Aero engine leasing on the rise
The aero engine leasing market is growing and changing – and MTU Maintenance Lease Services B.V. with it. AEROREPORT catches up with VP and Head of Global Leasing Alistair Dibisceglia to find out what’s next for the leasing and asset management specialists.
01.2018 | Text: Victoria Nicholls
Victoria Nicholls is a specialist for aftermarket topics such as engine MRO, leasing and asset management, as well as international market trends. The British-born editor lives in Berlin and works for MTU’s corporate communications in Hannover and Ludwigsfelde.
Among the biggest tunes in 2013 was “Get Lucky” by Daft Punk. But when MTU Aero Engines founded two joint ventures with Sumitomo, one of the largest trading companies in Japan, that same year, this had nothing to do with chance: it was about an astute business observation. The leasing market was growing, and MTU wanted to be part of it. MTU Maintenance Lease Services B.V. (MLS) with 80 percent MTU ownership and a focus on short-term leasing and Sumisho Aero Engine Lease B.V., 10 percent MTU ownership and a focus on mid and long-term leasing were born.
Since then, MTU Maintenance Lease Services has exceeded all expectations. It has grown to an over 30 man operation out of Amsterdam and has over 100 engines available in its lease pool, including the popular CFM56, V2500 and GE90 engines.
This success is in part due to a growing industry: global consulting company ICF reports that around 12,000 commercial jet aircraft, valued at approximately 240 billion US dollars, are owned by operating lessors and leased on this basis to the global airlines, representing more than 40 percent of the fleet by unit and value today – with the market continually growing in absolute size. ICF also comments that operating leases, although more dominant for narrow body jet at 52 percent leased, have also gained traction in the regional jet (37 percent) and wide body fleets (40 percent).
Reacting to increased competition
But MLS’ positive development is not down to sheer market growth. After all, a financially attractive market draws in more players and, as such, competitiveness is increasing. For instance, Boeing Capital Corporation has reported that a new insurance market emerged in 2017, enhancing the diversity of financing available to airlines and lessors to support their fleets.
“With the growing competition in the market, we have to be on the pulse of what our customers need, thinking of solutions and options before they might even have,” says Alistair Dibisceglia, VP and Head of Global Leasing at MLS. “It is for this reason we are steadily developing our product portfolio.” When it started in 2013, MLS quickly introduced asset management to its services to help owners maximize the utilization of their assets. Now, the company is focusing on lessors.
Lessors want more involvement
Borne from the observation that an increasing number of aircraft and engine lessors looking to take a more active role in managing their most valuable assets – engines – MLS has created a Lease Enhancement Program for lessors and lessees across the lifecycle. “We’re seeing lessors want to be more involved in engine maintenance decisions, particularly during the transition between lessees, in managing and optimizing maintenance reserves and choosing the timing of engine shop visits,” explains Dibisceglia, who joined MLS mid-2016 having previously held senior roles at International Lease Finance Corporation/AerCap and CastleLake. “Services can start from the moment the engine is purchased, or at any point in the lifecycle. It is a case of opt-in and opt-out at any time. And it’s all about risk mitigation and residual value retention,” Dibisceglia adds.
Furthermore, MLS assets lessors and owners with technical consultancy as well as helping lessors and lessees through transitions and across the lifecycle. “This comes from the fact that we have extensive MRO background,” says Dibisceglia. “New money, such as from insurance and equity, is entering the market and these investors need technically savvy partners who manage the engines on their behalf, making sure the assets are healthy at all times preserving and maximizing their residual values.” Services range from physical inspections and checks to fleet management and, of course, MRO oversight through shop visits. Additionally, MLS performs asset valuations and investment appraisals, training and brokering.
Airshow Orders (Paris and Farnborough) 2012 – 2017
According to IBA, there were 1,070 firm orders and letters of intent/memorandums of understanding placed at the Paris Airshow in 2017. Additionally, there were 188 options communicated. In terms of order distribution, airlines/operators and lessors made up 86 percent of firm and MoUs, and were comprised of 53 percent from lessors and 47 percent from airlines. The graph below shows the order distribution from Farnborough and Paris Airshows over the past five years.
But MLS is also available and able to create entirely new solutions for operators and owners. Say for instance a lease agreement is coming to an end. The asset owner might want to dispose of the asset from their portfolio through a sale, while the airline might still want to operate the aircraft. But the capital expenditure to acquire it and to maintain the engines through its remaining life might not in their best interest.
This is where MTU Maintenance Lease Services steps in. It acquires the engines from the current owner and leases them to the airline for the remaining green-time. Furthermore, to allow the aircraft to fly for the duration of its economical service life, MTU can replace any unserviceable engines with serviceable engines from its pool.
All in all, the leasing world is buoyant and it is likely to stay that way. Boeing Capital Corporation forecasts that operating leasing will account for 50 percent of the in-service fleet by the end of this decade. And as more than 19,000 commercial jet aircraft are expected to be required by 2025, it expects lessors to provide a significant amount of the financing needed to support this growth. These are all trends MTU sees in the engine leasing market also, and something the company is gearing up for. “After all,” says Dibisceglia, “you’ve got to be in it to win it.”