Home' Asian Aviation : AAV November 2010 Contents 46 AsianAviation | NOVEMBER 2010
Lessors poised to expand aircraft fleets
Analysts say the total number
of aircraft owned by leasing
companies is expected to grow at
5.76 percent annually, from 6,180
today to 8,646 in 2015.
According to Frost & Sullivan's
World Aircra Leasing Market -- Market Outlook and
In estment Analysis, the narrowbody aircra segment
will probably grow faster than the widebody and
regional aircra categories. Leasing companies prefer
narrowbody aircra due to their exibility and value.
Frost & Sullivan says narrowbody types account
for more than 65 percent of all aircra ordered by
With airlines struggling to nance eet expansion
plans due to a scarcity of funding , aircra leasing
has become an increasingly attractive alternative to
purchases. On average, Frost & Sullivan says that
operators in Europe and the Asia-Paci c region rely
more on lessors than North American carriers. One
of reasons is that there are fewer very large players
outside North America.
According to Frost and Sullivan analyst R
Madhusudanan, the high growth rate in the leasing
industry is driven by emerging low cost carriers
(LCCs) in the Asia-Paci c region and the recovery
of the European airline industry. India, China and
Russia are estimated to play a major role in the sector's
Madhusudanan notes that the Asia-Pacific
airline industry has particularly bene ted from the
liberalisation policies adopted by China and India
from 2003-2005. "India and China o er tremendous
opportunities for the airline industry to penetrate
and grow," he said.
e Asia-Paci c region accounts for 16.9 percent
of aircra operating with airlines around the world,
and 21 percent of the global leasing portfolio.
"Historically, the Asia-Pacific has been home
to a lesser number of business aircra , compared
with commercial aircraft," Madhusudanan said.
Commercial aircra comprise 94 percent of the total
leasing portfolio, he added.
e commercial aviation industry is going through
a boom in the Asia-Paci c region due to exible
regulations, the emergence of low-cost carriers, and
economic growth driven by the movement of ser vices
and manufacturing industries into the region from
According to the analyst, the Asia-Paci c leasing
market was valued at US$24.4 billion in 2004,
experiencing the fastest regional growth in the world
through to 2008, with a compound annual growth
rate of 8.2 percent.
e aircra leasing industry is highly dependent
on the fortunes of the airlines it serves. " e airline
industry is cyclical, sensitive to economic trends, and
highly competitive," Madhusudanan said.
Between 2001 and 2003, leasing margins declined
due to the e ect of the 2001 terrorist attacks in the
US, airline bankruptcies and the outbreak of SARS.
Recovery was seen in the following two years.
e leasing industry was hurt along with airlines by
the 2009 nancial crisis and the slump in passenger
and cargo demand that came with it. Airlines cut
capacity by parking aircra , leading to a reduction in
market value and lease rates.
Some lessors were put up for sale -- mostly not
because they were themselves distressed assets, but
as a result of their parent company's poor nancial
"Banks from China and sovereign wealth funds
from the Middle East showed interest in purchasing
the aircra of leasing companies," Madhusudanan
said. " e assets of lessors are likely to stimulate
interest among asset management companies scouting
around for stable income over the long-term."
Madhusudanan said sale-and-lease back
transactions enable lessors to buy aircraft at
competitive prices, while increasing their internal
rate of returns. Airlines have been facing a lack of
liquidity, coupled with a frozen credit market. Under
the circumstances, sale-and-lease back transactions
can be used to improve liquidity and strengthen the
carrier's balance sheet.
ere has been a signi cant increase in the number
of new low-cost carriers (LCCs) in emerging
economies. As these airlines lease most of their
aircra , this segment o ers signi cant opportunities
Madhusudanan said that leasing companies in
the Midde East and China are expected to provide
the market with much-needed liquidity and ll the
funding gap arising from the credit crisis.
" ere are issues pertaining to regulations, cross-
border nancing , and complicated tax structure. As
proper regulations relating to the ow of capital
are [put] in place, leasing companies from the two
regions are likely to expand at a faster rate in the
global market," the analyst said. Increasing liquidity
in the credit market is likely to contribute to recovery
in 2010 and 2011.
"As the leasing market has already bottomed
out, the market is poised for growth with attractive
returns," Madhusudanan says. Many new players are
likely to enter the eld.
"Rates and market values of aircra are expected to
start rising a er the rst quarter of 2011. Higher eet
utilisation and stronger deals with good underlying
credit are likely to be the major factors for sustaining
pro tability in the long-term," the analyst added. n
With airlines facing poor liquidity and a lack of available credit, they have increasingly been turning to leasing
as a preferable alternative to aircraft purchases, William Dennis.
Narrowbody types account for
about 65 percent of all aircraft
ordered by lessors.
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