We are delighted to present you with our Aviation Industry Leaders Report 2022: Recovery through Resilience, produced with our industry partners, Airline Economics.

The report captures the views of industry leaders across the leasing, airline and banking markets and includes input from rating agencies and analysts covering the sector. Our report last year looked at the devastation that COVID-19 had wreaked on the aviation sector, as it dealt with the largest exogenous shock the industry has ever faced, resulting in a collapse in global air travel.

The hope at this time last year was that the expected global vaccine rollout would help drive a sharp recovery and that the stickiness of investors to the aviation sector would remain strong. A lot of these hopes have come to pass, but challenges still abound.

Airline performance and air traffic recovery

From a financial perspective, 2021 will bring global airline losses of $51bn. While a significant improvement on the $137bn loss in 2020, it will still represent the second highest loss on record. Widescale airline failures however have, for the most part, continued to be prevented by the huge levels of government support provided and which now exceeds $240bn since the onset of the crisis.

While there are those that question how long these supports can continue, the strategic importance of air travel, both from a commercial and social perspective, is what has driven this remarkable level of support. While the pandemic’s impact may persist, this fundamental fact remains.

The recovery in air travel has been material but it has also been geographically disparate. Global passenger numbers grew by almost 30% to 2.3 billion in 2021, however this remains just over half of 2019’s 4.5 billion air travellers. IATA’s current expectation is that it will be 2024 before the figures return to 2019 levels. This recovery has been primarily driven by large domestic markets (including the US, China, Russia, Brazil) and, in the latter half of the year, a recovery in the European market, as the benefits of the EU vaccine passport and the reopening of transatlantic travel could be seen. The Asia Pacific market continues to be the area causing most concern, where stringent travel restrictions have resulted in traffic levels remaining up to 70% below 2019 levels.

Driving recovery

What is evident over the course of 2021 is that once restrictions lift, people are keen to return to the skies. Variants of concern, such as Delta and Omicron, have posed challenges to the recovery. However, the clear levels of pent-up demand, and the general bounce back of the global economy, drive optimism that the recovery will continue apace. A more globally co-ordinated approach both to vaccine roll-out and health travel passports is essential in driving the quickest possible recovery. A more nuanced and considered approach to new variants would also be advisable.

As noted by the World Health Organisation, travel bans are not effective in controlling the spread of the virus. IATA is correct when it states that any restrictive measures should be properly coordinated and risk assessed, and where deemed necessary, should be time-bound and regularly reviewed.

For the airline sector, market disruption will continue to provide new opportunity. Dozens of new start-ups have emerged, seeking to benefit from the recovery, without the financial scars of their more established competitors. Time will tell in relation to their relative success.

Talking about oil price and interest rate volatility seems almost quaint given the challenges of COVID-19, but these key metrics will return to prominence as airlines continue to ramp up activities in line with the recovery. Coupled with rising labour costs and ongoing supply chain issues, ramping up activity will not be without challenges. Like previous downturns, there will be winners and losers. One expects that those focused on low-cost and short-haul travel will be best placed to prosper in the near term. As always, in order to excel, operational excellence is a must for airlines.

The growing influence of aircraft lessors

The pandemic has been extremely challenging for aircraft lessors, but the crisis has highlighted the resilience of the leasing business model. Large-scale, well-run lessors, have expertly managed their own liquidity challenges and have been essential partners in supporting their airline customers through the crisis.

This support throughout the past two years has deepened and strengthen relationships between lessors and airlines. Airline balance sheets have been decimated by the pandemic and most airlines will be severely capital constrained for the foreseeable future. As a result, lessors have taken on a greater importance in funding new deliveries.

The long-posed question of whether the percentage of leased aircraft can break 50% has been answered; the question now is how high that percentage could climb. Either through their own order books or via the sale-and-leaseback channel, close to 60% of new deliveries were funded by lessors in 2021. The prevailing, though not universal, view coming from the industry leaders we spoke with was that this is a level that could be sustained over the longer term.

Consolidation and new entrants

Previous downturns have driven lessor consolidation and it was not a surprise to see material M&A activity in 2021. However, the remarkable AerCap acquisition of GECAS, bringing together the two largest players in the market and creating a super-sized leasing group, came as a shock to most. The fallout from that transaction will be interesting to observe, both in terms of what wider market activity it may drive and in relation to the questions it raises around the importance of scale. While there was consensus that more lessor consolidation is likely, it is also acknowledged that ready sellers of large portfolios are not immediately obvious.

There is also an expectation that we will continue to see new entrants and indeed we already have seen some emerge since the outset of the crisis, mostly backed by US private equity. The challenge for those new entrants will be how they compete with established larger players, who may be able to access cheaper funds. These new entrants appreciate this challenge and will be looking for innovative ways to drive returns.

