First India. Now Saudi Arabia. Maybe not today. Maybe not tomorrow. But soon. The global centre of aviation leasing is moving. And it is headed east.
In June 2022, the Kingdom’s Public Investment Fund (PIF), one of the largest sovereign wealth funds in the world, launched “AviLease”, an aircraft leasing company. AviLease will support Saudi Arabia’s burgeoning aviation sector, and deliver both financial sustainability and sectoral depth across a mission critical industry for Vision 2030 and the Kingdom (especially in view of its ambitious growth targets for aviation and tourism).
The timing seems propitious.
A February 2022 report on the state of the industry predicted a challenging year for the aviation sector and ‘significant M&A-driven airline and leasing company consolidation’. AviLease is sure to emerge as an important player as this prediction plays out across the sector in the coming months.
The report also predicted fastest aviation sector growth in Asia Pacific and the slowest in the Middle-East after Europe. But given the level of investment pouring into the industry across the Middle East, and particularly Saudi Arabia (US$100B by 2030), this prediction is almost certainly subject to change. Especially as other GCC countries too are hoping to leverage investments in the aviation industry to diversify their economies.
Mission: Becoming the regional aviation leasing champion
The goal is to build a national champion of the aircraft leasing market primed to compete with and integrate into the global aircraft financing market by
- building both capacity and capability in the aviation leasing sector
- investing in local knowledge and expertise, resource and infrastructure
- capturing market share across the aviation leasing value chain
- providing a one-stop shop for aviation asset management and financing services to OEMs, airlines and operators
- building a fleet of new generation narrow and wide-body aircraft
Strategy: Leveraging PIFs deep pockets to deliver brisk growth
The financial heft and strategic focus on knowledge and technology transfer of its owners, PIF, will enable AviLease to grow rapidly and develop the scale and credibility needed to compete with global emerging and established leasing centres while positioning itself as a regional leader.
The aim is to scale up rapidly from asset leasing, trading and management to developing a comprehensive portfolio of aircrafts of all sizes and types including regional, narrow and double aisle via
- purchase-and-lease-back transactions with airlines
- portfolio acquisitions
- direct orders from aircraft manufacturers (particularly Embraer, Boeing and Airbus)
- corporate acquisitions
Combine the deep pockets of PIF with the depth of knowledge and experience of AviLease’s management team (veterans of the Irish aircraft leasing industry, from Carlyle Aviation and Arthur Cox to AerCap and Avolon), and there’s little doubt that this new kid on the block will soon be a force to reckon with.
Social and Economic Impact: Economic Diversification, Employment, Knowledge and Technology Transfer
The investment “is in line with PIF’s mandate to unlock the capabilities of promising local sectors’ to drive economic diversification and contribute to non-oil GDP growth. A national aircraft leasing company will add significant depth to Saudi Arabia’s aviation ecosystem. As the aircraft leasing sector grows it will open up employment opportunities across sales and marketing, tax and finance, technical, risk and legal services. These new opportunities will in turn attract the industries’ top global players, create training and professional development opportunities for local talent and expand the virtuous circle of knowledge and technology transfer from global industry veterans to young, local talent in training.
The global aircraft leasing industry is forecast to grow by 7.8% a year to 2029 on the back of continued support for the airline industry. Struggling to become profitable post-pandemic, many airlines, especially LCCs are unable to invest in the new generation, fuel efficient, narrow and wide-body aircraft needed to service popular regional and short-haul routes. Leasing companies are stepping in to fill the gap by ordering planes and leasing back to airlines.
Ambitious low cost airlines in the Middle East will be able to accelerate growth by taking advantage of similar facilities locally. Witness AviLease first aircraft leasing deal: it has purchased 12 new A320neo aircraft, to be delivered in 2022 and 2023, and leased back to Flynas, a Saudi LCC. Other regional players currently priced out of the global aircraft leasing market may also be able to utilize this facility, proximity offering an element of security and comfort in an increasingly unpredictable world.