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January/February 2022 Industry leader Aengus Kelly meets Airfinance Journal to discuss the GECAS integration process and the lessor’s next priorities Rosy outlook for LCCs | V i s ta r a i n t e r v i e w Air Investor 2022
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Editor’s letter
The numbers game
Aircraft manufacturers’ hopes of increasing production could be thwarted by
problems with the supply chain, writes Laura Mueller. But if there is only one winner,
the early money is on Airbus.
I t has been an eventful few years for
aviation, encompassing movements that
normally take decades to play out in such a
will see Airbus “take away the oxygen
from Boeing deliveries”, observes a top 10
lessor.
EU, and now we’re opening up between
the US and Canada and Mexico, so you
just cannot put a pin in… and say this is it –
large, maturing industry. But it is too soon to celebrate. things just change so fast.”
This was particularly true for aircraft In November, a delegate asked an But global supply chains are in a knot,
leasing in 2021. In March, two lessors – the anonymous question at the ISTAT Americas and a significant challenge for Airbus and
industry’s largest portfolio by units, GECAS, about the optimism apparent at the event Boeing is the support of their suppliers
and Fly Leasing – announced their sales to over Airbus’s rate of 70 a month. during a production surge.
competitors. The delegate noted the juxtaposition As Airfinance Journal went to press,
In the final week of the year, Nordic after lessor panellists at the ISTAT Alcoa announced a halt in primary
Aviation Capital filed for Chapter 11 European event in October had aluminium production at its plant in Spain
bankruptcy protection. Days later, Carlyle unanimously agreed that there was “not for two years, the latest casualty of soaring
Aviation Partners finally confirmed the enough demand in the market for the energy prices in Europe. The curbs at
purchase of AMCK. planned Airbus increase”. However, a Europe’s second-largest aluminium plant
The year ended with a fifth portfolio, month later, lessor panellists at the ISTAT come after energy costs spiked to new
Goshawk, subject to due diligence as part Austin, Texas, event agreed that “there will records in the final month of the year,
of a sale process to SMBC Aviation Capital. be a shortage of new narrowbody aircraft putting heavy industries under increasing
The ACMK and Goshawk sales, which in 2024”. financial strain.
Airfinance Journal exclusively revealed, This shift was best articulated by Tom Barrett also emphasised supply chain
were, like the shifting of the GECAS book, Baker, the president and chief executive pressures.
initiated on the quiet. officer (CEO) of Aviation Capital Group. “I still think that the challenges that
The sales underscore the importance “Regardless of what we think,” he says, Airbus is going to face, both in terms of
of reinventing businesses in a post- “my guess is Airbus comes out of Dubai demand and the supplies team there,
Covid leasing market with a mega-lessor more convinced than ever that they’re right. is their ability to build at that scale, and
dominating the space by rapidly achieving And so I think, we as a panel of lessors, indeed there is the reaction of the engine
scale, stripping overheads cost and and we as an industry, need to start to manufacturers. I think those things still have
lowering the cost of funds. manage the fact that they are grinding their to be played out,” he says.
Aercap’s $25 billion takeover of GECAS, way toward rate 75, and we need to plan A C-suite lessor, speaking on anonymity,
which closed on 1 November, represents and manage accordingly.” told Airfinance Journal that there is room
2,196 commercial aircraft or 37.5% of the Baker adds: “There seems to be for only one manufacturer to increase
top 10 lessors. incredible demand, and Airbus will say output.
Now another seismic shift is anticipated, they’re now sold out on A320-family aircraft “If Airbus wants to go to 70 and Boeing to
but this time on the manufacturing side. through 2028.” 50, well, there is only capacity in my opinion
Airbus plans to increase A320-family SMBC Aviation Capital’s Peter Barrett given the current supply chain for one of
production to 65 aircraft a month from 45 a was more cautious. the moves to happen. Who wins? Well, you
month in the fourth quarter of 2021, and is “I think the demand for aircraft, I mean only have to look at recent issues and who
contemplating monthly rates as high as 75. the 75 – when that will happen and how it has a better relationship with its supply
An Airbus statement last May said it will happen. They talked about it, but they chain, and which OEM [original equipment
was preparing for a rate of 70 a month haven’t said they’re going to do it,” he says. manufacturer] hasn’t severely squeezed its
by the first quarter of 2024. As Airfinance “I think the supply and demand will suppliers. Airbus is the winner.”
Journal went to press, preliminary data be there. If you throw in the extra 75 or So, while lessors tend to agree that
indicated Airbus delivered more than 600 whatever it’s going to be, the rate was 25 demand is there to support the ramp up,
commercial aircraft in 2021. or 15 to 25 aeroplanes a month, then I think concerns remain about severe snags in the
While the official figures are due to be you revisit it and see what your judgment supply chain and the ability to deliver at
released by the end of January 2022 is then, but it hasn’t happened yet,” adds higher rates without severe disruption.
following an audit, several sources Barrett. There is a further problem: how will
managed to get hold of information The shift in support for the rate increase Boeing grapple with the need to maintain
confirming year-end figures for Airbus. is a testament to how quickly sentiment market share, generate sufficient cash,
Is such a bullish outlook justified for a can change, says Air Lease’s CEO and pay down debt and support research and
post-pandemic recovery of the narrowbody president, John Plueger. development projects when faced with
sector, especially given the wide variance “I think it shows the incredible speed and a competitor that appears to have the
in airline recovery by region and with rapidity, and in a very short amount of time. support of its global supply chain?
increases in output that are well above [ISTAT] Edinburgh was around the time as
pre-Covid rates? IATA [International Air Transport Association]
Demand aside, it makes perfect business in Boston, which was an amazingly well Laura Mueller
sense for Airbus to increase production attended event by the airlines… and the Content Director, AFJ and Industry Chair
and tilt market share in its favour for years airlines we met… not one did not ask about Aviation Finance
to come. A steady increase in production new aircraft. We have opened the US to the Airfinance Journal
www.airfinancejournal.com 3
Contents
Cover story News analysis Features & special reports
Big, and getting bigger
Not many CEOs can claim two mega-
12 Rosy outlook for LCCs
24 Market competitors – Small
widebodies struggle
acquisitions in the aircraft leasing industry, Low-cost carriers will continue to drive the
The widebody market has been badly hit by
especially in less than eight years. Aercap’s Covid-19 recovery, particularly in domestic
the Covid-19 pandemic and is expected to
Aengus Kelly has. Airfinance Journal met markets with historically less competition, 777
be slower to recover than other sectors of
with him in Dublin to reflect on the two Partners managing partner, Josh Wander, tells
commercial aviation. Geoff Hearn looks at
acquisitions, the integration process and Hugh Davies.
how this might affect the smaller twin-aisle
the lessor’s next priorities.
aircraft on offer from Boeing and Airbus.
