The aircraft-leasing industry is poised for growth as the world recovers from the pandemic and air travel picks up. The industry, which comprises financial firms that own roughly half of the world's airliners and lease them to carriers, is benefiting from a tight market for airliners as demand outpaces supply. This is reflected in rising lease rates and improved bond and share prices for aircraft-leasing companies, such as Air Lease Corp. and AerCap Holdings. The industry's resilience during the pandemic, as well as its relative simplicity compared to airlines, has made it an attractive investment opportunity.
The aircraft-leasing industry has existed for decades and has played an increasingly important role in the aviation sector, particularly for carriers in Asia, South America, and Africa. The leasing of jets is often a more economical option for airlines, especially those with poor credit, as financing the purchase of an airliner can be cheaper for a leasing company. Leasing companies also have the advantage of being able to negotiate better deals with manufacturers like Boeing and Airbus, given that they are some of the largest customers for these firms.
Investors fled from aircraft-leasing companies during the pandemic, but the industry has proved its durability. Both Air Lease and AerCap stayed profitable during the pandemic, and AerCap returned to profitability in 2021 after posting a loss in 2020. The industry's resilience has made it an attractive investment, and some investors prefer it to airlines due to its relative simplicity. Weather, staffing challenges, and logistics can disrupt an airline's operations, but lessors are usually insulated from these day-to-day contingencies.
While the pandemic recovery has not been straightforward, the aircraft-leasing industry has demonstrated its strength. The conflict in Ukraine last year posed a setback for lessors, with more than 400 aircraft owned by Western lessors stuck in Russia, but the industry has still managed to hit its target debt-equity ratio ahead of schedule. The CEO of AerCap has stated that the conflict has demonstrated the strength of the leasing industry's business model, as spreading planes around the world reduces its exposure to regional challenges.
