New index suggests aircraft leasing outperforms other asset classes
Aviation advisory firm Ascend has constructed an Investment index which suggests that on a risk reward basis, investment in aircraft has outperformed other asset classes, including shipping and precious metals.
The firm, part of Flightglobal and Reed Business Information, notes that despite volatility in the aviation market over the last 20 years, investment in aircraft leasing has shown remarkably stable returns and a low correlation with wider economic indices such as the S&P500.
In 2013 and 2014, Ascend expects aircraft leasing companies to purchase a total of around 1,400 aircraft at a total value of approximately $80bn, which will require around $20bn in equity capital.
Leasing companies are actively targeting insurance companies, pension funds and other long term investors to create co-investment opportunities that will contribute towards this $20bn, the firm said.
It acknowledges that investing in commercial aviation has a risky and volatile reputation. Between 2007 and 2012, 136 airlines ceased operations and the industry witnessed three major airline bankruptcies and re-organisations with Japan Airlines, AMR and Kingfisher.
“Ascend has developed the Aircraft Investment Index (AAII) specifically to benchmark the risks and rewards of aircraft leasing investments against those of other industries,” says Ascend’s head of Consultancy in Asia, Paul Sheridan.
He adds: “The meteoric rise of the aircraft leasing industry means it now accounts for almost 40% of the global, in-service commercial fleet, compared to just 2% in the early 1980s. This rapid expansion means the industry requires hundreds of billions of US dollars in capital investment.”
Attracting new, untapped sources will be a challenge for future success of the aircraft leasing industry as it proves its appeal in the face of competition from more established investment sectors. The creation of the Investment index allows firms to demonstrate comparable returns to potential investors.