Avolon, one of the world’s largest aircraft lessors, made headlines in 2021 with a bold commitment to clean propulsion, ordering up to 500 e-VTOLs valued at $2 billion. Earlier this month, however, Avolon took a much quieter step: agreeing an LOI to purchase and leaseback to Air New Zealand a single BETA ALIA CX300, a soon-to-be-certified electric aircraft capable of carrying five passengers or a half-tonne payload. Though modest in scale, this deal could set a major industry precedent.
Ishka SAVi speaks with the SVP Portfolio Strategy and head of Avolon-e, Marc Tembleque, on the lessor's steps towards seizing a historic milestone: executing a sale-leaseback for the first electric aircraft operated by a mainline carrier.
A ‘real’ lease agreement, for a ‘robust’ asset, with a ‘strong’ credit
The asset
BETA Technologies is a Vermont-based aerospace manufacturer developing battery-powered e-VTOL and e-CTOL aircraft. The company is one of the best-funded new propulsion technology aircraft developers with a CTOL design, raising over $1 billion in equity capital. BETA’s two products – the ALIA A250 e-VTOL and ALIA CX300 e-CTOL – are some of the closest to entering service in the new propulsion space.
Avolon’s LOI is for an ALIA CX300 e-CTOL, which made its maiden flight last November and is due to be certified in early 2026. This is a five-seater or half-a-tonne payload aircraft designed to operate from existing airport infrastructure. The ALIA CX300 is certifiable under the FAA’s Part 23 airworthiness standard for small aircraft (maximum take-off weight of 12,500 pounds or 5.7 metric tonnes or less), a more streamlined certification process than the Part 25 standard for larger aircraft.
“Since we engaged with them a few years back, BETA has shown a very strong focus on getting into commercial flight really early,” says Tembleque. “That moved them towards leveraging the FAA Part 23 standards focusing on commercial cargo use cases, which could be easier to bring into service than passenger aircraft.” Once certified in 2026, the aircraft is expected to provide cargo flights on behalf of New Zealand Post from Wellington (in the southern tip of New Zealand’s North Island) to Blenheim, some 70km across the Cook Strait in the northern tip of the South Island.
Tembleque says that Avolon came to like the ALIA CX300 due to its “combination of quick entry to service, mature and robust design, [and] cargo as a first way into service.”
The credit
The customer airline also matters: “at the end of the day, when you sign a lease agreement, it’s not only an asset play, but a credit play.”
Air New Zealand, a majority state-owned flag carrier with one of the strongest financial positions in the industry, is the very definition of a strong airline credit. The airline has also been seen as an industry leader on sustainability matters, and while it has also recently set a market precedent by dropping some emissions reduction goals, it continues to be a front-runner in its engagement with new propulsion technologies.
New Zealand’s high mix of renewable energy, reliance on aviation for domestic connectivity, and a high proportion of relatively short-distance regional flights lends itself to making the airline an early adopter of next-generation aircraft. This aspiration was put into action in 2022 through Air New Zealand’s ‘Mission Next Gen Aircraft’ programme, which culminated in the choice of BETA’s CTOL aircraft in December 2023, including the placement of a firm order for the ALIA CX300 aircraft that Avolon has agreed to finance.
The approach
Avolon wants to evaluate the deal on the same terms as any other commercial aircraft transaction, from the “typical documentation process” required during aircraft acquisition LOIs to getting into a lease agreement “shortly thereafter.”
“We treat this as a normal deal. It has gone through the usual underwriting process here in Avolon, we've looked at the aircraft as a new aircraft type, it's going to sit in our portfolio as soon as it delivers,” Tembleque explains. “This is a traditional sale-leaseback transaction with a traditional airline, and that’s how we are managing it.”
How Air New Zealand came into the picture
The Air New Zealand partnership and BETA ALIA sale-leaseback LOI represents a new chapter for Avolon.
In 2021 Avolon launched Avolon-e as an affiliate to host Avolon’s investments and commitments in the e-VTOL space, backing one key investment: British e-VTOL manufacturer Vertical Aerospace. In mid-2021 the lessor made a pre-IPO private equity investment in Vertical alongside Microsoft, Rolls-Royce, Honeywell, and American Airlines. It also placed a pre-order for 500 VX4s – a four-passenger e-VTOL with a range of 100 miles (160 km) designed to be a cleaner and quieter alternative to helicopters. Avolon’s founder and CEO at the time, Dómnhal Slattery, would later become Vertical’s chairman for 1.5 years (Slattery was again re-appointed to the role earlier this month).
