DAE on track for $1.1bn target of sale-and-leaseback deals in 2021, CEO says

Exclusive: Plane lessor does not expect 'any material number' of new requests by airlines to defer rent payments in 2021

Firoz Tarapore, CEO of government-backed Dubai Aerospace Enterprise. The plane lessor's chief said he expects a "solid" pipeline of sale-and-leaseback deals in 2021. Leslie Pableo. 

Dubai Aerospace Enterprise (DAE), the Middle East’s biggest plane lessor, expects a recovery in air traffic by mid-2021 and is on track to meet a target of $1.1 billion in deals with airlines to buy and lease back their aircraft this year, its chief executive said.

The company sees a "vigorous snapback" in travel demand in the summer if Covid-19 vaccine supplies increase, new vaccines are developed and there is a favourable outcome from current lockdown measures in Europe, Firoz Tarapore told The National.

"As we stand here on February 10, I would say that our central case is very much in play, and the snapback will be an important milestone for resumption to pre-2020 activity in the near future after that," Mr Tarapore said. DAE will reassess its prediction by the end of February, he said.

The state-owned company expects a "solid" pipeline of deals and is on track to do more business in 2021 than last year.

"A lot of airlines fundamentally believe that demand for air traffic will ultimately be as robust as it has been over last few decades and the resumption to that trend is also going to be quite rapid," Mr Tarapore said. "For the most part, airlines want to make sure they have equipment so that when air travel demand comes back they can meet that as opposed to miss out."

In terms of making new commitments for underwriting and delivering aircraft, 2021 will be "quite a good year", he added.

DAE, which is owned by the Investment Corporation of Dubai, is now entirely focused on organic growth than acquiring planes through orders or taking over rival lessors.

"It is also highly unlikely that we will be expanding inorganically because of asset valuation dynamics in the industry at the moment," Mr Tarapore said. "It is also highly unlikely that we’ll place a speculative order with the OEMs (Original Equipment Manufacturers) because of dynamics not being right, both in terms of pricing and overselling to the lessor channel."

DAE – among the world’s largest aircraft leasing companies – had set a target to expand its fleet to 800 jets by 2026 or 2028, which it is now re-examining, given the impact of the pandemic on the global aviation industry.

"Whether its 800 jets or something similar, we are in the process or revalidating that in light of what we’ve seen in 2020," Mr Tarapore said. "But our bias is still that, in the longer-term air traffic demand will grow at a rate that’s twice the rate of GDP growth and in that context we need to be a bigger entity. Our ambitions are still intact – we’re recalibrating the timing and velocity with which we get to our bigger size."

The company had provided rent payment deferrals or lease amendments to its clients as airlines faced financial pressures during the pandemic but expects fewer of these requests in 2021.

"I think we’re by and large done, although we have to be responsive to market developments as they unfold," Mr Tarapore said. "Our agreements are structured in a way that airlines have anticipated how much time they need to repay, so I don’t think there will be any material number of new deferral requests."

DAE, the world's biggest lessor of the Boeing 777 freighters, has seen "an elevated level" of inquiries in 2020 for the 777LRFs and expects this interest to continue during 2021, Mr Tarapore said. Air cargo has been a rare bright spot in the aviation industry blighted by the Covid-19 pandemic.

Once the remaining regulators around the world approve the Boeing 737 Max for re-entry into commercial service, it will do "phenomenally well", Mr Tarapore said, adding that DAE is currently in discussions with carriers regarding the jet.

Aviation regulators in the US, Europe, Canada and Brazil among others have approved the revamped plane to resume flying after a 22-month safety ban on the jet that was involved in two deadly crashes.

DAE may raise more funds if the conditions are right after it issued $2.25bn of new bonds in the last two months to repay debt and to fund its growth.

"We don’t need to issue any more given the amount we’ve recently raised, so it would be opportunistic based on market conditions," Mr Tarapore said.

On Wednesday, DAE reported full-year profit of $228.9 million in 2020 compared with $377.5m in 2019 as the Covid-19 pandemic wiped out air traffic demand and hurt airlines' demand for jets. Annual total revenue dropped to $1.3bn last year, from $1.44bn a year earlier, as the lessor used its strong liquidity to grant airlines deferrals on rent agreements.

"We’re happy with our financial results because embedded in the outcome is the assistance we have provided our clients," Mr Tarapore said. "Since DAE didn’t have orderbook commitments or other distractions and it had a strong liquidity position, we were able to sit across table from some of our important and long-term clients to say 'how can we help?'"

DAE made underwriting commitments for 55 new aircraft, out of which 38 were for the owned portfolio. Out of the 55 jets, took delivery of 38 aircraft in 2020 alone.

"That’s a demonstration of our strength and agility in this type of market," Mr Tarapore said.