A sense of cautious optimism prevails across the industry as 2025 draws to an end. After several years characterised by supply chain delays, operational delays, and persistent engine issues, this last year, despite those issues persisting and the added complication from a US-led tariff conflict fostering global economic uncertainty and softening air travel demand, optimism seems to
have endured.
A recent survey from Investec noted that such “cautious optimism” permeates the industry. The survey, conducted in September 2025 with responses from 24 aviation clients, found that over half expressed confidence in business volume growth over the next 12 months. However, that optimism remains tempered by the challenges that have continued to persist.
Airline Economics’ own research based on interviews and surveys with a variety of industry stakeholders, carried out between August and September 2025, found a similar sentiment – reflecting a cautiously positive outlook across the aviation finance community.
Responses were gathered from Carlyle Aviation Partners, Castlelake, Fifth Third Bank, Korea Development Bank (KDB), and SMBC
Aviation Capital.
Aircraft finance
Respondents agreed that they expected the aircraft finance market to continue to expand over the next 12 months.
“We expect the aircraft finance market to continue expanding over the next 12 months,” said Carlyle Aviation Partners CEO Javier Meireles. “Passenger demand remains strong, with notable growth in Asia Pacific, the Middle East, and Europe, while US carriers are seeing signs of recovery in forward bookings.”
Hector Campos, managing director for asset-backed finance transportation & large ticket equipment at Fifth Third Bank, said: “Investors as well as banks, recognise that the current environment benefits owners of assets, as aircraft are expected to fly longer as OEMs timeline to deliver the next generation of kit keeps extending.”
Winston Yin, The Korea Development Bank’s head of aviation & asset finance for EMEA, said the optimism was being driven by the tariff trade tensions beginning to alleviate during the first half of 2025, which led to a more positive global GDP revision from the International Monetary Fund (IMF). This growth, he said, is being supported by airlines continued revenue passenger kilometre (RPK) growth, as well as the OEM delivery ramp-up.
SMBC Aviation Capital’s head of strategic and market analysis Shane Matthews and SVP strategic and market analysis Shane Carroll agreed in a joint response that the production and delivery ramp-up is supporting the aircraft finance market, which is in turn supporting the demand for sale-leaseback transactions.
“In parallel, lessor orderbook deliveries are growing and so total dollar financing amounts are growing,” Matthews and Carroll said. “These increases relate not just to both narrowbodies and widebodies, but
also engines.”
They said the aircraft finance market now has a wider range of other available financing products that are becoming increasingly more tailored to suit the individual needs of airlines, though operating leases will still hold a majority share of the aviation market.
“We’ve seen the early signs in a recovery in the market for ABS debt, and based on performance, we may also see a recovery for E notes in the next 12 months,” Matthews and Carroll said.
Carlyle’s Meireles agreed that capital market products, such as aircraft asset backed securitisation (ABS) transactions, have reopened and are “drawing attention”.
“Consolidation activity across the aviation finance market is also driving growth, generating secondary transactions and further demand for refinancing,” said Matthews and Carroll.
Castlelake’s deputy co-chief investment officer Joe McConnell said that consolidation will be a key driver in the aircraft finance market’s growth. He agreed that while growth is being “energised” by the OEM production and delivery ramp-up, this will not support the smaller lessors.
“We’re seeing many of the smaller players that came into the industry just before the pandemic find it more challenging to raise capital and so there is a lot of consolidation that is occurring,” said McConnell. “The largest players – whether it’s the investment-grade lessors or the established investment managers with aviation franchises – appear to be active and are continuing to grow.”
“The largest players get larger through consolidation and through differentiated access to different types of capital,” he said. “We believe that more and more airlines want to consolidate their own exposure to leasing companies and have fewer relationships – focusing on those relationships that really supported them through the crisis.”
New entrants and exits
The respondents largely believe that new entrants to the market are possible – and likely to remain so – but most expect the market to favour those with scale and a more solid foundation.
“We believe that it is far more difficult to show up with $100 million of equity and make a difference or an impact on the market,” said Castlelake’s McConnell. “In our view, the larger players will continue to benefit from high barriers to entry over the coming years. There might be new entrants in the future.”
KDB’s Yin similarly expressed a more reserved optimism for new entrants into the market, expecting some but “not in a significant way”.