18 13 Lease factors plumb
nonsensical depths
The sale and leaseback market for new-
26 Data
technology aircraft continues to boom, with
lease rate factors down to levels that have
confounded industry leaders. By Dominic Lalk.
28 Pilarski
Air Investor 2022
14 Good signs for Chinese air
cargo
With less than 200 dedicated freighters in
service, there is plenty of room for growth
29
in China for air cargo operators, Elsie Guan
6 People news reports.
News analysis
Special reports
8 Surplus to requirements
The Covid-19 pandemic is exasperating an
already difficult situation for used widebody
aircraft, writes Hugh Davies.
16 Door opens for more lessor
deals
Expect more mergers, acquisitions and lessor
10 Asia-Pacific’s long road to
recovery
consolidations in the leasing industry in 2022,
but also watch out for newcomers trading in 30 Investor Poll: Narrowbodies
continue to lead
the market. Laura Mueller reports.
The Asia-Pacific region is lagging far behind in
pandemic recovery. Its airlines and lessors are
struggling, industry experts tell Elsie Guan. 34 Aircraft data
22 Values and lease rates trend –
A321neo
11 Vistara expands via leasing
route
No aircraft has been immune to the impact 49 New aircraft market values
Strong shareholder support and more than 30 of Covid-19 on its sales, but Airbus’s largest
new aircraft on the way will continue to fuel
Vistara’s expansion, airline chief executive
officer, Vinod Kannan, tells Dominic Lalk.
single-aisle looks to have suffered less than
most. Geoff Hearn looks in more detail at the
aircraft’s prospects.
50 New aircraft lease rates
Managing editor Group sub editor Senior marketing executive (Subscriptions) Printed in the UK by Buxton Press, Buxton,
Olivier Bonnassies Peter Styles Wilson Eva-Maria Sanchez Derbyshire.
+44 (0)207 779 8062 +44 (0)207 779 8450
olivier.bonnassies@airfinancejournal.com Product director eva-maria.sanchez@euromoneyplc.com No part of this magazine can be reproduced
Michael Duff without the written permission of the
Asia editor +44 (0)7736 804460 Publisher. The Airfinance Journal Ltd.
Dominic Lalk mduff@theairlineanalyst.com Production editor Registered in the United Kingdom 1432333
+852 2842 6941 Tim Huxford (ISSN 0143-2257).
dominic.lalk@airfinancejournal.com Advertisement manager
Greater China reporter Chris Gardner Divisional CEO Airfinance Journal (USPS No: 022-554) is a full
+44 (0)207 779 8231 service business website and e-news facility
管沁雨 (GUAN Qinyu); Elsie Guan Jeffrey Davis
chris.gardner@euromoneyplc.com with printed supplements by Euromoney
+852 2842 6918 Institutional Investor PLC.
elsie.guan@airfinancejournal.com Head of sales
Senior reporter George Williams Subscriptions / Conferences hotline Although Euromoney Institutional Investor
Hugh Davies +44 (0)207 779 8274 +44 (0)207 779 8999 / +1 212 224 3570 PLC has made every effort to ensure the
+44 (0)20 7779 7346 george.williams@airfinancejournal.com hotline@euromoneyplc.com accuracy of this publication, neither it nor any
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hugh.davies@airfinancejournal.com
Head of Asia subscriptions for consequences that may arise from errors
Customer services
Consulting editor Harry Sakhrani or omissions or any opinions or advice given.
+44 (0)207 779 8610
Geoff Hearn +44 (0)207 779 8203
8 Bouverie Street, London, EC4Y 8AX, UK This publication is not a substitute for specific
harry.sakhrani@airfinancejournal.com
Content director, AFJ and industry chair professional advice on deals. ©Euromoney
aviation finance Senior product marketing manager Board of Directors: Leslie van de Walle Institutional Investor 2022
Laura Mueller Sarah Smith (chairman), Andrew Rashbass (CEO), Tristan
+44 (0)207 779 8278 +44 (0)207 779 7249 Hillgarth, Jan Babiak, Imogen Joss, Lorna
laura.mueller@airfinancejournal.com sarah.smith@euromoneyplc.com Tilbian, Colin Day and Wendy Pallot.
4 Airfinance Journal January/February 2022
News analysis
We’re the people
to keep you flying
Shannon Engine Support has the world’s largest leasing
portfolio of CFM56 and LEAP engines strategically
located across the globe. Short or long-term leases,
our tailored solutions are created by people with
unrivalled knowledge and expertise, who understand
your business and the strength of partnership.
In challenging times, that’s good to know.
SES. The CFM Specialist Lessor.
www.ses.ie
Julie Dickerson
Julie Dickerson
Chief Executive Officer
www.airfinancejournal.com 5
People news
MUFG names co-
global heads aviation
M itsubishi UFJ Financial has promoted
Olivier Trauchessec and Vicente Alava
Pons as co-heads of global aviation.
Trauchessec has been at the bank
since 2016 as managing director, head of
transportation leasing and asset finance for
the Americas, a unit of MUFG’s investment Vicente Alava Pons Olivier Trauchessec
banking and markets group.
He previously worked for BNP Paribas as In October 2016, Airfinance Journal November 2019. He joined MUFG through
head of aviation finance in the Americas. He reported that Mitsubishi UFJ Financial had the DVB Bank aviation lending acquisition
had led the aviation desk in the Americas for established an aviation finance office in that year. He previously held managing
the French bank since 2000. From 1996 to New York. director and regional head roles at DVB in
2000, he served as vice-president of aircraft Alava Pons was managing director, Europe, the Middle East and Africa (2017 to
finance in the bank’s Paris office. head of origination aviation EMEA, since 2019) and Asia-Pacific (2003 to 2017).
