Published by Cirium, Apr 14, Oliver Clark
African carriers have not traditionally formed a major part of the portfolios of aircraft leasing companies, but there are exceptions and one of those is ACIA Aero Leasing.
The lessor counts Green Africa Airways, Bestfly Cabo Verde, Air Express Algeria, Afrijet Business Service and FastJet Zimbabwe among its customers, according to Cirium fleets data.
ACIA Aero has had a long association with the African continent.
The lessor is part of a company – ACIA Aero Capital – which can trace its establishment back some 20 years when it started out in cargo and freight operations in Africa before diversifying into ACMI, leasing and freighter conversions.
The lessor has a long-running strategic partnership with Solenta Aviation, which has five air operators certificates in South Africa, Gabon, Ivory Coast, Algeria, Mozambique and two MRO shops in Africa, the main one in Johannesburg and the other in Algeria.
ACIA Aero Leasing chief executive Mick Mooney says that the lessor is able to tap deep market knowledge and contacts in the African market, but emphasises that the company has a global expansion strategy.
“Where we have focused is predominately emerging markets, most of that in Africa. We have been looking to diversify to new markets but looking for operators with similar models to what we have previously backed,” says Mooney in an interview with Cirium.
“We are also looking to diversify jurisdictional exposure, do more in Europe, North America and Latin America,” he adds.
ACIA Aero, which specialises in the regional aircraft market, has also taken exposure in other emerging markets, notably with three ATR 72-500s on lease to PIA. It recently added NXT Air in Bangladesh as a new lessee, but also has customers in Europe, such as Fly LeOne in Italy, and others in Venezuela, Cuba and Ecuador.
At present ACIA Aero’s leased portfolio consists of 61 aircraft, including committed letters of intent and SPAs. Taking into account owned aircraft within the group airlines, the total rises to up to 80 units.
The current fleet consists of smaller regional types such as the ATR 42-300 and 72-600, but the company is putting increasing focus on cross-over jets. In 2021, ACIA Aero acquired its first Embraer 190 and meantime added a second.
The main part of the portfolio consists of long-term ACMI operators, such as those operating oil and gas contracts, UN bodies and the International Red Cross.
A large and growing proportion of the portfolio Mooney says are cargo operators and then there are passenger airlines.
Mooney, who only joined ACIA Aero in 2019, has an aspiration to see the portfolio grow to a fleet of 100 aircraft, but in reality he thinks it likely to be somewhere between 80 and 100 in the coming 18-24 months.
“Our plan is to grow opportunistically E190s and other cross-over jets. We see good opportunities there right now with a number of our existing customers and some new customers who are looking to grow their fleets and capacity but stay away from narrowbodies,” he says.
Mooney says that ACIA Aero’s strength is not buying aircraft on lease.
“Our shareholders have quite high return requirements so buying an aircraft with lease attached and basically paying someone else’s equity for the profit, there is always going to be a premium on it.
“Traditionally we are not traders of aircraft, we would typically buy aircraft relatively young and hold them right the way through to part-out. And if we can convert [them] to freighters in the middle we will do that as well,” Mooney observes.
“With its MRO and strong technical capability, ACIA Aero is able to assess and consider more challenging maintenance conditions of aircraft, and it has a freighter conversion operation, meaning that we are not afraid of taking on projects, bringing in aircraft that need a little work and putting them out the other side,” Mooney notes.
Perhaps atypically for a lessor, ACIA Aero issues its own request for proposals to the market for aircraft, rather than bidding on others’ RFPs. Mooney says that the lessor had been inspired by the success Willis Lease Finance had had when it issued an RFP for jets in late 2020.
ACIA issued an RFP for 30 aircraft in 2021 seeking ATR 72-500s, De Havilland of Canada Dash 8s and E-Jets.
Mooney says the lessor received 80 aircraft offers of which 50 were discounted in short order due to “ridiculous pricing” because of the aircraft’s condition or age. Nevertheless the response showed the extent of interest.
“Given where the market is today – lots of people selling – in our view it is quite competitive pricing today where we can acquire aircraft relatively cheaply,” he says.
