AERO AND RAIL EQUIPMENT INVESTMENT – WHAT’S MOVING THE MARKETS

Whether a negotiated end to the Iran conflict holds will determine the longer-term direction of energy markets and the pricing of Jet-A and diesel. As Iran flexes its leverage over the Strait of Hormuz, the world’s economies face headwinds and continued Mideast geopolitical turbulence. Oil and jet fuel prices spiked in the early days of hostilities, but not as much as the 1973 Arab Oil Embargo (+300%), the 1979 Iranian Revolution (+160%), and the first Gulf War in 1990 (+130%). With an apparent agreement to open the Strait, Brent Crude has traded down to $73 per barrel, and West Texas Intermediate to $71. Opening the Strait is a cooperative game. Even with Brent back to $73, Jet-A and diesel prices lag crude on the way down. Refining margins widen as the benchmark falls and operator fuel contracts reset slowly, requiring airlines to carry elevated fuel costs well after the headline price has eased, pressuring operating margins.  Improving fuel efficiency will be a continuing challenge. 

Energy is also what is keeping the Fed cautious. The FOMC’s first meeting under new Federal Reserve Chairman Kevin Warsh left target benchmark rates unchanged between 3.5% and 3.75%. The recent energy shocks are inflationary and work against rate cuts. The AI build-out is driving a bull market, leaving investors feeling flush and spending freely. Hiring is picking up. Expectations of inflation and labor market conditions will determine the future direction of rates.^[1] Markets now expect the Fed to hold rates steady (but nine of 19 Fed governors penciled in at least one rate increase by year’s end).^[2] Warsh used his first press conference to shorten the policy statement and eliminate forward guidance (he chose not to submit his own interest rate projection for the Fed’s closely watched “dot plot”). Whether the Fed will shrink its balance sheet remains an additional source of uncertainty. For lessors, higher-for-longer rates support lease pricing and reinforce the premium on equipment already in service.

Aero passenger and rail freight demand is tied to trade and economic activity. It’s the expectation of sustained spending and a growing economy that provides the foundation for investment. If fuel prices remain high, markets will search for alternatives. Commercial air carriers will act to optimize route profitability, manage capacity to keep load factors high, market premium seating, and focus on creating ancillary sources of revenue.  Given the state of the U.S. economy, consumers continue to pay higher ticket prices as demand for passenger air travel remains high. Supply chain disruptions are continuing to impact new equipment deliveries, resulting in the average age of the global commercial fleet rising to a record 15.2 years.^[3]

The same demand picture shows up on the ground. Rail freight growth has become more widespread. For the first 23 weeks of this year, U.S. railroads reported cumulative volume of 5,215,944 carloads, a 3.2% gain over the prior year, and 6,403,177 intermodal units, a 2.7% rise from last year.^[4] The growth points to improvement in the underlying economy. Agricultural traffic is strong. Grain traffic is at its highest level since 1990 (grain mill products set a new record).^[5] Rail container volumes show resilience in consumer and trade demand. Chemical shipments have increased year over year, reaching a record high in May. Industry-wide fleet utilization remains high, and lease renewal pricing is positive.

Strong rail volumes and supply-constrained aero, against a backdrop of sticky rates, AI-driven investment, and pro-domestic tax policy, make midlife equipment with cash-generating lease streams the right place to be right now. Call RESIDCO.            

^[1] The U.S. Bureau of Economic Analysis reported consumer prices rose 4.1% in May compared to the same month a year earlier.

^[2] Wall Street Journal, June 27, 2026, Kevin Warsh Invokes Alan Greenspan, “Markets read the Fed as more likely to raise rates….”

^[3] International Air Transport Association, Airport Industry News, June 26, 2026.

^[4] Railway Age weekly data compared to same week last year, June 17, 2026 “for the week ended June 13^th U.S. Rail Freight Traffic Up 7.2%.”

^[5] American Association of Railroads, June 2026 Policy and Economics report.