What do German dentists and architects have in common with Yorkshire council workers? Bizarrely, they’re all part-owners of Airbus A380s.
Airbus SE is struggling to sell the A380 and a second-hand market hasn’t become established yet. But Airbus isn’t the only one facing a problem: German retail investors and British pension funds have savings tied up in alternative investment vehicles that have purchased A380s and leased them to airlines. Still, there are reasons to think those investments might not be quite as dangerous as they sound.
A decade after the double-decker aircraft entered commercial service, Singapore Airlines Ltd has returned the first of its leased A380s to the German fund manager Dr Peters Group.
So far Dr Peters hasn’t found a buyer or another lease customer, so the aircraft has been parked near the Pyrenees and stripped of its Rolls-Royce engines, so these can be rented out. Several other A380s will soon be looking for a new home too.
(Related: Welcome to the ‘New Abnormal’ for Asset Managers: McKinsey )
That’s worrying for Dr Peters’ wealthy German clients, who each paid a five-figure sum to own a slice of one of several A380s in its portfolio of closed-end funds. German investors have poured more than 1.6 billion euros ($1.9 billion) of equity capital into similar funds that have purchased 21 A380s, estimates Scope Analysis. Lately, these funds have traded at little more than half their nominal value on the secondary market.
Doubts about the aircraft’s future are also buffeting UK-listed A380 investment vehicles such as Amedeo Air Four Plus Ltd. and the Doric Nimrod Air funds, whose investors include the West Yorkshire, East Riding of Yorkshire and Merseyside pension plans, according to Bloomberg data. Because of their extensive holdings, those English public sector employees and retirees will eventually own a couple of A380s outright, by my calculation. Some funds slumped last month when Emirates failed to place another order for new A380s at the Dubai Air Show.
Fortunately, most of these funds shouldn’t lose money for their investors. Airlines typically committed to leases lasting at least 10 years and operators like Singapore Airlines, Emirates or Air France don’t pose much default risk. The airlines’ lease payments are usually enough to pay off the debt attached to the aircraft before the lease expires. They provide regular payouts for equity holders too. Dividend yields of about 8% are common.