Students of human psychology need look no further than the fable of the tortoise and the hare to understand the situation today in the region’s leasing sector. In the waning years of the boom, a number of new entrants made valiant plays, but some appear to have had to pause to reconsider. Despite the aviation boom in the Middle East, few new major regional entrants into this esoteric business have come into existence and, of those that have, the 2008 bust clearly had a major negative impact.
Three players, DAE Capital, a unit of Dubai Aerospace Enterprise; Waha Capital, which is also from the UAE; and Kuwait’s Aviation Lease and Finance Co. (Alafco), were riding high in the boom, but the two UAE companies have suffered growing pains. “The Middle East lessors are a somewhat reduced group now,” said Dick Forsberg, head of strategy at Avolon Aerospace Leasing in Dublin. “Alafco would be the most active.”
The most profitable aircraft leasing company in the region today, Alafco is headquartered in Kuwait City. The company was founded in 1992 by Kuwait Airways Corp. (KAC) and acquired by Kuwait Finance House (KFH) in 2000. It was floated on the Kuwait Stock Exchange in 2006 and, today, 53.69 percent of Alafco is owned by KFH, 11.47 percent by KAC and the remainder by private investors.
Steady Growth
Under the astute but understated leadership of chairman and general manager Ahmad Al Zabin, Alafco has grown steadily. In May, acting CEO Abulqasim Abdulghaffar Redha told an investment conference the company had owned 46 and managed three aircraft, all leased out, as well as having an order book of 117 units: 85 A320neos, 20 B737-8MAXs and 12 A350-900XWBs for lease in 2017-21. “Six A350-900s [are] already placed with Thai Airways for 12 years’ lease,” he said. “The company plans to acquire up to 15 narrowbody aircraft per year from 2013 to 2016 through sale and leaseback.”
According to Ascend, Alafco is ranked fourth in the Middle East by aircraft orders, behind only the three large government-owned carriers–Emirates, Etihad and Qatar Airways. “Alafco has developed significant capability to manage the aircraft purchase and fleet-leasing process,” said Redha. The Asia Pacific and Middle East regions are expected to be home to most of Alafco’s ordered aircraft, he said. Alafco reported revenues of $194 million in 2012, and net profits of $90 million.
Alafco also stresses the importance of corporate governance. It was the first Kuwaiti company to comply with a new law by separating the positions of chairman and chief executive officer. The company is also studying the possibility of a secondary listing on a foreign stock exchange. “Alafco is doing well. It’s a mature player, and has been around for quite a few years,” noted Richard Aboulafia, vice president analysis at Teal Group of Fairfax, Virginia.
The other major players in the Gulf fared less well in the downturn. DAE Capital appears to be on the mend, having added four aircraft to its fleet in 2012, thus bringing the total to 51–20 widebodies and 31 narrowbodies, according to Aircraft Finance Report 2013. These include nine Boeing 777s and 11 A330-200s. DAE Capital appears to be keeping a low profile, however.
Dubai Aerospace Enterprise Ltd. reported 2012 revenues of $1.94 billion, and net income of $7.3 million. In its May 5 earnings release, DAE managing director Khalifa H. Al Daboos said: “DAE was successful yet again in growing its core income. Our business prospects are strong, and the company is poised for growth in 2013 and beyond.”
Reserving Judgment
Aviation analysts are reserving judgment on DAE Capital for the moment. “DAE was an ’08-’09 victim,” said Aboulafia. “I don’t think anything will [bring them back] to their original ambitions. Suffice it to say, in terms of the aircraft market, they have ceased to be an industry leader. DAE is emblematic of aggressive leverage cut short by the crash. Dubai has stabilized, but I doubt whether it will find it easy to get back to aggressive leverage.”
In 2011, DAE Capital canceled orders for 35 Boeing 737 jets, but orders for 15 Boeing 747F and 777 jets apparently remained in place. The 747 freighters do not yet appear in the current fleet. However, the fact that DAE Capital has not announced any orders in recent years should not necessarily be seen as a sign it is moribund. “There seems to have been a reinfusion of interest–and presumably capital–from the shareholders and a green light to acquire assets once again,” observed Avolon’s Forsberg.
The region’s third major lessor, Waha Capital, which also has interests in shipping and real estate, has also curtailed its interest in aircraft leasing. “My understanding is that Waha took a strategic decision to get out of the direct ownership and management of aircraft and to maintain their presence in the sector via an investment in AerCap,” said Forsberg. “The ex-Waha aircraft were all…transferred into a JV vehicle…managed by AerCap.
“Waha Capital still exists as an investment vehicle, but not as an aircraft leasing platform and I don’t expect them to start to acquire aircraft again on their own account–but who knows what the future may bring,” he said.
“There is also Sahaab Leasing, which is basically an in-house lessor for Jazeera Airways,” Forsberg told AIN, adding that the lessor has “a handful of aircraft elsewhere.” Forsberg also identified a couple of minor Middle East players in Arab Leasing International Finance (ALIF) and MENA Investments.
A spokeswoman for Waha Capital, which is listed on the Abu Dhabi Securities Exchange, confirmed that it is no longer an aircraft leasing company involved in aircraft management. She said Waha continues to be an investment company. “Waha Capital…originally acquired a 20-percent stake in AerCap in 2010 in a transaction that involved the sale or partial sale of certain aircraft leasing-related assets in exchange for equity in AerCap. Waha Capital’s stake in the company has since increased to 26.3 percent as a result of a series of share buyback initiatives undertaken by the company.”
