Established more than 19 years ago, Novus Aviation Capital co-owns and manages aircraft-related investments in excess of $1 billion, and operates out of Geneva, Dubai, Lebanon and Hong Kong.
Despite its hefty portfolio, Novus Aviation Capital is different to a regular leasing company. The lessor was launched in 1994 by Safwan Kuzbari, and remains majority owned by the Kuzbari family. Without a parent company owner, Novus enjoys unusual autonomy in its strategic and financial decisions.
This year Novus aims to expand its presence in the Asian market with a number of new airline customers, as well as the offering of a brand-new financial product, mezzanine financing, and expects to announce its first transaction in the coming months.
Looking East
In May Novus set down its first roots in Asia with the opening of its new Hong Kong office. The lessor aims to have about a dozen airlines in its customer book, and is increasingly turning to the burgeoning Asian aviation market in the search of new relationships.
“There was a natural evolution towards our opening of a Hong Kong office, given our relationship with Cathay Pacific, and we’re looking to add several widebodies on lease to Asian carriers this year,” explains Hani Kuzbari.
“Asian airlines already represent a great portion of our portfolio. Also in terms of capital and financial partnerships, a number are from that region,” he adds.
Novus has one 747-400 on lease to Cathay Pacific, a 777-200ER and an A330-300placed with Malaysia Airlines and one 737-800 with Jet Airways. The lessor hopes to foster a number of new relationships with Asian partners through its Hong Kong hub.
While there is clearly an emphasis on expanding its Asian operations this year, Novus is also working to consolidate its position in the Middle Eastern market. To this end, the lessor is gradually moving its Middle Eastern headquarters from Beirut to a new Dubai office.
“We’re keeping our Lebanon office, but the office that will grow in the Middle East will be Dubai. Lebanon has always been more of a back office; we do a lot of the accounting work there. There’s a lot of great talent that you can hire in Lebanon for a fraction of the cost of hiring in Europe or even in Dubai, so Lebanon supports our back office operational and contract work,” explains Mounir Kuzbari.
“Geographically, Dubai being in between our Geneva and Hong Kong office makes sense. From Dubai you can also potentially reach any customer anywhere in the world within 24 hours,” says Hani Kuzbari.
Dubai-based carrier Emirates is Novus’ largest customer, leasing four of its 777s. The group is keen to maintain close relations with the airline.
Although Novus is focused on the Asian market as its next frontier, the lessor is also considering its options in the attractive, but already well serviced, US market.
“The US market is also of interest, although it’s getting very competitive, especially with the EETC market. It’s a market we were very much involved in during the 1980s, and we’re seeing important refleeting and also improved credit, so this is a market we’re looking at in detail again now,” says Mounir Kuzbari.
Funding model
Novus’ ownership structure has fostered a slightly different funding model compared with other leasing companies.
“Over the years we have developed and nurtured a network of institutional repeat investors – from investment banks to merchant banks, private equity firms, pension funds and insurance companies. The investors co-invest with Novus, typically 25% to 30% equity of the value in each investment. These investors invest exclusively through the Novus platform, and have done for many years,” says Mounir Kuzbari.
Novus funds the balance of its transactions through commercial debt with a number of partner banks. Historically, the lessor has sourced the debt from the specialist European banks, such as DVB Bank, PK Finance and Nord LB, but the continuing contraction of the traditional pools of liquidity in the wake of the financial crisis have pushed the lessor to have to work a little bit harder and closer with each bank to find the additional liquidity to support the large financing requirements of its programme.
Despite Novus’ success in maintaining close relationships with its long-term financial partners, many banks have increased their restrictions in terms of exposure. To continue meeting its funding needs, Novus has sought to form new relationships with financial institutions.
Last year Novus brought in a new lender, Saudi Arabia-based National Commercial Bank, which came in to provide sizable commitments on two transactions, marking the bank’s first aircraft deal.
Islamic finance is a cornerstone of Novus’ funding strategy.
“Most of our leasing transactions are Shariah-compliant on the equity side – about 95% – and we have a strong long standing ability to tap into the Islamic investor market. We’ve recently also structured some of our financing on a Shariah-basis. It’s an area we’re planning tapping into even more, and we believe we’re well positioned in the Middle East with some good structures that have been adopted by a number of boards and scholars, to successfully replicate our model,” says Mounir Kuzbari.
While Novus is closely eyeing the growing appeal of the capital markets for aviation deals, the lessor does not expect to be tapping the market imminently.
“Since we leverage on a limited recourse basis, it’s not an obvious pool for us to tap into. These markets are reliant on a guaranteed income stream from a strong counter party, be it an airline or lessor, with typically a minimum volume, which doesn’t necessarily match our funding model in terms of deployment of capital,” explains Mounir Kuzbari.
The majority of capital markets transactions require a rating, such as last year’s international enhanced equipment trust certificate with Emirates and Doric.
“We could potentially look at this with regards to a specific transaction, but I don’t believe the intention is for Novus to seek a rating for ourselves at present. At this stage there is no intention to get a rating. If we saw a benefit working alongside our airline customer, we’d definitely look at getting a transaction rated,” says Hani Kuzbari.
Portfolio strategy
Novus’ portfolio is focused on Airbus and Boeing twin- and single-aisle aircraft. Historically, the lessor has been more active in the mid-life segment of the market, but more recently the company has restructured its efforts towards newer twin-aisle aircraft, particularly the A330-300 and the 777-300ER.
“The reasons for this are that we’ve been facing a little less competition in this market. There is less product change or technological risk, relative to what has been happening in the single-aisle market with the launch of the new technologies. It’s also allowed us to deploy a higher level of capital in a single transaction, and typically we’ve seen longer lease terms on the widebodies, which is appealing to the investor base we tap into,” says Mounir Kuzbari.
As well as a new inclination towards the A330 and 777, Novus also has recently bid on 787 request for proposals from airlines.
“We’re still keen on this aircraft, despite the hiccups. Our view is that, as long as Boeing has over 800 aircraft in its backlog, then we believe the market value and the appeal of the aircraft should hold,” says Mounir Kuzbari.
Novus has hopes to continue expanding its portfolio of customers and aircraft over the coming years.
“We expect to continue to grow organically, both diversifying our investor base in profile and also geographically. We also are currently evaluating various options to accelerate our growth – nothing tangible yet. It could be acquiring a bigger portfolio through a capital injection. Our base plan is to continue growing as we have done for the past 20 years,” says Mounir Kuzbari.
Cautious approach
“We are very cautious because we are putting our own money into this as well – the money of the company, so we need to be very convinced,” says Hani Kuzbari.
Novus’ acquisition strategy veers away from speculating on orders directly from the manufacturers. The lessor prefers instead to focus on closing sale/leaseback deals for airlines, or in purchasing aircraft in the secondary market from another leasing company.
“We don’t have pressure to transact per se – we don’t have money sitting in a bank account from a parent company which is pressuring us to transact. Once we are convinced of a transaction, then we will go and pitch it to our investor partners,” says Hani Kuzbari.
This year Novus is expanding its offerings by adding a new product to its airline customers: mezzanine finance. The new venture will bring in “prominent partners” alongside Novus, and the lessor expects to announce its first transaction later this year.
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