Avolon 2026 Outlook: India, the UAE, and Saudi Arabia Poised to Power the Next Phase of Global Aviation Growth
The global aviation industry is entering 2026 on a markedly stronger footing, supported by resilient economic growth, sustained travel demand, and a favorable fuel price environment. According to Avolon’s 2026 Outlook: Up Next paper, airline profitability is expected to reach US$41 billion in 2026, marking the fourth consecutive year of industry-wide profits and accelerating the sector’s recovery from the unprecedented shock of the COVID-19 pandemic.
Cumulatively, airlines are projected to have recouped more than 80% of the US$182 billion in losses incurred during the pandemic years. This financial rebound is reinforcing balance sheets, restoring investor confidence, and creating momentum for fleet renewal—although structural constraints in aircraft supply threaten to limit how fully airlines can capitalize on favorable market conditions.
Against this backdrop, India, the United Arab Emirates, and Saudi Arabia are emerging as the most dynamic growth regions for global aviation. Together, the three countries account for a combined order backlog exceeding 3,000 aircraft, more than double the size of their current in-service fleets. Approximately 900 aircraft are scheduled for delivery over the next three years, underscoring the scale of ambition and long-term demand expectations in these markets.
A Profitable Industry, Rebuilding After the Pandemic
Avolon’s outlook highlights the importance of macroeconomic stability and cost discipline in driving airline profitability. Lower fuel prices were a decisive factor in 2025, reducing industry fuel expenses by an estimated US$8 billion—roughly 20% of total net profits for the year. With energy markets expected to remain relatively benign, this tailwind is anticipated to continue through 2026.
At the same time, airlines are contending with rising labor, maintenance, and ownership costs, reflecting tight labor markets and higher input prices across the supply chain. Despite these pressures, the industry’s overall financial performance is strengthening, enabling carriers to further repair balance sheets, reduce leverage, and selectively invest in fleet modernization.
The return to sustained profitability is also reinforcing aviation’s role as a driver of global connectivity and economic development. As borders remain open and international travel demand continues to recover, airlines are once again acting as catalysts for trade, tourism, and business investment.
India, the UAE, and Saudi Arabia: The Next Growth Engines
One of the most striking conclusions of Avolon’s 2026 Outlook is the shift in aviation growth momentum toward India and the Middle East. India, the UAE, and Saudi Arabia are collectively positioned to lead the industry’s next expansion cycle, driven by demographic growth, rising incomes, tourism strategies, and large-scale aviation infrastructure investment.
India’s aviation market continues to benefit from strong domestic demand, a growing middle class, and increasing air travel penetration. The UAE and Saudi Arabia, meanwhile, are leveraging their geographic positions and national development strategies to build global aviation hubs, supported by ambitious airline expansion plans and airport infrastructure development.
The scale of aircraft orders in these markets reflects confidence in long-term demand. With combined backlogs exceeding 3,000 aircraft, these countries are effectively reshaping the future distribution of global airline capacity. However, Avolon cautions that delivery schedules are increasingly constrained by manufacturer backlogs and production challenges.
Structural Aircraft Undersupply Limits Growth
While demand fundamentals remain robust, the aviation industry faces a persistent structural undersupply of aircraft. Order backlogs at Airbus and Boeing now extend beyond 11 years, creating a bottleneck that limits airlines’ ability to grow capacity, replace aging fleets, or respond quickly to changes in market conditions.
This imbalance between demand and supply is reshaping industry dynamics. Higher lease rates and stronger residual values are emerging as structural features of the market, benefiting aircraft owners and lessors. At the same time, airlines without sufficient forward order coverage risk missing growth opportunities or being forced to operate older, less efficient aircraft for longer than planned.
In this environment, lessor-held delivery slots are becoming strategically valuable assets, particularly for airlines that were under-ordered prior to the post-pandemic demand recovery. Access to new-technology aircraft is increasingly dependent on relationships with well-capitalized lessors that secured production positions earlier in the cycle.
Regional Aviation Trends: Diverging Paths
Avolon’s outlook identifies significant regional variation in aviation growth trajectories:
- India, the UAE, and Saudi Arabia are emerging as the primary growth regions, supported by large order backlogs and proactive aviation strategies.
- Europe is experiencing growth led primarily by low-cost carriers, while major network airlines focus on consolidation and margin protection rather than aggressive capacity expansion.
- In the United States, network carriers are evolving into diversified “lifestyle brands,” generating substantial profits from loyalty programs and co-branded credit cards. Meanwhile, U.S. low-cost carriers continue to face challenges as they realign networks and product offerings.
- The Asia-Pacific region remains constrained by fleet availability. China alone has a near-term requirement for approximately 1,000 new aircraft, but delivery limitations are slowing capacity growth despite strong underlying demand.
