WINGSTAR PTE – Exclusive with Stephen Hannahs

Dino D'Amore
By Dino D'Amore November 6, 2013 11:00

WINGSTAR PTE – Exclusive with Stephen Hannahs

As mentioned here a month or so ago the mid/late life aircraft market is in for a shake-up and that will come by way of WingStar, a 50/50 joint venture between ST Aerospace and Wings Capital Partners Holdings. Based in Singapore WingStar will acquire aircraft for lease, conversion or part out. Under the joint venture agreement, the shareholders plan to build up a portfolio of mid-life and end-of-life aircraft assets which will initially include Airbus A320 and Boeing 737NG families of aircraft along with the A330 and 757. Initial investment of £300m will increase to $1bn within five years.

It is, as mentioned last month, a no-brainer of a deal where Stephen Hannahs and co at Wings Capital Partners can source and acquire the aircraft while ST Aerospace can handle the airframe, engine and component maintenance repair and overhaul, aircraft tear-down, parts trading, passenger-to-freighter conversion, as well as aircraft inspection and technical asset management.

WingStar will commence operations in early 2014 with Stephen Hannahs and CHANG Cheow Teck, president, ST Aerospace jointly running the show with the former as Chairman and the latter as CEO. And each side have injected an initial $150m of equity into the venture.

This operation will be able to purchase aircraft and in the event maybe outbid others as it will be able to make-up the increased cost on the back-end during the conversion/part out and or overhaul process. Of course this operation means that it will be able to undercut competitors if it wishes to in a market segment that is increasingly congested. Luckily for some in this market segment, WingStar is to concentrate mainly on 737NG and A320 aircraft alone, but Airline Economics has known for some time that the 757 and A330 are major targets of the venture – so ask yourself – are you trying to sell one at this time? WingStar will know what it is going to do with the assets before purchase, so no speculation is involved. Initially there will be two portfolio purchases of five aircraft each with vintages from 2001 to 2003 on top of the A320 purchased from Monarch last month.

This venture will place a great deal of pressure on competitors such as Apollo Aviation as it releases parts and aircraft into the global market at highly-competitive prices, or in the event decides to take a higher margin. For Stephen Hannahs, being Vice Chairman of ACG is not a problem as Wings Capital Partners will only deal in mid to late/end of life aircraft. Of course separate from WingStar Stephen Hannah’s has $80m for aircraft purchases through Wings Capital Partners, which will also look at investments and leasing and maybe even purchase a parts company in the near future, with board representation a must in all cases. However Wings Capital Partners will in the event have some crossover with WingStar and will be able to feed the venture from time to time. The question remains: Will ST decide to assist its engine leasing business with spares flowing from the WingStar venture? The answer will, in some cases be yes, but this is not by pre-design and will come as opportunity arises only.

See more analysis on how this deal will affect the market in the forthcoming issue of Airline Economics.

As one stands still, another marches on

It is two years to the day that we told you to buy into easyJet and dump Ryanair shares and stated that the latter airline needed to change its business model, we pointed out the fact that load factors were being somewhat waxed by areas of the aircraft being blocked off from sale – I got a bit of stick for that at the time from some at Ryanair, but in the end everything has played out as we stated it would, to the huge benefit of those that followed us. It is therefore quite wrong for Michael O’Leary to state that the low-cost revolution is over in Europe. It is far more accurate to state that it is ongoing and that Ryanair has been caught standing still, as we mentioned here two years ago. Of course it was Spirit in the USA that first showed the way, along with Air Canada (yes Air Canada may have got it all wrong along the way but it is they who were one of the first experiments in the unbundling of fares). While easyJet were looking at what was going on in the wider global market, quickly modifying its offering and adding seats to the rear of their A319s, Ryanair was doing nothing. It has been quite clear for some time that business travelers in Europe were moving into the low-cost arena, cutting cost while ensuring client face time, one of the side effects of this was/is the boom in conferences across the globe. But during this long drawn-out and easy to read process the guys at Ryanair kept to their model of targeting the bottom end of the consumer market, the market hardest hit by the European recession. At the same time this very market started to shift with intra-European movements focusing on Eastern Europe and Turkey as a great many workers left Western Europe and went back to work in the CIS countries, cutting off their need for cheap transits.

Ryanair’s problem now is that it is seeing weakness in fare prices and this is something that is at odds with easyJet and Vueling who we know are seeing prices hold steady at worst. Ryanair expects fares to be down 9% in Q3 and down 10% in Q4 (year on year) so earnings will be over 11% down year on year when we come to the full year results.

Ryanair need to rebrand, refocus and re-fit their aircraft, but part of that process will be Michael O’Leary stepping aside, which will hit shares further no doubt in the short term, that of course will be the time to buy back-in. Ryanair after all remains profitable and remains a holder of a very large 737-800 fleet and thus has more options than easyJet have enjoyed in terms of configuration and trip economization.

The U-turn on allocated seating and the success of the same points to arrogance at the top at Ryanair; after all it was obvious to everyone that Ryanair should have brought this option into play a year or so ago and stemmed the ancillary revenue slip. Ryanair need to cut the O’Leary cord and move him up just as Flybe have with Jim French.

Meanwhile, Turkish Airlines has finally fully penetrated Pakistan after being allotted 14 flight slots from Lahore and Islamabad to Istanbul. But at the same time it dissolved its 32 year relationship with general sales agent (GSA) PakTurk Enterprises. PakTurk Enterprises then filed a case in the Sindh High Court against the airline for violating their business contract and has successfully obtained a restraining order against the appointment of a new GSA in Pakistan. This will make sales promotion difficult for THY in Pakistan and may result in overcapacity on routes. The “illegal termination” of THY’s contract with PakTurk means THY will not be able to appoint a GSA or seek alternative sales channels to market its new routes due to the court order against them.

This is an extremely important market for THY’s future growth and we have mentioned before the need for THY to penetrate Pakistan further. If the current problems can be sorted out and THY can sell direct into the market through its website then this will all be very good news indeed for the Turkish flag carrier.

Dino D'Amore
By Dino D'Amore November 6, 2013 11:00
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