‘We’re like Ire­land – we’ve punched above our weight, par­tic­u­larly on fi­nanc­ing’

Irish Independent - Business Week - - INTERVIEW -

Dublin-based Goshawk Avi­a­tion dif­fer­en­ti­ates it­self in the leas­ing sec­tor by how it engi­neers fi­nan­cial so­lu­tions for clients its boss Ruth Kelly, tells John Mul­li­gan

IT’S a freez­ing Tues­day morn­ing on Dublin’s Har­court Street. The harsh weather is at the other end of the spec­trum to that which the air­craft-leas­ing in­dus­try is en­joy­ing. It’s bask­ing in the warm glow of surg­ing global air pas­sen­ger traf­fic, which is in turn spurring de­mand for jets.

But there’s still a fleet­ing frosty mo­ment in­side Goshawk Avi­a­tion of­fice (ac­tu­ally, it’s a meet­ing room be­long­ing to In­vestec on the floor above Goshawk) as Ruth Kelly is re­minded – as if she needed to be – that she’s prob­a­bly the only fe­male chief ex­ec­u­tive of any global air­craft-leas­ing com­pany.

“Is that rel­e­vant?” she asks point­edly. The re­mark has clearly irked her.

But if not rel­e­vant, it’s at least in­ter­est­ing given the male dom­i­na­tion at the top ech­e­lons of the in­dus­try, which con­ducts the bulk of its busi­ness out of Ire­land.

Goshawk Avi­a­tion is a rel­a­tive new­comer to the sec­tor, which has grown rapidly in the past num­ber of years to the stage where about 40pc of the world’s global com­mer­cial air­craft fleet is now leased, rather than owned by air­lines.

“We tend to fo­cus on think­ing a lit­tle bit dif­fer­ently,” says Kelly.

“We ap­proach the mar­ket a bit dif­fer­ently. Ev­ery­body here tends to be en­tre­pre­neur­ial. There’s a big drive to do things re­ally well, and an am­bi­tion to build a great busi­ness. That’s shines through in what we’ve done on the debt side in par­tic­u­lar. We’ve more than 60 lenders now from all over the world.”

Four-year-old Goshawk was set up by In­vestec, Hong Kong con­glom­er­ate Chow Tai Fook En­ter­prises (CTFE), and Che­ung Kong Hold­ings.

The lat­ter was owned by Hong Kong bil­lion­aire Li Ka Shing, and he merged Che­ung Kong with his Hutchi­son Wham­poa group in 2015, to form CK Hutchi­son.

But Che­ung Kong had sold its stake in Goshawk to stock mar­ket-listed NWS in 2015 for $222m (€178m), while In­vestec sold out in 2016. That left the Dublin-based leas­ing firm en­tirely owned by NWS and Chow Tai Fook. The lat­ter is pri­vately owned by the fam­ily of the late Hong Kong bil­lion­aire Cheng Yu-tun, and is a ma­jor share­holder in NWS.

The cir­cles can start to make you feel dizzy.

Goshawk Avi­a­tion has a 114-strong com­mit­ted port­fo­lio of air­craft val­ued at $5.5bn (€4.4bn), mostly young, sin­gle-aisle Air­bus A320s and Boe­ing 737s – work­horses of the global avi­a­tion fleet – but also a few Boe­ing 787 Dream­lin­ers and other jets for good mea­sure. About half are de­ployed in Asia, 15pc in the Mid­dle East and the bal­ance split be­tween Europe and the Amer­i­cas.

“Since we set the busi­ness up, we have prob­a­bly raised about $5bn of debt,” said

Kelly, point­ing out that while the Hong Kong share­hold­ers stump up eq­uity, all of the other fi­nance is raised in­de­pen­dently on the open mar­ket by Goshawk’s team.

The debt raised has in­cluded pri­vate place­ments se­cured in the US, as well as so-called Schuld­schein is­suances – the Ger­man equiv­a­lent of a pri­vate place­ment, and a smaller tool that has steadily be­come more utilised by in­ter­na­tional com­pa­nies (Goshawk has done two of those, in­clud­ing one last month that raised $100m, even though Schuld­scheins are more typ­i­cally de­nom­i­nated in euro).

