Last year multiple operating lessors and financiers entered into various strategic agreemnents, strengthening their investment capabilities ahead of this year's $112 billion worth of aircraft deliveries.
As anticipated by many market observers, including Boeing, the Japanese again were active investors in the sector, following the purchases of RBS Aviation Capital and Jackson Square Aviation by local banks in 2012 .
According to Kostya Zolotusky, Boeing Capital's managing director of capital markets, the lessor purchases by Japanese banks "line up neatly" with what Japan's central bank is doing, "where in essence it is trying to rebalance the currency as part of the quantitative easing programme", thus making dollar-denominated assets "very attractive".
In January 2012, RBS Aviation Capital was sold to Sumitomo Mitsui for $7.3 billion, while in October that year Mitsubishi UFJ agreed to acquire Jackson Square Aviation for about 100 billion yen ($1.27 billion).
"Japanese banks in the 1980s were one of the premier aircraft financiers and they are coming back to this space, as aircraft offer a predictable investment and a better return than what they can achieve in their domestic market," he adds.
Stronger platforms
Just before the close of 2013, Aircastle formed a joint venture with an affiliate of the Ontario Teachers' Pension Plan.
The joint venture plans to acquire between $500 million and $1 billion of aircraft investments "over time", says Aircastle. The joint venture has already purchased two Airbus A330s from Aircastle that were manufactured in 2013 and leased to Garuda Indonesia.
"Aircastle will source and service these investments, complementing the growth in its own portfolio," it adds.
The Ontario Teachers' Pension Plan holds a minority stake in Aircastle with 6.9 million shares.
The deal follows an earlier investment, in July, by Japan's Marubeni in the lessor. Marubeni agreed to acquire a 15.25% stake in Aircastle for approximately $209 million, giving the lessor greater access to the Japanese aircraft market .
"One area where we have had some success over time is buying mid-aged aircraft from Japanese investors as those aircraft come off lease. I think we could do much better accessing those opportunities by having Marubeni on the ground and plugged into that business community than we could do on our own," said Ron Wainshal, the chief executive officer of Aircastle on a second-quarter earnings call.
The Japanese trading company has an option to further acquire 5.75% of Aircastle.
In mid-December, days before Aircastle's joint venture deal, AerCap entered into an agreement to purchase 100% of ILFC for $3 billion in cash, giving the combined lessor greater financing options for purchasing aircraft and supporting future growth plans, according to its chief.
"We expect the company to have deep access to all funding markets," said Aengus Kelly, chief executive officer of AerCap at the time of the sale.
AerCap and ILFC have raised more than $39 billion of financing in the last several years, he says, "many times the expected financing need of the combined company over the next few years".
Kelly anticipates "very manageable capital expenditures" of approximately $3 billion per annum during the next three years for new aircraft deliveries. The lessor also expects to sell approximately $1 billion of aircraft per annum - the level of sales AerCap has typically executed on a stand-alone basis.
According to Kelly, more than 100 aircraft from the ILFC portfolio will be broken-up after their leases are completed, but this represents "under $1 billion in assets".
The combined lessor will have $41 million in assets with $35 billion of that amount consisting of aircraft.
Broader investments
A pullback in the financing market, prompted by tighter global financial regulation, spurred the Development Bank of Japan (DBJ) to establish an aviation fund in September with Novus Aviation Capital and Airbus.
The fund, Tamweel Aviation Finance, is expected to target new Airbus aircraft, particularly widebodies such as the A330.
"When we entered the market in 2011, we realised there was growing potential for mezzanine financings in this space, as we expect financings will become more expensive and loan to values will decrease as a result of increased regulation," says Masao Masuda, director at DBJ.
He adds: "Airlines and lessors will still need support even though there could be a tighter pool of investors due to more regulation. We are seeking to help fill any gaps with high-risk, high-return mezzanine capital."
While Masuda would not be drawn on the amount of the fund, market sources indicate an initial investment of 10 billion ($101 million) is likely. Masuda says further funding from Asian institutional investors is possible.
DBJ had been looking at entering the mezzanine market for some time, but with an experienced partner. "We found that in Novus, which has been in the market since 1994 and manages a $2 billion portfolio," says Masuda.
The bank already provides mezzanine financings for other asset classes such as real estate, so aviation is a natural extension of the banks lending activities, he adds.
In November, Japans Financial Products Group (FPG) purchased 25% of Amentum Capital as part of a strategic cooperation between the financiers to broaden their aircraft investment offerings in Japan.
FPG is one of the largest independent arrangers of Japanese operating leases with call options in the Japanese market.
According to Amentum, the agreement will give FPG access to its aircraft management abilities, while the Japanese financier will provide the Dublin-based asset and investment manager with access to Japanese investors. The agreement comes at a time of significant demand for JOL financings from airlines, notes Amentum.
Earlier in 2013, Amentum completed a management buyout from its former parent HSH Nordbank. The buyout was led by executive chairman Jan Melgaard, chief executive Martin Bouzaima and chief financial officer Mitchel Simpson. It also included head of sales Simon Clements, head of technical Rory Hensey and head of legal Jean O'Driscoll.
Amentum currently manages a $2 billion portfolio of aircraft and provides services to several investor and banking customers.
Source: FlightGlobal.com
