For instance, leasing is attractive to many airlines, as the purchase of planes requires a substantial capital investment. Through leasing equipment, they are able to direct funds to support their core business of transporting passengers and/or cargo.
Compared to real estate and infrastructure counterparts, aircraft leasing investments are a relatively unknown asset class. This sector’s fragmented nature, lack of transparency and sparse performance data make it difficult to fully understand and leverage. In addition, given the high investment cost of airlines, minimum diversification requires a substantial commitment and minimum investment requirements are quite high.
However, barriers to entry can be lowered via a fund format with the help of an asset manager with sector expertise. The fund offers a considerably lower investment threshold for the investor and leverages the skills of professionals who provide asset selection and portfolio management, credit analysis, asset management, and prudent capital and fund structuring.
Aircraft leasing funds have three primary roles – purchasing aircraft at discounted prices; managing the aircraft leasing process efficiently; and, selling aircraft at higher prices when leases expire. Depending on asset type, credit risk and maturity, they typically will yield between 7 and15 percent in returns, including a yearly coupon rate of between 4 to 8 percent. The return is higher than investing in the debt of carriers and the investment remains fully asset-backed. In a low-interest rate environment, aircraft leasing funds are very attractive propositions.
Tell’s Special Situations team develops investment strategies that enable investors to tap into the unique field of aviation services as applied to high potential frontier markets.