Annual Survey Leasing Industry: continues on upward path October 2013

Though memories of the cycle’s lowest point are still relatively fresh, the last 12 months has seen another good year for the global leasing industry — and there’s full expectation that the recovery will gather pace through the rest of this year and into 2014.

The proportion of leased aircraft in the global fleet continued to rise in the last 12 months, reaching around the 42% level according to several analysts, compared with approximately 25% in 2000 and 11% in 1990 — and with some forecasts still insisting the proportion may even rise above 50% by 2015.

According to Ascend there are some 6,400 aircraft in the current global fleet that are “out of production” models and which are due to be replaced over the coming years. North and South America, followed by Europe, are the areas with the highest amount of these aircraft. But the BRIC markets of Brazil, Russia, India and China also remain a prime focus for many lessors, with substantial scope for growth in leased fleets there.

In Aviation Strategy’s annual survey of the leasing industry (see table on page 13), the overall fleet for lessors with more than 100 owned or managed aircraft totals 6,394 — compared with a total of 5,879 for lessors with 100+ aircraft as of 12 months ago (see Aviation Strategy, September 2012).

The Big Two (GECAS and ILFC) together account for 41.7% of the 100+ lessor fleet, though this is down from 46.6% as of 12 months ago and due to both the giants easing back their portfolios and aggressive expansion from a number of the medium-sized lessors (such as SMBC Aviation Capital, ORIX Aviation, ICBC Leasing and BOC Aviation).

However, the Big Two are likely to claw back some of that lost ground as they led all lessors in terms of net new orders placed over the last 12 months. In the last 12 months the outstanding order book (for the entire leasing industry — not just the 100+ aircraft lessors) has risen by more than 15%, to 1,618, thanks largely to new orders from GECAS, ILFC, Avolon, ICBC Leasing and the Air Lease Corporation.

Those orders mean that 100+ fleet lessors now account for 88.3% of all lessor orders, compared with 85.2% a year ago. with the only significant order book from lessors with less than 100 aircraft in their current portfolio coming from Alafco, which has 125 aircraft on order.

Over the next few pages Aviation Strategy profiles the leading lessors in descending order of portfolio size.

General Electric Capital Aviation Services (GECAS)

GECAS, part of the giant conglomerate GE (with around \$148bn of revenue annually), is continuing to trim its portfolio — although the pace of reduction is lessening, with owned and managed aircraft falling from 1,710 to 1,680 in the last 12 months (compared with a total of 1,830 two years ago).

The fleet has an average age of more than seven years, but new aircraft arrivals are starting to reduce the age profile of the portfolio. As at June 30, by value 45% of the owned portfolio is five years old or less (compared with 41% a year ago), while 29% is aged between six and 10 years (24% a year ago), 20% is between 11 and 15 years (26%) and 6% is aged 16 years or more (9%).

There has also been a substantial shift in the proportion of narrowbody to widebody aircraft. Narrowbodies account for 45% of the fleet by value (substantially down on the 57% they accounted for 12 months ago), with 29% being widebodies (up from 20% a year ago), 11% RJs and 7% cargo variants (the rest of the “fleet value” is in standalone engines). All but a handful of the narrowbody fleet are A320 family and 737NG aircraft, with the widebody fleet largely comprising 767s, 777s and A330s.

The portfolio is placed with 230 customers in 75 countries, and the biggest market for GECAS remains the US, where 29% of the fleet by value is placed — though this is down from 32% a year ago and from 47% as recently as 2009. The next most important market remains Europe (24% of overall fleet value), followed by the Asia/Pacific region (19%), the Americas (13%) and all other markets (15%).

While GECAS is still behind ILFC in terms of outstanding orders, its order book has risen significantly, from 190 as of a year ago to 239 today. In September GECAS finalised an order for 10 787s (firming a commitment made at the 2013 Paris air show), with deliveries scheduled to begin in 2019. In total GECAS’s order book comprises 138 Boeing aircraft (120 737s, two 747s and 16 777s) and 101 Airbus models (70 A320s, 28 A321s and three A330s).

GECAS is headquartered in Stamford, Connecticut and has 23 other offices around the globe, with a total of 480 employees. In the first six months of 2013 GECAS’s revenue rose very slightly to \$2.7bn, with a 4% rise in segment profit to \$652m.

International Lease Finance Corporation (ILFC)

Owned by insurance giant AIG — which considers it a “non-core asset” as the insurer attempts to recover after a \$182bn US government bailout in 2008 — ILFC has had another rollercoaster 12 months since our last survey.

