DAE Capital is set to acquire aircraft worth $1bn this year, and will increase its asset portfolio by a further $4bn by 2012.

The aircraft leasing arm of Dubai Aerospace Enterprise has targeted rapid expansion and predicts it will have assets of up to $7bn within four years.

The group only entered the market late last year when it placed $29bn worth of long-term aircraft orders. However, the majority of these planes do not arrive until 2011, with deliveries continuing until 2018.

With the 31 planes in its current fleet already placed with airlines, DAE is seeking to add new aircraft to its books to allow it to generate more business.

“We will bring in up to 50 aircraft from the secondary market to fill the gap from 2009 to 2011,” says,” Bob Genise, chief executive officer of DAE Capital. “We may look to sale-and-leaseback opportunities or leasing from other lessors as we add volume to the balance sheet. We will bring in $1bn in new assets by the end of the year, which will value our portfolio at approximately $2.5bn, and we will add $1.5bn a year, taking us to about $6.5-7bn within five years of launching the business.”

The aircraft leasing sector is booming in the Middle East and Genise predicts compound annual growth in DAE’s asset base of
30-35 per cent a year.

In Kuwait, rival firm Aviation Lease & Finance Company (Alafco) is planning to spend up to $4.2bn on new aircraft over the next three years to build up its own fleet (MEED 27:6:08).

Genise admits that the timing of DAE Capital’s arrival in the industry last year has been fortuitous, with the global credit crunch and rising fuel costs creating a buyers’ market for big-ticket items such as aircraft.

Both DAE and Alafco have identified the US, where the current fuel crisis has hit airlines particularly hard, as a good market for sale-and-leaseback opportunities. Several US carriers are looking to manage their costs by delaying the delivery of new aircraft that have already been ordered.

“The high price of oil is putting tremendous pressure on the airlines’ earnings and cash flow,” says Genise. “Many are looking to sale and leasebacks to fund new deliveries and to raise cash.”

“The current turmoil gives us more choice and purchasing power [but] while there may be more of these opportunities, we will have to be more selective in evaluating the underlying credit risks of the airlines with which we do business.”

Genise adds that leasing rates are likely soften this year as demand drops away, after rising rapidly last year in line with the expansion of airline fleets around the world. However, he says the current climate remains beneficial for leasing companies.

The sector uses two main types of leases: operating leases, where an airline rents a plane from a leasing company for a set period; and finance leases, where the carrier eventually buys the plane.

“The long-term growth for this market will be strong,” he says. “About 25 per cent of all the aircraft out there are on operating leases, and that will go to 30 per cent or higher given the current economic situation.”