ST Engineering, Temasek to set up joint venture for freighter aircraft leasing as air cargo demand grows

The ST Engineering and Temasek joint venture will aim to build a US$600 million (S$795.6 million) portfolio of mostly narrow-body planes over the next five years.
The ST Engineering and Temasek joint venture will aim to build a US$600 million (S$795.6 million) portfolio of mostly narrow-body planes over the next five years.PHOTOS: ST ENGINEERING, KUA CHEE SIONG

SYDNEY (REUTERS) - Singapore Technologies (ST) Engineering and Singapore investment company Temasek are setting up a 50:50 joint venture for freighter aircraft leasing to capture strong demand for converted passenger planes as e-commerce and air cargo demand grows.

The joint venture will aim to build a US$600 million (S$795.6 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 due to a fall in aircraft values during the Covid-19 pandemic, they said late on Tuesday (May 11).

Aviation analytics firm Cirium expects the number of passenger-to-freighter conversions globally to rise by 36 per cent to 90 planes in 2021, and to 109 planes in 2022, amid growing demand for air cargo due to lower passenger flight numbers and the rise of e-commerce.

Air cargo demand reached 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.

ST Engineering head of commercial aerospace Jeffrey Lam said the joint venture would allow his company to grow its aviation leasing business beyond passenger aircraft to freighters.

"We also welcome and 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 JV (joint venture) intends to securitise the leasing income streams by way of a business trust to unlock capital."

Mr Uwe Krueger, Temasek's head of industrials, business services, energy and resources, said the joint venture would look to find ways to reduce carbon emisssions.

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 on Wednesday morning, ST Engineering said it had obtained more than $1.55 billion worth of new contracts in the first quarter of 2021.

Its defence and public security segment led the way 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 this year, was at a level higher than before Covid-19 and contributed by all business areas. It expects to deliver $4.6 billion of the order book in the remaining months of 2021.

ST Engineering also said its cost-saving and productivity initiatives are "tracking well". It saw signs of business recovery for commercial businesses, albeit from a low base, though the commercial aerospace segment remains subdued as expected.

• With additional information from The Straits Times