ST Engineering last week announced that its wholly owned aviation asset management unit has entered into an agreement with Singaporean holdings company Temasek to set up a 50-50 joint venture (JV) for cargo aircraft leasing.

The move comes as e-commerce and air cargo volumes have resulted to a growing demand for freighter aircraft.

The company expects to purchase passenger plane feedstock at lower prices with itention to finance older aircraft through a mix of equity and debt. It plans to build its portfolio to about US$600m (or about S$800m) within the next 5 years.

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ST Engineering will invest in passenger aircraft for freighter conversion and target narrowbody aircraft to add to its fleet. Its asset management team’s existing fleet currently has A320P2F, A321P2F and A330P2Fs.

“This joint venture represents a significant step by ST Engineering in growing our aviation leasing business as we expand beyond passenger aircraft and engines to include freighter aircraft assets as part of our portfolio,” said Jeffrey Lam, President/Head of Commercial Aerospace, ST Engineering.

“We also welcome and look forward to working with other potential like-minded partners who are looking to invest in the strong freighter aircraft leasing market. In the medium to long-term, the JV intends to securitise the leasing income streams by way of a business trust to unlock capital,” Lam added.

The Singapore-based company says converting older aircraft to fuel efficient freighters will provide an option for operators and is in line with its focus to implement an environmental, social and governance (ESG) policy to guide its operations and business development.

“The joint venture will set relevant ESG criteria for its investments and work with prospective clients on measures to reduce their carbon footprint, including the use of sustainable aviation fuels and enhanced engine maintenance programmes,” ST Engineering noted.