SINGAPORE -- GIC, the Singaporean sovereign wealth fund, which manages the country's foreign reserves, agreed to acquire 30% of the world's leading aircraft leasing company BBAM, for an undisclosed sum. The move is a bid to tap into increasing demand for aircraft leasing, which is being boosted by the growth of low-cost carriers.
"As a long-term investor, we believe it is a unique opportunity to invest in the aircraft leasing sector, which has strong growth potential," said Arjun Khullar, head of the Integrated Strategies Group at GIC, in the press release issued on Sept. 5.
BBAM's management team currently owns 50% of the company, while the remaining is held by Canadian private equity fund Onex Group. GIC is to buy part of the stakes of both existing shareholders. The transaction is to close by the end of September.
The number of aircraft in Asia is expected to grow by 6% per year in the next five years, faster than 5% globally, according to Crucial Perspective, a Singapore-based research house specializing in Asian transportation. This "will drive strong demand for aircraft financing, especially from start-up airlines, such as low-cost carriers and even full-service airlines, which do not have the capital to purchase a substantial number of aircraft outright," Crucial Perspective CEO Corrine Png said.
"Aircraft leases tend to be more long-term in nature and provide relatively stable cash flows and yields," Png said, explaining the attractiveness of investing in the sector. "The key risk, however, is that some airlines may default on their lease payments when they run into financial troubles," she added.
San Francisco-based BBAM is the world's largest manager of investments in leased commercial jet aircraft, serving over 200 airline customers. The company has more than 400 aircraft under management.
Earlier this year, GIC also made an investment commitment in Incline Aviation, the aircraft leasing industry's largest institutional fund, managed by BBAM.
In a separate press release, BBAM announced on Tuesday that it has closed Incline Aviation I, an $881 million fund dedicated to investing in leased commercial jet aircraft. The fund surpassed its initial target of $750 million by raising funds from the world's leading public employee pension plans.