Global Jet Capital, the U.S.-based business-jet finance concern founded in 2014, said the trend for purchase of brand-new aircraft in the Middle East had reversed in favor of preowned models in the past 12 months, but expects interest, particularly in new Gulfstream, Bombardier and Dassault large and super midsize models, to pick up soon.
“It is simplistic to see the Middle East region in terms of being driven [purely] by the newest aircraft available. This said, there is no question that the new models that have come through to market in the last few months, including the Global 7500, the Gulfstream G500 and G600, are getting people interested in buying a new aircraft,” Simon Davies, vice president, sales, UK, Middle East and India, Global Jet Capital Inc., told AIN in an exclusive interview in October.
“The region has traditionally been very much a newer aircraft-buying region with less emphasis on preowned aircraft. For the past year or so, the opposite was true with more focus on preowned aircraft.”
Global Jet Capital acquired GE Capital’s business-aircraft portfolio for $2.2 billion in early 2016 and raised almost $1.3 billion of institutional investor funds in two oversubscribed asset-backed securitizations in the first half of this year. The company is backed by three global investment firms: GSO Capital Partners, a Blackstone company in partnership with Franklin Square Capital Partners (as of September 2016); The Carlyle Group; and AE Industrial Partners.
With its traditional preference for large jets, the Middle East region is of major interest to Global Jet Capital, which recently reported a marked trend in interest towards the size. “The region has started to regather itself, with a focus on the Global 6000 and the G650, and a lot of interest in the new models too. In terms of the super midsize aircraft, the Challenger 650 and the Gulfstream G450 continue to be viewed favorably by the clients in the region. We are seeing activity in the Falcons products too. A lot of the recent conversations have been driven around the 6X,” Davies said.
“Our focus is about continuing to expand our touch-points in the region. The brand has become quite well recognized. We want to create quality relative to both preowned aircraft opportunities involving brokers or OEMs, while continuing to serve the OEMs on new aircraft opportunities.”
The change was that many of the banks that used to finance aircraft had fallen away in the Middle East, he said. “Various private banks still offer a loan structure to their clients, well suited for the niche they want fulfil. However, these banks cannot do operating leases and this has left a gap in their offerings as more people look at this product. Global Jet Capital provides both debt and operating-lease products.”
Davies said each lender had their own strengths and weaknesses. Private banks were known to operate mostly on word-of-mouth referrals for leads. In the Middle East, the operating-lease product was not an accounting-driven issue, such as on- vs off-balance sheet, which was a major driver in the U.S.
“With operating leases in the Middle East, most clients like the idea of a set date at which they can dispose of the aircraft, so they are not beholden to the market. The known return date in the lease permits a client to schedule a replacement aircraft without any concerns about what happens to the existing aircraft: no potential concerns about resale values, no continuing expenses while trying to sell the aircraft, and no likelihood of missing a sale due to the timing of the replacement aircraft,” he said.
Global Jet has over $2 billion of assets on its books, representing approximately 300-plus aircraft, Davies claimed. By having portfolio diversification over a number of asset types—not all its aircraft are Bombardiers or Gulfstreams—a diverse fleet mitigated risk. “We are present in all markets around the world. We can move aircraft out of one location into a new location. In terms of risk mitigation, we have a large portfolio and global footprint that helps us to manage risk effectively,” he said.
He said the status of the market in Saudi Arabia had become a little cloudy. Saudi Arabia was the largest single bizav market in the region, but recent events involving the kingdom remained a developing story and made it difficult for anyone to accurately read the impact on business aviation.
After the corruption crackdown last year, potential aircraft clients wanted to have a less visible business-aircraft ownership presence and everyone was still getting used to the situation. Global Jet Capital had seen a change is the way people wanted to acquire aircraft, with more people acquiring an aircraft on an operating lease or simply signing up for long-term charter operations.
Davies said the rest of the Gulf Cooperation Council market was unpredictable. “While we do see activity in other Gulf states, the activity is sporadic,” he said.
“In the Levant, there is not a lot of activity. The war in Syria caused a trickledown effect on its neighbors. Egypt continues to see some activity, and their market has showed signs of starting to rebound. The same could be said for Morocco. However, in Algeria, Tunisia and Libya, things have been quiet, but these have not been traditionally big markets for business aircraft.”
Last year, when Davies’ sales territory comprised the Middle East and Africa, Global Jet Capital forecast that the African private-jet fleet would grow by more than 25 percent by 2025, with 160 new aircraft being delivered to the continent at a total value of around $3.9 billion. It said southern Africa would account for one-third of the growth in the total fleet, which was set to rise from 408 to 520 jets in the coming eight years.
“We recently carried out research amongst business aviation professionals which showed that more than three quarters expect the demand for aircraft financing to increase in the next five years. It is critically important that clients are able to access financial support in order to continue to develop the African business aviation fleet,” Davies said November 2017.