AerCap (AER.N), the world’s largest aircraft leasing company, noted on Wednesday that escalating fuel prices have had minimal immediate effect on the aviation sector. AerCap leases aircraft to airlines globally, facilitating their operations and growth. However, its Chief Executive, Aengus Kelly, cautioned that a sustained surge in jet fuel costs would inevitably place pressure on airlines, potentially generating benefits for lessors like AerCap.
Mr Kelly indicated that if jet fuel prices persist at current elevated levels for three to six months, airlines’ profitability and balance sheets would face significant strain, potentially leading to the accelerated retirement of older aircraft. Should fuel costs remain high beyond six months, AerCap anticipates new growth avenues, particularly an increase in sale/leaseback opportunities. This involves airlines selling an aircraft or its purchase rights to a lessor and then leasing it back, allowing them to fund growth while preserving cash and prioritising liquidity.
Despite global conflicts, demand for AerCap’s aircraft remains robust, with Mr Kelly observing no alteration in airline behaviour due to the Middle East situation. More than half of the company’s 202 lease deals in the first quarter were finalised in March, after the conflict commenced. Following better-than-expected first-quarter earnings and a raised full-year outlook, AerCap confirmed it has not agreed to any material customer concessions, though requests may rise if fuel prices stay high. Mr Kelly also noted that airlines able to reroute between Europe and Asia around the Gulf region are currently performing strongly, seeking additional capacity, while expressing confidence in the eventual return of Middle Eastern carriers.
