Fleet Financing Strategies: The Impact of Airline Maturity

In 1995, easyJet commenced operations with 2 x B737-200s leased from GECAS. Over the past 30 years, the airline’s fleet has swelled to +350 aircraft.

Fleet financing strategies are inherently complex and unique to each airline. Despite this, a common theme driving decision making can be found in an airline’s maturity – easyJet’s evolution exemplifies this well.

Phase 1: Infancy
The airline initiates operations with leased aircraft. The low CAPEX nature of operating leases is appealing, as it allows a young airline to focus its restricted capital on other areas in its ramp up. easyJet’s leased fleet stands at +80% in its first decade of existence.

Phase 2: Transition (Building a Balance Sheet)
The airline is at an inflection point. easyJet has a track record: a decade of sustained profitability, brand recognition, solid network, and an exciting growth trajectory. Without compromising on growth, the airline can allocate CAPEX to the acquisition of aircraft, and thus build its balance sheet.

The benefits of ownership go beyond building a balance sheet, as Greg Anderson (CEO of Allegiant) mentioned on an earnings call last month: “Over the long term, the full useful life of the aircraft, it’s two times as expensive to lease airplanes as it is to own them.” Whilst always true, the true ownership benefit hinges on many assumptions.

Phase 3: Equilibrium
easyJet reaches full maturity after 15 years of operations – the equilibrium stands at an unencumbered/financed fleet of roughly 70%. This sweet spot will vary significantly amongst mature airlines, however an owned fleet of +50% is common.

A contingent of leased aircraft is important, as it grants access to aircraft delivery slots that may otherwise not be available through an airline’s existing orderbook. Staggered lease maturities also allow airlines to manage capacity effectively, giving them the option to extend leases or return the asset, based on prevailing market conditions.

Phase 4: Re-Fleeting (+Black Swan Event)
A strong balance sheet supported by owned aircraft provides an important safety net in times of crisis (e.g., COVID), as the airline can release capital held in the asset through Sale Leasebacks (SLBs). In 2020, easyJet executed 47 SLBs, mostly on mid-life assets.

SLBs are also an efficient fleet transition tool. In recent history, easyJet elected to perform the majority of SLBs on mid-life A319ceos that it was phasing out in favor of new A320neo Family deliveries. 64 x A319s (from 82) are now leased and will be phased out upon lease expiry.