Dubai Airshow

Novus Aviation Capital Savors Independence

 - November 10, 2015, 1:15 PM

Dubai-based lessor Novus Aviation Capital is a growing force in the regional and global aircraft leasing market, and claims one of the longest pedigrees in the industry’s history.

As of June 30, 2015, the Novus portfolio comprised $2.5 billion in assets, with $500 million of delivery commitments. As of September 10, it said it had 24 aircraft on lease to seven airlines, including 12 to Emirates, of which eight are 777-300ERs.

The current Novus portfolio also comprises five Airbus A380s on lease under the Tamweel Aviation Finance vehicle and a diversified selection of older and newer, predominantly twin-aisle types.

In the operating lease business are seven B777-300ERs, two B777-200ERs, four A330-300s, two A340-300s, one B747-400, one B737-800, one A321-200 and two ERJ145s. “The A330-300, A330-900, B787-9/10 and A350-900/1000 are all on the radar,” said Mounir Kuzbari, Novus’ managing director.

This year, Novus has already completed the sale and leaseback of five B777-300ERs and has a number of other units closing before year-end. Mandates have also even been secured on new deliveries in the single-aisle sphere for 2016, and next year could be as busy as this one for Novus. 

Novus’ finance-lease strategy on the five A330s, three to Emirates and two for British Airways, involves junior and mezzanine debt into aircraft financing for Airbus customers.

“We are not taking residual value risk on finance [leases], where the risk is fully paid out by the airline itself. We know that Emirates and British Airways are strong, so that we are going to get repaid,” said Hani Kuzbari, also a managing director. “On the A380, the credit analysis is very important. This is designed firstly to ensure the airline is able to pay lease payments. Second, the aircraft type is important, in terms of liquidity, market, orders and backlog. We need to be comfortable around the asset, in case we need to reposition it.”

Third, economics: this involves residual value, modelling the transaction, getting the right ingredients, ensuring the purchase price is right, with the right lease payments and with security attached. “In case of expiry or sale during lease term, the right residual value components are needed,” he said.

Global leasing has grown in the last 40 years. “Today, we are at about 30 to 40 percent. The trend is going to 50 percent of the [global] fleet,” said Mounir.

Islamic finance vehicle Tamweel Aviation Finance, a partnership among Novus, Airbus, the Development Bank of Japan and NordLB, is a good example of how growing airline demand for high LTV (mezzanine) financing is being met, he said.

“The uniquely independent ownership structure of Novus does not require specific volume targets so the focus is purely on selecting transactions on their individual merits to ensure predetermined risk-return parameters are not compromised. In effect, Novus is driven by quality rather than quantity in transacting terms,” Mounir said.

It claims to be established in the top 30 to 40 aircraft lessors ranked by portfolio value, at close to $3 billion, taking into account aircraft already managed and mandated.

Novus also has a presence in London and its investor and lender base includes prominent banks, financial institutions and other funds providers located worldwide.

“We are active in the sale leaseback [SL] market. We grew the portfolio substantially over the last three years. Our clients include Emirates, Cathay, MAS and Finnair,” said Hani. “Today, bank debt is very competitive. More direct loans and finance leases are available compared to SL. Ample liquidity on the bank-debt side is probably going to shrink. We will still be able to secure SL mandates. In the last 12 months, we did deals with Finnair to acquire aircraft by SL over a long period of time, and Emirates, where we won two main mandates in last 12 months.

“We are active traders in the market; we buy and sell aircraft. We've added seven aircraft recently. We are more of a quality-driven platform. We try to see where we can capture value. We have been in the business for 21 years, and are probably one of oldest independent leasing platforms in the world.”

Wide-bodies will continue to dominate the portfolio in future. “From our perspective, we look at the A330 family, current technology and neo, the A350, which started getting delivered, the 787 and the 777-330ER. We would consider transactions on all these aircraft families. The 777-8X or -9X are definitely on the agenda, but it's too early to form a clear view. There's no way to predict the fuel price in five years' time,” said Hani.

“China is a market we've been investing in through a number of aircraft, which we sold in the last four years. A lot of work is being done now to strategize China over the next five to 10 years. Growth rates in Asia are definitely outpacing growth rates in the Americas or Europe. Some 100 million new passengers a year is phenomenal growth.”

The older generation is still very much involved. CEO Safwan Kuzbari set up United Aviation Services in Europe in the 1970s and grew the portfolio to about 80 aircraft by around 1990. However, the company was exposed to the U.S. market, including Pan Am and TWA, and downsized and reassembled as Novus in 1994.