Understanding the essential elements of aircraft finance and how to pivot toward success given the current environment

 In this Q&A with AFRAA, Boeing Capital Corporation executives Vasgen Edwards, managing director; Lereece Rose, senior finance director; and Sam Muhumuza, account manager, discuss aviation finance in Africa.

What are current headwinds facing African Airlines?

Edwards: There are a number of hurdles to be met when financing aviation assets in this geography. Anecdotally, through interactions with airlines across Sub-Saharan Africa, the following challenges are apparent: recovering from ravages of the COVID-19 pandemic, finance costs, finance availability and appetite for ownership considerations. Certainly, there are positives in the region including the Single African Air Transport Market (SAATM) asserting its open skies mandate, Cape Town Convention status enabling easier repossession and importantly funding at a lower cost and global liquidity which all play an important role. Yet these factors only bear consideration once the bigger hurdles mentioned above have been crossed.

Notably, despite near-term headwinds, there are good opportunities as Africa reflects the fastest growing working age population. Also, a burgeoning freight market should create greater opportunities across the continent. Boeing estimates that by 2029, more than 1,000 aircraft will be needed in Africa, most of which will constitute growth as opposed to replacement of an aging fleet.

Boeing’s forecast of aircraft replacement in Africa

Source: Boeing

 Africa’s working age population growth

Source: Boeing

 How can industry navigate toward profitability post pandemic?

Return to growth pathways will require changes in approach as plans for new cap-ex are solidified. What we potentially see is an environment with closer co-operation within the existing financial ecosystem that will be augmented by an extension to new sources of financing.

 The good news is that a number of financing options are available to airline operators and financiers as they explore and develop post-pandemic strategies. The full breadth of financing pathways, including lease solutions, alongside various Export Credit Agency (ECA) options, will certainly continue to play a role and discussions at the outset of any financial planning assessment should capture all the financial products that are suitable. Boeing Capital Corporation (BCC) continually works with Boeing customers and industry financiers to help determine the best solution for their particular situation. This on-going transaction support has proven instrumental in offering customers and financiers a better understanding of particular market nuances.

Boeing Capital delivery funding in Africa

Source: Boeing

What are some practical steps that can help ensure a successful financing outcome?

Muhumuza: Prior to the airline going to market, a clearly formulated strategy set out in the form a business plan will help maximize a successful outcome with stakeholders. Utilizing support from Original Equipment Manufacturers (OEMs), airlines should consider the following:

 Boeing Capital preparation phase / go to market / optimize solution

Source: Boeing

 

What are expectations around increased finance costs relative to perceived and real risks?

Edwards: Increased risk in Africa is a reality for most financiers because their models take into account a number of factors including but not limited to:

• Defaults at both country and airline level
• Difficulty in repatriation of funds
• Economies that are largely dependent on a single resource to drive revenue and growth (e.g. oil production)
• Revenue and income currency mismatches
• The overall stability of the business, country and region

While determining the above risks is somewhat beyond the control of an airline, perceived risk can be managed to a greater degree with thorough preparation and providing comprehensive information to financiers. BCC is in a position to facilitate understanding of the market and the risk and reward framework that underpins aircraft financing. For many years, our outreach programs have facilitated the on-boarding of numerous financial institutions into the aviation financing community through regular market updates on a global basis. BCC has also invested to ensure our teams are present in the Middle East and Africa region to best understand local market conditions and developments. That connectivity is integral to building the right solutions for our customers.

 Is finance availability directly correlated to the visibility of a particular airline or country? What about the role of local financiers?

Rose: There is much to be said for airlines who maintain interaction with local and international banks to leverage the best of both worlds. We have seen first-hand the value of on-boarding local institutions to fund solutions often in conjunction with international banking groups. It is well noted that longer term financing in US dollars can exert additional stress on local and regional banks. However, there is unquestionably a part-to-played by these financial institutions in the shorter tenor tranches of aircraft financing, notably PDPs and mezzanine facilities. Second, when international banks are able to fund in local currencies, due to a long established presence in a particular jurisdiction and an accumulation of revenue denominated in local currency, it provides availability that stimulates competition and bodes well for the price of financing in the local market.

 What are your thoughts on a pan continental leasing platform?

Muhumuza: Lessors are very important to aircraft finance and the number of aircraft under lease has grown exponentially since 1980. While the vision of a body that is wholly dedicated to the financing of aircraft on the African continent merits further investment and discussion, there are many capable players in the aviation financing market today. The industry should continue to use existing solutions while exploring new options that could accelerate growth of the aviation market. BCC certainly sees the benefit of multiple institutions, coordinating their combined capabilities to bring capital and solutions to airlines that are the lifeblood of the African continent. The main benefit of such a leasing platform would be to counter the effects of dollar denominated payments, especially in those airlines that generate revenue in local currencies which can be prone to fluctuation against the U.S. dollar.

