Trends influencing the global aviation finance market right now include the increasing use of generative artificial intelligence (GenAI) and data analytics to assess risk and better price leases in relation to falling interest rates.
Strong demand globally for air travel, combined with ongoing supply chain issues in terms of delays in delivering new aircraft, translates into a vibrant aircraft leasing and trading environment, says Marie O’Brien, partner and head of aviation and transport finance at A&L Goodbody.
“This is an attractive market for investors and banks and the better availability of capital to finance aircraft has allowed large-portfolio financings to return, and many of these are structured in Ireland. The return of the aviation capital markets last year is a trend that will continue for 2025.”
GenAI technologies enable leasing companies and financiers to process extensive data sets, such as airline operational performance, macroeconomic indicators and maintenance records, says Marina Efthymiou, professor of aviation management at Dublin City University Business School.
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“Machine-learning algorithms usually incorporated in GenAI identify patterns and predict potential defaults. Also, GenAI assists in drafting customised lease agreements. Lessors can leverage GenAI to analyse maintenance logs and forecast technical issues, enabling proactive maintenance planning and reducing costly downtime.”
Aviation is a global industry that has always been ready and ambitious about embracing new technology. GenAI will be a differentiating factor for those who can integrate it and data analytics into their business successfully.
“Leasing companies will need to think like tech companies in terms of how they can manage an ever-increasing volume of data and the critical role it plays to their business,” says Efthymiou. “GenAI will not replace the need for highly educated professionals in the industry, but it will elevate [their] ability to digest, respond and understand risks and provide a competitive edge.”
Another interesting dynamic is the progress by the airline industry on the use of GenAI and data analytics in the areas of predictive maintenance and the use of digital twins for aircraft, says Kieran O’Brien, partner and lead advisory partner in KPMG’s aviation finance practice.
“When you consider that the lessor ultimately owns the asset and so much of the value of the assets can be tied up in residual value or maintenance reserves, there are clear financial and operational benefits to the aviation finance sector in adopting this technology in this area.”
GenAI and data analytics have a role to play in assessing risk, he adds: “This will vary from process optimisation to data collection and scenario analysis, as well as increasing the ability to understand risk drivers and likelihood. This is a data-intensive and hugely analytical area that requires a significant amount of specialised skill and experience. The use of GenAI and data analytics will allow all that work to be expanded and be applied to larger data sets.”
GenAI can allow wider gathering and processing of data points, O’Brien continues. “This can impact a wide range of risk processes, including credit pre-screening, KYC (know your customer), risk grading, credit decisions and risk/portfolio monitoring from a customer perspective, but also from an assets and portfolio perspective.
“We see organisations utilising these capabilities to utilise more data and to support and streamline ongoing monitoring and early warning systems. Outside of credit risk, there are also benefits to enterprise risk management and governance and controls processes.”
Falling interest rates have unlocked financing streams and ignited strong activity in the market last year, and this will continue for this year, says Marie O’Brien.
“There was a pent-up demand for financing to fuel growth in the industry and the reduction of interest rates helped kick-start transactions which thankfully continue to be in full flow. Aircraft are expensive and economies of scale mean that access to capital is vital to ensure the industry keeps thriving.”
Efthymiou agrees that elevated interest rates are reshaping lease structures, with leasing companies balancing higher financing costs against lessee affordability.
“Lease terms are evolving, with more flexible agreements emerging to accommodate economic pressures and interest rate fluctuations,” she says. “GenAI can assess the sensitivity of investment portfolios to interest rate fluctuations, allowing investors to optimise asset allocation and mitigate risk exposure.”
Sustainable trends
A significant trend in aviation finance is the growing emphasis on sustainable aviation fuel (SAF) and environmental goals, says Efthymiou.
“Aircraft leasing companies are prioritising fleet modernisation, focusing on fuel-efficient and SAF-compatible aircraft to support the industry’s decarbonisation efforts. Green lease agreements, which increasingly feature sustainability-linked clauses, are becoming more common as they encourage airlines to adopt SAF and achieve environmental targets.”
Leasing companies are also embedding environmental, social and governance (ESG) principles into their business models, aligning with investor demands for sustainable practices, says Efthymiou.
“This shift has driven innovation in financial products that tie lease structures to emission reductions and fleet efficiency. However, challenges remain, as SAF is currently two to five times more expensive than traditional jet fuel due to limited production capacity and high feedstock costs.
“To address these challenges, green lease agreements often include clauses mandating or incentivising the use of SAF or other sustainable aviation practices. Some also incorporate provisions for carbon offset programmes, funded collaboratively by lessors and lessees. Additionally, investments in electric and hybrid aircraft are emerging as long-term strategies to future-proof leasing portfolios against tightening regulatory standards and growing environmental pressures.”
