US-based Guggenheim Aviation PartnersÆ (GAP) new Singapore office complements its existing Hong Kong office. The presence in Southeast Asia allows GAP to expand its $2.7 billion portfolio of new and used commercial aircraft further into the region. Stephen Barnes, former treasurer of Singapore Airlines, will be director of the new office.
"The Singapore office will work to further extend our global reach," says GAP managing director Paul Newrick. The company, which acts as a lessor of commercial aircraft assets to airlines, expects the Asia-Pacific region to grow significantly in the next decade.
Air Asia and China Southern Airlines are GAPÆs only two current clients in Asia.
Queried on GAPÆs plans for the market, Newrick says, ôWe see the replacement of the aging world freighter fleet with more fuel- and cost-efficient, environmentally-friendly and reliable aircraft as a huge market.ö
According to the International Air Transport Association (IATA), airlines in Asia-Pacific will see passenger traffic growth slow to 3.3% in 2008, down from 6.8% in 2007. Growth is forecast to recover to 3.9% in 2009.
But despite the industry downturn, aircraft leasing activity continues unabated. News of new aircraft lease deals by leaders in the sector, including AWAS, BCI Aircraft Leasing and the International Lease Finance Corporation, has far from stopped. As this story went to press, Natixis, BNP Paribas and Air Asia were reportedly on the cusp of an Islamic financing deal for an unspecified number of the low-cost carrier's Airbus A320 aircraft.
One reason for the popularity of aircraft leasing is that it allows airlines to quickly add cash to their balance sheet through sale-and-lease-back agreements. ôLeasing could become even more active in the downturn as more carriers look to raise cash through sale-and-lease-back transactions and minimise their balance sheet commitments,ö says Centre for Asia-Pacific Aviation CEO Derek Sadubin.
Sale-and-lease-back agreements allow an airline to sell an aircraft to a lessor and immediately lease it back with no disruption in service. The airline gets a cash injection and the aircraft lessor a steady revenue stream. The lessor is also able to claim depreciation of the aircraftÆs value as a tax write-off.
According to Sadubin, moves by aircraft lessors, like GAP, to expand into AsiaÆs leasing market present them with a good opportunity to ôtake a bigger position in the marketö. He warns though that the volatility in this market could be a concern.
ôWe see the opportunity to acquire aircraft opportunistically and at acceptable pricing that would provide feedstock for future conversion to freighters, which is one of GAP's specialties,ö says GAPÆs Newrick. ôAsia is a huge market and one that is very important to us having a presence in Singapore.ö
While aircraft leasing is expanding in Asia, the number of airlines is shrinking. Over the weekend, Korean low-cost carrier Hansung Airlines ceased operations. Indian airlines are particularly vulnerable as fuel costs, falling demand and overcapacity have cut into margins.
IndiaÆs new alliance partners, Jet Airways and Kingfisher Airlines, announced over the weekend that they will return a total of 15 narrow-body aircraft to lessors through 2009.
As passenger demand weakens, the market for new leased aircraft will certainly slow. However, aircraft lessors stand to benefit from the plethora of low-cost and financially weak airlines, notably in China, India and Indonesia, who may look to sale-and-lease-back agreements to bolster their balance sheets. As with any slowdown, there are always two-sides to the coin.
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