After several unsuccessful attempts to offload the lessor, it looked as if an exit had finally been secured in December 2012 when AIG announced it was selling 80.1% of ILFC for \$4.2bn in cash to Jumbo Acquisition Limited, a consortium of Chinese investment companies comprising New China Trust (one-fifth owned by Barclays), New China Life Insurance, P3 Investments and the China Aviation Industrial Fund. Jumbo also had an option to buy a further 9.9% for \$522.5m, which in July this year the consortium said it would exercise. However, in August New China Trust and China Aviation Industrial Fund withdrew from the consortium after reports the partnership had been struggling to raise the investment needed, and the deal has now effectively collapsed.

ILFC says that “AIG continues to consider us as a non-core business and is continuing to pursue other options for us, including a sale or initial public offering” — and so the saga of a company with more than \$23bn of outstanding debt continues.

Based in Los Angeles, ILFC has offices across the globe and in the first half of 2013 the lessor recorded revenue of \$2.2bn, 5.3% down on the same period in 2012, with net income plunging from \$322m in the first half of 2012 to \$83m in January-June 2013. According the ILFC this was due to a number of factors, including “lower lease rates on aircraft that were re-leased or had lease rates change and a decrease in the average number of aircraft in our fleet”.

ILFC’s fleet has been eased back over the last 12 months from 1,030 to 987 aircraft, comprising 910 owned and 77 managed aircraft. The lessor has been disposing of older aircraft (30 went in the first six months of 2013) and has also been looking to acquire newer aircraft through purchase and leaseback deals with airlines — it has acquired 22 aircraft from four customers through these types of transactions so far this year.

The owned aircraft have an average age of 8.5 years and have a net book value of approximately \$34bn (compared with a value of \$35.1bn a year ago). 72% of the portfolios are narrowbodies and the rest widebodies, and as of June 30 they were placed with 172 clients in 79 countries around the world.

Over the last 12 months ILFC has exercised purchase rights for 50 A320neos and was also the launch customer for the Embraer E2 aircraft, of which it has ordered 50 (with options for 50 more); the lessor says that the model “now provides ILFC with a third source of quality aircraft”. Excluding the Embraers, the ILFC has boosted its order book yet again over the last 12 months (rebuilding from a low of just over a 100 aircraft as of three years ago), and outstanding orders now stands at 279 aircraft (compared with 228 a year ago), comprising 125 A320s, 40 A321s, 20 A350s, 23 737s, and 71 787s.

BBAM

In January this year Onex, a Canadian private equity company, bought 50% of BBAM for \$165m, with 35% coming from the previous 85% stake owned by its management team, led by CEO Steve Zissis, and 15% coming from buying all the equity owned by Dublin-based Fly Leasing (see Fly Leasing profile below ).

BBAM is based in San Francisco and has eight other offices worldwide. Its managed fleet has remained almost flat at 450 narrowbody and widebody aircraft over the last 12 months, which are valued at more than US\$13bn.

BBAM has more than 80 airlines clients, including easyJet, British Airways and Ryanair in Europe, the “Big Three” in China, and United and Virgin America in the US. It has outstanding orders for just six 737s, making it the Top 10 lessor (excluding BCC) with the smallest order book.

SMBC Aviation Capital

Owned by Sumitomo Mitsui Banking Corporation, SMBC Aviation Capital is based in Dublin and has offices in Tokyo, New York, Amsterdam, Hong Kong, Beijing, Shanghai, Singapore, Seattle and Toulouse.

Since its acquisition from RBS the lessor has expanded substantially, and in April this year it accelerated its growth through the integration of SMFL Aircraft Capital Corporation and Sumisho Aircraft Asset Management (SAAM). This helped its fleet grow from 238 to 343 in just 12 months, of which 249 are owned and 94 managed.

The owned fleet has an average age of less than five years and is almost entirely made up of narrowbodies, including 102 737-800s, 76 A320s and 42 A319s, which are placed around the globe with customers that include BA, Air France and Lufthansa in Europe, and JAL, Air China and Qantas in the Asia/Pacific region.

On order are 59 aircraft, comprising 29 737s and 30 A320s, and an expansion of the order book will be vital if it wants to maintain its newly-won fourth place in the lessor table.

