Aviation lessors experience extreme turbulence

Aircraft lessors are likely to be caught in the fallout from the Covid-19 crisis, along with the rest of global aviation. The Republic is one of a handful of global centres for this business, which employs around 5,000 people and contributes about €550 million annually to the economy.

Several big players, including Aercap, Avolon and SMBC Aviation Capital, are Irish companies, albeit with overseas shareholders, while other significant companies such as GE Capital Aviation Services have a substantial presence here.

Lessors buy craft from manufacturers, mainly Airbus and Boeing, using a combination of their own cash and money borrowed from banks or the capital markets. They lease the aircraft to airlines, earning revenue from the rent the carriers pay.

Coronavirus has largely grounded those airlines, cutting off their revenues, raising the risk that they will have difficulty meeting their commitments to lessors.

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The other likelihood is that the pandemic will close some carriers for good, potentially leaving the world with surplus aircraft. If an airline goes out of business the lessors have security over their planes, and so get them back. The problem is that there may be less demand for them once the crisis passes.

Avolon, led by chief executive Dómhnal Slattery, last week said that it was cancelling orders for 75 Boeing 737 Max aircraft that it had been due to receive from this year through to 2023, while it was postponing the delivery of others out to 2024.

It would be surprising if others were not following suit. Cancelling and delaying deliveries now is likely to ease any future difficulties. Added to this, the big Irish players’ fleets largely consist of newer craft, for which there is likely to be some demand when the virus has run its course.

Nevertheless, whatever shape the post-coronavirus aviation world takes, Irish aircraft leasing will have to adjust to it to survive.