10 Ways Technology Will Help Aircraft Financing In 2024
Dear Customers, Partners and Colleagues.
Happy New Year! As the chief executive of a technology firm in the aviation space, I am heartened by the robust ability of our industry to embrace opportunities and tackle headwinds. A high inflation environment with unprecedented fiscal tightening both in the U.S. and globally, coupled with OEM supply chain and GTF engine issues, tested our collective business models and reinforced the critical role of technology in helping our organizations navigate complex times.
In 2023, we faced several challenges that include:
- Economic Headwinds: Our sector contended with high inflation, rapid interest rate increases, and a robust US dollar, posing considerable financial challenges for the aviation industry.
- Supply Chain Disruptions and Technical Hurdles: Airlines faced significant disruptions in supply chains, particularly among OEMs production rates, and encountered technical difficulties with the widely-utilized GTF engines.
- Fluctuating Travel Patterns: Despite these impediments, there was a sustained demand for air travel. The year saw a strong recovery in global traffic volume (RPK) to pre-COVID levels, most notably in domestic markets, and a swift resurgence in international traffic. While there are pockets of softness in certain markets, the human desire to travel will persevere.
- Industry Resilience and Adaptation: Our clients showcased commendable resilience amidst these headwinds. This was underpinned by the ability to recover the higher interest rate costs, resulting in higher lease rates for new and used aircraft.
Haseem Vazhayil
CEO, LEASEWORKSAs we venture into 2024, the next generation of software products, including ours, will help customers deal with challenges and take advantage of opportunities. Additionally, AI will fundamentally transform the productivity of every individual, organization and the aviation industry as a whole. Our mission is to shape the aviation industry’s future by creating innovative software solutions. Here are just a few examples of how we are already doing this.
1. Harnessing Data for Demand Monitoring and Benchmarking
The importance of a robust Customer Relationship Management (CRM) and Deal Management system cannot be overstated. Such platforms enable lessors to assimilate crucial internal and external data points, facilitating informed decision-making. This is particularly vital in monitoring demand fluctuations in various markets.
Our Interaction Logs, Deal Management and Market Intel capabilities are quite unique in being able to measure the most popular aircraft that are either being talked about at conferences or being requested by airlines. Additionally, we are able to benchmark current lease rates and alert customers when deal pricing may be below or above certain bands. We are also able to track a firm’s benchmark lease rates based on blended funding costs and ensure that it’s marketing team follow pricing strategies relative to this, making sure underwriting standards are always met.
2. Customer 360: A Comprehensive View
A comprehensive aggregation of information about an airline in a single location is invaluable. It allows marketing representatives to have a 360-degree view of their prospects and customers, merging meeting notes with macro data about fleet, country, and credit, thus offering a centralized place to plan strategies for airlines. We are investing in AI tools that would help make these information hubs even more useful.
3. AI-Driven Public Information Aggregation
The utilization of AI tools to gather and analyze public information is transformational. We are investing in tools in the near term that will be able to swiftly summarize key documents like an airline's 10K or earnings release. This capability provides marketing teams with deep insights into an airline’s strategy, allowing for more targeted and effective marketing efforts. We are also evaluating the security posture of AI and ensuring that guard walls are in place before we give customers even more powerful tools that would allow them to introspect their own data. This would mean being able to ask questions such as “What are my insurance renewals coming up in the next 30 days?” or “What is my MR Exposure across all my China based aircraft?”.
4. Leveraging Data For Optimal Aircraft Placement
Insightful data feeds into a CRM and Deal Management system can offer a significant competitive edge. Bringing in metrics such as Revenue Passenger Kilometers (RPK), load factors and airline order books could guide lessors in pricing their aircraft more effectively. Overlaying rent offers with an airline’s credit quality, alongside general RPK and load factors, equips lessors with a strategic advantage in the market.
5. Forecasting Demand Through Schedule Information
Access to detailed scheduled flight information, including seat capacity, acts as a strong indicator of future required lift. This insight is crucial for marketing teams to determine the types of aircraft that would provide optimal lift, taking into account their existing order books or remarketing efforts. We have the ability to bring Cirium’s schedule information in our CRM platform and give marketing teams insights into aggregated data by region, aircraft type or other segments and correlate this with current marketing initiatives.
6. Assessing Airline Health as Demand Moderates
In a landscape where interest rates fluctuate and airline earnings show signs of softness, assessing airline health becomes imperative.
- Technologies that help track utilization of aircraft, predict airline health better than any airline credit as airlines tend to park aircraft as the economy slows down or the carrier becomes distressed. Aggregate this regionally and one would have a view of a regional demand slump.
- Additionally, products that have advanced due date or invoicing capabilities are a good way to monitor airline health in real time as sophisticated analytics around invoice aging tend to give indication of an airline’s health.
- Keeping a hawkish eye on security deposits and maintenance reserve balances (or end of lease compensation) could provide a clear view of a lessor's exposure to specific airlines or regions through analytics that can help pinpoint issues in almost real time. For End Of Lease Adjustment (EOLA) aircraft, virtual maintenance balances and potential divergence between contracted rates and actual escalation.
- LeaseWorks provides tools to automate all aspects of invoicing and payments, providing a robust insight into customer payment trends. Additionally tools like automated dashboards that tell you when the net exposure to a customer has turned negative, gives you alerts into when an action may need to be taken.
7. Navigating Geopolitical Tensions with Updated Insurance Clauses
In light of regional conflicts, such as those in Ukraine and the Middle East, it's crucial for lessors to ensure their insurance coverage is comprehensive and up-to-date. A system that segments aircraft by region and closely monitors underwriting terms can be instrumental in managing risks associated with geopolitical tensions. LeaseWorks provides a robust offering that keeps track of all aspects of insurance terms, sending reminders and alerts to ensure that policies are renewed and stipulations are updated.
8. Portfolio Concentrations To Mitigate Risks
Correlating current and future portfolio concentrations across several metrics such as type, country, region etc with general indicators such as utilization, RPK, load factors, schedules etc can give risk managers a useful tool to craft trading strategies. For example, if many of these metrics start to deteriorate simultaneously, risk managers could be alerted to these metrics and would help them pare down risks by knowing which concentrations they should diversify out of.
9. Importance Of Technical Information and Maintenance Adjusted Values
Keeping an aircraft’s technical condition and maintenance adjusted value information up to date in the system, including engine and LLP data, is a superior asset management solution with the condition of the aircraft and forecast maintenance adjusted asset values centralized in a single place. This is particularly important as the value of the aircraft is at 100% when new or restored to full life and then comes down as the asset gets used over time. Additionally, processing claims digitally helps lessors manage their risks and monitor payouts with better controls.
10. AI Will Revolutionize Productivity, But Data Trust Is Our #1 Priority
Artificial Intelligence will fundamentally change the way our industry does business. The possibilities are endless. A few use cases we continue to research include getting insights from meeting interactions across many airline customers, being able to read leases to generate answers to questions, being able to answer queries around underlying business trends or individual data points (what the trend for late payments from my customers or what is my current MR balance). However, before we productionize any of this, our customer’s data security is of paramount importance as trust around data is at the heart of everything we do. We continue to evaluate and prototype all AI Co-Pilot technologies for how well they bring trusted generative AI to the enterprise. Companies such as Salesforce and Microsoft continue to announce new ways to do this and we want to ensure that we select the best technology that would wall off our customer’s information when using large language models to answer their questions.
As we venture into 2024, the next generation of software products, including ours, will help customers take advantage of opportunities and navigate challenges in the aviation industry.
Haseem Vazhayil
CEO, LEASEWORKS