SYDNEY • Singapore Technologies Engineering and Temasek said they have set up a 50-50 joint venture for freighter aircraft leasing to take advantage of strong demand for converted passenger planes.
The joint venture will aim to build a US$600 million (S$797 million) portfolio of mostly narrow-body planes over the next five years through a mix of equity and debt, with the partners able to pick up passenger jets for conversions at lower-than-usual prices owing to a fall in aircraft values during the Covid-19 pandemic, they said on Tuesday.
Aviation analytics firm Cirium expects the number of passenger-to-freighter conversions globally to rise by 36 per cent to 90 planes this year and 109 planes next year, amid growing demand for air cargo due to lower passenger flight numbers and the rise of e-commerce.
Air cargo demand hit an all-time high in March, up 4.4 per cent from pre-Covid-19 levels two years earlier, according to the International Air Transport Association.
ST Engineering, one of the world's biggest converters of passenger jets to freighters, said it will provide the maintenance, repair and overhaul services for the planes in the joint venture's leasing portfolio.
Its head of commercial aerospace Jeffrey Lam said the joint venture will allow his company to grow its aviation leasing business beyond passenger aircraft to freighters.
"We also... look forward to working with other potential like-minded partners who are looking to invest in the strong freighter aircraft leasing market," he said. "In the medium to long term, the joint venture intends to securitise the leasing income streams by way of a business trust to unlock capital."
Temasek's head of industrials, business services, energy and resources Uwe Krueger said the joint venture will look to find ways to reduce carbon emissions.
The setting up of the joint venture is not expected to have any material impact on the consolidated net tangible assets per share and earnings per share of ST Engineering for the current financial year.
In a business update yesterday, ST Engineering said it obtained more than $1.55 billion worth of new contracts in the first quarter of this year.
Its defence and public security segment led with $610 million, excluding wins with customer confidentiality reasons. Its commercial aerospace segment secured $573 million in new contracts, while its urban solutions and satellite communications bagged $371 million.
The group's order book at $15.7 billion as at March was at a level higher than before Covid-19 and was contributed by all business areas. It expects to deliver $4.6 billion of the order book in the remaining months of this year.
ST Engineering also said its cost savings and productivity initiatives are "tracking well". It sees signs of recovery for its commercial businesses, albeit from a low base, though the commercial aerospace segment remains subdued, as expected.