Turbulence in the desert – is the Middle East conflict grounding the leasing industry’s recovery?

At the dawn of 2026, the aviation sector was finally breathing a collective sigh of relief. After years of pandemic-induced instability and supply chain headaches, the horizon looked remarkably clear. According to the KPMG 2026 Outlook, passenger traffic was projected to rise by 4.9%, with the industry eyeing a record-breaking net profit of US$41 billion.

Fuelled by low oil prices and robust global growth, aircraft leasing had firmly established itself as the new normal. With over 50% of the world’s fleet now leased rather than owned, and major consolidation – such as DAE’s acquisition of Macquarie – shaping a more mature market, the stage was set for a stellar year.

However, as we have seen so often in this industry, the tailwinds of January can quickly turn into the headwinds of May – so much so that governments are revising sanctions to ease the impacts. The latest escalation in the Middle East has not just dampened the mood, it has fundamentally rewritten the risk profile for 2026.

The asymmetric shockwave

What makes the current crisis particularly complex is its asymmetry. While the entire industry feels the tremors, the impact is being felt unevenly across regions and business models.

The most immediate cold shower for airlines has been the blockade of the Straits of Hormuz. With roughly 20% of the world’s oil supply suddenly restricted, the price of Brent crude – and by extension, Jet Fuel – has seen violent fluctuations. For airlines that did not hedge their fuel costs, or those whose short-term hedges are expiring, the record profit dream is quickly evaporating. United Airlines, for instance, recently slashed its profit forecast by nearly half as fuel costs surged.

Furthermore, the physical reality of war – attacks on airports and petroleum facilities – has forced the closure of vital airspaces. Key global hubs of international travel are seeing grounded planes and costly detours.

A crisis of value and confidence

The financial fallout is already visible on the balance sheets:

• Market devaluation: Investor sentiment has soured, with some of the world’s 20 largest airlines seeing double-digit hits to their market value. Air France-KLM and American Airlines have seen valuations drop by as much as 32% and 25% respectively, due to high leverage and fuel exposure.
• Bond market jitters: Bonds issued to finance new aircraft are facing increased scrutiny, as credit rating agencies like S&P and Fitch warn that prolonged disruption could turn credit negative for regional players.
• The demand gap: Oxford Economics estimates that inbound arrivals to the Middle East could decline by up to 27% this year. While some travellers are pivoting to the Caribbean or the Mediterranean, the overall hassle factor of longer flight times and higher ticket prices is suppressing global demand.

What this means for aircraft lessors

For the leasing giants, the would-be golden era of 2026 has turned into a game of strategic negotiation. We are seeing several key trends emerge:

• The growth review: Many carriers are now reviewing their 2026 growth plans. If airlines stop expanding, the demand for new lease placements naturally cools.
• Payment renegotiations: Major Middle Eastern players, such as Qatar Airways, find themselves with significant portions of their fleet grounded. This has led to a surge in lessees seeking to renegotiate lease payments or “power-by-the-hour” arrangements to keep their heads above water.
• The rise of wet leasing: In a bid to maintain profitability, many airlines are turning to wet leasing (leasing the aircraft along with crew, maintenance, and insurance). This allows airlines to maintain routes without the long-term capital risk of a dry lease, turning a crisis strategy into a mainstream trend.

The long view: Resilience or retraction?

Despite the gloom, the leasing industry remains remarkably resilient. Just recently, AerCap signalled its long-term confidence with a massive order for 100 Airbus aircraft, and Sumisho Air Lease successfully issued USD 4 billion in notes.

The industry’s giants clearly believe that while the Middle East may be a temporary storm, the fundamental appetite for global travel remains intact. However, the elephant in the room remains: what if the situation persists? If the conflict spreads or another oil-producing region destabilises, the normalised leasing market may find its foundations tested like never before.

For now, the aircraft leasing industry is in a holding pattern – optimistic about the long-term, but with one hand firmly on the controls as the geopolitical weather remains dangerously unpredictable.

This article was originally published by LARA News. Read the original here. 

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