Start-up lessor interview: AVi8 Air Capital

AVi8 Air Capital (AVi8), is a new leasing platform started last year by ex-AWAS CEO Ray Sisson and Ed Wegel, the former CEO of Eastern Air Lines Group. The firm is based in Dublin with a sales office in Miami and is currently raising between $500 million and $700 million in equity for the new leasing platform.

Sisson states that AVi8 was only launched when aircraft prices recently began to become more affordable. “I think it’s the right time to get back into leasing. While I may have wanted to get back into it before now, I just couldn’t make a credible claim to investors that the prices were right to buy. But I think that now the numbers are starting to make sense on both sides."

Sisson muses that low fuel costs have dampened some aircraft prices and says that airlines, lessors, OEMs have shown new willingness “to get a bit more serious on long-term numbers that make sense”.

 

Key facts about AVi8

 

AVi8 is currently jointly owned by Sisson and Wegel and has at least one committed private equity investor but is in the process of raising additional equity. The lessor is negotiating with a service provider to help with the technical acquisition of aircraft. Wegel, also a co-founder, is the CEO of the company while Sisson is the executive chairman of the new leasing firm. Steven Tingey, previously chief investment officer for SKY Leasing will be the firm’s chief investment officer.

AVi8 is looking at becoming a firm that leases aircraft and holds its aircraft assets in a series of funds, in contrast to the current structure of today’s traditional leasing companies.  Sisson says investors may wish to invest in the main company but in future the lessor would look to establish a series of fund investments targeted around different portfolios with different characteristics. “It could be new aircraft fund, it could be mid-life fund, it could be old aircraft you know with a part-out fund. There would be equity in both AVi8 and we would raise general partner funds for folks who don’t want to manage a leasing platform but do want to invest in aviation assets.”

 

AVi8’s planned asset choices

Sisson says that AVi8 plans to acquire 737s, A320s, 787s and potentially A350s as it seeks narrowbody aircraft and “commoditised wide bodies.” Specifically AVi8 would seek to target A320s, A321s and 737-800s. The lessor intends to have between 15-20 aircraft with the first series of aircraft set to be acquired in the first quarter of 2017. News reports have indicated that AVi8 is in negotiation with an airline for a portfolio of goods.

“I think we are going to come out of the box with a very nice portfolio to start with,” states Sisson. “We are in substantive talks with other leasing companies and we believe we can meaningfully trade for aircraft that meets our hurdle rates.”

AVi8 is different to many of the new large Asian institutions entering the leasing space which typically seek to buy new aircraft through sale/leasebacks. The new lessor is seeking slightly older aircraft with higher risk-rated assets offering a better yield with expected returns in the low to mid teens.

 “I would anticipate that we would be buying aircraft on a blended portfolio somewhere around 2-3 years of age. That would be my anticipation. It could be younger and it could be marginally older, but it’s in that ballpark.”

Sisson says that AVi8 would also be open to either A320 Neos or 737 MAX aircraft. “I think we are going to start out with current technology, albeit young, but I think the vast majority of what AVi8 does, you know two years from now, is all going to be focused around new technology.”

AVi8 is also open to A350s says Sisson. “It’s a big aircraft. And it’s a bigger aircraft than I would normally anticipate to bring out of a box for a start-up to be blunt with you. But if the deals could make sense and in that respect then I am not adverse. It is a great aircraft. But in much the same way that the 777X is going to be a great aircraft, it’s not being produced yet. I would anticipate a very small percentage of our fleet, potentially being with the A350.”

 

AVi8’s leasing strategy

 

AVi8’s leasing strategy hinges on three approaches, according to Sisson. The lessor wants to be “scale agnostic” avoiding hitting acquisition quotas but instead growing opportunistically when aircraft that offer the appropriate “high yield” returns with a lease rate factor “northwards of 0.8%”.

The second is that AVi8 wants to partner with other lessors. Specifically the leasing firm wants to acquire leased aircraft from other larger lessors as they seek to manage their exposure limits. In order to achieve this, AVi8 would use the same approval processes as their partner lessors and be willing to adopt the same return hurdles on those particular deals. “We would go to a handful of top-tier leasing companies, real pros, and I am going to align with them and I’m basically going to have our processes mirror theirs for those deals. Their approval could be our approval, for example,” he adds.

AVi8 would also be happy to co-bid on airline leasing campaigns with other lessors on the understanding that the exposure would be shared.  “I am not a threat, I am deliberately setting up AVi8 not to be a threat to my counter party lessor suppliers. I want be their partner I want to help them, I want to help them shed exposure and bid on deals as, and when, they can. As a result they are more willing to do deals with me at this stage that wouldn’t get RFPed, and that they wouldn’t do with another large lessor who would look to compete with them.”

But by setting up a new leasing platform is AVi8 in danger of inevitably becoming a competitor to other leasing firms at a later date? “No it’s not inevitable. On the releasing space it’s quite rare actually that releasing lessors really go head to head over the remarketing of aircraft, " Sisson remarks.  "Where lessors tend to compete with each other is on the acquisition side with P/LB campaigns and the like. I am deliberately setting up AVi8 to be a clearing house not a competitor. And as such I am more likely to go to my partner lessors and go: let’s just co-bid together and each take a piece of it.”

 

The Ishka View

 

AVi8 has a strong and experienced management team in place and the financing market remains benign for a new lessor. There are plenty of investors willing to enter the aviation market and commercial debt readily available. There have been very few few true lessor start-ups in the last two years and AVi8 reflects a distinct shift in the market.

One Asian prospective leasing venture confided to Ishka that it has struggled to acquire aircraft assets at decent returns last year. The launch of AVi8 suggests that the aircraft asset market is already turning. Opportunities are still not “plentiful”, says Sisson, but there are discreet opportunities to buy aircraft.

AVi8’s willingness to partner with other lessors should help it build scale relatively quickly and avoid some of the challenges other new leasing ventures have faced when seeking new and desirable equipment to good credits. Investors should take note. An interesting question is whether AVi8’s launch could be the start of several new leasing ventures as more assets start becoming available at better returns.
 

Please Note: The views expressed do not constitute investment advice. We accept no liability to recipients acting independently on its contents in respect of any losses, including, but not limited to profits, income, revenue or commercial opportunities.

Photo: AVi8

 

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