Avolon targets global number one slot after sealing €2bn Orix deal
DUBLIN-BASED aircraft-lessor Avolon still has its sights set on the being the world’s top player in the sector, but will most likely have to get there via another large-scale acquisition, according to CEO Domhnal Slattery.
It’s currently ranked number three, behind Gecas and Aercap.
Speaking to the Irish Independent after Japanese firm Orix confirmed it’s buying a 30pc stake in Avolon for $2.2bn (€1.9bn), Mr Slattery said that the focus for the Irish firm and its ultimate parent, Chinese conglomerate HNA, in doing the deal was securing an investment grade rating for Avolon that would spur the Irish company’s growth.
He said that investment-grade rating will probably be achieved some time next year. Avolon has 890 owned and managed aircraft in its portfolio, and has orders and commitments for another 328 jets. Orix has 230 owned, managed and committed aircraft in its portfolio.
To achieve its investment-grade rating, Avolon needs to increase its level of unsecured borrowing, and also needs to have a certain level of interest cover on its debt.
“The only issue is when do we issue more unsecured debt,” said Mr Slattery.
“We’ve got a $5bn term loan, which is secured debt. We can effectively prepay that at any time and swap it into unsecured [debt]. But it’s all about price.”
The price being paid for the 30pc stake in Avolon is not far off the $2.6bn equity valuation that was placed on Avolon in its entirety when Bohai acquired the leasing firm in 2015, when it was listed in New York.
Avolon tripled in size after acquiring CIT’s leasing arm for more than $10bn in 2017.
HNA, which has spent billions on an acquisition spree in recent years that included stakes in the Hilton hotel group and Deutsche Bank, has been offloading assets to cut debt. Avolon is currently wholly owned by HNA’s Bohai Capital.
Mr Slattery said that HNA remains committed to being a long-term shareholder in Avolon, and that no other stake sales of the leasing firm are planned.
“The executive view of the two shareholders and management is that the 70-30 split is a stable, long-term position for Avolon,” he said.
“There is no plan – short, medium or long-term – to change that structure, to look at alternative ownership structures, to increase Orix’s share or decrease Bohai’s share.”
Avolon CEO Domhnal Slattery