Capitalising on the Booming Aircraft Leasing Industry
The aircraft leasing industry is experiencing robust growth despite economic, geopolitical, and environmental uncertainties. This article highlights key trends in the industry, including private placements, lease rate factors, alternative lending solutions, investment-grade lessors, joint ventures, ICAV platforms, and aviation collateralized loan obligations (CLOs). These developments present opportunities for investors and players in the aviation sector to navigate challenges and maximise returns.
Amid difficulties accessing traditional ABS markets, airlines and lessors are turning to privately-placed deals. Although private debt investors may be costlier, this approach offers flexibility in terms and structures, faster turnaround times, and reduced execution risk. A recent example is the US$303.7 million MAST 2022-1 and MAST 2022-1 USA privately placed ABS, backed by Marathon Asset Management and serviced by Airborne Capital Limited.
Lease Rate Factors:
Discussions within the industry highlight the need for lease rate factors to rise with interest rates to attract investors back to the ABS market. Some lessors are witnessing upward movements in lease rates for new and used aircraft due to undersupply, rising interest rates, and certain lessors withdrawing from the market.
Alternative Lending Solutions:
Aviation-focused alternative lenders and credit funds, such as Ashland Place, Muzinich, Castlelake, and Volofin, are playing a significant role in commercial aviation lending. These lenders offer flexible financing options, catering to mid-tier lessors and airlines that struggle to access bank funding. Their nimbleness and regulatory flexibility make them competitive players in the market.
Investment Grade Lessors:
While traditional aviation lenders may have reduced appetite at the mid-tier lessor level, investment-grade lessors continue to attract significant financing. Recent examples include a US$1.7 billion syndicated facility to SMBC Aviation Capital and Air Lease Corporation’s successful public offering of senior unsecured medium-term notes.
Large private equity firms are establishing joint ventures with established and newly formed leasing and aircraft investment management companies. These platforms provide quick and flexible capital solutions, assembling portfolios of aviation assets across various sectors. Notable joint ventures include the Gilead Aviation platform serviced by Aercap and the ST Engineering/Temasek cargo conversion platform (Juniper).
Aviation investment platforms often use unregulated investment vehicles. However, the use of Irish Collective Investment Vehicles (ICAVs) as regulated fund structures is gaining popularity. ICAVs offer tax efficiency, regulatory compliance, investor protection, and a robust structure for aviation investments.
The participation of private equity in commercial aviation lending has led to increased interest in collateralised loan obligations (CLOs) for aviation loans. These aviation loan CLOs provide investors with diversification opportunities and enable private equity sponsors to raise funds or finance exits.
As stability returns to the market, increased funding availability offers prospects for growth in the aircraft leasing industry. Investors and industry players can capitalize on these trends to seize opportunities and achieve favorable returns.
We are currently raising funds for an aircraft leasing company. If you would like to know more please get in touch via phone or email. With an existing order book, returns are expected to be between 30-70% PA.
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