, at least in the short to medium term, will be challenging.
Associate editor and chief correspondent
Orient Aviation Media Group