Jebely joins Withers industry, has represented ultra-wealthy
individuals since 1896 and is today the top
used Airbus A350-900s. Airfinance
Journal’s Fleet Tracker identifies both
global law firm dedicated to serving them,” aircraft as 2015/16-vintage A350-900s
M anaging partner Paul Jebely left
Pillsbury Winthrop Shaw Pittman
in December to join Withers as a senior
he explains. “Private capital investment
from ultra-high-net-worth individual and
previously leased to LATAM.
family offices is now integral to the future
partner based in its Hong Kong office and
head of its newly launched global asset
of aviation. Most often, these players first
look for deep industry expertise from New CFO for
finance practice, effective 1 January 2022. their most trusted personal advisors,
like Withers, when considering such SMBC AC
investments - be they in traditional airlines/
leasing, advanced air mobility or anything
in between. And now they have it.” S MBC Aviation Capital (SMBC AC)
has promoted Aisling Kenny to chief
financial officer (CFO). Kenny served as
SMBC AC’s senior vice-president finance
and entered her new role in January.
Cape becomes VP of She joined SMBC AC in 2012 and has
previously held positions in restructuring,
trading Vmo Aircraft as head of funding and corporate tax and
as head of its global finance function.
Leasing Aisling completed her training as a
chartered accountant with Ernst & Young
V mo Aircraft Leasing named Jeremy
Cape as senior vice-president
head of trading and business analysis in
and held a management position in the
firm’s banking and leasing audit department
before joining SMBC AC.
Paul Jebely November. The move follows the appointment of
He joined from JP Morgan Asset Barry Flannery to the recently created
Jebely joined the law firm in March Management. position of chief commercial officer.
2016 with the opening of the Hong Kong Cape previously spent more than four Flannery previously held the role of
office. Previously, he was at Clyde & Co, years at Aercap as vice-president and CFO before Eithne Manning, who joined
where he was a partner and head of the another three years with ILFC, prior to the the company in 2005, and was previously
firm’s aviation finance practice. May 2014 acquisition. head of funding, tax and global finance,
During his time at Pillsbury, Jebely His leasing experience also includes took over as its interim CFO.
advised clients such as Credit Suisse and four years as head of risk at Aircastle. “We are delighted to announce Aisling’s
Aviation Capital Group and ultra-high- Previously, he worked at JP Morgan and appointment as chief financial officer,” said
networth individuals on the purchase and Seabury in analyst roles. Peter Barrett, chief executive officer.
sale of business aircraft. Before Clyde & New York-listed alternative asset firm “After an extensive internal and external
Co, he headed Ashurst’s Asia, Middle East Ares Management and aircraft leasing search process, Aisling demonstrated
and Africa aviation group. veterans Bob Brown, Sean Sullivan and impressive insights into the business and
Well-known in commercial aviation Will Hudson teamed up in early 2021 to a clear strategic vision, which will be great
globally, Jebely confirms that he will acquire and lease commercial aircraft. additions to our senior management team
remain active in sector, though his main Funds managed by Ares Private Equity as we continue to navigate short-term
focus in it will shift from financiers and and the Vmo management committed challenges in the sector and take advantage
lessors to private investors. about $500 million in initial equity capital of commercial opportunities as the industry
“I followed the money,” Jebely tells to support the new leasing platform. recovers. I know Aisling will be an excellent
Airfinance Journal. In November, the San Francisco- leader in the business and I look forward to
“Withers is a large global law firm based lessor signed a long-term lease working closely with her when she takes up
that, although not known in the aviation agreement with Delta Air Lines for two her role in January 2022.”
6 Airfinance Journal January/February 2022
People news
Isom to replace Parker as American CEO She joined ELFC in 2001 as an
engineering manager and for the last
20 years she has undertaken increasing
A merican Airlines chief executive officer
(CEO), Doug Parker, will retire on 31
March and be succeeded by Robert Isom,
for a more vibrant, resilient and secure
aviation industry. At American, Doug has
overseen unprecedented investment in
levels of responsibility within the technical
function of the company as vice president
and most recently as senior vice president
the carrier’s president. our team and our product and set the with responsibility for the EMEA region.
Isom will also join the airline’s board standard for servant leadership, tirelessly
of directors on that date, and Parker championing our people and establishing
will continue to serve as chairman of an accessible and inclusive culture. We
American’s board.
“I have worked with Robert for two
look forward to continuing to benefit from
Doug’s sound judgment, deep industry
Allman returns to
decades, and I am incredibly pleased
that he will be the next CEO of American
knowledge, persistence and optimism as
chairman of our board.”
Loomis, Sayles
Airlines, which is truly the best job in our Isom, who was named president in
industry,” said Parker.
“Robert is a collaborative leader with
2016, brings more than 30 years’ global
industry and leadership experience across
K eith Allman has rejoined Loomis, Sayles
& Company, an affiliate of Natixis
Investment Managers, as head of research
deep operational expertise and global finance, operations, planning, marketing, and private credit for the mortgage and
industry experience. His efforts to guide sales, alliances, pricing and revenue structured finance team.
and support our team throughout the management. The Loomis Sayles Mortgage and
pandemic have been nothing short of He previously served as executive vice- Structured Finance (MSF) platform continues
phenomenal. We are well positioned president and chief operating officer at to enjoy meaningful growth under the
to take full advantage of our industry’s American after holding the same positions leadership of Alessandro Pagani, portfolio
recovery, and now is the right time for a at US Airways. manager and head of the MSF team.
handoff we have planned and prepared for. Before joining US Airways, he held The addition of Allman’s newly established
I feel extremely fortunate to hand the reins senior executive operations, finance and role will further strengthen the team’s
to this clear and capable leader.” commercial roles, at GMAC, Northwest research function and enable dedicated
Lead independent director, John Cahill, Airlines and America West Airlines. He focus on asset-based private credit and
said: “Over the span of his 35-year career, started his career at The Procter & Gamble esoteric asset-backed securities (ABS),
Doug has been an architect and advocate Company. both asset types that are experiencing
increased demand among investors.
