Orient Securities released a research report stating that within the aircraft leasing industry, focus should be on leading leasing platforms with global fleet deployment, order book resources, and financing capabilities. Top-tier lessors possess comprehensive advantages in fleet scale, order books, client networks, financing channels, and asset trading capabilities. This makes it easier for them to secure airline demand during aircraft shortage cycles and enhance asset operating returns through lease renewals, subleases, and aircraft disposals. The main points from Orient Securities are as follows:
Air travel demand has surpassed pre-pandemic levels, and airlines' need for capacity expansion remains supported. Global air travel is in a phase of sustained recovery, with metrics like passenger numbers exceeding 2019 levels and load factors maintaining historical highs, leading to strong airline demand for fleet expansion. Meanwhile, although global airline profitability has recovered, the industry's net profit margin remains low, and Return on Invested Capital (ROIC) is still below the Weighted Average Cost of Capital (WACC). Direct aircraft purchases for balance sheet expansion still face constraints from capital returns and balance sheet health. Operating leases, with their lower capital intensity, fleet flexibility, and access to delivery slots, continue to meet airlines' supplementary capacity needs.
New aircraft delivery bottlenecks persist, continuously strengthening the scarcity of existing fleets and order books. Long-term, both Airbus and Boeing forecast global demand for over 43,000 new aircraft in the next 20 years, with growing air travel demand translating into sustained fleet expansion and replacement needs. Short-term, OEM delivery recovery lags behind demand recovery. Combined Airbus and Boeing deliveries for 2025 remain significantly below the 2018 peak, with order backlogs staying high. Insufficient new supply has increased the global fleet's average age, while retirement and renewal rates remain low, forcing airlines to extend the service life of older aircraft. Prolonged delivery cycles further intensify the scarcity of available existing aircraft and future delivery slots, a situation unlikely to ease in the near term.
Supply shortages have translated into higher lease rates and asset values, concentrating profit elasticity with lessors. Lease rates have been recovering since 2021. However, due to the long-term nature of aircraft operating leases, rising market rates will gradually enhance lessors' asset yields as existing contracts expire. Aircraft asset values have also recovered, with Current Market Value (CMV) to Base Value (BV) ratios for both narrow-body and wide-body aircraft rising above 1.0. This strengthens lessors' bargaining power in lease renewals, subleases, and asset sales, marking the industry's entry into an asset value revaluation phase.
Marginal improvement in financing costs, coupled with recovering asset-side yields, enhances leading lessors' profit realization capability. Rising USD interest rates since 2022 had previously pressured financing costs and net interest margins. Since 2025, USD policy rates have retreated from highs. Financing costs for major aircraft lessors have generally stabilized, with some companies' bond coupon rates marginally declining from 2023 peaks. Taking Avolon and BOC Aviation as examples, the spread between lease yields and average weighted coupon rates has widened since 2024, indicating the recovery in asset-side yields is gradually translating to the profit side. Concurrently, new aircraft delivery slots and order books are concentrating among top lessors. Leading companies, leveraging their fleet scale, order reserves, financing channels, and global client networks, possess stronger asset deployment and profit realization capabilities during the aircraft shortage cycle.
Investment Recommendations and Targets The supply-demand imbalance in aircraft leasing persists, with asset revaluation and spread recovery jointly supporting industry profit improvement. On the demand side, global air travel has exceeded pre-pandemic levels, with airline capacity expansion and fleet renewal demand still being released. On the supply side, slow OEM delivery recovery and high order backlogs prolong delivery cycles, continuously reinforcing the scarcity of existing aircraft and order books. Supply constraints are gradually transmitting to pricing, with lease rates for mainstream aircraft models continuing to recover and aircraft market values exceeding base values, strengthening lessors' bargaining power in renewals, subleases, and asset transactions. Meanwhile, since 2025, retreating USD policy rates have, as seen with Avolon and BOC Aviation, led to a significant widening of the spread between lease yields and average weighted coupon rates since 2024, indicating asset-side yield recovery is gradually feeding into profits. Related Targets: Bohai Leasing, BOC Aviation, China Aircraft Leasing.
Risk Factors Global air travel demand recovery falls short of expectations; aircraft supply recovery exceeds expectations leading to a decline in lease rates; new aircraft order deliveries and capital expenditure execution fall short of expectations; risks related to aircraft asset impairment and residual value fluctuations; volatility risks in aircraft sales revenue and disposal gains; USD interest rates remain high or financing cost improvements fall short of expectations; risks associated with high-leverage operations and debt refinancing; RMB exchange rate fluctuation risks; risks related to overseas operations and geopolitics.