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Role of Lessors

Ben Baldanza
Former CEO at Spirit Airlines

Learning outcomes

  • How the aircraft lessors play a vital role in the industry
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Executive Bio

Ben Baldanza

Former CEO at Spirit Airlines

Ben has over 35 years of experience in the airline industry. From 2005 - 16 he was CEO of Spirit Airlines and is known for defining the ultra low cost carrier model after transforming the business to become the 7th largest airline in the US. Ben was previously SVP at both American Airlines and Continental Airlines and also led the restructuring of Avianca Holdings. He now consults with the largest US airlines and is an Adjunct Professor of Economics at George Mason University.Read more

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Interview Transcript

Just a quick question around the lessors. What’s your view on their role, long-term, in the industry and how it’s evolved?

I think lessors play a really important role in the airline industry. It’s a role that people outside the industry don’t necessarily understand or don’t even think about. But lessors do a number of things. Because they’re willing to take risk on airplane models, in placing big orders, usually relatively early, it puts them in the position to do a couple of things. First of all, they might be able to create availability for your airline, earlier than you could on your own. Maybe you want the A320 NEO and Airbus can deliver you one in 2024; a lessor can get you one in 2022. They ordered earlier than you and they have them coming.

Because they buy in bulk, they may get a better price than you, and even after you pay them a margin, the rate you pay them for the plane may be less than the price you would pay for the plane and have to finance it. It may be financially efficient for many airlines to buy from a lessor, because they get a better overall cost than they would on their own, because they’re getting the benefit of the big-buy discount, without buying as many airplanes.

The third thing is, in most countries, there are tax benefits to buying equipment, in terms of the depreciation schedule. Lessors can take full advantage of that tax impact, because they tend to be profitable companies, pre-Covid. Not all airlines can get full benefit of that, if they’re breaking even or not making a lot of money. The lessors can translate that profitability, back into a better rate for the customer, as well. There are many airlines in the world that wouldn’t exist, but for lessors. It’s cheaper capital than, certainly, private equity is. It’s cheaper capital than many airlines have the ability to generate on their own, from the capital market. So lessors have played a very important role for the industry and they will continue to play an important role, going forward. In fact, I would argue they may play an even more important role, because airlines that used to say, I don’t necessarily need lessors, because I can get as good a price as they have. I get all the advantages of the tax benefits and I have good access to capital. They may say, my access to capital isn’t as great, right now. So maybe their price looks a little better than I could get on my own. I actually see their role becoming more and more important, over time. Even though, right now, they’re under tons of pressure.

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