Strong air travel growth, aircraft leasing, potentially rising lease yields and accommodative funding markets point to favorable industry conditions for aircraft leasing company credit profiles for the rest of the year.
Air traffic growth has stayed strong and, twinned with low oil prices over the last couple of years, has translated into a positive sector outlook for both airlines and aircraft leasing firms in recent years, according to a recent report by Fitch Ratings. Through July, revenue passenger kilometers were up 7.7% on the year, the highest rate since 2011 and above the average of 5.5%. Low oil prices have led aided airline profitability.
Aircraft lessors have seen low repossession activity and high utilization rates as more people choose to lease aircraft over ownership—about 40% of the global aircraft fleet was under an operating lease as of 2016, approximately double the rate 20 years prior, Fitch analysts said.
“Fitch believes that some of these favorable industry dynamics will moderate over the medium term,” the ratings agency said. “For example, air traffic growth is not likely to be sustainable at current levels and should decelerate. There are also some indications that aircraft demand may be beginning to slow, which could suggest that aircraft deliveries from the major producers could peak. That said, lower demand should not meaningfully affect aircraft lessors given already-high utilization rates.”
Aircraft lessor asset impairments have been low, reaching an average of 0.5% from 2012 to the second quarter of 2017, mostly through the resilience of the appraised value of some aircraft.
– Nicholas Stern, managing editor