Good times ahead for aircraft leasing firms

Dubai: The growing demand for aircraft and high growth of Middle East aviation point to good times ahead for aircraft leasing industry in the region, however, the industry faces challenges such as sustainability of demand and protection residual value of aircraft under lease.

At a panel discussion 'Operating leasing - let the good times roll' representatives from the aircraft leasing industry in the region agreed that, the regional leasing market has grown significantly with the growth in the aviation market.

During the past 10 years, the regional the aircraft numbers grew more than 60 per cent against 12 per cent global average growth. Currently, Middle East has close to 750 aircraft based in the region against a total of 19,000 aircraft worldwide.

"Market liberalisation, the growth in demand for air travel and the entry of new low-cost regional carriers have helped the growth in demand as well as the leasing rates.

"There is huge potential for the industry in the region that makes the outlook for leasing look bright," said John Leech, senior vice-president and head of marketing Orix Aviation.

While the lease rates of narrow-bodied aircraft have improved by eight to 10 per cent during the past 10 years, the wide-bodied aircraft's rates have gone up by 15 to 20 per cent depending on the age and the make.

"With relatively low entry barriers and huge pent up demand, there is ample scope for growth in the aviation industry in the region.

"While the regional outlook is bright, the industry is facing global risks such as the rising cost of financing, the residual value of aircraft owned by leasing companies in the context to arrival of new generation aircraft and the entry of newer players such as China into aircraft manufacturing," said Charles F. Yeterian, vice-president, leasing and finance Novus Aviation.

A big player in the leasing business such as Gecas is also concerned about the future of the residual value of their aircraft.

Gecas, which owns more than 1,400 aircraft said the launch of newer aircraft by aircraft manufacturers makes their older fleet prematurely redundant.

"Well-maintained aircraft do not get redundant in 10 to 15 years. They are built to last longer and deliver value. But when the new generation aircraft are introduced it affects the existing fleet's value," said Ray Sisson senior vice-president and regional manager of Gecas in the Middle East, Africa and CIS.

Sisson said current lease rates are attractive and the leasing firms should exercise restraint in pricing.