Deputy concerned about Aurigny wet lease costs

Aurigny, the Guernsey state-owned airline, lost £6.5m in 2024 largely because of wet-lease costs, prompting a deputy to demand detailed disclosure of 2025 wet-lease usage and costs and question the board’s impartiality and operational capability. Management says wet-lease utilisation will be down at least 75% in 2025 versus 2024 and the CEO expects to break even in 2025, but outstanding questions remain on 2024 profitability, potential taxpayer exposure amid GST discussions, aircraft availability for the tourist season and an AAIB-investigated incident affecting fleet readiness.

Analysis

Market structure: Small-state, regional operators like Aurigny are net losers — unexpected wet-lease bills (Aurigny lost ~£6.5m in 2024) transfer value to ACMI/wet-lease providers and lessors, tightening short-term capacity and raising spot lease rates by an estimated mid-teens percentage if outages cluster during summer. Larger lessors/asset managers (e.g., AerCap) and jet/ACMI specialists benefit from outsized utilization and premium day rates; local taxpayers and island sovereign-linked credit take reputational/ fiscal risk, not broad airline equity markets.

Risk assessment: Near-term risk hinges on AAIB findings (days–weeks) and STSB disclosure (15 clear days); a grounding or regulatory finding could increase wet-lease dependence and push incremental costs >£5–10m (high-impact tail). Medium-term (3–12 months) risks include crew shortages, spare-parts bottlenecks and fuel-price spikes that amplify lease cost inflation; long-term (1–3 years) outcomes depend on fleet strategy (ATR vs. regional jets) and whether the island raises GST to plug deficits.

Trade implications: Trade around equipment-leasing and regional travel beneficiaries — prefer liquid lessors/ETFs over micro regional operators. Use event windows (STSB reply within 15 days, AAIB bulletin within 30 days) to time entries and collar volatility with options; expect 5–20% move windows depending on confirmation of material wet-lease spend.

Contrarian angle: Market may over-penalize manufacturers or jets; Aurigny’s COO says wet-lease use will be down ~75% in 2025 vs 2024, implying operational fix and margin recovery — if confirmed, short-term oversold names in regional leisure (JETS) could snap back. The consensus misses the arbitrage: durable rise in spot ACMI rates benefits global lessors more than OEMs, so focus on lessor balance-sheet optionality rather than aircraft manufacturers.

Key Decisions for Investors

• Establish a 1.5% portfolio long in AerCap (AER) over a 3–12 month horizon to capture higher lease utilization and day-rate inflation; target +15% upside, stop-loss 8% below entry, increase to 3% if STSB confirms wet-lease spend >£5m within 15 days.
• Buy a 1–2% position in the JETS ETF (JETS) for a 3–6 month tactical play into tourist season if STSB/AAIB updates show reduced wet-lease dependency (COO claim: -75% wet-lease in 2025 vs 2024); trim on a 15–25% rally or cut at -10% loss.
• Open a 0.75% notional 1–3 month put position on EMBJ (use liquid OTM puts ~10% strike) to hedge near-term reputational/regulatory risk tied to regional aircraft narrative; unwind if AAIB report clears the recent incident within 30 days.
• Reduce/avoid direct exposure (>50% haircut) to small-cap, ATR-heavy regional carriers or funds that lack scale (identify holdings with >40% ATR-type fleet) until STSB provides transparent wet-lease cost disclosure (15 days) and summer capacity is confirmed.
• Trigger-based monitoring: if STSB discloses wet-lease costs >£5m or forecasts 2025 loss >£2m, increase hedges on regional leisure exposure by another 1–2% and rotate 50% of those proceeds into global lessors (AER/AL) within 7 trading days.