Investment in Aircraft
It has been found that the total value of aircraft funds in South Korea skyrocketed from 18.9 billion won (US$16.9 million) to 1.1365 trillion won (US$1.01 billion) between 2007 and last year. The value increased by 300 billion won (US$268 million) or so in the first half of this year alone and is expected to reach two trillion won (US$1.79 billion) before the end of this year.
This has to do with the rapid growth of the global aviation industry since 2008. According to the Financial Times, the industry has shown an average annual growth of more than 4% during the period and the total aircraft demand for the upcoming 20 years is estimated at 40,000 at the least.
Still, South Korean investors are rather lax in managing relevant risks. First of all, they are ripped off in not a few cases. Most of aircraft transacted by them are via brokers in Hong Kong and, as such, are more expensive than those directly transacted in Hong Kong.
They are subject to discrimination in terms of aircraft repair and maintenance, too. Lease companies in charge of repair and maintenance during investment periods invest equity capital in Mezzanine funds and the like in order to emphasize on their responsibility. At present, the ratio of investment is at least 25% in the case of aircraft invested by global IBs whereas it is merely 5% or so when it comes to those available in South Korea. This implies that aircraft South Korean institutional investors are investing in are in improper management.
Under the circumstances, South Korean financial companies and institutional investors are working on measures for risk minimization. For example, Truston Asset Management recently hired aircraft maintenance crew and formed a strategic partnership with a local lease service provider in Hong Kong so as to handle repair and maintenance on its own. The Construction Workers Mutual Aid Association reflected an option for aircraft purchase prior to lease expiration in its contract.