Aircraft lessors have weathered a slew of exogenous shocks in recent years and are in a strong position heading into 2025, according to a new Fitch Ratings report.
Ratings for some global aircraft lessors have migrated upwards in recent years, driven by business model resilience in the wake of the coronavirus pandemic, the Russia-Ukraine crisis and OEM production delays. Their credit profiles remain supported by solid asset quality, stable operating performance, leverage discipline, improvements in funding flexibility and prudent liquidity management.
“The global aircraft leasing sector remains resilient amid macroeconomic challenges and geopolitical risks. Lessor’s robust underwriting processes, diverse portfolios, and favorable supply and demand dynamics underpin solid asset quality performance,” said Johann Juan, Senior Director at Fitch.
Fleet utilization rates have reached pre-pandemic levels, reflecting the strong recovery in global air travel. Earnings profiles benefit from increased lease renewals and higher lease rates, driven by the demand for newer, more fuel-efficient aircraft, as well as healthy contributions from trading gains on current technology aircraft.
Leverage has trended down across the peer group, as lessors had lower capex needs, while growing tangible equity from retained earnings. Lessors continue to maintain good capital markets access, with the unsecured markets continuing to represent an attractive source of financing for lessors given its liquidity, depth, and ease of execution. Alternative financing solutions remain important for some lessors to diversify their funding mix and access new investors, including Islamic finance structures. The aircraft ABS market had been effectively closed since 2021, but recent transactions indicate a gradual reopening of the market.
Fitch-rated lessors continue to display sound liquidity management, supported by strong cash flow generation and solid access to contingent liquidity sources. As of Sept. 30, 2024, aggregate liquidity resources provided 1.8x coverage of uses, on average, well above the minimum threshold of 1.0x. Unsecured debt maturities are also well-laddered, with no lessors facing significant refinancing risk.
On June 4, 2024, Fitch completed its annual global peer review of aircraft lessors, affirming five standalone issuer ratings and upgrading Macquarie AirFinance Holdings Limited’s rating to ‘BB+’ from ‘BB’, and Dubai Aerospace Enterprise (DAE) Ltd’s rating to ‘BBB’ from ‘BBB-’. Additionally, Fitch revised the Rating Outlook for AerCap Holdings N.V.’s to Positive, from Stable. The Outlook for Avolon Holdings Limited’s remains Positive. Fitch also affirmed the institutional support-driven ratings for Aircastle Limited, BOC Aviation Limited (BOCA) and SMBC Aviation Capital Limited. The Outlook for BOCA remains Negative, mirroring that of its shareholder, Bank of China Limited (A/Negative). All other Outlooks are Stable.
On Sept. 30, 2024, Fitch assigned a first-time rating of ‘BB-’ to Azora Aviation Holdings, LLC, a global full-service lessor of regional and small narrowbody aircraft. The Rating Outlook is Stable.
The report, “Global Aircraft Lessors – Industry Report 2024,” is available at www.fitchratings.com.