UK Leasing

Temasek and ST Engineering form joint venture on converted cargo planes

Public investment fund Temasek and Singapore Technologies Engineering form joint venture to lease converted cargo planes. Temasek will partner equally with the 100% owned aerospace management unit of ST Engineering to build a portfolio valued at approximately US $ 600 million within five years.

The joint venture plans to purchase lower-than-average passenger planes as their value has been affected by travel restrictions resulting from the Covid-19 pandemic. The aircraft will be converted by ST Engineering and then leased, with financing from a mixture of equity and debt.

According to consultants Oliver Wyman, the number of cargo planes is expected to increase by 2.4% per year between 2020 and 2031, roughly the same as the annual growth rate of 2.3% in the previous decade. But there will be an increasing number of conversions compared to new orders. Over 750 cargo conversions are planned over the 10-year period, an increase of 28% over the previous decade.

During the Covid-19 crisis, ST Engineering has already more than doubled its annual number of passenger conversions to Airbus A321 (A321P2F) aircraft.

Currently, ST is performing A321P2F conversions in Singapore and at the Dresden, Germany plant of its Elbe Flugzeugwerke (EFW) joint venture with Airbus.

ST Engineering Aerospace Guangzhou Aviation Services and VT San Antonio Aerospace in Texas are now also making A321P2F conversions.

Business growth

For the new joint venture, ST Engineering will provide the associated maintenance, repair and overhaul services, while ST Engineering will be the asset and lease manager of the joint venture.

“This joint venture represents an important step for ST Engineering in the growth of our aircraft leasing business as we expand beyond passenger aircraft and engines to include cargo aircraft assets in our portfolio,” says Jeffrey Lam , President and Head of Commercial Aerospace at ST Engineering. “As we embark on this exciting journey with our partner, Temasek, we also welcome and look forward to working with other potential like-minded partners looking to invest in the strong cargo aircraft leasing market. In the medium to long term, the JV intends to securitize rental income streams through a commercial trust to unlock capital. “

Along with large jumbo cargo ships, there is a strong demand for smaller cargo planes as companies realign their supply chains in the wake of the pandemic. There has also been a sharp drop in the volume of cargo that would normally have been carried in the underbelly of passenger planes.

Airlines are also adjusting their passenger fleets, and a large number of Airbus A321s have gone on sale. The other major narrow-body conversion is the Boeing 737-800.

In January, EFW delivered an A321P2F aircraft to global lessor BBAM for lease to British company Titan Airways. The aircraft has a capacity of 28 tonnes.

P2F conversion

Last November, CDB Aviation, a wholly-owned Irish subsidiary of China Development Bank Financial Leasing Co. Limited (CDB Leasing), entered into a partnership with EFW to perform the P2F conversion of two Airbus A330-300s, which will be available for charter. . to airline customers from early 2022.

The A330-300 P2F conversion program marked CDB Aviation’s entry into the conversion of cargo aircraft, advancing the lessor’s strategic efforts to deliver ever more personalized fleet solutions to customers while harnessing the potential of long-term growth of the medium to large cargo market.

“We are seeing growing interest from our customers in mid-size freighters as they seek to capitalize on record-breaking freight aircraft usage, rapidly growing e-commerce demand and freight yields. higher, ”commented Patrick Hannigan, CEO of CDB Aviation. at the time. “We look forward to working with EFW to convert our highly efficient A330-300 aircraft into the next generation of medium wide body cargo ships that our customers can use to meet the growing demand for international and regional air cargo.”

In early May, EFW announced an order for four Airbus A321P2F conversions from a new customer, GTLK Europe, an international leasing company based in Dublin, Ireland. Three of the four aircraft will be inducted for conversion this year, with the fourth conversion due in 2022.

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