With John Persinos today is Dr. David Yu, one of the world’s foremost experts in aircraft appraisal and valuation.
Dr. Yu is a CFA Charterholder, with a BA/MS from Johns Hopkins University, an MBA from New York University’s Stern School, and a PhD from the University of Nottingham. He is a professor of practice in finance at NYU, a Fellow of the Royal Aeronautical Society, and a Fellow of Johns Hopkins’ Applied Economics and Global Health Institute.
Professor Yu also is a member and senior appraiser with the International Society of Transport Aircraft Trading (ISTAT).
So, is Dr. Yu qualified to answer questions for Aircraft Value News? Oh yeah, I think so! Dr. Yu, thanks for taking time out from your busy professional life to answer my questions today.
Okay, let’s jump right in.
[My questions and remarks are in bold]
U.S. gross domestic product contracted 0.3% in the first quarter of 2025, the first negative reading since 2022, according to a report released April 30 by the Commerce Department. At the same time, major airlines have been releasing grim predictions for air traffic demand. The fact is, Trump’s tariffs and economic policies are weighing on business consumer and investor sentiment. How will these adverse dynamics affect aircraft values and lease rates in 2025 and beyond?
Let’s talk about airline demand first. We were in absolute dismal lows during COVID, and now we are in very, very high travel demand. Today, we are starting to feel the pullback of that increased demand, given all of these economic uncertainties and geopolitical turmoil that we’re seeing.
The big three carriers are still doing fantastically well, but you see in the low-cost carrier segments, the LCCs, demand is starting to decline in the U.S. as well as in Europe and elsewhere. If you look at airline seat supply, there’s not much new aircraft unless airlines ordered long ago.
And that’s a good way to lead into what’s happening on the aircraft leasing supply front. On the supply side, there just isn’t much, unless airlines have ordered new aircraft and gotten them delivered.
Aircraft are at high pricing all around, across the board. Even on the engine side, you need engines, you need parts. Engines are few in numbers and high in demand.
These supply and demand imbalances are creating reverberations throughout the industry. Not only that, but the MROs are seeing hot demand. It’s hard to get an MRO slot, maybe six months out, one year out. And even if you can get a slot, getting parts can be a problem. It can sometimes take an additional six months to a year to get MRO work completed. We’re seeing long lead times.
So broadly speaking, we’re seeing high aircraft values. Accordingly, lease rates are much higher, too.
Paradoxically, the aircraft leasing market, despite these economic headwinds, is growing and it’s projected to expand on a multiyear level. As demand softens, leasing becomes a lifeline. It allows airlines to remain flexible, avoid heavy upfront costs, and adapt quickly to shifting travel patterns. For carriers loaded with debt, as many are, this model also supports deleveraging goals. Explain this economic contradiction to us. Why is the leasing market growing amid an increasingly bleak global economy?
Ultimately, you gotta look at it from an airline’s perspective. They can either buy aircraft, with cash, of course, but usually with a debt that’s associated on their balance sheet. The other options are having a finance lease and operating lease that they can get from outside financiers.
An operating lease, predominantly preferred by most airlines, is considered off balance sheet financing. That means the debt that’s associated with that purchase isn’t on the airline’s books, but rather it’s on the lessor’s books. So from an airline’s perspective, it looks like less debt.
Interest rates are much higher compared to the COVID period and even before. That has added a lot of pressure to the airlines to be able to support that debt.
Let’s shift to the topic of COMAC, the Commercial Aircraft Corporation of China. The duopoly of Boeing and Airbus has dominated global aviation for decades. Now COMAC has come along, China’s state-run aircraft manufacturer, and it wasn’t given much of a chance of dislodging Boeing and Airbus until the trade war. Do you see the fracturing of the Western alliance and all these onerous tariffs providing an opening for COMAC? Does it have a better chance now of stealing market share?
It’s a great question. Ultimately, innovation is positive for the global economy, because we can get cooler technologies and better efficiencies.
The C919 is COMAC’s flagship aircraft, a narrowbody airliner designed to compete with the Boeing 737 and Airbus 320. The ARJ21 is COMAC’s regional jet, which has been rebranded as the C909.
Developing these aircraft costs tens of billions of dollars at a minimum. Currently speaking, COMAC’s aircraft only have certification for operations by the CAAC, the China Aviation Authorities. The U.S. FAA as well as EASA, the European regulator, have not yet approved them, under their respective regimes. The lack of approval by U.S. and European regulators is a hindrance, because those are the gold standards.
The other issue is that COMAC’s aircraft are newcomers. It takes a lot of time for an airplane to gain acceptability in the marketplace, and only a few have been produced.
COMAC’s ramp-up rate in production is actually quite slow. So there’s not that many out there flying in the market. They’re gaining momentum with new orders, but now we have to factor in tariffs. What’s going to happen?
Aviation is a global industry, right? I know we talk about Airbus and Boeing as the big two duopoly players, but their aircraft aren’t 100% U.S. or 100% European. It’s a global supply chain.
The same goes for COMAC. The C909 and C919 are global products. They have Honeywell APUs, GE engines, etc. Tariffs add a lot of uncertainty to the equation.
As for Boeing, the company has a target on its back, given its safety and regulatory issues. This has created a big opening for COMAC, but it will take time.
In a trade war, nobody wins. Case in point: COMAC is dependent on Western parts, technology and expertise. These tariffs will hurt everybody, not just Boeing and Airbus, but also COMAC, Bombardier, Pratt & Whitney, and all aviation players.
Let’s shift to aircraft models. Which aircraft models do you see as particularly popular and in high demand right now, and why?
Well, the hottest models are narrowbodies. The A320neo family stands out. There’s also the Boeing MAX family. The MAX has been very popular, but it’s taken a hit. At the same time, there are no alternatives to these families of narrowbody aircraft. Their high demand has been persistent.
And why is that? For airlines around the world, these narrowbodies form the bread-and-butter of their fleets, both for low-cost carriers as well as full-service carriers. Mainline widebodies are also very popular, notably the A350 family and B787 family.
With used aircraft inventory tightening and lease rates climbing across multiple segments, are we on the verge of an aircraft valuation bubble — and if so, what’s likely to pop it first: interest rates, fuel prices, or OEM production ramp-ups?
We’re definitely in frothy times in terms of aircraft and engine valuations. Yes, OEMs want to ramp-up their supply and delivery rates and they have projections to do so, but they have to follow their own supply chains and that’s difficult to achieve. I think it will come down to the biggest question mark right now: demand for travel.
The airline industry is highly levered and a lot of the factors that drive its profitability are very exogenous. Airlines don’t have direct controls over such factors as fuel prices, interest rates, and tariffs, although right now we’re seeing lower oil prices and that’s beneficial.
I do predict that we’ll experience a lot more mergers and acquisitions, especially on the European side. Companies want to get their overall costs down in a collective sense.
Thanks for your time.
Editor’s Note: This article is a condensed transcript of the discussion. The video contains the full interview, complete with charts and infographics.
