The exponential growth of intra-Asian trade, which now accounts for 58% of trade across the APAC region, is signalling the need to establish new infrastructure and supply chains means that transport and logistics as a focal point of intra-Asian investment, according to Jared Ailstock – Managing Partner of AIP Capital, a leading global aviation asset management and investment firm. According to Boeing’s Commercial Market Outlook, passenger traffic growth the next 20 years of 5.3% per annum and accelerated retirement of older less fuel-efficient aircraft will see the Asia-Pacific region require over 17,000 new passenger and freighter aircraft – resulting in nearly $3.2 trillion for the aviation sector. Serving as testament to the economic opportunities for the sector, the IMF highlights growth in the Asia-Pacific region is projected to increase to 4.6%, compared to 0.8% in Europe or 2.2% in North America. Reflecting the pivotal role the APAC region has to growing the aviation industry, Indian carrier IndiGo placed the largest order of aircraft ever recorded at the most recent Paris Air Show. Additionally, as of March 2023, 22.1% of global air travel was recorded in the Asia-Pacific region, according to the IATA. Although this represents a smaller share of the global market compared to North America and Europe, Asia-Pacific airlines had a 283.1% increase in March 2023 traffic compared to March 2022, more than four times larger than the next fastest growing market. Meanwhile, capacity rose 161.5% and the load factor – the measure of capacity filled by passengers – increased 26.8 percentage points to 84.5%, the second highest among the regions.
Global investors are increasingly becoming attuned to the importance of the APAC region, with firms actively seeking to establish a footprint in emerging markets. One such example includes AIP Capital, the aviation asset management arm of U.S.-based private equity firm 777 Partners, has closed a minority investment and joint venture agreement with Korean consulting and investment firm Dreamstone Aviation Partners, giving AIP a 30% share in Dreamstone. As part of their investment in Asia Pacific region, AIP have taken a stake in Eastar Jet in a limited partnership deal with VIG Partners, this will see AIP place five Boeing 737 MAX at the Korean airline.Launched in May 2023, AIP Capital has already built a $1.6 billion portfolio encompassing 30 aircraft, with another 68 Boeing 737 Max models on order. Its activities include aircraft management, operating and acquisition finance, and private credit investing, and currently has an additional $2.6 billion of capital deployed in investment grade, high-yield and distressed aviation credit. The AIP Capital team has a successful track record of leveraging relationships and a unique investment approach to deliver outsized returns on assets, with previous aircraft investments totaled approximately $5 billion across 119 assets.
Jared Ailstock, Managing Partner at AIP Capital, has commented on why investors are increasingly turning to aviation:“There is a lot of really different and attractive ways to get yield in the environment we are living in right now. I think a lot of people have looked at different parts of that market and said ‘Well, the risk/return in X, Y, Z investment is way better than aviation’, and I think some of those participants wouldn’t have said that a couple of years ago. “Where we have seen success are folks that have either been coming into the space for the very first time, because they view the entry point as being a lot more attractive today because there isn’t as much equity in the space, or guys who have been able to weather the storm and they view aviation as a core part of their strategy and they will continue to deploy equity throughout various cycles.”