Non-linear transmission of benchmark rates to aircraft lease pricing

Abstract

Aircraft leasing is a central mechanism through which airlines expand fleet capacity. This study examines how changes in the Secured Overnight Financing Rate (SOFR) relate to aircraft lease pricing and whether this relationship varies across interest rate levels. Using generalized additive models and piecewise regression, we reveal the nonlinear relationships between SOFR and lease rates and how they differ with aircraft age. The linkage is strongest in low-interest rates. When financing costs are high, the negative effect of aircraft age is reduced, resulting in narrower lease-rate differentials between newer and older aircraft. These findings provide new insights into the interaction between benchmark funding costs and lease rates.