KTB, Korea Investment launch $85 mn aircraft fund to buy Airbus A330

Two South Korean brokerage companies - KTB Investment & Securities Co. Ltd. and Korea Investment & Securities Co. Ltd. – set up a $85 million aviation fund on Dec. 13 to buy an airplane leased by Singapore Airlines, and domestic insurance companies, banks and financing services firms will invest in the new fund, according to insurance industry sources.

The aircraft fund with a duration of five years and nine months will acquire an Airbus A330-300 model, produced in 2014, from a private equity fund run by Germany’s investment company, Wealth Management Capital. Payment and delivery of the airplane are set for Dec. 15.

Investors in the fund, for which the Military Mutual Aid Association’s alternative investment unit also will participate in the fundraising, will receive rental income from Singapore Airlines.

The fund breaks down to senior (A:$60 million), mezzanine (B:$20 million) and subordinated (C: $5 million) loans: their expected returns are 4.05% (A), 6.2% (B) and 9.1% (C) a year, respectively. BBAM, a U.S. aircraft leasing firm, will provide management services for the airplane.

The aircraft fund adds to a series of aviation funds raised recently in South Korea, with the upbeat outlook for global travel growth creating demand for new airplanes and attracting investors in search of high-yielding alternative assets.

A $900 million aircraft fund of Mizuho Securities Co. Ltd. and South Korea’s Meritz Securities Co. Ltd. is in the final stage of fundraising, industry sources said last week.

In August, KTB Investment raised an aviation fund to buy an Airbus A330 model leased by Singapore Airlines from a Chinese lessor for $86 million. KTB Investment’s CEO Suk-jong Choi joined the Korean brokerage house in July, along with colleagues from the alternative investment team of local rival Kyobo Securities Co. Ltd. which introduced aviation financing to South Korea in the mid-2000s.

By Daehun Kim

daepun@hankyung.com