Aircraft leasing is about to take off as an alternative investment strategy because it accesses moveable assets and its long leadtimes can be counter-cyclical, according to Mercer Investment Consulting.

Investors in high-quality airlines, such as Qantas, can look forward to annualised  returns in the mid-to-high-teens, according to Ryan Bisch, senior associate with Mercer.

But it’s not an investment for the faint-hearted, he added. “It’s a compelling investment opportunity for sophisticated investors with tolerance for illiquidity.”

Tight capital markets at present are benefiting this alternative asset class for two reasons, Bisch said. Cashed-up airlines are preferring to lease aircraft and thus keep them off their balance sheet, and the two-year lag between order and delivery allows investors “to counter-balance the cyclical nature of the airline industry”.

Turbulence has hit the aircraft leasing business recently due to the withdrawal of players such as Babcock & Brown, Allco Finance Group, RBS, ING, Fortis, West LB and HBOS.

Bisch was quick to say this was due to financial concerns at parent company levels, and was not related to the leasing businesses “which continue to perform strongly”.

Perhaps the best-known aircraft leasing player locally is Investec Bank, which last year raised $73 million from Maritime Super and Auscoal to seed a fund which planned to eventually have 25 planes in its portfolio. An initial three Airbus 321s were leased to Qantas subsidiary, Jetstar.



Join the discussion