Journal of Air Transport Management 111 (2023) 102426

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Journal of Air Transport Management

journal homepage: www.elsevier.com/locate/jairtraman

Is the aircraft leasing industry on the way to a perfect storm? Finding answers
through a literature review and a discussion of challenges
Sebastian Wandelt a , Xiaoqian Sun a ,∗, Anming Zhang b
a School of Electronic and Information Engineering, Beihang University, 100191 Beijing, China
b
Sauder School of Business, University of British Columbia, Vancouver, BC, Canada

ARTICLE INFO ABSTRACT

Keywords: Since the emergence of the first private aircraft leasing companies in the 1970’s, the airline industry has
Aircraft undergone tremendous changes. Supported by several decades of growing demands and rising world economies,
Leasing the share of leased aircraft across airlines worldwide has grown steadily, exceeding 50% for the first time
Review
during the peak of the COVID-19 pandemic. Given that earlier research has quantified the optimal lease rate
Challenges
for an airline between 40% and 60%, the industry might be facing challenges soon — potentially counteracting
the recent recovery from COVID-19. This study reviews the existing research on aircraft leasing; a subject which
has been rather scattered in the literature for the past few decades. We summarize more than 70 scientific
papers published on aircraft leasing and closely related subjects. Based on the dissection and categorization
of existing studies, we derive a set of important challenges for the aircraft leasing industry, which should be
addressed by the community.

1. Introduction Given the devastating impact of COVID-19 on the aviation industry

The aviation industry is highly cyclic, with booming periods and
recessions, under which the risk-sharing aspect of leases are highly
desirable for airlines (Oum et al., 2000a,b). Accordingly, the aviation
system has evolved from a state where airlines have owned their entire
fleets to a state in which many airlines have a significant part of their
fleet leased. Fig. 1 visualizes the evolution of leased aircraft shares
over full-service carriers and low-cost carriers. The leasing industry has
gained a significant momentum in recent years, growing from less than
5% in the 1980s to nearly 50% during the COVID-19 pandemic.1 The
major rationale for leasing is that it adds flexibility to airlines at a
significantly reduced capital cost. European network carriers also use
leasing, particularly Aircraft, Crew, Maintenance and Insurance (ACMI)
wet leases as a tool to overcome staff shortages on the one hand and
lowering costs by outsourcing certain services. For instance, Lufthansa
has an extensive contracting policy with Air Baltic, Finnair, CSA, and
Air Nostrum. According to Park et al. (2007), Gavazza (2011) and
Martini (2022), leasing is one of the most complex strategic decisions
of an airline, given that it tries to find an optimal balance between
financial/operational flexibility on one hand and excessive cost/lack of
capitalization on the other hand.
throughout the past three years (Abu-Rayash and Dincer, 2020; Shortall
et al., 2022; Sun et al., 2022), one might wonder whether the trend for
aircraft leasing has changed. Fig. 2 reports the evolution of new leases
of used aircraft as an example. As expected, a significant reduction
in leases throughout 2020/2021 can be observed. Throughout the
year 2022, however, the number of leases has already exceeded pre-
pandemic level for single-aisle and twin-aisle aircraft leases. The strong
increase in the number of leases can presumably be explained by a
combination of three factors. First, the aviation market has recovered
in 2022 and airlines were eager to expand their capacities quickly.
Second, the market leasing rates are rather attractive compared to
pre-pandemic eras. Third, ordering aircraft from original equipment
manufacturers comes with a year-long overhead, while leasing can
solve the capacity bottleneck much quicker. Accordingly, the leasing
affinity in aviation likely persists for the time being and airlines will
need to make decisions at which point the leasing share becomes so
high that operating profits are inevitably reduced (Bourjade et al.,
2017).
In this study, we review the extant literature related to the subject
of aircraft leasing. Throughout the past decades, many papers have
appeared in distinct venues, covering financial, legal, and operational

∗ Corresponding author.
E-mail addresses: wandelt@buaa.edu.cn (S. Wandelt), sunxq@buaa.edu.cn (X. Sun), anming.zhang@sauder.ubc.ca (A. Zhang).
1
Gibson and Morrell (2004) indicated that 25% of airlines’ aircraft was leased (around the early 2000s), of which about 80% are operating leases (as opposed
to capital leases); see also Gritta et al. (1994) for the market growth in the earlier years.

https://doi.org/10.1016/j.jairtraman.2023.102426
Received 20 February 2023; Received in revised form 1 May 2023; Accepted 8 May 2023
Available online 18 May 2023
0969-6997/© 2023 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-
nc-nd/4.0/).
S. Wandelt et al. Journal of Air Transport Management 111 (2023) 102426

Fig. 1. Evolution of leased aircraft shares (data source: Statista, https://www.statista.com/statistics/1095749/). The dashed line indicates a equilibrium between owned and leased
aircraft.

Fig. 2. Average volume of new leases for used aircraft.

Data source: Simple Flying, https://simpleflying.com/
used-aircraft-are-leased-record-rates/.

