A transatlantic rift and jittery markets may be unnerving investors, but the aircraft leasing giants that own half the global fleet say their industry has rarely felt more resilient.
Having preserved tariff-free status for most aircraft, the industry’s ability to move assets across borders and its experience with past shocks should help shield it in a rapidly changing world, leasing bosses said at their annual gathering.
A backlog of plane orders from Boeing and Airbus means lessors control much of the new jet output into the next decade, supporting rentals, resale values and profits. Industrial problems are also keeping supplies tight.
“There have been many, many things over the past year that we thought were going to lead to softer demand and the industry continues to grind through it,” said Tom Baker, CEO of Aviation Capital Group (ACG), adding that the industry was “shockingly stable” despite the wider global volatility.
“Because, for better or worse, the lack of available aircraft has put guardrails around the cycle.”
SMBC Aviation CEO Peter Barrett said risks had increased, but the industry was absorbing them.
“Is there more risk? It feels like it and certainly if not more, then different,” he told Reuters. “(But) the industry has been good at managing geopolitical risk.”
BURNT BY PAST CRISES
The industry has been overconfident before, getting burned by the Asian financial crisis, the aftermath of 9/11 and, most recently, COVID-19 and Russia’s failure to return planes stranded after its Ukraine invasion.
Lessors pointed to the decades-long investment horizon for jets that should smooth any downturn, though some added caution.
“It’ll just take time to see if any of these knee-jerk reactions (by the U.S. administration) end up becoming chronic,” Dubai Aerospace Enterprise (DAE) CEO Firoz Tarapore told the Airline Economics conference in Dublin.
“The disruption that’s caused by the greatest economy in the world is still something that you just can’t say it’s a sneeze and it will go away.”
MORE CONSOLIDATION AHEAD
A chasm has opened between lessors with large aircraft order books and those without, and CEOs warned that smaller firms need a strong niche or to grow if they want to survive.
The latest shake-up came last year with SMBC Aviation’s deal to acquire U.S. rival Air Lease Corp. This week, sources told Reuters that Air Lease chairman and one of the industry’s founders, 80-year-old Steven Udvar-Hazy, was considering a potential new venture. Hazy declined comment.
Avolon CEO Andy Cronin said barriers to entry were getting higher, driven by balance-sheet demands, order-book scale and the need for a strong credit rating.
“That journey is much more difficult today unless you’ve got a sovereign wealth fund or a large bank behind you,” he said.
Avolon, SMBC and AerCap are within walking distance of each other in Dublin and together manage 15% of the global fleet.
“Consolidation still has a way to go,” Cronin said.
All eyes are now on the sale of Macquarie AirFinance with DAE, AviLease, and Qatar’s Lesha Bank among the final contenders, sources said. Macquarie declined to comment and none of the potential buyers had any immediate comment.
With the market booming, there is an opportunity for owners of lessors to sell at premium multiples, said ACG’s Baker, who expects to be among the big lessors left standing.
“If you can’t commit capital, you can’t return capital, you can’t grow, then it’s only a matter of time before your sponsors say, thanks so much, it’s been a great experiment, it’s time to move on,” he said.
(Additional reporting by Sabrina Valle)