In his new role as head of mortgage and
Nord LB expands airlines, banks and other aircraft owners to
assist AJW Group in its aircraft and engine
structured finance research and private
credit, Allman will oversee a team of
London team trading business.
Whitty started his career in aircraft
seven analysts. He will also lead the effort
to originate private credit opportunities
remarketing in 1990 with Fortis Aviation. He
alongside Michael Meyer, securitised
G erman bank Nord LB has expanded its
aviation finance team in London with
the appointment of Sylvain Gloux.
has been based both in Europe and the USA,
and has achieved considerable success in
strategist for illiquid and real assets.
Based in New York, Allman reports to
aircraft remarketing on behalf of a variety of
Gloux has started as senior director Alessandro Pagani, portfolio manager
airline and financial sector clients.
origination, aviation finance and investment and head of the Mortgage and Structured
He was one of the founders of Cabot
solutions at the bank, six months after Finance (MSF) team.
Aviation in 1998 and subsequently worked
being released by Erste Bank. He formerly was a senior analyst on
for Air Partner since 2015.
He joined Erste Bank in 2019, following the MSF team from 2016 to 2019. He
the departure of key members of the specialised in commercial and esoteric
Aerospace finance team. ABS, with an emphasis on transportation
Prior to that he was with Cargo Logic assets, including aircraft, shipping
Management and Flybe as head of fleet ELFC names CCO containers and railcars.
trading and financing for almost four years. Most recently, Allman was head of
Between 2011 and 2015, Gloux was at
DVB Bank as assistant vice president- E ngine Lease Finance Corporation (ELFC)
has promoted Richard Hough to the
position of chief operating officer.
Non-Flow ABS at MUFG, where he led the
development of multiple esoteric structured
products such as the post-pandemic
aircraft finance. Prior to that he held
different aviation finance roles at Coface, Hough is the company’s chief technical aircraft lessor enhanced equipment trust
BNP Paribas and ABN Amro Bank. officer. certificate. He positioned MUFG for left-
He joined the company in 1997 and he lead roles in aviation, container and venture
has held several positions of increasing debt, as well as lead roles in a number
responsibility within the technical of other asset classes, including whole
Veteran trader Whitty department. In 2011 he was promoted to business securitisation, data centres and
the position of executive vice president solar loans and leases, among others. He
joins AJW Group technical and in 2013 also assumed was responsible for the group’s strategy,
responsibility for the Company’s IT function. client coverage, transaction pitching, deal
A JW Group appointed Tony Whitty
as director of aircraft and engine
procurement in December.
Before joining ELFC in 1997 Richard
spent seven years with Shannon
Aerospace where he trained as an aircraft
execution and overall training and team
development.
Previously, Allman was a director in
Whitty is responsible for aircraft and engineer. banking and origination at Deutsche Bank,
engine acquisitions across the AJW Group. Aoife Fennell succeeds Hough as where he covered transportation ABS as
He will use his extensive and diverse executive vice president and chief well as timeshare, rental fleet and other
experience in aircraft remarketing for technical officer. esoteric ABS.
www.airfinancejournal.com 7
News analysis
Surplus to requirements
The Covid-19 pandemic is exasperating an already difficult situation for used
widebody aircraft, writes Hugh Davies.
T here is still significant pressure on
used Boeing 777 and Airbus A330
widebody aircraft with a significant surplus
the A330. There are still aircraft to come
out through lease returns in the coming
years, so it may take time for there to be a
“Every lessor’s hope was that operators
would extend, and the way the world
looked in 2019, even though widebody
of both aircraft types putting pressure on meaningful recovery,” adds Yeomans. traffic growth rates weren’t the same as for
lease rates and placement prospects. He points out that for the 777, there narrowbodies, they were still substantial,
Airfinance Journal’s Fleet Tracker were signs that the market was softening so the hope was somewhat justified,” adds
shows that about one in five A330 and even before the pandemic. “You have to Razzhivina.
777 aircraft remain in storage, with inactive bear in mind what level of reconfiguration As the pandemic hit and airlines
aircraft skewing towards older aircraft. and investment is required in the aircraft grounded their fleets, it became obvious
The Covid-19 crisis and the expectation and how that is priced into the lease rates. that lease return prospects had diminished
that airlines transition out of current- “There’s a limit to what segments of further, with future recovery prospects
technology widebodies and into new- the secondary market you can make a slow to pick up because a significant part
technology aircraft such as the 787 and used 777 work in. It’s still a large-capacity of the fleet is still grounded and at low
A350, further exasperate the 777-300ER/ aircraft, so it does limit the addressable utilisation.
A330-300 surplus. market from a secondary market The key to the widebody recovery lies
“We’re well into the replacement wave perspective,” adds Yeomans. in a recovery in the Asia-Pacific region,
with the newer-generation A350s and Olga Razzhivina, senior Istat appraiser with a return in lease rates being a leading
787s, which is mainly where you see the at Oriel, tells Airfinance Journal that the indicator of recovery.
demand from the higher-tier carriers,” used widebody market was under pressure “Most widebodies are either based
Mike Yeomans, IBA Aero’s director of before the onset of the Covid-19 crisis. there or serve that region, so until we see
valuations, tells Airfinance Journal. “You’re Record production levels for new a meaningful recovery in the Asia-Pacific
not seeing many placement opportunities aircraft in the 10 years preceding the region it is difficult to talk about a recovery
for A330s, this is mainly moving down into pandemic, coupled with a wave of in the widebody lease rates and values,”
the low-tier carriers.” widebodies, particularly A330s, coming off comments Razzhivina.