Also, a leasing platform in which participant financiers span across banks, multilaterals, OEM’s and lessors enhances the diversity of the financing product. This can create interest for greater participation by financiers who would not normally consider financing in these jurisdictions. 

Boeing Capital Current Aircraft Finance Market Outlook lessor analysis

Source: Boeing

 

Source: Boeing

What about cargo operations?

Edwards: The freighter market remains a bright spot during the pandemic. Yields have remained very high, and more freighters are flying than before the pandemic due to limited belly cargo capacity from passenger airplanes.

From a regional perspective, according to IATA, Africa cargo demand is growing and as of the first quarter of 2021, cargo operations are at 120% of normal volumes as consumers move toward e-commerce purchases and vaccinations are transported globally.

Stepping back, both financiers and investors have recognized the strength seen in the cargo market throughout the pandemic. In fact, freighters are the best performing aircraft class in terms of values during the pandemic, as the world realizes the importance of air cargo.

Revenue Tonne Kilometers have reflected a dramatic increase since the lean years prior to the pandemic and yields opportunities for all airlines but especially for the African airlines with its increasing exports and abundant resources much needed by an array of industrial sectors.

Any closing thoughts?

Rose: Overall, aviation is a growth business, with annual growth expected to be about 4% over the next 20 years. There is absolutely no question that the African aviation industry will continue to flourish and successfully adapt to a post pandemic marketplace. Aviation is an important driver of the economy and airlines are planning now for recovery and that includes working with financiers on creative solutions. Governments will also play an important role as they develop policies to best serve their respective economies and citizens. We expect that capital will continue to be routed into the sector by established players and as new entrants seek opportunities during the industry’s recovery.

Boeing in Africa

Boeing’s heritage in Africa dates back nearly 75 years. Since the introduction of the jet airplane, Boeing planes have formed the backbone of the continent’s commercial fleet. With more than 60 airline customers operating about 460 Boeing airplanes throughout Africa, Boeing represents nearly 70% of the airplane market currently in service across the continent. Currently, Boeing has offices in Johannesburg, South Africa, and Nairobi, Kenya, in addition to field service representatives with commercial customers across the continent. Boeing Capital Corporation is a global provider of financing solutions for Boeing customers.

The aviation industry is one of the least-balanced when it comes to gender, especially at the technical skills and top leadership level. Often, women are under-represented in many areas of aviation, with the largest gaps in technical, operations and leadership positions. Women account for just about 5% of professional pilots and 3% of airline CEOs around the world according to the International Society of Women Airline Pilots (ISWAP). A 2018 IATA global survey affirmed that women CEOs in aviation represent only 3% compared to 12% of women CEOs in other industries. The survey ranks Africa in third place alongside South America with 8% of executive roles held by women (see graph below).

While the gender in-balance cuts across all regions, the situation seems to be improving across the board. In Africa, the industry boasts of about 5 women CEOs in airlines and 3 Director Generals of Civil Aviation Authorities. In the cockpit and technical areas however, the numbers in Africa remain as depressed as elsewhere. Some airlines are however making better progress at recruiting women pilots and technicians. Ethiopian Airlines has over 30 female pilots, 6 of them captains while Kenya airways has 31 female pilots representing 8% of the cockpit crew. It is however alleged that women have to work themselves much harder than their male counterparts to prove they are just as capable.

It is important to note that gender equality is not just about the large and obvious disparity in the absolute numbers of men versus women at the workplace. In line with the UN Universal Declaration of Human Rights, it also entails non-discrimination, guaranteeing equal pay for equal work and merit-based promotion.

 

With these skewed statistics, aviation remains one of the professions where gender equality is far from being realized. Whether by design or default, the majority of women working in the air transport industry are cabin or ground crew, customer service personnel and receptionists. On the contrary, men dominate in the cockpit, engineering, technical and managerial areas.

 

 

The obstacles

The origin of pilots from the military, where women were excluded for several decades coupled with the reluctance of some airlines to recruit women pilots are two historic reasons for the low number of women in the cockpit. In addition, the difficulty of combining family life and professional life for technical and C-level women in aviation can be daunting, not to mention the regular rigorous professional training for cockpit crew.

