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Many aircraft are currently being leased. Once growth returns in a few years, will more airlines return to purchasing their airplanes?

Jens Flottau, Aviation Week’s executive editor for commercial aviation, answers:

The aircraft leasing industry was already growing at a rapid clip before the COVID-19 pandemic. That was driven by airlines desperate to find additional capacity they could not get straight from aircraft manufacturers, whose production lines were sold out or, in the case of the Boeing 737 MAX, temporarily halted. Lessors have a major advantage: a better credit rating than most airlines. That means they can borrow at cheaper rates, making it easier to afford aircraft purchases. Risk for lessors is limited too. If an airline customer fails, the aircraft retains its value and can simply be leased to another carrier—at least in normal times.

After the COVID-19 pandemic hit, many airlines turned to lessors for help. In most instances, they sought to sell in-service aircraft and lease them back. In other cases, carriers needed to offload deliveries of aircraft they could not defer and could no longer afford. Lessors generally still have access to capital (which is now also returning to the more healthy, bigger airlines), so they have become a source of liquidity for airlines that cannot get loans from banks or issue bonds.

Adding that all up, the share of leased versus owned aircraft is rising. Even carriers that have owned most of their fleets for a long time, such as Lufthansa, are changing course and seeking to maximize short-term liquidity in exchange for longer-term liability. That trend is probably here to stay for a while, as it will take airlines multiple years to repair their balance sheets. And the large lease expenses airlines have taken on will diminish their ability to fund purchases of new aircraft.

In today’s environment, leasing aircraft is simply a bargain. The implosion of demand for aircraft has sent lease rates down substantially, providing carriers with ample access to much cheaper capacity—at least until demand rebounds.