“We’re like Ire­land – we’ve punched above our weight in terms of what we’ve done, par­tic­u­larly on the fi­nanc­ing side,” says Kelly (43), adding that di­ver­si­fi­ca­tion of Goshawk’s fund­ing pool cre­ates pric­ing ten­sion be­tween mar­kets, ef­fec­tively forc­ing lenders to com­pete for the lessor’s debt rais­ing ac­tiv­i­ties.

“Our busi­ness is such that we can be quite in­no­va­tive on a trans­ac­tion-by-trans­ac­tion ba­sis,” adds Kelly. “We can be very fo­cused on a cus­tomer’s spe­cific needs, par­tic­u­larly their bal­ance sheet needs.

“We can be quite in­no­va­tive in terms of how we solve those prob­lems for air­lines. We tend to win some man­dates that way.”

The par­ent Goshawk firm is based in the Cay­man Is­lands, but ac­counts for Goshawk Man­age­ment (Ire­land) show that in 2016 the Ir­ish en­tity gen­er­ated $11.3m in rev­enue from as­set man­age­ment fees, and $11.9m in ad­vi­sory fees. Its pre-tax profit was $3.8m (€3m).

Kelly points out that de­spite the pace at which the air­craft leas­ing busi­ness evolved as an as­set class over the past num­ber of years, it still re­mains rel­a­tively niche, out-gunned by other sec­tors such as prop­erty.

But there’s still been a flood of cap­i­tal di­rected into the leas­ing sec­tor, in­creas­ingly so from China.

Among the ben­e­fi­cia­ries has been Dublin-based Avolon, now the world’s third-largest air­craft lessor, which was co-founded by Domh­nal Slat­tery. It’s now owned by Bo­hai Leas­ing, which is in turn 52pc-owned by China’s HNA con­glom­er­ate.

“If you look at the big pic­ture, we’re op­er­at­ing in a sec­tor that’s grow­ing,” Kelly says.

“There’s $4trn (€3.2trn) worth of air­craft at list price due to de­liver over the next 20 years. There’s a lot of cap­i­tal needed to fi­nance those air­craft. On the other side of the equa­tion, we are see­ing a lot of new cap­i­tal com­ing into the mar­ket place. We are see­ing that putting com­pet­i­tive pres­sure on our busi­ness. It’s re­ally about how that’s go­ing to play out in terms of the bal­ance be­tween the two.”

Sta­ble re­turns of­fered by air­craft leas­ing are al­ways touted by lessors as one of the main at­trac­tions of the sec­tor to in­vestors, and Kelly re­it­er­ates that mantra.

“The key is to in­vest in the right busi­ness at the right risk pro­file,” she adds, point­ing out that the cycli­cal na­ture of the avi­a­tion sec­tor will re­sult in fall­out at some stage.

“Lots of cred­i­ble, long-term leas­ing busi­nesses will have built them­selves to be re­silient to a down­turn, like we do. But there will be in­vestors out there who have in­vested in a dif­fer­ent way in the sec­tor – not that there’s any­thing wrong with that – but in­evitably there will even­tu­ally be, just gen­er­ally, less cap­i­tal in the world and there­fore less cap­i­tal be­ing in­vested in this sec­tor.”

For the time be­ing though, it’s flush with cash.

Late last year, one of Goshawk’s founders – chief fi­nan­cial of­fi­cer, Anand Ra­machan­dran – re­signed to help es­tab­lish Dublin-based Air­borne Cap­i­tal.

An­other Goshawk ex­ec­u­tive, John O’Flynn, also parachuted out the door to join the startup, which is backed by Kerry-based fi­nan­cial group Fexco.

Last month, Natixis In­vest­ment Man­agers, one of the world’s largest as­set man­age­ment firms, ac­quired a mi­nor­ity stake in Air­borne.

Kelly is philo­soph­i­cal about los­ing two ex­ec­u­tives from what is a small team of just a cou­ple of dozen staff at Goshawk’s Dublin of­fice (a new CFO is start­ing soon, but Kelly has been keep­ing his name un­der wraps for now).

“That’s in­evitable as you ma­ture as an or­gan­i­sa­tion,” she says. “It wouldn’t be fea­si­ble to think that you’re not go­ing to have any staff turnover. The busi­ness goes on. But it’s one of the big­gest chal­lenges that every leas­ing com­pany faces. The mar­ket is grow­ing and there’s lots of com­pe­ti­tion for peo­ple, but there are lots of great peo­ple out there.”

