Chronic engine and aircraft shortages to help US aviation ABS to soar in 2026

Predictions abound that aviation ABS issuance in the US market will be $10bn-$15bn in 2026. If those prophecies are right, volumes will beat the recent record year of 2019 — the year before the Covid pandemic grounded the global aviation industry.

Issuance in each of the market’s three segments — lease, loan and engine securitizations — could grow with global shortages of commercial aircraft and their power units predicted to last until 2030, industry sources say.

Against this backdrop, leading market figures say the sector’s ABS structures are battle-hardened, having survived the successive shocks the aviation industry has endured, from the Covid-induced manufacturing slow down, to planes stranded in Russia after it invaded Ukraine in 2022, to rising interest rates making financing more expensive.

“If we are operating under the same market conditions we were at the end of 2025, or tighter, and we don’t have a significant geopolitical event which disrupts normal market activity, the debt-only issuers could easily lift the aviation ABS market to $15bn of issuance in 2026,” says Ian Flood, director of aviation ABS at Deutsche Bank.

“Once people see that the residual ABS market is available — and they will see that very, very early in 2026 — there’s going to be a very significant wave of issuance.”

Flood predicts publicly listed aircraft leasing companies, which issued paper in the aircraft ABS market in 2018 and 2019, could return in 2026 to refinance and issue new equity note (e-note) tranches in the process.

“There has been a massive lag in production from both Airbus and Boeing that will take time to filter through the chain,” says Ankush Chowdhury, global head of aviation at BNP Paribas. “Maintenance, repair and overhaul capacity is also very stressed right now, which is further exacerbating the issue.”

As lessors command higher prices for planes and engines thanks to a shortage of them globally, and if more investors buy the resulting securitizations pushing spreads tighter, so there will be more money paid into aviation ABS structures that will reach as far as the e-notes at the bottom of the capital stack, making them a more compelling proposition for investors.

Higher interest rates since 2022 and lower advanced rates on aircraft ABS deals mean issuers have retained mezzanine, junior and e-notes on recent issuance.

“If you can sell the residual in an aircraft ABS pool, that is an alternative to selling the assets themselves as part of a trade sale,” says Chowdhury. “If you’re a leasing company trying to sell $2bn a year of assets in a trade sale market, being able to sell $500m or more in the financial markets via an ABS deal is a significant de-risk pathway that those issuers have.

“We expect 2025 issuers to keep returning to market, but we also expect portfolio sale transactions from the larger public lessors to third party equity in 2026, adding more to the already strong pipeline,” he continues.

He believes aviation ABS issuance could hit a record in 2026 and that the shortage of aircraft is expected to continue for three to five years. Market sources tell GlobalCapital that Boeing has gone from producing about 800 commercial aircraft a year before the Covid pandemic to about 450 in 2025.

Not everyone is so bullish, however. Nomura’s head of ABS, Keith Allman, describes the $15bn issuance prediction for 2026 as optimistic.

“One reason 2019 hit $10bn of issuance was that e-note sales were completely open, which means the market pulled in issuers that normally wouldn’t sell ABS,” he says. “There are several lessors that don’t hit the ABS market because they have no need to unless they’re going to do e-note sales.

“There may be a couple opportunities for e-note sales in 2026, but I don’t think it’s going to be a robust, 2019-style free-for-all market. There will be a heavy focus on asset and obligor quality.”

About $17.5bn of aviation-linked paper went through the ABS market in the US in 144A format during 2018 and 2019, some of which will come up for refinancing in 2026.

Carlyle, Pimco, Castlake and Sky Leasing are among aviation lessors that tapped the ABS market in 2025.

Flood says the market could be favorable in 2026 for issuers who have previously brought deals. “As an ABS issuer, if you’re clear-eyed about the aircraft shortage, and if there are defaults of leases in a portfolio, you could actually get more cash in the structures after re-leasing,” says Flood.

“When you sell an aircraft in an ABS deal, that is trading at 80 or 90 cents on the dollar, and then you pay back debt at par, that’s a straight profit to noteholders. There’s been quite a lot of profits that have accrued to holders of ABS debt over the past two to three years. Over $15bn has been paid down to bondholders since Covid, some due to aircraft sales in the structures.”

There is excitement building that new issuers will come to the public market in 2026. “Certain issuers may have been active in the private markets in the past but will now turn to the public market for the first time,” says Chowdhury. “The new entrants will come from both the operating lease and loan sides of the market.”

Debut issuers are already said to be lining up on approach. “There are a number of leasing companies that have been around for a very long time in aviation that are well known, respected and capable managers of assets,” says Flood.

“They simply haven’t used ABS in the past because pricing has not been competitive and the leverage was not compelling for the strategy they were pursuing. Now, with the pricing, leverage and liquidity in the market, it is supportive of different types of business models, so we’re going to see a lot of players using ABS for the first time.”

Meanwhile, there have been structural tweaks within the asset class. Payment waterfalls have been adjusted on aircraft lease ABS since 2024 to pay scheduled principal and interest on the senior notes before any payments are made on the subordinate notes. However, tight pricing is diminishing the allure of aviation ABS compared to other asset classes.

