The outlook for 2025 is “as bright as it has been” since before the pandemic with passenger demand returning to pre-Covid levels and an upswing of aircraft trading, said Vinson & Elkins in its aviation finance: outlook for business in 2025 report. The outlook said skies are “mostly clear” ahead for the year, though with some headwinds.
The report noted the return of the ABS market in 2024 with issuances from Sky Leasing, BBAM, DAE Capital all priced near each other with comparable yields. Senior notes for new aircraft ABS deals scored yield below 5.5%. The report said there are “plenty of reasons to expect” the trend of ABS issuances to continue this year.
The activity in the ABS market was prompted by the lower interest rates, with the report noting the US Federal Reserve lowering the target range for the federal funds rate by half a percentage point down to 4.75%. This marked the first cut in interest rates in four years.
“Market participants welcomed the news, with the general consensus being that it would encourage aircraft trading by reducing the total debt costs for potential buyers,” Vinson & Elkins stated.
The report continued: “While this is a welcome change for most, many will be looking to see whether the shift in monetary policy has any potential to change the shape or movement of the yield curve, which remained broadly inverted since 2022.”
Quarterly aircraft trading saw an increase through the second half of 2024. However, with the ongoing supply chain constraints, which the report said has “shown no signs of letting up” in 2025, the year is set to see an increased demand for older aircraft in the near term at least. Along with the supply chain constraints, the report highlighted the ongoing engine issues across manufacturers, with inspections of Pratt & Whitney's geared turbofan (GTF) engines expected to run through to next year. In addition, Rolls-Royce's Trent 1000 engines' durability issues and maintenance requirements will continue to impact operations despite the company currently undertaking its £1bn improvement plan.
While Spirit Airlines' bankruptcy garnered headline attention, the report said, several other airlines had ceased operations throughout the year. While SAS successfully exited its restructuring process last year, GOL Linhas Aereas remains in its Chapter 11 restructuring. The report said that while traffic continues to reach record levels, “certain macroeconomic trends” in the industry will “likely result” in more airline bankruptcies throughout the year.