Rating Action Overview
- Aircraft lessor Dubai Aerospace Enterprise Ltd. (DAE; unrated) announced that it has agreed to acquire aircraft lessor Nordic Aviation Capital DAC (NAC).
- Based on publicly available information, we view DAE’s credit quality as much stronger than that of NAC.
- Therefore, we placed our ‘B’ ratings on NAC and its core subsidiary NAC 29, including its debt, on CreditWatch with positive implications.
- We plan to resolve the CreditWatch placement after the transaction closes, and we have reviewed the combined entity’s capital structure and financial policy.
Rating Action Rationale
The CreditWatch placement is triggered by DAE’s announcement that it has agreed to acquire 100% of NAC. The company did not disclose any details about the deal. The transaction, which DAE expects to close in the first half of 2025, is subject to required regulatory approvals and NAC’s shareholders’ approval.
The CreditWatch placement with positive implications is based on our preliminary view of DAE’s credit quality and NAC’s potential group status. DAE is a mid-tier aircraft lessor. As of Sept. 30, 2024, its fleet totaled 500 aircraft with 313 owned (valued about $11.1 billion when accounted for aircraft held-for-sale, finance lease, and loan receivables), 111 managed, and 76 committed. The weighted average age (weighted by aircraft book value) of the company’s owned fleet for passenger aircraft was 7.6 years and freighter aircraft was 10.2 years, with the corresponding remaining lease terms of 6.3 years and 7.5 years, which is comparable with the fleets of other aircraft lessors. Based on the market value, DAE’s owned and managed fleet consisted of narrow-body aircraft (71%), wide-body passenger aircraft (10%), wide-body freighters (3%), and regional aircraft (16%), divided among Boeing (37%), Airbus (47%), and ATR (16%). It has a larger exposure to Middle East-based airlines (29%) than other aircraft lessors, followed by America (21%), Asia Pacific (19%), South Asia (10%), Europe (11%), Africa (6%), and
China (4%). Its top customer is Emirates (9.8% of current market value); this percentage is higher than the average for aircraft lessors, with the top customers generally averaging 7%. DAE is 100% owned by Dubai’s sovereign wealth fund, Investment Corp. of Dubai. Based on publicly available information, we view DAE’s credit quality as much stronger than that of NAC. We also note that S&P Global Ratings’ previous rating on DAE, at the time of withdrawal on March 11, 2021, was ‘BB+’ (underpinned by the satisfactory business risk profile and significant financial risk profile assessments) with a stable outlook. In addition, we understand that DAE does not expect NAC’s acquisition to materially affect its leverage and funding metrics.
We think that NAC will likely have a higher than nonstrategic group status after the acquisition. This, combined with DAE’s potentially several notches stronger credit profile, would likely translate to an at least one notch-uplift, potentially multiple notches of uplift, for our rating on NAC.
CreditWatch
The placement of all ratings on CreditWatch with positive implications reflects the likelihood that we will likely raise the ratings on NAC and NAC 29 when the transaction closes.
Company Description
Privately held Limerick, Ireland-based NAC, including its core subsidiary NAC 29, is a lessor of regional and turboprop aircraft. In early June 2022, the company emerged from Chapter 11 bankruptcy protection following the effect of the COVID-19 pandemic on its airline customers. The pandemic resulted in a higher proportion of airline restructurings or failures than was the case for
customers of aircraft lessors who focus on larger aircraft, but it halved NAC’s lease rental collections. Lessors of larger aircraft were not as badly affected. As of Sept. 30, 2024, NAC had an owned fleet of 221 aircraft (NAC 29: 145 aircraft), down from 297 aircraft (NAC 29: 208 aircraft) the previous year. NAC currently has 27 new generation aircraft on order. NAC 29 has no orders.