18 Feb 2026

Interest Rates and Lease Pricing in 2026: The New Normal of Cost of Capital

Cheap money is gone, and lease pricing can’t hide behind easy financing anymore. This isn’t about market gloom, it’s about a shift in reality. Funding is no longer a quiet advantage in the background; it’s front and centre. Even if the outlook feels steadier, today’s rate environment still reshapes the economics of long-lived assets. Leasing decisions now demand sharper judgement, clearer pricing, and a more honest reflection of cost.

What this really means is that lease pricing has become less about winning on headline rent and more about building returns that still work when markets move.

 

What does the cost of capital mean for aircraft lease pricing in 2026?

Cost of capital is the full price of holding an aircraft on the balance sheet. It includes the interest paid on debt, the return demanded by equity, and the cost of keeping cash flows stable through hedging and liquidity buffers. In 2026, that whole stack matters because a small misread on funding cost can quietly erase the margin a lease was meant to generate.

That pressure shows up through a few straightforward channels, which is why it cannot be ignored:

• Debt cost on new funding and refinancing
• Equity return hurdle versus safer alternatives
• Hedging cost to reduce interest-rate swings
• Liquidity buffers to cover downtime and delays
• Refinancing exposure when maturities cluster

When these inputs rise, lease pricing has to either rise with them or change structure so the risk is not silently absorbed.

 

Which benchmark rates drive aircraft leasing cash flows in 2026?

Benchmark rates matter because many lessors fund and hedge using floating-rate instruments, even when the lease itself is fixed. That creates a mismatch risk: the asset generates fixed income while funding costs can move. In 2026, the market largely expects that risk to be priced and managed, not hoped away.

The main benchmarks and what they mean in plain terms are:

• Secured Overnight Financing Rate (SOFR): a broad measure of the cost of borrowing cash overnight, secured against United States Treasury securities
• Sterling Overnight Index Average (SONIA): an overnight sterling benchmark based on actual transactions and published by the Bank of England
• Euro short-term rate (€STR): the euro overnight benchmark referenced across euro funding and hedging markets
• Euro Interbank Offered Rate (Euribor): a euro benchmark across multiple maturities used in lending and derivatives markets
• London Interbank Offered Rate (LIBOR): the legacy benchmark that has largely transitioned out, with key United States dollar LIBOR settings ceasing after 30 June 2023

Benchmarks are not “finance trivia”. They set the floor for funding and hedging, which sets the floor for sustainable lease pricing.

 

How do higher base rates change lease pricing and lease rate factors?

Higher base rates lift the minimum return hurdle. That tends to push lease rentals up, but the bigger change is behavioural: underwriting becomes stricter because there is less room for error. A lease that relies on perfect utilisation, no downtime, and a smooth refinancing window is much harder to defend when the cost of money is real.

A common shorthand in leasing is the lease rate factor, which is the monthly rent expressed as a percentage of aircraft value. It is not a rule of thumb that replaces underwriting. It is simply a way to compare pricing across deals. In a higher-rate environment, the “acceptable” factor typically rises unless the risk profile falls.

The mechanics behind the shift are practical:

• Higher funding cost raises the pricing floor
• Hedge costs become more material in long tenors
• Downtimes and delivery slips hurt more in opportunity-cost terms
• Back-ended returns become harder to justify
• Credit selection tightens because refinancing is not automatic

This is why many market observers note that higher interest rates normally put upward pressure on aircraft lease rates through funding costs and lease mechanics.

 

What lease pricing structures are becoming more common in 2026?

As capital stays more expensive than the cheap-money era, structure is doing more work. The goal is not complexity for its own sake. The goal is to reduce uncertainty, reduce hidden mismatch, and make assumptions explicit enough to survive stress testing.

The most common structures being used more deliberately are:
 

After the structure is chosen, the real question is whether it reduces risk or just moves it around. Two quick checks help keep it grounded:

• Where does rate risk sit: lessor, lessee, or shared?
• What happens when plans slip: delivery delay, downtime, softer utilisation?

If the structure answers those cleanly, it is doing its job.

 

Why are covenants and underwriting discipline tightening in 2026?

When money costs more, the market tolerates fewer avoidable surprises. That is why covenant discipline tightens even when demand is healthy. It is not a signal of distrust. It is a signal that weak documentation and weak monitoring can turn into real value leakage faster than before.

This tightening typically shows up in areas that directly affect recoverability and continuity of cash flow:

• Stronger reporting tied to liquidity and utilisation
• Clearer limits around subleasing, storage, and maintenance deferrals
• Faster escalation paths for payment drift
• More focus on enforceability and practical recovery readiness

In a higher-rate world, discipline is not optional. It is what stops a small issue from becoming a financial event.

 

How do maintenance reserves and redelivery terms shift when capital is expensive?

Maintenance reserves are not just technical housekeeping. They are a cash flow protection tool. When funding is expensive, unexpected maintenance spend hurts more because it either consumes liquidity or forces new borrowing at unattractive terms.

That is why reserve and redelivery mechanics are trending towards clarity and auditability:

• More conservative assumptions on event timing and utilisation
• Clearer utilisation measurement rules and audit rights
• Less reliance on the  end-of-lease settlement as the main protection
• Stronger linkage between record quality and redelivery acceptance

The commercial logic is simple: cleaner reserves and cleaner redelivery reduce delays, disputes, and unplanned cash calls.

 

Where does refinancing risk show up in portfolios and valuations in 2026?

Refinancing risk is the risk that maturing debt cannot be rolled on the same terms, at the same cost, or at the same speed. Even if policy rates are steady, spreads and liquidity conditions can still shift quickly. That is where portfolio valuation sensitivity increases: discount rates move, investor appetite changes, and exit assumptions get tested.

The pressure points are usually predictable:
 

In 2026, portfolio resilience is less about clever forecasting and more about avoiding structures that fail when timing becomes imperfect.
 

Conclusion: Are returns built to survive rate swings?

Lease pricing in 2026 is a resilience test. Central bank rates are no longer near-zero, LIBOR is in the rear-view mirror, and funding reality is forcing more disciplined pricing structures and underwriting. The deals that hold up best are the ones built on realistic cash yield, realistic downtime assumptions, and returns that do not depend on perfect refinancing windows. Are returns built to survive rate swings?

 

FAQs

Q. What is a lease rate factor, in simple terms?
A. A lease rate factor is a shorthand way to express monthly rent as a percentage of the aircraft’s value. It helps compare deals, but it does not replace proper underwriting.

Q. What does “fixed rent with floating funding” risk look like?
A. It means lease income stays stable while funding cost can rise with benchmarks, squeezing margin. Hedging can reduce this, but hedging itself has a cost.

Q. Why do stepped rents appear more often in 2026?
A. They align rent with realistic ramp-up assumptions, such as utilisation build or network maturity. They also reduce the need to overprice day-one rent to cover later uncertainty.

Q. What is the difference between base rates and credit spreads in pricing?
A. Base rates are the benchmark level set by the market and central banks; credit spreads are the extra premium charged for borrower and structure risk. Both combine to form the real funding cost.

Q. What does “pricing resilience” actually mean in practice?
A. It means the lease still clears return hurdles under stress, such as higher benchmarks, softer utilisation, or delayed redelivery. It avoids dependence on perfect exits or best-case refinancing.