aspects. For our review, we dissect and categorize a collection of more
than 70 papers, published between 1992 and 2022. We cluster these
papers into six distinct categories as shown in Fig. 3:
1. Contracts and legal issues: Given the extraordinary complexity
of leasing contracts and documentations, several studies have
investigated legal issues from a scientific perspective.
2. Lessor analysis: While the heart of the aircraft leasing industry
is located in Ireland, several emerging regions are trying to copy
the business environment, as reported in these studies.
3. Airline/market analysis: Studies in this category investigate the
extent and importance of leasing for specific airlines or markets
in the global aviation system.
4. Fleet optimization: The optimization of airline fleets – also in
context of the wider airline scheduling problem – is the major
concern of studies in this category.
5. Risk during singleton events: Particularly motivated with the
ramifications of the COVID-19 pandemic, these studies investi-
gate the risks inside the aircraft leasing industry.
6. Financing/other: This study summarizes extant works which
have a strong financial focus or do not belong to any of the other
five categories.
For each category, we discuss the major line of research as well as
a set of potential future work directions. Based on the status of the
aircraft leasing industry and taking into account the insights from our
literature review, we derive and discuss a set of potential challenges,
which we believe could – if not addressed properly – lead to a perfect
storm for aircraft leasing.
The remainder of this study is structured as follows. Section 2 intro-
duces a few relevant preliminaries regarding aircraft leasing and reports
selected data-driven insights on this growing industry. Section 3 is the
heart of our study, which dissects and categorizes the existing literature
on aircraft leasing. Section 4 discusses a set of current challenges in
the aircraft leasing sector and explores possible ways for mitigation.
Section 5 concludes this study, by summarizing the major insights and
recommending a set of relevant directions for future work.
2. The aircraft leasing industry
In this section, we provide an overview on the aircraft leasing indus-
try, setting the preliminaries for our literature review and discussion of
challenges. Our presentation is brief in nature and should be seen as
complimentary to extant works which provide detailed analysis of the
aircraft leasing sector, e.g., please refer to Guzhva et al. (2019b), Yu
(2020) and Vasigh and Azadian (2022) for recent introductions to the
subject. Aircraft leasing provides an alternative to the purchase of an
aircraft by an airline. Leasing is ubiquitous in the airline industry: More
than half of all aircraft worldwide belong to leasing companies. Fig. 4
presents an overview on the top-30 largest lessors in the aviation sector
for the year 2021. The largest lessor is GECAS (GE Capital Aviation
Services), offering the full range of aircraft types, including commercial
and regional aircraft. In total, GECAS owns nearly 1100 aircraft, and
benefits from a tight relationship with General Electric and fleets with
engines from its subsidiary GE Aviation. GECAS is closely followed
by AerCap Holdings, one of the oldest players in the aircraft leasing
market, considering its merger history. In the year 2021, GECAS and
AerCap Holdings, together, build what can be considered a duopolistic
leasing market (Vasigh and Azadian, 2022). In the end of the year
2021, AerCap has successfully completed an acquisition GECAS, leading
towards the formation of a monopolistic leasing giant. Please refer
to Yu (2020) for a detailed historical description of aircraft lessor
evolution.
Formally, the lease is a legal contract between two or three entities,
involving the airline (the lessee), a leasing company (the lessor), and

2
S. Wandelt et al.
Fig. 3. Categories of extant papers reviewed in our study.
Fig. 4. Overview of top 30 lessors worldwide in the year 2021. Note that AerCAP has acquired GECAS (both colored in red) in the end of the year 2021. (For interpretation of
the references to color in this figure legend, the reader is referred to the web version of this article.)
Data source: Leasing Top 50 2021 - Airfinance Journal, https://www.airfinancejournal.com/Magazine/Download/200.
optionally an additional capital provider. Leasing rates are usually mag-
nitudes lower than acquisition costs, which allow airlines to operate
flights at costs much lower than those of acquiring and owning the
aircraft. Fig. 5 provides an overview on common leasing rates reported
in the literature. There exist various types of leases which can be largely
grouped into operating leases and capital leases, see, e.g., Margo (1996)
and Guzhva et al. (2019b) for details. Operating leases allow the airline
to use an aircraft for a specific period of time, which is usually shorter
than the economic life of the aircraft, and do not include the transfer
of ownership to the airline. They have a typical duration of three to
twelve years. Within the group of operating leases, one can distinguish
dry leases (the lessor does not provide crew and the lessee has all
maintenance obligations), wet leases (crew, maintenance, and insurance
are provided by the lessor), and damp lease (and transition between the
former and latter). In general, the expected revenues from such a lease
must provide the leasing company with a profit (premium) adequate
to compensate for the risks involved with aircraft release and residual
value (Oum et al., 2000b). Capital leases, on the other hand, allow the
airlines to hold an aircraft on their balance sheets, and deprecate it as
in the case of ownership.
Fig. 6 reports the top-20 airlines ranked by the number of leased
aircraft in their fleet. American Airlines is ranked first, with more than
360 aircraft being leased. It should be noted that American Airline is
also the largest airline in terms of the number of aircraft, with more
than 1,500 aircraft in their fleet, leading to a leasing fleet share of
around 24% (reported on top of the bar in Fig. 6). While the absolute
number of aircraft for the other airlines is significantly smaller, some of
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Journal of Air Transport Management 111 (2023) 102426
these airlines have very high values of leasing shares, e.g., S7 Airlines
has a leasing share exceeding 95%.
Below, we summarize the major advantages and disadvantages of
aircraft leasing, mainly following the arguments presented by Vasigh
and Azadian (2022). The major advantage of leasing for an airline is the
increased flexibility and a timely delivery of aircraft under uncertain
fleet planning. In other words, by using leasing, airlines can reduce the
financial risk of quickly entering new markets or strengthening their
presence in an existing market. Similarly, once the airline experiences
economic downturns, it is much easier to lower the overcapacity. A
second advantage of aircraft leasing is the transfer of risks towards the
lessor and the ability to avoid technological obsolescence. Finally, there
are various financial benefits, such as the reduced cash flow required
to start/maintain operation and off-balance sheet treatments for op-
erational leases. The disadvantages of leasing mainly lie in the lease
contract and its legal details; a common aircraft lease contract consists
of 150–200 pages. A complex contract might limit the flexibility of
an airline under unforeseen conditions, such as penalties upon early
returns or for going beyond-agreed usage scenarios. Moreover, the lease
contract usually requires returning the aircraft in a specific condition
and there exist financial/accounting related limitations depending on
the lease type, e.g., aircraft operational leases cannot be written off to
zero in tax statements.
3. A survey of the extant literature on aircraft leasing
This section reviews the existing literature on aircraft leasing. Over-
all, we dissect all papers into six categories as follows: Section 3.1
S. Wandelt et al. Journal of Air Transport Management 111 (2023) 102426

Fig. 5. Overview of aircraft leasing rates by model.