While the above may just be excuses today, the real obstacle is lack of awareness. Many women and girls may not be aware of the career opportunities open to them in aviation. Indeed, fewer women pursue STEM-based courses in school thus limiting their chances during cadet recruitment for technical jobs.

It is also undeniable that aspiring female leaders often face bias and stereotyping when vying for positions. For instance, while compassion and empathy are typically viewed as feminine traits, competitiveness, assertiveness and confidence are often associated with men. Female leaders that exhibit some of the “assumed” male traits are often viewed unfavourably. But probably most important, is the inadequate female role models at the highest corporate level to provide the coaching and grooming future female leaders need.

In light of the importance of the subject of gender equity in aviation, the African Airlines Association (AFRAA), in partnership with Collins Aerospace staged a 2-day conference on 19-20 October 2021. The objective of the conference was to facilitate dialogue, share information, experiences and best practices to attain gender diversity and youth development in aviation. The conference was held in virtual format under the theme: “Women and Youth Development in Aviation for a Sustainable Future”. The conference provided an ideal forum for air transport industry stakeholders to take stock of the trends, deliberate on feasible solutions to bridge the gender gap and develop young aviation professionals for the sustainability of the air transport sector.

 Industry Call to Action

The need to improve gender balance in aviation is not new. In 2016, ICAO sent out a strong signal in favor of gender equality in the aviation sector by adopting Assembly Resolution A39-30, comprising a programme of tangible gender equality measures. ICAO underscored the need for gender parity in order to make aviation more efficient and enable it better cope with the rapid expansion. According to the former Secretary-General of the ICAO, Dr. Fang Liu, “Air transport must address head-on why women are still under-represented in the majority of the technical and executive positions in aviation.” One renowned leader of Africa aviation, Dr. Harold Demuren (former DG NCAA) once remarked that, Africa aviation could address part of its brain drain challenge by employing more women to technical and managerial positions. In his view, while women tend to be stable at the workplace for longer, men keep chasing greener pasture to wherever they can find it.

In keeping with the saying that “if you want to bring change, be the change,” IATA in 2019 launched 25by2025, a laudable voluntary industry-wide initiative, focused on improving female representation to  25% by the year 2025 in both technical and managerial levels in the industry. This initiative re-ignites the debate on women’s role in aviation and the need to provide them with opportunities to bring out their full potential. IATA has committed to monitor, track and report the progress towards achieving this goal.

AFRAA-Collins Aerospace conference on Women and Youth Development in Aviation for a Sustainable Future made the following call to action to the industry to bridge the gender diversity gap:

1. Training

1. Empowerment of women in aviation through training.
2. Job and career fairs for women, youth and those with disabilities.
3. Subsidies in training to facilitating access to learning and education
4. Continuous learning and adoption of online training for skilling and re-skilling.

 

2. Collaboration across the industry

1. Call to all African airlines to sign up for the IATA 25by2025 initiative.
2. Events and dialogue among stakeholders for collaborative measures on women empowerment in aviation.

 

3. Leadership and policy actions

1. Gender diversity commitment at Board and leadership level.
2. Introduction and implementation of gender inclusivity programmes.
3. Deliberate policies on women empowerment at State level and at organisation level.
4. Enhancement of mentorship programmes.

 

What should women do at an individual level?

To effectively position themselves for more senior roles, women should adopt some important habits used by men to raise their profile and get ahead. One of the most important steps aspiring women leaders should adopt is to put themselves forward for challenging roles which they may not feel completely competent to assume or well-prepared for. They should proactively manage their careers by mapping out their long-term aspirations and goals and volunteering themselves to more challenge roles rather than wait to be assigned. They must know that communicating the value they bring to the company and actively advocating for themselves is key in a career build-up to the C-suite.

Where they exist, women should take advantage of formal gender diversity programmes within the company and endeavor to build personal networks of advisers within and outside the organisation. Joining networking associations that promote the advancement of women in the aviation is important. Organisations such as the International Aviation Women’s Association; Women in Aviation Africa and Ninety-Nines (a female pilot association with regional chapters aimed at promoting flying as a career choice to young women) are good grooming platforms for young, determined women.

Conclusion

Besides the actions that women should take and mentoring and support from internal and external sources, improving the environment for gender equality must involve a cultural change at the highest corporate levels. Boards must be outspoken advocates for diversity and companies must develop clear policy guidelines on how to recruit, train, empower and retain more women at the technical and managerial level. Real change can only take place when the entire leadership is on board. Holding the organisation and individual leaders accountable for gender targets can be a powerful tool for change.

Finally, if collectively the aviation industry wants change, it must define what gender equality would look like, outline how that will be achieved and commit the resources to the projects that will deliver the expected results. The more specific the roadmap, the more likely gender equality targets will be achieved.