“The alternative investor space for aviation is already established and has carved a niche given higher return requirements and a more discrete focus on yield,” said Yin. “We consider that ‘space’ sufficient for alternative investors looking to deploy capital further down the capital stack in mezzanine/junior tranches or lending against older assets that are less in scope for traditional bank lenders given international lending, such as restrictions on asset age or ESG considerations.”
As yields compress in the aviation space, Yin said this has had a “trickle-down effect” even for segments where alternative lenders have been an appealing source of capital, which has resulted in other sectors becoming more appealing and higher returning compared with aviation. One exception that could see particular growth, he noted, is bond issuances from investment grade lessors where appetite remains strong.
Carlyle’s Meireles said: “Banks remain engaged but selective, balancing regulatory considerations. Investors increasingly value specialist expertise to navigate aviation’s complexity.”
SMBC Aviation Capital (SMBC AC) highlighted that new competitors in the market are typically cyclical. These entries were often triggered after the availability of capital or market moving events such as 9/11, the 2008 global financial crisis, or the
COVID-19 pandemic.
“We’re seeing two clear groups emerge — large lessors with scale, relevance, and capital access, and smaller, specialised players focussing on niche segments or assets,” said SMBC AC’s Matthews and Carroll.
Assessing headwinds
Despite geopolitical and economic uncertainty, along with the current macro volatility, the respondents seemed confident that aviation was healthily stacked up against any potential headwinds.
“The airline environment today is – on a global basis – very healthy,” said Castlelake’s McConnell. “Operating margins are back to pre-pandemic levels, fuel prices are under control and the US dollar is weak, which is benefitting global airlines. However, there are some pressures in the US on some of the smaller airlines due to labour and maintenance inflation.”
This was evidenced in August 2025 when low-cost carrier Spirit Airlines applied for a second Chapter 11 bankruptcy filing in under a year – calling into question the viability of the low-cost model in the US. The airline had only exited its initial restructuring in March with plans to move ahead with its ‘premium’ product plan. Spirit had cited softness in demand and liquidity concerns as driving factors for its second filing.
Fellow US low-cost carrier JetBlue reported a widening of losses for the third quarter. However, it maintained its JetForward plan was putting it onto the path of profitability through its partnership with United Airlines and crafting a more fuel-efficient fleet, as well as gaining additional capacity with the return of grounded aircraft due to Pratt & Whitney geared turbofan (GTF) engine inspections.
However, Southwest reported a surprising third-quarter 2025 profit – beating expectations – reaching $54 million, although still down 19.4% from the same period last year.
On the flip side, Delta Air Lines reported soaring profits in the third quarter. Operating profits were up 21% to $1.7bn, while net income was up 11% to $1.4bn.
McConnell said that airlines are in a similar environment to the leasing community where the operating environment is strong – particularly for the largest players.
“We believe these larger airlines are going to continue to consolidate the market and drive growth by acquiring the smaller players,” he said.
Consolidation is always a feature of the cyclical aviation market and 2025 was no exception. The year opened with lessor Dubai Aerospace Enterprise (DAE) signing a definitive agreement to fully acquire Nordic Aviation Capital (NAC) in January 2025, completed in May. The deal had an enterprise value of approximately $2bn, including NAC’s outstanding debt. Most recently, SMBC signed a landmark deal to acquire Air Lease, announced in September, for $7.4bn, which would position SMBC as one of the largest global lessors once it closes next year.
January also saw Lufthansa finalise its 41% stake acquisition of ITA Airways for approximately €325 million, with plans to take full ownership in 2033.
At the end of 2024, Korean Air completed its 63.88% acquisition of Asiana Airlines, further strengthening South Korea’s aviation sector. In March this year, the airline began advanced the integration of Asiana, with full integration expected next year.
At the end of October, Alaska announced it had secured a single air operator’s certificate to operate alongside Hawaiian Airlines as two separate brands, which was a key milestone in its integration of the subsidiary – acquired last year.
With TAP Air Portugal and Air Europa’s ongoing respective sales, and potential further consolidation in the leasing sphere – the consolidation trend seems unlikely to dissipate anytime soon, signalling a
strengthening industry.
This comes despite the economic uncertainties brought upon the industry earlier in the year with a US-led trade war. Ever-changing tariff policies caused a degree of uncertainty and the industry is still assessing the impact of tariffs.