Data source: Statista, https://www.statista.com/
statistics/1258900.

Fig. 6. Top-ranked airlines according to the number of leased aircraft in their fleet, in descending order. The percentage on top of each bar corresponds to the airline’s share of
leased aircraft in the fleet.
Data source: Leasing Top 50 2021 - Airfinance Journal, https://www.airfinancejournal.com/Magazine/Download/200.

reviews studies related to leasing contract formulation and legal aspects
of the aircraft leasing process. Section 3.2 concerns research on the
lessor-side of the aircraft leasing industry, particularly the drivers for
spatial attraction of lessors (suppliers). Section 3.3 assesses research on
airlines who are the users of the industry, and on works which have
a very strong spatial focus, e.g., evaluating the extent and properties
of aircraft leasing in the US market. Section 3.4 summarizes extant
studies on fleet assignment and optimization under the consideration
of leasing opportunities. Section 3.5 reports on studies which have
explicitly focused on the risk involved in the aircraft leasing process,
especially in the wake of singleton events such as the COVID-19 pan-
demic. Section 3.6 focuses on studies with a strong financial focus and
remaining studies which do not fit well into any of the other categories.
3.1. Contracts and legal issues
Before the lease of an aircraft can be implemented, the first chal-
lenge is to ensure that a lease contract satisfies the lessor and the lessee.
Such written agreements come with an exceptional complexity, cover-
ing technical, operational, and legal requirements; see Eggleston et al.
(2000) for a discussion on the complexity of leasing contracts. Often,
the lessors are in an advantageous situation, given that they may have
perfected the contract draft through numerous iterations with different
lessees (International Air Transport Association, 2017). The intricacies
of leasing contracts are often the source for time-consuming and expen-
sive arguments, mostly in case of potential contract violations, which
easily end up in court.2 , 3 , 4 Accordingly, several studies in the literature
have investigated the contracting process and its complications from a
scientific perspective. We survey these studies below, in the order of
appearance in the literature.
Pompongsuk (1997) reviews the regulations of aircraft leasing in
context of public and private international air law treaties. The au-
thors highlight a paradox between legal and actual control of aircraft
across different states. In addition, various special cases of the Chicago
convention and Tokyo convention are highlighted for the problem of
aircraft leasing, identifying a fragmented and insufficient international
law. Crans (2004) discusses certain legal issues, helping lessors and
lenders to better prepare transaction documentations, with focus on
2
https://ca.practicallaw.thomsonreuters.com/3-504-3700
3
https://www.ft.com/content/4574876a-a2a2-4128-acf5-07ad19a0e45e
4
https://www.ch-aviation.com/portal/news/117324

