Aviation finance – something in the air?

One investment area attracting increasing interest is aviation finance. Air passenger numbers have grown by about four or five per cent a year, with growth driven primarily by Asian emerging markets – in markets such as China – which have seen a steady rise in the number of middle income families. When people earn more they tend to fly more and the growth in tourism is another factor favouring the aviation sector.

Other factors underpinning the health of the sector include low oil prices, growing liberalisation of the aviation sector, and the development of airliners with increased capacity, such as the double-deck Airbus A380.

In a world where the search for yield continues and we have limited avenues to attain that, aviation finance is an area in which significant yield can be generated as long as investors are careful about the types of contracts they enter into. The good thing about the aviation finance industry is that contracts tend to be very tight, very specific and fully insured. Because aviation is such a regulated industry regulatory checks take place all the time and that can also deliver a degree of comfort for investors.

Paul Flood – multi-asset manager, Newton Investment Management

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