Singapore Technologies Aerospace (ST Aero) is moving into the aircraft leasing business because it sees that owning aircraft on lease to airlines may help it to sell its maintenance and aircraft modification services.
The Singapore-based MRO provider has established Keystone Leasing, a subsidiary in Singapore with paid-up capital of $10 million. Keystone itself has subsidiaries incorporated in the U.K. and Ireland.
Singapore is the leading location in the Asia-Pacific region for aircraft leasing companies to be based, thanks to its favorable double-taxation treaties with other countries as well as tax incentives afforded to aircraft lessors. But Ireland is arguably the world’s leading center for aircraft leasing.
ST Aero had earlier planned to team in this initiative with Wings Capital Partners Holdings, a U.S. company led by the former head of Aviation Capital Group, Stephen Hannahs. But it has since decided to establish the aircraft leasing company on its own.
ST Aero President Lim Serh Ghee says the company parted ways with Wings Capital Partners because after further discussions, it became clear that the two parties had different views on what the new venture should do.
Lim says ST Aero wants to make sure the aircraft leasing company remains focused on its original plan, which is to invest in Airbus A320 and Boeing 737 mid-life aircraft. “This is not a financial play,” he says, adding that ST Aero wants to own aircraft to which it can add value through its maintenance and modification work.
He says in the coming weeks, ST Aero’s new leasing company will unveil some aircraft it has bought from other lessors with the leases attached. Sometimes aircraft owners employ an aircraft leasing company to manage aircraft on their behalf, but Lim confirms that Keystone will have its own team of people in place to manage its lease portfolio.
Normally, when an airline leases aircraft it also chooses which MRO company will provide heavy maintenance checks and handle component support.
Because it owns the aircraft it leases, ST Aero is hoping that it can persuade lessees to use it for heavy maintenance and component support as well. The company also hopes to provide additional lease transition and modification work when aircraft move between airlines.
“We also have an ‘end-of-life solution’ for the aircraft, which is a passenger-to-freighter conversion,” says Lim, referring to the fact that ST Aero has supplemental type certificates for converting narrowbody passenger aircraft into dedicated freighters.
ST Aero is not new to the leasing business. Since June 2011 it has had an aircraft engine leasing arm called TEAM, which is a joint venture with Japanese trading house Marubeni. This joint venture specializes in leasing CFM56 engines that power the 737 and A320. ST Aero is an approved MRO shop for CFM engines.
Also in 2003, ST Aero leased two 737-300s to Biman Bangladesh Airlines on a wet-lease basis, but the airline a year later returned the aircraft, arguing it needed to streamline its operations. Lim says because ST Aero was responsible for maintaining the 737-300s, it achieved very high dispatch reliability for the airline.
One challenge ST Aero may face with its new leasing company is that, because it wants to specialize in older aircraft, it may find itself having to lease to second- and third-tier airlines in developing countries. Top-tier airlines in the Asia-Pacific region tend to operate newer narrowbodies and in more recent times have found it relatively easy to source newer A320s and 737s from the lease market.
Lim, however, says one of ST Aero’s strengths is its global footprint and experience doing business in developing countries such as Indonesia.