Kuwait’s Alafco To Spend $600m Buying Aircraft Over Two Years

Kuwait’s Aviation Lease & Finance Co (Alafco), a unit of Kuwait Finance House (KFH), plans to spend about $600 million buying 15 new aircraft over the next two years to cover a gap before it receives already-ordered planes in 2017, the company’s chief executive said.

Alafco expects to receive 117 new aircraft, which it previously bought for $12.5 billion, between 2017 and 2022, Ahmad al-Zabin said in an interview.

“Currently we are doing our best to bridge the gap with 15 aircraft and by getting aircraft that are leased to airlines so they generate income from day one.” Zabin did not specify the types of plane which Alafco might buy.

The company, owned 53.7 per cent by KFH and 11.47 per cent by state-run Kuwait Airways Corp, will finance a third of the $600 million from its own resources and the remainder via local and international banks.

Zabin said Alafco was “seriously thinking” about partnering with other firms in funds that owned aircraft; it would manage the funds and perhaps own parts of them, making profits from the management and from selling some of its aircraft to the funds.

Alafco currently operates a 50-aircraft fleet, three of them owned by KFH, the country’s largest Islamic lender; it plans to double its fleet in coming years.

“It’s high time for Alafco to use its experience in fleet management and to manage others’ fleets to enhance its revenue stream, whether through funds or other investment means,” said deputy chief executive Adel al Banwan.

LISTING

Alafco initially planned to float 30 per cent of its shares on the London Stock Exchange, but it was told the listing might not be attractive as the float was too small. The company will now discuss the matter at its next shareholder meeting.

“Why would you go ahead with something you know won’t go through, especially when it costs you money?” Zabin said.

“What we learned from this experience is that investors’ wishes are the main criteria for listing success and that listing in Kuwait could be more feasible than in any foreign market, within the 30 per cent limit imposed by regulations,” said Banwan.

Asked about the plunge of oil prices on the company’s operations, Zabin said jet fuel usually represented 30 percent of airline budgets and any decline in the price would translate into increased operations and revenues, though oil price fluctuations also had other dimensions.

“If the oil price decline continues, this will make the aviation sector more attractive for companies to come in.

“However, if the decline extends for years it will decrease average income per capita in the region and lead to cancellations of some mega-projects…The aviation industry depends mainly on economic growth and people’s movement between countries, which is tied to government spending in the Gulf.”