The African Development Bank (ADB) is studying the possibility of establishing a dedicated leasing platform for use by African airlines.
Romain Ekoto, the bank’s chief aviation officer, tells Airfinance Journal that the bank is studying the possibility of creating a platform that would allow African carriers to lease modern and efficient narrowbody at “market prices”.
“The reasons are numerous, one being that most African airlines have challenges financing for aircraft acquisition or leasing. When they have access they are usually facing less favourable financial conditions than their competitors worldwide,” he says,
Ekoto says the leasing company could either be created by the bank or as part of a joint venture with an existing lessor.
With the exception of carriers such as Ethiopian Airlines, most African airlines are forced to buy or lease older aircraft at less favourable rates, which impacts their profitability, he adds.
Discussions with airlines have revealed that many are seeking to lease or buy aircraft but don’t have a financing solution in the capital markets.
“The challenge they usually face today is raising funds for their fleet projects," he says.
Ekoto says that discussions with lessors globally have revealed that they “either don’t want to deal with most of the African airlines, or when they deal with them they add a risk penalty”.
“That risk is usually perceived, not measured, it is because they just don’t know the environment, or they are aware of a default by one airline and they will just generalise and decide the risk is too high.
"This is the cycle we are trying to break...a leasing platform might actually be the creation of a full-fledged leasing company or putting in place guarantees for African airlines or partnering with an existing global lessor -- the solution is yet to be determined,” Ekoto adds.
ADB looked at the possibility of creating a dedicated leasing platform for African carriers a year ago but postponed the project due to “some internal challenges”.
Ekoto expects the bank to complete its review by mid-2021. Depending on the decision it could take between six months to one year to establish the leasing business.
The leasing platform would not provide widebody aircraft as these are not seen as being supportive of regional African connectivity, which is one of the bank’s priorities in supporting aviation on the continent.
Types that would be considered include the Airbus A320, Boeing 737 and Bombardier, Embraer and equivalent regional aircraft.