Thursday, August 30, 2012

Airbus A380 Production Squeeze Lifts Value of Financier’s Fleet

The Airbus A380 wing-crack debacle may turn out to be a blessing in disguise for the largest financier of the super jumbo.

“It will, in a strange way, be positive long term because it has slowed down production,” said Mark Lapidus, managing director of Doric Asset Finance Ltd, which has financed 13 of the world’s largest passenger aircraft so far. “Anything that slows down the production rate increases the value of the existing fleet we have.”

Airbus SAS’s flagship model has struggled with cracks that emerged in wing components, disrupting production that will drop in 2013 and is trailing behind the annual goal of 30 deliveries this year. Airbus is working with regulators on a long-term fix for the cracks, and the company has cautioned that reaching its goal of 30 new orders this year is a stretch.

Doric has financed eight A380s for Emirates Airline, the biggest operator of the double-decker jet, and five for Singapore Airlines (SIA), the A380’s first customer in 2007. There are 80 A80s in operation around the world today, and customers have ordered 257 of the double-decker, according to Airbus’s tally at the end of July.

The London-based financing company will see its fleet grow to 18 A380s by the end of April 2013, Lapidus said in a telephone interview. Doric is in financing talks with other A380 customers, including China Southern Airlines Co. (1055), Korean Air Lines Co. (003490) and Malaysian Airline System Bhd. (MAS)


“It is not that we are fascinated with the A380,” Lapidus said. “We see it as an underappreciated aircraft by both the lessor community, about which we are very happy, and by some of the airlines that have not tasted the aircraft in their fleet yet.”

One case where product familiarity may lead to additional A380 orders is British Airways (IAG), Lapidus said. The International Consolidated Airlines Group SA unit is scheduled to receive the first of 12 of the aircraft it has on firm order next year.

“They will have to operate more,” Lapidus said, pointing to the carrier’s network and service to major cities such as Hong Kong or New York. On flights to the New York area alone, British Airways “would need less crewing and fewer pilots and their costs would improve significantly” by using the A380, he said.

Doric’s portfolio now includes $4.6 billion in aviation assets under management. The company yesterday took delivery of its 13th A380 to bring its total fleet to 30 aircraft placed with nine airlines. The A380 was acquired under the Sky Cloud IV fund that has leased the aircraft for 12 years to Emirates.

In addition to A380s, Doric has financed six Boeing 777 wide-bodies, two Airbus A340-600s, one A330-200 and eight A320s.

The company has also bid on financing Boeing 787 Dreamliners, Lapidus said, though so far failed to win a customer. Financing more 777s is also on the agenda.

To help with aircraft financing at a time when many banks have withdrawn access to debt, Doric this year used a first of its kind U.S. corporate bond offering for four Emirates A380s, selling $587.5 million in secured debt. More such deals are being looked at, Lapidus said.

Doric wants to expand its investor base beyond its core German and U.K. market, Lapidus said.

“We are definitely looking into the U.S. and we are very interested in developing something in Japan,” he said. Those efforts are likely to materialize next year, Lapidus said.


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