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

Text:
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.

Creative thinking

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.

Outlook

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.”

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