Interview: Tokyo Century and ACG provide Covid-19 update

As part of a comprehensive industry report regarding sale and leasebacks, liquidity and lessors, Airfinance Journal speaks to the managing executive officer of Tokyo Century and executive chairwoman of Aviation Capital Group (ACG), Mahoko Hara, and Tokyo Century aviation finance general manager Marito Takamasa.

All lessors and banks surveyed by AFJ have no doubt that 2020 deliveries will be significantly down on the 2019 figures, although there is no clear consensus on just how bad the declines will be.

Hara and Takamasa think that deliveries may well be only at half the level of 2019, when Airbus and Boeing delivered 863 and 380 commercial aircraft, respectively.

There are some reports from industry that Airbus is taking a tougher line than Boeing on customers seeking delivery deferrals, and that even over the past two weeks of heightened travel restrictions the European manufacturer has been pushing for customers to somehow fly to Hamburg and Toulouse to accept  deliveries.

Following the ACG acquisition, Tokyo Century grew its portfolio from approximately 40 aircraft to approximately 360 aircraft. The Japanese corporation also inherited ACG’s OEM orderbooks, which will add more than 140 Boeing and Airbus aircraft in the coming years.

“We would like to say business is as usual as we continue to deliver our orderbook deliveries to our clients but like many other lessors we are spending a lot of time coping with requests from our clients wishing to enhance their cash position and this is not normal at all. This is a challenging time and we are doing our best to align our interests as a lessor/financier with long-term interests in the aviation industry,” Hara and Takamasa state in a joint interview response.

With some smaller banks expected to exit aviation-related financing, or perhaps collapse entirely, the Japanese financiers smell an opportunity. “This is certainly an opportunity for us and we will be looking at them as they present themselves,” say Hara and Takamasa.

Similarly, they view the current environment as a great time to increase the ACG portfolio with TC’s backing as plenty of used yet young airframes are likely to flood the market at previously undreamt of pricing.

“As with the case of smaller banks exiting the market we believe this is an interesting time to acquire assets for ACG or GA Telesis. There certainly are opportunities which have a greater appeal than what was available just a couple weeks ago but we are taking a slow and steady approach to not jump onto things too fast,” Tokyo Century says.

The Tokyo Century executives agree that the market is currently experiencing a surge in SLB demand. “There are certainly a lot of discussions about potential SLBs as airlines rush to enhance their cash positions. As with used assets, we are being choosy in picking the right deal,” Hara and Takamasa say.

ACG’s liquidity stands at approximately $1.6 billion, but will this be enough to weather the storm?

“ACG has sufficient cash at hand and will not require any new funding for an extended period well into the next year in meeting all payment obligations. We would ideally want to wait to raise debt when the markets stabilise but if opportunities too good to pass present themselves we may go out for additional funding,” its Japanese parent tells Airfinance Journal.

ACG bond yields have blown out to almost 10% in recent weeks but Tokyo Century does not see this as a challenge, seeing it rather as “an opportunity for any medium- to long-term investor interested in holding high-quality debt paper at bargain yields”.

Hara and Takamasa believe that “most major lessors are well funded and capitalised to weather this storm” but they note that “lessors solely relying on ABS to fund their portfolio may face challenges as rent deferrals and reductions will eat up cash flow to service debt and other costs”.

In December 2019 Tokyo Century completed its acquisition of ACG, buying the remaining 75.5% interest for approximately $3 billion, which represented a premium of approximately 10% on top of ACG’s book value.

With the buyout Tokyo Century plans to improve its aviation business value chain through collaboration among its aviation financing businesses, which are driven by Japanese operating lease products and aircraft aftermarket-related businesses that leverage expertise in used aircraft and parts.

Tokyo Century has a 49.2% shareholding in Florida-based GA Telesis and in 2019 it set up an engine leasing joint venture with All Nippon Airways Trading, itself and GAT.