LONDON — The coronavirus pandemic has upset the airline industry, stopping the trip and immobilizing the planes. Now the pain of the industry is spreading to a little-known corner of the market where investors have enjoyed exhilarating returns for years.
So-called specialty aircraft leasing funds have generated income for yield-hungry investors. These funds buy jets from Boeing Co. and Airbus SE and lease them to global airlines such as Thai Airways International PCL and Emirates Airline.
Over the past few weeks, many of these investors fled or suffered significant losses on paper, as some funds listed on the London Stock Exchange suspended dividend payments and had discussions with lenders to renegotiate payment schedules.
Two of the five LSE-listed aircraft funds have suspended dividend payments and stock prices have fallen 42% to 74% since mid-February.
Until the coronavirus outbreak, along with some other secondary market concerns about the resale value of some jets, the funds had a “strong investment record,” said Markuz Jaffe, analyst at Cantor Fitzgerald LP. Now, airline lenders may have to bail out the business model in the short term, “causing the market to re-evaluate funds.”