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By Rob Morris, Global Head of Consultancy at Ascend by Cirium
News last week that GE has cleared all necessary regulatory approvals required for the sale of GECAS to AerCap, followed by AerCap’s announcement that it has raised $21 billion in senior notes to fund the cash element of the acquisition, means that the merger of the two largest commercial aircraft operating lessors will close as early as Monday 1 November. The combined entity will be the owner and manager of almost 2,000 commercial jets and turboprops, with almost 500 more in firm order backlog.
The ability of AerCap to raise the capital required for the acquisition, at interest rates of between 1.15% and 3.85% depending upon the tenor, is ample evidence that investor appetite remains strong in the operating leasing sector even despite the fundamental dislocation which Covid has imparted on aircraft demand.
Lessor capital remains amongst the most efficient in the industry and this has driven leasing to power through the crisis and continue to both grow and transact.
In the former perspective, the penetration of operating leasing across the passenger single-aisle and twin-aisle space amounted to some 48.1% at the end of 2019. Some 21 months later, as the airline fleet in service and stored globally had grown by less than 300 units over that time, leasing penetration had grown by 2.2% points as lessors increased their own portfolios by almost 650 aircraft.
Hence, the mythical 50% market share for leasing was finally achieved, driven largely by lessors financing almost 65% of all new aircraft deliveries since the start of 2020 (both from their own order books and also via purchase and lease back (PLB) but also by substantial further acquisition of used (but often nearly new) aircraft via PLB.
As aircraft entered portfolios, lessors also actually retired fewer aircraft than usual with only just more than 250 jets parted-out – some 37% of all retirements – over the same period.
As the pandemic impacted demand through 2020, lessor idle inventory began to increase as secondary market leases of used aircraft slowed for a period. Availability of both single- and twin-aisle aircraft for lease (as recorded in the Cirium fleets data) more than doubled between July 2020 and March 2021 to total some 423 and 119 units respectively as we entered the second quarter of this year. However, since that time inventory has remained relatively stable. Secondary lease activity, represented below by the rolling 12-month average of new leases recorded, has recovered towards pre-pandemic levels and indeed the number of new leases recorded in June 2021 was greater than in any single month in the prior growth cycle aside from June 2019, a month we can now recognise as the peak of the last bull run.
Some of these new leases feature aircraft returning to previous operators on restructured terms (those operators having themselves also restructured to meet the requirements of the new market paradigm), and this is undoubtedly exerting pressure on lease rates. But at the present time lessors are showing themselves to be exceedingly good at what they do best – placing aircraft into new leases.
