Risk, resilience and diversity are shaping the future of aviation finance, and Laura Cunningham, General Counsel at World Star Aviation, has a front-row seat to this evolving landscape. In a sector navigating post-pandemic challenges, geopolitical tensions and shifting market dynamics, Cunningham notes that change is afoot both in terms of the operations of the industry and the changing face of its players.
She tells Airline Economics that while steady demand remains, challenges on the supply side—notably in the OEM space—are driving up costs and reshaping leasing and secondary markets. Meanwhile, opportunity abounds in a more stable interest rate environment, a revived ABS market, and evolving ESG requirements.
Elsewhere, one thing is clear for Cunningham: Diversity, equity and inclusion (DEI) cannot be overlooked. Driving change from the top down is essential to building a more resilient, future-ready aviation sector that embraces risk, values resilience and makes space for new leadership voices.
Airline Economics sits down with Cunningham to learn more.
Demand and supply
While the economic climate continues to fluctuate, Cunningham’s outlook on the demand environment is generally positive. She describes demand across all geographical areas as strong, but notes that there are concerns around certain airlines that have local US dollar FX issues. These issues are countered by oil spot pricing dropping, she says, but there are other concerns to be considered, such as a decline in profit margins at airlines due to rising costs (which includes lease costs). And like so many other aspects of the industry, Covid played a role.
“The reason for this decline includes the fact that Covid resulted in a high level of aviation professionals, particularly pilots, leaving our sector. This means we have a shortage of those professionals, and shortages lead to pay increases, which then spread across the spectrum of crew, mechanics and administration,” she explains.
This has resulted in labour disputes slowly but steadily creeping back into in the sector, which, as Cunningham notes, can obviously be highly disruptive, and, more importantly, can and do lead to higher costs as earning rates are compared airline to airline.
Still, even with this in mind, she is cautiously optimistic about the demand environment, noting that as long as demand remains strong, rising costs can be countered.
“Overall, the industry is performing very well,” she says. “Demand for travel is strong and fares are up, and this can balance risings costs, albeit not fully.”
While the demand environment remains relatively steady, the supply environment—and specifically the OEM landscape—presents a number of significant challenges in the current climate. A complex set of interrelated issues, including geopolitical and trade tensions from tariffs, as well as ongoing supply chain disruptions, mean that production schedules, financial performance and long-term strategic planning are all proving challenging for OEMs. And, of course, when OEMs are dealing with challenges, the sector as a whole feels the impact.
“The OEM challenges are unfortunately having a knock-on effect on not only new aircraft and engines being rolled out, but also overhaul and repair work on mid to end-of-life aircraft, which are experiencing significant delays,” Cunningham points out.
She adds that the market for serviceable engines in particular is currently experiencing high demand caused by a number of factors: The increase in passenger demand for air travel following the pandemic, supply chain issues causing delays in the delivery of new aircraft, staff shortages at OEMs and MRO facilities, and issues with new technology engines. Specifically, Cunningham highlights Pratt & Whitney’s GTF engine, which powers over 50 percent of the global A320neo fleet, but has been plagued with issues relating to manufacturing defects and subsequent operational disruptions.
“Reports show over 650 aircraft grounded due to unreliability of new tech aircraft,” she says. “Additionally, shorter engine on-wing intervals are causing bottlenecks at maintenance facilities, which in turn is elongating the service life for the 737NG and A320ceo family aircraft.”
Cunningham notes that the delays from OEMs mean that leases are being extended at a higher rate than their current rates because of airlines needing to retain aircraft as a means of trying to cope with the issue. This means lease extensions are still hugely in demand, with an increasing number of customers requesting them.
“The biggest buyer of used aircraft today is airlines, but supply is massively constrained, which naturally leads to increased lease rates,” she says. “Airlines are extending far earlier and for longer extension periods.”
The impact of extensions is multi-faceted for lessors, she notes. This impact includes shortened Aircraft on Ground (AOG) time between leases, higher rents, low or no maintenance spend on aircraft, lower insurance costs, and lower costs generally. Cunningham also points out that lease rates on new aircraft purchased through sale-leasebacks continue to be very low, which is a factor driven by competition for deals and an ever-increasing population of institutional investors investing in aircraft.
Another part of the market that has been impacted by the OEM disruption is mergers and acquisitions (M&A). Cunningham notes that delays in deliveries from OEMs have led to lessors using M&A as an alternative way of deploying capital. She points out that small lessors who have struggled to raise new or additional equity find themselves in a position where they have “little choice” when it comes to being acquired given their challenging growth prospects. In addition, for those entering the market, M&A offers a way to scale up quickly.
“New entrants to the leasing sector have found that the quickest way of building up their portfolio is through M&A,” she points out. Adding: “There has also been a roll-up of smaller mid-size lessors due to issues with private equity ownership.”
Market mood
Cunningham notes that the secondary trading market remains “extremely active”. She attributes this in large part to the aircraft asset backed securitisation (ABS) market “coming back to life” in 2024.
