Aircraft Leasing Lift-Off (March 2026)
The Capital Cycle is the official podcast that Marathon Asset Management (the London firm founded in 1986) launched in 2024, hosted by financial historian Edward Chancellor, who interviews Marathon's investors about each Global Investment Review letter — applying the firm's long-term, contrarian "capital cycle" supply-side approach.
In plain words
This report explains a plane shortage. Since 2018, Boeing and Airbus have cut production by about 30% due to accidents and the pandemic, but air travel keeps growing. This shortage is expected to last until 2030. That's good for aircraft leasing companies like Air Lease, which own planes and have orders. They can raise lease rates. Even though Air Lease's profits and stock price are low now, the report says it's a buying opportunity because lease rates are already rising. It's worth reading because it shows why a struggling company might be a smart investment.
Commercial aircraft production peaked in 2018 (Boeing and Airbus combined delivered 1,606 aircraft), plummeted 55% in 2020, and remained approximately 30% below peak in 2024. However, the current production downturn is not due to overcapacity, but rather a combination of factors including the 737 MA
Theme and Background
This chapter focuses on the supply-demand imbalance in the commercial aviation manufacturing and aircraft leasing industry. The report notes that after deliveries peaked in 2018, output plunged by roughly 30% due to a combination of non-market factors, while demand continued to grow, creating an aircraft shortage that is not expected to ease before 2030. This structural tension creates a favorable environment for lessors that own aircraft assets and delivery slots.
Core Thesis
The author's central judgment is that the current aircraft shortage is structural, not cyclical, and is primarily driven by manufacturer capacity issues rather than excess demand. This creates a historic investment opportunity for aircraft lessors—especially large counter-cyclical players like Air Lease. The counterintuitive point is that although Air Lease's adjusted ROE was only 7.4% in 2024 (compared to an average of ~13% previously) and its stock trades below book value (price-to-book ratio of 0.86x), these negative indicators are precisely a signal for contrarian long positioning, because lease rates are already recovering and the company's business model (young fleet, counter-cyclical ordering) offers strong resilience.
Key Arguments and Data
1. Supply-Side Woes: The plunge in output is not due to lack of demand but a series of compounding problems.
- In 2018, Boeing and Airbus combined delivered 1,606 aircraft, the peak.
- Deliveries fell sharply by 55% in 2020 to about 723 aircraft.
- In 2024, output is still roughly 30% below the 2018 peak.
- Deliveries are not expected to return to 2018 levels until 2026; for Boeing, that is 2028.
- Sell-side expectations have been repeatedly downgraded: in mid-2022, analysts expected Boeing to deliver 829 aircraft in 2025; the current expectation is only 550.
2. Demand-Side Growth: Fundamentals are strong, with a structural preference for new-generation aircraft.
- Global RPK (Revenue Passenger Kilometers) has grown at an average annual rate of over 5% since 1980, and in 2024 it exceeded the pre-pandemic peak.
- The Brookings Institution expects the global middle-class share to rise from 47% in 2021 to 57% by 2030.
- New-generation aircraft are 20%-25% more fuel-efficient than previous generations, creating particularly strong demand for new-technology aircraft.
3. Structural Change in the Leasing Industry: The advantage of large lessors is widening.
- Leasing penetration started in the 1970s and has now stabilized at around 50% of the commercial fleet, with an upward trend.
- Industry concentration, after expanding through financialization, is now reversing as interest rates rise:
| Year | Number of Lessors Accounting for 80% of Leased Fleet |
|---|---|
| 2010 | 21 |
| Early 2020 | 382 |
- Several consolidations have occurred in the high-end market (where Air Lease operates), such as AerCap's acquisition of GECAS and the merger of SMB Aviation with Goshawk.
4. Air Lease's Counter-Cyclical Behavior and Financial Resilience:
- In 2021-2022, when demand was uncertain, Air Lease placed large orders for new aircraft (manufacturers were more flexible on pricing); it has not placed orders since the market recovered.
- In 2020, the worst year for aviation, its revenue fell only 0.1% and pre-tax profit fell only 12%. The advantage of its business model is a young fleet that can be effectively re-marketed even during downturns.
- Current drag: low-rent leases signed during the pandemic and higher financing costs drove adjusted ROE to 7.4% in 2024, versus a pre-pandemic average of about 13%.
Companies/Assets Mentioned
- Air Lease Corp (ALC): Core subject of analysis. Bullish.
- Role: An aircraft lessor founded by industry pioneer Steven Udvar-Házy; a large direct buyer.
- Key Data: Revenue fell only 0.1% in 2020; pre-tax profit fell only 12%; 2024 adjusted ROE of 7.4% (pre-pandemic average ~13%); current price-to-book ratio of 0.86x (pre-pandemic average ~1.2x).
- Logic: The current low valuation (0.86x PB) and low ROE are the result of market overreaction. The aircraft shortage is driving up lease rates (for example, A321neo leases signed in 2023 are about 20% higher than in 2019), and future earnings improvement will drive valuation recovery.
- Boeing (BA): Mentioned as a manufacturer; source of the problem.
- Role: The epitome of delivery difficulties. Delivery recovery expectations have been consistently downgraded.
- Key Data: Expected to exceed 2018 delivery levels only in 2028; 2025 delivery expectations have fallen from 829 to 550 aircraft.
- Other Mentions: AerCap's acquisition of GECAS, and the merger of SMB Aviation with Goshawk, as evidence of industry consolidation. ILFC and GPA are mentioned as historical comparison cases, illustrating the importance of counter-cyclical management.
Investment Implications
For Chinese investors, this report points to a specific investment direction:
Contrarian positioning in large aircraft lessor Air Lease (ALC). The core logic is that against a backdrop of high barriers (order book, scale, cost of capital) and a structural supply shortage (through 2030), the current stock price below 0.9x book value provides a margin of safety, while rising lease rates will drive a dual recovery in ROE and price-to-book ratio. Investors should be wary of the risks facing small lessors in a rising interest rate and highly competitive environment.