CIT Aerospace

CIT Aerospace has seen its portfolio rise slightly over the last year, from 325 to 329 owned and managed aircraft, of which the majority are narrowbodies. The owned portfolio has an average age of six years and is placed with 94 airlines, and the lessor’s most important market is the Asia/Pacific region, where 38% of the portfolio by value is placed, followed by Europe (30%), US and Canada (13%) and Latin America (12%).

The New York-based lessor is owned by the US bank holding company CIT Group, and also has offices in Florida, Los Angeles, Connecticut, Seattle, Toulouse, Dublin and Singapore.

Earlier in 2013 CIT Aerospace ordered 30 737 MAX8s, although 20 of those were converted from existing orders for 737NG aircraft. In total CIT Aerospace has 155 aircraft on order, including 48 737s, 10 787s, five A320s, 52 A320s, 13 A321s, 12 A330s and 15 A350s, which gives it the fourth largest order total of all lessors.

AerCap

AerCap is based in Amsterdam and has offices in Ireland, the US, China, Singapore and the United Arab Emirates. Last year AerCap “decided to explore a range of strategic alternatives to enhance shareholder value, including continued execution of our operating strategies, further share repurchases, aircraft portfolio sales or a sale or merger of the company”, which led to the sale of its equity in Aircraft Lease Securitisation Limited (comprising a portfolio of 50 aircraft) for \$1bn to Guggenheim Partners in November 2012 — though AerCap will continue to manage the aircraft.

In the first six months of 2013 AerCap’s revenue fell 4% to \$493m, due largely to the reduction in fleet, though adjusted net income rose 5% to \$135.1m.

As of the end of the second quarter of 2013 AerCap’s portfolio stood at 325 owned and managed aircraft (compared with 292 a year ago), with a total asset value of \$9bn, 3% down on a year earlier.

Among the deals executed in the first half of 2013 was a purchase and leaseback agreement with LATAM Airlines Group for 25 widebody aircraft, for new aircraft being delivered between 2013 and 2017.

The average age of the owned fleet of 227 aircraft (compared with 256 a year ago) is more than five years, though this is down by four months year-on-year thanks to the ongoing sale of older aircraft, which included an A330, nine 737-800s and one MD-11 freighter aircraft in the first six months of 2013. The owned fleet currently comprises 121 A320 family aircraft and 61 737 NGs and Classics, with the biggest widebody contribution coming from 34 A330s. The lessor has four A330s and 10 737-800s on order,

The largest market for AerCap’s remains Europe, which accounted for 38% of all revenue in the first-half of 2013, followed by the Asia Pacific region & Russia, accounting for 33%. The single largest customer for the lessor is now American, accounting for 11% of all lease revenue in the first half of 2013, followed by Aeroflot (8%) and Virgin Atlantic (7%).

AWAS

AWAS’s fleet has risen yet again, from 240 to 263 aircraft over the last 12 months, with a book value of \$8.6bn. The portfolio has 215 narrowbodies and 48 widebodies, with an abundance of different types, and they have an average age of five and a half years. The fleet is on lease to more than 95 airlines in 46 countries.

AWAS is majority-owned by private equity house Terra Firma and is headquartered in Dublin, with offices in New York, Miami and Singapore. AWAS currently has 56 aircraft on order, including 8 737s, 46 A320s and two A350s.

Boeing Capital Corporation (BCC)

Boeing Capital Corporation provides “last resort” finance for Boeing’s products from aircraft to space and defence. With 160 employees BCC is based at Renton, Washington, and has other offices in Los Angeles, Beijing, London, Hong Kong and Moscow.

From February this year BCC stopped reporting results as separate 10Qs and 10Ks submitted to the SEC, and instead is now a segment within Boeing’s main SEC filings. In the first six months of 2013 BCC saw a 12% decrease in revenue to \$209m, with earnings from operations down 11% to \$63m. That decrease in both revenue and profit is due to a continuing rundown of BCC’s exposure — as at the end of June 2013 BCC owned or had partial ownership of or interest in 250 aircraft, compared with 272 as of 12 months ago. BCC’s portfolio’s value totalled \$4.1bn, compared with \$4.3bn a year ago and \$6.4bn four years ago.

Unfortunately the stopping of standalone 10Q reporting means that there is no longer any information available as to the age profile of the BCC portfolio, where they are placed, nor to how exposed that portfolio is to a handful of airlines.

Aviation Capital Group

Aviation Capital Group (ACG) is owned by US insurance group Pacific Life and is located in Newport Beach, California, with other offices in Beijing, Dublin, Santiago, Seattle, Shanghai and Singapore.

