Aircraft lessors face challenges from trade war effects

Aircraft leasing companies, or lessors, are facing several challenges this year due to changing market conditions. They play a crucial role in the aviation industry, as they buy large numbers of planes and lease them to airlines. Lessors like AerCap have become key players, allowing airlines to manage their fleets flexibly. Recently, the trade war initiated by former President Trump and the ongoing situation in Ukraine have affected stocks in the airline and aircraft manufacturing sectors. Major airlines such as Delta and American Airlines have seen sharp declines in their share prices, dropping around 30% recently. However, AerCap's stock has increased by about 7% during the same period, showing a different trend from its airline counterparts. AerCap's CEO, Aengus Kelly, has warned that tariffs on imported aircraft could significantly raise prices, potentially increasing costs by over $40 million per plane. This shift could push airlines to favor manufacturers like Airbus, which might lead to less competition in the market. Higher costs for lessors will likely result in increased ticket prices, as airlines continue leasing instead of buying new aircraft amid rising expenses. Despite the economic challenges, Kelly believes there is still strong demand for leased aircraft. He noted that airlines might face more obstacles from rising labor costs rather than a drop in consumer demand for travel. The current economic landscape has a complicated impact on lessors. Rising tariffs could raise prices on aircraft, but this may not affect demand for leasing. Interest rates will also play a significant role in the leasing market. High rates discourage airlines from buying new planes, likely benefiting lessors like AerCap. Overall, while challenges exist, the leasing sector remains vital to airlines, giving them flexibility as they navigate a turbulent market.