Component Financing: Early Days with Early Adopters
- 4 hours ago
- 3 min read
Today aircraft leasing is a ubiquitous mainstream dominant vehicle allowing airlines to gain access to aircraft without massive on-book debt as well as increased fleet flexibility. It was pioneered in 1973 with the foundation of International Lease Finance Corporation (ILFC). Shortly after, in 1975 Tony Ryan founded Guinness Peat Aviation (GPA) in Ireland, which became another foundational, industry-defining company. From these origins a plethora of lessors have ‘descended’, splintered, replicated and emerged and many of today's most successful aircraft leasing firms can trace their management lineage back to GPA.
While aircraft and engine financing has long since matured, aviation finance is now undergoing a further significant evolution, with the financing of aerospace assets—specifically components, and rotables; entering into an "early days" phase that echoes the rise of commercial aircraft leasing in the late 20th century.
Similar to how aircraft leasing allowed carriers to shift from the risks and capital intensive practice of purchasing all their aircraft, the emerging market for component financing enables airlines, MROs and OEMs to monetize their capital-intensive inventory, freeing up funds for higher-yield growth opportunities.
The New Frontier: Why Component Financing is Growing
The market for aircraft engine and component leasing is accelerating, with projections suggesting it will grow from current varying estimates of USD 5+ to 10 billion in 2026 to 8.8 -15 billion by 2034. This growth is driven by:
Unlocking Capital for Growth: Airlines are shifting away from tying up millions of dollars in owned spare components and rotables, both new and USM. By adopting a flexible capital solution for these assets, they unlock cash to invest in new aircraft, technology, or route expansion.
Rise of Used Serviceable Material (USM): Just as used engines have proven to be a reliable store of value over time due to their continual replenishment, so does USM as the cost of new inventory continues to escalate annually and the demand for USM continues to rise in the face of persistent supply-chain constraints.
Parallels to the Early Asset-light Days of Aircraft Leasing
Just as aircraft leasing became standard by allowing airlines to avoid massive up-front capital outlays, component leasing is now providing similar benefits:
Flexibility over Total Ownership: Airlines all around the globe learned the advantages of financing/ leasing rather than owning assets that require heavy maintenance and face technological disruption…this shift from purchasing aircraft fleets to operating leases began in the 1980s and 90s and today leased commercial aircraft stands at over 50% of the current global fleet.
Specialized Asset Management: Similar to how lessors developed expertise in aircraft decades ago, capital solutions providers like AVIAN with expertise in commercial and business aerospace parts are offing airlines, MROs and OEMs customized solutions to finance and/or distribute vital assets without taking on all of the financial exposure.
Data-Driven Decisions: The modern era of component financing uses demonstrable data analytics and digital technology for predictive maintenance, allowing financiers and operators to better assess long-term demand and the residual value of components.
Redirecting Funds: Capital previously trapped in component spares can now be used for other initiatives or higher-yielding investments that drive the business forward.
Future Outlook and Challenges
The market for certified aircraft components to keep the existing global fleet mission ready is critical given current supply chain constraints on new aircraft deliveries coupled with strong current and forecast global demand growth.
As Capital Solutions structures for Component Financing matures and gains share, the expansion and sophistication of inventory financing structures will only enhance their value to airlines, MROs and OEMs as an integral part of the aviation ecosystem. Just as aircraft leasing is today.
