The role of lessors in the airline input market: efficiency-enhancing agents or suprlus-ansorbing intermediaries?

Abstract

Lessors are a crucial player in the efficiency of the input market for airlines and therefore in the development of the world economy as affected by commercial aviation. Among the issues lessors are able to improve are: moral hazard with respect to aircraft condition and the incentive for adverse selection arising from information asymmetry, liquidity restrictions faced by airlines, airlines need to easily switch aircraft, and transaction costs involved in aircraft trading. Nevertheless, due to concentration, the existence of entry barriers and some level of (implicit) coordination, lessors are also able to keep a great share of the economic surpluses generated by the deals with airlines. Moreover, aircraft manufacturers are not able to venture strongly into the leasing business due to the intrinsically complicated nature of the aircraft manufacturing market as well as the market power exercised by lessors.