ST Engineering, Temasek in JV to build US$600m portfolio of freighter aircraft in five years

ST Engineering's wholly-owned aviation asset management unit has signed an agreement with Temasek to set up a 50-50 joint venture (JV) for freighter aircraft leasing.

The JV targets to build a portfolio valued at about US$600 million within five years, investing in passenger aircraft to be converted into highly efficient freighters. This is to address the growing demand for freighter aircraft as e-commerce and air cargo volumes expand across the globe.

In the medium to long term, the JV also intends to securitise the leasing income streams by way of a business trust to unlock capital.

ST Engineering will provide the maintenance, repair and overhaul services to these aircraft. It will also be the asset and lease manager to the JV, consistent with the group's aviation asset-management business model.

The portfolio will primarily comprise narrow-body aircraft that will give operators an option to reuse older passenger aircraft, offering them a new lease of life as fuel-efficient freighters.

The JV expects to buy passenger aircraft feedstock at lower prices, as passenger aircraft value has been affected by travel restrictions arising from the Covid-19 pandemic. The JV intends to finance these aircraft through a mix of equity and debt.

The JV will also set relevant environmental, social and governance (ESG) criteria for its investments, and work with prospective clients on measures to reduce their carbon footprint, including through the use of sustainable aviation fuels and enhanced engine-maintenance programmes.

Jeffrey Lam, president and head of commercial aerospace at ST Engineering, said: "This joint venture represents a significant step by ST Engineering in growing our aviation leasing business as we expand beyond passenger aircraft and engines to include freighter aircraft assets as part of our portfolio.

"We also welcome and look forward to working with other potential like-minded partners who are looking to invest in the strong freighter aircraft leasing market."

Uwe Krueger, head of industrials, business services, and energy and resources at Temasek, added that the JV presents an opportunity for both sides to identify solutions for the reduction of carbon emissions, even in a traditionally carbon-intensive industry, by putting capital to work in those solutions.

The setting up of this JV is not expected to have any material impact on ST Engineering's consolidated net tangible assets and earnings per share for the current financial year.

ST Engineering shares ended S$0.05 or 1.33 per cent lower at S$3.70.