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06 Nov 2019

Fund watch by ISHKA: CataCap buys AerFin


Danish investment firm CataCap has acquired a majority stake in UK aircraft and engine lessor and service provider, AerFin.

The acquisition will allow AerFin to target growth in its MRO services platform and to broaden its international presence, particularly in the US EJet market. Its revenue comes predominantly from airframes, comprising approximately $75 million of AerFin’s 2019 $130 million revenue. Engine parts supply, MRO services and leasing will make up around $35 million of revenue this year.

“The value of spare engines has just gone up and up and up, so we’re got to be very cautious about buying engines for disassembly when we know that the margins are getting skinnier and slimmer,” explains Bob James, CEO and Founder of AerFin.  “Trying to grow in the narrowbody engine market whilst achieving double-digit returns is almost impossible,” he adds, when there is such heavy demand for engines from lessors, from MRO shops – and from small investment firms who focus on deploying capital to skim off 1% – 2% returns, before selling on.

Looking to the future, James also describes AerFin’s “solid pipeline” of additional A320 family aircraft and 737 NGs – core assets in AerFin’s portfolio – especially as retirements for these aircraft accelerate with the end of the MAX grounding. “We believe there will a softening in values [on those current generation narrowbodies] and a lot more of those aircraft coming to the market through 2020,” says James.

Speaking with Ishka on the appeal of AerFin as an investment, CataCap’s Ryttergaard describes the aftermarket as particularly attractive: “Growth there is strong compared to the rest of the sector.” Ryttergaard adds that CataCap “especially” liked the ESG value of investing in used serviceable material rather than OEM material: “We think it’s extremely meaningful.”

“We think that if you have that [ESG] focus, it’s going to be a winning formula in the long run. There’s only going to be a growing interest in recycling parts from the airlines as they become more cautious about their environmental impact,” Ryttergaard said.


The Ishka View

AerFin has made a habit of making the right calls in the part-out space and was a shrewd and successful investor in green-time assets successfully riding a boom in demand for spare engines. The significance of the CataCap’s investment is how it now signals an apparent shift in AerFin’s investment focus.

Some of the new areas of investment that James highlights represent a noteworthy strategic change including operating in the US regional jet market and expanding the firm’s MRO services.

It is also intriguing to see how CataCap stressed the ESG value its investment in AerFin, particularly in the company’s role in keeping used serviceable material out of landfill. Could this be a pioneering effort in terms of attracting other potential ESG to the part-out market? This is the first time Ishka has seen the two concepts linked, but suspect it won’t be the last.

 Full article available here