$ 350 million USD 

Growth market aviation

Client  

Ark Aviation Capital

Project Value

$ 250 million USD 

Project Duration

2017 - 2018 

Service Provided

Relationship Management; Capital Introduction; Human Resources

Overview

Airlines core business is moving passengers, whereas the core business here is to manage commercial aviation assets. Additionally, aircraft leasing helps airlines efficiently use equity and flexibility in disposing of assets. In 1970, aircraft leasing accounted for only 4.5% of the world fleet. By 2020, aircraft leasing is projected to represent 50% of the financing of the world fleet. This sector has proven itself war, epidemic and economic crisis proof.  Additionally when considering fleet renewal, the space has twice already doubled in the last 15 years.

 

Rationale 

Within the aircraft leasing sector, lessors have increasingly pursued the best credit, depressing ROE as the asset class is proven to be liquid. The standard ROE has therefore reduced to the high single digits. With traditional sources of financing from EXIM and ECA under pressure, large Asian banks have entered the equity space in a major way, buying platforms and further depressing returns. Consequently, off-balance sheet financing is now competing with capital market structures for best credits. Combined with lessor consolidation, these factors have led to an over-subscription on every issuance. 

"Dislocated Markets" present an attractive opportunity as these aviation sectors and countries re-integrate with the global economy. In one particular market, over 200 current and next generation new aircraft have been ordered and will be phased-in during the next ten years. So far current lessors have not provided operating leases but the deliveries are scheduled to start this year.

 

Therefore, Cassia seeks to build on what is essentially captive market momentum. In recent years, many dislocated markets have made considerable progress in restoring macroeconomic stability under difficult circumstances. Inflation has declined, the foreign exchange market has stabilized and some key reforms have been implemented. Higher major exports, along with lower costs of trade and financial transactions, as banks re-engage with the international financial system are also helping to support the economy. The governments have also sought to restore prudent policies and in taking important steps to address structural challenges, including AML/CFT policies and a full implementation of the JCPOA supported by the IMF.

Solution

Cassia worked with a financial services partner to raise funding for and aircraft leasing fund focused on dislocated markets. The fund will invest and own new and in-demand Airbus and Boeing commercial aircraft with long term triple net leases to emerging market national airlines. 

 

In partnership, the sponsors will acquire new in-demand commercial aircraft manufactured by Airbus and Boeing and lease them to the sovereign airline of appropriate dislocated markets for 12-15 years. As standard in the industry, the equity will range from 10%-20% with the debt completing the 80%-90% of the asset value. Cassia did  work as part of the sponsorship group in identifying and closing institutional and sovereign wealth equity investors to participate in the fund and may, where required assist in raising additional debt.