By Rahul Oberai, Global Head of Sales at Cirium
The market for commercial aircraft is more dynamic than ever. Pricing power has seemingly moved towards lessors and banks as the demand for aircraft accelerated post-pandemic.
Demand for aircraft is strong and global growth is projected to be back in 2024. Airlines continue to order aircraft in large numbers and the backlog remains only marginally lower than record highs in the last cycle. The challenges lie in aircraft supply where OEMs struggle to meet deliveries, lessor-used inventory continues to decline, and parked aircraft continue to return to service. However, Maintenance, Repair and Organisation (MRO) capacity and spare parts supply will accelerate this return.
Never has the role of financiers been so critical and in such a changing and challenging environment.
Focus has shifted from the conditions of assets to the airline’s ability to service the lease agreement, which is increasingly being challenged by rising interest rates and reducing supply.
Compliance is taking a 360-degree view
Cirium observes an increase in the use of data and analytics to create a complete view of how aircraft assets and portfolios are impacted. Compliance and risk teams are monitoring the shape of airline schedules and how they are recovering, the profitability of airlines, the environmental impact of aircraft in a portfolio, passenger demand and bookings.
Improved situational awareness and aircraft ownership insight is on the rise
We have seen high-profile lessor consolidation during and since the pandemic and, with geopolitical situations additionally causing market volatility, we may see more. We expect an increase in new methods of financing over the next 12-24 months.
The Russia/Ukraine conflict and the impact on aircraft operating in the country, exposed the need for improved situational awareness of aircraft owned by lessors, especially with a billion-dollar price tag hanging around the neck of aircraft owned by certain lessors, now in the possession of Russian airlines.
With the market conditions, large and small lessors are consolidating, and we are also seeing a rise of new entrants who are investing in their fleet. Financiers are looking closely at the increased number of aircraft changing hands and the rise in the value of aircraft in the constrained second-hand market.
Data is underpinning every stage of the investment process
We believe the outlook is bullish with some of the biggest aircraft orders ever being placed by airlines, including the recent record-breaking commitments for Air India (470) and Indigo (500). Concerns over the negative impact of macro-economic scenarios on demand is receding and we are increasingly seeing Asia-Pacific demand recover.
Investments from banks and lessors are in the spotlight and this has ramped up the need to weave more data and analytics into the planning phases of investment in order to make informed decisions around where to invest and how to mitigate risk.
In fact, data has become central to more comprehensive risk analysis of assets in a portfolio as well as to improve return on investment. Understanding how the prices and liquidity levels of different aviation asset types have trended historically in the context of macro trends is critical.
Predictive insights will enhance decision making
The aviation industry has gone through a challenging period which has fuelled volatility and hence the risk associated with aviation assets. The need for more insights to mitigate this risk has increased.
While the industry is looking at descriptive, predictive, and prescriptive analytics, there is much work needed around data and applications to get to the prescriptive analytics stage.
Cirium is focused on bringing descriptive and predictive analytics to aviation finance to enhance decision making.
We are in the process of building a new capability to predict maintenance events, due to be released later this year, as well as looking at predicting estimated times of arrival with more granularity.
Aviation is not without its risks and challenges, as the last two or three years will attest to, which is why working with the industry, and especially the finance market, to effectively manage and monitor volatility, as well as mitigating asset and credit risk, is so critical.
A version of this article was originally published in Airline Economics.
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