Dubai Airshow

Cash Pipeline Puts Middle East Lessors in Strong Position

 - November 9, 2021, 5:00 AM
Dubai Aerospace Enterprise owns, manages, and has commitments or mandates to manage about 425 airplanes, including the Boeing 737 Max 8. (Image: DAE)

Booming Middle East capital markets have created the conditions for regional lessors to eye expansion, as Dubai Aerospace Enterprise said it had sold assets when prices were right and had underwritten more business in 2020 than in the previous decade.

“In our business, liquidity risk trumps capital risk; the liquidity that has been made available to us by the capital markets has been staggering,” said Firoz Tarapore, CEO and recently appointed member of the board, speaking at the recent Airline Economics conference in Dubai. “The OEMs are sold out for many years to come. There is no real opportunity for us to place [a major] order.”

In its update for the first nine months of the year, DAE said it had signed 147 aircraft lease agreements, extensions, and amendments, acquired 23 units, and sold another 23. With 114 customers in 54 countries, the size of the fleet, consisting of aircraft the company owns, manages, or has commitments or mandates to manage, stood at around 425 airplanes. It issued $2.55 billion of senior unsecured debt in the period, while, as of June 30, had liquidity of $4.1 billion and net debt of $9.5 billion.

As regional pace-setter, Dubai Aerospace Enterprise ranks well ahead of Kuwait’s Aviation Lease and Finance Company (Alafco), whose fleet includes about 80 aircraft, Novus Aviation Capital, with 50, and ABL Aviation, with 40.

In the nine months to June 30, Alafco delivered three new A320neos, two to Scandinavian airline SAS, one to Mexican low-cost carrier Volaris, and another A320neo to Chile's Sky Airline, as part of multiple delivery agreements signed in the past two years. Fleet size as of that date stood at 78 aircraft, including Airbus A350-900XWBs and A320ceos and neos, and Boeing 777-300ERs and 737 NGs. It has placed orders for another 70 units in all.

Novus Eyes Doubling Portfolio

Dubai-based independent lessor Novus Aviation Capital plans to double the size of its portfolio to around $10 billion over the long-term, after cannily selling $1 billion worth of aircraft in 2019. The company had held $3 to $5 billion in assets under management in the last few years, Mounir Kuzbari, co-CEO, told AIN. “The plan is to double in size and exceed the $10 billion level over time," he said. "The pipeline looks quite robust and this should increase with recovery and increased deliveries.”

Novus has always shown agility and opportunism and would look to expand operations and the portfolio in the next 12 to 24 months, he added. “Our focus will be on young, new-technology in-production aircraft, but not limited to single-aisle," said Kuzbari. "The twin-aisle market is a segment where we have been very active and successful, and we continue to believe there are and will be interesting opportunities to invest more in the latest widebody versions.”

Novus sold the aircraft in the months prior to the pandemic and has since taken delivery of four B777-300ERs on lease to British Airways. “We have also completed an SLB transaction with Flydubai earlier this year for two B737 Max 8s,” he said.

At the end of September, Novus’s aircraft portfolio contained aircraft assets worth $2.33 billion across its operating and finance lease portfolios, representing under 50 aircraft. At the end of 2019, Novus’s portfolio contained 46 aircraft, among them eight Boeing 777s, four 787s, and 19 Airbus A321s.

Economic fundamentals in terms of cross-border trade in goods, production, and air cargo volumes have returned to pre-Covid levels, which proved especially beneficial to cargo airlines and combination carriers, as cargo tonne kilometers flown rose 9.4 percent on pre-crisis levels.

“Full recovery will take time but we are convinced that there will be pent-up demand in the short-term as travel requirements are relaxed, then reaching a long-term trend effectively back to 4 to 5 percent annual traffic growth within next 24-36 months,” he said.

Kuzbari believes that people who comprise the leisure segment want to travel more than ever. Strong evidence of pent-up demand has surfaced, given the latest surge of UK bookings to "green list" destinations. The U.S. enjoyed a very strong summer; aircraft were flying full the vast majority of the time, as were those in China.

ABL Now El Al's Biggest Lessor

Founded in New York in 2014, global independent aircraft investment and asset manager ABL Aviation operates as a team of 40 from Dublin, Casablanca, Dubai, New York, and Hong Kong. It has completed 42 aircraft transactions, with more than $2 billion of total capital allocations across a range of investments for several airlines, among them Delta, Lufthansa, El Al, Pegasus, Wizz Air, and EVA Airways.

“During Covid-19, in the last 12 to 18 months, we did around $1.6 billion worth of business,” founder and CEO Ali Ben Lmadani told AIN. “We became the biggest lessor to El Al; we did four Boeing 787-9s and -8s for them worth around $600 million earlier this year. We did two A350-900s for Lufthansa two months ago. We did eight A220s for Delta between January and September this year, and one A321neo and one A320neo for Pegasus Airlines in Turkey, in April last year and May this year, respectively.”

The firm arranged the first JOLCO (Japanese Operating Lease with Call Option) ever funded with aircraft non-payment insurance (AFIC)-supported debt in the El Al deal. In April last year, despite the gravity of the Covid-19 crisis, it completed the first-ever remote e-delivery of a JOLCO funded with available-for-sale (AFS) guaranteed debt for Pegasus Airlines to purchase a new Airbus A321neo.

Initially, ABL focused on midlife aircraft and high yielding investments but said unattractive market conditions led it to redefine its strategy, and, in 2018, it switched to the new aircraft segment following the execution of an exclusive partnership with the fourth-largest financial institution in Japan, providing a yearly $1 billion of asset value in permanent capital for JOL and JOLCO transactions. “In future, we expect more than half [of ABL funding to be Japan-sourced],” Lmadani said.

Lmadani expressed a desire to work with the Middle East "Big Three." 

“We are looking at the possibility of Boeing 777 freighters and 787s with [Emirates] next year," he said. "We just hired CCO Michael Weiss, from Sumitomo Mitsui Banking Corporation. We are hiring more talent from the biggest lessors. As a small company, we couldn't afford people of this caliber, but now they are helping the company  develop a lot faster.”

Given his Moroccan background, Lmadani said the Middle East and Africa were particularly important markets to ABL, and that he wants to push new leasing platforms in the MENA region. He remains noncommittal about his eventual portfolio ambitions. “We don't have a target," he noted. "We will go as big as we can.”