Orix Aviation in Lease-Back Talks With 787 Customers

Orix Corp. (8591)’s aviation unit is in talks with 787 Dreamliner customers to buy the new aircraft and lease it back to the airlines, helping expand the finance company’s plane fleet and market share.

Orix Aviation is discussing 10- to 12-year lease agreements, David Power, the unit’s chief executive officer, said in an interview in Tokyo on July 5. He declined to name specific companies or how many planes he is aiming to buy.

“The 787 we think is a super aircraft. It’s very appealing in terms of its fuel efficiency,” Power said. “We’ve already negotiated with some airlines.”

The Dublin-based unit plans to boost aircraft under lease and management and its customer base by about 50 percent, Power said. Orix is targeting demand for global air travel that Boeing Co. (BA), the world’s second-biggest planemaker, predicts will spur annual passenger traffic growth of about 5 percent over the next two decades.

Boeing’s 787, the first passenger jet built chiefly of lightweight carbon-fiber composites, lists for as much as $227.8 million each, according to the Chicago-based company’s website. Earlier this year, Boeing boosted its production rate for the jets to 3.5 a month. It’s order backlog for the Dreamliner stood at 845 as of June 30, according to the website.

Source: Orix Aviation via Bloomberg

Orix Aviation chief executive officer David Power. Close

Orix Aviation chief executive officer David Power.

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Source: Orix Aviation via Bloomberg

Orix Aviation chief executive officer David Power.

Orix Aviation doesn’t plan to order any Dreamliner planes directly from the manufacturer, Power, 49, said.

Shares of Tokyo-based parent Orix rose 0.7 percent to 7,300 yen at the 3 p.m. close of Tokyo Stock Exchange trading. They have climbed 15 percent this year, outpacing the Topix index’s 3.9 percent gain.

Dreamliner Customers

All Nippon Airways Co. (9202) and Japan Airlines Co. are currently the only two carriers flying the 787. ANA, which has ordered 55 of the planes, started service to Frankfurt and within Japan last year. JAL has 45 orders.

Megumi Tezuka, an ANA spokeswoman, and Sze Hunn Yap, spokeswoman for JAL, both said their airlines have no plans to lease the 787s. ANA now has 10 Dreamliners in service. JAL has four serving routes to Boston, New Delhi and Moscow, Yap said.

Air India Ltd., an unprofitable state-owned carrier with 27 Dreamliners on order, said in November its board approved a plan to seek an arrangement where it could sell and lease back the 787s as part of a restructuring program. K. Swaminathan, an Air India spokesman, yesterday declined to comment on the plan.

250 Planes

Orix Aviation joins Sumitomo Mitsui Financial Group Inc. (8316), Japan’s second-largest bank by market value, in expanding its fleet to tap rising demand from airline customers seeking to avoid the costs of aircraft ownership amid a global economic slowdown.

Orix Aviation is seeking to increase its fleet size to as many as 250 planes over five years and to widen its customer base to 100 airlines in three years, from 65, Power said. The company owns and manages 130 planes currently, according to Atsushi Horii, a spokesman in Tokyo at the parent company.

Sumitomo Mitsui Financial’s plane leasing unit is targeting air travel demand in Asia and plans to boost its fleet, the region’s largest, by about 20 percent to 400 planes. It completed a $7.3 billion purchase of Royal Bank of Scotland Group Plc’s aviation unit last month.

Orix Aviation also plans to expand in Asia, where Boeing forecasts airlines will buy the most planes of any region over the next 20 years. Power aims to open an office in Singapore, Orix Aviation’s first outside Ireland, within the next two months.

“To expand our customers and keep our growth we must open a base there,” he said.

Boeing last week said Asia-Pacific airlines may take delivery of 12,030 new planes through 2031.

To contact the reporters on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net; Takako Taniguchi in Takako at ttaniguchi4@bloomberg.net

To contact the editors responsible for this story: Vipin Nair at vnair12@bloomberg.net; Chitra Somayaji at csomayaji@bloomberg.net

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