After delivering a record profit for its first year as a listed company, BOC Aviation chief executive and managing director Robert Martin is looking for an even better performance in 2017 as the lessor focuses on bulking up its balance sheet.
The lessor delivered a net profit of $418 million, up 21.8% year on year as revenue rose by 9% to $1.19 billion.
Speaking to FlightGlobal, Martin says that while the result was pleasing, this year should deliver an even stronger performance as BOC Aviation focuses less on trading out aircraft, and more on building its portfolio.
The Singapore-based lessor is planning to take delivery of 75 new aircraft this year, of which all but four have been placed. That figure includes both purchase-and-leasebacks as well as its own orders for Boeing 737NGs and Maxes, and A320ceos and neos.
Despite its core focus on narrowbodies, Martin says widebodies are again becoming more important for lessors to look at.
“What the world doesn’t seem to realise is that if you calculate the dollar amount of single-aisles versus widebody aircraft being delivered, we’ve moved into an era where the dollar amount of widebodies is bigger than single-aisle aircraft.”
In the past year, BOC Aviation executed purchase-and-leaseback deals for A330s and 777-300ERs with Air China and A350s with Qatar Airways.
“Fundamentally we always want aircraft that are popular with airlines and aircraft that we can sell into the investor market,” he says, adding that there are no plans in the short term to place speculative widebody orders.
SWIMMING IN LIQUIDITY
Carrying on with a major theme in the industry, Martin expects that the strong liquidity environment will continue.
“I think now with the new US administration we have to tighten our seatbelts and realise that this liquidity is going to continue for at least another couple of years – at least to the US mid-terms at a minimum,” he says.
Increasingly, that liquidity is coming from investors outside the USA, and more from the Asia-Pacific region.
“This year, we think there is so much liquidity here in Asia-Pacific, we think that the regulation-S market – bonds issued outside the USA – has just as much depth,” he says.
The lessor has no immediate need to go out to the bond market, but may take advantage of that deep pool of capital later in the year.
In the meantime, BOC Aviation has moved to take advantage of the low-rate environment by refinancing some of its older facilities, helping to further improve its net margins.
On the equity side, Martin says the company has enjoyed strong interest in its shares since it listed on the Hong Kong exchange in June. That has largely come from around Asia-Pacific and the Middle East, two regions that he and his management team are conducting roadshows in following the results release.
SLOWING SALES
Martin says with its focus in 2017 on maintaining and growing its balance sheet, the lessor has no major aircraft sales planned.
This year is also likely to see fewer sales of aircraft on delivery to their lessees. In 2016, BOC Aviation sold 11 of the 69 aircraft delivered, which were completed through call-backs built into some of their deals.
Martin says that those acquisitions were primarily from airlines in high-tax environments that had used up previous tax credits who saw an opportunity to shore up their own balance sheets.
Where BOC Aviation is looking to sell out of its portfolio this year will be its smaller narrowbodies, such as its Embraer 190s, 737-700s and A319s.
Martin says that some of the new platforms established by industry veterans Ray Sisson and Henri Courpron represent a good source of buyers, but new investors are also keen to buy its aircraft.
“We’ve just sold our first aircraft with leases to Indian investors, which is a market that we’ve never cracked,” he adds.
The other sales channel that BOC Aviation used in 2015 was asset-backed securitisation. Martin says that, with the focus on building up its portfolio, there are no plans for new ABSs, but it may look at them again in 2018 when it may have to start rolling some of the widebodies out of its fleet.
“We’re constantly thinking about how we can innovate further in that area, and as the market acknowledges, there are more and more widebodies that are part of the overall trade environment and need to be traded over the next five years. That will require more volume solutions,” he adds.
DEEP POCKETS
Even with around $2.8 billion in capital expenditure for the year based on its existing delivery stream, Martin says that BOC Aviation “could easily do over another $1 billion” in transactions this year.
That capital is less likely to be deployed on purchase and leasebacks, given the strong liquidity has driven down lease factors for most aircraft types.
“It’s more likely to be where we are working with a manufacturer on a campaign, or taking over a PDP,” says Martin.
The other major area of acquisition has been “pop-ups” from clients of the OEMs that have over-ordered. Those acquisitions have allowed it to move aircraft quickly into markets such as China, where carriers are open to adding incremental capacity.
“Even over the last six months we have continued to do that, and I think that type of business will not stop. That requires us to be nimble, it requires us to execute quickly and focus on having a good pipeline of future deliveries,” says Martin. “Now that we’re a listed company, that is more important than ever.”
Source: Cirium Dashboard
