South Africa’s Absa to Begin Financing Aircraft Deals in Africa
South African financial services provider Absa Group Limited, which is South Africa’s third-largest bank has poached a team of bankers from rival Nedbank to begin financing aircraft deals in Africa. Absa, hired Morne Visagie, who spent 13 years at Nedbank, to head its structured finance and aircraft funding businesses.
Head of global finance and trade at Absa’s corporate and investment bank, David Renwick revealed that Visagie brought three other members of his team with him. Renwick noted that “they’ve got a mandate and they’re quite active. We’ve got a couple of live transactions at the moment”.
The financial services provider is encroaching on territory dominated by local competitors Investec and FirstRand, and international banks such as Standard Chartered Plc and BNP Paribas. Absa, which broke away from Barclays Plc, is chasing extra sources of revenue from the rest of Africa, as it seeks to grow faster than its local competitors until 2021.
Nedbank, which also funds airlines in the Middle East, said it would not stand still and remained active in the segment, despite losing staff. The bank said an uptick in commodity prices is also increasing the number of countries it can target.
According to the Centre for Asia Pacific Aviation, Africa’s aviation industry is full of promise, but hampered by poor management, costly monopolies and high taxes on fuel that make operating costs among the highest in the world.
Renwick said, “Some African airlines have credit-quality challenges, but there are some which do not. 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”.
Head of Investec’s 22-member aviation-finance division, David Minty said inadequate road and rail infrastructure and the size of the continent make Africa an attractive proposition for growth in the sector.
Minty said faster economic growth and an expanding population creates an increased need to get the industry off the ground. He added that limited infrastructure, volatile fuel prices and exchange rates, and lack of scale hinder its success.
According to UN projections, Sub-Saharan Africa’s population could increase by more than a billion to 2.2 billion in the 20 years to 2050. However according to the International Air Transport Association (IATA), airline passenger traffic growth in the region is the slowest in the world, rising an estimated 3.6 percent in 2018, compared with a global average of 6.5 per cent.
Minty notes that “there is a big need for air transport in Africa; unfortunately, it is a tough industry in which to be successful despite the opportunity”.