Asian investors' appetite for aircraft investments appears to remain strong: three new joint ventures involving established players were announced in the first quarter of 2016.
IBJ Leasing and Aircastle disclosed their new venture in February. The two are linked via Japan's Marubeni group, which is Aircastle's biggest shareholder, holding a 27% stake, and has extensive business ties to IBJ's parent Mizuho Financial.
The undertaking with IBJ is Aircastle's second joint venture, the US-based lessor having operated a similar one with the Ontario Teachers' Pension Plan for some time.
With IBJ, it is targeting acquisitions of new narrowbodies leased to "premier" airlines. Aircastle will supply the first two aircraft, but future investments will be acquired directly by the joint venture.
"That model is set up to invest in younger, better-credit, lower-return deals – not lower returns for the sake of lower returns, but lower returns because they have a better risk profile," explained Aircastle chief executive Ron Wainshal during an April investor briefing.
"We manage the assets, but we manage the assets while maintaining a 15% ROE on our minority portion."
The announcement of the Aircastle-IBJ tie-up in February was followed in March by Chow Tai Fook Enterprises' second foray into the aircraft leasing market. Having bought into Investec-managed Goshawk in 2015, CTFE teamed up with related company NWS Holdings to start a new joint venture with Aviation Capital Group. Together, the three parties have committed to investing up to $600 million into the venture and target growing the portfolio to 50 aircraft in the early stages.
It is the second time that CTFE and NWS have joined forces to invest in an aircraft leasing platform. In 2014, after Cheung Kong sold out its 80% share in Goshawk portfolio, CTFE jumped in and later split its stake with NWS. Those are the same stakes the two partners hold in Bauhinia, albeit with the remainder of that vehicle held by ACG. But where Goshawk has morphed into a full-service lessor, ACG will manage the Bauhinia portfolio.
Hence, CTFE and NWS are each investing in two platforms. "I think the diversified investments could be a means of risk mitigation, with Chow Tai Fook and NWS seeking to avoid concentration of their investment in a single platform," says Rob Morris, head of Flightglobal's Ascend consultancy.
A third leasing joint venture involving Asian investors is slightly outside the mould. In February, Singapore-based MRO giant ST Aerospace disclosed a deal to sell a 50% stake in its Keystone leasing platform to Japan's Sojitz Corporation for around Y1.2 billion ($11.4 million).
Sojitz is no stranger to the market, having long operated its own leasing platform based in the Netherlands. Flightglobal's Fleets Analyzer database shows that Sojitz Aircraft Leasing has in its portfolio 11 aircraft – largely Boeing 737-800s – with an average age of just under 15 years.
The deal is effectively the second leasing partnership ST Aero has entered into after parting ways with US-based Wings Capital Partners last year. Sources say that while Wings was enthusiastic, the risk-averse nature of ST Aero led to a clash over strategy that ultimately led to the dissolving of the WingStar partnership.
Keystone has wasted little time since in building up its portfolio. Having started with one Airbus A320 and one 737, it recently added an A321, acquired from an Investec-led aircraft fund.
GAINING LEVERAGE
Morris believes the recent partnering-up has been primarily driven by Asian investors looking to gain immediate access to experienced hands in the aircraft leasing industry.
"In this manner, the Asian capital leverages off the management expertise of the established platforms to derive the required return without having to incur the cost of creating their own full-service management platforms, at least in the first instance," he notes.
Conversely, lessors such as Aircastle and ACG have gained benefits from access to deep – and patient – Asian capital. In some cases, it also allows for the joint venture to pursue a different investment strategy, or provide more overall balance to the lessor's portfolio. For instance, Aircastle's Wainshal says the joint venture with IBJ is one where the Japanese partner is willing to take smaller returns and deals in return for lower risk profile, which balances the riskier assets and bigger deals pursued by Aircastle's OTPP joint venture.
Nonetheless, both Bauhinia and the Aircastle-IBJ ventures have indicated that they intend to purchase more aircraft, with particular focus on new ones leased to solid-credit customers. While both portfolios will initially acquire aircraft from their lessor partners, they have also signalled an intent to look to the wider market, likely focusing on sale-and-leaseback opportunities.
Keystone, however, is pursuing a different strategy of targeting mid-life assets and managing them through to end of life. In large part, the latter will leverage on ST Aero's MRO and fleet management capabilities, mated together with Sojitz's leasing experience and ability to generate finance from the yield-chasing Japanese market.
ATTRACTIVE PROSPECTS
The teaming up of Asian capital and Western lessors shows that demand for aircraft investment continues to rise in Asia – continuing a persistent theme in recent years.
Nevertheless, the newly announced joint ventures may be a sign that investors are taking a sophisticated approach to their investments, and are looking to team up with experienced, mid-size players to mitigate their risk and boost their returns. That is a change from the previously accepted wisdom that Asian investors were seeking to put their own brands on their platforms.
At the broader level, though, it also demonstrates that leased aircraft remain attractive investments, Morris says.
“Lessor returns are not presently as high as they have historically been but with low interest rates the margin remains attractive.”
Source: Cirium Dashboard