In Airbus’ third quarter results, the company noted that tariffs are expected to have an impact of between €100 million and €200 million for the full-year 2025.
“The vast majority of the total amount will be recorded in the fourth quarter,” said Airbus CFO Thomas Toepfer. He explained that this was because the materials imported into the US before new tariff policies took effect are still held in “work in progress”.
“We will only record the impact of the tariffs once the material is actually built into the aircraft and the aircraft is sold,” said Toepfer. “It is not an annualised fourth-quarter effect, but a specific impact of this year.”
Castlelake’s McConnell said that while tariffs and trade dynamics could create volatility, such complexities can also create opportunities.
Fifth Third’s Campos echoed a similar sentiment, stating he saw “no real dark clouds on the horizon”. He continued: “While there’s going to be some adjustment to tariffs and patterns of trade, our expectation is for an average performance, especially given the impact on global GDP from President Trump’s tariffs.”
KDB’s Yin doesn’t see any immediate dark clouds, with increased passenger demand supporting strengthened balance sheets and earnings. Post-COVID, lenders have learned to differentiate credit quality, resulting in an enduring “flight to quality”
among banks.
“In contrast to other more cyclical sectors, aviation’s continued growth path remains proven and more linear, absent significant external shocks arising from the spillover of geopolitical or black swan events,” said Yin.
Carlyle’s Meireles said that while supply chain bottlenecks, geopolitical risks, further developing environmental requirements, and greater regulatory scrutiny are impacting the sector’s operations, the overall fundamentals “remain constructive”.
He said: “None of these issues fundamentally alter the strong demand and constrained supply dynamic we see today, but they are areas that require constant vigilance.”
SMBC Aviation Capital highlighted macro sensitivity: “Anything that decreases the spending power of travellers or hurts consumer confidence will be negative overall… the fortunes of airlines globally are very closely linked to the prosperity of the middle class.”
SMBC AC’s Matthews and Carroll said that aviation has demonstrated a propensity for overcoming issues related to extreme weather, terrorism, pandemic-related airspace closures, and other geopolitical issues.
“The aviation industry has not just faced these events, but met and overcome them. However, we cannot discount the potential for a new, or repeat event occurring,” they said.
Product type preference
Respondents indicated that the limited aircraft supply is dictating financial flexibility.
SMBC AC’s Matthews and Carroll said there hasn’t been a “noticeable focus on one product category over any other”, with the scarcity of opportunities since the pandemic. They said: “For investment-grade lessors, debt products have been well-subscribed and competitively bid on… many investors will place value on repeat deals, where familiarity and low transaction risk enhance the risk-return profile of the deal for the investor.”
In October, American Airlines launched a new enhanced equipment trust certificate (EETC) transaction – returning to market for the first time since 2021. United Airlines has been the only other public issuer for new delivery aircraft since its 2024 issuance. American plans to raise a total of $1.1bn through the issuance, secured against a portfolio of 25 aircraft.
Castlelake’s McConnell describes a “very robust capital markets environment,” with spreads tightening across the credit spectrum and new issuances performing well.
Ashland Place priced its $414.4 million ABS deal, APL 2025-1, in late September. The firm successfully priced the A note at a record low in the aviation loan ABS space at T+125 basis points.
Fifth Third Bank anticipates a continued evolution in financing structures, with Campos citing growth in subordinated debt placements within ABS structures, the expansion of loan of ABS deals – benefitting alternative lenders, and RFPs for equity tranches.
Yin from KDB said product choice is often a case of credit versus return and is “fundamentally driven” by internal corporate strategy for the lender – regardless of investor appetite – and influenced by relationship factors and internal cost dynamics. He noted that some lenders may accept lower yields to preserve or establish
lending relationships.
Carlyle’s Meireles said: “ABS and bonds have regained momentum, supported by diversification and liquidity, while secured lending
remains competitive.”
The year opened with a flurry of ABS issuances, including issuers Castlelake, Gilead, Altavair, PK AirFinance, SKY Leasing, Willis Lease, DAE, Ashland Place, and Griffin.
Carlyle opened the 2025 ABS market with its $518.3 million AASET 2025-1 issuance in January, which featured the “biggest structural nuance and change” to the product – the Master Trust structure.
