Jet financiers fret as Iran war pumps up fuel and borrowing costs

• Second-hand aircraft lease rates have begun falling 5-10% as rising fuel costs cool market activity, with mid-life aircraft (up to 15 years old) business models particularly vulnerable at $100/barrel oil prices
• Aircraft lessors are especially exposed as borrowing costs are critical to their debt-heavy business models, with one CEO warning that misjudging liabilities 'kills your business very quickly'
• Despite financial headwinds, aircraft and engine shortages persist and are now viewed as a buffer against potential demand slowdown rather than the industry's main challenge, marking a rapid shift in sentiment from a year ago

Summary: Jet Financiers Concerned as Iran War Drives Up Fuel and Borrowing Costs

Aviation financiers are experiencing a dramatic shift in concerns, with soaring fuel and borrowing costs now overshadowing aircraft shortages as the industry's primary worry. This sentiment emerged at a major International Society of Transport Aircraft Trading (ISTAT) conference in Copenhagen.

Key Developments:

• Oil prices have surged past $100 per barrel due to advances by Yemen's Houthis in the Iran conflict
• U.S. interest rates have jumped significantly, impacting aircraft lessors who control approximately 50% of the global airline fleet
• Second-hand aircraft lease rates have declined 5-10% as fuel costs dampen market activity
• Mid-life aircraft (up to 15 years old) are particularly vulnerable to $100/barrel oil prices

Market Sentiment:

Thomas Baker, CEO of Aviation Capital Group, warned that "winter is going to be colder (financially) than people expect." BNP Paribas's Bertrand Dehouck cautioned that aviation's growth wave "could stall or crash pretty dramatically during the winter period."

Critical Concerns:

• Rising borrowing costs pose existential risks for aircraft lessors heavily dependent on debt financing
• Airlines face pressure from elevated fuel costs in coming months
• Industry executives are debating potential overcapacity scenarios for the first time in years

Positive Factors:

• Aircraft and engine shortages persist, providing a buffer against demand slowdowns
• Travel demand remains resilient despite cost pressures
• New investors continue entering aviation finance

Executives anticipate the next 6-12 months will be crucial, with careful underwriting becoming essential. Some predict the cycle may break from external geopolitical or financial market shocks rather than aviation-specific issues.