Elix Aviation (Elix), a full-service turboprop aircraft lessor based in Ireland, has launched a new asset management service to manage and service regional and turboprop aircraft for external investors, lenders, and portfolio holders. The lessor is backed by California-based asset management firm Oaktree Capital Group, and currently owns and manages a portfolio of 65 turboprop aircraft.
Speaking with Ishka, Elix’s COO, John Moore, states that the platform has been created to offer help to aircraft owners and investors manage, repossess, and remarket aircraft. “We also can work with investors that are looking to deploy new capital into the segments because we have quite a large network and can identify opportunities in the market and then structure transactions and bring those to the investors and implement and manage them for those investors”, Moore tells Ishka.
The turboprop lessor is also an ABS servicer and issuer for the $411 million Prop 2017-1 ABS – secured by a portfolio of 63 turboprop aircraft, many of which were structured from Elix’s managed portfolio.
More turboprop SLBs expected as lessors anticipate rise in demand for 2022
Moore argues that plenty of investors are circling the space. While activity is still below pre-pandemic levels for sale-and-leasebacks (SLBs), Moore expects there is likely to be more turboprop SLBs as demand slowly recovers.
Lease rate factors (LRFs) for regional aircraft SLBs are still between 0.9 – 1.0 on newer aircraft, and vary widely depending on aircraft age and credit quality. The sale/leaseback market has been increasingly competitive recently according to lessors, and with several deals announced in the last few months for regional jets, Moore admits that there is competition in the market for regional aircraft and turboprops, specifically for good assets with good credits.
Ishka notes that investors have developed a perception that the regional aircraft and turboprop industry has been hit disproportionately hard by the pandemic, as Moore explains that turboprop values were facing pressure before the crisis, and stresses that while values remain depressed as airlines face a long recovery, he notes the resilience of turboprop values and the increased utilisation of the asset type, as countries slowly ramp up domestic air travel.
Moore adds that some airlines in the regional market were looking for power-by-the-hour (PBH) agreements or rent deferrals when Covid-19 first hit. During the second half of 2020 and early 2021, with the rise of infection rates in several jurisdictions, some airlines in those regions have returned for a “second round” of relief. Additionally, the Asia-Pacific market has continued to struggle with rising infection rates and travel restrictions, limiting domestic flights in the region. However, Moore stresses that turboprops are an “essential” form of transportation for many countries and that utilisation is “increasing steadily” in Asia and India. He adds that the regional market’s recovery depends highly on the stabilisation of Covid-19 infections. Should the situation stabilise in Asia-Pacific, which has a large regional turboprop fleet, a recovery target date can be set for 2022.
Values and lease rates trend upwards after hitting pandemic lows
Market values and lease rates fell in 2020, but as demand increases for regional aircraft and turboprops, John Moore tells Ishka that values have “hit the bottom and now starting to improve”. Despite this, he admits that it’s still early in the recovery period, and lease rate factors (LRF) are still in the lower quartile between 2020 valuations and pre-pandemic valuations.
Ishka’s latest pricing benchmark presents prices and lease rates of lease encumbered, new Airbus A220s, new ATR 72-600s and eight-year-old ATR 72-600s. Turboprop values, specifically ATR 72-600s and Dash 8-Q400s, “took some pretty big hits” pre-pandemic, explains Moore, due to the availability of a number of aircraft on the market over a short period of time. Their depreciation was impacted further by the pandemic, driving values and lease rates down, but he notes that values seem to have stabilised now.
The Ishka View
Elix’s move to establish an asset management arm is clearly responding to a market need. Several airlines are in the middle of arduous and long-running restructurings and several investors and banks are likely to need to find a solution for any unplaced regional jets and turboprops.
The move also allows the lessor to create a new revenue stream while leveraging off its deep turboprop knowledge to help investors who have had exposure to regional aircraft, or are looking to enter the market.
Increasing competition in the narrowbody market could push more investors towards regional and turboprop assets where some LRFs lie between 0.9 – 1.0, offering a premium compared to recent narrowbody deals, but which is reflective of the wide range of airline credits that operate both regional and turboprop aircraft. It is hard to forecast exactly when turboprop values will significantly rise given the overhang of aircraft in the market, but Ishka research suggests there does seem to be some recent signs of stabilisation for ATR lease rates.