Avolon Sees North America Airline Shift to Jet Leases Over Bonds

Avolon, the Dublin-based aircraft lessor, expects to win more business from North American airlines as carriers in the region shift toward jet rentals instead of financing planes in the capital markets.

Airlines are signaling interest in leasing aircraft rather than buying jets and using them as collateral for bonds, Chief Executive Officer Domhnal Slattery said today in an interview at the Farnborough air show near London, where Avolon committed to purchase as many as 30 Boeing Co. 737 Max jets.

“We’ve upped our allocation to North America because for the first time in my career, I can see significant opportunity to lease aircraft in the U.S.,” said Slattery, a 23-year industry veteran who founded closely held Avolon in 2010.

Orders and commitments from lessors, not airlines, have dominated this week’s expo, the year’s highest-profile trade event for the aerospace industry. Boeing’s leasing-company agreements through today had a $19.7 billion list value, while Airbus SAS has logged jet-lease deals worth about $4.4 billion.

Major North American airlines are seeing that “operating leasing is a fleet-planning tool,” said Slattery, whose company has 79 planes with airlines and 16 more joining its portfolio by year’s end. “We see, as a macro comment, very significant fleet replacement opportunities over the next 10 years.”

Lessors’ roles have grown worldwide as carriers seek to preserve cash. In 1990, 10 percent of the world’s fleet was leased. By 2015 that will reach 35 percent, according to industry-data provider Ascend, which is based in London.

Two Directions

Avolon buys new planes directly from Boeing and Airbus, as well as purchasing jets from airlines and renting them back through so-called sale-leaseback transactions. Those deals have been used by carriers such as AMR Corp.’s American Airlines, which agreed to a sale-leaseback with lessor AerCap in 2011 to finance as many as 35 new Boeing 737s.

Avolon’s sale-leaseback efforts include trying to obtain Boeing 787 Dreamliners, Chief Commercial Officer John Higgins said at the Farnborough International Air Show.

“We’re currently bidding on some airplanes that are delivering next year,” Higgins said in an interview. “We would hope to own 787s in the next 12 months. At the upper end I would hope to buy four of them in the next 12 months.”

Avolon has an equity base of $1.4 billion, according to Slattery. That includes $300 million in equity investment won from the government of Singapore in January.

“That’s been a positive development in a number of ways,” Slattery said. “In Asia, where we do a lot of business, the government of Singapore is a very strong benchmark-type brand and the fact that they’ve invested in Avolon has sent strong signals into airline and financial community.”

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