The strange death of Middle East aircraft lessors, widely reported in the aftermath of the global financial crisis, has proved unfounded.
Dubai Aerospace Enterprise (DAE), vilified by market analysts six years ago, has re-emerged as a market force to be reckoned with, particularly after the acquisition this year of Ansett Worldwide Aviation Services (AWAS), whose private equity owners were said to be seeking an exit.
Kuwait’s Aviation Lease and Finance Company (Alafco) continues to radiate stability, and while Amedeo’s A380 orders appear to be a case of wishful thinking, its existing Middle East portfolio is impressive. Firoz Tarapore, DAE CEO, told AIN, “2017 was an extremely busy year for DAE. On the leasing side, we issued our inaugural ABS transaction in the U.S. capital markets, selling both the equity and the debt to sophisticated U.S. institutional buyers. .
“We also announced and closed our acquisition of AWAS, making DAE a top-tier player in the aircraft leasing space with almost 400 aircraft worth approximately $14 billion. Our combined leasing division is now branded as DAE Capital. We issued unsecured debt in the U.S. capital markets for the first time in a benchmark issuance that was extremely well received.”
"The outlook for 2018 is strong. The integration of the leasing [businesses] is on track and scheduled for completion in the first quarter of 2018. We expect to add approximately two billion dollars of new assets in 2018 and secure our long-term growth through an order with one or both [of the main] OEMs.”
As of August 31, total fleet size (owned and managed) was 344 aircraft, plus an additional 48 on order [consisting of 33 pipeline units and 15 purchase-and-lease-back units (PLBs)–as opposed to speculative pipeline order and sale-and-lease-back (SLB) units]. This means DAE purchases an existing aircraft or order slot from an airline, and leases the aircraft back to them.
“The acquisition of AWAS gives us scale, which in turn allows us to be become more relevant to customers, OEMs and suppliers. The acquisition also gives us a phenomenal platform with a 30-plus-year track record, a strong team and the right kinds of processes and systems to allow us to be competitive and successful at our new scale,” he said.
“AWAS’s strong time-tested capabilities around asset selection, credit analysis, debt sourcing and technical management will give us an extremely strong ability to compete in the marketplace, to find opportunities and offer solutions. We are delighted so far with the acquisition as everything that we see now that we have owned the business for three months validated what we saw in the due-diligence process.”
Tarapore said the near-term strategy is to concentrate on narrowbody aircraft, then to properly integrate the acquisition to secure long-term growth. “We will focus on the most liquid narrowbody aircraft such as the A320neo and the 737 Max. We will also reserve capital to serve our clients’ requirements from their committed order book.”
Although DAE does not own any A380s, Tarapore believes it makes sense for companies such as Emirates to consider longer-term leases, of up to 18 years, especially on A380 and Boeing 777 fleets.
“Airlines will consider longer leases for their widebody fleets if they feel it will benefit them from a cost perspective. With less residual-value risk, lessors should be able to offer more attractive pricing for a longer tenure and, if the economics make sense, some airlines may move to longer leases,” he said.
“With the recent switch to new-technology aircraft that will have very long useful lives and that will not likely be replaced in the short to medium term, there is perhaps more room for airlines to consider longer term leases in the current market.”
Alafco Enters U.S. Market
Kuwait’s Alafco currently has an order book of 111 “new-technology” aircraft, to be delivered between 2017 and 2022 and, during 2018, will continue to take delivery and place new aircraft from its order book, CEO Ahmad Al Zabin told AIN.
“In 2016, Alafco acquired a total of 13 aircraft with lease attached: nine from Gecas and four from BOC Aviation. This year, Alafco has focused more on SLB transactions, namely [a] Kuwait Airways deal, as well as taking delivery of new aircraft from its order book,” he said.
“Other notable transactions during 2017 include the remarketing of 13 used aircraft previously leased to Saudia Airlines. Alafco has signed an agreement with U.S. carrier Allegiant Air for the lease of the 13 aircraft for a lease term of 12 years. The transaction marks Alafco’s first entrance into the U.S. market, following the recent establishment of Alafco’s subsidiary in Dublin, Ireland.”
During 2017, Alafco raised $300 million through a three-year Sharia-compliant syndicated loan. The funds will be used mainly to meet obligations for new aircraft deliveries over the next three years.
In 2017, Alafco completed several major transactions, Al Zabin said. It took delivery of its first three A320neo aircraft from Airbus, and delivered them to Air India; and also took delivery of its first three A350XWBs from Airbus, for delivery to Thai Airways. They were subsequently sold to Amedeo with leases attached.
Amedeo has a portfolio of 22 aircraft under management or oversight with Emirates and Etihad. All are A380-800s, except two B777-300ERs, which are leased to Emirates.
Abu Dhabi Global Market (ADGM) commissioned a report from PricewaterhouseCoopers to look into the financial center’s suitability as an aircraft financing and leasing hub, predicated on the UAE’s extensive double taxation treaty network. “The commercial case for aircraft financing and leasing businesses to be based in Abu Dhabi is strong,” PwC said in its report, published earlier this year.
“Unfortunately we are not in a position to forecast any numbers at this stage. This will be entirely driven by private sector uptick, and since we are at a relatively early stage, it would not be practical to predict this,” an ADGM spokesman told AIN.