4
S. Wandelt et al.
commencement/termination and lessee payment obligations and se-
curities. Park et al. (2007) uses an example of cross-border leasing
between Korean Air and its Irish subsidiary to illustrate the complexity
related to lease classification. The authors conclude that the assessment
depends on the context of terms and conditions of the lease and related
accounting rules. Given that interpretations may vary depending on
the level of disclosure, it is said to be essential that firms present
transparent financial information to the related parties. Zuo (2011)
discusses the rental contract design for aircraft leasing. Based on a
game-theoretic setup, composed of a lessor and lessee, a Stackelberg
game is implemented and optimal policies for both lessor and lessee
derived. In addition, the authors propose a so-called forward-like con-
tract type, which binds lessor and lessee to a long-term horizon in a
win–win setting. Hanley (2011) reviews the legal and practical aspects
of aircraft operating leases and its relationship in context of public and
private international air law. The authors put a strong emphasis on
the complexity of lease agreements, which are estimated at up to 200
pages, and how it relates to the necessity of performing documentation,
in light of theoretical legal reasons under applicable domestic and
international law.
Shi and Shen (2013) investigate the problem of rental rate pricing
and rental contract design. Using a Stackelberg game framework, the
lessor announces daily rental rates and provides a long-term contract
on a horizon with multiple periods. Identical rental rate is offered in the
contract, if the airline promises to rent a pre-determined number over
the horizon. The authors argue how both parties, lessor and lessee, get
benefits from an appropriate long-term contract. Kuhle et al. (2021)
highlight that commercial aircraft leasing can still largely be consid-
ered as uncharted territory for blockchain applications. The authors
argue that using a suitable blockchain application design, combining
regulatory and business needs, can be beneficial for all stakeholders
in order to establish the use of smart contracts, i.e., coded agreements
that are stored in the immutable blockchain which are automatically
executed once a set of predefined conditions is satisfied. van Hövell tot
Westervlier (2021) provides an overview on different lease types and
calls for a harmonization and standardization of aircraft lease contracts.
Specifically, the harmonization of redelivery protocols should receive
attention according to the authors. Moreover, the authors highlight
ample potential for improvement in the areas of data traceability,
integrity, and accuracy, while airlines and maintenance repair opera-
tors are transitioning from paper-based documents towards electronic
formats. Finally, the Global Aircraft Trading System is advertised,
which facilitates the trading and financing of aircraft equipment while
reducing the burdens of all parties, including lessees, lessors, and
financiers. Jackson et al. (2023) proposes a mathematical model to
optimally negotiate the contract price for aircraft in which heavy main-
tenance is bundled with leasing, investigating how contract negotiation
be affected by options of disagreement. The authors report the results of
a numerical example and also perform sensitivity analysis of the model,
exploring decision making regarding contract pricing, the number of
airlines to serve, and contract preference to be offered
The underlying theme of these studies is how to make the con-
tract fairer and easier for both parties, especially focusing on the
airline perspective. All studies state that lease contracts are extremely
complex, but there exists no silver bullet as a solution. It is possible
that Blockchain-based techniques will lead to significant advances in
contract formulation and implementation, once being adopted by the
leasing industry.
3.2. Lessor analysis
The supply side of the aircraft leasing industry is deeply rooted in
Ireland. The first company starting aviation leasing business in Ireland
was GPA (Guinness Peat Aviation) in the 1970s. To date, more than
50 aircraft leasing companies are based in Ireland, including 14 of
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Journal of Air Transport Management 111 (2023) 102426
the world’s top 15 lessors.5 The rationale for Ireland having itself
established as a leader in aviation financing were repeatedly discussed
in the literature, in line with the question on how to replicate the
success story in other regions. We review these lessor-related studies
below.
Hofland (1992) describes the taxation system in Ireland and how
it contributed to the development of Ireland into a worldwide aircraft
leasing hub. Similarly, Keaveny and Murray (2013) investigate the
ingredients which have contributed to Ireland’s success in the air-
craft leasing industry and how other jurisdictions (Malta, Singapore,
and the Cayman Islands) compare. The factors considered include the
absence of licensing or authorization requirements, better access to
capital markets, excessive benefits from a taxation perspective, and a
hospitality-experiences, highly-trained talent pool. Osborne-Kinch et al.
(2017) examine changes in the treatment of the aviation leasing sector
in Ireland over time arising from the introduction of new statistical
methodologies and its implications for official national statistics. In
addition, the potential economic contribution of the aircraft leasing in-
dustry to Ireland’s macro economy is discussed. Skelly (2018) presumes
that Ireland is a successful leasing hub mainly due to low tax rates
and pro-corporate legislature, offering a profit-protecting refuge. Dunne
(2019) reviews various factors which contributed to the development
of aircraft leasing in Ireland. The key drivers identified include an
unrivaled tax-treaty network and innovative tax regime, several finance
acts with new incentives, and a highly educated and experienced talent
pool. Karunakaran et al. (2021) discuss the relationship of the Indian
maintenance repair operations industry in the wake of aircraft leasing.
The authors suggest that India should follow the models of Ireland and
China, arguing that India is not having any local leasing company, but
all the leasing companies are foreign companies. It is said that the
attractions of lessors will also strengthen India’s maintenance repair
operations industry. Lin et al. (2022) use system dynamics theory to
analyze the sustainable development of the aircraft leasing industry in
China. The authors forecast the development of the leasing industry
for the next five years. It is found that changes in GDP growth have
the most obvious impact on the sustainable development. Reducing
the average financing cost and the income tax rate of aircraft leasing
companies, increasing their investment in talent, and controlling risk
will increase the market share of China’s aircraft leasing companies and
promote the development of the industry. Dissanaike et al. (2022) in-
vestigate why no major US airline was liquidated in the recent history.
A critical factor for answering the question, according to the authors,
is the company GE and particularly its aircraft leasing activities. As an
example, many of the GECAS (GE Capital Aviation Services) leases to
American carriers were leveraged leases, which allowed GE to defer its
own tax bills by writing off the cost of the plane against tax over seven
years.
Various studies have analyzed the advantages of Ireland as a low-
taxation leasing hub for aviation. This fact seems well understood by
now. Whether it is possible to transfer significant shares from the
region to other places is hard to predict. Aviation powerhouses such
as China and the Middle East presumably have the required political
ambitions and monetary backing to create competitive environments.
