Challenge Airlines on its leasing needs, a look at Castlelake’s new lending arm

Ishka speaks with Challenge Airlines on its fleet and financing needs

The Challenge Group offers firms air cargo and logistics solutions and operates three different airlines, Challenge Airlines IL (Israel), Challenge Airlines BE (Belgium), Challenge Airlines MT (Malta), in addition to its own maintenance and aviation services division.

Challenge Group’s CFO, Daniel Ganem, and chief investment officer Michael Koish are attending and speaking at Ishka’s Tokyo Conference in September. Ishka catches up with the pair ahead of the Tokyo conference.

Ishka: Hello. Thanks for agreeing to speak at the conference. What are you looking to finance/ lease in the next 18 to 24 months? How have you traditionally financed your fleet so far?

Ganem and Koish: “We are aiming to add six additional aircraft in the coming 18-24 months: two leased 777s and four owned 777s. We would buy these four with cash from our balance sheet and we would then refinance them.”

Ishka: You operate a fleet of older 767s and 747s and have a 777. Can you give us an indication of the dollar amount needed to finance a 15-year or 20-year old 747, a 777-300ER or a 20-year-old 767-300ER? What price ranges are you seeing for these aircraft at the moment?

Ganem and Koish: “We actually operate 4x 767-300ERBDSFs and 6x 747-400Fs. Our owned 777-300ER is currently at the MRO- being converted. We will start to operate it early next year. The four 767s are already financed. The current borrowing balance is ~$12m for each though it can be increased to ~$25m for each. Re 747s – really depending on the variant. But as an indication, we have just received an offer from a potential financier: a ticket of $37.5m for one 747-400ERF. 777s: each shall cost us ~$85-90m (and CMV is ~100m). We are aiming to get an LTV of 80%.”

Ishka: Freight has been quite volatile. As a logistics integrator, how does that volatility impact, or not impact, your business which is different to traditional cargo operations? 
Ganem and Koish:  There are four main things we would highlight. Firstly, unique model- high barriers, low competition at our niches. Secondly, non-standard cargo is less affected by market cycles. Thirdly, the combination of new assets with older assets allows us to operate less capacity in bad times, and last but not least: our bottom line. We have always been in the black since 2010 (bar one year).

Ishka: Thank you!

The Ishka Investing in Aviation Finance: Japan conference will be held on the 10 - 11 September, at the Grand Hyatt Tokyo.

 

Castlelake launches a new lending arm – Merit AirFinance

Castlelake formally launched Merit AirFinance (Merit) last week, a new subsidiary direct aircraft lending arm to provide debt to airlines and lessors for both new and used aviation assets.

Merit will have a separate office space and a dedicated origination team. Patrick Mahoney will transition from Castlelake’s aviation capital markets function to lead Merit AirFinance as its President while Castlelake has hired Jakob Gallagher to assume Mahoney’s former role, leading Castlelake’s aviation capital markets function. Gallagher was previously the Head of Capital Markets at Wings Capital Partners. 

According to Castlelake, Merit launches with the ability to deploy more than $1.8 billion of committed capital via separately managed accounts. Ishka understands that Castelake will continue to offer some lending to airlines via its core leasing platform, based on airline relationships and customer demands.

The Ishka View

Castlelake was one of the first lessors to launch a direct aircraft lending arm. However, one of the questions raised at the time by Ishka was whether or not other lessors would be willing to use a rival leasing platform for their funding purposes. The move to create a clearer separate arm for the business helps address that question. KKR  – a large PE firm that owns both Altavair, a leasing platform, and AV AirFinance, an aircraft direct lending platform – has a similar structure for its two aviation lending and leasing arms.

Alt lenders have been actively funding various types of transactions ranging in vintage and size but Ishka notes that one particular strength for alt lenders, compared to many banks, is their ability to finance the trading of older aircraft. The likely hope is that the rebrand and new corporate structure will allow the firm to better win the trust of the leasing community and provide better access to a potentially lucrative lending market.

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