The consolidation that occurred in 2021 has also resulted in some high-quality ambitious individuals seeking new opportunities. Given those that join the leasing world rarely tend to leave, we will be watching how this plays out in 2022 with interest, particularly given the continued flow of capital into the space.


There is no greater evidence of the attractiveness of aircraft leasing than the $21bn in unsecured funding in the capital markets that AerCap were able to raise in completing the GECAS transaction, a debt raise that was more than three times over-subscribed. AerCap was not alone in accessing the unsecured bond markets and at very attractive rates.

Investment grade lessors including Air Lease Corporation, Aircastle, Aviation Capital Group, Avolon, BOC Aviation, DAE Capital and SMBC Aviation Capital, all had successful unsecured bond raises during 2021, with over $32bn being raised by lessors during 2021. The quantum raised and the interest rate spreads achieved by each of these investment grade lessors highlight both the confidence the investment community has in the leasing model and also speak to the maturity of aviation as an investible asset class. Even as we move towards a rising interest rate environment, there is a widely-held belief in the lessor community that there will be a continued ability to obtain attractive spreads on unsecured debt for large-scale, well-run leasing platforms.

The traditional aviation banking market, which retrenched as the crisis took hold in 2020, made a cautious return in 2021. We also saw the emergence of a number of new non-traditional lending platforms, as investors sought to play in multiple parts of the capital stack. It will be interesting to watch how this trend develops. The aviation asset-backed securitisation (ABS) market, which had become a key pillar of aviation finance funding $10bn of aircraft purchases in 2019, effectively shuttered in March 2020. Its return in 2021 was much hoped for but few foresaw how strong the market would come roaring back. Its prompt return is a welcome success story. Structural improvements relating to debt service coverage ratios and a greater focus on quality portfolios, resulted in fourteen transactions with a total value in excess of $8.5bn being executed in 2021, second only to 2019 in terms of scale. While most of these transactions were debt-focused deals and we have not yet returned to the pre-COVID tradeable E-Note structures, there is a belief that equity investors will return to the product in a material way in 2022.

Climate change

The threat posed by climate change continues to loom large over aviation and all stakeholders within the sector acknowledge and appreciate the need for immediate action. ‘Flight shame’, the imposition of environmental related taxes and regulations, and the increased Environment, Social and Governance (ESG) focus of investors are real concerns for the industry.

While aviation contributes around 2.5% of global CO2 emissions (a significant amount less than what the public generally perceives), its path to reducing its carbon footprint is less obvious than some other sectors. The 2050 net zero target is hugely ambitious and will be a challenge for the sector to achieve. The building blocks to reducing emissions include fleet renewal, improvements in operational efficiency, technological innovation, sustainable aviation fuels (SAF) and, in the near term, carbon offsetting. Some of these potential technological factors, such as hydrogen or electricpowered aircraft, are a long way from making any material impact.

There is clear consensus that the immediate focus should be on sustainable aviation fuel (SAF), with IATA forecasting that it will be the primary driver of emission reductions over the next decade and beyond. However, there are key challenges relating to the current levels of SAF supply and its current price, which is more than three times that of jet fuel. Incentives are needed to attract more producers and investors to the space and governments need to play an active role in accelerating the demand for SAF.

Fleet focus

For the reasons outlined above and given the nature of the recovery to date, both airline and investor focus continues to be on narrowbody, new technology aircraft. Demand for the A320neo family and the successfully returned 737 MAX remains high and this is being reflected in prices and lease rates.

Unsurprisingly, the widebody market remains challenging and will continue to be until the recovery becomes less geographically fractured. Coming off historic lows in 2020, both Boeing and Airbus are seeking to increase production rates in line with the expected recovery. However, both manufactures need to do this in a staged manner, as they grapple with global supply chain issues. Ramping up is a lot more challenging than ramping down.

One significant positive during this crisis has been the performance of cargo and there is a relatively widely held belief that the pandemic driven surge in e-commerce has given rise to a sustainable step change for the cargo market. Long subject to a reasonable degree of volatility, this potential step change is attracting both new investors and lessors to the space. 

In closing

Overall, the industry outlook is cautiously optimistic. The last two years have been the most challenging time that aviation has ever faced, but the resilience of the entire sector has been remarkable. The widely-held belief is that the worst of this crisis is behind us, and that a globalised vaccine rollout, coupled with a coordinated international effort in managing restrictions, will drive a recovery towards 2019 air travel levels. Over the course of 2021, we have seen that the appetite of the human race to take to the skies is undiminished. The question is when, not if, a full recovery will take place. We would like to thank all those who gave their time and insights, and we hope you enjoy the read.

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The pace of change is challenging leaders like never before. To find out more about how KPMG perspectives and fresh thinking can help you focus on what’s next for your business or organisation, please get in touch with our team below. We’d be delighted to hear from you. 

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