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Leasing is Most Important Financing Option

Written by Laura S. West    Wednesday, 21 December 2011

CIT and Forbes Insights' 2011 Global Aerospace Outlook report found that airlines consider leasing the most important way to finance aircraft. The report surveyed 136 airline executives with fleet or finance responsibilities between November and December 2010. According to the report, 54% of respondents said more than half of their fleets are leased. A total of 65% said operating leasing is extremely or very important, and will become increasingly important in the next five years. Manufacturer support and bank loans were both named as next most important by 51% of respondents. Jeff Knittel, president of transportation finance, says there are several reasons why airlines consider operating leasing important. Flexibility is at the top of the list. "When making asset decisions, airlines are not making them based on the entire life of the aircraft. In some cases it's for five to 12 years, in which case, operating leasing is a good way to get flexibility going forward," Knittel says. Operating leases allow airlines to be flexible to modify their fleets when there are fluctuations in air travel demand. Also, airlines do not have to raise debt to finance aircraft or to finance pre-delivery payments (PDP) with operating leases, he adds. With fuel costs accounting for a majority of an airline's operating costs, increased fuel prices is the biggest challenge for airlines at 53%, followed by increased competition from low-cost carriers and charter airlines, 38%. Despite fuel concerns, Knittel says the report shows that 68% of airlines are taking a "wait and see" approach to new, more efficient aircraft programmes. However, 83% said they were extremely likely or likely to acquire or lease newer, fuel-efficient aircraft within the next five years. "There are some first movers stepping up to [newer aircraft programmes], but a large part of the industry is taking a wait-and-see attitude to see how the actual technology performs," Knittel says. CIT has a fleet of more than 300 aircraft and orders for 110 aircraft, including 10 Boeing 787s and seven Airbus A350s. Knittel says as one-third of the market wants new, efficient technology aircraft, CIT will be ready to serve that need. "As fuel prices increase, we find that appetite for new technology also increases," he says. "We have to have modern fuel efficient aircraft in our fleet and on order to meet that goal." The survey also indicates that there will be more mergers and acquisitions across the industry as airlines throughout the world as airlines search for ways to increase efficiency and lower costs. "A good merger allows you to do that," he says.

Last Updated ( Wednesday, 21 December 2011 )