The dynamism of today’s airliner leasing business was illustrated earlier this year by the creation by German investment company Doric GmbH of a separate entity, Doric Lease Corp. (DLC), to manage the assets. However, it seems that now Doric is trying to distance itself from DLC, which is busy talking up the future prospects for the A380 and seems to be keen to acquire more aircraft directly to place them on operating leases–something Doric is not permitted to do as it is a regulated investment company.
Doric GmbH’s managing director, Dr. Peter Hein, conceded that relations are strained. Although there remains a connection between the two companies, Doric is seeking to prevent DLC from using the Doric trademark and is making clear that all DLC employees have “ceased to be employed or otherwise related to the Doric Group of companies as partner or adviser.”
“The only connection between the two companies is a cross-shareholding of both shareholder groups,” Hein told AIN. As of October 7, he said: “Doric at this point in time is pursuing legal action to discontinue the use of the Doric trademark by DLC.”
DLC was set up in Dublin to operate independently of Doric GmbH, which has 14 A380s on finance lease with Emirates and another five with Singapore International Airlines (SIA).
“Doric’s shareholders have expanded Doric’s existing business with the launch of Doric Lease Corp. (“DLC”), an operating lessor company based in Dublin, Ireland,” the company said on June 14. “Together these Doric platforms will create a significantly enlarged business opportunity envelope for airline customers and will now include principal investments, in addition to UK listed company offerings with institutional investors, German KG distribution, as well as the continuing development of new investor jurisdictions,” Mark Lapidus, CEO of DLC, said at the time.
A380 Specialist
Lapidus was quick to exploit the advantages offered by the creation of the new entity, surfacing at the Paris Air Show this summer to sign an MoU with Airbus for 20 A380s.
“DLC focuses on larger scale transactions predominantly in the widebody space. Our focus nowadays is the ‘bigger the better,’” Lapidus told AIN. “We think the A380…will be attracting more new airline customers as optimal scheduling at peak airport waves drives yields in the rapidly growing 400-plus seat routes. Our niche is with the A380 primarily, but we will consider ordering other new-generation widebody aircraft,” Lapidus told AIN.
Clarifying the relationship between the two Doric entities, Lapidus said: “Doric GmbH does not order planes, but is involved only in asset management. As a regulated financial institution in Germany, [it] is constrained from entering into direct speculative aircraft orders.”
The original Doric entity, Doric GmbH, set up a series of investment vehicles with the Doric Nimrod Air (DNA) callsign to allow equity investors to participate in the purchase of aircraft. “We have raised $1 billion of equity in the UK institutional investor market. DNA1, DNA2 and DNA3 are the lessor entities that own the 12 A380 aircraft,” said Lapidus. He added that DLC is the asset manager of the four Emirates A380s financed as part of the DNA3 IPO (and DLC has no stake in DNA3, which is listed on the London Stock Exchange).
“In order to move forward with the DLC order for 20 A380, the shareholders set up a new company that would be able to do that, and would be able to invest for its own account, as well as continue with DNA type of transactions we have been doing for Emirates A380 aircraft,” he said.
The Airbus MoU was not DLC’s first foray into the market, claimed Lapidus. “Our first transaction closed in June. Our role was as an arranger and asset manager. It was for four A380s leased to Emirates.”
As such an enthusiastic proponent of the A380’s potential, Lapidus’ views are the subject of a good deal of market interest. He is happy to explain the outlook as he sees it: “There are more than 220 400-plus seat routes today and they will grow to more than 400 by the end of this decade. The larger the route, the more compelling it is to use larger aircraft due to slots and scheduling constraints, as every airline wants to maximize capacity during the higher-yielding airport peak traffic waves. Diversification of funding sources and prudent residual-value management are important for all airlines.”
Good Credit
Lapidus thinks that the financial turmoil of the past five years has not been the only reason for increased leasing decisions by airlines. “Direct aircraft acquisitions are easier for good credit airlines, which are more inclined to buy. With airlines that do not have the luxury of a [strong] capital base, leasing is the only solution.”
Even the largest players are happy to lease a percentage of their fleets, he said: “The downturn is not what attracted more business to the leasing companies. The fact is that tremendous growth, especially in Asia, along with fast-growing airlines like Ryanair and Air Asia, mean that very large airlines are dependent on capacity they themselves cannot generate.”
Lapidus said that being still in the early part of the program means that it’s too early to assess the aircraft’s true potential. “Aircraft coming back to us will be in 2026-2028 for early deliveries. Those aircraft are likely to remain with most of the customers, just like the 747s have been, but we will also be ready to reconfigure them if necessary at costs pre-agreed with Airbus...After the second lease, a freighter-conversion program is something we have started discussing.
“Currently, aircraft that are being delivered are in the adolescent part of the program, with a lifespan of longer than 25 years. It’s a brand-new and different beast from everything else.”
Airbus’s target production rate is 30 aircraft a year and the lifespan of the aircraft is estimated at around 30 years, so the potential is there; and he does not interpret the small number of customers to date as a drawback. Emirates will be a key part of DLC’s future, believes Lapidus.
“One airline is talking about increasing its A380 fleet to 180 aircraft. [Many] would have to be built. Emirates will do what they have done with the 777; lease them a little longer. If some do come back, the market does not fully understand how to reconfigure them. The cost is far less than anticipated. With our price guarantees, reconfiguration costs will be less than those for the 777-300ER.
“The growth will attract more players into the widebody space. When [the A380] started operating, nobody had flown more than 500 seats. Aircraft with 525 to 600 seats, even with 11 abreast downstairs, give you the lower deck comfort enjoyed on a 747-400. Airports have slots and scheduling constraints, so large capacity is needed at the right time. A lot more players [will be] stepping up.”
Lapidus also discounts the “no stopover theory,” which says that the new A350 and 777X models, keenly anticipated by the market in the second half of the decade, will allow passengers to fly long distances without transferring at airport hubs. In addition, he said, the 747 will be retired, “while the 747-8 is not making it. So the A380 will basically have a nice advantage in hot-and-high airports.”
Four-engine aircraft won’t die out either, he believes. “Flights of 8,000 nautical miles are a stretch for any plane. We don’t think we’ll be exceeded by the newcomers: the A350-1000 and 777-9X. Flights of 8,000 nautical miles will not get you from South America to Tokyo. You will always need to have a stop somewhere else. Dubai-LAX is 7,200 nautical miles. SIA is dropping New York-Singapore, where it was operating the A340-500. The twins do have restrictions on performance. In ten years [from now], the A380 will be the only four-engine plane available.”