The two entities have formed a strategic partnership with the aim of accelerating vaccine distribution to African nations

Abu Dhabi, UAE – September 23, 2021: As part of its continued commitment to vaccine distribution in Africa, the HOPE Consortium has partnered with Kenya-based cargo airline, Astral Aviation, to offer vaccine distribution solutions to Africa. This highlights the HOPE Consortium’s efforts in reinforcing partnerships that focus on fighting the COVID-19 global pandemic, as well as fulfilling the organisation’s mission as a global logistics facilitator, by aiding in vaccine delivery.

As part of the partnership agreement, both entities will focus on intra-African cooperation to enhance vaccine distribution within the African continent. The HOPE Consortium will utilise Astral Aviation’s comprehensive network, technologies, and market expertise, to support its global objective of facilitating vaccine availability with a specific emphasis on the African continent. The alliance will ensure timely delivery of vaccines and critical supplies to all 54 African nations.

Astral Aviation operates a diverse fleet of 14 freighter aircraft and provides innovative, flexible, and cost-effective UAV (Unmanned Aerial Vehicle) and UAS (Unmanned Aerial Systems) integrated drone-based solutions, as well as warehousing solutions to both in-store and remote locations.

This synergetic collaboration with the HOPE Consortium will see Astral Aviation provide capacity for vaccine deliveries on its scheduled and charter freighter network, in addition to world-class drone solutions and systems to Africa, with the purpose of facilitating immunisation programmes.

Commenting on the partnership, Mr. Sanjeev Gadhia, CEO of Astral Aviation said: “We are truly honoured to partner with the HOPE Consortium and participate in the critical distribution of COVID-19 vaccines, based on our track record in performing humanitarian initiatives and vaccine flights within Africa. Astral will add further technological and warehousing solutions for distribution of the COVID-19 vaccines from the hub in Abu Dhabi, to all the 54 countries in Africa directly or via its Nairobi Hub, which occupies 9000 m2 of cold-storage facilities.”

 

It is worth mentioning that Astral has also been selected by UNICEF to perform vaccine flights for COVAX and for the African Union via the African Medical Supplies Platform.

Through this partnership, the HOPE Consortium furthers its end-to-end supply chains required to distribute vaccines from their base in Abu Dhabi to all African countries. The HOPE Consortium has geared its operations to transport millions of critical COVID-19 vaccines to any country in need and thus far has handled over 100 million vaccine doses across 40 countries.

Robert Sutton, Head of Logistics Cluster, Abu Dhabi Ports, said: “Africa has always been a high priority market for the HOPE Consortium, and to that end, we are pleased to join hands with Astral Aviation. With a track record of operating over 20 years within Africa, their expertise provides a new dimension towards achieving our overarching objectives. This partnership reinforces the HOPE Consortium’s aim of creating a sustainable ecosystem, based on our collective global networks, logistics and supply chain capabilities, in order to facilitate vaccine distribution across the world. Our partnership with Astral Aviation is another benchmark towards our commitment to serve every country, region, and locale. We are confident that this partnership will help enhance HOPE Consortium’s efforts in Africa and ensure that no one is left behind in the quest against the pandemic.”

-End-

About the Hope Consortium:

The Hope Consortium is an Abu Dhabi-based public-private partnership offering a unique end-to-end supply chain solution capable of delivering large quantities of COVID-19 vaccines, from production to those in need, anywhere in the world, safely, transparently and efficiently.

The Hope Consortium has pooled the collective expertise of its partners to provide multi-faceted logistics services to handle transport, demand planning, sourcing, training, and digital technology infrastructure, to facilitate vaccine availability across the world.

The Hope Consortium’s founding partners consist of the Department of Health Abu Dhabi, Etihad Cargo, Abu Dhabi Ports, Maqta Gateway, Rafed, and SkyCell.

Source: Astral Aviation

The COVID-19 pandemic morphed 2020 into an unrecognizable year for the air transport industry. Despite reduced workforces at airports and airlines globally, the per capita mishandled bag rate continued to decline, but plunging passenger numbers and pressure to redesign operations to meet changing travel regulations have posed new challenges.

This year’s report explores these challenges and the innovative ways airlines and airports are addressing them. As in previous years, we have also gathered insight on baggage operations from relevant industry associations.
Download the report to learn more about how the industry has accelerated digitalization projects and opportunities to reimagine ways of handling passengers and their baggage.