Mooney says the lessor will probably close deals for up to 15 of those 30 aircraft this year as part of its target for growth in 2022.
More specially, two ATRs and E190s have either been closed or are due to close imminently and several Dash 8 units “hopefully” in May. Two ATR 72-500s are being acquired from Nordic Aviation Capital.
Mooney says that ACIA Aero could issue another RFPs later this year and perhaps another one in 2023.
While the lessor would look at narrowbody aircraft if the deal was right, Mooney notes that it “rarely is”. Similarly, a move into younger assets and the potential for an order with an OEM in the regional market would equally be “quite tough”, he adds.
Mooney notes that ACIA Aero’s traditional rivals in the African market include Aergo Capital – a lessor with whom it also works in partnership on occasion he says – TrueNoord to some extent and historically NAC, although the Danish lessor’s Chapter 11 restructuring and change in direction may negate competition from that quarter, Mooney suggests.
To finance its expansion, ACIA Aero Leasing recently entered into a new revolving credit agreement with Investec Bank, enabling the lessor to draw new debt secured with regional aircraft to support growth.
“This facility gives us the growth capacity should we need it and want it. It is done in an incremental way but the term is seven years,” Mooney explains.
Two drawdowns on the facility occurred in March and further drawdowns are planned in the second and third quarters depending on the progress of closing transactions. Mooney declines to specify the size of the facility.
“Our historical strategy has been low leverage. That is one of the reasons why we have had little or no issues during Covid-19. We have strong shareholders and we don’t have our lenders jumping up and down asking us ‘where is our cash’,” he says.
As for other types of financing, such as asset-backed securities issuance, Mooney says that the lessor would consider them.
“It is something we would look at. Our portfolio is probably not big enough right now to do it, but we have certainly got the right mix of customers and aircraft types to look at that in the not-too-distant future,” he says.
The lessor is also looking at internal expansion. ACIA Aero counts an executive team of six people and a wider team of 21 people. The company has a Dublin head office and regional offices and continues to grow.
Mooney himself has been with the business since 2019 when the wider company saw the value of expanding its leasing arm.
“From a people perspective, the dedicated leasing business was relatively small a year ago. Last year we added 10 people and we will add another 10 people in the next year as well,” he says.
“Our shareholders realised what we were doing was quite niche. There was an opportunity to do a lot more of it and make a good return for investors, but the core ACIA Group management team just didn’t have the time to dedicate and focus on the leasing business with all the other business units requiring attention also,” he adds.
Seven of the 15 acquisitions are for cargo conversions and this forms another important part of ACIA Aero’s asset strategy.
The wider company owns the supplemental type certification for bulk freighter and large door ATR freighter conversions via its Swiss subsidiary IPR Conversions
Mooney says the company is always looking to put more aircraft into that freighter configuration programme due to the “very strong market for freighters today”.
“Feedstock is challenging, I would say. Good aircraft in that 12-16-years-old range are hard to find, but we do think there is going to be more coming to market, particularly when NAC starts RFP’ing their aircraft out over the next 12 months or so,” he notes.
PORTFOLIO MANAGEMENT AMID COVID
The Covid-19 pandemic ushered in a period of acute distress for the global airline industry as passenger demand dried up. Many lessors found it necessary to offer their lessees rent deferrals or restructure their obligations. Mooney says that ACIA Aero did not need to do any major restructurings with its clients.
“I think we took a different view to some of our competitors during Covid. When it started getting tough during March/April 2020 we actually contacted our customers to ask them if they needed help.
“A few of them took up the offer to go power-by-the-hour for a few months, but then by June they called us and said ‘we don’t need this, our customers are flying and in fact they need bigger aircraft so here are the caught-up lease rentals’,” he adds.
Discussing the risk-return balance more generally, Mooney says that as a lessor with a significant exposure to riskier jurisdictions, various tools are available to hedge against possible problems.
“It is getting that balance between jurisdiction and operator risk. The bigger operators in Africa you try to bulk up your security package, you try to get that government guarantee or whatever the case may be, so at least you know you’ve got that in your pocket,” he says.
“So you can compensate in some ways for the higher risk and not necessarily a higher lease rate,” Mooney adds.