These divergent trends underscore the importance of fleet strategy, access to capital, and supply chain resilience in determining airline performance over the next several years.
Manufacturers: Strong Demand, Tight Supply
Despite geopolitical uncertainty and ongoing supply chain challenges, aircraft manufacturers saw more than 2,000 new aircraft orders placed in 2025 across Airbus, Boeing, and Embraer. The market is increasingly favoring larger and more capable aircraft variants, reflecting airlines’ need to maximize capacity and efficiency in a constrained supply environment.
The A321neo continues to dominate narrowbody demand, outselling the A320neo by three to one over the past three years. In the widebody segment, the A330neo has gained traction as the only new passenger widebody available for delivery before 2032, benefiting from its versatility across network, low-cost, and hybrid airline models.
Engine manufacturers are also exerting greater pricing power. Shop visit and spare parts pricing is rising at rates well above general inflation as engine OEMs manage higher input costs and seek improved shareholder returns. As a result, the market value of two full-life engines now represents approximately 80% of a new aircraft’s value, underscoring the growing importance of engine availability and maintenance economics.
Avolon’s outlook highlights a structural re-rating of the aircraft leasing sector. Eleven lessors have now achieved investment-grade credit ratings, reflecting improved business models, stronger balance sheets, and more predictable cash flows.
Approximately US$120 billion of new aircraft are expected to deliver in 2026, representing a 20% increase year-on-year. Lessors are projected to provide around half of the global fleet’s financing requirements, reinforcing their central role in the aviation ecosystem.
As airlines seek to transition to lower-emissions, new-technology aircraft, lessors are increasingly acting as enablers of sustainability, absorbing capital risk and facilitating fleet renewal. In a market characterized by scarce aircraft availability, well-capitalized lessors with substantial orderbooks are strongly positioned to outperform.
Risks and External Pressures
While the outlook for aviation is broadly positive, Avolon identifies several risks that warrant close attention. The rapid growth of artificial intelligence is intensifying competition with aviation for capital and skilled labor, potentially influencing investment flows and talent availability.
Geopolitical risk remains a persistent concern. Although fears of aviation-specific tariffs eased in 2025, trade tensions and regulatory uncertainty continue to pose potential challenges. On the macroeconomic front, resilience has been notable: in 2025, 80 of the world’s largest economies grew by more than 1%, and 90 are expected to do so in 2026, with none projected to contract.
Industry Perspectives from Avolon Leadership
Commenting on the outlook, Jim Morrison, Chief Risk Officer of Avolon, emphasized aviation’s enduring role in supporting global growth.
Global connectivity and economic growth continue to be supported by the aviation sector, underpinned by strong demand and lower fuel costs,” Morrison said. “India, the UAE, and Saudi Arabia are emerging as the next engines of growth, with order backlogs that are double their current in-service fleets.”
He also highlighted the importance of aircraft financing in the year ahead.
With an industry requirement to finance around US$120 billion of new aircraft in 2026, lessors will continue to play a vital role as a driver of the transition of the global fleet to lower-emissions new-technology aircraft,” Morrison noted.
Morrison added that while airline financial performance continues to strengthen, capacity constraints remain a critical limiting factor.
Airlines’ ability to fully capture sector tailwinds will be impacted by a shortage of new aircraft deliveries and the long order backlogs at Airbus and Boeing. Well-capitalized lessors with strong orderbooks are particularly well positioned in the current market.
Seven Fearless Forecasts for 2026
The paper, co-authored by Jim Morrison and Ross McKeand, Senior Vice President of Portfolio Strategy at Avolon, concludes with seven forward-looking forecasts:
- International markets will drive all air travel growth, having accounted for 85% of capacity growth in 2025.
- U.S. low-cost carriers will return to profitability, supported by network adjustments and reduced competitive pressures.
- More than 150 GTF-powered aircraft will return to service as engine issues are progressively resolved.
- Airbus and Boeing aircraft above 150 seats will be sold out until 2035, reflecting persistent production constraints.
- A330neo lease rates will rise by more than 15%, driven by strong demand and limited alternatives.
- An aviation ABS equity note will be successfully issued, signaling renewed investor confidence.
- Preparations for a new commercial aircraft program will accelerate, setting the stage for a potential launch in 2027.
Avolon’s 2026 Outlook paints a picture of an aviation industry that has regained its financial footing but is now navigating a new set of structural challenges. Demand remains strong, growth opportunities are abundant, and emerging markets are reshaping the industry’s center of gravity. Yet aircraft availability, supply chain constraints, and capital allocation decisions will define winners and losers in the years ahead.
As India, the UAE, and Saudi Arabia rise to the forefront of global aviation growth, the interplay between airlines, manufacturers, and lessors will be more critical than ever in determining how—and how fast—the next chapter of aviation unfolds.
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