In the first six months of 2013 ACG saw lease revenue rise 13.7% to \$360m, though net income fell by 7.4% to \$40.7m, thanks largely to increased depreciation and losses from aircraft value impairments.

ACG has a mixed portfolio of 250 owned or managed aircraft (five greater than it had 12 months ago) — including the A320 family, 737s (both classics and NGs), 757s, 767s and A330s — that are contracted to around 90 customers in approximately 40 countries.

In January this year ACG ordered 50 737 MAX 8s and 10 737 MAX 9s, and its outstanding orders now total 147 aircraft, comprising 87 737s, five 787s, three A319s, 41 A320s and 11 A321s.

BOC Aviation

Owned by the Bank of China, BOC Aviation is continuing its steady growth and its owned and managed fleet has risen from 188 to 229 aircraft over the last 12 months. With an average age of less than four years, the owned fleet includes 90 A320 family aircraft, 75 737NGs and 20 777s.

Based in Singapore, BOC Aviation also has offices in Dublin, London and Seattle, and in the first six months of 2013 the lessor reported a 57% rise in net profit, to US\$163m, with total assets as the end of June 2013 totalling US\$9.9bn.

In September BOC Aviation ordered 25 A320 family aircraft (to be A320 or A321 models), for delivery between 2015 and 2019. BOC Aviation’s order book currently totals 68 aircraft, including four 737s, one 777, 34 A320s and 29 A321s.

ORIX Aviation

Based in Dublin, ORIX Aviation is part of the Orix Corporation, a Japanese financial services group. Over the last 12 months its portfolio has grown yet again, from 121 aircraft to 170, the majority of which are narrowbodies.

These are placed with 65 airlines in 35 countries, with Europe, North America and the Asia/Pacific region accounting for most of its portfolio. ORIX does not have any aircraft on outstanding order, giving it the dubious distinction of being the largest lessor (excluding BCC) not to have any aircraft on order.

Air Lease Corporation

Los Angeles-based Air Lease Corporation — launchedin 2010 by ILFC founder Steven Udvar-Hazy — continues its rapid growth over the last 12 months, increasing its fleet from 130 to 162 jet aircraft, with a net book value of more than \$6.5bn and with an average age of just over three and a half years.

Air Lease Corporation’s portfolio now includes 51 A320 family aircraft, 49 737NGs and 32 E175/190s, and they are placed with 78 airlines in 44 countries. Over the last 12 months the Asia/Pacific region has overtaken Europe to become the lessor’s most important market, accounting for 39% of the portfolio by net book value; Europe now accounts for 27% of the portfolio by net book value.

In the first six months of 2013 Air Lease Corporation saw its revenue leap by 37.5% to \$400m, with net profit up 50.6% to \$83m.

In September Air Lease Corporation ordered 30 787s and three 787s (firming up from a commitment announced at the 2013 Paris air show), bringing the lessor’s total order book up to an impressive 277 new aircraft — 151 737s, 12 787s, 15 777s, 40 A320s, 34 A321s and 25 A350s. As they arrive through the rest of the decade Air Lease Corporation will not only enter the Top 10 Lessors but appears to be on a trajectory to become to the third largest lessor at some point.

Aircastle

Aircastle’s fleet nudged upwards by three aircraft over the last year to 158, all of which are owned and which have a net book value of \$4.8bn. The portfolio comprises 97 narrowbodies, 39 widebodies and 22 assorted freighters, including 737s, 747s and MD11s. The fleet is relatively old, with average age of approximately 11 years.

The Aircastle fleet is placed with 67 customers in 36 countries, with the most important market being Europe, where 69 aircraft are placed, closely followed by the Asia/Pacific region, with 50 aircraft, with the rest in North America (18), Latin America (14) and the Middle East and Africa (seven).

Based in Connecticut and with other offices in Dublin and Singapore, Aircastle recorded a 2.8% rise in revenue in the first six months of 2013 to \$347m, with net profit up 14% to \$55.9m.

Macquarie AirFinance

Macquarie AirFinance, part of the finance giant Macquarie Group, has eased back its fleet over the last 12 months from 155 owned and managed aircraft to 142.

Based in Dublin and offices in Singapore and San Francisco, the lessor is primarily a narrowbody specialist, and of the 128 owned portfolio 66 are A320 family aircraft and 54 are 737NGs.