“While you can put the aircraft to work, lease in 2019, exasperated the situation “Lease values typically recover before
it’s still a challenging environment for for the aircraft types. aircraft values because aircraft are
Age profile total fleet versus stored fleet
Age profile total aircraft
250
Airbus A330 Boeing 777
200
150
100
50
0
News analysis
expensive to buy and leasing is cheaper. In August, ATSG announced plans to the same rate we’re seeing today for any
While there are some discussions between acquire and convert 20 A330s for lease to considerable period of time.”
lessors and operators around fixed express delivery operators, with plans to
rates coming back next year, the bulk of finance conversion capital expenditures Mammoth conversions
placements revolve around power-by- using its senior credit agreement along For its part, prospective US cargo
the-hour rates, especially over the winter with current cash balances and future conversion company Mammoth Freighters
season,” she adds. operating cash flows. is seeing strong demand for widebody
Razzhivina points out that the number of While there is strong demand for P2F cargo conversions from the leasing
reactivated aircraft does not necessarily conversions, slot constraints and cost and investor community as well as from
reflect recovery in demand. issues combined with the uncertainty over operators.
“The number of active aircraft now how long demand will last make this outlet The company acquired 10 Delta Air
compared to April 2020 has definitely challenging to analyse. Lines 777-200LRs in late 2020 with plans
increased, but it doesn’t necessarily mean that “There is more supply to come. The to launch P2F conversions this year and
the demand for them has increased. It may freight conversion programme will absorb is currently reviewing other 777-300ER
also mean airlines are making operational some of that supply and create demand, platforms.
decisions to put the aircraft on low-utilisation but I don’t know if it will be enough to “We’ve had a lot of interest from
operations or as auxiliary freighter services to absorb all of it,” comments Yeomans. almost everyone because of the general
minimise costs,” she adds. “Not every owner wants to invest $17- lift shortage for long-haul cargo lift,”
Fleet Tracker shows lessors account 18 million on an asset that may not be Mammoth’s vice-president marketing
for more than 1,100 units in the global performing or may not be aligned with and sales, Brian McCarthy told Airfinance
A330/777 fleet, with about 26% of these their strategy. Some of the larger lessors Journal.
in storage or transitioning between have gone down that route and there The majority of interest in Mammoth’s
customers. Of these, around 500 are 11 are some good returns to be had if you new programme has initially been from
years or older, with the lessors having picked up a distressed A330 in the low- cargo operators, which McCarthy says is
the largest exposure in this age range to-mid teens. Overtime, that will ease as unusual for new platforms.
including Aercap, Carlyle Aviation Partners, more belly capacity comes back into the “Normally when you start a new
KKR and DAE Capital. market,” he adds. conversion programme, most of the
Air cargo became more popular attraction initially comes from leasing
Outlet challenges because of its increased cost companies and hedge funds with book
Operators, lessors and investors have effectiveness during the pandemic due to value problems and too many aircraft in
jumped on the opportunities presented supply chain constraints in other sectors. their garage.”
by the freighter conversion market, taking The pandemic saw a boom in e-commerce McCarthy says lease return widebodies
advantage of structural changes in supply and express cargo demand, particularly of particular interest for the company, which
chains. in the USA, with yet untapped market is looking to begin conversions from spring
Avolon signed an agreement with Israel potential in Asia-Pacific. this year. “Plenty of the lift that has been
Aerospace Industries (IAI) to convert However, this short-term spike in parked and not sold will go back in service
A330-300 aircraft in October, becoming demand and the improved economics of because they can go right back into the
the launch customer for IAI’s A330-300 airfreight may not last. same airline they came from, but lease
freighter conversion programme. “When this normalises, the cost returns are much more problematic.
Earlier in the year, GECAS exercised difference will go back to being too steep “When an airplane is hard lease returned
options with IAI to undergo passenger-to- for businesses to consider air cargo on a and is longer at the airline or being
freighter (P2F) conversion for an additional regular basis,” says Razzhivina. replaced in some way, those airplanes
three 777-300ER aircraft, bringing GECAS’s “We may have a healthier air cargo are very unlikely to find a long-term home
total commitment to 18 firm conversions industry than we did before the because it’s so expensive to reconfigure
under its ‘Big Twin’ programme. pandemic,” she adds, “but not growing at these aircraft.
“They’re the ones we’re going to be
focused on and those are going to be
Lessor
140 A330/777 fleet 11+ years readily available,” McCarthy continues.
120
The company is targeting around six
conversion lines at four conversions per
100 line per year once the programme fully
matures.
80
“If the market demands more or less we’ll
60 try to respond accordingly. The amount
of aircraft that are being offered gives us
40 reasonable view that were going to be
20
able to feed this programme with enough
feedstock for the next four to six years,”
0 adds McCarthy.
He explains that the capital-intensive
Aercap
Carlyle Aviation Partners
KKR Aviation Funds
DAE Capital
Castlelake
Avenue Capital Management
CDB Aviation
Avolon
Aviator Capital Management
JP Lease Products & Services
nature of widebody conversions is
narrowing down the playing field in terms
of leasing companies looking to undertake
P2F conversions for widebodies.
“We’re seeing a much smaller but
determined group of leasing entities
that are contemplating the widebody
Source: Airfinance Journal’s Fleet Tracker, December 2021 conversion space,” McCarthy notes.
www.airfinancejournal.com 9
News analysis
Asia-Pacific’s long road
to recovery
The Asia-Pacific region is lagging far behind in pandemic recovery. Its airlines and
lessors are struggling, industry experts tell Elsie Guan.
A ercap completed its acquisition of
GECAS from General Electric (GE)
in November. Under the agreement, GE
“Sale and leaseback transactions
occupied a large portion of transactions
completed by lessors and airlines in Asia in
received 111.5 million newly issued Aercap the past year compared with lessors’ new
shares, about $23 billion of cash and $1 aircraft orders and deliveries,” says Yu.
billion of Aercap notes. At closing, GE owned Airlines seeking sale and leaseback
about 46% of Aercap’s outstanding shares. deals to add cash back to their balance
Shortly after, Airfinance Journal broke sheets, however, have led to breakneck
the news that Goshawk Aviation is to be competition in sale and leaseback
purchased by SMBC Aviation Capital (SMBC transactions, quashing already fickle lease
AC) after nearly two years in the market. rate factors, note experts.
