Two years ago, a somewhat chastened Dubai Aerospace Enterprise found itself ready to enter the ring again, having slimmed down from the would-be heavyweight that had strutted out to become a big name in the industry back in 2006. After divesting US maintenance, repair and overhaul house Standard Aero for an undisclosed sum in 2015, DAE was left with one business: a leasing operation with a fleet of 66 aircraft and a portfolio value of around $4 billion. DAE had become a boutique rather than behemoth in the world of aircraft finance – albeit one holding a sizeable chunk of capital.
However, anyone writing off DAE as a spent force at this point was in for a shock. Three acquisitions in the space of six months put the company back into the spotlight. The first, in September 2016, saw DAE move back into MRO after buying an 80% stake in Jordan’s Joramco – formerly Royal Jordanian’s engineering division, but now largely a third-party Airbus, Boeing and Embraer airframes specialist. Then, in March this year, DAE purchased a portfolio of ATR 72-600s from GECAS, which – together with three aircraft still to be delivered from its own 2014 order – took its inventory of the regional turboprop type to 54.
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It was the third announcement that really saw DAE take a significant step up to being a global player in aircraft leasing. A month after the GECAS ATR deal, the Dubai firm disclosed it was taking over Dublin-based AWAS and its fleet of 263 aircraft, including 23 aircraft on order to be delivered by the end of next year. One of the industry’s biggest names, its acquisition by the smaller finance house took the combined owned, managed and committed fleet of the two companies to 394 aircraft with a total value of more than $14 billion.
Tarapore:"We were sitting on a lot of capital and came up with ways to deploy it"
DAE
It was an audacious move that at a stroke pushed DAE into the top 10 league of lessors, more than tripled the size of its portfolio, and “substantially redefined our perception with OEMs and customers”, remarks chief executive Firoz Tarapore, who had earlier hinted that organic growth or smaller tactical acquisitions might be the way forward. In an interview with FlightGlobal ahead of the 2015 Dubai air show, Tarapore talked about his aspiration to take DAE to a portfolio of $8 billion, a then-seemingly ambitious doubling in size.
Speaking again to FlightGlobal ahead of this year's Dubai air show, Tarapore explains how, after the Standard Aero disposal, DAE agreed on principles for the company’s future. “We were sitting on a very large pool of capital and came up with three ways we could deploy it,” he says. “We were keen to increase scale in the leasing business at a time when the definition was being redefined. We wanted to set out our strategy in engineering after exiting Standard Aero, which had become more of a financial investment than a strategic one. And we agreed any future opportunity would be in services rather than manufacturing.”
When it came to the leasing business, “we concluded that as rapid as our growth was organically, this would take us too long”, he says. “It was also clear that in this business, there are perception issues around scale. Because we had such a large pool of capital, we looked at everything that came on the market. When AWAS came around, we thought it was a perfect fit on every level, in terms of scale and platform, but also a fabulous collection of people and practices. When we put it all together, we channelled all our energies into making sure it happened.”
While Tarapore says “sound trading” is the route to profitability in a cyclical leasing business, “the definition of scale has changed over the past five years and shows no signs of decreasing”. That meant that where competitors were consolidating and sizing-up, it was important to get bigger. “If you look at the average fleet of the top 10 lessors today compared with five or 10 years ago, the tenth placed company has gone from [a portfolio of] around $2 billion to $10 billion. There have traditionally been two lessors with a portfolio of more than $20 billion. In the next five years, there will be six or seven at that level or above,” he asserts.
The acquisition of AWAS closed on 17 August, just 115 days after being announced. That, says Tarapore, is an illustration of the ease of merging the two businesses, despite the apparent differences: one, a small lessor ultimately owned by Dubai’s ruling family; the other a much larger concern based in Europe’s airline finance capital, Dublin. “There was an immediate fit between the culture of the two organisations,” he says. The way people approached their day when they walked into the office – there were zero negative surprises on that front.”
It meant that DAE and AWAS were “able to engage from the very first day that we announced the transition”, says Tarapore. A new management team was announced internally before the merger was completed, and it was confirmed that both units would trade as DAE Capital. By September, the two businesses were “to all intents, running as one company”, Tarapore says, with “back and middle offices expected to catch up in relatively short order”.
DAE added to its portfolio of ATR 72-600s with a purchase from GECAS earlier this year
DAE
While Tarapore suggests that a new aircraft commitment may be in the offing – “You may see us doing something as early as next year” – DAE has largely stayed clear of speculative deals, focusing on sale and leaseback arrangements. The exception has been its faith in the ATR 72-600. Aside from the 34 aircraft from GECAS, it ordered 20 examples at the 2014 Singapore air show. These have all been delivered and DAE is in a “discussion” with the Franco-Italian airframer on converting a further 20 options. It has made DAE one of the most important customers for the 70-seat turboprop.
While the world will never need as many ATRs as narrowbody jets, Tarapore insists: “We don’t think of it as niche. We only look at the value. It’s our only non-jet asset, and we own it because we like it.” Perhaps unsurprisingly, in a region dominated by much heavier metal, DAE has found few customers for the regional type in its backyard – save for one operator in Saudi Arabia. Two are in nearby India, two in South America and two in Asia-Pacific. “It’s an aircraft that serves multiple needs with flag-carriers and specialist operators,” says Tarapore. “It has incredible mission applicability which makes it for us a delightful asset to own.”
The acquisition of Joramco represented a change in approach to MRO from DAE. While Standard Aero was originally purchased to give the fledgling DAE a foothold in the aftermarket in the hope that skills and technologies could be imported to the UAE, it was soon clear that there was little synergy between the US firm’s activities in business aircraft, regional jets and military engines and the MRO needs of the Gulf and the surrounding region. Joramco, with its largely airline clientele based within an 8h flying range of Amman, represented a “very different value proposition”, says Tarapore.
With its impressive education and skills base and location at the nexus of three continents, Jordan is a logical location for an MRO shop, says Tarapore. Established in 1963, Joramco has been steadily reducing its reliance on its once-parent carrier, and Tarapore sees India – “particularly the secondary market” – as a “huge opportunity because of its sheer numbers”. He adds: “There is no reason why [Joramco] could not resonate at twice the volume.”
Do not expect further major takeovers by DAE by the time the next Dubai air show comes around. “Now that we do not need to acquire a second platform, any acquisitions we make will be at a price that does not include a premium for a platform, so instead we can focus our efforts on committed growth,” says Tarapore, who gives a clear clue about DAE’s next priority. “The only thing we don’t have today is secured, committed growth of the new technology assets – [Boeing 737] Max or [Airbus A320] Neo aircraft,” he notes. “This can only come from placing a large order simply because of the price dynamic.”
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Source: Flight International