Please access the SITA 2021 Baggage IT Insight report here

Source: SITA

EAST HARTFORD, Conn., July 20, 2021 – TAE Aerospace announced today it has successfully achieved Initial Depot Capability (IDC) requirements for the repair of the Pratt & Whitney F135 engine fan and power modules, which power all three variants of the 5th Generation F-35 Lightning II fighter aircraft. With this achievement, TAE Aerospace’s F135 Maintenance, Repair, Overhaul and Upgrade (MRO&U) facility, or depot, in Australia becomes the first operational F135 engine depot in the Asia-Pacific region and has begun supporting the repair of fan and power modules for the fleet.

The module IDC milestone was reached with the completion of a full rebuild of an F135 power module at TAE Aerospace’s Queensland facility. This achievement follows the company’s successful fan module repair qualification in 2020.

According to TAE Aerospace’s CEO, Andrew Sanderson, achieving module IDC marks a critical point in the development of a regional F135 engine MRO&U capability. As an operational F135 engine depot outside of the U.S., TAE Aerospace will support engines for all F-35 operators in the Asia-Pacific region under the F-35’s Global Support System.

“The investment made by the Commonwealth of Australia and TAE Aerospace over the past five years will result in benefits for both Australia, with an important sovereign industrial capability now available in country, as well as at the local level, with the creation of many jobs over the coming years,” Mr. Sanderson said.

“We congratulate the TAE Aerospace team on reaching this critical sustainment milestone for the F135 engine,” said O Sung Kwon, Vice President, Pratt & Whitney Military Engines Sustainment Operations. “The activation of the Australia depot will bring increased capacity to the global F135 MRO&U network in support of the growing fleet. Standing up the regional MRO&U depots is an integral part of the enterprise’s strategy to accelerate capacity growth across the F135 MRO&U network to exceed program requirements.”

Since being assigned the Asia-Pacific region’s F135 engine MRO&U responsibility in 2015, TAE Aerospace, Pratt & Whitney and the Australian Government have delivered a broad range of initiatives to stand up this regional capability including:

• The development of TAE Aerospace’s new 16,000 sqm Turbine Engine Maintenance Facility (TEMF) in Bundamba, Queensland
• The completion of the first F135 fan module repair outside of the United States in February 2020
• The completion of the first power module repair outside of the United States in May 2021

Mr. Sanderson said that all three organizations have worked closely over the past six years to achieve fan and power module IDC in the Asia-Pacific region, a major milestone for program.

“Strong partnerships between the Commonwealth, global OEMs, and Australian industry are fundamental to supporting airpower capability in our region. Close collaboration has enabled us to stand up this important capability in time, underpinning Australia’s goal to achieve a sovereign MRO&U capability for the F135 engine.”

“Pratt & Whitney has a long-standing relationship with TAE Aerospace that dates back to the 1990’s on the F-111 Aardvark program, where TAE was the engineering authority for our TF30 engine and maintenance provider for the RAAF,” added Mr. Kwon. “We’re thrilled to build on this partnership with the F135 engine for the F-35 fighter, which will be the centerpiece of allied air power in the Asia-Pacific for years to come.”

The 5th Generation F135 is the most advanced and most powerful fighter engine in the world, featuring a host of performance attributes that deliver a step change in capability over 4th Generation engines. This includes 40,000+ pounds of thrust; a 50 percent increase in thermal management capacity enabling the full spectrum of F-35 weapons and sensor capabilities; a precise and responsive integrated engine control system allowing the pilot to focus squarely on the mission; and an unmatched low observable signature enabling the F-35 to conduct operations in modern Anti-Access/Area Denial (A2AD) environments.

Additionally, the F135 is the most dependable fighter engine Pratt & Whitney has ever built in its 96-year history. With its advanced damage tolerant design and fully integrated prognostic health monitoring, the current F135 production engine has demonstrated a Mean Flight Hours Between Removal (MFHBR), which is the primary metric for reliability, that is more than two times the program objective.

About Pratt & Whitney
Pratt & Whitney, a unit of Raytheon Technologies (NYSE:RTX) is a world leader in the design, manufacture and service of aircraft and helicopter engines, and auxiliary power units. To learn more visit its www.prattwhitney.com. To receive press releases and other news directly, please sign up here.

About TAE Aerospace
TAE Aerospace is a privately-owned aerospace company headquartered in Australia. Its operations throughout Asia-Pacific and North America serve a global customer base. TAE Aerospace is focused on creating value for its customers in the global commercial aviation and defence markets through quality products and services in turbine engine and component MRO, aerospace engineering and advanced manufacturing.

For further information: media@prattwhitney.com, +1 860 565 9600

Source: Pratt & Whitney