Singapore Technologies Engineering’s (ST Engineering) wholly-owned aviation asset management unit has entered into an agreement with Singapore-based investment company Temasek to establish a 50-50 joint venture (JV) for freighter aircraft leasing, the companies said Tuesday. The JV will address the growing demand for freighter aircraft as e-commerce and air cargo volumes expand around the globe, said ST Engineering.
The companies have set a target to build a portfolio valued at about $600 million within five years while investing in passenger-to-freighter conversions. Under the contract, ST Engineering will provide associated maintenance, repair, and overhaul services and serve as the asset and lease manager to the JV, a plan it called consistent with the group’s aviation asset management business model.
Plans call for the portfolio primarily to consist of narrowbody P2F conversions, which ST said is consistent with the JV’s focus on an environmental, social, and governance (ESG) policy to guide its operations and business development. The JV will set relevant ESG criteria for its investments and work with prospective clients on measures to reduce their carbon footprint, including the use of sustainable aviation fuels and enhanced engine maintenance programs.
“The joint venture with ST Engineering represents an opportunity for both of us to identify solutions for the reduction of carbon emissions, even in a traditionally carbon-intensive industry, by putting capital to work in those solutions,” explained Temasek head of industrials, business services, energy, and resources Uwe Krueger. “We expect to work with like-minded partners and customers to tailor solutions that are efficient and sustainable while being commercially viable.”
On the supply side, the JV expects to purchase passenger aircraft feedstock at lower prices due to suppressed passenger aircraft values resulting from travel restrictions arising from the Covid-19 pandemic. The JV intends to finance the aircraft through a mix of equity and debt.
“This joint venture represents a significant step by ST Engineering in growing our aviation leasing business as we expand beyond passenger aircraft and engines to include freighter aircraft assets as part of our portfolio,” said ST Engineering head of commercial aerospace Jeffrey Lam. “As we embark on this exciting venture with our partner, Temasek, we also welcome and look forward to working with other potential like-minded partners who are looking to invest in the strong freighter aircraft leasing market. In the medium- to long-term, the JV intends to securitize the leasing income streams by way of a business trust to unlock capital.”