“We’re very comfortable with the downside protection because of the structures,” says Vinnie Zhang, senior ABS analyst at Loomis, Sayles & Company. “But opportunity for spread pick-up, relative to other sectors, is shrinking. At a 150bp spread on a senior note, there are other sectors which offer a similar or wider level in the ABS market — for example data centers, fiber and solar.”

He says positive aviation industry fundamentals, a resurgence of global air travel, which has been about 10% higher in 2025 than in 2019, combined with production delays for aircraft will help grow aviation ABS in 2026.

However, he sounds a note of caution. “Many of the aircraft are leased to tier two or tier three airlines in emerging markets,” he adds. “The cash generated from the aircraft is very sensitive to a credit event from the related airline and also any disruption caused by geopolitical conflict.”

The allure of owning e-notes could grow if interest rates are cut further in 2026. “If the cost of debt is going down, it’s unlikely aircraft leases are going to reprice that quickly; so that could make the sale of e-notes more favorable,” says Allman.

Zhang, whose firm has been an active buyer of aircraft ABS paper, says: “It is probably not worth it for the large lessors to sell equity notes; they would rather sell the aircraft as a whole via a trade sale. I don’t think there will be a very popular e-note market over the next two to three years. The model of private equity firms partnering with aircraft servicers for equity is more likely than a syndication of e-notes.”

Chowdhury agrees that it is unlikely tradeable equity notes will return in force in 2026. “We don’t see tradable e-note coming back in 2026 but would expect this private format to continue,” he says. “The mezzanine area of the capital stack is an area where we are seeing more investor activity.

“Servicer strength, capability and history are a very important focus for the mezzanine and equity area of the capital structure, and the more capable servicers will have more success attracting interest and [achieving] competitive pricing.”

Aviation loan ABS deals are also catching investors’ attention. Zhang expects this market to grow in 2026, beyond its current issuers PK AirFinance, Ashland Place and Volofin.

He says the asset class provides an attractive cost of financing for issuers, where senior notes can be priced below 150bp over the I-curve, compared to the underlying collateral originated at around 300bp over.

In October 2025, aviation loan originator Ashland Place priced the senior note, rated AA by KBRA, on its APL Finance 2025-1 deal at 125bp over the I-curve. PK AirFinance priced its PKAIR 2025-2 deal in September 2025 with a triple-A rated senior note at 130bp over.

The supply shortage in commercial aviation will help aviation loan ABS. “The manufacturers are years behind with their orders,” says head of structured products at Conning, Michael Nowakowski. “I would not be surprised at all to see a couple of new entrants to the aviation loan ABS market.”

The aviation loan ABS market is also a good option for investors taking their first steps in aviation securitizations. “It’s a great relative value versus other asset classes that’s going to keep expanding,” says Allman.

“In aviation loan ABS you have a loan against the hard asset and you’re putting a loan on that loan, so your implied loan-to-value ratio is actually fairly low. That’s how you’re able to get to triple-A ratings on the upper tranches.”

In recent years, only one issuer, Willis Lease Finance Corp, has brought an ABS deal to the 144A market in the US backed solely by aircraft engine lease payments.

Its WestF 2025-A deal was priced in June 2025 with a single-A rated $524m senior note coming at 165bp over the I-curve. The deal’s $72m junior note, rated A-, was priced at 215bp over.

Owners of aircraft engines face the upside of a 6%-22% unlevered internal rate of return over the life of their investment, according to aviation finance data provider Ishka.

The typical timeline for aviation warehouse borrowing to be refinanced via the ABS market, says Allman, is between 12 and 18 months after the warehouse was established.

At time of publication, Nomura was working on closing a warehouse line of financing to an aircraft engine lessor with a view to an eventual capital markets securitization. “Engines have great value retention,” says Allman. “Generally, they’re longer-lived assets than an airframe. They generally are most of the aircraft’s value. By the time an aircraft is 15 years old about 75% of its value is in the engines.”

The supply of commercial aircraft engines is constrained because maintenance is needed at more regular intervals due to technical problems with some newer models.

“As a result, there is higher demand for parts and higher demand for spare engines as they’re working through these teething problems,” Allman explains.

Commercial aircraft engine owners also benefit from the shortage of aircraft. “You have this dynamic where the [aircraft] owners are in the driver’s seat because of the supply-demand imbalance,” says Nowakowski. “And a step deeper, the engine owners are in an even better position because these aircraft are flying later into their useful life.”

Master trust aircraft lease ABS deals were an emerging feature of the sector’s dealmaking in 2025. Carlyle established its master trust in 2024 with two deals.

As of November 2025, Carlyle had issued another three deals from the master trust; the $518.4m AASET 2025-1 in February; the $525.67m AASET 2025-2 in June; and the $602.44m AASET 2025-3 in November.

Griffin Global Asset Management added to the aviation lease master trust canon in November 2025 when it closed its debut $1.245bn deal. The trade featured a BB- rated $125m class ‘Y’ note. The principal for that note will only be paid down with excess cash flow.

Investors had pushed back on master trust aviation lease ABS deals where the view of future collateral in the pool was clouded.

“There has been investor push-back on structure and pricing for these types of structures without clear line of sight to pipeline assets expected to be acquired and funded into the master trust in the future,” says Chowdhury. “We don’t expect master trusts to be the preferred structure unless with pre-identified portfolios.”