Operating lessors will increase their share of new aircraft financing to 50% by the middle of the next decade from 40% today, according to Avolon’s latest report, Funding the Future – Matching the Demand of Aircraft with the Supply of Capital.
Since 2007, as a result of the turbulence in the financial markets, lessors have seen their share of delivery financing fall from a peak of 40% to the mid-30% range, but have still been providing $25-30 billion of liquidity a year. Avolon expects this volume to reach $35 billion this year and more than $40 billion in 2014, or levels that are “equivalent” to the industry’s total funding requirement from all channels a decade ago.
During the medium-term, Avolon is forecasting that funding through the lessor channel will grow “on average” by more than 10% per annum through a combination of capital supply and demand factors such as traffic growth.
“Taken together, the lessors’ share of new aircraft deliveries is forecast to increase by an average of 10-12% per annum to reach between 45% and 50% of all new delivery financing by the middle of the next decade.”
Lessor financing mix
Lessor equity stemming from investors and shareholders, as well as internally funded components, will "more than double in volume" during the next decade, but will represent a smaller share of the total lessor funding mix as new sources of financing grow in significance.
This shift will reduce the commercial banking element of lessor financing, which will increase by up to 50% in dollar terms, but decline as a share from 24% to 17% during the decade, says Avolon. Export credit agencies will continue to provide a "modest 6%" of the total on average, with capital markets tripling in volume and increasing their share above 20%.
Avolon anticipates new financing sources, such as fixed income funds, will “grow steadily” to account for 10% of the total funding mix by 2022, providing up to $8 billion in annual funding.