Absa enters aviation finance to challenge Investec, Nedbank

Absa poached a team of bankers from cross-town rival Nedbank to begin financing aircraft deals in Africa.

South Africa’s third-largest bank late last year hired Morne Visagie, who spent 13 years at Nedbank, to head its structured finance and aircraft funding businesses, said David Renwick, head of global finance and trade at Absa’s corporate and investment bank. He brought three other members of his team with him.

“They’ve got a mandate and they’re quite active,” he said. “We’ve got a couple of live transactions at the moment,” Renwick said, without giving details.

The lender is encroaching on territory dominated by local competitors Investec and FirstRand, and international banks like Standard Chartered and BNP Paribas SA. After breaking loose from its former British parent Barclays, Absa is chasing extra sources of revenue from the rest of Africa as it seeks to grow faster than its Johannesburg-based competitors until 2021.

Unfulfilled Promise

Nedbank, which also funds airlines in the Middle East, said it won’t stand still and remains active in the segment despite losing staff. An uptick in commodity prices is also increasing the number of countries it can target, the lender said in an emailed response to questions.

While full of promise, Africa’s aviation industry is hampered by poor management, costly monopolies and high taxes on fuel that makes operating costs among the highest in the world, according to Sydney-based consultant Centre for Asia Pacific Aviation. South African Airways, which last made a profit in 2011, has needed several state bailouts to stay afloat, while Kenya Airways, the continent’s third-largest carrier, has been unprofitable since 2012.

“Some African airlines have credit-quality challenges, but there are some which do not,” Renwick said. “If you can take a good view of the tradability of some of these assets in the secondary markets, should you need to restructure their debt, I think there is a good client base across Africa.”

Bankable Deals

Inadequate road and rail infrastructure and the size of the continent make Africa an attractive proposition for growth in the sector, said David Minty, head of Investec’s 22-member aviation-finance division. Investec is also targeting a number of African airlines over the next year, he said, and will look for business “more broadly,” whenever there is a “bankable transaction.”

The lender recently joined La Banque Postale SA in providing an 18 million-euro senior debt facility to EWA Air, which is based in the French islands of Mayotte, for the purchase of two aircraft.

The two new 64-seater airplanes will replace EWA’s leased fleet and will service flights between Mayotte, Madagascar, the Comoros Islands and Tanzania.

Faster economic growth and an expanding population creates an increased need to get the industry off the ground, Minty said, adding that limited infrastructure, volatile fuel prices and exchange rates, and lack of scale hinder its success.

Sub-Saharan Africa’s population could increase by more than a billion to 2.2 billion in the 20 years through 2050, according to United Nations projections. But airline passenger traffic growth is the slowest in the world, rising an estimated 3.6% in 2018, compared with a global average of 6.5 %, according to the International Air Transport Association. Capacity probably climbed 1.4% versus 6% worldwide, it said.

“There is a big need for air transport in Africa,” he said. “Unfortunately it is a tough industry in which to be successful despite the opportunity.”

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