Redefining the lessor role through M&A

SAN DIEGO — As lessors look for ways to add shareholder value, they are implementing strategies for mergers and acquisitions to strengthen their capital and asset portfolios while competing for increased market share that could affect product diversification. Inventory and financial growth When analyzing a merger or acquisition, one objective for a leasing company is the strength of its lease capital when the cash flow of both entities is combined. [caption id="attachment_56861754" align="alignright" width="450"] The M&A panel at ISAT Americas 2023. (Photo/ISTAT)[/caption] Carlyle Aviation Partners co-founding Principal Robert Korn emphasized the importance of buying power during the “M&A: Is this a path toward consolidation? Is bigger better?” panel at the International Society of Transport Aircraft Trading (ISTAT) Americas 2023 conference in San Diego. Carlyle completed its acquisition of Cheung Kong (CK) Asset Holdings subsidiary AMCK Aviation and its portfolio of 125 narrowbody aircraft in 2022. “I think it’s been a very good transaction for us and a very good transaction for Cheung Kong, who were looking to redeploy the capital into other businesses within their business empire,” Korn said. “For us, it was a way to quickly grow and scale at the bottom of COVID. We’re a firm that four years ago was $4.5 billion and now is over $12 billion.” When SMBC acquired Goshawk Management in late 2022, the execution risk was low for the seller while having a large financial backer and access to efficient capital would have provided certainty, said SMBC Chief Financial Officer Aisling Kenny. The acquisition made SMBC the largest Japan-based lessor with more than 900 narrowbody aircraft in its inventory. Catering financial instruments to market and client base Looking beyond inventory and financial backing, Air Lease Corp. (ALC) Vice President and Chief Financial Officer Greg Willis and Castlelake Deputy Co-Chief Investment Officer Joe McConnell identified ways to diversify products for clients through mergers and acquisitions to provide customized solutions tailored to the operator’s business model. “Mergers and acquisitions are part of our strategy, but it’s not the strategy,” Willis said. “We definitely look at it as a creative part of a growing company like ours. It’s not growth for growth’s sake. If the opportunities aren’t there, we’re very happy to grow it organically.” Willis also noted the difficulties ALC has experienced recently. The company normally acquires original equipment manufacturer (OEM) short bulk purchase contracts, which contain volume discount incentives for working with the OEM to launch new aircraft types. Those opportunities have been limited lately. “When we go out there marketing, we look at portfolios. Most of them — actually, I would say all of them — have been diluted to our metrics. So finding an opportunity where there really hasn’t been a whole lot of distressed sellers has been tough for us,” Willis said. “We like looking at acquiring an aircraft through our $25 billion orderbook, being able to know exactly where we’re going to put those airplanes and buying the private aircraft that we want to invest in, as opposed to buying a large portfolio.” Castlelake, which was founded in 2005, has spent more than $20 billion in the aviation sector over the last eighteen years, McConnell said. “We’ve done that through multiple economic cycles,” he said. “Our approach since day one is we want to innovate or die. We wake up every single morning thinking about how can we bring creative capital solutions to airlines, leasing companies and OEMs.” McConnell said Castlelake offers aircraft owners capital in five ways: senior secured lending; insurance-wrapped lending through Itasca Re, a reinsurance company Castlelake established in January; new aircraft sale-leaseback; midlife aircraft sale-leaseback through another fund; and a special “Opportunities” fund through which Castlelake can work with non-aircraft collateral. Redefining the value of options Mergers and acquisitions are critical to an industry filled with players that vary in financial capital and strength, according to the lessors on the panel. As investors in aircraft, lessors must endure the parabolic curves of recession and growth and change course from time to time, they said. “I definitely think it’s a benefit to the industry,” Korn said. “There are players that need to exit for different reasons. Being an entrepreneurial business, we’ve created a lot of sub-scale players that appeared in this cycle that now need to consolidate.” Cargo Facts Asia, the essential event for stakeholders in Asia, will take place in person April 17-19 in Singapore. Register today to take advantage of early-bird pricing.

Redefining the lessor role through M&A

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