Global Aircraft Leasing Industry Characteristics

Abstract

Leasing has been a key driver of the aircraft trading market. Lessors, especially relating to aviation, are both a source of financing and also one of the market participants for aircraft trading that has increased in significance over time. As noted in Chap. 2, there are finance and operating leases depending on the classification of the lease. Finance leasing in aviation has been in existence for a long time and the earliest mention is in the “Report on Air Transportation of Aviation Securities Committee of Investment Bankers Association of America” in 1949. It is not until the late 1960s that aircraft operating leasing started to develop. The aircraft operating leasing industry can be traced to the manufacturer McDonnell Douglas Corporation (now part of the Boeing Company) and the founding of its wholly owned subsidiary, McDonnell Douglas Finance Corporation (MDFC) in 1968 (renamed Boeing Capital Corporation in 1997 after the merger). MDFC was set up for the explicit purpose of assisting with the financing of new and used aircraft for the company and industry. MDFC began by leasing two DC-9s to Air West and three DC-8-63CFs to Flying Tiger Line. It was initially capitalized by a $200 million revolving credit from ten banks that also financed its parent company (Smith 1968). This first wave of aircraft leasing were more of finance leases than operating leases as the tenor of the leases ran usually between 15 and 18 years and focused on US carriers by the manufacturers. This first active period was between 1968 and 1972 and encompassed deliveries of new DC-9s and Boeing 727s along with the first wide-bodied aircraft (Dallos 1986).