GECAS believes industry earnings may decline slightly into 2020, but positive wider economic conditions and strong passenger demand for air travel will prevent any significant drop.

“By my count, this is the fifth year where we are at the peak,” the lessor’s chief executive Greg Conlon said at the Airline Economics Growth Frontiers conference in Dublin. “I think what we are seeing is a little bit of softening in GDP growth. I think in the past few years it has been just under 5%… so there is a softening. I mean, it’s 10 years, it’s a cyclical business… but we don’t think it’s going to be a precipitous slide.”

Despite seeing moderation of global GDP growth against 2019, Conlon notes that demand for aircraft remains strong, underpinned by load factors that remain at around 80% and cautious recent investment decisions by the major airlines.

“A lot of the mature markets and mature carriers [have been] really conscientious about growth and costs, and they haven’t chased market share,” he observes. “And that’s a rational decision. Things may slow a little bit, but hopefully we won’t see a precipitous drop that we’ve seen in the past.”

Conlon explains that with a large number of newer aircraft lessors moving into the sector, there is potential for industry consolidation – as well as failures.

“We’ve seen a tremendous amount of capital coming into this space,” he says. New participants have been attracted by leasing’s relative value and relative yield, as well as its position as a global US-dollar-based industry with strong growth potential.

But these lessors often lack the knowledge and expertise to maximise their assets, Conlon argues. “These aren’t bonds; these are assets that you need to manage actively, they are assets that you have long-term views on, long-term capabilities on,” he points out. “Aircraft leasing is like hospital. It’s very easy to check into, but very difficult to check out.”

Conlon acknowledges that the ongoing issues with the Boeing 737 Max has caused many new aircraft to be grounded, generating no income, and that this poses a challenge to the sector. GECAS has 29 737 Max aircraft. The first was delivered in February 2018. But he has confidence that Boeing is able to handle the crisis and return the aircraft to service.

Geopolitical risks could also damage air travel in certain regions of the world, although GECAS’s global reach helps to insulate it from issues in specific markets.

As for new orders, GECAS believes that there is significant potential in the new generation of long-range narrowbodies from Airbus. The lessor ordered 20 A321XLRs in November 2019. “This is an interesting aircraft. It has narrowbody economics and widebody performance,” says Conlon. Although he believes the aircraft is coming into a niche market, it is one that GECAS believes is currently underserved.

An earlier version included a misheard quote, rendering the verb “peak” as “beat”. The piece has been amended to remove this quote and revise the angle accordingly, and to correct the size of GECAS’s Max fleet