Financing agility will be a buffer against aviation turbulence

This article was originally published via Airline Economics.

When conflicts erupt, aviation is always one of the first industries to be hit. Resilience born of a long history means that the industry is well positioned to navigate the current disruption in the Middle East. Flexible and adaptable financing structures will prove invaluable as airlines reposition themselves in the months and years to come.

The aviation sector entered 2026 on a positive note: traffic was forecast to grow by 4.9% as passenger numbers were set to hit five billion. Commercial forecasts show fleet expansion of 50,000 by 2044 as the industry looked to replace an ageing global fleet.

This was a remarkable turnaround less than five years since the Covid pandemic. It demonstrated aviation’s ability to withstand extraordinary shocks – in this case the near complete shutdown of air travel.

That resilience will now again be sorely needed as the industry faces the impact of the war in the Middle East. Navigating the current situation will, however, be underpinned by the strong and growing investor appetite for these assets and the adaptable and robust options available to finance them.

Flexible financing

The aircraft leasing market is valued at between $150 billion and $200 billion, and it is poised to grow to between $377 billion and $420 billion by 2034. It has traditionally been dominated by five large lessors that together control between 35% to 40% of the global fleet. The recent merger of two of them - SMBC Aviation Capital and Air Lease Corporation – shows that this consolidation at the top is here to stay.

Aircraft leasing has become an increasingly attractive financing option as the major aircraft manufacturers wrestle with supply chain issues and quality control problems. It is also increasingly attractive to investors that are looking for good assets that generate robust revenue streams. Benefits include:

• Movable assets
• Day one cash flows
• Stable, predictable returns
• Long duration
• Contractually fixed payments

Aviation is a global industry with significant financing needs and access to a large and growing pool of capital. And the providers of that capital are evolving, with new and alternative lenders playing an increasingly active role.

Financing structures

Leasing - Aircraft Leasing has served the aviation industry well since the 1970s. Operating leases allow lessees to expand their fleet without the need for large capital expenditure, while finance leases are better for long term fleet management, offering tax benefits and equity ownership in the asset.

Flexibility is essential. Airlines need to adapt quickly to fast-changing conditions and must have adaptable financing. Post-Covid, the use of sale-leasebacks became increasingly common, allowing carriers to sell new deliveries to lessors and lease them back rather than take on long-term financing. Airlines in Asia Pacific and India were responsible for 53% of sale leasebacks of Boeing deliveries in 2025, and lessees with routes impacted by the war in the Middle East may take similar action now.

Bank financing

Bank financing has long been the preserve of large commercial bank lenders but today, specialty and regional lenders are becoming increasingly active as well. Asia dominates and 40% of all bank funding for Boeing deliveries in 2025 came from China, with second-placed Japan accounting for 27%.

A growing number of lending institutions in the Middle East and APAC are now becoming primary lenders in their own domestic markets. For example, in May 2025 Dublin-based Avolon Holdings raised $1 billion via a bank facility co-arranged by Emirates NBD Capital with Abu Dhabi Commercial Bank and Warba Bank. Emirates NBD also arranged its first aircraft finance lease for India’s largest carrier IndiGo in October last year.

Capital markets

The aircraft ABS market recovered strongly from its post-Covid slump in 2025 with 16 issuances valued at more than US$10 billion – up from eight deals worth around US$4 billion in 2024. Securitisation is an increasingly attractive for fleets of younger, narrowbody aircraft and last year the use of master trust structures by aircraft lessors further increased its viability for certain issuers. Master trusts enable multiple issuances from a single platform, making them a quick and relatively cheap financing option for serial ABS issuers. Carlyle Aviation Partners debuted the master trust structure in 2024 through its AASET platform, and Griffin Global Asset Management used a master trust structure in November last year.

Export credit agencies

ECA-backed financing continues to be a stalwart of aircraft financing, particularly in the widebody market. In 2025 over 80% of ECA financing supported widebody aircraft, while ECAs funded 4.9% of total Boeing deliveries during the year.

New funding sources

Islamic Finance - Islamic financing structures are becoming more widely used in aircraft financing, not only by regional carriers but by international borrowers as well. Air Lease Corporation was the first major US-based lessor to tap the sukuk market in March 2023, and the use of the sukuk structure is becoming more widespread, with Abu Dhabi-based Etihad pioneering the use of sustainable sukuk for fuel efficient aircraft in 2020.

Regional carriers have also used sharia-compliant Ijara finance leases, an option that is becoming popular elsewhere as well. Turkish Airlines completed its first Ijara lease in July 2025.

Private equity and sovereign wealth funds

Private equity is an important new source of aircraft finance, and many firms are expanding their activities, often setting up joint ventures with established aircraft lessors. Recent examples include the September 2025 tie up between Hassana Investment Company in Saudi Arabia and AviLease, the aircraft lessor backed by Saudi sovereign wealth fund PIF. Such partnerships provide technical expertise to private equity and sovereign wealth funds while enabling lessors to tap into faster and more flexible pools of finance.

Jurisdictions

Ireland - Ireland is the global hub for aircraft leasing and is the leasing domicile for roughly 69% of the global leased aircraft fleet, worth around US$271 billion. It has a competitive tax regime, an educated industry workforce and offers generous government support. It is well-positioned for access to US, European and Asian markets and has experienced service providers, accountancy and law firms specialising in supporting the aviation leasing industry.

China - China is expected to become the world's largest aviation services market by 2043, overtaking the US. The country’s 22 free trade zones (FTZs) offer fiscal incentives such as withholding tax exemptions to foreign lessors and financiers, but Chinese carriers and lessors still tend to rely on the use of Dublin or Cayman Islands-domiciled SPVs. The market is dominated by domestic business, but is expanding internationally, particularly within Asia.

Japan & APAC - There has been a post-Covid recovery in the Japanese operating lease market, demonstrated by Emirates’ decision to finance six Airbus A350 aircraft using this structure in November last year. The country has long been a rich source of aviation finance, and in March this year Avolon Holdings tapped a consortium of Japanese and international banks for its US$420 million inaugural samurai loan facility, the largest by any European issuer.

As traffic patterns evolve and Asia becomes an ever more important part of the aircraft financing ecosystem new hubs will emerge. For example, the Asia-Pacific Aviation Financial Hub was launched in Ho Chi Minh City in February 2026 as a new financial platform for regional aviation growth and India is also promoting the International Financial Services Centre (IFSC) at Gujarat International Finance Tec-City (GIFT City) as a new aviation hub.

Cayman Islands - The Cayman Islands have long been a vital location for supporting aircraft leasing structures. This is due in part to established, stable and tax efficient structures, a robust legal environment and efficient aircraft registry.

Conclusion

War in the Middle East will have a profound impact on the aviation industry this year. Even those carriers that have hedged their jet fuel costs will be impacted by a long conflict and jet fuel shortages could severely affect operations. Many airlines will be reviewing routes and capacity, and re-routing to available traffic corridors will incur increased flight times and fuel consumption.

But this is an industry that knows how to manage itself in a crisis. It emerged stronger from Covid having learned that agility matters. It benefits from a financing architecture that will facilitate flexibility: grace periods and extensions can be negotiated, aircraft can be reassigned to different routes, and the widebody and narrowbody mix can be adjusted as new traffic corridors increase flying time and traveller demands change.

Some carriers could, however, struggle and increased costs mean that higher fares and fuel surcharges will be passed on to passengers, who will need to adjust their cost expectations accordingly. This is another test for an industry that has is all too familiar with operational turbulence, but all too prepared as well.