The deal will marry the businesses of the Some in the industry argue that aircraft
world’s fifth-largest lessor, SMBC AC, and leasing companies are well positioned to fill
smaller, ranked 20th Goshawk, according to capacity gaps as markets recover from the
Airfinance Journal’s Leasing Top 50. pandemic, particularly in Asia-Pacific, where
SMBC AC is backed by Japan’s SMBC hundreds of widebodies have been sent
super conglomerate; Goshawk has the for early retirement.
backing of Hong Kong’s NWS Holdings and “The airlines have been doing a lot of
Chow Tai Fook Enterprises. Since the start of the revision over the past 18 months. That is
Mergers and acquisitions (M&A) in the going to make them more cost effective
aircraft leasing industry will continue in Covid-19 pandemic, I have on a going-forward basis. On the aircraft-
2022, says David Yu, professor at New specific side, we are seeing a lot of
York University Shanghai.
seen a natural growth older aircraft being retired,” Deutsche
“Asian capital-backed lessors are staying among Asian lessors Bank’s managing director and head of
in a growth market. Since the start of the transportation, infrastructure and energy
Covid-19 pandemic, I have seen a natural instead of a dramatic financing for Asia, Richard Finlayson,
growth among Asian lessors instead of a told the Airfinance Journal Asia-Pacific
dramatic expansion in their aircraft leasing
expansion in their aircraft conference in November.
businesses,” says Yu. leasing businesses. “Perhaps it’s wishful thinking, but I actually
“It depends on whether lessors have think we could get caught short on the
had mature conditions to proceed David Yu, professor at New York University airline capacity side, particularly one to two
M&A transactions. In China, we seldom Shanghai years out when international traffic comes
see big acquisitions between bank- back,” adds Finlayson, who has run the
backed lessors. Japan has the same transportation finance business of Deutsche
situation. I did not see many lessor restructuring proceedings. Many other Bank in Asia-Pacific for the past 13 years.
M&A transactions happening in Japan,” carriers in the region are expected to The aircraft financier notes that the
comments Johnny Lau, chief consultant of continue to restructure throughout most of widebody segment has suffered many
PwC Aviation Business Services. 2022, including Lion Group and Garuda in retirements and lessor returns as those
On the airline front, at the Airfinance Indonesia, as well as Air Asia in Malaysia. airlines that needed capacity upgauged
Journal 2021 Asia-Pacific conference in “In terms of aircraft leasing, the almost exclusively on the narrowbody side,
November, Yong Ren Ng, vice-president bargaining ability of Chinese carriers and in the 200-seat capacity level.
marketing, Asia-Pacific at Aviation Capital northeast Asian carriers is stronger than “I think there is quite a possibility that
Group (ACG), pointed out that the ability for southeast Asian carriers,” says Lau, adding there are airlines that need near-term
northeast Asian airlines to raise capital is that uncertainties in South-East Asia led to capacity quite quickly, so they could either
far stronger than what has been observed higher risk premiums being exercised. take widebodies back out of storage or
across South-East Asia. “We can see that aircraft lease rates lease to fill the gaps,” says Finlayson,
Lau agrees that Northeast Asia has a and interest margins of bank loans have adding that these would likely be short-
stronger cargo business as well as more recovered to the pre-pandemic level in term leases of two to four years only.
dedicated freighters and hence helping the 2019 in North America and Europe. Due If airlines do decide to reclaim older
survival of carriers. to the uncertainties in South-East Asia, aircraft from storage facilities, he adds,
Philippine Airlines emerged from Chinese lessors are bearing more risks in this would require “quite a level of
voluntary Chapter 11 bankruptcy protection dealing with aircraft rental deferrals and financing to get them back into service and
on 31 December after four months of aircraft repossessions,” says Lau. reactivated”.
10 Airfinance Journal January/February 2022News analysis
Vistara expands via
leasing route
Strong shareholder support and more than 30 new aircraft on the way will continue
to fuel Vistara’s expansion, airline chief executive officer, Vinod Kannan, tells
Dominic Lalk.
O n 1 January 2022, Vinod Kannan
officially became the chief executive
officer (CEO) of Indian full-service carrier
India, at least on the domestic front.
Internationally, of course, we are guided
and reliant on the so-called travel bubble
Vistara, the Tata Sons and Singapore arrangements,” he adds.
Airlines protégé. Tata is 51%-owned by Indian
Kannan, Vistara’s former chief conglomerate Tata Sons, while Singapore
commercial officer, undoubtedly took the Airlines holds the remainder. Kannan
top job at the airline at a time of distress says both shareholders have been very
and uncertainty, although, unlike many supportive, “not just for survival but also for
of its peers, Vistara continued to grow growth”.
throughout the Covid-19 pandemic, he tells Kannan says he currently has limited
Airfinance Journal. visibility over how Tata’s late-2021
In 2022, that growth trajectory is only set acquisition of ailing Indian flag carrier Air
to increase, says Kannan, because Vistara India may impact his airline’s fortunes. He
will continue taking delivery of more than does note, however, that India’s market size
30 Airbus A320neo-family aircraft on order, Compared to 2019 is “significant” and that there is room for
as well as four additional Boeing 787-9 additional growth.
widebody units.
levels, no other airline in Tata Group will take control of Air India
Since its first commercial flight in January India has grown at the rate after bidding $2.4 billion, including equity
2015, Vistara’s fleet had grown to 48 and debt.
aircraft at the end of 2021. The majority of we have. The deal puts Air India back in the hands
these are on lease to the airline, including of the group which founded it as Tata
a 15-aircraft A320neo deal with Avolon Vinod Kannan, chief executive officer, Airlines in 1932, before nationalisation in
and other A320neo-family lease deals with Vistara 1953. It includes Tata taking on $2 billion of
industry majors Aercap, BOC Aviation and Air India’s $8.2 billion legacy debt, resulting
Air Lease. the gravitation of customers towards the in an equity value for the government of
In 2021, however, Vistara also added its brand, which is something that we are very about $400 million.
