Kroll Bond Rating Agency (“KBRA”) has released a report on aircraft leasing entitled “An Overview of the Aircraft Leasing Industry.” As 2015 begins, the airline sector is enjoying the benefits of lower fuel prices, but is also experiencing stress due to rising concerns about sovereign risk and the strength of the dollar. KBRA believes that the overall credit quality of aircraft lessors will continue to strengthen in the year ahead supported by the following trends:

  • The credit profile of the airlines as key customers of lessors is benefiting from a number of positive dynamics including strategic mergers, cost rationalization, deleveraging and robust passenger travel globally backed by positive demographic trends especially in Asia and Latin America. KBRA believes that persistently lower fuel prices, below a certain level, especially if coupled with higher interest rates, could change the industry dynamics to a point where aircraft leasing may not be so beneficial for airlines, thus becoming a credit negative for aircraft lessors.
  • KBRA notes, that rising demand for modern and more technologically advanced aircraft globally is not driven solely by fuel-efficiency considerations and should stay robust given rising demand for passenger travel and the need for replacement of older aircraft. Overall, sustained lower fuel prices could also help lead to extension of leases for older aircraft—a credit positive for aircraft lessors operating in the mid-life market.
  • KBRA believes that sovereign risk due to falling oil prices and a stronger dollar is also a consideration in terms of risks facing investors in the aircraft leasing sector. Carriers in some oil producing nations such as Russia, Nigeria and Venezuela, for example, are already under pressure which is a credit negative for lessors with exposure to those countries.

To view the full report, please visit www.kbra.com.

Follow us on Twitter!
@KrollBondRating

About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).