How Engine Lessors Adapt Strategy To Match Changing Market

The relationship between airlines and engine-leasing companies is changing as lessors seek to diversify to meet increasing competition.

Engine lessors are adapting their business models to adjust to the shift in how airlines operate aircraft, as well as to increased competition, according to a panel discussion on the leasing sector.

At Aviation Week Network’s Engine Leasing, Trading and Finance conference in London, the consensus was that overall demand for acquiring engines on lease remains strong, but the paradigm of the sector has also changed in the past few years.

Jon Sharp, president and CEO of Engine Lease Finance Corp., identified a fundamental change in how airlines lease engines, citing the 2008 financial crisis as a turning point.

“Before, we’d typically put an engine on sale and leaseback for 6-8 years, returning from lease before it went back on another lease for 3-4 years before going into a short-term market,” Sharp explained. “But since 2008, airlines have become a lot better at managing their fleets and utilizing the leasing community to their advantage. Now we are seeing more aircraft on a first lease of 10-12 years, with no secondary lease before eventually going into a green time and part-out situation.”

Dan Coulcher, senior vice president and chief commercial officer for Europe, the Middle East and Africa at Willis Lease Finance, emphasized the importance of lessors forming strong relationships with carriers. “A lot of companies have been struggling to grow through new sale-leasebacks because of factors such as aggressive pricing from China, so we’ve grown successfully through exploring other ways of finding aircraft and engines through building up relationships with airlines,” he said.

Paolo Lironi, CEO of Amsterdam-based aviation consultancy SGI Aviation, said its research on engine lessors found that increased competition in segments such as the end-of-life engine-leasing market were also driving lessors to diversify their services, with some choosing to offer engine and landing gear exchange services. “This is because the end-of-life engine market in terms of lessors is getting more crowded, and competition on their business is getting higher,” Lironi said.

New entrants are also expected to increase competition. Sharp noted Japanese lessors have become active in the past 3-4 years. Coulcher believes they can succeed against more established competitors due to the sheer size of the segment.  However, “growing the required level of expertise over a number of years is what could be difficult for them,” he says. 

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