In this context, however, it should be remembered that Ireland has the
advantage of being an English-speaking country, at UTC-0 time zone,
and it is a longstanding member of the European Union, which has a
common law legal system familiar to many stakeholders in the industry.
Accordingly, it is at least debatable whether lessors are willing to move
into emerging regions.
5
https://www.pwc.ie/industries/aviation-finance.html
S. Wandelt et al.
3.3. Airline/market analysis
Several studies in the literature discuss the importance and potential
of aircraft leasing for selected markets, induced by the regions of
interest or the availability of data. While some of these studies might
overlap with other sections, we review the work with clear spatial focus
below.
Gritta et al. (1994), based on a sample of major US carriers, in-
vestigate the growth in aircraft leases between 1970 and 1990. The
authors further examine the role of leases as sources of off-balance-
sheet financing. Since operating leases are not capitalized, air carriers
can substantially lower their debt/equity ratio on their balance sheet
compared to traditional debt measures. Gritta and Lippman (2003)
investigate the leasing extent across major US airlines and its changes
over time, comparing against two earlier studies. The authors report
that the usage of operating leases has increased and this trend contin-
ues. The incidence of leasing, the classification of leases as operating,
and the percentage of operating leases to total fleet have all increased
for most airlines reviewed. Davis and Zakrzewski (2008) explore lease-
purchase decision-making from an airline perspective with a focus
on the Australian aviation system. The authors use a mixed method
approach, combining survey data with interviews and other archival
data. Bowyer and Davis (2012) discuss the decision making behind
aircraft acquisition. Based on data for the Australian regional aviation
system, the authors find that a substantive model derived through a
grounded theory approach provides an understanding of the richness
of the investment scenario and the decision factors considered in the
capital budgeting decision. Richardson et al. (2014) analyze the finan-
cial performance of US hub airports under airline lease agreements,
using financial data from 2011/12 for 23 of the 29 large-hub airports.
The authors find heterogeneous results, highlighting that compensatory
airports perform best, while residual airports benefit from vertical
airport–airline relationships with enhanced cost efficiency. Endrizalova
et al. (2018) provide an overview on the rationale, procedures and
requirements for operating aircraft leases. The authors analyze the
fleet ownership structure of the four largest European low-cost carriers
focusing on the total number of aircraft in the fleet age context.
The average age of aircraft among the studies airlines was reportedly
5.4 years at the end of fiscal year 2017, with the number of leased
aircraft partially declining. Poleshkina and Gorbunov (2021) discuss
how aircraft leasing could help to build up an air transport network
in the Arctic zone of Eastern Siberia. Based on the observation that
the density of the route network is extremely low, the authors propose
a priority program to subsidize aircraft leasing for local and regional
transportation in the Arctic zone and territories of the Far North.
These studies have analyzed leasing decisions mainly in the United
States aviation market, presumably due to the availability of free
data from the Bureau of Transportation Statistics.6 While there exist
a few studies on other markets, there is a need for wider studies of
leasing effects in the aviation system. Given that more than 50% of
the aircraft worldwide are being leased, this has clearly turned into
a global phenomenon. Particularly, the region of Asia (and especially
China) seems to be under-researched here.
3.4. Fleet optimization
One central element of airline optimization is fleet assignment,
which is concerned with the allocation of fleets/tails to a network of
markets; with recently integrated variants of the problem incorporating
flight scheduling and actual routing decisions (Grosche, 2009; Xu et al.,
2021). A natural extension of this problem is the inclusion of fleet
acquisition and disposal, in the face of changing demands or uncer-
tainties thereof. Several mathematical models have been proposed in
6
https://www.bts.gov
6
Journal of Air Transport Management 111 (2023) 102426
the leasing-related literature to solve this problem from the airlines’
standpoint. Intuitively, most models include decision variables regard-
ing whether a set of additional aircraft should be leased for a specific
rate. The objective function of the model formulates a trade-off between
operational flexibility and higher financial costs inherent in the short-
term lease. Given a steadily increasing use of operating leases, such
models can help airlines to make more informed strategic decisions
regarding their fleet management. We review lease-considering fleet
optimization models below, in the order of appearance in the literature.
Oum et al. (2000b) develop a mathematical model, which helps air-
lines to determine their optimal mix of leased and owned capacity. The
authors report empirical results suggesting that the optimal demand by
23 major airlines in the world ranges between 40% and 60% of their
total fleet, for the reasonable range of premiums of operating lease.
At the same time, the authors identify a huge potential for further
development of aircraft lessors. Hsu et al. (2011) develop a stochastic
dynamic programming model to optimize airline decisions regarding
purchasing, leasing, or disposing of aircraft over time. The authors
report that severe demand fluctuations would drive airlines to lease
rather than to purchase its aircraft, in order to retain a sufficient level
of flexibility. Bazargan and Hartman (2012) design a mathematical
model to help airlines making fleet acquisition and disposal decisions.
The model minimizes the discounted costs of owning or leasing and
operating a fleet by identifying which aircraft to buy, sell and lease
over the planning horizon. Based on the data for two US airlines with
different business models, the authors show that aircraft leasing is gen-
erally the preferred alternative with benefits from having newer aircraft
and less fleet diversity. Khoo and Teoh (2014) address the subject of
optimal aircraft fleet management decision model under uncertainties,
including leasing decisions. The authors combine a five-step modeling
framework, which is incorporated with a stochastic demand index,
a probabilistic dynamic programming model, and a probable phe-
nomenon indicator under uncertainty. Carreira et al. (2017) investigate
the long-haul fleet planning problem under consideration of leasing,
minimize the expected fleet costs of satisfying a given demand. The
model was evaluated on airline TAP to serve the (uncertain) passenger
demand between Portugal and Brazil in the year 2020.
Chen et al. (2018) develop a mathematical programming model
which considers capital lease, a compromise between operating lease
and purchase. The model is evaluated on different airlines and busi-
ness models. Moreover, the authors report that when the debt-ratio
constraint is relaxed, capital leases would be helpful for reducing the
cost of airlines. Serrano-Hernandez et al. (2020) design a stochastic
optimization model for the airline fleet management problem, consid-
ering uncertainty in the demand, operational costs, including leasing,
and fares. Fleet composition decisions are made jointly with aircraft
assignment decisions. In addition, the authors show that the stochastic
version is superior to the deterministic formulation. Sa et al. (2020)
propose a mathematical model for portfolio-based airline fleet planning
under stochastic demand. The authors argue that the cost of purchasing
