CDPQ Partners With SMBC Aviation Capital to Create USD 1.5 B Aircraft Financing Platform
Canadian investment company CDPQ is tying up with SMBC Aviation Capital to establish a new leasing and aircraft finance platform.
It will be worth $1.5 billion – sourced from $500 million annual investment over three years – and focus on modern, next-generation aircraft.
The new platform will operate under the name Maple Aircraft Company Holdings.
“Building on CDPQ’s experience in the aircraft financing industry, through this new platform, we will continue to provide flexible financing solutions for airlines to meet their future fleet requirements,” says CDPQ executive vice-president Marc Cormier.
CDPQ, based in Quebec, has a portfolio which covers a range of sectors including real estate, infrastructure and technology.
It says SMBC Aviation Capital has a “successful track record” and demonstrated a “commitment” to sustainable air transport.
SMBC Aviation Capital, based in Ireland, will source transactions and act as servicer to the platform.
It says CDPQ is an “experienced” and “well-respected” investment group which is “aligned with our views” on capital allocation and sustainability, says chief executive Peter Barrett.
SMBC has a portfolio of over 900 aircraft, primarily in the single-aisle sector, with types such as the Airbus A320neo family and Boeing 737 Max, but it also serves the long-haul market with A350s and 787s.
IPE Real Assets also reports CDPQ and SMBC Aviation Capital launch $1.5bn aircraft financing platform:
Canada’s Caisse de depot et placement du Quebec (CDPQ) has teamed up with aircraft lessor SMBC Aviation Capital to create a $1.5bn (€1.38bn) global aircraft financing platform.
The two firms have set up Maple Aircraft Company Holdings to finance and lease modern and fuel-efficient next-generation aircraft, with a plan to deploy $500m initially per year, over three years.
SMBC Aviation Capital will source transactions, invest alongside the platform and act as a servicer.
Peter Barrett, CEO at SMBC Aviation Capital, said: “CDPQ is an experienced, well respected, global investment group, which is aligned with our own views on capital allocation and a sustainable aviation industry. We look forward to working with our new partners over the coming years on this collaboration.”
Marc Cormier, EVP and head of fixed income at CDPQ, said: “Building on CDPQ’s experience in the aircraft financing industry, through this new platform, we will continue to provide flexible financing solutions for airlines to meet their future fleet requirements.
“We’re delighted to partner with SMBC Aviation Capital, an industry leader with a successful track record, who has demonstrated their commitment to sustainable aviation, to find the best opportunities in the commercial aircraft industry and to achieve attractive risk-adjusted returns over the long term.”
Earlier today, CDPQ issued a press release stating it has partnered with SMBC Aviation Capital to create USD 1.5 B aircraft financing platform:
CDPQ, a global investment group, and SMBC Aviation Capital, the world's second largest aircraft leasing company, announced today that they have finalized an agreement to create a USD 1.5-billion global aircraft financing and leasing platform dedicated to modern, fuel-efficient NextGen aircraft.
This new platform will focus on worldwide opportunities in new technology aircraft and target an initial deployment of USD 500 million per year, over three years. SMBC Aviation Capital will source transactions and, under a sistership condition, invest in opportunities alongside the platform. SMBC Aviation Capital will also act as servicer of the platform, which will operate under the banner Maple Aircraft Company Holdings Limited.
“Building on CDPQ’s experience in the aircraft financing industry, through this new platform, we will continue to provide flexible financing solutions for airlines to meet their future fleet requirements,” said Marc Cormier, Executive Vice-President and Head of Fixed Income at CDPQ. “We’re delighted to partner with SMBC Aviation Capital, an industry leader with a successful track record, who has demonstrated their commitment to sustainable aviation, to find the best opportunities in the commercial aircraft industry and to achieve attractive risk-adjusted returns over the long term.”
“We are pleased to partner with CDPQ on this new platform to benefit our airline customers worldwide,” said Peter Barrett, Chief Executive Officer at SMBC Aviation Capital. “CDPQ is an experienced, well respected, global investment group, which is aligned with our own views on capital allocation and a sustainable aviation industry. We look forward to working with our new partners over the coming years on this collaboration.”
ABOUT CDPQ
At CDPQ, we invest constructively to generate sustainable returns over the long term. As a global investment group managing funds for public pension and insurance plans, we work alongside our partners to build enterprises that drive performance and progress. We are active in the major financial markets, private equity, infrastructure, real estate and private debt. As at June 30, 2023, CDPQ’s net assets totalled CAD 424 billion. For more information, visit cdpq.com, consult our LinkedIn or Instagram pages, or follow us on X.
CDPQ is a registered trademark owned by Caisse de dépôt et placement du Québec and licensed for use by its subsidiaries.
ABOUT SMBC AVIATION CAPITAL
Based in the IFSC in Dublin Ireland, SMBC Aviation Capital is the second largest aircraft operating lease company globally, with an owned, managed and committed fleet of over 900 aircraft. The company focuses on the most technologically advanced, fuel efficient and narrowbody aircraft types, providing customers across the globe with the aircraft they need to successfully grow their businesses. Established in 2001, the company was acquired in 2012 by a consortium comprised of two of Japan’s biggest companies SMFG and Sumitomo Corporation. For additional information, please visit SMBC Aviation Capital’s website at https://www.smbc.aero
Alright, before I delve into my analysis, I highly recommend you read SMBC Aviation Capital’s 2023 Annual Report here.
