Strategy Spotlight: Aircraft Leasing - A High-Flying Private Income Strategy
Aircraft leasing is a specialized corner of private markets where investors finance the purchase of commercial aircraft and lease them to airlines. Instead of airlines tying up massive amounts of capital to own planes outright, leasing companies own the aircraft and provide them on long-term rental agreements.
Today, nearly 50% of the world’s commercial aircraft are leased rather than owned outright.
How It Works
- Acquisition: Private equity firms or specialized lessors buy aircraft (new from manufacturers or used from airlines).
- Leasing: Planes are leased to airlines for multi-year contracts, typically 6–12 years.
- Cash Flow: Investors receive steady rental income from airlines, often paid in U.S. dollars.
- Residual Value: At the end of a lease, the aircraft can be sold, re-leased to another airline, or parted out for components. Residual values tend to be stable for proven, efficient aircraft models (mostly narrow-body) and can rise when demand tightens.
- Diversification: Leasing firms usually hold a portfolio of planes across different geographies and airline partners to spread risk.
Why It Works
- Essential Demand: Airlines rely on access to modern fleets, but prefer leasing for flexibility and capital efficiency.
- Stable Cash Flows: Long-term contracts provide predictable income, often backed by collateral (the aircraft itself).
- Resilient Asset Class: Even in downturns, global air travel demand tends to recover strongly, making aircraft attractive long-term assets. Downside protection stems not only from the fact that aircraft are redeployable, tangible assets, but also from their long useful lives, strict maintenance covenants on lessees, and legal protection under the Cape Town Convention, which secures lessor rights internationally.
- Inflation Hedge: Lease payments are often tied to U.S. dollars, providing protection against local currency depreciation and inflation.
- Exit Options: Planes retain resale value and can be repositioned globally. Mid-life aircraft, in particular, can deliver higher lease yields than new ones without commensurately much higher residual risk, especially given the issues experienced by the new Boeing MAX models.
How It Fits in a Portfolio
Private Income: Offers contractual rental yields that serve as a fixed-income substitute, with higher potential returns.
Diversification: Returns are largely uncorrelated with public equities and bonds, reducing overall portfolio volatility.
Hard Asset Backing: Aircraft are tangible, mobile assets with long economic lives and enforceable maintenance standards offering downside protection.
Opportunistic Upside: When air travel demand is strong, lease rates and residuals values tend to rise, especially for reliable mid-life narrow-body aircraft.
Aircraft leasing is a prime example of how private asset strategies can provide steady income, diversification, and resilience—all while tapping into the long-term growth of global travel. It’s not without risk (airline defaults, fuel price volatility, or international travel shocks, such as pandemics). Still, in a diversified private allocation, it can be a compelling addition to both private income and equity buckets.
We have selected AB CarVal as out partner for Aircraft Leasing Strategy for the Bridgeport Alternative Income Fund.
AB CarVal, a global alternative investment manager with 35+ years of experience, has built deep expertise in credit, real assets, and specialty finance. In aviation, they focus on mid-life, narrow-body aircraft which tend to exhibit stable residual values and strong secondary demand. With global air travel rebounding and new aircraft production constrained, demand for leased planes is rising.
CarVal capitalizes through sale-leasebacks and secondary market purchases, keeping fleets productive and lease terms flexible. The strategy offers low correlation to traditional markets, resilient income, and attractive diversification, while actively managing risks like residual value and regulatory shifts.
John Fisher, CFA, CPA, CA, MBA
President & Chief Investment Officer
Boyan Lepoev, CFA, MFin
SVP, Head of Private Markets