BROUGHT TO YOU BY FLYING FINANCE
As we enter mid-2025, the aircraft financing landscape looks markedly different from the pre-pandemic years.
Higher interest rates and tighter lending standards have had a noticeable impact on how aircraft buyers have to approach financing. It’s a good idea to understand what lenders are expecting whether you’re getting into your first turboprop or upgrading the company jet.
Here’s what we know about the state of the industry so far this year.
Following the interest rate hikes of 2022 and 2023, the Federal Reserve entered 2024 with a “higher for longer” policy stance. Even though rate cuts have begun in cautious increments, aircraft borrowers in 2025 are still looking at effective rates of at least 6 percent for most general aviation loans.
Interest rates are, as always, the biggest factor in loan cost. Historically, higher interest rates have increased the pressure on lease and finance rates (lessors pass on the costs at a fairly predictable ratio, with some exceptions). As of late 2024, interest rates began a downward trajectory due to positive economic indicators such as low unemployment and robust stock markets.
- READ MORE: Equipment to Buy when Purchasing an Airplane
Geopolitical and economic volatility, though, make any future interest rate cuts uncertain. The correlation between interest rates and the aircraft financing market is underscored by their influence on the 10-year swap rate, which happens to be pivotal for lessor profitability.
The sub-4-percent deals seen just a few years ago seem unlikely to return. Fixed-rate deals are ideal. Even if the initial rate is higher, predictability is sometimes worth the tradeoff for peace of mind due to how many factors can swing finance rates one way or another.
Here are just a few examples of trends and metrics to pay attention to:
- Supply and production of new aircraft tend to have a cascading effect on prices, just like any other industry. As OEMs ramp up production, aviation financing needs are expected to grow in 2025, both in commercial and general aviation markets. An uptick in ABS market activities, especially on the debt side, indicates continued strong demand for aircraft financing solutions.
- If borrowing costs decline, lessor portfolio trading is expected to increase. Interestingly, the industry has seen some lessors retract from expansion strategies due to pricing discipline among potential purchasers. Disciplined pricing could reshape lessor trading volumes and market dynamics.
- Production challenges and delivery shortcomings at major OEMs accentuate the current supply constraints in the market. Several major manufacturers are experiencing persistent supply chain issues, which has been impacting delivery timelines for the last several years in a row. Factors such as material shortages and logistical bottlenecks continue to hold up production.
- The secondary market for aircraft remains remarkably tight, with storage rates nearing pre-COVID levels. The number of aircraft ready for immediate service is still failing to meet demand. China’s subdued international delivery rates since 2020, despite being a critical market, further exacerbate global supply constraints.
- 2024 saw strong airline demand with an 11.2 percent increase in traffic. Commercial airline travel has a direct correlation with demand for private aviation due to a variety of factors.
All that said, the financing environment in the aviation industry is relatively stable for now, closely mirroring the conditions observed in 2024. The robust money supply and increased bank profitability, driven by higher interest rates, have bolstered liquidity.
It’s hard to tell exactly how the industry will respond to these dynamics and whether or not rates will stay steady. Projections for the latter half of this year depend on who you ask, which means now is the time to lock down a good loan.
You can refinance later if conditions improve, but any disruptions or unexpected demand drivers will make it hard to beat what you can get now with a fixed-rate loan. Not to mention, you get to keep that extra liquid capital to invest elsewhere in your business.
FLYING Finance offers tailored loan plans that can accommodate a variety of usage needs. Reach out today to speak with one of our aviation financing experts.
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