Capital requirements for the airline sector are flying higher than ever before, driven by strong passenger traffic and aircraft fleet demand, transforming aviation into a mainstream finance and asset class. According to a new report released today from the aviation data and analytics leader FlightGlobal.
• New analysis demonstrates growing capital requirements will lead to diversification of funding in aviation
• Over the next four years global passenger aircraft fleet development is projected to demand approximately half a trillion dollars
The growth projected for global passenger aircraft fleet will require capital exceeding US$120 billion annually, reaching approximately half a trillion dollars over the next four years, to fund new aircraft alone. During that period (2018-21), the world’s aircraft manufacturers are scheduled to deliver almost 8,000 aircraft – an increase of approximately 30% over the previous four-year period.
Funding this large and growing fleet requirement was once the domain of investment banks, but the considerable sums needed are unlikely to be met in future solely by these capital providers as the aviation sector would weigh too highly on their balance sheets. These growing capital requirements are likely lead to diversification of funding and highlights the compelling aviation investment case to new sources of capital.
Rob Morris, Head of Consultancy at FlightGlobal’s consultancy arm, Flight Ascend Consultancy, said: “We are able to help investors make informed decisions by analyzing the investment returns and residual value performance of an aircraft portfolio.
“This is the first time that aviation, as a mainstream finance and asset class, can demonstrate potential returns and pair it against volatility.”
This latest report is supported by forecasts from the International Air Transport Association (IATA). The predicted traffic growth of 6% for 2018 is tracking ahead of capacity growth forecast at 5.7%, and set to drive growth in ticket prices and yields.
IATA also forecasts further growth in airline net profits for 2018 of US$38.4 billion – up almost US$18 billion from 2014, and with total aggregated profits from 2010-18 forecast to exceed $200 billion.
Three key factors underpin the aviation investment case:
• An aircraft is a highly mobile and diversified real asset, protected by firm international agreements, and a legal and regulatory framework that enhances asset liquidity
• The large ticket nature of aircraft, coupled with expected fleet growth, allows for the investment of substantial sums
• There is a robust competitive duopoly with very high capital barriers to entry, limiting the market to Boeing and Airbus for large commercial jets
Read the full report here : flightglobal.com/invest/
FlightGlobal, incorporating FlightStats and Diio, helps aviation and travel related businesses drive growth and efficiency, assess risk, and improve customer satisfaction. The company has a unique combination of databases, technology and expertise, which power data solutions, APIs, online tools, industry insight and expert advice. Across the globe FlightGlobal’s solutions help reduce passenger delays and improve traveler experiences, validate and inform long term planning and minimize exposure and risk. The company also helps organizations connect by providing routes to market through insight channels and face to face events. FlightGlobal is a strategic partner of IATA, the association of world airlines and is recognized as the Aircraft Appraiser of the Year for six out of the eight years of the Aviation 100 Award.