The aircraft leasing market seems to be fragmenting almost as quickly as it is consolidating these days. With leasing executives heading off from the larger players to form their own boutique shops, the universe of small lessors is expanding, while the middle-size players with money on the hip are eagerly shopping around for the perfect partners to add to their burgeoning platforms. As part of the Airline Economics and KPMG Aviation Industry Global Leaders report, AerCap CEO Aengus Kelly says that he foresees a “snowball effect” for consolidation in the leasing market as smaller companies viewing the latest consolidation deals begin to worry about being left behind and becoming less competitive. “There will always be room for start-ups, and smaller players who are very good at what they do,” Kelly notes, but also warns that the days of smaller leasing entities trying to serve all markets are numbered. “Smaller lessors will need to focus on an area of expertise because the large companies will only get bigger.”
Mid-tier lessors on the acquisition hunt need to consider carefully how a potential target portfolio would dovetail with its own offerings and preferable enhance them for both companies. Such companies are difficult to find and may not even be for sale. In the words of once such company executive, “we will need to kiss a lot of frogs” before finding that perfect fit!
There has been a continued influx of new leasing companies set up during the downturn – which is par for the course in this industry, with many backed with private equity money eager for a quick return – which means building market share. These shops tend to look for new, narrowbody assets that need little technical expertise, but competition is driving prices ever upwards despite the slow start to the recovery. Mid-life and naked aircraft present a much better option for lessors and asset managers with the essential technical expertise to extract value and place these assets for the longer term.
New start-ups need to be quick however, not only is the rate of the recovery increasing, pricing is ticking upwards and the much-needed expertise in human capital is also being snapped up with a general increase in people moves over the past six months and continuing into this quarter. Find out more in the next issue of Airline Economics, which analyses the results of the sixth annual Talent Check survey produced in tandem with Horizon Executive Search. Subscribe here to ensure you don’t miss out on the next publication.