“The secondary market is extremely competitive with strong pricing on in-demand assets,” she notes. “Large lessors that typically would have focussed on new aircraft orders are competing with smaller lessors for secondary market trading.”
Elsewhere in the market, interest rates are now experiencing a more stable period after the scale and pace of increases since 2022, which provides an opportunity for businesses to re-focus energy on their third-party financing plans, Cunningham notes. The expectation is that interest rates should continue to fall at a slow pace, she says, although challenges remain not least the tariffs situation in the US and geopolitical risks.
When it comes to the current position of the aviation debt market, Cunningham describes it as “very supportive” of the leasing sector. She notes that Covid showed that aircraft are a solid dollar-based investment that are always in demand. Also of note, she points out, is that where there has been negative pressure on the leasing sector, aircraft values have fallen by relatively tight margins.
“Aircraft investments are stable, as such there is broad debt support for the market,” she says. “Traditional bank lending continues with a cautious approach, focussing on high-quality credits and secured lending.”
Also of note is the population of aircraft investors, which Cunningham points out has significantly increased. She attributes this to the sector’s resilience to recent challenges, which she says demonstrates the stability of the sector and its ability to yield returns even in challenging times. “This is also evident from major insurance institutions continuing to acquire lessor platforms,” she notes. “Investors who had historically only focussed on new aircraft investments have come downstream and are now looking at investing in mid-life and even end-of-life aircraft.”
Elsewhere, Cunningham expects alternative lenders to grow their share of the aviation debt market, spurred by demand for creative financing solutions. She observes alternative lenders’ approach to loan-to-value being broader than just appraisal-focussed.
“Alternative lenders [are] looking more at cashflows in conjunction with aircraft valuations to determine advance levels,” she notes.
Likewise, the ABS and structured products market is continuing to gain traction in aviation finance. Cunningham expects this to continue to evolve over the next 12 months, nothing that ABS was “back in favour” in 2024. With this in mind, she says that World Star Aviation expects 2025 ABS issuances to increase.
ESG, DEI and aviation
When it comes to environmental, social and governance (ESG), the evolving regulatory environment presents obligations that are a “significant hurdle” for airlines, but that also present an opportunity, Cunningham tells Airline Economics.
“While the increasing ESG requirements will most certainly result in increased costs for airlines, on the flip side, by starting or increasing their investment now in sustainable technologies and processes, airlines may be future-proofing themselves for an industry that is increasingly driven by environmental regulation and consumer demand for more responsible practices,” she points out.
The industry’s focus on sustainable aviation fuel (SAF) also plays a role in ESG obligations, but, as Cunningham notes, SAF’s adoption is limited by a number of challenges, and while it is widely talked about, the reality does not reflect current difficulties.
“If column inches were indicative of usage, SAF would be widely adapted across the globe…but while SAF’s potential to reduce emissions is significant, it remains limited by high costs and scalability challenges,” she says. “The pace of SAF transition will depend on investments in production, infrastructure, and feedstock development.”
Where DEI is concerned, Cunningham would like to see “a lot more” being done in the aviation sector. While she notes that steps have been taken to enhance DEI within the industry, she points out that those in leadership positions have an obligation to take DEI action within their organisations.
“Senior leaders in the industry need to be pro-active in encouraging and expecting diversity and inclusion from their businesses and also the personnel who support their businesses, be it internal employees, contractors or external service providers,” Cunningham says.
Of particular concern for Cunningham is gender balance in leadership roles. She sits on the board of the Advancing Women in Aviation Roundtable (AWAR), and tells us that AWAR seeks to encourage CEOs and other senior executives to build awareness of the role of female leadership in the industry, as well as develop actionable strategies to promote the development and advancement of women leaders in the aviation industry.
Cunningham’s drive for increased gender representation also sees her advocating for ProperlHer, which offers a mentorship programme designed to propel women forward in the aviation sector and is described by Cunningham as “being a brilliant success helping women progress and develop in a male-dominated industry”.
She is clear that tone from the top is what drives change. Leadership needs to not only speak to the benefits of DEI, but also actively participate in making the change happen.
“A lot of the power for change is in the hands of senior individuals in the industry who need to continue advocating for diversity and inclusion and putting their hands up to be mentors and drivers for change,” she says. “The aviation community needs to continue striving for enhanced diversity and inclusion and thinking outside the box as to how this can be achieved.”
She notes that three of World Star Aviation’s group heads are now women, with some teams primarily or entirely female, noting that, “This is an example of leaders in our industry striving and implementing change”.
Forging ahead
As she looks ahead, Cunningham remains optimistic about the sector’s ability to navigate the pressures it faces. Ongoing supply issues and economic headwinds are countered by a growing investor base and emerging opportunities in ESG and elsewhere.
As the landscape continues to evolve, adaptability, strategic foresight and a commitment to DEI will be key to sustaining growth in aviation finance. Players will find that resilience and diversity are not optional, but a competitive advantage that they can’t afford to be without.