“The lessor market is not yet too concentrated and still fragmented compared to other industries,” noted David Yu, finance professor at New York University in Shanghai and chairman of China Aviation Valuation Advisors, an aviation-focused valuation advisory firm in China and Asia. The top 10 aviation lessors control a market share of less than 40 percent while the concentration of the top 10 in other industries could reach 80 or even 90 percent.
Yu expects the aircraft leasing segment will see an increase in M&A activity, due in part to Covid. “Over the last 10 years, the top 10 lessors’ average and the minimum size by value to get on the list have increased significantly, and the pandemic will accelerate this trend,” he said, pointing to the need of most lessors to restructure their leases.
Lessors have supported cash-strapped airlines with rent concessions or short-term delivery deferrals. “One of the major reasons for that is that their banks have been very supportive of them,” Yu explained. “It is not about niceness; it is all about business…Who were they going to remarket the mortgaged aircraft to?" Hence, he added, lessors and banks have shown reluctance to initiate aircraft repossessions. “But there is a critical point,” he said, warning that a lot of portfolio restructuring deals have begun and banks have starting to pull aircraft from delinquent operators. “It is starting, not with a big boom but a progression.”
“Some lessors would want to sell because there is no other path while others want to bulk up,” confirmed Yu. He said a handful of lessors already are unofficially for sale.
According to Yu, the aircraft manufacturers should “definitely” heed warnings about too much concentration of the aircraft leasing industry because they will face increasing competition from lessors to place aircraft with airline customers. Lessors typically represent 15 to 20 percent of the OEMs’ order books, but that figure becomes even bigger when adding the recent spike in purchase and leaseback transactions. “From an airline’s perspective, this might be a good thing,” he concluded.25 August 2021
The project’s strategic importance has driven the early orders. David Yu, an airline financing expert at China Aviation Valuation Advisors who also teaches at New York University in Shanghai, said while there was “no explicit obligation” for Chinese airlines to buy the plane, “I’m sure there are strong suggestions” from the state.25 August 2021
As a result, Airbus and Boeing are also likely to be careful with their outsourcing strategy, said David Yu, professor of finance at New York University Shanghai and an aviation financing expert.
“The point is not to outsource everything, the point is to have some items completed in these facilities,” he said. “From a manufacturing point of view, it’s about intellectual property protection and the safeguarding of that.
“The point is to develop a long-term perspective on China, to grow relations with stakeholders, the airlines and regulators such as Civil Aviation Administration of China (CAAC) – it’s helping them to get planes here.”