Aerospace leasing predicted to boom as executives prepare for rising interest rates and fuel price volatility

More than half (54%) expect to increase the number of aircraft over the next two years.

In a recent study by CIT Aerospace, 2015 Aerospace Outlook conducted by Harris Poll among 100 airline fleet and finance executives – over the next five years, executives expect to lease a higher percentage of narrow body aircraft (on average 52%) than wide body (on average 33%).

Leasing executive respondents indicated that lease terms (62%), a lessor’s responsiveness to their requests (53%) and efficiency of the lease negotiations process (48%) were the most important areas when leasing aircraft.

Jeff Knittel, president of CIT Transportation & International Finance (pictured above) said:  “Airline executives are taking advantage of current interest rate levels and low fuel prices to reduce ticket prices, invest in technology and increase their fleet utilization.

“However, they realize that the market is changing and many are preparing for future challenges around fuel price volatility, increased competition and rising interest rates. In fact, 63% believe higher interest rates will change their company’s views on purchasing new aircraft and 65% indicate that these higher rates will cause them to increase the lease content of their fleet.”

Other key findings from the study are:

• some 81% of executives agree that interest rates will rise by more than 1% in the next two years; and

• more than three-quarters (76%) expect to pay more for financed aircraft as interest rates rise.

Meanwhile there is fuel volatility on the horizon

• 63% of executives believe that fuel price volatility will have a positive impact or no impact on their plans to acquire new technology aircraft;

• half of executives believe that fuel prices will increase in the next 18 months, and four out of five expect them to increase within the next three years;

• despite the expectation for fuel price increases in the future, the top three actions taken by executives to benefit from the current fuel price levels are: hedging at current fuel prices, reducing ticket prices and increasing utilization of their current fleet.

Many anticipate aircraft & cabin innovations

• more than four in five (86%) believe that airframers will launch replacement programs for the popular single aisle market, which will enter into service before 2030;

• Nearly eight in ten (79%) agree that used aircraft in the 130-seat category will be in high demand in the next 10 years due to the current lack of new units in the same seat category entering the market;

• 73% of executives believe that technology/innovation in aircraft will have the biggest positive impact on their company in the next five years;

• Three-quarters of executives (75%) report that their company already provides, or plans to provide in the next five years, internet connectivity to passengers on narrow body and wide body aircraft.