flexibility from a lessor can potentially be avoided by including a
robustness layer during the fleet decision-making process by having
the robustness built into the fleet composition itself. In this way,
airlines would not need to rely on lessors for periods of volatile capac-
ity. Şafak et al. (2022) propose a two-stage stochastic mixed integer
nonlinear program with the goal to expand the existing flight schedule
of an airline, by operating new flights either with the existing fleet
or using a leased aircraft, while considering the impact of departure
time decisions on the probability distribution of random demand. A
decomposition algorithm and various reformulations are proposed, for
developing an effective solution technique. Liu et al. (2023) develop a
mathematical model for airline fleet assignment with uncertain passen-
ger demand and fuel price, distinguishing a self-owned fleet of aircraft
or leasing one at a large cost from other airline companies. The model is
solved by a sample average approximation approach and a string-based
heuristic.
S. Wandelt et al.
The existing literature largely agrees on the following key message:
Including leasing in optimization models is helpful to compensate for
uncertainties in demand (sometimes including another variable). While
these studies do have model-wise, technical differences (which can lead
to intricacies in the solution techniques and complexity), the question
is whether there is a need for further generic studies to reproduce the
effect that leasing does indeed help in face of demand uncertainties.
The fact that airlines can (and do) address uncertainties through leasing
are rather well understood by all stakeholders. Instead, it would be
interesting to derive additional insights, for instance, by including
more game-theoretic aspects which include sophisticated interactions
between lessee and lessor — compared to a fixed lease rate for each air-
craft type, as frequently found in the literature. Particularly, combining
studies targeted to contract design/negotiation and fleet optimization
models could be an interesting direction for future work.
3.5. Risks during COVID-19 and other singleton events
The COVID-19 pandemic has affected all stakeholders in aviation,
including the aircraft leasing industry. Aircraft were grounded due to
travel restrictions and largely uncertain demands. Some airlines were
operated on the edge of bankruptcy, being dependent on financial
support from governments and other supporters. Naturally, this has
a direct effect on lessors and their financial statements. In a broader
context, several studies in the literature have discussed the impact
and mitigation strategies of lessors and airlines during extremely chal-
lenging period of risks. Below, we review studies which concern the
risks and problems related to COVID-19 and other singleton events in
aviation.
Mönter (2008) provides a legal case report involving aircraft leasing
in Mexico. Particularly, the author points out how a combination of
risks, concerning a weak lessee credit and leasing into jurisdictions with
an uncertain political and legal environment, leads to a highly explosive
mixture for the lessor. Kass and O’Brien (2009) provides a detailed
investigation of a legal fight over an aircraft crash by Air Philippines,
where plaintiffs of families filed suit against the lessor of the aircraft.
The authors explain the rationale for legal decision making in presence
of earlier related cases. The specific case was ultimately settled by Air
Philippines’ insurers. Bjelicic (2012) investigates the impact of the 2007
to 2008 financial markets crisis on aviation finance sector. Particularly,
the authors highlight the role of aircraft lessors providing opportunities
for market entry to airlines. The authors conclude with a market out-
look for leasing companies in light of future turbulences on the capital
markets. Lee and Hooy (2012) compare the factors for financial risk
exposures of airlines in North America, Europe, and Asia. Regarding
operating leases and government ownership in the Asian market, the
authors report that leasing is equally important as size but acts in
the opposite sign; operating leverage is not significant while earnings
growth is significant only for government owned airlines. Guzhva et al.
(2019c) explore the high risks involved in the decision making around
aircraft purchasing and lease portfolio management. Various mitigation
techniques are discussed, with a specific focus on interest rate risk
management.
Caslin and O’Brien (2020) investigate the early impact of the
COVID-19 pandemic on the aircraft leasing industry. The authors state
that the business models of lessors are more robust than those of airlines
and that lessors’ access portfolio to capital is much richer. Yu et al.
(2021) provide an explanation of two aircraft leasing concepts, air-
craft lease asset-backed securitizations, and enhanced equipment trust
certificates and describes how they have been affected by the COVID-
19 pandemic, emphasizing the conflicts of interest among investors,
servicers, trustees. Some guidelines are provided for successfully going
through the challenging times of the pandemic. Tarigan et al. (2021)
investigate the role of the Indonesian government concerning lease
activities during COVID-19, given the ubiquitous presence of leased
aircraft in the Indonesian aviation system. The authors find an absence
7
Journal of Air Transport Management 111 (2023) 102426
of a clear governmental policy for lease operations by Indonesian
airlines. Bouwer et al. (2021) emphasized that the prices for used-
aircraft leases have plummeted during the COVID-19 pandemic, which
provides opportunities for airlines to act counter-cyclic, i.e., acquire
aircraft while the demand for aircraft is low and enjoying the cost
advantage during a future recovery. Kiraci et al. (2022) analyze the
financial performance of aircraft leasing companies worldwide in the
period from Q1 2018 to Q4 2020, investigating the effects of COVID-
19 on the leasing sector. The authors report mixed results, with some
of the aircraft leasing companies have been ahead of the competition,
while others have fallen behind.
Deveci et al. (2022) report on a sell and lease back agreement of
Pegasus Airlines during the pandemic. The airline sold four aircraft
to a lessor and leased them back immediately, i.e., the aircraft never
left the airline’s fleet. The sale of four aircraft and leasing them back
contributed a cash flow of 60 million US Dollars. Similarly, Air Berlin
had a 100% leasing share of their fleet, as the sale-and-lease back
was an instrument to keep the company afloat with ongoing severe;
see Bingemer et al. (2021) for a discussion on the market exit of
Air Berlin Humphries and Halpin (2023) discuss the challenges of the
leasing sector after losing 400 planes in Russia due to the escalation
of sanctions from Russian the West. In total, the lessors took a loss
of nearly 10 billion USD when Russia barred airlines from returning
from Russia, highlighting the extreme risks associated with operating
in potentially risky markets. The authors highlight the inherent future
risk of operations in China, especially in view of the rising tensions with
the United States and emphasize the increasing difficulty for lessors to
get insurance. Nevertheless, the authors also argue that managing and
monetarizing risk is at the heart of leasing companies’ business models
and a source of their high income. In this context, it would be a very
timely and important future research question to analyze up to what
extent the Cape Town Convention really protects lessors in practice.
It can be considered as an understatement to say that aircraft leasing
is a risky business for all stakeholders, particularly the lessors. In fact,
it is part of lessors’ business models to estimate and transform risks
into monetary values. Apparently, lessors have learned from earlier