That portfolio is placed with 72 customers in 44 countries, and they include Etihad and flydubai in the Middle East, China Eastern and China Southern in the Asia/Pacific region, and Southwest and US Airways in North America. Macquarie AirFinance doesn’t have any Airbus or Boeing aircraft on outstanding order.

SkyWorks Leasing

Headquartered in Greenwich, Connecticut, SkyWorks Leasing has a diverse portfolio of 132 aircraft (up from 95 aircraft 12 months ago), including CRJ700s, ERJs, A319/320s, A300-600Fs, MD80s, 737NGs, 757s, 767-300ERs and 747-400Fs. It doesn’t have any aircraft on order.

ICBC Leasing

ICBC Leasing is part of the Industrial and Commercial Bank of China and has three business units, focusing on aviation, shipping and “large-ticket equipment”. It has increased its portfolio from 63 to 112 aircraft over the last 12 months as it expands rapidly. It has offices in Beijing, Tianjin, Bangkok and Dublin, and has outstanding orders for two A319s, 65 A320s and 10 A321s.

FLY Leasing

FLY Leasing (formerly known as Babcock and Brown Air until 2010) has edged down its fleet from 111 to 107 aircraft over the last 12 months. The majority are narrowbodies, including 45 A320 family aircraft and 44 737s.

Listed on the NYSE but based in Dublin, FLY’s portfolio has an average age of more than nine years, and is placed with 55 airlines in 32 countries. It has no aircraft on order

Avolon

Avolon has seen its portfolio remain almost static year-on--year at 103 aircraft, which comprises 48 A320 family aircraft, 36 737-800s, six A330s, seven 777s and six E190s. These are placed with 36 airlines in 24 countries, with the single largest market being the Asia/Pacific region, where Avolon has placed 28 aircraft, closely followed by Europe with 27 aircraft.

The lessor is owned by three private equity funds — Cinven, CVC Capital Partners and Oak Hill Capital Partners — plus the Singaporean sovereign wealth fund GIC. It’s based in Dublin and has other offices in Connecticut, Dubai, Shanghai, Hong Kong and Singapore.

Avolon has orders outstanding for 20 A320s, four A321s and 28 737s.

Pembroke Group

Owned by Standard Chartered, the Pembroke Group has offices in Dublin and Limerick. Over the last year its portfolio has grown from 84 to 102 aircraft, of which 98 are owned and four managed. They include 15 different models, including 47 A320 family aircraft and 37 737s. The portfolio is placed with more than 20 airlines, including Air China, Cathay Pacific and Emirates. No aircraft are on order.

MC Aviation Partners (MCAP)

Tokyo-based MC Aviation Partners (MCAP) is a subsidiary of giant Japanese conglomerate the Mitsubishi Corporation. It has 63 employees and other offices in Dublin and Los Angeles, and has a portfolio of 100 owned and managed aircraft (10 less than a year ago).

More than 80% of the fleet are narrowbodies, including 42 A320 family aircraft and 35 737-800s, and altogether 68% of the fleet are less than five years old. MCAP’s largest market is the Asia/Pacific region, where 46 aircraft are placed, followed by Europe and Africa (combined), with 26 aircraft. The lessor has no outstanding orders.

Other lessor orders

Outstanding orders from lessors with less than 100 aircraft in their current portfolio include Alafco, which is 54% owned by the Kuwait Finance House. It has approximately 50 aircraft in its portfolio and has outstanding orders for 125 aircraft, comprising eight 787s, 20 737s, 85 A320s and 12 A250s.

Intrepid Aviation is a freighter leasing specialist based in Stamford, Connecticut, with a fleet of three widebodies and with 17 A330 freighters on outstanding order.

AlphaStream Capital Management is based in Switzerland and has an outstanding order for 15 A320 family aircraft, while Moscow-based Sberbank Leasing is a generalist Russian lessor with 12 737s on order. US-based OH Avion has eight A330-200Fs on order while Meridian Aviation Partners is a Dublin-based lessor set up in October 2012 by Canadian private equity company Onex that has orders for five A330-300s.

DAE Capital — the leasing arm of the state’s Dubai Aerospace Enterprise (DAE) — has 52 aircraft in its portfolio and five 777s on order, while Dallas-based Texas Aviation Group has orders for two A319s.

At the Paris air show Hong Kong Aviation Capital (HKAC) signed an MoU for the purchase of 40 A320neo and 20 A321neo aircraft, though these have not yet been turned into firm orders.