Air Lease Godfather Udvar-Hazy Seeks Higher Valuation Than Peers in IPO

Steven Udvar-Hazy’s Air Lease Corp. may raise $700 million in the industry’s biggest initial public offering as the so-called godfather of aircraft leasing bets his new fleet will command a premium over peers.

Air Lease is scheduled to offer 25 million shares later today for $25 to $28 each, according to a regulatory filing and data compiled by Bloomberg. At the midpoint, Air Lease would be valued at 1.47 times net tangible book value, a measure of shareholder equity that excludes some assets. Competitor AerCap Holdings NV (AER) trades at 1.02 by that measure and Fly Leasing Ltd. (FLY) trades at a multiple of 0.77.

Udvar-Hazy, 65, is drawing on four decades of relationships with airlines, planemakers and bankers to recreate some of what he walked away from in 2010 when he left American International Group Inc. (AIG) As chairman and chief executive officer of Los Angeles-based Air Lease, he has built a fleet of 49 aircraft, with orders for more than 150 additional planes since founding the company 14 months ago.

“You’re buying that one because you’re buying Hazy,” Ron Epstein, an aerospace analyst at Bank of America Corp. in New York, said of the Air Lease IPO.

Air Lease is one of the companies seeking a total of at least $3.2 billion in global IPOs this week. Hui Xian Real Estate Investment Trust is offering as much as 11.2 billion yuan ($1.7 billion) of shares in its Hong Kong debut, and 21Vianet Group Inc., the Beijing-based Internet data center services provider, may raise $138 million in the U.S.

Jet Leasing

Udvar-Hazy arrived in the U.S. from Hungary at the age of 13 and began leasing planes to airlines while still in college. He became the biggest customer of Boeing Co. (BA) and Airbus SAS after establishing International Lease Finance Corp. in 1973, and built the company into the world’s largest jet lessor before selling it to AIG in 1990. At the time of his departure from ILFC last year, he was managing a fleet of about 1,000 aircraft valued at about $44 billion.

He started his new venture in February 2010 and was the biggest buyer at the Farnborough, England, Air Show in July after raising $1.3 billion from institutional investors including Leonard Green & Partners LP, Ares Management LLC and Commonwealth Bank of Australia.

JPMorgan Chase & Co., Credit Suisse AG, Barclays Plc, FBR Capital Markets, RBC Capital Markets and Wells Fargo & Co. are managing the offering. The shares will trade on the New York Stock Exchange under the symbol AL.

‘Legacy Challenges’

Air Lease’s fleet doesn’t have the “legacy challenges” that saddle competitors, Udvar-Hazy said in a presentation broadcast online by RetailRoadshow. The company’s 49 jets have a weighted average age of 3.5 years, compared with 5.4 years for AerCap’s 350 planes, 8.1 years for Fly’s 59 and 11 years for competitor Aircastle Ltd. (AYR)’s 136 aircraft, according to company filings. Air Lease doesn’t plan to pay a dividend, according to its prospectus, while Aircastle and Fly do.

Aircraft leasing is growing in popularity as airlines seek flexibility within the cyclical air-travel industry as well as a way to avoid burdening their balance sheets with the billions of dollars required to fund plane purchases.

In 1990, about 10 percent of the world’s commercial planes were leased, and by 2015 that proportion will reach 35 percent, according to estimates by Ascend and Avitas provided by Air Lease. Still, the three aircraft lessors that went public in the two years before the recession hit -- AerCap, Aircastle and Fly -- are all trading at least 37 percent below their $23 initial share price.

Increasing Competition

Competition has increased as new lessors have appeared, including Avolon Leasing Group and Jackson Square Aviation LLC, created last year by experienced leasing executives. Larger, established lessors including General Electric Co. (GE)’s Gecas, ILFC and CIT Group Inc. (CIT) are recovering from the dry spell during the recession and have placed orders this year.

The IPO may serve as a signal to others in the industry as they contemplate their own futures.

“If Hazy can’t do it, nobody can,” according to Steve Rimmer, CEO of Issaquah, Washington-based Guggenheim Aviation Partners, a private equity manager that buys jets to lease. “There’s no doubt he’s the smartest man on the street.”

Global Pricings

In other IPO news, 21Vianet is offering 11.5 million American depositary receipts for $10 to $12 each, according to its prospectus. Proceeds will be used to expand its data center and network infrastructure and other general corporate purposes.

21Vianet is the largest carrier-neutral Internet data center services provider in China by 2009 revenue, according to research firm International Data Corp., the company said in its filing.

Morgan Stanley, Barclays and JPMorgan Chase are leading the offering. The shares will trade on the Nasdaq Stock Market under the symbol VNET.

Billionaire Li Ka-shing’s Hui Xian REIT received orders for all stock on the day it started the sale, two people with knowledge of the situation said last week. The offering is scheduled to price tomorrow, according to the termsheet, and will start trading on April 29. Hui Xian, the first Chinese currency-denominated IPO outside the mainlaind, is offering 2 billion units at 5.24 yuan to 5.58 yuan.

Russian lender Nomos Bank is scheduled to price its IPO today, according to a sales document obtained by Bloomberg. It initially sought as much as $640 million and raised the deal size by 10 percent on April 15. Nomos is controlled by billionaire Alexander Nesis.

Glencore International AG is gauging investors’ interest in its IPO, which may raise as much as $11 billion, and is scheduled to announce a price range for the sale on May 4, according to terms for the sale obtained by Bloomberg. The Swiss commodity trader’s IPO may be the world’s biggest this year.

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TOP DEALS THIS WEEK:

Company         Shares/Units    Price Range   Date Expected
Air Lease         25 million     $25 to $28     April 18
Hui Xian REIT      2 billion CNY 5.24 - 5.58    April 19
21Vianet        11.5 million     $10 to $12     This week
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