She says that Ire­land Inc’s role is to en­sure there’s al­ways tal­ent com­ing into the sec­tor.

Kelly, a keen run­ner who has done a num­ber of marathons, has a long track record in the in­dus­try. She grew up in a large farm­ing fam­ily in Co Kil­dare and stud­ied busi­ness at UCD be­fore train­ing as an ac­coun­tant with PWC.

“The only thing I knew was that I didn’t want to be a pure ac­coun­tant,” she says. “I didn’t go out seek­ing a job in the avi­a­tion world, but like lots of peo­ple who work in air­craft leas­ing I got the bug, and here I am.”

In 1999, she got a job with Dublin-based In­ter­na­tional Avi­a­tion Man­age­ment, the leas­ing com­pany that was es­tab­lished by Clare man Domh­nal Slat­tery.

He sold it in 2001 to RBS for a ru­moured £30m (€36m), and went on to co-found Avolon in 2010.

Kelly says she “grew up” in what then be­came RBS Avi­a­tion Cap­i­tal, stay­ing for the next 10 years.

And then there was an in­ter­lude. Kelly and other leas­ing ex­ec­u­tives joined forces with Domh­nal Slat­tery’s brother John in 2009 to es­tab­lish Green­stone Avi­a­tion. John Slat­tery had also worked at RBS Avi­a­tion Cap­i­tal.

Hav­ing se­cured an ini­tial $100m eq­uity com­mit­ment from Jef­feries Cap­i­tal Part­ners in New York, he and his team set about try­ing to launch the Green­stone air­craft leas­ing busi­ness.

The global econ­omy was wad­ing into a quag­mire, but Slat­tery still reck­oned that with all the air­craft that were on or­der at the time, that he had a pretty good shot at get­ting Green­stone off the ground. But it just couldn’t gen­er­ate the re­quired lift.

“I worked on it for over a year and a half,” says Kelly. “We did get very close, twice. Ul­ti­mately, rais­ing eq­uity is what tripped it up. Ev­ery­thing else was lined up. But you have to re­mem­ber, it was 2009 and 2010.”

John Slat­tery is now CEO of the com­mer­cial di­vi­sion of Brazil­ian air­craft maker Em­braer, while Kelly went on to join In­vestec as an avi­a­tion con­sul­tant, and in 2015 was named the CEO of Goshawk as it tran­si­tioned into a stand­alone busi­ness.

“That’s prob­a­bly the pe­riod of my ca­reer where I learned the most,” says Kelly of her time at Green­stone. “It was re­ally en­light­en­ing in terms of learn­ing about the dif­fer­ent in­vest­ment cri­te­ria of dif­fer­ent in­vestors. We had to do a lot in terms of mar­ket­ing our­selves, the busi­ness and the sec­tor.”

Since then, Goshawk has been keep­ing Kelly very busy. And with the busi­ness tick­ing along nicely, it’s nat­u­ral to won­der if Goshawk’s share­hold­ers will be look­ing for an exit at some stage.

“They have com­mon in­ter­ests,” says Kelly of NWS and CTFE. “They are part of a fi­nan­cial con­glom­er­ate that in­vests in lots of dif­fer­ent as­set classes (they in­clude en­ergy, a huge chain of jew­ellery stores, and prop­erty) and they tend to in­vest long term in as­sets.

“They look at us – and they’re rel­a­tively new to air­craft leas­ing – and they’re re­ally sup­port­ive of the busi­ness. They look at us in the con­text of their other as­set classes, and they re­ally like the risk-ad­justed re­turns that they’re get­ting from air­craft leas­ing. For that rea­son, they’re con­tin­u­ing to want us to grow. Qual­ity growth is re­ally im­por­tant.”

Kelly aims to con­tinue rais­ing just over $1bn of debt each year to add about the equiv­a­lent in air­craft as­sets.

“There’s plenty of scope for us to grow,” she says.

There’s $4tril­lion worth of air­craft at list price due to be de­liv­ered over the next 20 years. There’s a lot of cap­i­tal needed to fi­nance those air­craft

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