Laurent Biousse, AFD Fund Management
ln the next 20 years, the number of commercial aircraft flying will double to 43,000 from 23,000, representing a need for more than $5trn of investment.
Airlines currently own 60% of the aircraft and lessors own 40%. Aircraft financing and leasing is now a very big business dominated by export credit agencies, large banks and leasing companies (often owned by an insurance company or a pension fund).
Historically, commercial aircraft as an asset class offers high return (over 9% p.a.) and low risk (less than 14% volatility). It is uncorrelated to the stock market performance and represents a great alternative for diversification. There are two main sub-classes: the market for new aircraft and the market for used aircraft.
New aircraft financing requires billions of dollars and patience as the current backlog of orders at Boeing and Airbus is around 9 years. If you order a new Airbus A320 now it will be delivered to you in 2027! That obviously is a problem if you want to start an airline next month.
Used aircraft financing requires much less money and the market is more liquid. This is where the real investment opportunity is, particularly in the +15-year-old aircraft market, according to Laurent Biousse, founder and director of the Aeronautics Fund.
Aircraft can technically fly 30-40 years, depending on how they have been maintained and used. Lessors sell older aircraft to make space for the new ones as they are delivered by the manufacturers. Older passenger aircraft can be refurbished or converted into freighter aircraft and re-marketed to fly for another 10 years or longer.
Airbus forecasts that 6,000 aircraft will be re-marketed to stay in service in the next 20 years. There is also a big market for used aircraft engines as engines have a different lifespan compared to the airframes and it is possible to buy and lease engines separately.
The Aeronautics Fund is a fund set up in 2011 to take advantage of this niche market. lt is managed by AFD Fund Management, a fund management company regulated in the U.A.E and run by a team of four French and Swiss nationals.
It is actively involved in the following activities: Purchase, repair, refurbishment trading and leasing of Airbus A320 aircraft and engines and Boeing 737 aircraft and engines.
The company now owns more than 20 aircraft and engines and is leasing them to lberia, Lufthansa, Thomas Cook, TAP and Nordavia, and has partnerships with major industry players such as Safran Aircraft Engines.
Since inception the fund has performed steadily with an average of 10.85% per annum net of fees with a low volatility and no negative period.
At a time when diversification from the major financial markets is recommended, this asset class offers the following advantages: niche, tangible assets that you can see and touch, short or medium term investment, controlled risk, strict legal environment and high yield premium due to the fact that it is not an easy market to access (no stock exchange) for outsiders.
