Aircraft, Engines and Residual Value: What 2026 Teaches Lessors About Asset Volatility – Q3/26
The aviation finance market enters 2026 in a very different position from the one it faced during the pandemic years. Passenger demand has recovered, airline balance sheets are generally stronger, and aircraft values have been supported by a shortage of available capacity. For certain types of aircraft, delivery backlogs are now around seven years. But for lessors, lenders and investors, the residual value picture is becoming more complex rather than more predictable.
Aviation has always been an asset-heavy sector, but 2026 is showing that residual value risk is not only a downside-market issue. In a constrained market, values may rise — but they can also become more volatile, more technically driven and more dependent on specific aircraft and engine characteristics.
PwC’s Aviation Finance Outlook 2026 notes that the aircraft finance market has moved beyond the turbulence of the Covid period, with passenger numbers, deliveries and asset values recovering towards, or beyond, pre-pandemic benchmarks. At the same time, PwC highlights continuing constraints in engines and maintenance, repair and overhaul activity, which it says will test the industry’s ability to sustain growth and transition to newer, more efficient aircraft.
For lessors and financiers, that combination matters. Stronger demand and limited supply can support aircraft values, but they can also mask underlying asset-specific risks. The question is not simply whether aircraft values are high today. It is whether those values will remain defensible at a future sale, refinancing or lease return date.
Engines are now central to aircraft value
One of the clearest lessons from the current market is the growing importance of engine availability. Aircraft residual values have always depended on type, age, maintenance status, operator demand and secondary-market liquidity. But engine condition and engine access are now moving closer to the centre of the valuation conversation.
Avolon’s 2026 outlook states that engine manufacturers are increasing shop-visit and spare-part pricing above general inflation, and that the market value of two full-life engines now represents around 80% of a new aircraft’s value. IBA has also reported that aircraft engine values remain elevated in 2026 as MRO backlogs and supply-chain constraints limit availability and increase demand for serviceable engines. The extent of this shift was illustrated recently when an aircraft as young as three years old was broken up because its engines alone were worth more than the entire aircraft.
That changes how aircraft value should be assessed. A narrowbody or widebody aircraft cannot be viewed only by airframe age, lease term or operator credit. The engine type, remaining life, shop-visit exposure, maintenance records, spare-engine availability and likely future MRO costs can all have a direct effect on the asset’s value and remarketing prospects.
In practical terms, two aircraft of the same model and similar age may have very different residual value profiles if their engines are in different technical positions. One may be attractive to the market because it offers operational flexibility and available life. Another may face reduced demand because it carries near-term maintenance exposure or relies on constrained engine support.
A strong market is not the same as a predictable market
The current market also challenges a common assumption: that residual value insurance is most relevant when values are expected to fall. In aviation, the 2026 position is more nuanced. Supply constraints have supported both aircraft and engine values, but that support may not be evenly distributed across all assets or endure across all time horizons.
PwC notes that the last two years have tested the long-standing assumption that younger aircraft automatically represent the lowest-risk investment. Engine reliability and maintenance costs on newer aircraft have created hard-to-predict exposures for owners, while some older and mid-life aircraft have benefited from supply constraints and lease extensions. PwC also cautions that the real test will come as larger numbers of aircraft become available.
This is precisely where residual value risk becomes more strategic. Lessors, lenders and investors need to understand not only the current value of an aircraft, but also the conditions that could affect its value at the end of a financing period. Those conditions may include OEM delivery schedules, engine reliability, MRO capacity, lease return standards, airline demand, fuel efficiency, emissions regulation and the availability of suitable buyers or lessees.
Where residual value insurance fits
Residual Value Insurance can play an important role in this environment. Matrix describes RVI as a product that guarantees that a properly managed asset can be realised at a minimum agreed value at a future date. For aviation finance, that concept is particularly relevant where future aircraft or engine values are central to the financing case.
RVI does not remove the need for disciplined asset selection, technical due diligence, maintenance oversight or remarketing strategy. Nor does it turn a weak asset into a strong one. Instead, it can help lessors, airlines, lenders and investors manage the financial impact of future value uncertainty by creating an agreed downside floor, subject to policy terms and asset management requirements.
That can be valuable in several contexts. A lender financing an aircraft portfolio may want greater confidence in the collateral value at maturity. A lessor may want to reduce exposure to end-of-term value volatility. An investor may want to support an asset-backed strategy where the exit value of aircraft or engines is a material part of the return case.
Matrix’s broader RVI proposition is designed to help companies manage asset value risk and, in appropriate structures, support financing by giving greater certainty around the future value of underlying assets.
Looking ahead to 2026 and 2027
As aviation moves through 2026 and into 2027, residual value discussions are likely to become more technical. The market will not only ask whether aircraft values are rising or falling. It will ask which aircraft, with which engines, in which maintenance condition, under which lease terms, and with what depth of secondary-market demand.
That shift is important for the insurance market. RVI can be relevant not only in weak markets, but also in volatile, supply-constrained markets where values are high but difficult to forecast. In aviation, the value of the asset is increasingly tied to technical factors that may change materially over the life of a financing.
For lessors, airlines and financiers, the lesson from 2026 is clear: residual value risk should not be treated as a static assumption in a model. It should be actively assessed, structured and, where appropriate, transferred.
In a market where aircraft availability is tight, engine values are elevated and MRO constraints remain material, residual value certainty may become an increasingly important tool in aviation finance.
Contact Nick Hester, Head of Residual Value Insurance
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