Breaking through: freighter leasing part II

Yesterday we began a multi-part series on freighter aircraft leasing with a look at the way in which a business that was originally fairly straightforward has become increasingly complex – you can see that discussion here. Today we look more closely at the lessors themselves, while tomorrow we will look at how the freighter-leasing business has changed since our first study in 2016.  

In yesterday’s post we included a chart showing the lessors that currently have freighters in their portfolios. Because much of what we will be discussing today refers back to that chart, we will also include it here, and start by asking what does this list of lessors and their portfolios tell us?

At first glance, several things are clear:

• Nearly half of the 104 lessors have three freighters or fewer, and 45% of the total freighter portfolio is held by the 10 largest lessors.

• There are some names on the list that sound a lot like the names of airlines – West Atlantic, ANA, LATAM, and several instances of DHL, for example. In each of these cases, the leasing company was set up by and airline or parent company to own aircraft operated by that airline. We include them, because as time as passed they have broadened their customer list and now lease to other carriers as well. In addition, there are some unfamiliar names that fit the same description. Largus Aviation, for example, leases only to Amapola Flyg, while Frontera Flight Holdings’ only customer is TSM. This is not to say that they aren’t lessors, but rather that some lessors are created to serve a single customer.

• Another familiar name is Boeing. No surprise there, as Boeing, like Airbus, often takes back older aircraft as part of a deal with a customer ordering new aircraft, and has set up leasing subsidiaries to remarket these aircraft. (Airbus’ leasing subsidiaries do not currently have any freighters in their portfolios.)

And finally, if you compare the number of freighters in the lessors’ portfolios to the total number of freighters leased by airlines shown in the chart on this page, you will notice a significant difference. There are a few reasons for this. First, some lessors have unleased aircraft which could still find their way back into service. Of the 632 owned by the lessors, 40 are currently in storage (but have a chance of returning to service. Second, in the chart on this page, we have chosen not to show older types such as 727Fs, DC-9Fs, 747-200Fs and several others. Likewise, we have chosen not to show types like the 747-400LCF and Tu-204C that are so specialized or so rare that they do not play a significant role in the commercial leasing market. Subtracting the 39 stored units, the 48 in-service-but-older or unique types and from the 632 in the lessors’ portfolios gives the 548 shown in the operators’ fleets.

But perhaps more interesting that what is shown in the lessor chart is what is not shown. Passenger aircraft for one thing. In addition to the 632 freighters in their portfolios, the 104 lessors in chart also have 8,154 passenger aircraft, which puts their freighter holding at 7.7% of the total. On an individual level, the lessors’ focus on freighters varies from as little as 0.3% of their portfolio (Park Aerospace Holdings, with one freighter and 340 passenger aircraft), to 100% for the twenty-one lessors who specialize in freighters. Of course, there are another 278 lessors who have over 4,000 passenger aircraft and no freighters at all.

Geographic distribution is another thing not shown in the chart. The lessors listed are based in nineteen countries, but, to put it simply, the distribution is anything but balanced. Lessors based in the US account for 54% of the freighters. Ireland-based lessors hold 8%, and another 8% are held by Swedish lessors (led by West Atlantic’s aircraft management arm). After that, the share drops off quickly with lessors based in five countries – Germany, the UK, Netherlands, China, and Japan – holding between 3% and 4% each, while no other country is home to more than 3%.

And, as always, raw numbers can hide as much as they reveal. For example, looking at the lessor chart, you could be forgiven for thinking that lessors with very few freighters are probably not deeply involved in the freighter market – perhaps stuck with a handful of freighters they’d probably like to be rid of so that they could concentrate on the passenger market. But, as the old song says, it ain’t necessarily so. Consider companies like Altavair and Kahala Aviation Group. With just four freighters each, they would seem to be rather uninterested in the cargo side of the aviation business, but the reality is far different.

Both are active players, but, rather than acquiring freighters and then holding them for years, they opportunistically acquire freighters, or feedstock for freighter conversions, and then opportunistically sell the freighters when the chance arises, either with or without a lease attached. So, while they might not have many freighters in their portfolios at any given time, they are very active players in the freighter market.

Then there are other aircraft trading companies like Spectre Air Capital affiliate Jetran, which does not have any freighters on its books, but supplies feedstock for freighter-conversion through trading and acquisitions. Spectre and Jetran have facilitated feedstock acquisition for many of the 767-300ERs freighters recently-acquired by Air Transport Services Group and Atlas Air Worldwide that are now operated for Amazon.

Tomorrow we will look at how the freighter-leasing business has changed since our first study in 2016.