Grounded planes

Despite Challenges for Airlines, Investment in Planes Takes Off

Investors Rush to Aircraft Asset-Backed Securities

Demand for air travel is far from climbing back to pre-pandemic levels. Moreover, the airline industry is dealing with fresh travel restrictions as new strains of COVID-19 appear. Despite these downturns, some investors appear enthusiastic about investing in certain types of aircraft, or securities attached to them.

In the last month the world’s top jet-leasing companies borrowed around $15 billion at yields between 2% and 3%. Castlelake, a global private investment firm, also sold $595 million in aircraft asset-backed securities this month. Bitcoin, SPACs, and stocks like Gamestop have been dominating headlines in recent weeks with some analysts referring to them as “bubbles.” Now hot money is rushing into the jet-leasing sector, causing some to think the space is also overheating. AerCap (AER), Air Lease Corporation (AL), and Avolon are just a few names on traders’ radar.

Investors Hunt For Yield

There is much uncertainty surrounding when and how demand for air travel will recover. Analysts suspect that the recent uptick in aircraft investing is because of low interest rates rather than a particularly encouraging outlook.

Right now for example, US investment-grade corporate bonds are generating less than 2%. Less-risky aircraft-backed debt, on the other hand, is yielding 3.5%. Historically this is one of the best rates on commercial aviation asset backed securities ever. The extra 1.5% of yield is what is influencing investors’ debt-purchasing decisions rather than metrics like upticks in travel patterns.

COVID-19 vaccines have given the airline industry some hope of recovery, though it will likely be a slow and difficult road back to normal. Airline capacity sits at less than half of what it was at this time last year. Passenger numbers are not expected to reach 2019 levels until 2024.

Looking Ahead

Industry analysts say traders shouldn’t forget the asset’s resale value is ultimately what will protect their investment. For both the lessors and the airlines it’s what ensures liquidity. Uncertain times mean that big corporations aren’t immune to the difficult macroeconomic environment either.

For example, Chile’s LATAM airlines opted for bankruptcy to cut its debt last year, returning some of their jets. Norwegian Air Shuttle also recently shed 37 Boeing 787s. Due to the oversupply of planes, returning these aircraft to action could be difficult. The jet market hasn’t caused the commotion seen elsewhere with cryptocurrencies or blank-check companies, but investors’ outsized demand for jet-debt will be something to watch in the year ahead.

Things are changing daily within the financial world. Sign up for the SoFi Daily Newsletter to get the latest news updates in your inbox every weekday.

Sign up

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Advisor
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store SoFi Android App, Get it on Google Play

ABOUT SoFi SoFi helps people achieve financial independence to realize their ambitions. Our products for borrowing, saving, spending, investing, and protecting give our more than one million members fast access to tools to get their money right. SoFi membership comes with the key essentials for getting ahead, including career advisors and connection to a thriving community of like-minded, ambitious people. For more information, visit Want an easy and convenient way to manage your financial life? Get the SoFi app. For iOS and Android.

TLS 1.2 Encrypted
Equal Housing Lender