Bloomberg News

Engine Lease Seeks 25% of Market After Macquarie Deal

September 30, 2011

(Corrects number of spare engines required for short-haul versus long-haul planes, in eighth paragraph)

Sept. 30 (Bloomberg) -- Engine Lease Finance Corp., a subsidiary of Bank of Tokyo-Mitsubishi UFJ Ltd., is targeting a quarter of the global jet-engine leasing market to challenge incumbents General Electric Co. and Rolls-Royce Plc.

The company agreed on Sept. 28 to buy 47 aircraft engines from Macquarie Group Ltd. The transaction brings Engine Lease’s portfolio to almost 300 engines, making it the biggest independent lessor, and the No. 3 behind GE and Rolls-Royce, said Jon Sharp, chief executive officer of Shannon, Ireland- based ELFC.

“The bank has continued to favor engine leasing and wants to grow our profile,” said Sharp, a 20-year veteran of Rolls- Royce’s repair and overhaul business. “This represents another step in that strategy, and the acquisition brings us not very far behind those two.”

The business of aircraft-engine leasing has existed for just over two decades, following in the footsteps of aircraft leasing that now makes up 35 percent of all orders in the $70- billion-a-year airliner business. Leasing engines helps airlines better manage the so-called residual value of spare powerplants that they have on hold to keep their fleets running.

With the Macquarie purchase, ELFC lifts its stake of the global engine-lease market to about 21 percent from 16 percent, Sharp said. General Electric has about 28 percent, and Rolls Royce & Partners Finance, a joint venture with rail-car lessor GATX Corp., has 27 percent.

‘Wasn’t Enough’

“We felt 16 percent wasn’t enough, and we should be aiming for 25 percent,” Sharp said.

Aircraft manufacturers require airlines to buy spare engines to ensure that fleets can operate without interruption when engines have to be removed from under the wing either after damage, or for scheduled inspections and repairs, Sharp said.

With single-aisle planes, airlines typically need eight extra engines for every 100 flying, and they need about 12 for widebody, long-haul planes, which fly fewer cycles because the flights are longer though have longer route structures, requiring spare engine support at both ends.

Airlines ask engine lessors to assume order positions for them, make pre-delivery payments, and then lease the engines back to the airlines for 10 years on day of delivery. That way, airlines get the engines off their balance sheets, and they can sell them to the engine lessors at a profit because they get discounts buying engines in bulk, Sharp said.

“That makes use of airlines’ purchasing power,” he said.

--Editors: Benedikt Kammel, Robert Valpuesta

To contact the reporters on this story: Andrea Rothman in Toulouse, France at aerothman@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net.


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