AIRCRAFT LEASING - A PROMISING INVESTMENT MARKET FOR INSTITUTIONAL INVESTORS
November 2015
Introduction
Until recently, aviation as an asset class has hardly received any attention from most continental European institutional investors. It is a different story in the Anglo-Saxon investment community: this investment class has long been established as a component to a well-diversified portfolio.
Aircraft are a durable, standardised product, flexible in deployment and limited in supply. Leasing them via medium- to long-term operating lease contracts provides for steady and stable cash flows. As a real asset investment, aircraft should be considered by investors following a defensive strategy during this ongoing phase of low interest rates as they combine stable cash flows, improved return potential compared to other investments such as bonds with portfolio diversification. For insurance companies, the possible diversification effects can also be of particular interest with regard to Solvency II.
The aviation market has been growing steadily for decades. Even global crises such as the Gulf War, 9/11 or the financial crisis have had only relatively short-term effects on global air traffic.
Operating leases have become a common form of institutional investment in this growth market. Since its beginnings in the early 1970s, the growth of the aircraft leasing market has outpaced that of the global aircraft fleet over the same period. Aviation lessors are encountering steadily increasing demand from international airlines.