Here are the highlights:
Now, as the press release states, SMBC Aviation Capital is the world's second largest aircraft leasing company, and this agreement will create a USD 1.5-billion global aircraft financing and leasing platform dedicated to modern, fuel-efficient NextGen aircraft.
It is a publicly traded corporation which boasts Sumitomo Corporation as it's major shareholder:
So which is the world's largest aircraft leasing company?
AerCap is the industry leader across all areas of aviation leasing - aircraft, engines and helicopters.
They have a highly attractive portfolio, a diversified customer base and an order book of the most in-demand new technology assets in the world.
It's also a publicly listed company which anyone can buy:
[GECAS (GE Capital Aviation Services) was an Irish–American commercial aviation financing and leasing company. AerCap acquired the company from GE Capital on November 1, 2021.]
Last year, GE said it would sell a stake worth about $2.44 billion in the aircraft leasing giant through an underwritten public offering, all part of its plan to separate into three independent publicly traded companies.
Anyways, I'm sharing this with you because GE Capital Aviation Services was born out of necessity and was highly profitable, earning $1.2 billion back in 2018:
Back in 1967, Allegheny Airlines, now U.S. Airways, was a small business with a big idea — connect dozens of American cities with regular flights. But to do that, Allegheny needed expensive planes. GE came up with a creative way to help: It would buy the jets that Allegheny needed and then lease them back to the airline over the next 12 years.
Today, GE Capital Aviation Services, or GECAS, is one the largest aircraft leasing companies in the world. It has a fleet of nearly 2,000 airplanes in operation or on order, which it leases to 270 airline customers in 75 countries. Its planes have helped fuel the growth of the low-cost carrier industry. Airlines like JetBlue, Southwest, AirAsia and many others have leased GECAS planes. GE estimates that the unit will earn $1.2 billion in 2018.
In the decades since the first lease, GECAS has expanded to include a variety of aircraft, including regional jets, turboprops, freighters and helicopters. In 2014, the business acquired Milestone Aviation Group, the world’s leading helicopter leasing and financing company, which currently accounts for about 12 percent of the GECAS portfolio. Milestone supports a variety of industries, including offshore oil and gas, search and rescue, emergency medical services, police surveillance, mining and others. With fleet utilization currently at 90 percent, GECAS expects the subsidiary to earn $50 million this year and remain profitable in 2019, despite headwinds facing the offshore oil and gas industry.
In the meantime, the passenger jet segment — GECAS’s main business — keeps climbing. “Aircraft leasing continues to grow in absolute size while maintaining a 40 percent global market share,” Boeing said in its Current Aircraft Finance Market Outlook 2018. “We expect lessors to sustain their growth throughout 2018 while taking advantage of record demand and strong liquidity.
That was back in 2018.
Fast forward to 2023 where SMBC Aviation Capital CEO Peter Barrett (featured above) said this in his review in the Annual Report:
The recovery of air travel has played a key role in the Company’s performance over the past year. Our financial year ended 31 March 2023 has clearly marked the inflection point in the recovery, with air travel levels in several jurisdictions across the Americas and Europe not just rebounding, but now surpassing pre-pandemic levels. This has increased demand from our airline customers, which we are well placed to meet through our strategic focus on the new technology narrowbody aircraft that are highly sought after in this competitive environment. While lockdowns in Asia lasted comparatively longer than in other markets, recovery in the region is resilient and, with robust demographic and economic fundamentals, we expect this trend to accelerate.
The aviation market has proven its resilience globally, with its fundamental drivers being affirmed in the last two years. People’s desire to see new places, travel to meet family, experience different cultures, and do business face-to-face, remains strong. We’ve seen that when people can travel, they do travel. Travel is important to people, and they tend to prioritise it over other areas of discretionary expenditure.
Indeed, as more and more people enter the middle class in Asia or retire in North America, their focus is shifting more on traveling and that means demand for air travel should remain robust despite the looming global recession I'm anticipating.
Maybe not as robust as last year but robust.
And a global recession will impact all carriers which will look to costs and lease more airplanes.
This too supports growth at SMBC Aviation Capital, AerCap and other aircraft leasing companies.
Alright, before I wrap it up, why did CDPQ enter this deal?
It did so through it credit operations and this platform with a top player in the airline leasing space which will focus on modern, fuel-efficient NextGen aircraft is a great way to improve risk-adjusted returns.
Investing USD 1.5 billion over the next three years to scale these operations is significant and if things go well, expect more CDPQ capital to flow into the space.
Below, SMBC Aviation Capital is one of the world’s leading aircraft leasing companies. Find out more about the company by watching this clip.
And last year, CNBC's Phil LeBeau interviewed John Plueger, Air Lease CEO, to discuss airline industry shortages, supply chain disruptions, and costs.
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