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Aircraft Lessors Appropriately Managing ESG Risks in Global Aviation

This commentary analyzes the environmental, social and governance factors and their potential impact on the credit risk profile of aircraft lessors. Global aviation is a critical industry in the global economy. As a leading provider of financing to the global aviation industry, aircraft lessors have a natural exposure to environmental factors that may impact their business perhaps more so than social or corporate governance.

Key highlights include:

-- The global aviation industry accounts for 2% of global human-induced carbon dioxide emissions (CO2), according to Air Transport Group, and accounting for 12% of CO2 emissions from all transportation.
-- The International Air Transportation Association (IATA) estimates that since 1990, carbon emissions per passenger have declined by more than 50% as more efficient aircraft have been introduced, as well as improvements made in airline operations and aviation infrastructure.
-- Aircraft lessors operate globally across many jurisdictions, including many that are viewed as having weak political and regulatory frameworks. Importantly, these jurisdictions may also expose lessors to sudden changes in the rules of law, as well as judicial independence that could have an impact on the lessors operating and financial performance.

“With the EU targeting net zero emissions by 2050 and other countries moving in this direction, DBRS Morningstar sees those lessors with fleets that are primarily comprised of the newest, most fuel efficient aircraft as best positioned to navigate the evolution in the global commercial fleet.” said David Laterza, Senior Vice President – Head of Non-Bank FIG.