Those seeking finance within the aviation industry, whether lessors or airlines, have long been able to access a variety of funding sources, ranging from capital markets and traditional bank financing through to insurance-backed products, export credit-supported financings, tax lease products and sale and leasebacks. Access to those funding sources will, of course, depend on a myriad of factors, but – even with the calamitous impact of Covid-19 on the aviation industry in 2020/21 – there has been, if anything, a trend towards more diversification.
The underlying fundamentals remain strong. Well-publicised supply constraints have ensured that aircraft values have remained high, drawing in more and more investors attracted by the rates of return that are available. Whilst the era of cheap money is gone, the shock of the initial disconnect between lease rates and higher interest rates has passed as lease rates have steadily adjusted to the new economic reality (assisted in many respects by the supply constraints that exist). Most importantly, a commercial aircraft is nothing without consumer demand; that demand has rebounded strongly post-Covid as people have, amongst other things, demonstrated a willingness to part with their hard-earned cash, even amidst cost of living pressures, on a foreign holiday.
The capital markets continue to remain popular. For those lessors with sufficient credit ratings, unsecured debt raised through the capital markets remains available and, in January 2025 alone, lessors issued US$ 2.5 billion in unsecured capital markets debt. Sufficiently strong airlines have also been able to tap into unsecured capital markets where available.
There is also an evident trend backed towards secured capital markets debt in the form of asset backed securitisations. From approximately US$ 3.5 billion in issuances in 2014/15, the market had more than doubled in size before Covid hit and effectively closed that market (a closure in turn compounded by inflationary pressures and a dramatic spike in interest rates).
As subsequent inflationary pressures eased, and interest rate stabilised, the ABS market has certainly reopened. Carlyle Aviation Partners, Sky Leasing, BBAM, and DAE Capital all returned to the ABS market in 2024, and in early 2025 alone there have been a series of new issuances with Carlyle, Castlelake, Altavair and the AerCap-PIMCO JV, Gilead, all launching (and representing approximately close to US$ 2.5 billion between them). Aside from these more “vanilla” lessor issuances, there has also been a trend towards diversification as alternative lenders such as Ashland Place, PK Airfinance and volofin have issued asset backed securitisations in respect of their loan portfolios.
There may, of course, be grounds for caution if US interest rates remain stubbornly high amidst possible inflationary pressures arising from the new US administration’s policies. It remains to be seen if, after the current series of ABSs in the pipeline have been launched, the rate of issuances will continue at the same pace.
More traditional secured financings have long been available, ranging from the more diversified syndicated warehouse facilities (often constructed with a capital markets take-out in mind) to bilateral one or two aircraft facilities. The general composition of the financiers offering these products will have changed compared to the position ten to fifteen years ago. The market remains diverse with a number of long-standing bank players, but there have been some notable exits (for example, NordLB) whilst there have been a series of new entrants (often in the form of alternative lenders).
Regulatory pressures have existed since the global financial crisis. However, depending on the particular regulations that apply in a jurisdiction, there are evident consequences as lenders grapple with the requirements imposed by regulatory frameworks such as Basel IV and the wider demands of ESG.
As capital allocation requirements become more stringent under Basel IV, and amidst increased competition from new entrants, that may drive some lenders towards objectively riskier products as they seek to make a higher return in order to offset the costs associated with those capital requirements. That may manifest itself in more limited recourse transactions and/or financing in jurisdictions or airline credits which are considered to have a riskier profile. Shorter debt tenors may also apply as longer term financing becomes more costly from a regulatory perspective as capital floors kick in. Alternatively, it may manifest in new product lines (such as inventory/MRO financings) where a relatively nascent market can provide fertile ground for higher returns.
ESG has been on the industry’s radar for some time. Whilst there is growing anti-ESG sentiment in some quarters, a number of institutions have aviation decarbonisation targets. That target has often been met, in some cases, through the financing of newer, cleaner technology. It will be interesting to see, as supply constraints limit the amount of new technology available and with the competing demands posed by capital requirements, if those decarbonisation targets will be hit or if lenders will be willing to fund older technology aircraft.
Export credit has long been available to airlines and lessors, especially when dealing with jurisdictions treated as otherwise too risky for commercial debt. Whilst its market share has waned since the immediate aftermath of the global financial crisis, it continues to remain an important player – and there are lessors which may otherwise access unsecured capital markets that, as part of their funding diversification strategy, keep access to ECA-backed facilities in case ever required.
As a corollary to the more traditional government-backed insurance product, commercial-backed aircraft non-payment insurance (ANPI) products have grown exponentially. Initially piloted by AFIC and Balthazar when Eximbank and the European ECAs were restricted from doing new business a decade or so ago, that commercial market has matured with new entrants such as Itasca who are not tied to specific OEMs and can use their product to re-finance older aircraft as well as new aircraft.
Airlines continue to have various funding options available to them. There is evident interest in sale and leasebacks as airlines leverage their own OEM order books. Additionally, pivoting away from the more traditional operating lease, airlines are increasingly attracted to finance lease products being offered by lessors. Moreover, whilst not exclusively available to airlines, tax lease products continue to remain an attractive (and buoyant) market; Japanese products remain at the forefront, but there is clearly evident interest in other forms of tax leases (such as French or Italian) being utilised.
As a global industry, aviation will always have some vulnerability to adverse macroeconomic and geopolitical headwinds and one can never predict from where the next shock might emerge. However, aviation finance has long proven to be a sophisticated, diverse and versatile market, one that has managed to withstand and rebound from cataclysmic downturns following 9/11, the global financial crisis and the Covid-19 pandemic.
Notwithstanding the regulatory constraints and IRR requirements faced by certain financial institutions and investors, the strong foundations, robustness of the industry and current to medium term market forces mean that aircraft are set to be an attractive investment and source of collateral, ensuring the vast majority of borrowers continue to have a plentiful supply of debt sources available.