first owned A320neo to its portfolio. HSBC thankful for,” says Kannan. The Tatas will now own a 100% stake in
provided the financing to the airline to “Compared to 2019 levels, no other Air India, and also 100% of subsidiary Air
complete the purchase. airline in India has grown at the rate we India Express. Also part of the agreement
Through the end of 2023, the Vistara have. We have continued to expand and is a 50% stake in the Air India SATS joint
fleet is expected to reach 70 aircraft, take delivery of new aircraft through the venture, a ground services and cargo-
Kannan confirms, and the focus will remain pandemic. Why did we do it? We can see handling company.
on leasing rather than owning. that there is pent-up demand for travel. Air India has a fleet of 117 widebody and
“We hope to have 70 aircraft in 2023. The vaccination programme was rolled out narrowbody aircraft – Air India Express has
Beyond that, we still have to see. Our quite successfully here in India after the 24 narrowbodies. A significant number of
previous plans have all come crashing massive second wave, which helped to these aircraft are owned by the carrier.
down in 2020, just like everyone else’s. build herd immunity. The acquisition of Air India will give
We are still in recalibration mode as the “In terms of Covid preparedness, I think Tata an additional 4,400 domestic and
industry reopens and recovers. we have reason to be optimistic about the 1,800 international slots at Indian airports
“Very honestly, during the crisis we have market recovering, cautiously optimistic,” annually, as well as 900 slots at airports
to work on a day-to-day basis. That is what he adds. overseas, the most lucrative of which
has been keeping us occupied, dealing For more than a year, airlines in India are at London’s Heathrow airport. Vistara
with the new realities,” says Kannan. had capacity caps imposed on them by commenced 787 service to Heathrow,
Against these odds, Vistara still managed authorities as part of Covid-19 prevention Frankfurt and Paris in 2021.
to grow its market share throughout the measures. These are no longer, says The conglomerate also holds a majority
crisis. Kannan. stake in Air Asia India, a low-cost carrier
“If you look at the market share up to “Government restrictions have just operating more than 30 Airbus aircraft.
September, we used to operate at about recently come off. We do not have any The three Tata-controlled airlines – Air
5-6%. That has significantly increased. capacity caps imposed on us at the India, Air Asia India and Vistara – will
We are now at 8.7%, which is a function of moment. We are free to deploy our account for about one-third of India’s
capacity deployed but, more importantly, resources, as are all other airlines in commercial aviation market in 2022.
www.airfinancejournal.com 11News analysis
Rosy outlook for LCCs
Low-cost carriers will continue to drive the Covid-19 recovery, particularly in
domestic markets with historically less competition, 777 Partners managing
partner, Josh Wander, tells Hugh Davies.
U s-based investment firm 777 Partners
says it has been “overwhelmed” by
interest from the market, following various
particularly in domestic markets with
historically less competition.
“Our conviction about the cause and
offers to finance the company’s growing commercial viability of democratising
fleet of Boeing 737 Max aircraft. duopolistic markets has deepened,
“We are evaluating several firm, particularly as the demand for domestic air
interesting offers that we have on the travel returns with a vengeance following
table but have not ruled anything in or the pandemic-induced hiatus.
out at present,” 777 Partners’ co-founder “Low-cost operators are driving the
and managing partner, Josh Wander, tells return of demand, and increased industry-
Airfinance Journal in an interview. wide interest in utilising software to restore
The company expects 29 737 Max route networks and evolve revenue models
aircraft from its orderbook with Boeing to have validated our thesis,” adds Wander.
be delivered to customers in 2022.
The firm also recently announced an Bonza
order for another 30 737 Max aircraft, Wander’s firm has announced plans to
including both 737 Max 8s and extended back Bonza, a new independent Australian
Max 8-200s, expanding its commercial budget carrier, which aims to launch
aircraft portfolio to 68 aircraft. operations in early 2022, taking eight 737
Wander says 777 Partners is seeing a Max 8s this year.
“sharp return” in market value for the 737 Bonza’s market entry is expected
Max 8, with demand recovering faster than to bring increased competition and
anticipated. drive down the cost of domestic travel
“Our own view of the value of the aircraft in Australia, one of the world’s largest
is that it will continue to return to its position domestic aviation markets without an
as a highly desirable aviation asset,” he independent low-cost airline.
says, adding: “There are no better assets “We’re pleased to have two operators
to enable that than the most efficient and in markets which are geographically and
cost-effective narrowbody aircraft in the seasonally quite different. Our intent is to Low-cost operators
market, the 737 Max.” allocate our aircraft strategically, to where
Airfinance Journal’s Fleet Tracker shows they add most value. Bonza has publicly are driving the return of
that nine aircraft have been delivered to announced that it is intending to introduce demand, and increased
777 Partners to date, in operation with up to eight aircraft in its first 12 months of
Canadian ultra-low-cost carrier (ULCC) Flair operation. industry-wide interest in
Airlines. The carrier’s fleet will grow to 30 Tim Jordan, Bonza’s chief executive
aircraft by mid-2023. officer, has also commented on the great utilising software to restore
“Flair has a baseline plan for 2022 advantage afforded it by being able to flex route networks and evolve
which will see it adding quite significantly its fleet deliveries up or down depending
to its existing fleet, although it too retains on market conditions. revenue models have
some flexibility to accommodate market “The stark reality of an anti-competitive
conditions,” adds Wander. commercial airline sector in Australia is that
validated our thesis.
He explains that 777 Partners’ investment the cost of domestic travel is amongst the
Josh Wander, managing partner, 777
approach is insight-driven rather than highest in the world, and many secondary
Partners
opportunistic. and tertiary destinations have been
“Our strategy was conceptualised and neglected to concentrate capacity on
crystallised before the pandemic from higher-yield trunk routes,” says Wander.
empirical observations of an industry “When most Australians are priced out of be on building domestic connectivity in
encumbered by legacy technology and lack of domestic air travel, it’s bad for the country underserved regions.
commerciality,” he says. “We’re pleased to be economically and socioculturally. Making “There are enough neglected cities
the holder of capital assets to allow our affiliate all of Australia, not just major markets, and towns around the country to restore
airlines to benefit from our expertise and scale accessible and affordable to visit is not just and establish service to keep the focus
in acquisitions and capital management. It’s a a mission for Bonza but a business model,” domestic in the near and mid term,” says
model that has been used very successfully he adds. Wander. “Longer term, if it is good for
by some other smart aviation investors.” While Wander did not rule out the Australians and good for the airline to
Low-cost carriers will continue to drive potential for longer-range international explore international destinations, Bonza
the recovery, believes 777 Partners, routes long term, he says the focus will will do so.”