Carlyle first introduced the Master Trust concept in June 2024 with its AASET 2024-1 issuance. In that transaction, the company had a pre-identified pool of eight aircraft, which the company completed with a subsequent notes issuance. The January 2025 issuance was broader, with an issuance for 23 aircraft. With the new structure, the company has the ability to make further issuances from a pre-identified pool of over 50 aircraft – allowing for up to around three additional issuances on the back of the initial deal.
In October, Griffin would market its inaugural ABS deal – a big one at $1.245bn – GGAM 2025-1. The deal was noteworthy too for its employment of the Master Trust structure. A person familiar with the matter explained that this deal marked the first “true” Master Trust deal in aviation. The novel deal has the flexibility to issue for years into the future.
Panellists agreed on the ABS panel on the second day of Airline Economics’ Growth Frontiers Americas – New York that the Master Trust can be a “very powerful structure” with one describing it as a step forward for the aviation ABS market, with the structure representing a more “permanent financing vehicle” under an evolving platform – utilised as a “lasting funding solution, not just a one-off transaction”.
One panellist said that smaller steps towards adopting a “true” Master Trust structure was required to navigate the complexities of aviation asset portfolios.
“The structure is becoming well recognised among investors,” said one panellist. “They may not yet be fully comfortable with the flexible nature of it, but over time, as they see more deals come through, that comfort will grow.”
Another said: “The biggest risk with a Master Trust structure is that you don’t always know what assets will be added later on. Over time, the average credit quality could decline, or the overall asset quality might weaken. That’s why it’s crucial to be very careful in managing the structure and to communicate clearly and directly
with investors.”
Pursuing growth
Participants reported mandates to grow, but with discipline.
“We never grow for the sake of growth,” says Castlelake’s McConnell. “We are focussed on delivering attractive risk-adjusted returns to our investors. We have a number of different pools of capital that we’re investing out of today and they are generally larger than they were in the past.”
The firm continues to invest across the capital stack, such as through senior secured lending, subordinated secured lending, or through aircraft acquisitions, and McConnell expects Castlelake to continue being “really active” in the market.
Fifth Third Bank vice president, senior public relations manager Adrienne Gutbier, said the bank has a clear growth mandate, building on its record of partnering with lessor platforms through market cycles.
For KDB, Yin said the bank aspires to “incrementally grow” while maintaining commercial discipline amid downward pricing pressures.
Matthews and Carroll said SMBC AC has “long-term growth ambitions” with its shareholders taking a long-term view of the industry, which is the “basis for many decisions” for the company. This was demonstrated by its noteworthy and well-publicised acquisition.
Outlook
With the pandemic now far in the distance and the pieces largely picked up and glued back into place, the industry has returned to a growth trajectory.
Castlelake’s McConnell noted that the pandemic facilitated the ability to capture data surrounding the asset class’s performance.
“It’s a really interesting time in this asset class in that we just went through a crisis that was more severe than anybody ever imagined,” said McConnell. “We can now analyse how the asset class performed across different parts of the capital stack.”
For the servicers, leasing companies, and investment managers that performed through the crisis, he said this drove more opportunities
going forward.
“Now, a few years after the crisis, it’s a great case study that we and others can use to build support around the asset class and to help others understand why this is an interesting asset class to invest in.”
Fifth Third’s Campos said the sector is in the “early innings of another expansion cycle”. He added: “The last one ended with COVID. Can returns keep track with the changes in financing costs to come? The answer to that question will determine how long the current cycle will last.”
Carlyle’s Meireles reiterated the importance of lifecycle expertise. He said that understanding value across pre-delivery, midlife, and end-of-life stages provides a competitive edge in a complex market.
Despite the ramp-ups from aircraft and engine OEMs, the supply chain issues will continue to persist through to the end of the decade, said SMBC AC’s Matthews and Carroll. “Supply chain issues are inevitably more complicated than we would like, there is potential for the recovery to be knocked off course by any number of issues,” they said.
Once defined by its struggle to survive through the pandemic, the industry is now moving into a new era. One that is defined by selective growth, influenced by the tempered growth seen across the board. This growth is realised through M&A deals and capital market products such as ABS deals making a resurgence. The overarching sentiment of cautious optimism is fitting. Growth is evident but the scars from the pandemic have not so readily faded.
For established players and for those ready to navigate complexities, the horizon may not be cloudless skies, but clear enough to navigate and
gain altitude.