Analysis of aircraft leases
Aircraft are the largest and most expensive assets for airlines, and most carriers depend on external resources to ﬁnance aircraft purchases. The global aircraft ﬁnancing market is expected to grow at a rate of about 7.3 percent during 2012-16 (Reuters, 2013). While airlines have traditionally owned their aircraft, over the last several decades many airline managers have increasingly turned to aircraft leasing as a means of seeking lower interest payments, while also minimizing the risks associated with ownership and at the same time preserving liquidity. The share of the world’s airline ﬂeet that is controlled by leasing companies has risen from 25 percent in 2000 to almost 50 percent today, and this ﬁgure is expected to be considerably above 50 percent by 2020 (Wingenbach, 2014). Few airlines possess sufﬁcient cash funds to purchase their aircraft outright, and many others cannot freely borrow funds because of poor credit ratings and lack of liquidity. This is particularly true for startup carriers. As a result, determining how to ﬁnance those assets becomes a major decision for any airline. Much of this decision will hinge on the cost of capital and the availability of cash. If the airline has a high cost of capital, or is short of liquidity, it may be cheaper and more advantageous to lease rather than buy. Additionally, this decision will affect where the aircraft appears on the company’s ﬁnancial statements. Leasing companies are often able to provide aircraft from their own inventories at shorter notice than the manufacturers, whose production may be backlogged for several years. For example, according to Airbus, the company is experiencing an industry-wide record backlog of 5,559 aircraft as of December 31, 2013 (Airbus, 2014).