LCI Expects Advanced Air Mobility to Drive Change in Aircraft Leasing Market - FutureFlight
13 April 2023
Aircraft leasing group LCI is looking to accelerate its diversification strategy fueled by a capital injection from the acquisition of a 35 percent stake by Sumitomo Mitsui Finance and Leasing Company (SMFL). Announcing the agreement on March 29, LCI’s parent, Libra Group, said the further support from its Japanese partner will aid efforts to grow LCI’s business by around $1.5 billion, with a significant portion of this expansion coming from taking positions in the fast-emerging advanced air mobility (AAM) sector.
Over the past 12 months, LCI has been one of a handful of leasing groups to make plans to invest in new electric and hybrid-electric aircraft, announcing provisional sales agreements for up to 125 of Beta Technologies’ Alia 250 eVTOL models and up to 40 of Elroy Air’s Chaparral's autonomous freighters. The new vehicles will expand a portfolio of assets that already includes multirole helicopters and fixed-wing aircraft.
LCI’s CEO, Jaspal Jandu, has high expectations for the growth potential from new opportunities such as the role helicopters could play in supporting offshore wind-energy infrastructure and also eVTOL applications that could include passenger transportation, emergency medical support, and cargo deliveries. “These developments have put us at the cusp of a J-curve [of growth in demand for leased aircraft], and this also includes all the associated batteries and charging equipment that will be needed,” he told FutureFlight.
“We have two very forward-thinking shareholders in Libra Group and SMFL, so we can create a broad church [diverse organization], including a horizontal axis covering operating and finance leases, as well as trade-ins, and on the vertical axis the opportunity to invest in vehicles, as well as taking industrial positions and making upstream investments,” Jandu explained. LCI believes its potential to exploit wider opportunities across sectors such as energy and transportation is strengthened through its association with Libra Group sister companies including Lomar Shipping, rare earth metals specialist GreenMet, and Euro Energy, which is already using drones to inspect wind turbines.
New types of aircraft and new applications for these will likely require a reboot of the leasing sector itself, Jandu suggested, pointing to possible lessons to be learned from business models such as leases for Tesla’s electric cars and large car rental fleets. In his view, customers will be looking for more than just a lease spelling out their financial commitments for using the assets and will want to benefit from a more holistic service that could include supporting infrastructure and data covering eVTOL fleets that could be much larger in number than current rotorcraft and fixed-wing aircraft fleets.
A MORE HOLISTIC APPROACH TO LEASING IS REQUIRED
“The aviation industry needs to overhaul what it means by leasing and [products such as] the traditional operating lease per unit [asset] may require updating,” Jandu said. “We could offer equipment financing and umbrella agreements with each unit covered by addenda to the documents. Battery leasing could be separate from vehicle leasing, and charging networks could be covered, too.”
Anticipating some initial hurdles to the early launch of passenger-carrying eVTOL air services, Jandu said LCI’s more immediate focus will be finding applications such as cargo and logistics for the new aircraft types in its portfolio. Some in the leasing sector have questioned how the residual values for the new electric vehicles can be assessed as they navigate a type certification and approval process that still has to be finalized in some major markets like the U.S. But Jandu said that LCI’s understanding of the technology is advancing at pace and that new business models such as providing equipment and supporting services on a power-by-the-electron basis in a way that “means we could be slightly agnostic on the residual values.”
Over and above the potential for AAM vehicles to open up new air transportation services, LCI is convinced that the possibility for the new aircraft to significantly reduce the industry’s dependence on fossil fuels will be a compelling driver of demand as operators respond to pressure to accelerate steps toward net zero carbon. As a signatory to the Aircraft Leasing Ireland group’s sustainability pledge, LCI says it is committed to the greening of aviation, and in the short term believes that as much as two-thirds of the potential to cut carbon will result from the increased use of sustainable and synthetic fuels in existing aircraft.
New shareholder SMFL already has skin in the game when it comes to LCI’s current portfolio, having backed the launch of a $230 million leasing joint venture in September 2020 that covered the purchases of 19 helicopters. This partnership has since expanded in scope, resulting in a portfolio that includes more than 50 aircraft with a combined value of $550 million. LCI, which next year will mark its 20th anniversary, has undertaken more than $10 billion in aircraft transactions to date.
Taking encouragement from Airbus’s more recent rotorcraft market forecast, LCI envisages demand for some 16,000 civil and para-public helicopters over the next 20 years, generating some €120 billion in new sales. Recent orders placed by LCI include a pair of Leonardo AW139s and six H175s from Airbus, which is developing its own eVTOL model called the CityAirbus NextGen.