Singapore Aircraft Leasing Enterprise (SALE) has, since its establishment in 1993, grown steadily to become one of the world's premier aircraft leasing companies. Managing director Robert Martin spoke with Nicholas Ionides about how SALE has coped during the downturn since last September and how it is being positioned for the future.
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Q: Clearly some leasing companies were badly affected by the events of 11 September, particularly those with large portfolios of older aircraft. SALE seems to have held up well. How did you manage to avoid the same problems as some others?
A: First of all it's very important to point out how we position ourselves in the marketplace. SALE's position has always been, and will continue to be, focused on the newer half of an aircraft's life.
Our core business will be buying aircraft direct from manufacturers, placing them on lease with airlines, and trading aircraft out eventually with leases attached. The holding period of aircraft will not be more than 15 years.
So, with that in mind, let's take a look at the impact of 11 September. Yes, there are a lot of aircraft that ended up on the ground, but within that large number of aircraft, 80% of them were older aircraft.
In terms of the aircraft, we did have to move around, it was mainly because of the bankruptcy of Ansett and Sabena. Everyone else survived. We were not exposed to the other major carriers that went bankrupt, like Swissair, Canada 3000 and of course Latin American carriers that were affected. We were very fortunate in that we had very few aircraft being delivered to us during the period.
Q: Speaking in general about the leasing market, is it starting to pick up? For example are lease rates hardening again?
A: I think that to generalise for the whole market is very difficult. What we have seen is now a new equilibrium reached – a short-term equilibrium for the new aircraft.
I think that equilibrium has not been reached yet for old aircraft. There is still an excess. In terms of lease rentals themselves, it is less than 20% down – there has been less than 20% movement down if you isolate out the interest rate effect (interest rates have come off).
The big difference though is that aircraft are now being placed on shorter-term leases. For SALE, pre-11 September our average lease period was well over six years, and even now it is well over five years. So what we have done during a period where we are going to see lower lease rentals, we have basically gone to shorten up lease terms. The market in our view will begin to harden by 2004.
Q: What are SALE's forward plans? Will you still focus on Airbus A320s for narrow-bodies and Boeing 777s for wide-bodies, or will that focus have to widen as you continue growing?
A: We will continue on our strategy of conservative growth. Size does not matter. Today we are about to take the last firm delivery of a Boeing 777 in September this year.
We have now pretty much finished our first set of deliveries and options that we had from Airbus on the A320 side. So we need to look at firm positions to balance our [outstanding] A320s [from a second major order].
Looking at the position where we are in the cycle, it is quite obvious that to revisit our orderbook during the downturn makes sense. We have always positioned ourselves carefully, and so we are open to looking at the 737 Next Generation, A320s, A330s and 777s.
The timing is not decided. But this year will certainly be the lowest point of orders over the last cycle. What we need to do is evaluate whether prices are going to go lower and that is where we stand at the moment. There are no RFPs (requests for proposals) out or anything like that. We are at the moment in an information gathering stage.
Our view is of course that the best time to position yourself for the upturn is during the downturn. We are well cashed up... and so we are in a strong position going forward.
Q: What is the shareholders' vision for SALE in the long-term? How big will the portfolio be in, say, five or 10 years time? You have said in that past that SALE will have 100 aircraft within five years – is that still the number?
A: That hasn't changed. We have $156 million of undrawn capital. We are always trying to think ahead in terms of capital. There are few companies in the world that have such a pool of undrawn capital available, and committed and ready.
When you think about it, we have around 30 aircraft on order, and with the 41 we have now in our portfolio that gives about 70. But at the end of the day 100 aircraft may not be right – it all depends on the market.
From our side there are two key messages to get across. Number one is that well-capitalised, well-diversified leasing companies have come through the downturn well. Number two is you can still trade aircraft during the downturn. What matters is how you structure a deal before you put it together.
During the recession we have continued to grow. For example we have grown our staff numbers. So what we have done is we have used this period to better position ourselves in the marketplace and we will continue to do that.
[On the subject of a possible initial public offering], that is a shareholders' decision and the shareholders will look at all options very carefully. We have capital at hand but we won't wait for the capital to run out. We plan to revisit the capital requirements in two years.
Source: Flight Daily News
