With demand for aircraft growing at roughly 4pc year and the global fleet rising to about 27,000 airliners today, the model has been a pretty good deal, according to Rob Morris, head of consultancy at aerospace data company Cirium.
“Airlines needed more aircraft and ALCs delivered then,” he says. “It took risk off carriers’ balance sheets, while ALCs had a dollar asset that was mobile. The thinking was that if there was a problem in with one airline or one region, the aircraft could be flown to somewhere without trouble.”
A decade ago, there were about 50 ALCs – mostly long-experienced operators who had grown up with the development of the industry and gone through cycles such as the Gulf War, 9/11 and SARS. As well having large fleets (the world’s largest ALC, General Electric offshoot GECAS, has about 1,150 airliners), the big players also had deep pockets and were veterans of the cyclical nature of the aviation industry. Other major players include Aercap, BBAM and SMBC.
Many of them are based in or have operations in Ireland, where the industry can trace it roots back to pioneers Guinness Peat Aviation, which was founded by Tony Ryan who went on to create Ryanair.
“Ireland’s got the history, the ecosystem around the industry, the timezone for a global business, the common language and a tax system that encourages leasing,” says head of one major ALC. “It makes sense to be here.”
For the past decade, the leasing industry has enjoyed success, which has seen the number of players surge to about 170. In a world where borrowing money is cheap, new entrants have been drawn in by attractive and seemingly stable returns from leasing out aircraft.
In a low interest rate world, some speculative investors have joined the party, including hedge and investment funds, investment arms of wealthy families and sophisticated investors who see opportunities unequalled in conventional asset classes.
New entrants have often been financed by short-term debt, creating special purpose investment vehicles that buy airliners to lease out. Others have created asset-backed securities that are listed on stock exchanges, allowing even retail investors to buy into the leasing market. The new entrants tend to be smaller operations, with 10 or 20 jets on their books.