Arena Aviation Capital – H1-2023 activities update
Management of Arena Aviation Capital today commented on recent activities of its team and market conditions during the first half of 2023.
ACTIVITIES
Looking back at the first half of the year Arena reported plenty of portfolio management activities. Diederik Lindhout, Arena Aviation COO commented: “The trading market was subdued in the first half of this year and we closed on just 2 aircraft acquisitions so far, but we are excited to have done so on behalf of 2 new investor accounts based in Asia and the US” said Lindhout. “Moreover, we are pleased to have successfully extended leases for 12 aircraft and 2 engines - with 6 different lessees. We also placed and delivered one A320 to Avion Express on a long-term lease. During the same period, we sold 2 aircraft, 1 airframe and 3 engines – with another 4 aircraft contracted for sale this year.”
Approaching its 10th anniversary Arena’s management continues to invest in its team that will be 25 strong by the end of 2023, mostly divided between its headquarters in Amsterdam and Dublin. Earlier this year Arena reported the addition of Ivo Kirilov as new SVP Marketing, covering the ever increasingly important Asian market from Singapore.
MARKET
The market for air travel has continued to recover strongly with air passenger traffic at near pre-COVID levels according to recent market analysis. Aircraft market values, which plunged during the COVID pandemic, have largely recovered with narrowbody aircraft market values increasing throughout 2023 in response to rising travel demand in domestic and regional markets and limited production rates for new aircraft.
Erik Dahmen, Arena Chief Commercial Officer commenting on the relatively low trading activity in markets key to Arena´s investor clients: “We saw lower than expected sales figures for most lessors, partly due to delays in trading during 2022, which had a knock-on impact on the first half of 2023” Dahmen noted. “Also, airlines have reportedly been buying a lot of older aircraft from lessors, rather than extending leases, which further limits the potential supply of deal flow. But the most dominant factor was the sharp increase in cost of capital for buyers driving down pricing to where a sale would lead to book value issues for sellers”.
Looking forward expectations are more bullish. “The rest of 2023 should be more exciting for the mid-life aircraft space, with increased levels of trading and lease rates continuing to climb powered by a sustaining relative shortage of aircraft, new and old” Dahmen said. “Lessors will likely sell more aircraft to turnover their portfolio, fund new deliveries and repay debt. We will see a healthier and more colourful deal pipeline I´m sure”.
As always Arena is actively looking for and talking to new capital sources available for aircraft investments. These range from sovereign wealth funds investing in new-technology portfolios to private equity and credit fund investors in the mid-life and freighter space. “Different pockets of capital can be used for specific segments like new tech, mid-life widebodies, engines and freighters, as they all have different risk/return profiles which appeal to our different investor clients” said Patrick den Elzen, Arena CEO.
“We see signs of that industry “reset” that everyone has been talking about actually being upon us”, said den Elzen. “More sellers will sell or even exit the space going forward, offering more supply of deal flow at levels that accommodate higher financing costs, and at the same time buyers are increasingly confident pricing in higher release rates and longer term inflation supporting more aggressive residual value assumptions”