Firoz Tarapore: “We have provided assistance that was unique to each airline’s requirements as airlines around the world were affected in different ways.” Picture: DAE.
Despite the challenges faced by the commercial aviation industry, with many airlines cutting fleet numbers and returning aircraft to lessors, DAE has fared well.
“DAE was fortunate enough to begin 2020 with a very strong liquidity position,” noted CEO Firoz Tarapore.
“This allowed us, during the pandemic, to assist airline clients in dealing with the unprecedented loss of demand brought about by the travel restrictions. We were able to deepen existing relationships in some instances and enter into new ones in others.”
In a year when even the increasingly strong leasing sector was cancelling orders with manufacturers, DAE continued to increase the size of its fleet.
“We do not have a direct order with the manufacturers,” said Tarapore. “Nonetheless, in 2020 we took deliveries of 38 aircraft, of which 23 were for our ‘owned aircraft’ portfolio. All these aircraft are on lease with airlines.”
The company’s acquisitions were particularly strong in last year’s third quarter, when it added 31 aircraft to its books, notably in leaseback arrangements to companies to provide them with much-needed financial support.
“We announced underwriting commitments for 55 aircraft in 2020,” said Tarapore. “For the owned aircraft portfolio, these were principally in the form of purchase leaseback arrangements to assist clients with liquidity or other requirements.”
Having said that, the financial situation of many airlines – whose cash flows suffered massively as they were unable to use the bulk of their fleets – necessitated DAE granting 34 carriers rent deferrals in the first half of the year, while, in its figures at the nine-month stage, DAE said it had reached deferral relief packages with 21 airlines.
“We have provided assistance that was unique to each airline’s requirements as airlines around the world were affected in different ways. Further, airlines in some instances had access to governmental support programmes or other means of shareholder or loan assistance.”
The great hope is that the arrival of vaccines in significant quantities will enable airlines to see light at the end of the tunnel, with demand for air traffic improving in the near future.
For the first nine months of the year, DAE’s ‘cash collection rate’ of customers’ payments was 80%. “The collections rate has stabilised now that more airlines are deploying additional aircraft to meet air traffic demand. We expect the collection rate to improve in 2021,” said Tarapore.
Unlike many airlines that have had to seek financial assistance from their respective governments, he added: “DAE is structured to be a stand-alone entity with independent access to liquidity. We have not needed assistance – our resources have been more than ample to meet our requirements and those of our clients.”
However, the industry is by no means out of the woods. The International Air Transport Association (IATA) has said that 35 to 40 airlines have gone under so far. IATA’s CEO, Alexandre de Juniac, said in mid-January that “additional bankruptcies” were likely to happen in 2021. Does DAE see many airlines going out of business in the next six months, as government aid packages taper off?
“There are a handful of airlines whose business propositions are under strain,” admitted Tarapore. “These strains may take a permanent toll if some of the current air travel demand shifts turn out to be structural.”
However, he was reasonably sanguine about the future of the sector: “Air traffic demand is expected to resume its ‘2GG’ (2x GDP growth) trajectory once this pandemic is under control. The airlines have rediscovered that having an existing relationship with established, well-capitalised lessors is a very good thing during difficult times. We expect this will translate into good opportunities for franchise lessors, such as DAE, to deepen their customer relationships and provide incremental value to airlines,” he concluded.
Alan Dron reports.
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