Engine and Aircraft Shortages Expected to Boost US Aviation ABS in 2026

Engine and Aircraft Shortages Set to Propel US Aviation ABS Market in 2026

The US aviation asset-backed securities (ABS) market is poised for significant growth in 2026, with issuance projected to reach between $10 billion and $15 billion, potentially eclipsing the record levels seen in 2019. This surge is largely driven by ongoing global shortages of commercial aircraft and engines, which are expected to persist through 2030. These supply constraints are intensifying demand and elevating prices for both aviation assets and their securitized financial instruments.

Market Resilience Amid Supply Challenges

All three primary segments of the aviation ABS market—lease, loan, and engine securitizations—are anticipated to expand in the coming year. The sector has demonstrated notable resilience, having navigated multiple disruptions in recent years. These include the manufacturing slowdowns caused by the Covid-19 pandemic, the immobilization of aircraft in Russia following the 2022 invasion of Ukraine, and the impact of rising interest rates that have increased the cost of financing.

Ian Flood, director of aviation ABS at Deutsche Bank, emphasized the potential for a robust issuance environment in 2026. He noted that if market conditions remain stable or tighten slightly, and absent any major geopolitical disruptions, debt-only issuers could drive aviation ABS issuance to $15 billion. Flood also highlighted the likelihood of a significant wave of issuance early in the year as investors respond to the availability of residual ABS products.

Return of Public Leasing Companies and Production Constraints

Publicly listed aircraft leasing firms, which have been largely absent from the ABS market since 2018 and 2019, are expected to re-enter in 2026. These companies plan to refinance existing obligations and issue new equity note (e-note) tranches. Ankush Chowdhury, global head of aviation at BNP Paribas, pointed to a substantial production lag from major manufacturers Airbus and Boeing, which will continue to influence market dynamics. Boeing’s annual output has declined sharply from approximately 800 commercial aircraft pre-pandemic to around 450 in 2025, while maintenance, repair, and overhaul (MRO) capacities remain under considerable strain.

The persistent shortages of aircraft and engines are compounding operational challenges. Supply chain disruptions for critical components have led to delays in both production and maintenance schedules. Additionally, the increased risk of unavailability has driven aviation insurance premiums higher. In response, industry players are accelerating investments in new technologies and forming strategic partnerships to secure future engine supplies. Airbus, for instance, is exploring ultra-high bypass engines and innovative wing designs to meet long-term capacity demands. There is also a growing emphasis on localized production and maintenance to reduce vulnerability to global supply chain disruptions.

Financial Implications and Market Trends

As lessors command premium prices for scarce aircraft and engines, and as investor participation intensifies, spreads are tightening. This environment is expected to push returns further down the capital structure, enhancing the appeal of e-notes. However, since 2022, higher interest rates and reduced advance rates on ABS transactions have led issuers to retain mezzanine, junior, and e-note tranches in recent deals.

Chowdhury observed that the ability to sell residual interests in aircraft ABS pools offers leasing companies an alternative to traditional asset sales, providing a valuable risk mitigation tool. For these firms, placing $500 million or more in the financial markets through ABS transactions represents a significant strategic advantage.

Looking ahead, industry participants anticipate that issuers active in 2025 will return to the market, with larger public lessors likely to pursue portfolio sale transactions to third-party equity investors in 2026. This activity is expected to further fuel the projected surge in aviation ABS issuance.