Impatient capital: US PE firms axe senior leasing execs

Three PE-owned leasing firms have made senior leadership changes, including the loss of two CEOs, one CFO and at least three other leasing executives, all in the last few months.

In March Strategic Value Partners (SVP)-owned Deucalion informed staff that its co-CEO and founder, Stephan Sayre, would be ‘stepping down’ as CEO to take a strategic advisory role at the firm, placing co-founder Jon Skirrow as interim CEO while the firm searches for a new chief executive with a PE-background. The firm also made two other senior executives redundant. Sarah Conway, Deucalion’s head of lessor origination, pricing and structuring, who was recently appointed to the ISTAT board, has left the firm and Ishka learns that the firm’s head of capital markets & investor relations, Steve Bridgland, will leave the lessor at the end of May.

Separately, Stan Barnes, the CFO at Dublin-based Aergo, owned by US PE firm AB Carval, is also understood to be no longer at the firm, while the lessor’s head of asset management, Karl Trowbridge has also left. At the start of the year, US lessor Zephyrus, owned by US PE firm Virgo Investment Group, announced that its CEO and founder, Damon D'Agostino, had left the firm in December 2023 and later appointed Greg May as the interim CEO.

 

Push factors

Leasing sources offer various reasons for the staff departures including a frustration at the pace of acquiring aircraft, the difficulty in fundraising to build scale (a wider challenge than just the aviation sector) and last but not least the challenges in M&A in the leasing sector.

One source highlights that all three firms are mid-life lessors / asset managers, and despite trading conditions easing since the second half of last year, in favour of sellers, actually buying leased aircraft in scale has been quite challenging in 2023 and 2024, particularly given the challenges of raising relevant, cost-efficient capital.

One potential solution is M&A. The scarcity and demand for aircraft combined with the presence of multiple leasing platforms, many of which are arguably sub-scale, has led Ishka and other analysts to speculate whether 2024 would see more leasing consolidation. There were several notable mergers last year including AviLease’s acquisition of Standard Chartered (see Insight) and Azzora’s purchase of the Voyager portfolio (see Insight).

However, another source questions whether M&A is the easiest or the simplest solution. One challenge for sellers is that buyers tend to value the assets and contracted aircraft under management but tend to ascribe less value to the platforms of lessors- e.g. the staff - especially if the buyer already has technical and remarketing capabilities. This potentially limits the prices some buyers may be willing to pay for a whole business. In addition, M&A can be an expensive and uncertain process.

In March Ishka reported that SMBC Aviation Capital and DAE Capital, which were two rumoured bidders for VMO, an Ares-owned leasing platform, had walked away from the transaction. Ishka understands VMO’s sales process has now been put on pause.

However, last week Brookfield Asset Management was understood to be in advanced talks to acquire a majority stake in Minneapolis-based lessor, Castlelake. Castlelake is a private equity/alternative investment firm. During the pandemic, Castlelake, launched its debt services to airlines and more recently launched a Bermuda-licensed reinsurance company, Itasca Re Limited (Itasca Re), to reinsure aircraft non-payment insurance (ANPI) for secured aircraft loans. It’s important to note that the firm has been active in other private markets beyond aviation since it was founded in 2005. The firm has invested roughly $14 billion in real assets such as renewables and infrastructure and a further $5 billion in specialty finance including consumer credit. Ishka understands the firm has raised 18 investment funds since inception only five of which have been dedicated to aviation.

  

The Ishka View

Several of these cuts have taken the leasing sector by surprise, given the seniority, and proven track record of some of these executives. But the moves do highlight how the leasing sector is evolving post-Covid in a higher interest rate environment, when PE is very focused on relative value and at a time when demand for aircraft is high but buying in scale is extremely challenging.

Returns also appear to be tightening for mid-life aircraft (for more on this see Ishka’s upcoming returns survey report which will be published next week). This potentially poses a challenge for many PE firms which want to achieve at least 15% levered returns, and which could limit their ability to deploy capital.

One solution is for asset managers to raise additional, cheaper or lower return, third-party equity which can help increase the number of assets managed. This would allow PE-owned firms to crystallize a gain when selling the platform. However, a challenging fundraising, and arguably M&A environment, may make it harder for PE firms to either scale quickly or obtain a certain exit. It is important to note that aircraft leasing remains an esoteric and somewhat illiquid asset class for all investors.

Another source cautions not to simply equate the change in leadership of some of the senior execs to frustration with recent capital deployment. He adds that a change in leadership can help shift the strategy of a firm and potentially expand the offering – something which may be key for those firms that are looking to grow their platforms in the long term rather than look for a quick exit.

 

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