2022 is year of 'The Great Recovery', plane lessor DAE chief says

Exclusive: Plane lessor to buy upto $2bn worth of aircraft amid pent-up air travel demand and strong cargo market

Firoz Tarapore, chief executive of government-backed Dubai Aerospace Enterprise. Leslie Pableo/ The National.

Jet lessor Dubai Aerospace Enterprise (DAE)'s chief executive sees 2022 as the year of "The Great Recovery", driven by pent-up air travel demand and a strong cargo market, with plans to buy upto $2 billion worth of aircraft.

The Dubai-based company will add $1.5bn to $2bn in new-technology fuel-efficient aircraft through sale-and-lease back deals and trading channels as it pursues growth this year, Firoz Tarapore told The National. It will also sell planes to maintain its fleet metrics, with volumes depending on market conditions.

"There is massive pent-up travel demand and that demand is going to manifest itself in 2022 in a in a fairly noticeable way," Mr Tarapore said in an interview at the company's headquarters in Dubai. "The biggest dependent variable here is how quickly government policies will allow people to get on a plane without going through insane hoops or feeling like they would be impoverished if they have to quarantine in another country."

The plane leasing market has "grown substantially" over the last few decades but the pandemic has accelerated the growth of the world's leased fleet as airlines turned to sale-leaseback deals to monetise assets in order to raise liquidity in 2020 and the first half of 2021, according to a January report by global consultancy KPMG. While there are some signs that this trend is slowing as airlines access capital markets and bank debt, the expectation is that plane lessors' share of the global fleet will remain at least at 50 per cent or as high as 60 per cent.

The Covid-19 Omicron variant is unlikely to derail the industry's recovery, but governments around the world must harmonise travel rules to facilitate travel.

"Omicron, as we all know, has turned out to be infectious but not deadly. As a result, I think many governments are now migrating to a ‘how do we live with it?’ set of policies as opposed to ‘let's shut everything down’," Mr Tarapore said. "The sooner we can get to harmonisation, where you can take off from one jurisdiction and land in another jurisdiction without getting lost in a maze of conflicting requirements, then that's a good thing.”

That approach will accelerate the recovery of long-haul travel, which has been one of the slowest segments to recover from the impact of the pandemic, in terms of business and leisure journeys, he said.

"Long-haul coming back is significant because it means more wide-body [aircraft] will be back in action," Mr Tarapore said.

Last year, DAE ordered 14 737 Maxs from Boeing that have been placed on long-term leases and it would consider another purchase if the right opportunity arises, the executive said.

"Demand is unrelenting...and we wish that we ordered twice or thrice as much," Mr Tarapore said. "If a similar opportunity presents itself, we will look at that again. The delivery dates, pricing and other terms and conditions have to be consistent with what the market is offering."

Boeing returned to generating positive cash flow in the fourth quarter, fueled by rebounding 737 Max deliveries after the jet safely returned to service in nearly all global markets.

DAE maintains a bright outlook in 2022 for the air cargo market, which has been a rare bright spot for the global aviation industry hammered by the pandemic for two years.

"Right now, the market looks absolutely phenomenal," Mr Tarapore said. "We think that the floor for freight demand, because of global e-commerce, is now permanently higher and that will require more capacity."

Last week, Boeing launched the freighter version of its 777X wide-body aircraft after securing a record order from Qatar Airways for up to 50 cargo planes. Its European rival Airbus last year secured a deal for its newly-launched cargo version of the A350 widebody. In the meantime, airlines are seeking conversions of passenger jets such as the Boeing 777 to freighters.

"We will kind of look at the appropriate investments to calibrate with what we think is the new floor," the DAE boss said. "We will continue to invest in having the right product to serve that market."

Currently freighters make up 17 per cent of DAE's total portfolio of assets.

Asked if the company would consider purchasing freighters, Mr Tarapore said: “At some point we will add more freighters to our portfolio, we’re continuously adding and selling freighters. We are super happy with the current percentage of freighter aircraft in our portfolio.”

Asked if DAE would increase the percentage of freighters in its portfolio as cargo demand remains strong, he said: "We will make that decision as things evolve... There are new freighters coming to market and we will assess their capabilities relative to what’s available and then make those investment decisions.”

DAE, which in 2017 became one of the world’s largest aircraft lessors after acquiring Dublin-based lessor AWAS, is not currently looking into merger and acquisition (M&A) opportunities.

"There just aren’t enough new-technology aircraft in large portfolios that may be available for sale," he said. "From an ESG standpoint, our commitment is to buy fuel-efficient aircraft and we don't believe that the M&A channel currently has enough new technology [aircraft] in it for this to make sense.”

DAE has no immediate need to raise financing this year as it has “ample liquidity” and no maturities to refinance till 2024, he said.

The company on Wednesday reported adjusted profit before tax of $188.3m in 2021, down from $228.9m, after the plane lessor fulfilled requests for relief and support from its airline customers.

Total revenue fell to $1.23bn in 2021, from $1.3bn a year ago.

"Requests for relief and support from our clients have stabilised," DAE said in a statement. "Our collection rate returned to 100 per cent in the final quarter of 2021."

Operating cash flow for the year increased to $1.14bn during 2021, from $867.9m in 2020, it said.