Lessor DAE sees no need to grow extra

Dubai-based lessor Dubai Aerospace Enterprise (DAE) doesn’t feel the need to grow extra quick, now that the two biggest players AerCap and GECAS are about to merge. DAE wants to grow at its own pace and mostly by purchasing aircraft on the secondary market and not by direct orders, it said last week during its HY1-results presentation. Lessor DAE sees no need to grow extra. AerCap and GECAS confirmed their merger plans last March in a process that could take until July 2022 to be completed. It took one hurdle when both parties received approval from the European Commission as there is sufficient competition out there, therefore making it “unlikely to give rise to serious competition concerns in the markets for aircraft and aircraft engine leasing.” AerCap’s current portfolio stands at 1.039 owned and managed aircraft, plus 280 on order compared to some 990 fixed-wing aircraft for GECAS and 255 on order. Combined, this totals almost 2.600 aircraft. By comparison, DAE has 298 owned and 66 managed aircraft plus 21 orders, bringing the fleet to 385 and making it the 10th largest lessor in the world. In its fleet, 179 aircraft are narrow-bodies, 54 wide-bodies, and 65 turboprops. “It’s a fantastic deal for AerCap and it is a fantastic deal for GE, but when we look at that, we don’t feel that this puts any pressure on us to become bigger-faster. I would argue that only time will tell whether being an operating lessor of 2.000+ aircraft is a logistic development or will create some disharmonies of scale simply because of the sheer number of aircraft one needs to deal with in the current market environment”, said CEO Firoz Tarapore. On DAE’s own size, he said: “You have heard me say previously that we could easily see ourselves operate at the 800 assets level. That is by and large true, but maybe just a little bit lower than that, given the recent market conditions and what happens between the narrow and wide-body market. (…) For us. this transaction (the AerCap/GECAS deal) won’t take us from our strategic path. We can stay on it and deploy the same strategies as in the past to sell and keep our portfolio in balance." So DAE sees no need to grow extra. DAE’s strategy has always been buying and selling aircraft. Since December, is bought ten owned and six managed aircraft and sold the same number again, all purchased and placed on the secondary market with airlines. The recent exception to the rule was a direct order with Boeing for fifteen MAX 8s in April. “While we placed an order with Boeing, I don’t think we will do this with Airbus anytime soon,“ said Tarapore. Ten years ago, the lessor canceled orders with both OEMs. Apparently, DAE has some worries here about the value of older A320neo/A321neo’s here that have had their fair shares of early Pratt & Whitney Geared Turbofan and CFM LEAP issues, when Tarapore added: “We will keep on buying Airbus aircraft for the managed and owned book. We are going to see how that shakes out. I think it is fair to also say that while the engine issues have died down in the noise, the substance of those issues hasn’t gone away. They will only come back when they first come off the wing. So it is something for multiple years in the future and something we will keep an eye on.” DAE has long-term lease agreements with India’s IndiGo, which has suffered hugely from GTF issues since 2016 but now has almost all engines either modified or replaced. Another parted of A321neo’s leased to IndiGo has LEAPs. DAE is happy with ATRs, but the OEM could do a bit more The Dubai lessor is also the second-largest of ATR 72-600 turboprops, of which it owns 65 and manages two. DAE is very happy with the type that has “a ton of ESG (environmental, social, and governance) credentials with nothing else in sight to compete with. We think it is a pretty good asset to be in. I have said before that if there was a path to get us to a hundred of these airplanes we would be on that, but now that is difficult.” That’s in part because Tarapore would like to be the French-Italian OEM to be a bit more active on the market: “ATR didn’t do much itself in 2020 and they need to do a lot more to regain their footing.” DAE reported a $49 million HY1 profit compared to $121.7 million for the same period last year. Revenues were 9.3 percent down to $613.4 million due to lower lease revenues and higher (maintenance) expenses because of the impact of Covid offset on a $20 million higher gain from the sale of aircraft. Loans and borrowings stood at $9.5 billion, plus $2.6 billion in undrawn notes that were secured in Q2. Unencumbered assets stood at $7.2 billion for 188 aircraft. The lease collection rate was 83 percent by the end of Q2 compared to 89 percent in Q1. By the end of June, the lessor had agreed on $206 million in lease deferrals with 29 customers, one more compared to March and five more compared to December. Lease amendments accounted for $152.1 million from 23 customers, up to two from March and six from December.

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