Avolon-e moved fast to place these 500 (plus additional 50) aircraft. Within just nine months, it managed to sign agreements with Gol in Brazil (jointly with Grupo Comporte, a transport operator) for 250, Japan Airlines for 100, AirAsia for a minimum of 100, and up to 100 with Turkish firm Gözen Holding, the parent company of Freebird Airlines. Air Greenland has also committed to purchasing or leasing VX4 aircraft from Avolon.
With the Vertical pre-orders placed in early 2022, Avolon increasingly began to engage with other new propulsion developers, including those working on conventional take-off and landing designs. In its 2023 sustainability report, it detailed that it had conducted “on-site evaluations” of the top 15 clean technology OEMs (designs with at least 5 seats), including battery-electric, hybrid-electric, and hydrogen.
This bourgeoning interest in new OEMs – of which at least five were working on fixed-wing products in the sub-regional and regional segments – led them to Air New Zealand and their ongoing engagement.
From e-VTOL to bigger aircraft
The progression from e-VTOL investments to “larger” new propulsion designs aligns with their improving technological readiness, according to Tembleque.
“We started with e-VTOLs to simply understand how you could get an electric propulsion system and a battery electric energy storage system into an aircraft, and getting it certified,” he explains. Back in 2021, he adds, most of the innovation was concentrated in e-VTOLs, which benefitted from both smaller sizes that minimised integration challenges and a disruptive business model that attracted large investment. “That capital and that R&D that took place in e-VTOLs has now been expanding into larger aircraft […] so we are tracking the market in that sense,” Tembleque explains.
An opportunity for learning, and advocacy
As noted by Ishka SAVi earlier this month, besides the LOI, Avolon and Air New Zealand also announced an MoU to partner on research to support the commercialisation of electric aircraft and other novel propulsion technologies including battery hybrid and hydrogen.
What that means in practice is three pillars: (1) knowledge sharing between the Avolon-e team and Air New Zealand anchored on bringing a commercial business model to electric aircraft; (2) exploring financing structure options for new propulsion technologies; and (3) advocacy among the industry, investor community and media on the need to invest in new propulsion technology.
From an aviation finance perspective, the second pillar of the Avolon and Air New Zealand MoU holds the most significance. Tembleque explains that the topics to be explored will range from pre-delivery payments (PDPs) and related financing, battery life, the useful life of the aircraft, and even “maintenance reserves or end-of-lease adjustments around batteries and electric motors.” The ALIA CX300 transaction will help provide many of the answers.
As to whether the ‘advocacy’ pillar could result in key lessons from the transaction being shared with the industry once completed, Tembleque leaves the door open. He says Avolon could consider “a broader industry sharing piece” akin to the lessor’s Outlook reports. “The door is open; watch this space”
The Ishka View
Avolon’s LOI with Air New Zealand for the ALIA CX300 is the latest step in an ongoing effort to position itself as the reference lessor for new propulsion technology know-how. Last year, Avolon also became the first lessor knowledge exchange partner in Airbus’ ZEROe Project, which is targeting the introduction of a hydrogen-powered commercial aircraft in the mid-2030s. These activities and expansion into new assets give Avolon a broader impact beyond its Vertical Aerospace engagement.
This is good news for Avolon. In recent years, Vertical has had to adapt to a slower path towards certification. The VX4’s entry-into-service target year has continued to slide amid technical and financial challenges, most recently being pushed from 2026 to 2028 last November.
As Avolon moves into other new propulsion assets, a further consideration emerges: could the leasing giant start to compete for deals against smaller rivals like MONTE, which has been aiming to lead new propulsion leasing in the sub-regional and regional sectors? “Time will tell, for now our main focus is on managing our $31 billion portfolio while leveraging partnership opportunities in clean technologies,” Tembleque says, before playing down the competitive threat, as smaller rivals do not necessarily cater “to the kind of large commercial airlines that we do business with.”
For now, Avolon is resolute about two things: understanding how the evolution of new technologies will impact the traditional commercial aircraft that make up the bulk of its portfolio today, and making itself known as a first-mover among lessors in the clean propulsion space.