mistakes: During the Gulf war, nine out of ten lessors were wiped out
from the aviation scene.7 During the COVID-19 pandemic, almost all
the lessors survived, despite of the much stronger impact of COVID-
19 on aviation. One also needs to consider the increasingly critical
role lessors play in aviation — in context of systemic relevance and
becoming too big to fail: The leasing industry hosts more than half of
all aircraft worldwide, which shows the mounting dependence of the
global aviation system on this sector.
3.6. Financing-related studies and other work
The studies grouped in this subsection have a strong financial/eco-
nomic focus or do not belong to earlier defined categories.8 One of
the core financial issues an airline faces is its decision to buy or
lease aircraft. Another important financial decision is the decision
to buy/own or lease aircraft (Accession Capital Corp, 2003; Allonen,
2013). Gavazza (2011) develops a model of costly capital reallocation
in order to better understand how leasing reduces trading frictions. In
general, leased assets are traded more frequently and produce more
output than owned ones. The authors report that leased aircraft have
holding durations 38% shorter and fly 6.5% more hours than owned
aircraft. Differences between aircraft can be primarily explained by
profitability declines leading to carriers keep owned aircraft and return
leased aircraft, which lessors redeploy to more productive operators.
7
https://kpmg.com/ie/en/home/insights/2022/01/aviation-industry-
leaders-report-2022/airline-leasing-proven-resilience.html
8
Useful general references on airline finance include Morrell (2021)
and Vasigh (2014); see also Zhang and Zhang (2018) for an introduction of
airline economics and finance.
S. Wandelt et al.
Justin and Mavris (2015) propose a customer-centric methodology
to properly evaluate long-term aircraft and engine investments, bal-
ancing between owned and leased assets, and a real-options inspired
methodology to value long-term maintenance contracts and manufac-
turer guarantees. Guzhva et al. (2019b) compare the major trade-offs
between the decisions of buying or leasing an aircraft. The authors
discuss the net advantage to leasing and explore a range of equilibria
interesting for lessors and lessees. Li and Venkatachalam (2022) inves-
tigate how the Accounting Standards Codification (ASC) 842 impacts
the decisions of airlines to use operational leases. It is found that public
airlines have increasingly preferred ownership compared to private air-
lines, a difference of about 7–10 percent. The shift towards ownership is
explained by the lost financial reporting benefits causing an equilibrium
shift from leasing to buying. Researchers have also examined the effects
of aircraft leasing. Oum et al. (2000b) investigate the trade-off between
flexibility of capacity and higher costs, suggesting that the optimal
demand by 23 major airlines in the world would range between 40%
and 60% of their total fleet, for the reasonable range of premiums of
operating lease.
Ezzell and Vora (2001) investigate a set of possible sources of
lessee equity value changes when leasing contracts are announced. It
is shown that lessee common equity value increases significantly in
sale and leasebacks and insignificantly in direct leases. In addition, the
authors find support for the hypothesis that leasing reduces the external
financing costs related to adverse selection that arise in markets with
asymmetric information. Relatedly, Gilligan (2004) reports an inverse
relationship between depreciation and trading volume for less reliable
brands of used business aircraft and an increase in the direct relation-
ship between depreciation and trading volume for aircraft models with
relatively high lease rates. The author concludes that adverse selection
is a prominent feature of the market for contemporary used business
aircraft and that leasing mitigates the consequences of asymmetric
information about the quality of used durable goods.
Regards the impact of leasing airline financial performance, Bour-
jade et al. (2017) analyze the impact on profitability. The authors
report a non-monotonic and concave effect on profit margins over a
sample of 73 international airlines, which suggests decreasing marginal
returns to leasing in the airline sector. The optimal level of leasing
is quantified at 53.4% with a 5% confidence interval. The authors
also show that the impact of leasing on an airline’s operating profit is
stronger for low-cost carriers than for full-service carriers. Rahman and
Dalimunthe (2019) investigate whether the leasing strategies of an air-
line, as well as its company structure and asset utilization performance,
have an impact on the airline’s performance. Based on data for the
years 2015–2017, the authors report that operating and financing lease
strategy, firm’s capital structure and assets utilization performance re-
lates to airlines performance both from internal perspective and market
perspectives.
Caskey and Ozel (2019) investigate the relationship between the ex-
tent of operating leases and reporting/non-reporting incentives. The au-
thors show that expanding financing capacity, accommodating volatile
operations, and maximizing the present value of tax deductions are all
important drivers of leasing decisions. In addition, it is reported that
capital markets and contracting-based reporting incentives have little
influence on operating lease use. Sampson (2022) performs empirical
research on lease rate models, which is a largely under-researched area,
because rental market transactions are typically hidden and opaque.
Given that a growing number of lessors publish their financial data for
investors, the authors study asset level rents and test a leasing model.
In addition, Gavazza (2010) perform an analysis on asset liquidity
and financial contracts in the aviation domain. Based on data from com-
mercial aircraft, the authors reported that more-liquid assets (1) make
leasing, operating leasing in particular, more likely; (2) have shorter
operating leases; (3) have longer capital leases; and (4) command lower
markups of operating lease rates. Moreover, Guzhva et al. (2019a) focus
on the special case of engine leasing, given that engines contribute up
8
Journal of Air Transport Management 111 (2023) 102426
to 30% of an aircraft’s initial value. The possibility of leasing engines as
an alternative for obtaining a spare engine from an original equipment
manufacturer are discussed.
Finally, Jimenez (2017) reviews the graduate level aviation man-
agement programs with the specific goal of determining the topics vital
to success for the future of aircraft leasing. The authors find that most
of the reviewed universities offer courses useful to the field of aircraft
leasing and finance, most do not offer courses designed specifically for
the current and growing needs of the field of aircraft leasing.
4. Challenges and potential mitigation strategies
There is a wide range of benefits for airlines, e.g., giving flexibility
to airlines, allowing for the introduction of new aircraft types into
fleets, and other financial benefits. In this section, we discuss a set of
challenges to the aircraft leasing industry, which we believe are all
important on their own, and might mitigate the exiting benefits. The
combination of these challenges – if being materialized as real problems
– has the potential to cause severe difficulties not only for the leasing
industry, but for the entire aviation industry.
4.1. Need for consolidation
The aircraft leasing industry has grown for decades without notable
interruption, with many new players entering the markets in recent
years. This observation holds particularly for Asia, which has seen a
tremendous growth in lessors in an attempt to become a new center
of gravity for aircraft leasing.9 Fig. 7 reports the orderbook volume of