12 Airfinance Journal January/February 2022News analysis
Lease factors plumb
“History will later show that it was
the lessors and the banks that kept this
industry going here in Asia, except for a
few notable exceptions like SIA, which
nonsensical depths
has seen strong government support.
They’ve given so many deferrals and other
concessions,” says Milbank’s Ng.
“I feel that for airlines to get out of this
malaise they would need cash flow, which
The sale and leaseback market for new-technology aircraft could come from banks or with assistance
from lessors. In the case of lessors, what
continues to boom, with lease rate factors down to levels we are seeing is their amenability to
that have confounded industry leaders. By Dominic Lalk. possibly take some form of convertible
debt or possibly even equity in the airlines.
Banks and bondholders would obviously
P anellists at the Airfinance Journal Asia-
Pacific 2021 conference have confirmed
that the sale and leaseback (SLB) market,
term outlook for the region is not changing,
agree the experts.
“The long-term outlook for Asia hasn’t
be less amenable to that because their
business has nothing to do with running an
airline. To get cash flow back to the airlines,
especially on new-technology aircraft, is changed. It will be the largest aviation we’re seeing some of those conversations
still red hot, with lease rate factors down to market. That said, where we hope to see happening,” he adds.
levels that “just don’t make sense”. improvement is in the capital markets,” says O’Mara observes “a building consensus
“For us financiers, it’s the same as Paul Ng, a Singapore-based Milbank partner. of the positive long-term impact the
lessors. Through this crisis we’ve seen “On the finance front, what we have not crisis may give to lessors in that they
so much liquidity that lease rate factors, seen here in Asia is large-scale capital have managed this crisis very well, with
on a sale and leaseback, are now down markets funding to the lessors and airlines. regards to the support and flexibility
to a level that doesn’t make any sense. A few Chinese lessors have issued bonds, shown to airlines, the liquidity buffers they
Everyone is chasing the same assets. It the likes of BOC Aviation, but we would like provided”.
is super competitive,” says Natixis global to see more capital markets involvement He then asked the panel if this could
head of aviation finance, Singapore-based and perhaps more structured capital fuel a “meaningful” and long-term shift to
Jean Chedeville. markets involvement,” says Ng. “I think the leasing.
In their market review and assessment, banks will get more engaged again once “It has been shown that lessors are able
the aviation finance top executives also the airlines can show positive or close to to access pools of funds at low rates partly
agree that global aviation is on the mend, positive cash flow.” because of their ability to pool assets. Their
with recovery markers observed in all key Session moderator Joe O’Mara, risk profiles are quite different from airlines;
markets, except Asia-Pacific. KPMG Ireland’s head of aviation finance, they could access cheaper funds. In a crisis
“There is only one region that is lagging quizzed the panellists on potential airline they are definitely more resilient,” says
behind and that is South-East Asia, and bankruptcies in 2021 and into next year. Milbank partner Ng.
Asia in general,” says Chedeville. “But “It’s a very strange crisis we’re in, very “If you look at Asian lessors, there’s a
everywhere else, in all other parts of the different from previous crises. There is no strong concentration in China, some in
world, we are seeing markets recovering.” liquidity shortage this time, in the sense that Japan. They are very different markets.
Orix Aviation chief executive officer, there’s government monies, there’s money Japan is very developed, savvy, and able
James Meyler, observes there is no from the markets or from new investors to access very complex financings. China,
demand-side issue and that there has not chasing any assets available,” says Natixis’s on the other hand, is gorging on very basic
been one throughout the pandemic. Chedeville. bank debt and parent support. They do
“I’d say I’m very optimistic, but I’d caveat “If this crisis has shown one thing it’s want to open up and access more complex
it in the sense that what we’ve seen hasn’t that you need to do business with trusted financing structures in the future but, for
been a demand-side crisis, or recession, or partners: lessors that you know, airlines that now, amid the industry distress, they will
anything else. It’s been a supply side issue,” you know. If you work with people like that just continue doing what they know and are
he says. and you deploy your capital in a structured used to,” says Ng.
“Governments have stopped travel. manner you limit your risk and potential for The most financing demand in the
People did not want to stop travelling. The losses,” the Natixis aviation banker says, current market is for new-technology
US case clearly shows this. When they noting he is most concerned about the low- narrowbody aircraft, agree the panellists.
opened again, the market came back very cost carriers in Asia because they are very However, certain mid-life aircraft remain in
strongly and when people couldn’t fly rarely getting government support. high demand, too.
transatlantic, they flew to South America or “On the lessor side, we’ve given huge “I think the focus has shifted a bit with the
Mexico. Then we saw the same happening forbearance to airlines that haven’t filed for crisis, at least from a banking perspective,”
in Europe. Once we saw the vaccination bankruptcies. A lot of that has helped their says Natixis’s Chedeville. “Modern-
passport rolled out, numbers rebounded survival,” says Orix’s Meyler. technology aircraft are obviously better
very quickly. People are flying. Demand is “As soon as we see markets opening assets, but we are back to placing more
there,” adds Meyler. up again and airlines get back to flying emphasis on the lessee credit. Before, as
Development Bank of Japan vice- cash-flow positive, it’s not going to be a bank we used to focus about 50% on the
president, Tomoki Fujisaki, agrees, noting the time that the lessor banks then turn asset and 50% on the credit. Today, the mix
there “definitely is pent up demand for on the customers having waited so is different. What’s important nowadays is,
travel”, adding that “a lot of it comes from long for their recovery, so I don’t think ‘How much funding commitments do they
huge accumulated household savings”. that will automatically trigger a wave of have, how much have they been able to
Despite the hardships faced by airlines, bankruptcies. It wouldn’t be in anybody’s get throughout the crisis?’ After that you
lessors and passengers in Asia, the long- interest for that to happen,” adds Meyler. look at the asset.”
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