ST Engineering, Temasek in aircraft leasing JV

Converted passenger to freighter planes in demand

“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.” Jeffrey Lam

SINGAPORE: Singapore Technologies (ST) Engineering Ltd and state investor Temasek Holdings have set up a joint venture for freighter aircraft leasing to take advantage of strong demand for converted passenger planes.

The JV will aim to build a Us$600mil (Rm2.5bil) 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 pandemic, they said late on Tuesday.

Aviation analytics firm Cirium expects the number of passenger to freighter conversions globally to rise by 36% 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% from pre-covid 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 JV’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 intends to securitise the leasing income streams by way of a business trust to unlock capital.”

Temasek head of industrials, business services, energy and resources Uwe Krueger said the JV would look to find ways to reduce carbon emisssions.

The setting up of the JV 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 yesterday, ST Engineering said it had obtained more than S$1.55bil (Rm4.81bil) worth of new contracts in the first quarter of 2021.

Its defence and public security segment led the way with S$610mil (Rm1.8bil), excluding wins with customer confidentiality reasons. Its commercial aerospace segment secured S$573mil (Rm1.7bil) in new contracts, while its urban solutions and satellite communications bagged S$371mil (Rm1.15bil).

The group’s order book at S$15.7bil (Rm49bil) as of March this year was at a level higher than before Covid-19 and contributed by all business areas. It expects to deliver S$4.6bil (Rm14.2bil) of the order book in the remaining months of 2021.

ST Engineering also said its cost savings 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.