selected lessors. The top-6 lessors have ordered more than 200 aircraft,
respectively. Accordingly, some stakeholders suggest that the industry
is at the doorstep of consolidation.10 Here, the acquisition of GECAS by
AerCap is presumably only a first – yet monumental – step. Depending
on the resulting market structure, there might be a need for further
regulation of the aircraft leasing domain.
4.2. Optimal leasing threshold
By analyzing fleet and financial data for 73 airlines over the years
1996—2011, Bourjade et al. (2017) estimated the optimal lease rate in
the aviation industry at 53.4%. The industry has reached this level in
the year 2021 — notably by averaging over all full-service carriers and
low-cost carriers. If airlines continue to lease aircraft above the optimal
threshold, the leasing could in fact start to reduce the operating profits,
since the cost of leasing begins to outweigh the expected benefits of
flexibility. Accordingly, the aircraft leasing market could be at a turning
point just after COVID-19 became endemic and the aviation system had
almost recovered to pre-pandemic levels. We believe that there is a
need for more scientific work on the degree of optimality, specifically
in the context of a nearly quasi-monopolistic leasing industry. Future
studies should try to model leasing companies as groups of cooperating
entities and investigate the equilibrium outcome of leasing thresholds
of airlines in face of the increased market power for lessors. The
increased dependence of airlines on lessors will presumably influence
the optimal threshold for leasing.
9
https://www.grantthornton.co.uk/insights/aircraft-leasing-companies-
face-challenges/
10
https://reut.rs/3KdYhFh/
S. Wandelt et al.
Fig. 7. Top 30 lessors worldwide according to orderbook volume in the year 2021.
Data source: Leasing Top 50 2021 - Airfinance Journal, https://www.airfinancejournal.
com/Magazine/Download/200.
4.3. Legal fights
The concise formulation of contracts has always been an important
topic in the aircraft leasing domain. The major reason is to prepare for
the worst case, including hull (aircraft) and liability (bodily) damages.
Accordingly, each step of the leasing process comes with its own legal
challenges, including the purchase/sale agreement, maintenance re-
serves, insurances, transferability, and tax structuring; see Kass (2017)
for a detailed review of issues and examples. In order to be prepared
for a legal fight, it is instrumental to have not only precise contracts,
but also a detailed and immutable documentation of all events con-
cerning the leased aircraft. Given the aviation industry’s transition from
paperwork to digital data management, it is anticipated the Blockchain
approaches could play a key role for solving some of the legal problems
around legal fights, following success stories such as Tradelens in the
shipping industry (Jensen et al., 2019).
4.4. COVID-19 long-term effects
The aircraft leasing industry seems to have successfully managed to
sail through the worst disruptions in aviation history. The effect – up
to date – on lessors is much less visible than in earlier crises. In fact,
the leasing industry view itself as part of the solution to the pandemic
impact, providing cash flow to airlines which were not able to attract
governmental support during the pandemic.11 The COVID-19-induced
challenges for the leasing industry might be in the future instead. The
long-term changes of the aviation industry are rather uncertain. In
Summer 2022, major parts of the global aviation system have recovered
with some airlines pulverizing pre-pandemic records. However, will
all airlines survive the consequences of the pandemic? The failure of
a few airlines – critical for the leasing industry – could lead to a
phase transition, in which suddenly a large number of used aircraft
becomes available to the public. Moreover, the current environment is
presumably beneficial for airline mergers. Such events will put lessors
under enormous pressure. On one hand, other airlines might bid for
11
https://www.ajg.com/uk/news-and-insights/2021/january/aircraft-
leasing-during-covid-19/
9
Journal of Air Transport Management 111 (2023) 102426
these aircraft at highly discounted rates — reducing their need for
leased aircraft. On the other hand, lessors might consider acquiring
these used aircraft in order to further strengthen their domination and
keep airlines dependent. In addition, it can be anticipated that lessors
will likely see sizeable raises in premium rates when it comes to their
insurance renewals.12 It is unclear up to which extent lessors can pass
on these costs to lessees successfully.
4.5. Russia, China, and potential conflicts
There exist several global conflicts threatening the aviation indus-
try, including the leasing sector. One of the prime example is the
Russia–Ukraine war, which already had a lasting impact on avia-
tion (Wang et al., 2023) and lessors worldwide: They have lost about
400 aircraft when Russia barred airlines from returning planes hit by
Western sanctions to their owners in the West. In total, the value
of these assets is estimated at 10 billion USD. While this loss is re-
markable on its own, further complications can be expected down-
stream (Humphries and Halpin, 2023). Here, one should particularly
note the role of insurances. The prices lessors must pay will inevitably
go up in an environment of conflicts. Moreover, this could even turn
into a scenario in which insurances become unavailable to lessors
or are bound to very restrictive aircraft operations. Such a scenario
is not restricted to the Russia–Ukraine war. The next conflict with
high potential for global escalation can be found between the United
States and China. Given that both of the involved parties are aviation
powerhouses, the consequences of an escalation could be orders of
magnitude larger than what was seen in Russia.
5. Conclusions
This study contributes towards a better understanding of the aircraft
leasing industry through three major contributions. First, we have ana-
lyzed the status of the aircraft leasing industry in the year 2021/2022,
highlighting the tremendous importance of the industry to the entire
12
https://www.airport-technology.com/features/navigating-risk-aircraft-
leasing-marker/
S. Wandelt et al.
aviation sector, visible through the share of leased aircraft (more than
50% worldwide) and the increasing number of lessors trying to get a
share of the cake. Second, we have reviewed the existing literature
on aircraft leasing, which was found to be highly scattered across
distinct publication venues. It seems like there is no natural outlet for
many of these studies, except from the top-ranked venue: Journal of
Air Transport Management, which published the highest number of
papers (six, close to 10%) analyzed in our study. The collection and
dissection into a single review is an essential part of our study. Third,
based on our literature review and the current economic and political
ramifications, we discuss a set of challenges which we believe can
turn into a complex pool of problems for the aircraft leasing industry,
if not properly addressed. While ‘‘Aircraft leasing is a challenge since
the 70s’’ (van Hövell tot Westervlier, 2021), the increasing systemic
relevance of lessors in the global aviation system makes this industry
more vulnerable than ever to leasing issues. Accordingly, we hope
that our work also raises the awareness of the community to this
opportunity for a perfect storm.
CRediT authorship contribution statement
Sebastian Wandelt: Conceptualization, Software, Writing – orig-
inal draft. Xiaoqian Sun: Conceptualization, Methodology, Writing
– review & editing. Anming Zhang: Conceptualization, Validation,
Writing – review & editing.
Acknowledgment
This study is supported by the National Natural Science Foundation
of China (Grant No. U2233214 and Grant No. 62250710166).
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