Aircraft Leasing

# Executive Summary The Aircraft Leasing industry is experiencing a period of robust growth and profitability, primarily driven by a structural undersupply of new aircraft from manufacturers. This imbalance is enabling lessors to command higher lease rates and extend terms for their existing fleets, significantly boosting revenue and asset values. A relentless focus on fleet modernization is creating a clear divide, with lessors offering new-technology, fuel-efficient aircraft commanding premium terms and securing long-term demand. A key emerging battleground is the engine aftermarket, where vertically-integrated players are capturing outsized growth and high margins by offering specialized maintenance and repair services. While rising interest rates present a headwind, strong demand fundamentals are currently allowing lessors to pass on most of the increased funding costs to airline customers. The competitive landscape is defined by a split between large-scale, diversified lessors competing on fleet access and cost of capital, and specialized players differentiating through deep technical expertise in high-value engine services. ## Key Trends & Outlook The single most significant factor shaping the aircraft leasing market is the persistent production delay and supply chain constraint at major original equipment manufacturers (OEMs) like Boeing and Airbus. This has created a structural "aircraft deficit," estimated to be 5,000 aircraft short of demand by 2030, an imbalance expected to last for at least the next three to four years. This scarcity dramatically increases lessors' pricing power, allowing them to command higher lease rates and longer terms for their in-demand, existing aircraft. This directly benefits lessors with large, available fleets like AerCap (AER) and Air Lease (AL), whose assets become more valuable. This supply-led dynamic is the core driver of the industry's current profitability and favorable outlook. The primary long-term trend is the airline industry's aggressive push for new-technology aircraft. These jets, such as the A320neo and 737 MAX, offer approximately 20% to 25% lower fuel burn compared to prior generations, a critical advantage for managing volatile fuel costs and meeting sustainability goals. Consequently, lessors with young, fuel-efficient fleets, such as Air Lease (AL) with a weighted average fleet age of just 4.7 years, are best positioned to attract top-tier airline clients and secure favorable long-term leases. The most significant opportunity lies in the high-margin engine aftermarket. Companies like FTAI Aviation (FTAI) are demonstrating extraordinary growth by providing specialized maintenance, repair, and exchange (MRE) services for the world's most common engines, a market projected to remain relatively constant at $22 billion annually through 2030. The primary risk remains the rising interest rate environment, which increases the cost of capital for this capital-intensive industry. ## Competitive Landscape The aircraft leasing market is dominated by lessors, who collectively manage well over 50% of the world's fleet, and is undergoing consolidation, evidenced by the pending $7.4 billion acquisition of Air Lease (AL) by a consortium of investors. This dynamic reflects the industry's value and the strategic importance of scale and specialized capabilities. One primary competitive strategy involves large-scale, diversified leasing. Firms employing this approach leverage a massive, diversified portfolio of modern aircraft, global scale, and access to low-cost capital to provide comprehensive leasing solutions to a wide range of airlines worldwide. Their key advantages include economies of scale, strong negotiating power with OEMs, a diversified customer base that mitigates single-customer risk, and superior access to capital markets, often evidenced by investment-grade credit ratings. AerCap (AER), as the world's largest lessor with approximately $22 billion in total sources of liquidity and investment-grade credit ratings across all three major agencies, epitomizes this model. In contrast, other specialized firms build a competitive moat through deep technical expertise and vertically-integrated services in the high-margin engine aftermarket. These companies focus on the high-value aircraft engine segment, integrating leasing with proprietary maintenance, repair, parts, and logistics services to create a one-stop-shop solution for airlines. This strategy creates a significant competitive advantage through technical expertise, captures high-margin service revenue, reduces airline maintenance downtime, and gains cost advantages through proprietary parts and repairs. FTAI Aviation (FTAI), with its proprietary Maintenance, Repair, and Exchange (MRE) model for CFM56 and V2500 engines, which has driven 77% year-over-year EBITDA growth in its Aerospace Products segment, is a definitive example of this strategy in action. Willis Lease Finance (WLFC) also employs a differentiated "flywheel" business model integrating engine leasing, spare parts sales, and maintenance services, further illustrating this specialized approach. ## Financial Performance Revenue growth in the aircraft leasing industry is bifurcating, with traditional lessors posting solid high-single to low-double-digit growth while vertically-integrated specialists are achieving hyper-growth. Growth ranges from Air Lease's (AL) solid 11.3% year-over-year increase in total revenue for Q1 2025, driven by higher lease rates and strong demand, to the explosive 85.7% year-over-year growth at FTAI Aviation (FTAI) in its 9M 2025 total revenue, which exemplifies the success of its specialized engine services model. This divergence is driven by business model, with traditional lessors benefiting from repricing leases amid the aircraft shortage, while specialists capture significant share in the lucrative aftermarket services segment. {{chart_0}} Margin leadership is emerging from companies with proprietary, high-value services. While the entire industry benefits from higher lease rates, the highest profitability is found in specialized services that carry intellectual property and deep technical expertise. This allows companies to move beyond commoditized leasing and capture premium margins. FTAI Aviation (FTAI) serves as a key example, with its stated goal for its high-growth Aerospace Products margins to exceed 40% next year, a level unattainable through standard lease rents alone. {{chart_1}} Capital allocation strategies reflect a confident outlook, focused on a combination of shareholder returns and strategic investment in modern assets and capabilities. Strong operating cash flow, driven by the favorable market dynamics, is enabling companies to both reward shareholders and reinvest for future growth. Market leader AerCap (AER) exemplifies this balanced approach, having repurchased over $1 billion in stock year-to-date through Q2 2025, with approximately $800 million remaining in its current authorization, while simultaneously planning to deploy another $3 billion in new equipment by the end of 2025. Balance sheets across the industry leaders are generally strong and resilient. Disciplined capital management and strong cash generation have allowed major lessors to maintain robust liquidity and reduce leverage, positioning them well to navigate the higher interest rate environment. AerCap (AER) stands out as a pillar of financial strength, evidenced by its investment-grade credit ratings from all three major agencies and a leverage ratio of just 2.2:1 in Q2 2025, well below its stated target of 2.7:1. {{chart_2}}