Singapore Technologies Engineering (ST Engineering) and Temasek Holdings have set up a 50-50 joint venture (JV) for freighter aircraft leasing on May 11.

The agreement was entered into by ST Engineering’s wholly-owned aviation asset management unit.

The JV targets to build a portfolio valued at around US$600 million ($800 million) within five years. It will address the growing demand for freighter aircraft amid growing e-commerce and air cargo volumes across the world as it invests in passenger aircraft to be converted into freighters.

The number of cargo aircraft is said to grow 2.4% annually between 2020 and 2030, on par with the 2.3% annual growth rate of the previous decade, according to Oliver Wyman. Over 750 freighter conversions are forecast over the 10-year period, 28% higher than that of the previous decade.

Through the JV, ST Engineering will provide the associated maintenance, repair and overhaul services to these aircraft. The group will also be the asset and lease manager to the JV.

The portfolio will primarily comprise narrowbody aircraft that will offer operators the option to reuse older passenger aircraft by giving them a new lease of life as fuel efficient freighters.

This is in line with the JV’s focus to implement an environmental, social and governance (ESG) policy to guide its operations and business development.

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In addition, the JV will set relevant ESG criteria for its investments and work with prospective clients to reduce their carbon footprint, says the joint statement.

The JV expects to purchase passenger aircraft feedstock at lower prices due to the lower value brought about by the Covid-19 pandemic.

These aircraft will be financed through equity and debt.

“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,” says Jeffrey Lam, president/head of commercial aerospace at ST Engineering.

“As we embark on this exciting venture with our partner, Temasek, 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. In the medium to long-term, the JV intends to securitise the leasing income streams by way of a business trust to unlock capital.”

Uwe Krueger, head, industrials, business services, energy & resources at Temasek, adds, “As an investor and shareholder, we are focused on embedding sustainability in our investment approach. The joint venture with ST Engineering represents an opportunity for both of us to identify solutions for the reduction of carbon emissions, even in a traditionally carbon-intensive industry, by putting capital to work in those solutions.”

Shares in ST Engineering fell 5 cents lower or 1.3% down at $3.70 on May 11.

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ST Engineering and Temasek enter into 50-50 JV for freighter aircraft leasing

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