Avolon, a three-year-old aircraft lessor owned by Oak Hill Capital Partners, Cinven Ltd., CVC Capital Partners Ltd. and Singapore, will seek a buyer or sell shares within 24 months to return money to investors.
The leasing company, with 105 aircraft in its portfolio and 74 on order, is encouraged by transactions including Sumitomo Mitsui Financial Group Inc.’s $7.3 billion purchase of Royal Bank of Scotland Group Plc’s aviation division and will seek to tap such interest as early as next year, Avolon Chief Executive Officer Domhnal Slattery said in an interview.
A sale of the business would come as lessors play an increasingly important role in funding planes. Airlines buying large commercial aircraft will require $100 billion next year alone, a sum that will increase to $125 billion over the next decade, according to Avolon estimates.
“We’re certainly seeing significant demand from Asian institutions, especially Chinese and Japanese banks, to expand dramatically in this space,” Slattery said, adding that direct sale to financial institutions or an initial public offering are the preferred options.
Lessors are likely to increase their share of new-aircraft delivery financing from to 50 percent in the middle of the decade from 40 percent now. To support growth, the companies rely increasingly on external funding, including capital markets.
Avolon recently sold $636 million in fixed-rate asset-backed notes by a subsidiary, Emerald Aviation Finance Ltd., which will be used to buy 20 planes from Avolon. Slattery said the notes were sold to U.S. institutions. Avolon increased its lending group by two to 29 financial institutions in the third quarter.
Besides buying new aircraft and leasing them to airlines, Avolon trades aircraft already on lease. The average age of its fleet is just over two years.
Other lessor transactions in the last 24 months include the purchase of Oaktree Capital Group LLC’s Jackson Square Aviation to Mitsubishi UJF Lease & Finance Co. for about $1.1 billion, and Babcock & Brown Aircraft Management’s sale of a 50 percent stake in December 2012 to Onex Corp.
International Lease Finance Corp.’s announced sale plan to Chinese investors hasn’t happened. ILFC parent American International Group Inc. Sept. 4 said AIG can do an IPO if the sale never goes through.
Slattery himself previously set up the RBS aircraft leasing division, and left three years before it was told to Sumitomo. Singapore sovereign-wealth-fund GIC Pte agreed to enter Avolon as a shareholder in October 2011, a little more than a year after the lessor’s formation in May 2010.