Dubai: Cheap oil, low interest rates and strong competition in China and America are pushing down aircraft leasing rates, according to Novus Aviation Capital, a Middle East company that specialises in leasing and financing aircraft.
This means Novus, whose clients include Emirates and British Airways, will remain “very selective” and “disciplined” for the rest of the year, including on negotiations with the Airbus Group and Boeing Co.
Novus is in “early stage” discussions with Airbus and Boeing to order “at least ten” passenger jets, president and chief executive Safwan Kuzbari said in an interview on Sunday.
The talks centre on Airbus’ A350 jet and Boeing’s 787s and the in-development 777-x series, according to Kuzbari, who said Novus is still deciding whether it would buy multiple aircraft types.
It depends “on the terms of the conditions and time of the delivery,” he said at Novus’ offices in Dubai.
A Boeing spokesperson declined to comment, telling Gulf News, “we do not comment on discussions with our customers.” Airbus did not respond to a request for comment by deadline.
The negotiations, which the company hopes to finish “this year”, come as Novus says it has lowered its investor and shareholder expectations due to a “close to 10 per cent” drop in the leasing rate margin.
He said very aggressive lessors in China using “cheap money” to build up their portfolios and cash-rich American Airlines are putting pressure on leasing margins.
“We cannot compete with the Chinese lessors,” Kuzbari said, adding that he did not see Novus closing a leasing deal in China this year though it could sell aircraft to Chinese carriers.
Oil prices and extremely low interest rates are also putting pressure on the lessor market, according to Kuzbari. Twenty-two consecutive months of oil priced below $100 (Dh367) a barrel has helped many airlines, particularly in the United States, to achieve record profits. These carriers now make enough money to borrow cheaply and with interest rates low, many wonder if they should still be leasing. Meanwhile, cheap oil also means airlines can afford to hang onto older, fuel guzzling aircraft they were once in a rush to get rid of.
“The fuel price is affecting [the] appeal [of newer aircraft] at the moment because the benefit is not there,” Kuzbari said.
Novus says it plans to increase its portfolio of assets to $3.5 billion by the end of the year, Kuzbari said, up from $2.7 billion as of June 19. With pressure on leasing rates, the company is counting on repeat customer business and opportunities in the Middle East, Asia (excluding China) and the America’s.
“We don’t make deals just for volume. We are very selective and we are disciplined to make deals that make sense for our shareholders,” Kuzbari said.
The company is also in talks with an “institution” that will give it access to narrow-body aircraft and is close to leasing an aircraft to a major South American carrier, Kuzbari said. He declined to name the institution or the airline involved.
This year, Novus has expanded its client list with deals with Virgin America, recently bought out by Alaska Airlines, and Indonesia’s LionAir, who the European Union removed last week from its safety blacklist. On Thursday, Novus said it had partnered with Qatar First Bank to indirectly acquire and lease two Boeing 737-900ER’s to LionAir.
There are plans to double the capital of Tamweel Aviation Finance (TAF), an aircraft-funding vehicle, to $200 million through a subscription, Kuzbari said. The subscription will be announced “within the next four weeks,” he said. TAF is a venture between Novus, Airbus, the Development Bank of Japan and German lender NordLB are also involved in the venture.
Kuzbari also confirmed Novus has held leasing discussions with Iranian carriers but said that any deal would be dependent on the lifting of American sanctions and certain contractual agreements.
Despite January’s agreement to lift nuclear related sanctions on Iran, many United States imposed sanctions — some dating back to the 1979 Islamic Revolution — continue to be enforced.
“Iran is definitely a big market ... [but] any wise lessor would be subject to introducing US law or English law to cover the contract. I don’t think nobody will accept Iranian law,” Kuzbari said.