Despite airlines such as Lion Air and Norwegian setting up their own leasing platforms, there is consensus that they will not pose a major challenge to the dedicated lessors.
Lion Air’s leasing unit, Transportation Partners, has been more active recently. The company secured leases on nine Boeing 737-800s that were part of Lion’s original order book, with the aircraft starting delivery now to Chinese carrier Juneyao Air. That is on top of aircraft it has placed with Lion Group affiliates in Indonesia, Malaysia and Thailand.
Flightglobal’s Ascend Fleets database shows that the company also recently took over managing of an ATR 72-600 that was delivered to Azul in August. That aircraft was previously owned by GECAS.
Chief operating officer at Transportation Partners, John Duffy, told Flightglobal recently that the company is looking at spreading out further to other jurisdictions, including the US, UK and Australia.
Similarly, Norwegian has announced that Dublin-based Arctic Aviation will manage the airline’s fleet and will also look to lease out spare aircraft to other operators.
Asked about the impact these airline leasing units might have during a panel discussion at the Ascend Flightglobal Consultancy Finance Forum in Tokyo, few lessors felt that they posed a major challenge to their business models.
“I think it’s reasonable to say that the primary objective of these entities is to manage – it’s more of an asset management function or risk management function for their order stream,” says Chris Dailey, senior vice-president marketing Asia Pacific at Jackson Square Aviation.
“The success of Lion and Norwegian I think hinges a lot on being able to unlock the value in their orderbook,” adds Wui Jin Woon, corporate finance director at AWAS.
That value may be significant, with both Lion and Norwegian holding large orders for liquid types with delivery positions that stretch out well into the 2020s.
In a recent report on the phenomenon, Fitch Ratings says that it does not see the units expanding to “a sufficient scale to become a significant competitive threat.”
Dailey adds that such airline-owned lessors have an inherent conflict of interest that may work against them as they try to place aircraft with other carriers. There may be issues where an airline-owned leasing company could have access to commercially sensitive information on a competitor, and thus maintaining independence would be essential.
Fitch points out that the airlines still need to work with other lessors, and thus “it is not necessarily in their interest to compete directly.”
This has been the case especially for Lion, which has secured sale and leaseback transactions on a number of its Boeing 737s and Airbus A320s this year with the likes of BOC Aviation, Avolon and AWAS.
“There may be opportunities for those airline leasing companies to work with independent lessors as well,” Dailey adds.
Merrick Brown, vice-president at Skyworks Capital Asia, has worked with airlines to set up leasing platforms, and notes that they have brought with them some challenges around novating the financing, particularly where export credit agencies have been involved.
“The other risk is surrounding the OEMs where they have sold to carriers viewing them as an operator and they are less happy having them take those orderbooks and lease them out to operators. They provide those aircraft at the airline price not the lessor price,” he adds.
Fitch notes that airline-owned lessors are likely to face higher funding costs, a point that Graham Lees of BOC Aviation agrees with.
“[Lower] cost of funds generally come to established lessors who have a diversity of aircraft types, geographic diversity of lessees, et cetera,” he says.
Fitch also notes that the emergence of airline-linked lessors is not a new phenomenon, with Guinness Peat Aviation, AWAS and BOC Aviation all previously linked to carriers before evolving into standalone lessors.
“As such, Lion Air and Norwegian’s subsidiaries could evolve into larger, independent competitors over the long term,” it says.
Source: Cirium Dashboard
