Air Lease Surges as Rivals Watch Industry’s Biggest U.S. IPO

Air Lease Corp., the jet-leasing company led by Steven Udvar-Hazy, surged 5.5 percent on its first day of trading after raising $802.5 million in the industry’s largest initial public offering in the U.S.

The Los Angeles-based company sold 30.3 million shares at $26.50 each yesterday, after increasing the number 21 percent, according to a prospectus filed today with the U.S. Securities and Exchange Commission. It had offered 25 million shares at $25 to $28.

Udvar-Hazy, 65, commanded a premium as he drew on four decades of experience to recreate some of what he built at American International Group Inc. (AIG)’s International Lease Finance Corp. Udvar-Hazy, who began leasing jets to airlines while in college, has amassed a new fleet of 49 aircraft with orders for 153 more since founding Air Lease 14 months ago.

The Air Lease price of 1.3 times book value “shows that specific business models attached to strong management teams can attract material amounts of equity capital,” Joe Gill, an analyst at Bloxham Securities in Dublin, wrote in a note to investors today. “New jets and a global customer base managed by an experienced management team appears to be a compelling mix for institutional investors.”

First-Day Trading

Air Lease rose $1.45, or 5.5 percent, to $27.95 at 4:15 p.m. in New York Stock Exchange trading, where it is listed under the symbol AL. The company has a market value of $2.67 billion, higher than its three publicly traded competitors, AerCap Holding NV, Fly Leasing Ltd. (FLY) and Aircastle Ltd. (AYR)

“We’re very happy and think it’s a good outcome for the whole airline industry and the aircraft lessors,” Udvar-Hazy said in an interview today before flying to New York, where he will ring the NYSE’s opening bell to start trading.

“It establishes again the credibility of the leasing model as an important facet of airlines’ fleet financing,” said Udvar-Hazy, who is Air Lease’s chairman and chief executive officer.

Udvar-Hazy founded ILFC in 1973 and built it into the world’s largest aircraft lessor before selling it to AIG in 1990, staying on as CEO. He left in February 2010 after an unsuccessful attempt to buy back part of the unit amid its parent’s financial troubles during the recession.

Air Lease’s success “opens the market for other entities to do an IPO that are thinking about it,” said Domhnal Slattery, CEO of Avolon Leasing Group, an Air Lease competitor.

Avolon’s Outlook

While Avolon has sufficient equity capital to continue growing now, Slattery said he’ll consider an IPO “in due course.” The Dublin-based company has raised $1.1 billion in equity and $1.9 billion in debt since Slattery founded it in May 2010.

His company has 25 Boeing Co. (BA) and Airbus SAS jets now, has contractual commitments for 73 and plans to place another order “in the not-too-distant future,” Slattery said.

“We will have options now for sure, in terms of where we go next” for funding, Slattery said in an interview today. “The success of what Hazy has achieved today is hugely positive for the broader aircraft-leasing sector.”

As chairman and chief executive officer of Air Lease, Udvar-Hazy has built a fleet that he says is unburdened by the “legacy challenges” that saddle competitors. The company’s jets have a weighted average age of 3.5 years, compared with 5.4 years for competitor AerCap’s 350 planes, 8.1 years for Fly Leasing’s 59 and 11 years for Aircastle’s 136 aircraft, according to company filings.

Marketable Portfolio

A portfolio under 5 years old is “the most marketable and the most financeable,” Avolon’s Slattery said.

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 industry-data providers Ascend and Avitas cited by Air Lease.

Lessors are expected to finance about $140 billion of the $350 billion in capital requirements for about 5,000 new jets due to be delivered worldwide by 2015, John Plueger, Air Lease’s president, said in a presentation before the IPO.

Still, the three aircraft lessors that went public in the two years before the recession hit -- AerCap, Aircastle and Fly -- all are trading at least 38 percent below their $23 initial share price.

While Air Lease doesn’t plan to pay a dividend now, it may consider it in the future, according to today’s filing. Aircastle and Fly both pay dividends.

JPMorgan Chase & Co., Credit Suisse AG, Barclays Plc, FBR Capital Markets, RBC Capital Markets and Wells Fargo & Co. led the Air Lease offering.

The underwriters may exercise an overallotment option to buy as many as 4.54 million additional shares, according to today’s filing.

To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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