Investment bank Standard Chartered Group will sell its aviation finance leasing business Pembroke to Saudi Arabian lessor AviLease. The acquisition, which is expected to close by the end of the year, includes 120 owned and managed aircraft that are leased to thirty airlines. This will bring AviLease’s portfolio to 167 aircraft with 46 airlines.
Standard Chartered and AviLease signed the agreement for the transaction today. It includes the sale of shares in “relevant subsidiaries and minority equity interests held by Standard Chartered Group for an initial total cash consideration of $0.7 billion. The Consideration is subject to adjustment with reference to the net asset value of the business at completion.”
The ‘relevant subsidiaries” are Pembroke Group Limited (Isle of Man), Pembroke Aircraft Leasing Holdings Limited (Ireland), and Pembroke Aircraft Leasing (Tianjin) Limited (China). Pembroke Capital Aircraft Ltd was founded almost to the day 26 years ago on August 27, 1997. The Tianjin branch only followed in 2017.
Part of the agreement is that AviLease will fund the repayment of approximately $2.9 billion of net intra-group financing from the Standard Chartered Group. This so-called Intra-Group Loan is subject to adjustment with reference to the amount due at completion. This brings the total value of the transaction to $3.6 billion, with a $0.3 billion net gain for Standard Chartered.
Strategic review
Standard Chartered announced in January that it had launched a strategic review of its Corporate, Commercial & Institutional Banking activities, with the aim to generate higher returns. Last year, the aviation leasing business reported a profit before tax of $18.2 million or a profit after tax of $15.6 million. Gross assets are valued at $3.8 billion, with a net asset value of $0.3 billion. In 202, the profit before tax was $51.8 million or $44.9 million after tax. Aviation represents only two percent of Standard Chartered Group’s income.
On the proposed divestment of the aviation activities, CEO Simon Cooper of CCIB Europe & Americas said in January: “Our aviation finance business is an established global franchise with a differentiated track record of originating and servicing aircraft leasing and lending transactions, high-quality aircraft and loan portfolios, world-class airline relationships and a proven and respected management team. We believe that a new owner can drive the next phase of growth whilst we continue to focus on our commitment to improve shareholder returns and delivering on our 2024 targets.”
Following the announcement, SCG said that it had “quite a lot of interest” in the aviation business, but would carefully consider options. A review of the aviation activities must also be seen in the context of SCG’s net zero strategy to reduce Scope 3 emissions, finance in more sustainable activities, and mitigate financial and non-financial risks from investments. The net-zero plan adopted last year included a reduction of 34 percent of aviation emissions by 2030 compared to 2021 to 760 gCO2 per revenue tonne kilometer.
Another acquisition
For AviLease this means another acquisition this year. In June, the Saudi Arabian lessor acquired thirteen new-generation aircraft from Avolon, including Airbus A320neo’s, A330neo’s, and Boeing MAX 8s. Launched by the wealthy Public Investment Fund (PIF) that is also behind Riyadh Air, AviLease intends to grow through purchase and lease-back transactions and acquisitions. This includes aircraft of Saudi low-cost carrier flynas. AviLease has yet to place any direct orders for new aircraft, but ‘inherits’ a young fleet with the latest acquisition. This includes five Boeing MAX that Pembroke ordered last December.
“We are delighted to announce a significant milestone in AviLease’s journey towards becoming a key player in the global aircraft leasing industry. Today, we’ve entered a definitive agreement to acquire Standard Chartered’s aircraft leasing business,” AviLease says on LinkedIn.
