Alafco plans $4.2bn fleet expansion

27 June 2008
Leasing and finance firm to take advantage of global airline crisis to accelerate growth to 100 planes.

Aviation Lease & Finance Company (Alafco) could spend up to $4.2bn on new aircraft over three years as it seeks to take advantage of a global airline crisis to accelerate its fleet expansion programme.

The Kuwaiti aircraft leasing company is set to buy up to 20 short-haul Boeing 737 or Airbus A320 aircraft a year at list prices of about $70m each. This would total $1.4bn a year.

In December 2007, Alafco announced its aim to expand its fleet to 100 planes from 18 within a decade.

Alafco has 66 aircraft on order and Abdulqassim Redha, the company’s senior vice-president for business development and treasury, says it is seeking to accelerate its schedule.

“We will be in the market for new aircraft for our own account,” he says. “We would like to have 100 planes within three to four years. We have the capacity to absorb up to 20 planes a year and will be looking to add narrow-body planes - the 737 or A320.”

As the group builds towards 100 planes, there will be some attrition as older planes are sold off.

On 25 June, Alafco announced that it had agreed to sell eight Boeing 787-9 Dreamliner aircraft to Saudi Arabian Airlines for $1.6bn, to be delivered in 2014 and 2015 (MEED 25:6:08).

Redha says Alafco could increase its order further if opportunities arise, with the company poised to benefit from the impact of the credit crunch and gathering fuel crisis.

Many airlines are re-evaluating their order books, particularly in the US and Europe, where several carriers are planning to reduce their capacity to mitigate high fuel costs. In addition, some airlines may delay taking on new planes that they have already ordered to ease their financial pressures.

The global low-cost sector, which is a particularly heavy user of short-haul A320s and Boeing 737s, has been particularly hard hit, bringing many more of the planes that Alafco is targeting onto the market.

In late 2007, before the fuel crisis hit hardest, delivery slots for these short-haul aircraft were slated for 2013. However, because of cancelled or postponed orders, some are now available from the manufacturers as early as next year. With the low-cost sector in the Middle East still expanding rapidly, despite soaring fuel costs, Alafco is confident of finding homes for these new planes.

“There are signs that some airlines, especially in the US, are delaying their deliveries,” he says. “Because of the credit crunch, a lot of airlines may not be able to find finance for their orders, or are finding financing expensive.

“They may now look for a sale and leaseback with us. We can raise more capital if the opportunities are there.”

Alafco is also finalising plans for a new aviation fund worth $1-1.5bn. The company will be mandated by an unnamed regional bank to build a portfolio of up to 30 narrow-body aircraft.

The bank will provide 20 per cent of the equity for the project, with Alafco arranging new debt facilities.

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