Lessor fleet share of 50% 'possible but ambitious': Ascend

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Operating lessors will face an uphill battle in trying to secure a 50% market share of the global airline fleet by the start of the next decade, anticipates Ascend.

Today there are some 7,000 in-service passenger jet aircraft with operating lessors, which is 38% of the total fleet, but by 2023 the total fleet will reach 26,000-27,000 units, according to Ascend's Flightglobal Fleet Forecast and estimates by Airbus.

Lukasz Pawlowski, senior analyst of risk advisory at Ascend, says operating lessors would need to add "at least 6,500 aircraft" to their fleets between now and then just to arrive at 13,500 units, or 50% of the global airline fleet – a move that is "possible but ambitious", he says.

However, of the 7,000 aircraft with lessors today, there are 1,500 units that are 15 years and older, and another 700-800 that are 13-14 years old. This means that realistically an extra 2,000 aircraft will need to be replaced from the lessors' fleets between now and 2023, says Pawlowski.

"It looks like reaching a 50% market share might take more time than many expect, or it is possible that it won't ever happen," he says, adding: "Lessors would need to add 8,500 aircraft to their fleets over the next 10 years, and that is a lot aircraft."

John Willingham, chief executive of Macquarie AirFinance and Steve Rimmer, chief executive of Guggenheim Aviation Partners, also question whether lessors' market share will increase to 50% of the global airline fleet.

Speaking at the Ascend Finance Forum in San Francisco in December 2013, Willingham said: "I think we are about at the saturation point for operating-lease penetration. I am neither an advocate, nor a believer, that we can greatly exceed the current levels we have already achieved."

Willingham sees some constraints on the sustainable market share of lessors "because if it becomes too easy for an airline to take an aircraft... and give it back, we will end up flooding the used aircraft market".

He believes that if lessors do not produce the returns that they were targeting when they originally invested, "over time this will affect the overall economics of the market".

Guggenheim's Rimmer wonders whether manufacturers and aircraft pricing will allow lessors to increase their market share. "Manufacturers have been very plain and straightforward about how they want to control who their customers are," he said. "I don't see manufacturers, quite bluntly, allowing lessors to own that much of the market – this will be a barrier."

Also putting pressure on the growth of lessors will be the airlines, he says: "If one associates the returns of leasing as being opportunistic returns of 15-20% IRs [initial returns], the airlines can't afford to pay that sort of return on all 50% of the leases."

However, Frank Pray, chief executive of Intrepid Aviation, is optimistic about the growth of lessors. "Absolutely, lessors will continue to grow," he says. "We are at 40% on average today from 10-15% years ago, so I expect about 50% of the global fleet in the next eight years."