Aviation finance managers give a boost to a heavily indebted industry

Aviation finance managers and aircraft lessors worked with their main customer, the airlines, at the start of the COVID-19 crisis, when air travel came to a halt.

“Leasing companies, including ours, Genesis, worked with many of their airline customers to defer lease payments during the worst of the pandemic,” Mr. Elwood said. Barings formed Genesis in 2014 and four years later, in September 2018, Ireland’s €14.5 billion ($14.6 billion) Strategic Investment Fund invested in Genesis.

“For the most part, the airlines have refunded the deferred amounts and are back to paying their lease payments on time and in full,” Mr Elwood said.

But they haven’t fully recovered, and Barings executives believe airlines will lease more planes than they buy as a percentage of their fleets, he said.

“Leasing will almost certainly become more dominant as airlines have realized the value of flexibility in fleet planning,” Mr Elwood said.

As for returns, they’re similar to private credit in that they depend on where you invest in the capital stack, according to Elwood.

In 2020, 47% of aircraft were leased, up from 36% in 2010, according to data from IATA and aviation data provider Cirium. There were 31 aviation-focused funds in the market with a combined fundraising target of $20.8 billion as of August 24, according to data from Preqin.

Barings expects this to be the case “despite the fact that rental rates will have to increase due to the increased appreciation of risks, such as pandemics and nationalization, as well as the rising cost of capital. “said Mr. Elwood.

Moreover, chastened by their experience during the war in Ukraine, “from now on, airlines operating from, or within, nations with less than friendly governments will have to pay higher rental rates (if the leasing companies even lease planes to them) to compensate for the risk,” he said.